As filed with the Securities and Exchange Commission on June 4, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MAIN STREET AND MAIN INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7980 11-2948370
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
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5050 NORTH 40TH STREET, SUITE 200
PHOENIX, ARIZONA 85018
(602) 852-9000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICERS)
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BART A. BROWN, JR.
MAIN STREET AND MAIN INCORPORATED
5050 NORTH 40TH STREET, SUITE 200
PHOENIX, ARIZONA 85018
(602) 852-9000
(NAME, ADDRESS INCLUDING ZIP CODE, OF AGENT FOR SERVICE)
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COPY TO:
ROBERT S. KANT, ESQ.
O'CONNOR, CAVANAGH, ANDERSON, KILLINGSWORTH & BESHEARS, P.A.
ONE EAST CAMELBACK
PHOENIX, ARIZONA 85012
(602) 263-2606
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICAL AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED ON A
DELAYED OR CONTINUOUS BASIS
PURSUANT TO RULE 415 UNDER THE SECURITIES ACT OF
1933, CHECK THE FOLLOWING BOX. [X]
CALCULATION OF REGISTRATION FEE
================================================================================
Title of each class of Proposed maximum Amount of
securities to be offering registration fee
registered price(1)
- --------------------------------------------------------------------------------
Common Stock(2) ........ $5,059,915 $ 1,534
================================================================================
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) and Rule 457(g). Pursuant to Rule 429, the Prospectus
contained in this Registration Statement also relates to Registration No.
33-71230 covering 360,866 shares filed by the Registrant and declared
effective on or about July 18, 1994.
(2) Shares that may be sold from time to time by the Selling Stockholders.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 4, 1997
2,673,970 SHARES
MAIN STREET AND MAIN INCORPORATED
COMMON STOCK
This Prospectus relates to 2,673,970 shares of the Company's Common Stock
which may be sold from time to time by certain stockholders of the Company (the
"Selling Stockholders"). See "Principal and Selling Stockholders." The Company
will not receive any proceeds from the sale of Company Stock by the Selling
Stockholders.
The Common Stock is traded on the Nasdaq National Market System under the
symbol "MAIN." On May 30, 1997, the last sale price of the Common Stock as
reported on Nasdaq was $2 3/16 . See "Price Range of Common Stock."
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS," WHICH BEGINS ON PAGE 5 OF THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS ________, 1997.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-3
under the Securities Act of 1933, as amended, with respect to the shares offered
hereby. This Prospectus does not contain all the information contained in the
Registration Statement. For further information regarding the Company and the
shares of Common Stock offered hereby, reference is made to the Registration
Statement, including the exhibits which are a part thereof, which may be
obtained upon request to the Commission and the payment of the prescribed fee.
Material contained in the Registration Statement may be examined at the
Commission's Washington, D.C. office and copies may be obtained at the
Commission's Washington, D.C. office upon payment of prescribed fees. Statements
contained in this Prospectus are not necessarily complete, and in each case
reference is made to the copy of such contracts or documents filed as an exhibit
to the Registration Statement, each such statement being qualified by this
reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and, in accordance therewith, files reports,
proxy statements and other information with the Commission. Such materials filed
by the Company with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the following Regional Offices of
the Commission: 7 World Trade Center, New York, New York 10048; and 500 West
Madison, Chicago, Illinois 60606. Copies of such material can also be obtained
from the Public Reference Section of the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission
also maintains a Web site that contains reports, proxy and information
statements and other materials that are filed through the Commission's
Electronic Data Gathering, Analysis, and Retrieval system. This Web site can be
accessed at http://www.sec.gov. The Company's Common Stock is quoted on the
Nasdaq National Market. Reports, proxy statements, and other information
concerning the Company may be inspected at the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
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DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission are hereby
incorporated by reference in the Prospectus: (i) the Company's Annual Report on
Form 10-K for the year ended December 30, 1996 and (ii) the Company's Quarterly
Report for the quarter ended March 31, 1997.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 subsequent to
the date of this Prospectus and prior to the termination of this offering shall
be deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference 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, including any
beneficial owner, to whom this Prospectus is delivered, on the written or oral
request of such person, a copy of any or all of the documents incorporated
herein by reference (other than exhibits to such documents which are not
specifically incorporated by reference in such documents). Written or telephone
requests for such copies should be directed to the Secretary, Main Street and
Main Incorporated, 5050 North 40th Street, Suite 200, Phoenix, Arizona 85018,
(602) 852-9000.
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<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements appearing elsewhere or
incorporated by reference in this Prospectus. Unless otherwise indicated, the
information in this Prospectus assumes no exercise of outstanding stock options.
THE COMPANY
The Company is the world's largest franchisee of T.G.I. Friday's restaurants,
currently owning 38 and managing eight T.G.I. Friday's restaurants and
possessing exclusive rights to develop additional T.G.I. Friday's restaurants in
all or parts of eight western and midwestern states. T.G.I. Friday's restaurants
are full-service, casual dining establishments featuring a wide selection of
freshly prepared, popular foods and beverages served by well-trained, friendly
employees in relaxed settings. The Company's restaurants generated an average of
$2.9 million of annual revenue during fiscal 1996. Alcoholic beverage sales
currently account for approximately 23.6% of revenue. The cost of a typical
entree at the Company's restaurants currently ranges from $5.50 to $8.00 for
lunch and $8.50 to $12.00 for dinner.
The Company develops and operates its restaurants pursuant to specified
standards established by TGI Friday's Inc. The Company believes that the uniform
development and operating standards of TGI Friday's Inc. facilitate the
efficiency of the Company's restaurants and afford the Company significant
benefits, including the brand-name recognition and goodwill associated with
T.G.I. Friday's restaurants. T.G.I. Friday's restaurants have been in operation
for more than 30 years. As of March 31, 1997, TGI Friday's Inc. had 144
franchisor-operated and 263 franchised restaurants operating worldwide. System-
wide sales exceeded $1.0 billion in 1996.
Eighteen of the Company's current restaurants are located in California, five
in Arizona, four in Washington, three in Nevada, two in each of Colorado and
Oregon, and one in each of Kansas, Missouri, Nebraska, and New Mexico. The
Company also manages five T.G.I. Friday's restaurants in California and three in
Louisiana. Of the 38 currently owned restaurants, the Company acquired 24 and
developed 14. The Company owns the exclusive rights to develop additional T.G.I.
Friday's restaurants in territories encompassing most of the states of Arizona,
Nevada, and New Mexico and the San Francisco, California, Kansas City, Kansas,
Kansas City, Missouri, Omaha, Nebraska, and El Paso, Texas metropolitan areas.
The Company also has the exclusive right, together with TGI Friday's Inc., to
develop additional T.G.I. Friday's restaurants in the Los Angeles and San Diego
metropolitan areas. The Company's development agreements with TGI Friday's Inc.
require the Company to open two new T.G.I. Friday's restaurants by the end of
1997, six new restaurants in each of 1998 and 1999, seven new restaurants in
each of 2000 and 2001, and eight new restaurants in 2002. Of the 36 restaurants
to be developed, 25 are to be in California, six in Arizona, Nevada, or New
Mexico, and five in Kansas City, Kansas, Kansas City, Missouri, or Omaha,
Nebraska. The Company expects that cash flow from operations, together with
financing commitments, will be sufficient to develop the additional eight
restaurants that the development agreements require the Company to open by the
end of 1998. See "Risk Factors--Requirements of Development Agreements."
The Company's business has increased from the ownership and operation of four
restaurants, which produced revenue of less than $7 million in fiscal 1990, to
the ownership and operation of 38 restaurants with revenue of more than $122
million in fiscal 1996. The Company's operating results, however, have been
adversely affected during the period by a shortage of capital, substantial
indebtedness and debt service requirements, and the pursuit of various
non-restaurant operations, including dairy, frozen-food distribution, and
amusement businesses. As a result, the Company decided to concentrate on its
restaurant business and disposed of or otherwise discontinued its non-restaurant
operations.
The Company's strategy is to (i) capitalize on the brand-name recognition and
goodwill associated with T.G.I. Friday's restaurants; (ii) expand the Company's
restaurant operations through the development of additional T.G.I. Friday's
restaurants in its existing development territories and through the
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development of new restaurant concepts and the acquisition of restaurants
operating under other restaurant concepts; (iii) dispose of restaurants that do
not meet the Company's profit criteria or are located in specific markets that
the Company does not believe provide sufficient opportunities for continued
expansion; and (iv) increase its profitability by continuing to enhance the
dining experience of its guests and improving operational efficiency.
The Company was incorporated in December 1988. The Company maintains its
principal executive offices at 5050 North 40th Street, Suite 200, Phoenix,
Arizona 85018, and its telephone number is (602) 852-9000. As used in this
Report, the term "Company" refers to Main Street and Main Incorporated and its
subsidiaries.
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Securities Offered by Selling Stockholders .... 2,673,970 shares of Common Stock.
Common Stock Currently Outstanding ............. 9,968,491 shares of Common Stock.
Use of Proceeds ................................ The Company will not receive any of the proceeds of
sales of Common Stock by the Selling Stockholders.
Risk Factors ................................... Investors should carefully consider the factors
listed under "Risk Factors."
NASDAQ Symbol .................................. MAIN.
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(Dollars in Thousands, except per share amounts)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DEC. 31, DEC. 31, DEC. 26, DEC. 25, DEC. 30,
1992 1993 1994 1995 1996
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<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue ........................................ $ 21,796 $ 30,510 $ 111,262 $ 119,508 $ 122,563
Restaurant operating expenses .................. 19,707 27,789 100,870 110,377 115,477
Income from restaurant operations .............. 2,089 2,721 10,392 9,131 7,086
Operating income (loss) ........................ 250 (931) 5,187 3,390 (18,960)
Net income (loss) from continuing .............. 22 (1,344) 1,285 (1,034) (22,166)
operations
Net income (loss)(1) ........................... $ 516 $ (2,943) $ 1,285 $ (1,034) $ (22,166)
Net income (loss) per share:
Net income (loss) from continuing ............. $ 0.01 $ (0.42) $ 0.35 $ (0.22) $ (2.73)
operations
Net income (loss)(1) .......................... $ 0.19 $ (0.93) $ 0.35 $ (0.22) $ (2.73)
Weighted average shares outstanding ............ 2,703 3,163 3,692 4,621 8,110
BALANCE SHEET DATA:
Working capital ............................... $ 626 $ (2,452) $ (10,905) $ (7,848) $ (1,343)
Total assets .................................. 15,851 75,491 84,503 88,605 70,848
Long-term debt, net of current portion ........ 3,485 44,814 41,265 31,204 33,809
Stockholders' equity .......................... 10,016 21,006 22,601 37,261 16,585
</TABLE>
(1) Fiscal 1992 includes a $328,000, or $0.12 per share, credit related to the
cumulative effect of change in accounting principle for income taxes and
$166,000, or $0.06 per share, of net income related to discontinued
operations. Fiscal 1993 includes $1,599,000, or $0.51 per share, of net
loss related to discontinued operations. Fiscal 1996 includes $20,208,000,
or $2.49 per share, for asset impairments and restructuring charges. See
Note 2 to Notes to Consolidated Financial Statements.
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<PAGE>
RISK FACTORS
DEPENDENCE ON TGI FRIDAY'S INC.
The Company's success depends in part on the continued vitality of the T.G.I.
Friday's restaurant concept and on the ability of TGI Friday's Inc. to identify
and react to new trends in the restaurant industry (including the development of
innovative and popular menu items) and to develop and pursue appropriate
marketing strategies in order to maintain and enhance the name recognition,
reputation, and market perception of T.G.I. Friday's restaurants. The Company
believes that the experience, reputation, financial strength, and franchisee
support of TGI Friday's Inc. are positive factors in the Company's prospects.
Any business reversals that may be encountered by TGI Friday's Inc. or its
inability or failure to support its franchisees, including the Company, could
have a material adverse effect on the Company. However, the future results of
the operations of the Company's restaurants will not necessarily reflect the
results achieved by TGI Friday's Inc. or its other franchisees, but also will
depend upon such factors as the effectiveness of the Company's management, the
locations of the Company's restaurants, and the operating results of those
restaurants. See "Business -- TGI Friday's Inc."
REQUIREMENTS OF FRANCHISE AGREEMENTS
The franchise agreement between TGI Friday's Inc. and the Company with
respect to each T.G.I. Friday's restaurant owned by the Company generally
requires the Company to pay an initial franchise fee of $50,000 and royalties of
4% of the restaurant's gross sales and to spend up to 4% of the restaurant's
gross sales on advertising, which may include contributions to a national
marketing pool administered by TGI Friday's Inc. During fiscal 1996, TGI
Friday's Inc. generally required the Company and its other franchisees to
contribute up to 1.7% of gross sales to the national marketing pool. Such
amounts must be paid or expended regardless of the profitability of the
Company's restaurants. In addition, the Company's franchise agreements with TGI
Friday's Inc. require the Company to operate its T.G.I. Friday's restaurants in
accordance with the requirements and specifications established by TGI Friday's
Inc. relating to the exterior and interior design, decor, and furnishings of
restaurants, menu selection, the preparation of food products, and quality of
service as well as general operating procedures, advertising, maintenance of
records, and protection of trademarks. The failure of the Company to satisfy
such requirements could result in the loss of the Company's franchise rights for
some or all of its T.G.I. Friday's restaurants as well as its development rights
for additional restaurants. See "Business -- Development Agreements" and
"Business -- Franchise Agreements."
REQUIREMENTS OF DEVELOPMENT AGREEMENTS
The Company's development agreements with TGI Friday's Inc. require the
Company to open at least 36 additional T.G.I. Friday's restaurants by December
31, 2002, including two restaurants by December 31, 1997. Of the restaurants to
be developed, 14 are to be developed in the Los Angeles Territory, six in the
San Francisco Territory, six in the Southwest Territory, five in the San Diego
Territory, and five in the Midwest Territory. The acquisition of restaurants
does not constitute the opening of new restaurants under the development
agreements. See "Business - Development Agreements" and "Business -- Franchise
Agreements."
There can be no assurance that the Company will be able to secure sufficient
restaurant sites that it deems to be suitable or to develop restaurants on such
sites on terms and conditions it considers favorable in order to satisfy the
requirements of the development agreements. The development agreements give TGI
Friday's Inc. certain remedies in the event the Company fails to comply with the
development schedule in a timely manner or there is a breach of the
confidentiality or noncompete provisions of the development agreements. These
remedies include, under certain circumstances, the right to reduce the number of
restaurants the Company may develop in the related development territory or to
terminate the Company's exclusive right to develop restaurants in the related
development territory.
At the request of the Company, TGI Friday's Inc. from time to time has agreed
to amend the development schedules with respect to certain development
territories to extend the time by which the Company was required to develop new
T.G.I. Friday's restaurants in such development territories. The
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<PAGE>
Company requested such amendments to the development schedules as a result of
its inability to secure sites that it believed to be attractive on favorable
terms and conditions. TGI Friday's Inc. amended the Company's development
schedule in mid-1995 to coincide with the receipt of additional capital to be
provided by the Company's public offering that was completed in October 1995 and
in April 1997 to reduce the number of restaurants the Company is required to
develop from 44 to 36. There can be no assurance that TGI Friday's Inc. will
extend the development schedule in the future in the event that the Company
experiences any difficulty in satisfying the schedule for any reason, including
a shortage of capital. See "Business -- Development Agreements" and "Business --
Franchise Agreements."
EXPANSION OF OPERATIONS
The opening of new restaurants will depend on the Company's ability to locate
suitable sites in terms of favorable population characteristics, density and
household income levels, visibility, accessibility and traffic volume, proximity
to demand generators (including shopping malls, lodging, and office complexes)
and potential competition; to obtain financing for construction, tenant
improvements, furniture, fixtures, equipment, and other expenditures; to
negotiate acceptable leases or terms of purchase; to secure zoning,
environmental, health and similar regulatory approvals and liquor licenses; to
recruit and train qualified personnel; and to manage successfully the rate of
expansion and expanded operations. The opening of new restaurants also may be
affected by increased construction costs and delays resulting from governmental
regulatory approvals, strikes or work stoppages, adverse weather conditions, and
various acts of God. Newly opened restaurants may operate at a loss for a period
following their opening. The length of this period will depend upon a number of
factors, including the time of year the restaurant is opened, sales volume, and
operating costs. The acquisition of existing restaurants will depend upon the
Company's ability to identify and purchase restaurants that meet its criteria on
satisfactory terms and conditions. There can be no assurance that the Company
will be successful in achieving its expansion goals through the development or
acquisition of additional restaurants or that any additional restaurants that
are developed or acquired will be profitable. In addition, the opening of
additional restaurants in an existing market may have the effect of drawing
customers from and reducing the sales volume of existing restaurants. See
"Business -- Expansion of Operations."
NEED FOR ADDITIONAL CAPITAL
The development of new restaurants requires funds for construction, tenant
improvements, furniture, fixtures, equipment, training of employees, permits,
initial franchise fees, and additional expenditures. See "Business -- Unit
Economics." The Company expects that cash flow from operations together with
financing commitments, will be sufficient to develop the eight restaurants that
the development agreements require the Company to open by the end of 1998. In
addition, the Company will require funds to develop the additional restaurants
that its development agreements require it to open after 1998 and to pursue any
additional restaurant development or restaurant acquisition opportunities. In
the future, the Company may seek additional equity or debt financing to provide
funds to develop or acquire additional restaurants. There can be no assurance
that such financing will be available or will be available on satisfactory
terms. If such financing is not available on satisfactory terms, the Company may
be unable to satisfy its obligations under its development agreements with TGI
Friday's Inc. or otherwise expand its restaurant operations. See "Risk Factors
- -- Requirements of Development Agreements" and "Business -- Expansion of
Operations." While debt financing enables the Company to add more restaurants
than it otherwise would be able to do, expenses are increased by such financing
and such financing must be repaid by the Company regardless of the Company's
operating results. Future equity financings could result in dilution to
stockholders.
SIGNIFICANT BORROWINGS
In connection with its growth strategy, which has focused on restaurant
acquisitions and internal restaurant development, the Company has incurred
significant indebtedness with relatively short-term repayment schedules. See
"Business -- Expansion of Operations" and "Management's Discussion and Analysis
of Financial Conditions and Results of Operations." The Company had
approximately $36.3
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million in indebtedness as of December 30, 1996. Subsequent to December 30,
1996, $8.0 million of debt was repaid with proceeds from the sale of five
restaurants in northern California and an additional $20.3 million was repaid
with proceeds from new borrowings in the amount of $21.3 million, which have a
longer repayment period. After giving affect to the new borrowings and
repayments, the Company has indebtedness of $29.3 million, of which
approximately $2.5 million will be due in 1997, $1.5 million will be due in
1998, $1.5 million will be due in 1999, and $23.8 million will be due
thereafter. The Company's borrowings will result in interest expense of
approximately $2.6 million in 1997 and $2.5 million in 1998, based on currently
prevailing interest rates and assuming the outstanding indebtedness is paid in
accordance with the existing payment schedules without any prepayments or
additional borrowings. Such interest payments must be made regardless of the
Company's operating results. Currently, 26 of the Company's restaurants are
pledged to secure obligations.
CERTAIN FACTORS AFFECTING THE RESTAURANT BUSINESS
The ownership and operation of restaurants may be affected by adverse changes
in national, regional, or local economic or market conditions; increased costs
of labor (including those which may result from any increases in applicable
minimum wage requirements); increased costs of food products; management
problems; increases in the number and density of competitors; limited
alternative uses for properties and equipment; changing consumer tastes, habits,
and spending priorities; the cost and availability of insurance coverage;
uninsured losses; changing demographics; changes in government regulation;
changing traffic patterns; weather conditions; and other factors. The Company
may be the subject of litigation based on discrimination, personal injury, or
other claims, including claims that may be based upon legislation that imposes
liability on restaurants or their employees for injuries or damages caused by
the negligent service of alcoholic beverages to an intoxicated person or to a
minor. A multi-unit restaurant operator such as the Company can be adversely
affected by publicity resulting from food quality, illness, injury, or other
health concerns or operating issues resulting from one restaurant or a limited
number of restaurants operated under the same name, including those not owned by
the operator. None of these factors can be predicted with any degree of
certainty, and any one or more of these factors could have a material adverse
effect on the Company.
COMPETITION
The restaurant business is highly competitive with respect to price, service,
and food type and quality. In addition, restaurants compete for attractive
restaurant sites and the availability of restaurant personnel and managers. The
Company's restaurants compete with a large number of other restaurants,
including national and regional restaurant chains and franchised restaurant
systems, many of which have greater financial resources, more experience, and
longer operating histories than the Company, as well as with locally owned,
independent restaurants. See "Business -- Competition."
DEPENDENCE ON MANAGEMENT
The Company's future development and operations will be substantially
dependent on the efforts and expertise of Bart A. Brown, Jr. and Gerald T.
Bisceglia. The Company currently has employment agreements with Mr. Brown and
Mr. Bisceglia, which expire on December 31, 1998 and October 29, 1999,
respectively. The Company does not maintain any life insurance on Mr. Brown or
Mr. Bisceglia. The loss of the services of Mr. Brown or Mr. Bisceglia could
adversely affect the Company's business and prospects. See "Management."
GOVERNMENT REGULATION
The Company is subject to various federal, state, and local laws affecting
its business. The development and operation of restaurants depend to a
significant extent on the selection and acquisition of suitable sites, which are
subject to zoning, land use, environmental, traffic, and other regulations of
state and local governmental agencies. City ordinances or other regulations, or
the application of such ordinances or regulations, could impair the Company's
ability to construct or acquire restaurants in desired locations and could
result in costly delays. In addition, the operation of restaurants is subject to
licensing
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and regulation by state and local departments relating to health, sanitation and
safety standards, and fire codes; federal and state labor laws (including
applicable minimum wage requirements, tip credit provisions, overtime
regulations, workers' compensation insurance rates, unemployment and other
taxes, working and safety conditions, and citizenship requirements); zoning
restrictions; and state and local licensing of the sale of alcoholic beverages.
The delay or failure to obtain or maintain any licenses or permits necessary for
operations could have a material adverse effect on the Company. An increase in
the minimum wage rate, employee benefit costs (including costs associated with
mandated health insurance coverage), or other costs associated with employees
could adversely affect the Company. The Company also is subject to the Americans
with Disabilities Act of 1990 that, among other things, may require certain
installations in new restaurants or renovations to existing restaurants to meet
federally mandated requirements.
Sales of alcoholic beverages represent an important source of the revenue for
each of the Company's restaurants. The temporary suspension or permanent loss or
the inability to maintain a liquor license for any restaurant would have an
adverse effect on the operations of that restaurant. The Company does not plan
to open a restaurant in any location for which the Company believes it cannot
obtain or maintain a liquor license.
SHARES ELIGIBLE FOR FUTURE SALE
Approximately 2,825,130 shares of Common Stock currently outstanding are
"restricted securities," as that term is defined in Rule 144 promulgated under
the Securities Act of 1933, as amended (the "Securities Act"). Such shares may
be sold only in compliance with Rule 144, pursuant to registration under the
Securities Act, or pursuant to an exemption from registration. Generally, under
Rule 144, each person holding restricted securities for a period of one year may
sell, every three-month period, in ordinary brokerage transactions or to market
makers an amount of shares equal to the greater of 1% of a company's then
outstanding common stock or the average weekly trading volume for the four weeks
prior to the proposed sale of such shares. Currently, most of the restricted
shares are eligible for sale under Rule 144 or under a registration statement
filed as a result of registration rights granted with respect to such shares.
Sales of substantial amounts of Common Stock by stockholders of the Company
under Rule 144, the registration statement, or otherwise, or even the potential
for such sales, are likely to have a depressive effect on the market price of
the Common Stock and could impair the Company's ability to raise capital through
the sale of its equity securities.
RIGHTS TO ACQUIRE SHARES
As of December 30, 1996, 510,675 shares of Common Stock were reserved for
issuance upon exercise of options that may be granted under the Company's 1990
and 1995 Stock Option Plans (the "Plans"). As of December 30, 1996, options to
acquire a total of 346,500 shares were outstanding under the Plans at a weighted
average exercise price of $3.63 per share. In addition, options to acquire a
total of 1,250,000 shares of Common Stock were outstanding outside the Plans at
a weighted average exercise price of $3.12 per share, and warrants to acquire
364,830 shares of Common Stock were outstanding at a weighted average exercise
price of $12.71 per share. During the terms of such options and warrants, the
holders thereof will have the opportunity to profit from an increase in the
market price of the Company's Common Stock with resulting dilution to the
interest of holders of its Common Stock. The existence of such stock options and
warrants may adversely affect the terms on which the Company can obtain
additional financing, and the holders of such options and warrants can be
expected to exercise such options and warrants at a time when the Company, in
all likelihood, would be able to obtain additional capital by offering shares of
its Common Stock on terms more favorable to the Company than those provided by
the exercise of such options and warrants.
POSSIBLE VOLATILITY OF STOCK PRICE
Historically, the market price of the Company's Common Stock has been, and in
the future could be, subject to wide fluctuation in response to quarterly
variations in the operating results of the Company or other restaurant
companies, changes in analysts' estimates of the Company's financial
performance,
8
<PAGE>
changes in national and regional economic conditions, the financial markets, or
the restaurant industry, natural disasters, or other developments affecting the
Company or other restaurant companies. In addition, the stock market has
experienced extreme price and volume fluctuations in recent years. This
volatility has had a significant effect on the market prices of securities
issued by many companies for reasons not necessarily related to the operating
performance of those companies.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus are forward-looking
statements as defined in the Securities Act. By their nature, forward-looking
statements include risks and uncertainties. Accordingly, actual results could
differ, perhaps materially, from those expressed or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially include those discussed elsewhere under "Risk Factors".
9
<PAGE>
USE OF PROCEEDS
The Company will not receive the proceeds of any sale of shares by the
Selling Stockholders.
DIVIDEND POLICY
The present policy of the Company is to retain earnings to provide funds for
the operation and expansion of its business. The Company has never paid
dividends on its Common Stock and does not anticipate that it will do so in the
foreseeable future. Payment of dividends in the future will depend upon the
Company's growth, profitability, financial condition, and other factors which
the Board of Directors may deem relevant. The Senior Term Loan restricts the
payment of dividends.
CAPITALIZATION
The following table sets forth the current portion of long-term debt and
capitalization of the Company as of December 30, 1996. This table should be read
in conjunction with the Company's consolidated financial statements and notes
thereto appearing elsewhere in this Prospectus.
DECEMBER 30, 1996
---------------------
ACTUAL AS ADJUSTED
-------- ---------
(IN THOUSANDS)
Current portion of long-term debt ...................... $ 2,523 $ 2,523
======== ========
Long-term debt, net of current portion ................. $ 33,809 $ 33,809
-------- --------
Stockholders' equity:
Common stock, $.001 par value, 40,000,000 shares ...... 9 9
authorized; 8,718,491 shares issued and outstanding
Additional paid-in capital ............................. 41,694 41,654
Retained deficit ....................................... (25,118) (25,118)
-------- --------
Total stockholders' equity ........................ 16,585 16,585
-------- --------
Total capitalization ................................... $ 50,394 $ 50,394
======== ========
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been quoted on the Nasdaq National Market
under the symbol "MAIN" since October 30, 1992. The following table sets forth
the quarterly high and low sales prices of the Company's Common Stock for the
periods indicated as reported by the Nasdaq Stock Market.
HIGH LOW
------ ------
1995
First Quarter ..................................... 13 1/4 9 1/2
Second Quarter .................................... 13 7 1/2
Third Quarter ..................................... 11 4 1/16
Fourth Quarter .................................... 4 3/4 2 7/16
1996
First Quarter ..................................... 3 3/8 2 3/8
Second Quarter .................................... 4 3/8 2 1/4
Third Quarter ..................................... 3 1/8 1 3/4
Fourth Quarter .................................... 2 7/8 1 3/8
1997
First Quarter ..................................... 2 9/16 1 9/16
Second Quarter (through May 30, 1997) ............. 2 1/4 1 5/8
On May 30, 1997, there were approximately 770 holders of record of the
Company's Common Stock. On May 30, 1997, the closing sale price of the Common
Stock on the Nasdaq National Market was $2 3/16.
10
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data for the
Company for the periods indicated. The selected consolidated financial data for
each of the five fiscal years in the period ending December 30, 1996 has been
derived from the Company's consolidated financial statements, which have been
audited by Arthur Andersen LLP, independent accountants. This data should be
read in conjunction with, and are qualified by reference to, the Company's
consolidated financial statements and the notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Report.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DEC. 31, DEC. 31, DEC. 26, DEC. 25, DEC. 30,
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue ........................................ $ 21,796 $ 30,510 $ 111,262 $ 119,508 $ 122,563
Restaurant operating expenses:
Cost of sales ................................. 6,104 8,645 30,516 34,005 35,089
Payroll and benefits .......................... 6,798 9,604 34,849 36,769 38,858
Depreciation and amortization ................. 639 1,176 3,884 4,353 4,586
Other operating expenses ...................... 6,166 8,364 31,621 35,250 36,944
--------- --------- --------- --------- ---------
Total restaurant operating expenses .......... 19,707 27,789 100,870 110,377 115,477
--------- --------- --------- --------- ---------
Income from restaurant operations .............. 2,089 2,721 10,392 9,131 7,086
Depreciation and amortization ................. 50 313 1,014 1,331 1,450
General and administrative expenses ............ 1,789 3,339 4,191 4,410 4,388
Asset impairments and restructuring charges .... -- -- -- -- 20,208
--------- --------- --------- --------- ---------
Operating income (loss) ........................ 250 (931) 5,187 3,390 (18,960)
Interest expense, net ......................... 212 413 3,902 4,424 3,206
--------- --------- --------- --------- ---------
Net income (loss) from continuing .............. 38 (1,344) 1,285 (1,034) (22,166)
operations before income taxes
Provision for income taxes ..................... 16 -- -- -- --
--------- --------- --------- --------- ---------
Net income (loss) from continuing .............. 22 (1,344) 1,285 (1,034) (22,166)
operations
Net income (loss)(1) ........................... $ 516 $ (2,943) $ 1,285 $ (1,034) $ (22,166)
Net income (loss) per share:
Net income (loss) from continuing ............. $ 0.01 $ (0.42) $ 0.35 $ (0.22) $ (2.73)
operations
Net income (loss)(1) .......................... $ 0.19 $ (0.93) $ 0.35 $ (0.22) $ (2.73)
Weighted average shares outstanding ............ 2,703 3,163 3,692 4,621 8,110
BALANCE SHEET DATA:
Working capital ............................... $ 626 $ (2,452) $ (10,905) $ (7,848) $ (1,343)
Total assets .................................. 15,851 75,491 84,503 88,605 70,848
Long-term debt, net of current portion ........ 3,485 44,814 41,265 31,204 33,809
Stockholders' equity .......................... 10,016 21,006 22,601 37,261 16,585
</TABLE>
- ----------
(1) Fiscal 1992 includes a $328,000, or $0.12 per share, credit related to the
cumulative effect of change in accounting principle for income taxes and
$166,000, or $0.06 per share, of net income related to discontinued
operations. Fiscal 1993 includes $1,599,000, or $0.51 per share, of net
loss related to discontinued operations. Fiscal 1996 includes $20,208,000
or $2.49 per share, for asset impairments and restructuring charges. See
Note 2 to Notes to Consolidated Financial Statements.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company commenced its restaurant operations in May 1990 with the
acquisition of four restaurants in the Southwest Territory. During the past six
years, the Company has acquired an additional 26 restaurants and development
rights in three separate transactions. In addition to its 30 acquired
restaurants, the Company has developed 14 new restaurants.
The Company's operating results have been adversely affected during this
period by a shortage of capital, substantial indebtedness and debt service
requirements, and the pursuit of various non-restaurant operations, including
dairy, frozen-food distribution, and amusement businesses.
During 1996, the Company had a change in management and implemented a
long-term business strategy to enhance its financial position, to place more
emphasis on its casual dining business in certain designated areas, to dispose
of underperforming assets, and to pursue new restaurant concepts.
The first step was to strengthen the Company's financial position. This was
accomplished by the sale of 1,566,666 shares of Common Stock for $3,000,000
through a private placement transaction, the sale of five restaurants in
northern California for $10,575,000, of which $8,000,000 in proceeds were used
to repay debt (See Notes 4 and 6 to Notes to Consolidated Financial Statements),
and new borrowings of $21,300,000 with a repayment period of 15 years. Proceeds
from the new borrowings were used primarily to pay off debt with shorter
repayment periods (See Note 6 to Notes to Consolidated Financial Statements).
The Company has also renegotiated its development agreements with TGI
Friday's Inc. to reduce the number of T.G.I. Friday's restaurants it is required
to build with the intent to focus on those development territories that are most
economically favorable (See Note 8 to Notes to Consolidated Financial
Statements). The T.G.I. Friday's restaurants currently planned for development
will be owned by a third party lender with the Company operating the restaurants
and deriving a management fee. This strategy will allow the Company to continue
to grow while at the same time deleveraging its balance sheet. In addition, the
Company has taken a charge for asset impairments and restructuring to dispose of
various non-core assets and write down certain core assets to realizable values
(See Note 2 to Notes to Consolidated Financial Statements).
The next step in the Company's strategy will be to reduce operating costs and
expand its restaurant operations. This will entail continuing to build T.G.I.
Friday's restaurants and evaluating other concepts in the casual dining segment.
The Company has recently become a majority partner in a venture to develop and
operate cajun themed restaurants.
Each of the acquisitions mentioned above, as described more fully under
"Business -- Development of the Company," was accounted for as a purchase.
Allocation of the purchase price was typically split between property and
franchise fees and license costs. Franchise fees and license costs, which
totaled $16,418,000 at December 1996, are amortized over 20 to 30 years.
Amortization of these costs appear in the Consolidated Statements of Operations
as Depreciation and Amortization below Income From Restaurant Operations.
The franchise agreements between TGI Friday's Inc. and the Company could
require a contribution to a national marketing pool of up to 4.0% of gross
sales, although during 1996 the Company was only required to pay up to 1.7% of
gross sales and will contribute 1.9% for 1997.
Cost of sales consists primarily of food and beverage costs. Food costs can
vary significantly depending upon pricing and availability of produce and
grocery items. Restaurant operating expenses include all restaurant-level
operating costs, the significant components of which are direct and indirect
labor expenses (including benefits), advertising expenses, occupancy costs, and
maintenance and utility expenses. Occupancy costs include rent, real estate
taxes, and common area maintenance charges. Certain elements of the Company's
restaurant operating expenses and, in particular, occupancy costs, are
relatively fixed.
12
<PAGE>
Restaurant pre-opening costs incurred in connection with opening new
restaurant locations, including hiring, training, and other costs, average
approximately $160,000 for each restaurant opened and are amortized over one
year commencing with the opening of the restaurant. Since new restaurants
experience higher sales levels for some time after opening, restaurants are not
included in the same store sales base until 18 months after opening.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentages
which certain items of income and expense bear to total revenue:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------
DECEMBER 26, DECEMBER 25, DECEMBER 30,
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Revenue ........................................ 100.0% 100.0% 100.0%
Restaurant operating expenses:
Cost of sales ................................. 27.4 28.5 28.6
Payroll and benefits .......................... 31.3 30.8 31.7
Depreciation and amortization ................. 3.5 3.6 3.7
Other operating expenses ...................... 28.4 29.5 30.2
----- ----- -----
Total restaurant operating expenses ........... 90.6 92.4 94.2
----- ----- -----
Income from restaurant operations .............. 9.4 7.6 5.8
Depreciation and amortization ................. 0.9 1.1 1.2
General and administrative expenses ........... 3.8 3.7 3.6
Asset impairments and restructuring charges ... -- -- 16.5
----- ----- -----
Operating income (loss) ........................ 4.7 2.8 (15.5)
Interest expense, net .......................... 3.5 3.7 2.6
----- ----- -----
Net income (loss) before income taxes .......... 1.2% (0.9)% (18.1)%
===== ===== =====
</TABLE>
Fiscal 1996 Compared to Fiscal 1995
Revenue for the fiscal year ended December 30, 1996 increased by 2.6% to
$122,563,000 compared to $119,508,000 for the fiscal year ended December 25,
1995. This increase related primarily to restaurants developed during 1996 along
with an additional week of revenue in the 53 week period ended December 30, 1996
compared to the normal 52 week period of 1995. When comparing revenue for 1996
to the prior year, same store sales decreased $3,580,000 or 3.2%. Revenue from
alcoholic beverages accounted for 23.6% of revenue for the fiscal year ended
December 30, 1996 compared to 22.2% for the prior year.
Cost of sales increased as a percentage of revenue to 28.6% in 1996 from
28.5% in 1995 due to a shift in the beverage market to premium/specialty beers
and liquors, which have slightly lower margins, and higher prices for dairy
products. In addition, cost of sales increased as a result of increases in
portion sizes on several menu items; however, some of the resulting increase has
been offset by negotiated purchasing discounts.
Labor costs increased as a percentage of revenue to 31.7% in 1996 from 30.8%
in 1995. This increase is almost entirely related to the decline in same store
sales in relation to the fixed component of labor costs and an increase in
minimum wage from $4.25 to $4.75 per hour. Approximately 75% of the Company's
revenue is derived from restaurants in non-tip credit states where tipped
employees are paid at or above the Federal minimum wage as opposed to tip credit
states where tipped employees are paid at half the minimum wage. The $0.50 per
hour increase in minimum wage that became effective on October 1, 1996,
increased the Company's labor costs as a percentage of revenue by approximately
1.0%.
Other restaurant operating expenses increased as a percentage of revenue to
30.2% in 1996 from 29.5% in 1995 primarily as a result of the relatively fixed
nature of these costs and the decline in same store sales.
13
<PAGE>
In total, depreciation and amortization increased as a percentage of revenue
to 4.9% in 1996 from 4.7% in 1995. This increase is due primarily to the fixed
nature of these expenses given a decline in same store sales.
General and administrative expenses decreased as a percentage of revenue to
3.6% in 1996 from 3.7% in 1995. The decrease relates to reductions in corporate
staff coupled with the relatively fixed nature of these expenses in comparison
to the overall increase in revenue.
Interest expense was approximately $3,206,000 in 1996 compared to $4,424,000
in 1995. This decrease was a result of the retirement of $8,700,000 of
indebtedness with the proceeds from a public offering completed in September
1995.
No income tax provision was recorded in 1995 or 1996 due to the availability
of net operating loss carryforwards.
Fiscal 1995 Compared to Fiscal 1994
Revenue for the fiscal year ended December 25, 1995 increased by 7.4% to
$119,508,000 compared to $111,262,000 for the fiscal year ended December 26,
1994. Revenue from five restaurants opened subsequent to December 26, 1994
contributed to the overall revenue gain. When comparing revenue for 1995 to the
prior year, same stores sales decreased 2.6%. The same store sales declines were
a result of increased competition in the casual dining market and were further
exaggerated for fiscal 1995 by a frequent diner program offered in the Company's
Southern California restaurants for most of 1994. While the program favorably
impacted 1994 sales, particularly in the third quarter, the administration of
the frequent diner program proved costly, resulting in the discontinuance of
most aspects of the program in October 1994. The Company introduced a modified,
more cost-effective frequent diner program in the fourth quarter of 1995.
Revenue from alcoholic beverages accounted for 22.2% of revenue for the fiscal
year ended December 25, 1995, compared to 22.8% for the prior year.
Cost of sales increased as a percentage of restaurant revenue to 28.5% in
1995 from 27.4% for the same period in 1994. This increase relates in part to
new stores opened during 1995, which typically have higher food costs during the
initial few months after opening, and increases in produce costs as a result of
adverse weather conditions. In late 1994, the Company also began purchasing
selected items, particularly produce, that is processed by suppliers. This has
resulted in higher food costs, but resulted in a reduction in restaurant labor.
Additionally, national promotions in which a dessert or an appetizer was
included with the purchase of specific menu items contributed to the overall
increase in cost of sales.
Labor costs decreased as a percentage of revenue to 30.8% in 1995 from 31.3%
in the same period of 1994. This decrease reflects a reduction in the average
number of managers per store, labor savings related to selected items being
processed by suppliers as discussed above, and lower employee taxes and benefit
costs.
Other restaurant operating expenses increased as a percentage of revenue to
29.5% in 1995 from 28.4% in the same period of 1994. The increase related to a
0.4% increase in marketing fees paid for national advertising, a 0.2% increase
in insurance costs, a 0.2% increase in promotions related in part, to costs
associated with implementing a revised frequent diner program and occupancy
costs which increased by 0.3% primarily as a result of the relatively fixed
nature of these expenses given a decline in same store sales.
In total, depreciation and amortization increased as a percentage of revenue
to 4.7% in 1995, from 4.4% in the same period in 1994 due primarily to
depreciation and amortization related to the Company's interest in an indoor
entertainment center. This investment was accounted for on the equity method
until November 1994 when it was leased to a third-party operator. In addition,
depreciation and amortization increased as a percentage of revenue due to the
fixed nature of these expenses given a decline in same store sales.
General and administrative expenses decreased as a percentage of revenue to
3.7% in 1995 from 3.8% in the same period of 1994. This decrease relates
primarily to the relatively fixed nature of these expenses in comparison to the
overall increase in revenue.
14
<PAGE>
Interest expense was approximately $4,424,000 in 1995 compared to $3,902,000
in 1994. This increase was caused primarily by higher interest rates and
additional borrowings to fund the Company's restaurant development program.
No income tax provision was recorded in 1995 or 1994 due to the availability
of net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary use of funds over the past four years has been for the
acquisition of existing T.G.I. Friday's restaurants and exclusive development
rights. These acquisitions were financed principally through the issuance of
long-term debt and Common Stock. See "Business -- Development of the Company."
The Company has also expended funds for the development of new restaurants. The
principal source of these funds has been operating cash flow, supplemented by
bank and lease financing.
Net cash flows from operating activities were $10,824,000 in 1994, $1,722,000
in 1995, and $4,444,000 in 1996. These were supplemented by net cash flows from
financing of $475,000, $4,195,000 and $2,051,000 for the years ended 1994, 1995,
and 1996, respectively, to fund the Company's acquisitions and development of
new restaurants.
The Company's current liabilities exceed its current assets due in part to
cash expended on the Company's development requirements and also because the
restaurant business receives substantially immediate payment for sales, while
payables related to inventories and other current liabilities normally carry
longer payment terms, usually 15 to 30 days. The Company currently generates
average monthly cash receipts of approximately $10,900,000, which have been
sufficient to pay all obligations as they become due.
At December 30, 1996, the Company had long-term debt of $36,332,000.
Subsequent to December 30, 1996, $26,500,000 of debt was repaid with proceeds
from the Northern California Sale (See Note 4 and 6 to Notes to Consolidated
Financial Statements) and with proceeds from new borrowings. The new borrowings,
consisting of three notes from one lender, total $21,300,000, bear interest at
LIBOR plus 320 basis points (8.9% at March 31, 1997), and are payable in equal
monthly installments of principal and interest of approximately $216,000
(combined) until the notes are paid in full on May 1, 2012. Proceeds from the
new borrowings will also used to repay the TGI Friday's Inc. note (including
accrued interest) of $2,118,000, with the remaining proceeds used for general
corporate purposes.
The Company plans to develop three additional TGI Friday's by the end of
1997. These restaurants will be owned by a third party that will fund all
development costs. The Company will operate the restaurants, receive a
management fee, and participate in excess cash flows.
The Company leases all of its restaurants with terms ranging from 10 to 20
years. Minimum payments on the Company's existing lease obligations are
approximately $6,400,000 per year through 2001.
15
<PAGE>
BUSINESS
GENERAL
The Company is the world's largest franchisee of T.G.I. Friday's restaurants,
currently owning 38 and operating eight T.G.I. Friday's restaurants and
possessing exclusive rights to develop additional restaurants in all or parts of
eight western and midwestern states. The Company plans to develop additional
T.G.I. Friday's restaurants in its existing development territories, in which it
is required to open 36 additional restaurants by December 31, 2002.
TGI FRIDAY'S INC.
TGI Friday's Inc. is a wholly owned subsidiary of the Carlson Companies Inc.,
a diversified company with business interests in the restaurant and hospitality
industries. The first T.G.I. Friday's restaurant was opened in 1965 in New York
City. TGI Friday's Inc. has conducted a business since 1972 that is
substantially similar to the business currently conducted by its franchisees. As
of March 31, 1997, TGI Friday's Inc. had 144 franchisor-operated and 263
franchised restaurants operating worldwide. System-wide sales exceeded $1
billion in 1996. TGI Friday's Inc. currently owns approximately 2.6% of the
Company's outstanding Common Stock. Holders of the Company's Common Stock do not
have any financial interest in TGI Friday's Inc., and TGI Friday's Inc. has no
responsibility for the contents of this Prospectus
CONCEPT
T.G.I. Friday's restaurants are full-service, casual dining establishments
featuring a wide selection of high quality, freshly prepared popular foods and
beverages, including a number of innovative and distinctive menu items. The
restaurants feature quick, efficient, and friendly table service designed to
minimize customer waiting time and facilitate table turnover. Service personnel
are dressed in traditional red-and-white striped knit shirts and casual slacks
and are encouraged to individualize their outfits with decorative pins and
headwear, which enhance the T.G.I. Friday's theme and entertaining dining
atmosphere. The Company's restaurants generally are open seven days a week
between the hours of approximately 11:00 a.m. and 1:00 a.m. The Company believes
that the design and operational consistency of all T.G.I. Friday's restaurants
enable the Company to benefit significantly from the name recognition and
goodwill associated with T.G.I. Friday's restaurants.
MENU
The Company attempts to capitalize on the innovative and distinctive menu
items that have been an important attribute of T.G.I. Friday's restaurants. The
menu consists of more than 90 food items, including appetizers (such as
mushrooms, jalapeno poppers, buffalo wings, stuffed potato skins, quesadillas,
Thai chicken, fried onion rings, and pot stickers); a variety of soups, salads,
sandwiches, wrappers, burgers, pizzadillas, and pasta; southwestern, oriental,
and American specialty items; beef, seafood, and chicken entrees; a kids' menu;
and desserts. Beverages include a full bar featuring wines, beers, classic and
specialty cocktails and after dinner drinks, soft drinks, milk, milk shakes,
malts, hot chocolate, coffee, tea, frozen fruit drinks known as Friday's
Smoothies,(TM) and sparkling fruit juice combinations known as Friday's Flings.
Menu prices range from $6 to $14 for beef, chicken, and seafood entrees; $6
to $9 for pizzasdillas, pasta, wrappers, and oriental and southwestern specialty
items; $5 to $8 for salads, sandwiches, and burgers; and $3 to $7 for appetizers
and soups. Restaurants offer a separate children's menu with food entrees
ranging from $2 to $3. Alcoholic beverage sales currently account for
approximately 23.6% of total revenue.
RESTAURANT LAYOUT
Each of the Company's restaurants is similar in terms of exterior and
interior design. Each restaurant features a distinctive decor accented by
red-and-white striped awnings, brass railings, stained glass, and eclectic
memorabilia. Each restaurant has interior dining areas and bar seating.
16
<PAGE>
Most of the restaurants are located in free-standing buildings. The
restaurants contain an average of 60 dining tables, seating an average of 210
guests, and a bar area seating an average of approximately 30 additional guests.
The restaurants normally contain between 6,000 and 9,000 square feet of space
and average approximately 7,500 square feet. Most of the Company's recently
developed restaurants, however, contain 6,500 square feet of space.
UNIT ECONOMICS
The Company estimates that its total cost of opening a new T.G.I. Friday's
restaurant currently ranges from $1,500,000 to $2,000,000, exclusive of annual
operating expenses and assuming that the underlying real estate is obtained
under a lease arrangement. These costs include approximately (i) $750,000 to
$1,250,000 for building, improvements, and permits, including liquor licenses,
(ii) $550,000 for furniture, fixtures, and equipment, (iii) $150,000 in
pre-opening expenses, including hiring expenses, wages for managers and hourly
employees, and supplies, and (iv) $50,000 for the initial franchise fee. Actual
costs, however, may vary significantly depending upon a variety of factors,
including the site and size of the restaurant and conditions in the local real
estate and employment markets. The Company's restaurants open for all of fiscal
1996 generated an average of approximately $2,911,000 in annual revenue.
SITE SELECTION
When evaluating whether and where to seek expansion of the Company's
restaurant operations, the Company analyzes a restaurant's profit potential. The
Company considers the location of a restaurant to be one of the most critical
elements of the restaurant's long-term success. Accordingly, the Company expends
significant time and effort in the investigation and evaluation of potential
restaurant sites. In conducting the site selection process, the Company obtains
and examines detailed demographic information (such as population
characteristics, density, and household income levels), evaluates site
characteristics (such as visibility, accessibility, and traffic volume),
considers the restaurant's proximity to demand generators (such as shopping
malls, lodging, and office complexes), and analyzes potential competition.
Senior corporate management evaluates and approves each restaurant site prior to
its acquisition. TGI Friday's Inc. provides site selection guidelines and
criteria as well as site selection counseling and assistance. The selection of a
restaurant site by the Company requires the consent of TGI Friday's Inc.
EXPANSION OF OPERATIONS
Since 1990, the Company has acquired 30 existing T.G.I. Friday's restaurants
as well as the exclusive rights to develop restaurants in specified territories.
The acquisitions include 20 restaurants in California, three in Arizona, and one
in each of Colorado, Kansas, Missouri, Nebraska, Nevada, Oregon, and Washington.
The Company subsequently sold five of the restaurants it acquired in California.
The Company also has developed 13 new T.G.I. Friday's restaurants. These include
four in California, three in Washington, two in each of Arizona and Nevada, and
one in each of Colorado and New Mexico. See "Business -- Current Restaurants."
In addition, the Company has developed one Friday's Front Row Sports Grill in
Portland, Oregon. See "Business -- Other Activities."
The Company plans to expand its restaurant operations through the development
of additional restaurants in the Company's existing development territories,
which consist of all or part of eight western and midwestern states. The Company
plans to open three additional restaurants by the end of 1997 and to meet or
exceed its development requirements thereafter. The Company has sites for new
T.G.I. Friday's restaurants in each of Phoenix, Arizona, El Paso, Texas, and San
Francisco, California. The Company currently is considering other sites for
additional restaurants, but has not entered into leases or purchase agreements
for any such sites. These restaurants will be owned by a third party with the
Company operating the restaurants and deriving a management fee.
As part of its long-term plan, the Company may also evaluate opportunities
for the acquisition of additional T.G.I. Friday's restaurants and development
rights to additional territories as well as the development and acquisition of
new restaurant concepts. The Company evaluates such opportunities
17
<PAGE>
based on numerous factors, including location, operating history, future
potential, acquisition price, and the terms and availability of financing of
such existing restaurants or additional development rights.
The timing and success of the Company's expansion will depend on a number
of factors. See "Risk Factors."
CURRENT RESTAURANTS
The following table sets forth certain information relating to each of
restaurants owned or managed by the Company as of March 31, 1997.
<TABLE>
<CAPTION>
OWNED OR
SQUARE SEATING IN OPERATION MANAGED BY THE
LOCATION FOOTAGE CAPACITY SINCE COMPANY SINCE
- ----------------------------------------- --------- ---------- -------------- --------------
<S> <C> <C> <C> <C>
ACQUIRED RESTAURANTS (OWNED)
Phoenix, Arizona ........................ 9,396 298 1985 1990
Mesa, Arizona ........................... 9,396 298 1985 1990
Tucson, Arizona ......................... 7,798 290 1982 1990
Las Vegas, Nevada ....................... 9,194 298 1982 1990
Tigard, Oregon .......................... 9,172 298 1979 1991
Kirkland, Washington .................... 8,488 298 1983 1991
Aurora, Colorado ........................ 7,800 260 1983 1993
Kansas City, Missouri ................... 8,500 270 1983 1993
Omaha, Nebraska ......................... 6,750 220 1992 1993
Overland Park, Kansas ................... 6,000 220 1992 1993
San Diego, California ................... 8,002 234 1979 1993
Costa Mesa, California .................. 8,345 232 1980 1993
Woodland Hills, California .............. 8,358 283 1980 1993
Valencia, California .................... 6,500 232 1993 1993
Torrance, California .................... 8,923 237 1982 1993
La Jolla, California .................... 9,396 225 1984 1993
Palm Desert, California ................. 9,194 235 1983 1993
West Covina, California ................. 9,396 232 1984 1993
North Orange, California ................ 9,194 213 1983 1993
Ontario, California ..................... 5,700 190 1993 1993
Laguna Niguel, California ............... 6,730 205 1990 1993
San Bernardino, California .............. 9,396 236 1986 1993
Brea, California ........................ 6,500 195 1991 1993
Riverside, California ................... 6,500 172 1991 1993
DEVELOPED RESTAURANTS (OWNED)
Scottsdale, Arizona ..................... 8,507 281 1991 1991
Glendale, Arizona ....................... 5,200 230 1993 1993
Vancouver, Washington ................... 6,000 250 1993 1993
Albuquerque, New Mexico ................. 5,975 270 1993 1993
Tacoma, Washington ...................... 5,975 260 1993 1993
Seattle, Washington ..................... 5,591 220 1994 1994
Reno, Nevada ............................ 6,500 263 1994 1994
Oxnard, California ...................... 6,500 252 1994 1994
Carmel Mountain, California ............. 6,500 252 1995 1995
Colorado Springs, Colorado .............. 6,500 263 1995 1995
Rancho Santa Margarita, California ..... 6,548 252 1995 1995
Portland, Oregon (Front Row Sports Grill) 13,080 320 1996 1996
Cerritos, California .................... 6,250 223 1996 1996
Las Vegas, Nevada ....................... 6,700 251 1997 1997
MANAGED
San Bruno, California ................... 8,345 200 1980 1993
San Francisco, California ............... 4,748 161 1989 1993
San Jose, California .................... 8,002 228 1977 1993
San Mateo, California ................... 9,396 252 1984 1993
San Ramon, California ................... 6,000 182 1990 1993
Lafayette, Louisana ..................... 6,800 277 1993 1996
Metarie, Louisiana ...................... 9,000 290 1978 1996
New Orleans, Louisiana .................. 7,100 258 1994 1996
</TABLE>
18
<PAGE>
The average size of the Company's acquired restaurants is approximately 8,000
square feet, and the average size of the Company's developed T.G.I. Friday's
restaurants is approximately 6,300 square feet.
RESTAURANT OPERATIONS
The T.G.I. Friday's System
T.G.I. Friday's restaurants are developed and operated pursuant to a
specified system (the "T.G.I. Friday's System" or the "System"). TGI Friday's
Inc. maintains detailed standards, specifications, procedures, and operating
policies to facilitate the success and consistency of all T.G.I. Friday's
restaurants. To ensure that the highest degree of quality and service is
maintained, each franchisee of TGI Friday's Inc. (including the Company) must
operate each T.G.I. Friday's restaurant in strict conformity with these methods,
standards, and specifications.
The Company believes the support as well as the standards, specifications,
and operating procedures of TGI Friday's Inc. are important elements in its
restaurant operations. The Company's policy is to execute these specifications,
procedures, and policies to the highest level of the standards of TGI Friday's
Inc.
The T.G.I. Friday's System includes distinctive exterior and interior design,
decor, color scheme, and furnishings; uniform specifications and procedures for
operations; standardized menus featuring special recipes and menu items;
procedures for inventory and management control; formal training and assistance
programs; and advertising and promotional programs. The T.G.I. Friday's System
also includes requirements for quality and uniformity of products and services
offered; the purchase or lease and use of equipment, fixtures, furnishings,
signs, inventory, recorded music, ingredients, and other products and materials
required for the development and operation of restaurants conforming with the
standards and specifications of TGI Friday's Inc. from approved suppliers; and
standards for the maintenance, improvement, and modernization of restaurants,
equipment, furnishings, and decor. TGI Friday's Inc. has committed to its
franchisees to continue to improve and further develop the T.G.I. Friday's
System and to provide such new information and techniques to the franchisees by
means of the Confidential Franchise Operating manuals. The T.G.I. Friday's
System is identified by means of certain trade names, service marks, trademarks,
logos, and emblems, including the marks T.G.I. Friday's(R) and Friday's(R).
Once a restaurant is integrated into the Company's operations, the Company
provides a variety of corporate services to assure the proper execution of the
T.G.I. Friday's System and the operational success of the restaurant. The
Company's executive management continually monitors restaurant operations;
maintains management controls; inspects individual restaurants to assure the
quality of products and services and the maintenance of facilities; develops
employee programs for efficient staffing, motivation, compensation, and career
advancement; institutes procedures to enhance efficiency and reduce costs; and
provides centralized support systems.
The Company also maintains quality assurance procedures designed to assure
compliance with the high quality of products and services mandated by the
Company and TGI Friday's Inc. The Company responds to and investigates inquiries
and complaints, initiates on-site resolution of deficiencies, and consults with
each restaurant's staff to assure that proper action is taken to correct any
deficiency. Company personnel make unannounced visits to restaurants to evaluate
the facilities, products, and services. The Company believes that its quality
review program and executive oversight enhance restaurant operations, reduce
operating costs, improve customer satisfaction, and facilitate the highest level
of compliance with the T.G.I. Friday's System.
Restaurant Management
The Company's regional and restaurant management personnel are responsible
for complying with the operational standards of the Company and TGI Friday's
Inc. The Company's five regional managers are responsible for between six and
ten of the Company's restaurants within their region and report to one of the
Company's two Directors of Operations who in turn report to the Company's Vice
President of Operations. Restaurant managers are responsible for day-to-day
restaurant operations, including customer relations, food preparation and
service, cost control, restaurant maintenance, and personnel
19
<PAGE>
relations. The Company typically staffs its restaurants with an on-site general
manager, one or two assistant managers, a kitchen manager, and approximately 90
hourly employees.
Recruitment and Training
The Company attempts to hire employees who are committed to the standards
maintained by the Company and TGI Friday's Inc. The Company also believes that
its high unit sales volume, the image and atmosphere of the T.G.I. Friday's
restaurant concept, and its career advancement and employee benefit programs
enable it to attract high quality management and restaurant personnel and to
enjoy a low level of employee turnover relative to the industry.
The Company emphasizes participation in continuing training programs
maintained by TGI Friday's Inc. and supplements those programs through the
employment of personnel devoted solely to employee training. Each restaurant
general and assistant manager completes a formal training program conducted by
the Company and TGI Friday's Inc., receiving between 10 and 15 weeks of training
depending on the prior experience and ability of the trainee. The training
covers all aspects of management philosophy and overall restaurant operations,
including supervisory skills, operating standards, accounting procedures,
employee selection and training, and the performance of all positions necessary
for restaurant operations.
Management believes that the Company's incentive, motivation, and training
programs enhance employee performance, result in better customer service, and
increase restaurant efficiency. The Company has implemented incentive programs
that reward restaurant managers when the restaurant's operating results surpass
designated goals and a reward and recognition program for outstanding
achievements by employees.
Maintenance and Improvement of Restaurants
The Company maintains its restaurants and all associated fixtures,
furnishings, and equipment in conformity with the T.G.I. Friday's System. The
Company also makes necessary additions, alterations, repairs, and replacements
to its restaurants as required by TGI Friday's Inc., including periodic
repainting or replacement of obsolete signs, furnishings, equipment, and decor.
The Company may be required, subject to certain limitations, to modernize its
restaurants to the then-current standards and specifications of TGI Friday's
Inc.
Management Information Systems
The Company has devoted considerable resources to develop and implement
management information systems that complement proprietary systems developed and
maintained by TGI Friday's Inc. Inventory control and transaction processing are
effected by means of a computerized sales system, which is integrated into data
processing systems the Company utilizes for financial and management control,
centralized accounting, and management information systems.
The Company uses five to six touchscreen computer registers located
conveniently throughout each of its restaurants. Servers enter guest orders by
touching the appropriate sections of the register's computer screen, which
transfers the information electronically to the kitchen and bar for preparation.
These registers also are connected to a personal computer in the Company's
restaurant and to the Company's corporate information system via modem.
Management receives detailed comparative reports on each restaurant's sales and
expense performance daily, weekly, and monthly.
The Company believes that its management information systems enable it to
increase the speed and accuracy of order taking and pricing, to better assess
guest preferences, to efficiently schedule labor to better serve guests, to
quickly and accurately monitor food and labor costs, to promptly access
financial and operating data, and to improve the accuracy and efficiency of
store-level information and reporting.
EQUIPMENT, FOOD PRODUCTS, AND OTHER SUPPLIES
The Company leases or purchases all fixtures, furnishings, equipment, signs,
recorded music, food products, supplies, inventory, and other products and
materials required for the development and operation of its T.G.I. Friday's
restaurants from suppliers approved by TGI Friday's Inc. In order to be approved
as a supplier, a prospective supplier must demonstrate to the reasonable
satisfaction of TGI
20
<PAGE>
Friday's Inc. its ability to meet the then-current standards and specifications
of TGI Friday's Inc. for such items, possess adequate quality controls, and have
the capacity to provide supplies promptly and reliably. The Company is not
required to purchase supplies from any specified suppliers, but the purchase or
lease of any items from an unapproved supplier requires the prior approval of
TGI Friday's Inc.
TGI Friday's Inc. maintains a list of approved suppliers and a set of the
T.G.I. Friday's System standards and specifications. TGI Friday's Inc. receives
no commissions on direct sales to its franchisees, but may receive rebates and
promotional discounts from manufacturers and suppliers, which are generally
passed on proportionately to the Company. TGI Friday's Inc. is an approved
supplier of various kitchen equipment and store fixtures, decorative
memorabilia, and various paper goods, such as menus and in-store advertising
materials and items. However, the Company is not required to purchase such items
from TGI Friday's Inc. If the Company elects to purchase such items from TGI
Friday's Inc., TGI Friday's Inc. derives revenue as a result of such purchases.
Although not required to do so, the Company purchases from a single national
food supplier, utilized by TGI Friday's Inc. and many of its other franchisees,
most of the Company's key food products (with the exception of produce, dairy
products, and bread, which it purchases from approved local suppliers) as well
as many of its other restaurant supplies. This supplier is not affiliated with
the Company or TGI Friday's Inc. The Company does not have a supply agreement or
other contractual arrangement with the supplier and effects purchases through
purchase orders.
The Company's restaurants utilize a simple bar code system for daily ordering
of their primary food and merchandise items. Orders are sent electronically to
the supplier. The supplier guarantees 100% product delivery overnight or same
day deliveries and has comprehensive warehouse/delivery outlets servicing each
of the Company's markets.
The Company believes that its purchases from the supplier enable the Company
to maintain a high level of quality consistent with T.G.I. Friday's restaurants,
to realize convenience and dependability in the receipt of its supplies, to
avoid the costs of maintaining a large purchasing department, large inventories,
and product warehouses, and to attain cost advantages as the result of volume
purchases. The Company believes, however, that all essential products are
available from other national suppliers as well as from local suppliers in the
cities in which the Company's restaurants are located in the event the Company
determines to purchase its supplies from other suppliers.
ADVERTISING AND MARKETING
The Company participates in the national marketing and advertising programs
conducted by TGI Friday's Inc. See "Business -- Franchise Agreements." The
programs primarily utilize network television and national publications and
feature new menu innovations and various promotion programs. In addition, the
Company from time to time supplements the marketing and advertising programs
conducted by TGI Friday's Inc. through local radio, newspaper, and magazine
advertising media and sponsorship of community events. During October 1995, in
conjunction with TGI Friday's Inc., the Company introduced a frequent diner
program that includes awards of food, merchandise and travel to frequent diners
based upon points accumulated through purchases.
As a franchisee of TGI Friday's Inc., the Company is able to utilize the
trade names, service marks, trademarks, emblems, and indicia of origin of TGI
Friday's Inc., including the marks T.G.I. Friday's(R) and Friday's(R). The
Company advertises in various media utilizing these marks to attract new
customers to its restaurants.
DEVELOPMENT AGREEMENTS
The Company is a party to three development agreements with TGI Friday's Inc.
Each development agreement grants the Company the exclusive right to develop
additional T.G.I. Friday's restaurants in a specified territory and obligates
the Company to develop additional T.G.I. Friday's restaurants in that territory
in accordance with a specified development schedule.
21
<PAGE>
The following table sets forth information regarding the Company's minimum
requirements to open new T.G.I. Friday's restaurants under its current
development agreements as well as the number of existing restaurants in each of
the Company's development territories.
<TABLE>
<CAPTION>
LOS SAN SAN
ANGELES DIEGO FRANCISCO SOUTHWEST MIDWEST
YEAR TERRITORY(1)(2) TERRITORY(1)(2) TERRITORY(2) TERRITORY(3) TERRITORY(4) TOTAL
- ------------------------- --------------- --------------- -------------- -------------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
1997 ..................... - - 1 1 - 2
1998 ..................... 2 1 1 1 1 6
1999 ..................... 2 1 1 1 1 6
2000 ..................... 3 1 1 1 1 7
2001 ..................... 3 1 1 1 1 7
2002 ..................... 4 1 1 1 1 8
-- - - - - --
14 5 6 6 5 36
Existing Restaurants ..... 15 3 -(5) 9 3 30(6)
</TABLE>
- ----------
(1) TGI Friday's Inc. also will develop restaurants in this region.
(2) The Los Angeles, San Diego, and San Francisco Territories are covered by
one development Agreement.
(3) Includes the states of Arizona, Nevada, and New Mexico and the El Paso,
Texas metropolitan area.
(4) Includes metropolitan Kansas City, Kansas, Kansas City, Missouri, and
Omaha, Nebraska.
(5) Does not include five restaurants managed in the San Francisco Territory.
(6) Does not include eight restaurants in the states of Colorado, Oregon, or
Washington, where the Company will no longer be developing restaurants.
Each development agreement gives TGI Friday's Inc. certain remedies in the
event that the Company fails to comply in a timely manner with its schedule for
restaurant development, if the Company otherwise defaults under the development
agreement or any franchise agreement relating to a restaurant within that
development territory as described below, or if the Company's officers or
directors breach the confidentiality or noncompete provisions of the development
agreement. The remedies available to TGI Friday's Inc. include (i) the
termination of the Company's exclusive right to develop restaurants in the
related territory; (ii) a reduction in the number of restaurants the Company may
develop in the related territory; (iii) the termination of the development
agreement; and (iv) an acceleration of the schedule for development of
restaurants in the related territory pursuant to the development agreement.
At the request of the Company, TGI Friday's Inc. from time to time has agreed
to amend the development agreements with respect to certain development
territories to extend the time by which the Company was required to develop new
restaurants in such territories. The Company requested such amendments to the
development agreements as the result of its inability to secure sites that it
believed to be attractive on favorable terms and conditions. In addition, TGI
Friday's Inc. amended the Company's development schedule in mid-1995 to coincide
with the receipt of additional capital provided by the Company's public offering
and in April 1997 to reduce the number of restaurants the Company is required to
develop from 44 to 36. There can be no assurance that TGI Friday's Inc. will
extend the development schedule in the future in the event the Company
experiences any difficulty in satisfying the schedule for any reason.
FRANCHISE AGREEMENTS
The Company enters into a separate franchise agreement with respect to each
T.G.I. Friday's restaurant that it develops pursuant to a development agreement.
Each franchise agreement grants the Company an exclusive license to operate a
T.G.I. Friday's restaurant within a designated geographic area (generally a
three-mile limit from each restaurant) and obligates the Company to operate such
restaurant in accordance with the requirements and specifications established by
TGI Friday's Inc. relating to the preparation of food products and quality of
service as well as general operating procedures, advertising, maintenance of
records, and protection of trademarks. The franchise agreements restrict the
ability of the Company to transfer its interest in its T.G.I. Friday's
restaurants without the consent of TGI Friday's Inc.
22
<PAGE>
Each franchise agreement requires the Company to pay to TGI Friday's Inc. an
initial franchise fee, generally in the amount of $50,000. In addition, the
Company is obligated to pay TGI Friday's Inc. a royalty in the amount of 4% of
the gross revenue as defined in the franchise agreement for each restaurant.
Royalty payments under these agreements totaled $4,419,000, $4,800,000, and
$4,850,000 during fiscal 1994, 1995, and 1996, respectively. Each franchise
agreement also requires the Company to spend at least 2% of gross sales as
defined in the franchise agreement on local marketing and to contribute up to 4%
of gross sales to a national marketing pool that is administered by TGI Friday's
Inc. During fiscal 1996, however, TGI Friday's Inc. generally required the
Company as well as all other franchisees to contribute up to 1.7% of gross sales
to the national marketing pool. Marketing expenses totaled $1,788,000,
$2,360,000, and $1,554,000 during fiscal 1994, 1995, and 1996, respectively. All
funds contributed in excess of 2% of gross sales to the national advertising
fund may be credited against the local advertising requirement.
A default under any franchise agreement will not constitute a default under
any other franchise agreement. A default under the franchise agreement for a
restaurant in a development territory may constitute a default under the
development agreement for that development territory.
OTHER ACTIVITIES
In May 1991, the Company entered into a five-year management assistance
agreement with AsianStar Co., Ltd. ("AsianStar"), a Korean company, to provide
management services and expertise relative to the development and operation of
T.G.I. Friday's restaurants in the Republic of Korea. AsianStar is a party to an
exclusive development agreement with TGI Friday's Inc. to develop T.G.I.
Friday's restaurants in the Republic of Korea. The management assistance
agreement provided for the Company to receive a fee of 3% of the net revenue of
the first two restaurants developed in the Republic of Korea, which has been
recorded as a receivable. In 1996, the Company finalized an agreement with
AsianStar to exchange the receivable generated by the fee for an ownership
interest in AsianStar. AsianStar currently owns and operates nine T.G.I.
Friday's restaurants in Seoul, Korea. J.Y. Lee, a former director of the
Company, is the Chairman of AsianStar. See Note 2 to the Notes to Consolidated
Financial Statements.
The Front Row Sports Grill is a new concept created by TGI Friday's Inc. The
Front Row Sports Grill offers an upscale sports grill atmosphere with billiards,
video games, virtual reality games, food, and more than 100 varieties of beer.
The Company opened its first Front Row Sports Grill in February 1996. This Front
Row Sports Grill is located in the heart of Portland's new $205 million Centre
Court complex, which includes the 19,200 seat Rose Garden Arena, the 12,600 seat
Memorial Coliseum, and a 60,000 square-foot office and retail site. See Note 2
to the Notes to Consolidated Financial Statements. This concept has not
performed up to expectations, and the Company is currently reviewing various
alternatives with respect to the Front Row Sports Grill.
GOVERNMENT REGULATION
Each of the Company's restaurants is subject to licensing and regulation by
state and local departments and bureaus of alcohol control, health, sanitation,
and fire and to periodic review by the state and municipal authorities for areas
in which the restaurants are located. In addition, the Company is subject to
local land use, zoning, building, planning, and traffic ordinances and
regulations in the selection and acquisition of suitable sites for constructing
new restaurants. Delays in obtaining, or denials of, or revocation or temporary
suspension of, necessary licenses or approvals could have a material adverse
impact upon the Company's development of restaurants. The Company also is
subject to regulation under the Fair Labor Standards Act, which governs such
matters as working conditions and minimum wages. An increase in the minimum wage
rate or changes in tip-credit provisions, employee benefit costs (including
costs associated with mandated health insurance coverage) or other costs
associated with employees could adversely affect the Company. In addition, the
Company is subject to the Americans with Disabilities Act of 1990 that among
other things, may require certain installations in new restaurants or
renovations to existing restaurants to meet federally mandated requirements. To
the Company's knowledge, the Company is in compliance in all material respects
with all applicable federal, state, and local laws affecting its business.
23
<PAGE>
COMPETITION
The restaurant business is highly competitive with respect to price, service,
and food type and quality. In addition, restaurants compete for the availability
of restaurant personnel and managers. The Company's restaurants compete with a
large number of other restaurants, including national and regional restaurant
chains and franchised restaurant systems, many of which have greater financial
resources, more experience, and longer operating histories than the Company, as
well as with locally owned, independent restaurants.
The Company's casual dining business also competes with various types of food
businesses, as well as other businesses, for restaurant locations. The Company
believes that site selection is one of the most crucial decisions required in
connection with the development of restaurants. As the result of the presence of
competing restaurants in the Company's development territories, management
devotes great attention to obtaining what it believes will be premium locations
for new restaurants, although no assurances can be given that the Company will
be successful in this regard.
EMPLOYEES
The Company employs approximately 1,800 persons on a full-time basis, of whom
50 are corporate management and staff personnel and 1,750 are restaurant
personnel. The Company also employs approximately 2,360 part-time employees.
Except for corporate and management personnel, employees generally are paid on
an hourly basis. The Company employs at each of its restaurants an average of
approximately 90 full-time and part-time hourly employees. None of the Company's
employees are covered by a collective bargaining agreement with the Company. The
Company never has experienced a major work stoppage, strike, or labor dispute.
The Company considers its relations with its employees to be good.
DEVELOPMENT OF THE COMPANY
The Company commenced its restaurant operations in May 1990 with the
acquisition of certain assets from TGI Friday's Inc. for approximately $2.6
million (the "1990 Acquisition"). The assets acquired included all of the
interest of TGI Friday's Inc. in the leased premises, franchise rights, and
operating assets relating to three existing T.G.I. Friday's restaurants in
Arizona and one existing T.G.I. Friday's restaurant in Nevada as well as the
exclusive right to develop additional T.G.I. Friday's restaurants in
substantially all of Arizona, Nevada, and New Mexico and in the El Paso, Texas
metropolitan area (the "Southwest Territory").
In June 1991, the Company acquired from an independent party for
approximately $1.7 million certain assets relating to the ownership and
development of T.G.I. Friday's restaurants in Oregon and Washington (the "1991
Acquisition"). The assets included all of the seller's interest in the leased
premises, franchise rights, and operating assets relating to two existing T.G.I.
Friday's restaurants in Oregon and Washington as well as the exclusive right to
develop additional T.G.I. Friday's restaurants in Oregon and Washington (the
"Northwest Territory").
In June 1993, the Company acquired from an independent party for
approximately $7.6 million (the "June 1993 Acquisition") all of the seller's
interest in the leased premises, franchise rights, and operating assets relating
to four existing T.G.I. Friday's restaurants in Colorado, Kansas, Missouri, and
Nebraska as well as the exclusive right to develop additional T.G.I. Friday's
restaurants in Colorado (the "Colorado Territory") and the Kansas City, Kansas,
Kansas City, Missouri, and Omaha, Nebraska metropolitan areas (the "Midwest
Territory").
In December 1993, the Company acquired all 20 T.G.I. Friday's restaurants
owned by TGI Friday's Inc. in the state of California as well as the exclusive
right to develop additional T.G.I. Friday's restaurants in all or part of
California, Idaho, Montana, and Wyoming (the "Western Territory"). The purchase
price for the acquisition (the "December 1993 Acquisition"), taking into account
a March 31, 1994 refinancing, was approximately $43.6 million.
In December 1993, as part of a strategic decision to concentrate on its
restaurant business, the Company sold the stock of Main St. Food Company and
Main St. Food Distribution Inc., which owned and operated Carnation Dairy
Arizona ("Carnation Dairy") and Dairy Maid Foods, Inc. ("Dairy Maid").
24
<PAGE>
In December 1996, the Company entered into an agreement with CNL Growth Fund
Advisors, Inc. ("CNL") to manage three restaurants owned by CNL in Louisiana.
In January 1997, the Company sold five of its restaurants in the San
Francisco metropolitan area to CNL for $10.6 million. The Company manages these
restaurants for CNL for a management fee.
In April 1997, the Company and TGI Friday's Inc. revised the development
agreements between them. As a result of the revision, the obligations of the
Company to develop new T.G.I. Friday's restaurants through the year 2002 has
been reduced from 44 to 36; the Company released its exclusive rights to develop
T.G.I. Friday's restaurants in Colorado, Idaho, Montana, Oregon, Washington, and
Wyoming; and the Company and TGI Friday's Inc. will each develop restaurants in
the San Diego and Los Angeles, metropolitan areas.
In April 1997, the Company entered into a joint venture with Restaurant
Development Group, Inc., (the "RDG Parties") for the development and operation
of Redfish restaurants ("Redfish Restaurants"), a cajun seafood restaurant and
bar concept developed by the RDG Parties. The Company and the RDG Parties formed
Redfish America, a jointly owned limited liability company and entered into an
agreement pursuant to which the RDG Parties contributed to Redfish America their
ownership of the Chicago Redfish Restaurant, their leasehold rights to the
Wheaton, Illinois premises and the Cincinnati, Ohio premises that will be
developed into Redfish Restaurants, and the rights to the Redfish name and
concept and the Company contributed $500,000 and its leasehold rights to the
Denver premises that will be developed into a Redfish Restaurant. In addition,
the Company agreed to lend Redfish America up to $575,000 to complete the
development of the Wheaton, Cincinnati, and Denver Redfish Restaurants. RDG will
manage the Redfish Restaurants.
25
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the directors
and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITIONS AND OFFICES PRESENTLY HELD WITH THE COMPANY
---- --- -----------------------------------------------------
<S> <C> <C>
John F. Antioco ...... 47 Chairman of the Board
Bart A. Brown, Jr. .. 65 President, Chief Executive Officer, and Director
Gerard T. Bisceglia . 47 Executive Vice President, Chief Operating Officer, and
Director
Joe W. Panter ........ 41 Executive Vice President and Director
Mark C. Walker ....... 36 Vice President -- Finance, Chief Financial Officer,
Secretary, and Treasurer
Jane Evans(1) ........ 52 Director
John C. Metz(1) ...... 57 Director
Steven A. Sherman(1) 51 Director
</TABLE>
- ----------
(1) Member of the Audit and Compensation Committees.
John F. Antioco has served as Chairman of the Board of Directors since August
9, 1996 and as a director of the Company since January 8, 1996. Mr. Antioco has
served as President and Chief Executive Officer of Taco Bell Corp. since
September 1996. Mr. Antioco served as the Chairman of Circle K Corporation, a
publicly held company ("Circle K"), from August 1995 until May 1996 and as
President and Chief Executive Officer of Circle K from July 1993 until May 1996.
Mr. Antioco joined Circle K as Chief Operating Officer in September 1991. Mr.
Antioco was Chief Operating Officer of Pearle Vision Centers, Inc. from June
1990 to August 1991. From 1970 to 1990, Mr. Antioco held various positions with
The Southland Corporation.
Bart A. Brown, Jr. has been the President and Chief Executive Officer of the
Company since December 16, 1996. Mr. Brown was affiliated with Investcorp
International, N.A., an international investment banking firm, from April 1996
until December 1996. Mr. Brown served as the Chairman and Chief Executive
Officer of Color Tile, Inc. at the request of Investcorp International, Inc.,
which owned all of its Common Stock, from September 1995 until March 1996,
shortly after Color Tile, Inc. filed under Chapter 11 of the United States
Bankruptcy Code. Mr. Brown served as Chairman of the Board of the Circle K
Corporation from June 1990, shortly after its filing for reorganization under
Chapter 11 of the United States Bankruptcy Code, until September 1995. From
September 1994 until September 1996, Mr. Brown served as the Chairman and Chief
Executive Officer of Spreckels Industries, Inc., a publicly held company. Mr.
Brown engaged in the private practice of law from 1963 through 1990 after seven
years of employment with the Internal Revenue Service.
Gerard T. Bisceglia has served as Executive Vice President, Chief Operating
Officer, and a director of the Company since November 4, 1996. Mr. Bisceglia
served as Vice President -- Manufacturing and Distribution of the Circle K
Corporation from August 1992 to April 1996, as Vice President - Retail of The
Ralston Purina Co. from February 1991 to August 1992, as Senior Product Manager
for The Southland Corporation from April 1987 until February 1991, and as a
National Sales Manager with The Southland Corporation from April 1972 until
April 1987.
Joe W. Panter has served as Executive Vice President of the Company since
December 16, 1996 and as a director of the Company since July 7, 1994. Mr.
Panter served as Chief Executive Officer of the Company from January 1, 1996
until December 16, 1996 and as President of the Company from April 26,
26
<PAGE>
1994 until December 16, 1996. Mr. Panter served as Chief Financial Officer of
the Company from June 5, 1990 until January 1, 1996, as Senior Vice President of
the Company from October 19, 1993 until April 26, 1994, as Secretary and
Treasurer of the Company from June 5, 1990 until May 4, 1994, and as Vice
President of the Company from June 5, 1990 until October 19, 1993. Mr. Panter
was Chief Financial Officer of K-Lin Corporation, a Scottsdale, Arizona-based
entertainment and leisure company, from September 1987 until January 1990. Mr.
Panter was Executive Vice President of Elcor Financial Corporation, an
Arizona-based real estate investment and management company, from May 1983 until
September 1987.
Mark C. Walker has served as Chief Financial Officer of the Company since
January 1, 1996. Treasurer of the Company since May 4, 1994, Vice President --
Finance since July 7, 1994, and Secretary since June 27, 1995. Mr. Walker was
the Controller of Executone Information Systems, Inc. from November 1986 until
joining the Company in March 1993. Mr. Walker was employed by Ernst and Young,
an international public accounting firm, from August 1982 until November 1986,
most recently as an audit manager. Mr. Walker, a Certified Public Accountant and
Certified Management Accountant, is a member of the Arizona State Society of
CPAs, the American Institute of CPAs and the Institute of Management
Accountants.
Jane Evans has served as a director of the Company since March 10, 1997. Ms.
Evans has served as President and Chief Operating Officer of Smart TV since
April 1995. Ms. Evans served as Vice President and General Manager of U.S. West
Communications, Home and Personal Services from February 1991 until March 1995,
as President and Chief Executive Officer of Interpacific Retail Group from March
1989 until January 1991, as a General Partner of Montgomery Securities from
January 1987 until February 1989, as President and Chief Executive Officer of
Monet Jewelers from May 1984 until December 1987, as Executive Vice President --
Fashion Group of General Mills, Inc. from October 1979 until April 1984, as Vice
President -- Corporate Development of Fingerhut from November 1977 until
September 1979, as President of Butterick Fashions from May 1974 until October
1977, and as President of the I. Miller Division of Genesro, Inc. from May 1970
until May 1973. Ms. Evans serves on the Boards of Directors of the Philip Morris
Companies, Inc.; Georgia-Pacific Corp.; Kaufman & Broad Home Corp.; and Edison
Bros. Stores, Inc.
Steven A. Sherman has served as a director since June 5, 1990. Mr. Sherman
served as the Chairman of the Company from June 5, 1990 until August 9, 1996, as
Chief Executive Officer of the Company from June 5, 1990 until January 1, 1996,
and as the President of the Company from January 15, 1993 until April 26, 1994.
Mr. Sherman has been a principal of a merchant banking organization called the
Sherman Group since its formation in July 1988. Mr. Sherman also has served as
Chairman of the Board and President of Novatel Wireless, Inc. since 1996. In
addition, Mr. Sherman has served as the Chairman of the Board of Vodavi
Technology, Inc., a company involved in the design, development and distribution
of telephones, telephone systems, and related products, since its founding in
April 1994. Mr. Sherman was Chairman of the Board of Executone Information
Systems, Inc. (formerly Vodavi Technology Corporation, a provider of information
systems, which was founded by Mr. Sherman) from 1983 until his resignation in
July 1988 and a director of Executone from 1983 until his resignation in January
1990. In April 1994, Vodavi Technology, Inc. purchased the business of the
Vodavi Communications Division from Executone Information Systems, Inc.
John C. Metz has served as a director of the Company since April 1, 1996. Mr.
Metz has served as Chairman and Chief Executive Officer of Metz Enterprises,
Inc., a contract food management and retail restaurant company, since 1987. Mr.
Metz also is a director of Longhorn Steaks, Inc., a chain of approximately 60
Texas-style roadhouse casual dining restaurants.
There are no family relationships among any of the Company's directors and
executive officers.
27
<PAGE>
SUMMARY OF CASH AND OTHER COMPENSATION
The following table sets forth, for the periods indicated, the compensation
received by the Company's Chief Executive Officer and its other executive
officers whose annual salary and bonus exceeded $100,000 for the fiscal year
ended December 30, 1996.
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
--------------
AWARDS
--------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#)
--------------------------- ---- --------- -------- ----------
Steven A. Sherman, 1996 $193,739 -- 40,000(3)
Chairman of the Board(1) 1995 347,454 -- --
1994 352,160 $ 50,736 --
Joe W. Panter, 1996 $205,400 -- 90,000(3)
President and 1995 197,595 -- --
Chief Executive Officer(2) 1994 198,879 $ 50,736 --
John F. Antioco 1996 -- -- 800,000(4)
Chairman of the Board
Bart A. Brown, Jr 1996 --(5) -- 250,000(5)
President and Chief
Executive Officer
- ----------
(1) Mr. Sherman served as Chairman of the Board of the Company from June 5,
1990 until August 9, 1996, as Chief Executive Officer of the Company from
June 1990 until January 1, 1996, and as President of the Company from
January 15, 1993 until April 26, 1994.
(2) Mr. Panter served as Chief Executive Officer of the Company from January 1,
1996 until December 16, 1996, as President of the Company from April 26,
1994 until December 16, 1996, as Chief Financial Officer of the Company
from June 5, 1990 until January 1, 1996, as Senior Vice President of the
Company from October 19, 1993 until April 26, 1994, as Secretary and
Treasurer of the Company from June 5, 1990 until May 4, 1994, and as Vice
President of the Company from June 5, 1990 until October 19, 1993.
(3) The options granted to Messrs. Sherman and Panter in 1996 were at an
exercise price of $4.00 per share (which exceeded the fair value of the
shares on the date of grant), which are exercisable ratably over a
three-year period.
(4) The options granted to Mr. Antioco were at exercise prices of $2.00 to
$5.00 per share and vest over a three-year period.
(5) Mr. Brown served as President and Chief Executive Officer of the Company
from December 16, 1996 through December 30, 1996 for no cash compensation.
The options granted to Mr. Brown were at exercise prices of $2.00 to $5.00
per share and vest over a two-year period.
Officers and key personnel of the Company are eligible to receive stock
options under the Company's 1990 and 1995 Stock Option Plans will be eligible to
receive stock options and awards pursuant to the 1995 Plan. Executive Officers
serve at the discretion of the Board of Directors. See "Employment Agreements."
28
<PAGE>
OPTION GRANTS
The following table provides information on stock options granted to the
Company's executive officers during the fiscal year ended December 30, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE
- ---------------------------------------------------------------------- AT ASSUMED ANNUAL
NUMBER OF RATES OF STOCK
SECURITIES PRICE
UNDERLYING % OF TOTAL APPRECIATION FOR
OPTIONS OPTIONS EXERCISE OPTION TERM(2)
GRANTED GRANTED IN PRICE EXPIRATION -------------------
NAME (#)(1) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ------------------- ------------ ------------- ---------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Steven A. Sherman . 40,000 2.4% $4.00 2006 $ 47,684 $ 170,702
Joe W. Panter ...... 90,000 5.4% $4.00 2006 $107,289 $ 384,080
John F. Antioco ...400,000 23.9% $2.00 2006 $503,116 $1,274,994
200,000 12.0% $3.00 2006 $ 51,558 $ 437,497
200,000 12.0% $5.00 2006 $ 0 $ 37,497
Bart A. Brown, Jr. 100,000 6.0% $2.00 2006 $ 54,515 $ 205,272
50,000 3.0% $3.00 2006 $ 0 $ 52,636
50,000 3.0% $4.00 2006 $ 0 $ 2,636
50,000 3.0% $5.00 2006 $ 0 $ 0
Gerard T. Bisceglia 50,000 3.0% $2.00 2006 $ 48,891 $ 137,084
50,000 3.0% $3.00 2006 $ 0 $ 87,084
50,000 3.0% $4.00 2006 $ 0 $ 37,084
50,000 3.0% $5.00 2006 $ 0 $ 0
Mark C. Walker ..... 35,000 2.1% $4.00 2006 $ 41,724 $ 149,364
</TABLE>
- ----------
(1) The options were granted at or above the fair value of the shares on the
date of grant and have a 10-year term.
(2) Potential gains are net of the exercise price, but before taxes associated
with the exercise. Amounts represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. The assumed 5% and 10% rates of stock price appreciation are provided
in accordance with the rules of the Securities and Exchange Commission and
do not represent the Company's estimate or projections of the future price
of the Company's Common Stock. Actual gains, if any, on stock option
exercises will depend upon the future market prices of the Company's Common
Stock.
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<PAGE>
OPTION HOLDINGS
The following table provides information on options exercised in the last
fiscal year by the Company's executive officers and the value of their
unexercised options at December 30, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END (#)(1) FY-END ($)(2)
SHARES ACQUIRED VALUE REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE
- ------------------------- --------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Steven A. Sherman ....... -- -- 13,333/126,666 $0/$0
Joe W. Panter ........... -- -- 35,937/7,813 $0/$0
John F. Antioco ......... -- -- 217,500/600,000 $0/$0
Bart A. Brown, Jr. ...... -- -- 100,000/150,000 $0/$0
Gerard T. Bisceglia ..... -- -- 50,000/154,000 $0/$0
Mark C. Walker .......... -- -- 11,667/27,333 $0/$0
</TABLE>
- ---------
(1) Amounts reflect options outstanding as of December 30, 1996.
(2) The exercise price of such options was in excess of the fiscal year end
value of the Company's Common Stock of $1 5/8 per share.
1990 STOCK OPTION PLAN
On July 25, 1990, the Company's Board of Directors adopted, and on July 1,
1991 the Company's stockholders approved, the 1990 Stock Option Plan (the "1990
Plan"). The 1990 Plan provides for the granting of both incentive stock options
and nonstatutory stock options to qualified employees and non-employee
directors. The 1990 Plan also provides for various other incentive awards,
including "Stock Appreciation Rights." Options granted under the 1990 Plan
generally cannot be exercised for at least one year and typically can only be
exercised in installments of an equal number of shares over a three- to
five-year period. As of March 31, 1997, 64,325 shares of Common Stock have been
issued upon exercise of options granted pursuant to the 1990 Plan and there were
outstanding options to purchase 111,500 shares of Common Stock under the 1990
Plan. No incentive awards other than stock options have been granted under the
1990 Plan. The Company has reserved an additional 74,175 shares of Common Stock
for issuance under the 1990 Plan.
The exercise price of all incentive stock options and options granted to
directors under the 1990 Plan must be at least equal to the fair market value of
the shares on the date of the grant or, in the case of incentive stock options
granted to the holder of 10% or more of the Company's Common Stock (a "10%
Stockholder"), at least 110% of the fair market value of such shares on the date
of the grant. The maximum exercise period for which incentive stock options may
be granted is ten years (five years in the case of a 10% Stockholder).
The 1990 Plan provides for its administration in accordance with the
requirements of Rule 16b-3 under the Exchange Act. The 1990 Plan currently is
administered by a committee of directors who are "disinterested persons" chosen
by the Board of Directors to administer the 1990 Plan (the "Committee"). The
Committee has discretionary authority, subject to certain restrictions, to
determine the individuals to whom, the times at which, and, with respect to
nonstatutory stock options, the exercise price for which options will be
granted. Notwithstanding the foregoing, the 1990 Plan provides that the Company
will not grant any nonstatutory stock options to purchase shares at an exercise
price of less than 85% of the fair market value of such shares on the date of
the grant.
30
<PAGE>
1995 STOCK OPTION PLAN
General
The 1995 Plan is divided into two programs: the Discretionary Grant Program
(the "Discretionary Program") and the Automatic Grant Program (the "Automatic
Program"). The Discretionary Program provides for the grant of options to
acquire Common Stock of the Company ("Options"), the direct grant of Common
Stock ("Stock Awards"), the grant of stock appreciation rights ("SARs"), and the
grant of other cash awards ("Cash Awards") (Stock Awards, SARs, and Cash Awards
are collectively referred to herein as "Awards"). The Automatic Program provides
for the automatic grant of options to acquire the Common Stock of the Company to
non-employee members of the Company's Board of Directors.
The 1995 Plan states that it is not intended to be the exclusive means by
which the Company may issue options or warrants to acquire its Common Stock,
stock awards, or any other type of award. To the extent permitted by applicable
law, the Company may issue any other options, warrants, or awards other than
pursuant to the 1995 Plan without stockholder approval.
Shares Subject to the Plan
A maximum of 325,000 shares of Common Stock of the Company may be issued
under the 1995 Plan. If any Option or SAR terminates or expires without having
been exercised in full, stock not issued under such Option or SAR will again be
available for the purposes of the 1995 Plan. If any change is made in the stock
subject to the 1995 Plan or subject to any Option or SAR granted under the 1995
Plan (through merger, consolidation, reorganization, recapitalization, stock
dividend, split-up, combination of shares, exchange of shares, change in
corporate structure, or otherwise), the 1995 Plan provides that appropriate
adjustments will be made as to the maximum number of shares subject to the 1995
Plan and the number of shares and exercise price per share of stock subject to
outstanding Options or Awards. There were outstanding Options to acquire 235,000
shares of the Company's Common Stock under the 1995 Plan as of March 31, 1997.
See "Executive Compensation -- Option Grants."
Eligibility and Administration
Options and Awards may be granted pursuant to the Discretionary Program only
to persons ("Eligible Persons") who at the time of grant are either (i) key
personnel (including officers and directors) of the Company, or (ii) consultants
and independent contractors who provide valuable services to the Company.
Options granted pursuant to the Discretionary Program may be incentive stock
options or non-qualified stock options. Options that are incentive stock options
may be granted only to key personnel of the Company who are also employees of
the Company. To the extent that granted Options are incentive stock options, the
terms and conditions of those Options must be consistent with the qualification
requirements set forth in the Internal Revenue Code of 1986, as amended.
The Eligible Persons under the Discretionary Grant Program are divided into
two groups, and there is a separate administrator (each a "Plan Administrator")
for each group. One group consists of the executive officers and directors of
the Company and persons who own 10% or more of the Company's issued and
outstanding stock. The power to administer the 1995 Plan with respect to those
persons is vested exclusively with the Board of Directors or a committee (the
"Senior Committee") comprised of two or more non-employee directors who are
appointed by the Board of Directors. The power to administer the 1995 Plan with
respect to the remaining Eligible Persons is vested with the Board of Directors
of the Company or with a committee of two or more directors appointed by the
Board of Directors. Each Plan Administrator determines (i) which of the Eligible
Persons in its group will be granted Options and Awards; (ii) the amount and
timing of the grant of such Options and Awards; and (iii) such other terms and
conditions as may be imposed by the Plan Administrator consistent with the 1995
Plan. The maximum number of shares of stock with respect to which Options or
SARs may be granted to any employee (including officers) during the term of the
1995 Plan may not exceed 50% of the shares of Common Stock covered by the 1995
Plan.
Terms and Conditions of Options; Exercise of Options
Each Plan Administrator will determine the expiration date, maximum number of
shares purchasable, and the other provisions of the Options at the time of
grant. Options may be granted for terms of
31
<PAGE>
up to 10 years. Options will vest and become exercisable in whole or in one or
more installments at such time as may be determined by the Plan Administrator
upon the grant of the Options. However, a Plan Administrator has the discretion
to provide for the automatic acceleration of the vesting of any Options or
Awards granted under the Discretionary Grant Program in the event of a "Change
in Control," as defined in the 1995 Plan.
Each Plan Administrator also will determine the exercise prices of Options at
the time of grant. However, the exercise price of any Option intended to be an
incentive stock option may not be less than 100% of the fair market value of the
Common Stock at the time of the grant (110% if the Option is granted to a person
who at the time the Option is granted owns stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company). To exercise
an Option, the optionholder will be required to deliver to the Company full
payment of the exercise price for the shares as to which the Option is being
exercised. Generally, Options can be exercised by delivery of cash, check, or
shares of Common Stock of the Company.
Termination of Employment or Services
Except as otherwise allowed by the Plan Administrator, Options and Awards
granted under the 1995 Plan are nontransferable other than by will or by the
laws of descent and distribution upon the death of the holder and, during the
lifetime of the holder, are exercisable only by such holder. In the event of the
termination of the holder's services with the Company, other than for death or
disability, the holder may exercise any Options or SARs that are vested but
unexercised on the date his or her service is terminated until the earlier of
(i) 90 days after the date of termination of service, or (ii) the expiration
date of the Options or SARs. However, termination of employment at any time for
cause immediately terminates all Options or SARs held by the terminated
employee. If termination is by reason of disability, however, the holder may
exercise his or her Options or SARs until the earlier of (i) 12 months after the
termination of service, or (ii) the expiration of the term of the Option or SAR.
If the holder dies while in service to the Company, the holder's estate or
successor by bequest or inheritance may exercise any Options or SARs that the
holder was entitled to exercise on the date of his or her death at any time
until the earlier of (i) the period ending three months after the holder's
death, or (ii) the expiration of the term of the Option or SAR.
Awards
SARs will entitle the recipient to receive a payment equal to the
appreciation in market value of a stated number of shares of Common Stock from
the price on the date the SAR was granted or became effective to the market
value of the Common Stock on the date first exercised or surrendered. Stock
Awards will entitle the recipient to receive shares of the Company's Common
Stock directly. Cash Awards will entitle the recipient to receive direct
payments of cash depending on the market value or the appreciation of the Common
Stock or other securities of the Company. The Plan Administrators may determine
such other terms, conditions, or limitations, if any, on any Awards granted
pursuant to the 1995 Plan.
Automatic Options
The Automatic Program provides for the automatic grant of Options ("Automatic
Options") to non-employee directors of the Company. Each non-employee director
serving on the Board of Directors on the date of the adoption of the 1995 Plan
received Automatic Options to acquire 7,500 shares of Common Stock, and each
subsequent newly elected non-employee member of the Board of Directors will
receive Automatic Options to acquire 15,000 shares of Common Stock on the date
of his or her first appointment or election to the Board of Directors. In
addition, Automatic Options to acquire 2,500 shares of Common Stock will be
granted to each non-employee director at the meeting of the Board of Directors
held immediately after each annual meeting of stockholders. A non-employee
member of the Board of Directors is not eligible to receive the 2,500 share
Automatic Option if that grant date is within 90 days of such non-employee
member receiving the 15,000-share Automatic Option. Automatic Options become
exercisable and vest immediately upon grant, except that no Automatic Options
will vest until the approval of the 1995 Plan by the Company's stockholders.
32
<PAGE>
The exercise price per share of Automatic Options will be equal to 100% of
the fair market value of the Company's Common Stock (as defined in the 1995
Plan) on the date such Automatic Options are granted. Each Automatic Option
expires on the tenth anniversary of the date on which an Automatic Option grant
was made. In the event the non-employee director ceases to serve as a member of
the Board of Directors or dies while serving as a director, the optionholder or
the optionholder's estate or successor by bequest or inheritance may exercise
any Automatic Options vested at the time of cessation of service until the
earlier of (i) 90 days after the cessation of service, or (ii) the expiration of
the term of the Automatic Option. Non-employee members of the Company's Board of
Directors who do not serve on the Senior Committee also may be eligible to
receive Options or Awards under the Discretionary Program of the 1995 Plan or
option grants or direct stock issuances under any other plans of the Company.
The Board of Directors believes that the automatic grant of stock options to
non-employee directors is necessary to attract, retain and motivate independent
directors. The non-discretionary feature is intended to satisfy the requirements
of rules adopted under Section 16 of the Exchange Act.
Duration and Modification
The 1995 Plan will remain in effect until January 8, 2006. The Board of
Directors of the Company may at any time suspend, amend, or terminate the 1995
Plan, except that without approval of the stockholders of the Company, the Board
of Directors may not (i) increase the maximum number of shares of Common Stock
subject to the 1995 Plan (except in the case of certain organic changes to the
Company), (ii) reduce the exercise price at which Options may be granted or the
exercise price for which any outstanding Options may be exercised, (iii) extend
the term of the 1995 Plan, (iv) change the class of persons eligible to receive
Options or Awards under the 1995 Plan, or (v) materially increase the benefits
accruing to participants under the 1995 Plan. In addition, the Board may not,
without the consent of the optionholder, take any action that disqualifies any
Option previously granted under the Plan for treatment as an incentive stock
option or which adversely affects or impairs the rights of the optionholder of
any outstanding Option. Notwithstanding the foregoing, the Board of Directors
may amend the 1995 Plan from time to time as it deems necessary in order to meet
the requirements of any amendments to Rule 16b-3 under the Exchange Act without
the consent of the stockholders of the Company.
401(K) PROFIT SHARING PLAN
The Company's qualified 401(k) Profit Sharing Plan (the "401(k) Plan") was
adopted by the Board of Directors on January 14, 1991, effective as of January
1, 1991, and covers corporate management and restaurant employees. The 401(k)
Plan currently provides for a Company matching contribution equal to 25% of the
first 6% of the salary deduction a participant elects to defer as a contribution
to the 401(k) Plan. The 401(k) Plan further provides for a special discretionary
contribution equal to a percentage of a participant's salary to be determined
each year by the Company. The Company also may contribute a discretionary amount
in addition to the special discretionary contribution. Contributions to the
401(k) Plan by the Company for fiscal 1996 totalled approximately $79,000.
EMPLOYMENT AGREEMENTS
The Company is a party to employment agreements with Bart A. Brown, Jr. and
Gerard T. Bisceglia with terms through December 31, 1998 and October 29, 1999,
respectively. Mr. Brown's employment agreement provides for him to serve as the
President and Chief Executive Officer and Mr. Bisceglia's employment agreement
provides for him to serve as Executive Vice President and Chief Operating
Officer of the Company. The employment agreements provide for Mr. Brown and Mr.
Bisceglia to receive salaries of $250,000 and $175,000, respectively. In
addition, the employment agreements provide that Mr. Brown and Mr. Bisceglia
will be eligible to receive discretionary bonuses in amounts determined by the
Compensation Committee of the Company's Board of Directors, which is composed of
non-management directors, based upon the factors deemed relevant by the
Compensation Committee including the performance of the Company. Mr. Brown's
employment agreement permits him to engage in other business activities apart
from the Company so long as such business activities do not compete with the
business of the Company.
33
<PAGE>
The employment agreements provide for Mr. Brown and Mr. Bisceglia to receive
their fixed and bonus compensation to the date of the termination of their
employment by reason of resignation and for them to receive fixed compensation
to the date of termination of employment for cause as defined in the agreements.
In the event of the termination of employment by reason of death or disability,
the employment agreements provide for the payment of fixed compensation to Mr.
Brown and Mr. Bisceglia for a period of one year from the date of death or
disability. In the event of any termination of employment following any "change
in control" of the Company as defined in the agreement, the employment
agreements also provide for Mr. Brown and Mr. Bisceglia to receive their fixed
compensation as if their employment had not been terminated. Section 280G of the
Internal Revenue Code may limit the deductibility of such payments for federal
income tax purposes. If these payments are not deductible and if the Company has
income at least equal to such payments, an amount of income equal to the amount
of such payments could not be offset. As a result, the income that was not
offset would be "phantom income" (i.e. income without cash) to the Company. A
change in control would include a merger or consolidation of the Company, a sale
of all or substantially all of the assets of the Company, changes in the
identity of a majority of the members of the Board of Directors of the Company,
or acquisitions of more than 20% of the Company's Common Stock, subject to
certain limitations.
The Company is a party to employment agreements with Steven A. Sherman and
Joe W. Panter with terms through December 31, 1998. The employment agreements
provide for Mr. Sherman and Mr. Panter to receive salaries of $200,000,
$225,000, and $225,000, respectively, for the three years commencing January 1,
1996. In addition, the employment agreements provide that Mr. Sherman and Mr.
Panter will be eligible to receive discretionary bonuses in amounts determined
by the Compensation Committee of the Company's Board of Directors, which is
composed of non-management directors, based upon the factors deemed relevant by
the Compensation Committee including the performance of the Company. Mr.
Sherman's employment agreement permits him to engage in other business
activities apart from the Company so long as such business activities do not
compete with the business of the Company.
The employment agreements provide for Mr. Sherman and Mr. Panter to receive
their fixed and bonus compensation to the date of the termination of their
employment by reason of resignation and for them to receive fixed compensation
to the date of termination of employment for cause as defined in the agreements.
In the event of the termination of employment by reason of death or disability,
the employment agreements provide for the payment of fixed and bonus
compensation to Mr. Panter to the date of death or disability and to Mr. Sherman
or his personal representative for one year after death or disability. In the
event of any termination of employment following any "change in control" of the
Company as defined in the agreement, the employment agreements also provide for
Mr. Sherman and Mr. Panter to receive their fixed compensation in a lump sum and
bonus payments that would have been payable through the term of the agreement
(subject to a minimum bonus of $100,000 per annum) as if their employment had
not been terminated. Section 280G of the Internal Revenue Code may limit the
deductibility of such payments for federal income tax purposes. If these
payments are not deductible and if the Company has income at least equal to such
payments, an amount of income equal to the amount of such payments could not be
offset. As a result, the income that was not offset would be "phantom income"
(i.e. income without cash) to the Company. A change in control would include a
merger or consolidation of the Company, a sale of all or substantially all of
the assets of the Company, changes in the identity of a majority of the members
of the Board of Directors of the Company, or acquisitions of more than 20% of
the Company's Common Stock, subject to certain limitations.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Certificate of Incorporation and Bylaws of the Company provide that the
Company will indemnify and advance expenses, to the fullest extent permitted by
the Delaware General Corporation Law, to each person who is or was a director,
officer, or agent of the Company or who serves or served any other enterprise or
organization at the request of the Company (an "Indemnitee"). Under Delaware
law, to the extent that an Indemnitee is successful on the merits of a suit or
proceeding brought against him or her by reason of the fact that he or she was a
director, officer, or agent of the Company, or serves or served any other
enterprise or organization at the request of the Company, the Company will
indemnify him or
34
<PAGE>
her against expenses (including attorneys' fees) actually and reasonably
incurred in connection with such action. If unsuccessful in defense of a
third-party civil suit or a criminal suit, or if such suit is settled, an
Indemnitee may be indemnified under Delaware law against both (i) expenses,
including attorneys' fees, and (ii) judgments, fines, and amounts paid in
settlement if he or she acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of the Company, and,
with respect to any criminal action, had no reasonable cause to believe his or
her conduct was unlawful. If unsuccessful in defense of a suit brought by or in
the right of the Company, where the suit is settled, an Indemnitee may be
indemnified under Delaware law only against expenses (including attorneys' fees)
actually and reasonably incurred in the defense or settlement of the suit if he
or she acted in good faith and in a manner he or she reasonably believed to be
in, or not opposed to, the best interests of the Company, except that if the
Indemnitee is adjudged to be liable for negligence or misconduct in the
performance of his or her duty to the Company, he or she cannot be made whole
even for expenses unless a court determines that he or she is fully and
reasonably entitled to indemnification for such expenses. Also under Delaware
law, expenses incurred by an officer or director in defending a civil or
criminal action, suit, or proceeding may be paid by the Company in advance of
the final disposition of the suit, action, or proceeding upon receipt of an
undertaking by or on behalf of the officer or director to repay such amount if
it is ultimately determined that he or she is not entitled to be indemnified by
the Company. The Company also may advance expenses incurred by other employees
and agents of the Company upon such terms and conditions, if any, that the Board
of Directors of the Company deems appropriate. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers, or persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed that, in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
CERTAIN TRANSACTIONS
The Company has adopted a policy that it will not enter into any transactions
with directors, officers, or holders of more than 5% of its Common Stock on
terms which are less favorable to the Company than could be obtained from
independent third parties and that any loans to directors, officers, or 5%
stockholders will be approved by a majority of the disinterested directors.
In December 1993, the Company entered into a five-year lease for space to
serve as the corporate offices of the Company. Steven A. Sherman and Joe W.
Panter own a majority interest in the building housing the space. The lease was
approved by the disinterested directors of the Company. The lease provides for
annual rent of approximately $172,000 in 1997 and $175,000 in 1998. Rental
payments under this agreement were approximately $166,000 and $169,000 during
1995 and 1996, respectively.
In May 1991, the Company became a party to a five-year management assistance
agreement with AsianStar, Inc. ("AsianStar"). J. Y. Lee, the Chairman and
principal stockholder of AsianStar, was a director of the Company from September
27, 1991 to February 13, 1996. The Company recorded approximately $426,000 and
$441,000 of income relating to the management assistance agreement during fiscal
1994 and 1995, respectively. In 1996, the Company finalized an agreement with
AsianStar to exchange the receivable generated by this agreement, approximately
$1,497,000, and cash of approximately $162,000 for an ownership interest in
AsianStar. See Note 2 to the Notes to Consolidated Financial Statements.
During 1996, the Company sold 766,666 shares of its Common Stock at fair
market value at the time of purchase to John F. Antioco and Gerard T. Bisceglia
for $1,500,000.
In January 1997, the Company sold a total of 1,250,000 shares of its Common
Stock for $2,500,000, which exceeded the fair market value of the stock on the
date of purchase. Of these shares, John F. Antioco and Bart A. Brown, Jr.
purchased a total of 500,000 shares and unrelated accredited investors purchased
the balance.
The Company believes that the foregoing transactions were no less favorable
to the Company than could be obtained from non-affiliated parties.
35
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 31, 1997 by (i) each person
who is known to the Company to own beneficially more than 5% of the Company's
Common Stock, (ii) each director, (iii) each of the named executive officers,
(iv) all directors and executive officers as a group, and (v) each of the
Selling Stockholders.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING AFTER OFFERING
NAME AND ADDRESS OF ------------------------ SHARES BEING ---------------------
BENEFICIAL OWNER(1) NUMBER PERCENT(2) OFFERED FOR SALE NUMBER PERCENT(2)
- ------------------------------------- -------------- --------- ---------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
John F. Antioco ...................... 1,175,000(3) 11.5% 750,000 425,000 4.2%
Bart A. Brown ........................ 430,000(4) 4.3% 250,000 180,000 1.8%
Gerard T. Bisceglia .................. 327,566(5) 3.3% 266,666 60,900 *
Joe W. Panter ........................ 158,750(6) 1.6% 103,750(11) 55,000 *
Mark C. Walker ....................... 14,167(7) * -- 14,167 *
Jane Evans ........................... 15,000(8) * -- 15,000 *
John C. Metz ......................... 25,500(9) * -- 25,500 *
Steven A. Sherman .................... 432,639(10) 4.3% 296,438(11) 136,201 1.4%
All directors and officers as a group 2,474,872(11) 24.8% 1,563,104(11) 1,015,518 10.1%
(eight persons) .....................
OTHER SELLING STOCKHOLDERS:
David Abel .......................... 100,000 1.0% 100,000 -- --
Joseph Brown ........................ 50,000 * 50,000 -- --
David K.B. Chua(12) ................. 90,925 * 90,925 -- --
Thomas DuPree(13) ................... 300,000 3.0% 300,000 -- --
James Harless ....................... 50,000 * 50,000 -- --
George Sarlo(14) .................... 250,000 2.5% 250,000 -- --
David Selph(15) ..................... 12,500 * 12,500 -- --
TGI Friday's Inc.(16) ............... 257,441 2.6% 257,441 -- --
</TABLE>
- ----------
* Less than 1.0%.
(1) Each of such persons may be reached through the Company at 5050 North 40th
Street, Suite 200, Phoenix, Arizona 85018, except as set forth in footnotes
12 through 16.
(2) The percentages shown include the shares of Common Stock actually owned as
of March 31, 1997 and the shares of Common Stock that the person or group
had the right to acquire within 60 days of such date. In calculating the
percentage of ownership, all shares of Common Stock that the identified
person or group had the right to acquire within 60 days of March 31, 1997
upon the exercise of options and warrants are deemed to be outstanding for
the purpose of computing the percentage of the shares of Common Stock owned
by such person or group, but are not deemed to be outstanding for the
purpose of computing the percentage of the shares of Common Stock owned by
any other person.
(3) Includes options to purchase 217,500 shares of Common Stock held by Mr.
Antioco.
(4) Includes options to purchase 100,000 shares held by Mr. Brown.
(5) Includes options to purchase 50,000 shares held by Mr. Bisceglia.
(6) Includes options to purchase 30,000 shares held by Mr. Panter. Also
includes a total of 110,000 shares of Common Stock owned by a limited
liability company in which he is a member.
(7) Includes options to purchase 11,667 shares held by Mr. Walker.
(8) Consists of options to purchase 15,000 shares held by Ms. Evans.
(9) Includes options to purchase 17,500 shares held by Mr. Metz.
(Footnotes continued on following page.)
36
<PAGE>
(Footnotes continued from previous page.)
(10) Includes 6,250 shares of Common Stock held by Mr. Sherman's wife and 25,000
shares held by Mr. Sherman's children, as to which shares Mr. Sherman
disclaims any beneficial interest, and options to purchase 13,333 shares
held by Mr. Sherman. Also includes a total of 103,750 shares of Common
Stock owned by a limited liability company in which he is a member and
16,250 shares held by a partnership in which he is a partner.
(11) Includes 103,750 shares owned by a limited liability company in which
Messrs. Sherman and Partner are members.
(12) Mr. Chua maintains an address at 9150 Rue Rollin Crescent, Brossward
Montreal, Quebec J4X2P7
(13) Mr. DuPree maintains an address at DuPree Holdings, Hancock at Washington,
Madison, GA 30650.
(14) Mr. Sarlo maintains an address at 750 Battery Street, 7th Floor, San
Francisco, CA 94111.
(15) Mr. Selph maintains an address at 7300 West 110th Street, Suite 560,
Overland Park, KS 66210-2332.
(16) TGI Friday's Inc. maintains an address at 7540 LBJ Freeway, Suite 100,
Dallas, Texas 75380.
DESCRIPTION OF SECURITIES
GENERAL
The authorized capital stock of the Company consists of 40,000,000 shares of
Common Stock, $.001 par value, and 5,000,000 shares of Preferred Stock, $.001
par value.
COMMON STOCK
As the date of this Prospectus, 9,968,491 shares of Common Stock are issued
and outstanding. The Company also has reserved 364,830 shares of Common Stock
for issuance upon exercise of warrants (as described below under "Warrants")
185,675 shares of Common Stock for issuance upon exercise of options granted
under the 1990 Stock Option Plan, and 325,000 shares of Common Stock for
issuance upon exercise of options granted under the 1995 Stock Option Plan.
Holders of Common Stock are entitled to cast one vote for each share held of
record in all matters presented to stockholders. Holders of Common Stock are
entitled to receive such dividends as may be declared by the Board of Directors
out of funds legally available therefore and, in the event of liquidation, to
share pro rata in any distribution of the Company's assets after payment of
liabilities and any required payments on any outstanding Preferred Stock.
Holders of Common Stock do not have preemptive rights to subscribe for
additional shares issued by the Company. All of the outstanding shares of Common
Stock, including the shares of Common Stock to be sold in this offering, are
fully paid and nonassessable.
PREFERRED STOCK
Preferred Stock may be issued by the Board of Directors of the Company from
time to time in one or more series for such consideration and with such relative
rights and preferences as the Board of Directors may determine. Accordingly, the
Board of Directors has the power to fix the dividend rate and to establish the
provisions, if any, relating to voting rights, redemption rate, sinking fund,
liquidation preferences and conversion rights for any series of Preferred Stock
issued in the future. Other than the Class A Preferred Stock and Class B
Preferred Stock discussed below, no shares of Preferred Stock have been issued,
and the Company has no present plans, arrangements or understandings for the
issuance or sale of any other shares of Preferred Stock. Any Preferred Stock
that may be issued in the future could be given voting and conversion rights
that could dilute the voting power and equity of holders of Common Stock.
In connection with acquisitions, the Company had issued shares of Class A
Preferred Stock and shares of Class B Preferred Stock. The Class A Preferred
Stock was converted into 81,250 shares of Common Stock during 1994. The Class B
Preferred Stock was converted into 257,441 shares of Common Stock during 1994.
37
<PAGE>
WARRANTS
The Company has outstanding the following warrants to purchase shares of its
Common Stock:
(i) Warrants to purchase 68,182 shares issued on June 17, 1992 to David K.
B. Chua, a private investor and a director of the Company. The warrants
entitle the holder to purchase such shares for $20.00 per share, at any time
through June 17, 1997. These warrants are not subject to redemption by the
Company.
(ii) Warrants to purchase 93,750 shares issued on July 31, 1992 to certain
employees of the Company, in consideration for services rendered to the
Company by such employees in connection with the acquisition of Carnation
Dairy. The warrants entitle the holders to purchase such shares at $12.50 per
share at any time until July 31, 1997. All of these warrants currently are
exercisable. These warrants are not subject to redemption by the Company.
(iii) Warrants to purchase 202,898 shares issued on March 31, 1994 to the
lenders in connection with the Company's Senior Term Loan. The warrants
entitle the holders to purchase such shares at $10.35 per share until the
earlier of March 31, 2004 or 60 days following the date which is the fifth
consecutive trading date on which shares of the Company's Common Stock were
traded at a price of at least $12 per share.
REPORTS TO STOCKHOLDERS
The Company furnishes annual reports to its stockholders containing
consolidated financial statements of the Company audited by independent public
accountants. The Company also distributes quarterly reports containing unaudited
financial information.
STOCK TRANSFER AGENT
American Securities Transfer, Inc. is the transfer agent for the Common
Stock. The Company serves as its own transfer agent for the warrants.
SHARES ELIGIBLE FOR FUTURE SALE
Approximately 2,825,130 shares of Common Stock currently outstanding are
"restricted securities," as that term is defined in Rule 144 promulgated under
the Securities Act of 1933, as amended (the "Securities Act"). Such shares may
be sold only in compliance with Rule 144, pursuant to registration under the
Securities Act, or pursuant to an exemption from registration. Generally, under
Rule 144, each person holding restricted securities for a period of one year may
sell, every three-month period, in ordinary brokerage transactions or to market
makers an amount of shares equal to the greater of 1% of a company's then
outstanding common stock or the average weekly trading volume for the four weeks
prior to the proposed sale of such shares. Currently, most of the restricted
shares are eligible for sale under Rule 144 or under a registration statement
filed as a result of registration rights granted with respect to such shares.
Sales of substantial amounts of Common Stock by stockholders of the Company
under Rule 144, the registration statement, or otherwise, or even the potential
for such sales, are likely to have a depressive effect on the market price of
the Common Stock and could impair the Company's ability to raise capital through
the sale of its equity securities.
PLAN OF DISTRIBUTION
It is anticipated that the shares which may be sold from time to time by the
Selling Stockholders will be sold on the Nasdaq National Market System or in
privately negotiated transactions. It is possible that the Selling Stockholders
may sell their shares through registered broker-dealers. If any such
broker-dealer acts as a principal, a supplemental prospectus will be filed which
names any such broker-dealer, the number of shares involved, the price at which
such shares are to be sold, and the commissions paid or discounts or concessions
allowed to such broker-dealer, if applicable. The Selling Stockholders and any
broker-dealers that participate in the distribution may be deemed underwriters
within the meaning of Section 2(11) of the Securities Act of 1933.
38
<PAGE>
LEGAL OPINIONS
The validity of the shares offered hereby will be passed upon for the Company
by O'Connor, Cavanagh, Anderson, Killingsworth & Beshears, a professional
association, Phoenix, Arizona.
EXPERTS
The consolidated financial statements included in this Prospectus and
elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said reports.
39
<PAGE>
MAIN STREET AND MAIN INCORPORATED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Public Accountants ................................................ F-2
Consolidated Balance Sheets at December 25, 1995 and December 30, 1996 ................. F-3
Consolidated Statements of Operations for the fiscal years ended December 26, 1994,
December 25, 1995, and December 30, 1996 ............................................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the fiscal years
ended December 26, 1994, December 25, 1995, and December 30, 1996 ............. F-5
Consolidated Statements of Cash Flows for the fiscal years ended December 26, 1994,
December 25, 1995, and December 30, 1996 ............................................... F-6
Notes to Consolidated Financial Statements .............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Main Street and Main Incorporated:
We have audited the accompanying consolidated balance sheets of MAIN STREET
AND MAIN INCORPORATED (a Delaware corporation) and subsidiaries as of December
30, 1996, and December 25, 1995, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the years ended
December 30, 1996, December 25, 1995, and December 26, 1994. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Main Street and Main
Incorporated and subsidiaries as of December 30, 1996 and December 25, 1995, and
the results of their operations and their cash flows for the years ended
December 30, 1996, December 25, 1995 and December 26, 1994, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Phoenix, Arizona
March 31, 1997
F-2
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 30,
1995 1996
-------- --------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents ...................................... $ 4,741 $ 2,613
Accounts receivable, net ....................................... 2,484 1,248
Inventories .................................................... 1,517 1,275
Prepaid expenses ............................................... 461 173
Assets held for disposal,net ................................... -- 10,929
-------- --------
Total current assets ......................................... 9,203 16,238
Property and equipment, net ...................................... 44,104 32,162
Other assets, net ................................................ 6,287 4,780
Franchise costs, net ............................................. 22,761 16,418
Note receivable .................................................. 6,250 1,250
-------- --------
$ 88,605 $ 70,848
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt .............................. $ 4,567 $ 2,523
Accounts payable ............................................... 3,543 3,750
Other accrued liabilities ...................................... 8,941 11,308
-------- --------
Total current liabilities .................................... 17,051 17,581
-------- --------
Long-term debt, net of current portion ........................... 31,204 33,809
-------- --------
Other liabilities and deferred credits ........................... 3,089 2,873
-------- --------
Commitments and contingencies .................................... -- --
Stockholders' Equity
Common stock, $.001 par value, 40,000,000 shares authorized; ..... 8 9
7,951,825 and 8,718,491 shares issued and outstanding in 1995 and
1996, respectively
Additional paid-in capital ....................................... 40,205 41,694
Accumulated deficit .............................................. (2,952) (25,118)
-------- --------
37,261 16,585
-------- --------
$ 88,605 $ 70,848
======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated balance sheets.
F-3
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------
DECEMBER 26, DECEMBER 25, DECEMBER 30,
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenue ........................................................... $ 111,262 $ 119,508 $ 122,563
--------- --------- ---------
Restaurant Operating Expenses
Cost of sales ................................................... 30,516 34,005 35,089
Payroll and benefits ............................................ 34,849 36,769 38,858
Depreciation and amortization ................................... 3,884 4,353 4,586
Other operating expenses ........................................ 31,621 35,250 36,944
--------- --------- ---------
Total restaurant operating expenses ............................... 100,870 110,377 115,477
--------- --------- ---------
Income from restaurant operations ................................. 10,392 9,131 7,086
Depreciation and amortization ................................... 1,014 1,331 1,450
General and administrative expenses ............................. 4,191 4,410 4,388
Asset impairments and restructuring charges ..................... -- -- 20,208
--------- --------- ---------
Operating income(loss) ............................................ 5,187 3,390 (18,960)
Interest expense, net ........................................... 3,902 4,424 3,206
--------- --------- ---------
Net income (loss) before income taxes ........................... 1,285 (1,034) (22,166)
Provision for income taxes ........................................ -- -- --
--------- --------- ---------
Net income (loss) ................................................. $ 1,285 $ (1,034) $ (22,166)
========= ========= =========
Net Income (Loss) Per Share ....................................... $ 0.35 $ (0.22) $ (2.73)
========= ========= =========
Weighted average shares outstanding ............................... 3,692 4,621 8,110
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK
--------------------------------
CLASS A CLASS B COMMON STOCK
------------- ---------------- ---------------- ADDITIONAL
PAR PAR PAR PAID-IN ACCUMULATED
SHARES VALUE SHARES VALUE SHARES VALUE CAPITAL DEFICIT TOTAL
------ ----- ------ ----- ------ ----- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 ..... 1 $-- 1,030 $ 1 3,256 $ 3 $ 24,205 $ (3,203) $ 21,006
Shares issued in connection
with options exercised ........ -- -- -- -- 42 -- 424 -- 424
Conversion of preferred stock .. (1) -- (1,030) (1) 339 1 (114) -- (114)
Net income ..................... -- -- -- -- -- -- -- 1,285 1,285
-- --- -------- ---- ----- --- -------- -------- --------
BALANCE, DECEMBER 26, 1994 ..... -- -- -- -- 3,637 4 24,515 (1,918) 22,601
Shares issued in connection ... -- -- -- -- 4,313 4 15,674 -- 15,678
with public offering, net
Shares issued in connection with
options exercised ............. -- -- -- -- 2 -- 16 -- 16
Net loss ....................... -- -- -- -- -- -- -- (1,034) (1,034)
-- --- -------- ---- ----- --- -------- -------- --------
BALANCE, DECEMBER 25, 1995 ..... -- -- -- -- 7,952 8 40,205 (2,952) 37,261
Shares issued in connection
with private placement ........ -- -- -- -- 766 1 1,489 -- 1,490
Net loss ....................... -- -- -- -- -- -- -- (22,166) (22,166)
-- --- -------- ---- ----- --- -------- -------- --------
BALANCE, DECEMBER 30, 1996 ..... -- $-- -- $-- 8,718 $ 9 $ 41,694 $(25,118) $ 16,585
== === ======== ==== ===== === ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements
F-5
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------
DECEMBER 26, DECEMBER 25, DECEMBER 30,
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ........................................................ $ 1,285 $ (1,034) $(22,166)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization ........................................... 4,898 5,684 6,036
Asset impairments and restructuring charges ............................. -- -- 20,208
Changes in assets and liabilities:
Accounts receivable, net ................................................ (1,047) (378) 1,104
Inventories ............................................................. (63) (130) 57
Prepaid expenses ........................................................ (316) (134) 288
Other assets, net ....................................................... (2,719) (2,187) (1,380)
Accounts payable ........................................................ 2,845 (1,464) 207
Other accrued liabilities ............................................... 5,941 1,365 90
-------- -------- --------
Net Cash Flows -- Operating Activities ................................ 10,824 1,722 4,444
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash received on note receivable ......................................... 1,500 -- --
Payment of accrued acquisition costs ..................................... (1,538) (242) --
Net additions to property and equipment .................................. (9,181) (7,196) (8,623)
Cash received from sale-leaseback transaction ............................ -- 3,213 --
-------- -------- --------
Net Cash Flows -- Investing Activities ................................ (9,219) (4,225) (8,623)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock ....................................... 424 16,186 1,490
Financing and offering costs paid ........................................ (115) (1,774) --
Long term debt borrowings ................................................ 36,850 3,028 4,506
Principal payments on long term debt ..................................... (36,684) (13,245) (3,945)
-------- -------- --------
Net Cash Flows -- Financing Activities ................................ 475 4,195 2,051
-------- -------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS ................................... 2,080 1,692 (2,128)
CASH AND CASH EQUIVALENTS, BEGINNING ...................................... 969 3,049 4,741
-------- -------- --------
CASH AND CASH EQUIVALENTS, ENDING ......................................... $ 3,049 $ 4,741 $ 2,613
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest ................................... $ 2,831 $ 5,041 $ 2,987
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements
F-6
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Main Street and Main Incorporated (the "Company") is a Delaware corporation
engaged in the business of acquiring, developing, and operating restaurants. The
Company currently owns 38 T.G.I. Friday's restaurants and one Front Row Sports
Grill, and operates eight T.G.I. Friday restaurants under management agreements.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All material intercompany transactions have been
eliminated in consolidation. Certain 1994 and 1995 balances have been
reclassified to conform to the 1996 presentation.
Fiscal Year
The Company's restaurants operate on a fiscal year that ends on the Monday
closest to December 31.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements, and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
2. ASSET IMPAIRMENTS AND RESTRUCTURING CHARGES
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards -- ("SFAS") No. 121, "Accounting for the Impairment of
Long-lived Assets and for Long-lived assets to be Disposed Of", which the
Company adopted in 1996. SFAS No. 121 requires that long-lived assets be
reviewed for impairment whenever events or circumstances indicate that the
carrying amount of the assets may not be recoverable. If the sum of the expected
future cash flows (undiscounted and without interest charges) from an asset to
be held and used in operations is less than the carrying value of the asset, an
impairment loss must be recognized in the amount of the difference between the
carrying value and the fair value. Assets to be disposed of must be valued at
the lower of carrying value or fair value less costs to sell.
During 1996, the Company implemented a long-term business strategy to place
more emphasis on its core business and to dispose of underperforming core assets
and non-core assets. As a result of implementing this strategy, together with
certain events occuring during the year, the Company recognized a restructuring
charge and impairments of certain assets as follows (in thousands):
Impairment of non-core assets .............. $ 6,985
Impairment of core assets held for disposal 8,674
Impairment of core assets used in operations 3,141
Other restructuring costs .................. 1,408
-------
$20,208
=======
Impairment of non-core assets
In December 1993, the Company sold its dairy and food distribution business
for $7,500,000, consisting of a promissory note in the amount of $1,500,000,
which was paid by January 31, 1994, and a promissory note in the amount of
$6,000,000 due on December 31, 1996. The purchase price exceeded the Company's
cost basis by approximately $864,000 resulting in a net deferred gain on the
disposal, which is included in other liabilities and deferred credits at
December 25, 1995. During the second quarter of 1996, the debtor on the
$6,000,000 promissory note sold assets related to its dairy operations, which
F-7
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
represented a significant portion of the collateral securing the note. The
debtor used cash from the sale to pay down senior debt and to provide working
capital for its ice cream novelty production facility. The Company converted its
promissory note to an equity position in the debtor's business. Due to
uncertainty of the business, the Company's promissory note, net of the deferred
gain booked at the time of the initial sale, was written down by $4,136,000.
In May 1991, the Company entered into a five-year management assistance
agreement with AsianStar Co., Ltd. ("AsianStar"), a Korean company affiliated
with a former director of the Company, to provide management services and
expertise relative to the development and operation of T.G.I. Friday's
restaurants in the Republic of Korea. The management assistance agreement
provided for the Company to receive a fee of 3% of the net revenue of the first
two restaurants developed in Seoul, Korea. The Company recorded approximately
$426,000 and $441,000 of royalty income during 1994 and 1995, respectively. In
1996, the Company finalized an agreement with AsianStar to exchange its
receivable, from the recognition of royalty income, for an ownership interest in
AsianStar. As a result of the uncertainty of the Korean venture and the
estimated length of time before the Company will receive any return on its
investment, a $1,000,000 impairment loss was taken during 1996. The Company's
investment in the Korean venture is approximately $1,497,000 and $659,000 as of
December 25, 1995 and December 30, 1996 respectively, and is included in other
assets.
In addition, the Company determined that property and equipment related to
its indoor entertainment center being leased to a third party exceeded its
realizable value based on the level of lease payments to be received over the
remaining life of the lease, which resulted in an impairment loss of $582,000.
The remaining balance of the impairment of non-core assets consists primarily of
write downs of real estate that the Company was holding for future restaurant
development and now has plans to dispose of within the next 12 months.
Impairment of core assets held for disposal:
The Company recorded a $5,541,000 charge to write off property and equipment
and pre-opening costs associated with two of the Company's recently developed
restaurants. One of the restaurants was a Front Row Sports Grill in Portland,
Oregon, and the other was a T.G.I. Friday's restaurant in Denver, Colorado. In
addition, the Company took a $1,096,000 impairment loss charge in anticipation
of closing a 20 year old T.G.I. Friday's restaurant in southern California. The
remaining balance of the impairment loss of $2,037,000 of core assets held for
disposal relates to assets of three T.G.I. Friday's that were written down to
fair value in anticipation of their disposition.
Impairment of core assets used in operations:
In accordance with SFAS No. 121, the Company recorded a charge of $3,141,000
related to three of its restaurants where undiscounted cash flows over the
remaining term of the lease did not support the carrying value of the assets.
Other restructuring costs:
Other restructuring costs include severance, contract termination and
professional service costs incurred in conjunction with the restructuring.
3. MANAGEMENT PLANS
During 1996, the Company had a change in management and implemented a
long-term business strategy to enhance its financial position, to place more
emphasis on its casual dining business in certain designated areas, to dispose
of underperforming assets, and to pursue new restaurant concepts.
The first step was to strengthen the Company's financial position. This was
accomplished by the sale of 1,566,666 shares of Common Stock for $3,000,000
through a private placement transaction, the sale of five restaurants in
northern California for $10,575,000, of which $8,000,000 in proceeds were used
to repay
F-8
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
debt (Notes 4 and 6), and new borrowings of $21.3 million with a repayment
period of 15 years. Proceeds from the new borrowings were used primarily to pay
off debt with shorter repayment periods (Note 6).
The Company has also renegotiated its development agreements with TGI
Friday's Inc. to reduce the number of T.G.I. Friday's restaurants it is required
to build with the intent to focus on those development territories that are most
economically favorable (Note 8). The T.G.I. Friday's restaurants currently
planned for development will be owned by a third party lender with the Company
operating the restaurants and deriving a management fee. This strategy will
allow the Company to continue to grow while at the same time deleveraging its
balance sheet. In addition, the Company has taken a charge for asset impairments
and restructuring to dispose of various non-core assets and write down certain
core assets to realizable values (Note 2).
The next step in the Company's strategy will be to reduce operating costs and
expand its restaurant operations. This will entail continuing to build T.G.I.
Friday's restaurants and evaluating other concepts in the casual dining segment.
The Company has recently become a majority partner in a venture to develop and
operate cajun themed restaurants.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements reflect the application of the
following accounting policies:
Cash and Cash Equivalents
Cash and cash equivalents include funds on hand, short-term money market
investments, and certificate of deposit accounts with original maturities within
91 days of purchase.
Inventories
Inventories consist primarily of food, beverages and supplies and are stated
at cost using the first-in, first-out ("FIFO") method.
Property and Equipment
Property and equipment are stated at cost, depreciated on a straight-line
basis over the estimated useful lives, and consist of the following (in
thousands):
USEFUL LIVES 1995 1996
------------ ---- ----
Land ..................................... -- $ 2,371 $ 1,234
Building and leasehold improvements ...... 5-20 27,178 21,950
Kitchen equipment ........................ 5-7 9,684 7,858
Restaurant equipment ..................... 5-10 4,145 3,539
Smallwares and decor ..................... 5-10 5,414 4,410
Office equipment and furniture ........... 5-7 1,557 1,498
Equipment under capital leases ........... 7 397 357
-------- --------
50,746 40,846
Less: Accumulated depreciation and
amortization ............................ (8,636) (10,520)
-------- --------
42,110 30,326
Construction in progress ................. 1,994 1,836
-------- --------
Total .................................. $ 44,104 $ 32,162
======== ========
Assets Held for Disposal
On January 16, 1997, the Company sold five restaurants in northern California
for $10,575,000 in cash and entered into a Management Agreement and Master
Incentive Management Agreement with the buyer to manage the restaurants (the
"Northern California Sale"). This transaction resulted in a gain
F-9
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
before taxes of approximately $1,800,000, which will be recognized in the first
quarter of 1997. Of the total proceeds, $8,000,000 was used to reduce the
Company's Term Loan with the balance used for working capital purposes (Note 6).
The net carrying value of the five restaurants sold was approximately $8,669,000
at December 30, 1996 and is included in assets held for disposal. The remaining
balance of assets held for disposal consists of the net assets of three T.G.I.
Friday's restaurants that will be disposed of within the next 12 months.
Franchise Costs
The Company has paid certain franchise costs for the exclusive right to
operate restaurants in its franchise territories. These costs are being
amortized on a straight-line basis and consist of the following (in thousands):
AMORTIZATION
PERIOD 1995 1996
------ ---- ----
Franchise fees and license costs 20-30 $ 24,382 $ 18,430
Prepaid franchise fees ................ -- 198 30
-------- --------
24,580 18,460
Less: Accumulated amortization ........ (1,819) (2,042)
-------- --------
Total ............................... $ 22,761 $ 16,418
======== ========
Franchise fees and license costs represent the value assigned to the
franchise agreements in the regions acquired and to the licenses to operate the
restaurants. These agreements provide for an initial term of 20 years with two
renewal terms of 10 years each. Prepaid franchise fees relate to the restaurants
the Company is committed to develop under the terms of the development
agreements (Note 8).
Pre-opening Costs
The Company defers certain start-up costs directly related to the opening of
new restaurants. Pre- opening costs of approximately $403,000 and $148,000 as of
December 25, 1995 and December 30, 1996, respectively, are included in other
assets in the consolidated balance sheets.
The Company's policy is to amortize pre-opening costs over 12 months
commencing with the opening of each new restaurant. Amortization of pre-opening
costs was approximately $760,000, $640,000 and $318,000 (excluding amounts
included in the restructuring charge) in 1994, 1995, and 1996, respectively.
Other Accrued Liabilities
Other accrued liabilities consist of the following (in thousands):
1995 1996
---- ----
Bank overdraft ........................... $ 1,658 $ 2,432
Accrued payroll .......................... 1,773 2,429
Accrued losses on assets held for disposal -- 1,572
Accrued sales tax ........................ 1,295 861
Accrued interest ......................... 727 946
Other accrued liabilities ................ 3,488 3,068
------- -------
Total .................................. $ 8,941 $11,308
======= =======
Income Taxes
The Company utilizes the liability method of accounting for income taxes as
set forth in Statement of Financial Accounting Standards 109, Accounting for
Income Taxes. Under the liability method, deferred taxes are provided based on
the temporary differences between the financial reporting basis and
F-10
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
the tax basis of the Company's assets and liabilities, using enacted tax rates
in the years in which the differences are expected to reverse. The effect on
deferred taxes of a change in tax rates is recognized in income in the period
that includes the enactment date.
Net Income (Loss) Per Share
The calculation of net loss per share for 1995 and 1996 is based on the
weighted average shares outstanding. The calculation of net income per share for
1994 includes dilutive common stock equivalents.
5. INCOME TAXES
Deferred income taxes arise because of differences in the treatment of income
and expense items for financial reporting and income tax purposes. In 1995 and
1996, the Company generated net operating losses and in 1994, the Company
utilized net operating losses. The effect of temporary differences and
carryforwards that gave rise to deferred tax balances at December 25, 1995 and
December 30, 1996 were as follows (in thousands):
<TABLE>
<CAPTION>
TEMPORARY DIFFERENCES TAX CARRY
--------------------- FORWARDS AND NET DEFERRED
DECEMBER 25, 1995 DEDUCTIBLE TAXABLE CARRYBACKS TAX ASSETS
- ----------------- ---------- ------- ---------- ----------
<S> <C> <C> <C> <C>
Excess tax over book depreciation and amortization ...... $ -- $(3,157) $ -- $(3,157)
Provision for estimated expenses ........................ 894 -- -- 894
Other ................................................... 352 (502) -- (150)
Net operating loss carryforward ......................... -- -- 2,842 2,842
General business and AMT credits ........................ -- -- 1,377 1,377
Valuation reserve ....................................... -- -- (1,492) (1,492)
------- ------- ------- -------
Total ................................................... $ 1,246 $(3,659) $ 2,727 $ 314
======= ======= ======= =======
TEMPORARY DIFFERENCES TAX CARRY
--------------------- FORWARDS AND NET DEFERRED
DECEMBER 30, 1996 DEDUCTIBLE TAXABLE CARRYBACKS TAX ASSETS
- ----------------- ---------- ------- ---------- ----------
Excess tax over book depreciation ........................... $ -- $ (3,301) $ -- $ (3,301)
Provision for estimated expenses ............................ 1,363 -- -- 1,363
Asset impairments and restructuring charges ................. 6,955 -- -- 6,955
Other ....................................................... -- (491) -- (491)
General business and AMT credits ............................ -- -- 2,117 2,117
Net operating loss carryforward ............................. -- -- 4,461 4,461
Valuation reserve ........................................... -- -- (10,790) (10,790)
-------- -------- -------- --------
Total ....................................................... $ 8,318 $ (3,792) $ (4,212) $ 314
======== ======== ======== ========
</TABLE>
The amounts recorded as net deferred tax assets at December 25, 1995 and
December 30, 1996 are included as a component of other assets in the
consolidated balance sheets. The remaining net deferred tax asset as of December
30, 1996 consists primarily of the benefits to be obtained from the use of net
operating loss carryforwards and credits expected to be realized in the future.
In 1994, the Company's tax provision was fully offset by the reversal of
prior year valuation allowances. The Company did not recognize for financial
reporting purposes any benefits related to net operating losses generated during
1995 and 1996.
F-11
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
At December 30, 1996, the Company had approximately $11,150,000 of net
operating loss carryforwards to be used to offset future income for income tax
purposes. These carryforwards expire in the years 2005 to 2011.
Reconciliations of the federal income tax rate to the Company's effective tax
rate were as follows:
1995 1996
---- ----
Statutory federal rate ............ (34.0)% (34.0)%
State taxes, net of federal benefit (6.0) (6.0)
Nondeductible expenses ............ 29.0 1.4
Benefit of FICA credit ............ (69.6) (3.3)
Change in valuation allowance ..... 80.6 41.9
---- ----
0.0% 0.0%
==== ====
6. LONG-TERM DEBT
Long-term debt, shown on a historical and proforma basis to reflect a
refinancing subsequent to December 30, 1996, consists of the following (in
thousands):
<TABLE>
<CAPTION>
1996
--------------------------
MATURITY DATES INTEREST RATES 1995 HISTORICAL PROFORMA
-------------- -------------- ---- ---------- --------
<S> <C> <C> <C> <C> <C>
Term Loan .................................... 2002 2.8% over LIBOR $ 30,000 $ 26,500 $ --
Term Loan .................................... 2012 3.2% over LIBOR -- -- 21,300
TGI Friday's note payable .................... 1997 12% 1,817 1,817 --
Other notes payable .......................... 1999-2015 9.96 - 11% 3,698 7,839 7,839
Capital Leases ............................... 1999 11.5% 256 176 176
-------- -------- --------
35,771 36,332 29,315
Less current portion ......................... (4,567) (2,523) (2,523)
-------- -------- --------
Total ........................................ $ 31,204 $ 33,809 $ 26,792
======== ======== ========
</TABLE>
The note evidencing the Term Loan bore interest at the London Interbank
Offered Rate ("LIBOR") plus 280 basis points (8.6% as of March 31, 1997) and was
payable in quarterly installments of $750,000 with a final payment due upon
maturity on September 30, 2002. The Term Loan contained certain financial
covenants relative to debt service coverage, capital expenditures and other
ratios. In addition, the Company was required to maintain a minimum cash balance
and limit the incurrence of certain liens or encumbrances. The Company was not
in compliance with certain covenants and provisions of the Term Loan at December
30, 1996.
Subsequent to December 30, 1996, the Term Loan was repaid with $8,000,000 of
proceeds from the Northern California Sale (Note 4) and with proceeds from new
borrowings. The new borrowings, consist of three notes from one lender, total
$21,300,000, bear interest at LIBOR plus 320 basis points (8.9% at March 31,
1997), and are payable in equal monthly installments of principal and interest
of approximately $216,000 (combined) until the notes are paid in full on May 1,
2012. Proceeds from the new borrowings were also used to repay the TGI Friday's
note, including accrued interest of $301,000, with the remaining proceeds used
for general corporate purposes. The early extinguishment of the Term Loan
resulted in an extraordinary loss of approximately $1,600,000 before income
taxes, which will be recognized in the first quarter of fiscal 1997. The Company
currently finances equipment and leasehold improvements at restaurants it
develops. These notes range from $400,000 to $950,000, have interest rates
ranging from 10% to 11%, and require monthly principal and interest payments.
F-12
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The new borrowings are secured by 16 T.G.I. Friday's restaurants and contain
a financial covenant relative to a fixed charge coverage ratio with which the
Company currently is in compliance. In addition, nine T.G.I. Friday's
restaurants and the Front Row Sports Grill have been pledged as collateral for
other debt.
Maturities of long-term debt, giving effect to the new borrowings discussed
above, are as follows (in thousands):
1997 ......... $ 2,523
1998 ......... 1,497
1999 ......... 1,502
2000 ......... 1,564
2001 ......... 2,054
Thereafter.... 20,175
------
Total ...... $29,315
=======
7. STOCKHOLDERS' EQUITY
On September 29, 1995, the Company sold 3,750,000 shares of its Common Stock
in connection with a public offering and an additional 562,500 shares of its
Common Stock on October 30, 1995 pursuant to the exercise of the Underwriter's
over-allotment option. The net proceeds to the Company from this offering were
approximately $15,678,000, after deducting estimated offering expenses and
underwriting discounts and commissions. The Company used a portion of the net
proceeds to retire indebtedness and the remaining proceeds to develop new
restaurants and to provide funds for general corporate purposes.
During 1996, the Company sold 766,666 shares of its Common Stock to two
officers of the Company for $1,500,000. Subsequent to December 30, 1996, the
Company sold 1,250,000 shares of its Common Stock to various investors,
including 500,000 shares purchased by two officers of the Company, for total
proceeds of $2,500,000.
Stock Options
In July 1990, the Company's Board of Directors approved a stock option plan
("the 1990 Plan"). The 1990 Plan provides for issuance of up to 250,000 options
to acquire shares of the Company's Common Stock. The options are intended to
qualify as incentive stock options within the meaning of Section 422A of the
Internal Revenue Code of 1986 or as options which are not intended to meet the
requirements of such section (non-statutory stock options) and may include stock
appreciation rights, restricted stock awards, phantom stock, performance shares
or non-employee director's options.
The exercise price of all incentive stock options granted under the 1990 Plan
must be at least equal to the fair market value of such shares as of the date of
grant or, in the case of incentive stock options granted to the holder of 10% or
more of the Company's Common Stock, at least 110% of the fair market value of
such shares on the date of grant. The exercise price of all non-statutory stock
options granted under the 1990 Plan shall be determined by the Board of
Directors of the Company at the time of grant. The maximum exercise period for
which the options may be granted is 10 years from the date of grant (five years
in the case of incentive stock options granted to an individual owning more than
10% of the Company's Common Stock).
In January 1996, the Company adopted a new stock option plan ("the 1995
Plan"), with terms comparable to the 1990 Plan, covering 325,000 shares of
Common Stock.
During 1996, the Company canceled all outstanding options and granted new
options under the 1990 and 1995 Plans. In addition, the Company's Board of
Directors approved the issuance of 1,250,000 non-statutory stock options to
three of the Company's officers.
F-13
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Stock option information as of December 26, 1994, December 25, 1995 and
December 30, 1996 is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------------------ ------------------ --------------------
WTD. WTD. WTD.
AVG. AVG. AVG.
SHARES PRICE SHARES PRICE SHARES PRICE
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning of period .......... 248,225 $12.75 173,037 $12.74 118,413 $12.93
Granted ............................................. 31,863 12.00 -- -- 1,668,500 3.25
Exercised ........................................... 42,500 8.56 2,500 6.52 -- --
Canceled ............................................ 64,551 15.14 52,124 12.60 190,413 9.42
------- --------- ---------
Options outstanding at end of period ................ 173,037 12.74 118,413 12.93 1,596,500 3.40
======= ========= =========
Exercisable at end of period ........................ 86,847 11.88 86,469 12.85 350,000 2.00
======= ========= =========
Weighted average fair value of options granted ...... N/A N/A $ 0.59
======= ========= =========
</TABLE>
The Company accounts for stock options granted to employees, officers, and
directors in accordance with APB Opinion No. 25, under which no compensation
cost has been recognized. Had compensation cost been determined consistent with
SFAS No. 123, the Company's 1996 proforma net loss and pro forma loss per share
would have been $22,451,000 and $2.77 per share, respectively. There were no
options granted in 1995.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1996: risk-free interest rates of 5.8%; expected
dividend yields of zero; expected lives at 3.5 years; expected volatility of
40.7%.
Common Stock Warrants
As of December 25, 1995 and December 30, 1996 the Company had outstanding
warrants to acquire its securities as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Common Stock to be acquired by warrants; exercisable at $9.60 through
September 1996; non-callable ................................................................ 27,500 --
Common Stock to be acquired by warrants; exercisable at $20.00 through
September 1996; non-callable ................................................................ 28,899 --
Common Stock to be acquired by warrants issued to a former Director;
exercisable at $20.00 through June 1997; non-callable ....................................... 68,182 68,182
Common Stock to be acquired by warrants issued to various Company
employees; exercisable at $12.50 through July 1997; non-callable ............................ 93,750 93,750
Common Stock to be acquired by warrants issued to lenders in
connection with the Term Loan; exercisable at $10.35 through March
2004; callable .............................................................................. 193,192 202,898
------- -------
Total ...................................................................................... 411,523 364,830
======= =======
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
Development Agreements
The Company was obligated under five separate development agreements to open
42 new T.G.I. Friday's restaurants through 2002. The development agreements give
TGI Friday's Inc. certain remedies in the event the Company fails to timely
comply with the development agreements, including the right under certain
circumstances, to reduce the number of restaurants the Company may develop in
the related franchised territory, or terminate the Company's exclusive rights to
develop restaurants in the related franchised territory. The Company and TGI
Friday's Inc. have agreed to reduce the number of new T.G.I. Friday's
restaurants the Company is required to open through 2002 to 36. The Company will
retain its exclusive development territories of Arizona, Nevada, New Mexico,
northern California and the
F-14
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Kansas City metropolitan area, but will no longer develop new T.G.I. Friday's in
Colorado, Washington and Oregon. The Company and TGI Friday's Inc. will each
develop restaurants in the San Diego and Los Angeles, California area.
Franchise, License and Marketing Agreements
In accordance with the terms of the T.G.I. Friday's restaurant franchise
agreements, the Company is required to pay franchise fees of $50,000 for each
restaurant opened. The Company is also required to pay a royalty of up to 4% of
gross sales. Royalty expense was approximately $4,419,000, $4,800,000, and
$4,850,000 under these agreements during 1994, 1995 and 1996, respectively. In
addition, the Company could be required to spend up to 4% of gross sales on
marketing, although during 1996 it was only required to pay up to 1.7% of gross
sales. Marketing expense under these agreements was approximately $1,788,000,
$2,360,000 and $1,554,000 during 1994, 1995 and 1996, respectively.
Operating Leases
The Company leases land and restaurant facilities, under operating leases
having terms expiring at various dates through March 2015. The restaurant leases
have from two to three renewal clauses of five years each at the option of the
Company and have provisions for contingent rentals based upon percentage of
gross sales as defined. The Company's minimum future lease payments as of
December 30, 1996 were as follows (in thousands):
1997 ................ $ 6,434
1998 ................ 6,472
1999 ................ 6,316
2000 ................ 6,463
2001 ................ 6,538
Thereafter ......... 63,536
------
Total .............. $95,759
=======
Rental expense during 1994, 1995 and 1996 was approximately $5,160,000,
$5,872,000, and $6,299,000, respectively. In addition, the Company paid
contingent rentals of $463,000, $433,000 and $539,000 during 1994, 1995 and
1996, respectively.
Contingencies
In the normal course of business, the Company is named as a defendant in
various litigation matters. In management's opinion, the ultimate resolution of
these matters will not have a material impact on the Company's financial
statements.
The Company is also subject, from time to time, to audit by various taxing
authorities reviewing the Company's income, property, sales, use and payroll
taxes. Management believes that any findings from such audits will not have a
material impact on its financial statements.
9. BENEFIT PLANS
The Company maintains a 401(k) Savings Plan for all of its employees. The
Company currently matches 25% of the participants' contributions for the first
6% of the participants' compensation. Contributions by the Company were
approximately $165,000, $71,000 and $79,000 during 1994, 1995 and 1996,
respectively.
F-15
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
10. RELATED PARTY TRANSACTIONS
In December 1993, the Company entered into a five-year lease agreement for
corporate office space with an entity controlled by two officers of the Company.
The lease provides for annual rent of approximately $172,000 in 1997 and
$175,000 in 1998. Approximately $161,000, $166,000 and $169,000 was paid in rent
during 1994, 1995 and 1996, respectively.
F-16
<PAGE>
============================================= ==============================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY 2,673,970 SHARES
INFORMATION OR TO MAKE ANY REPRESENTATION NOT
CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY OR ON BEHALF OF THE COMPANY. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO MAIN STREET AND
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY MAIN
SHARES COVERED BY THIS PROSPECTUS IN ANY INCORPORATED
JURISDICTION OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE COMPANY OR THAT ANY INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT
TO THE DATE HEREOF.
------------------- COMMON STOCK
TABLE OF CONTENTS
PAGE
----
Prospectus Summary .................... 3
Risk Factors .......................... 5
Use of Proceeds ....................... 10
Dividend Policy ....................... 10
Capitalization ........................ 10 ---------------------
Price Range of Common Stock ........... 10 P R O S P E C T U S
Selected Consolidated Financial Data .. 11 ---------------------
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ........................... 12
Business .............................. 16
Management ............................ 26
Certain Transactions .................. 35
Principal and Selling Stockholders .... 36
Description of Securities ............. 37
Plan of Distribution .................. 38
Legal Opinions ........................ 39
Experts ............................... 39
Index to Financial Statements ......... F-1 , 1997
============================================ ==============================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses in connection with the offering
described in the Registration Statement, other than underwriting commissions and
discounts:
Registration Fee ................ $ 1,534
Accountants' Fees and Expenses .. 30,000
Legal Fees and Expenses ......... 30,000
Printing and Engraving Expenses . 10,000
Blue Sky Filing Fees and Expenses 1,000
Miscellaneous Fees .............. 12,000
--------
Total ........................... $ 84,534
========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation and Bylaws of the Registrant provide that
the Registrant will indemnify and advance expenses, to the fullest extent
permitted by the Delaware General Corporation Law, to each person who is or was
a director, officer or agent of the Registrant, or who serves or served any
other enterprise or organization at the request of the Registrant (an
"Indemnitee").
Under Delaware law, to the extent that an Indemnitee is successful on the
merits in defense of a suit or proceeding brought against him or her by reason
of the fact that he or she is or was a director, officer or agent of the
Registrant, or serves or served any other enterprise or organization at the
request of the Registrant, the Registrant shall indemnify him or her against
expenses (including attorney's fees) actually and reasonably incurred in
connection with such action.
If unsuccessful in defense of a third-party civil suit or a criminal suit, or
if such a suit is settled, an Indemnitee may be indemnified under Delaware law
against both (i) expenses, including attorneys' fees, and (ii) judgments, fines
and amounts paid in settlement if he or she acted in good faith and in a manner
he or she reasonably believed to be in, or not opposed to, the best interests of
the Company, and, with respect to any criminal action, had no reasonable cause
to believe his or her conduct was unlawful.
If unsuccessful in defense of a suit brought by or in the right of the
Registrant, where the suit is settled, an Indemnitee may be indemnified under
the Delaware law only against expenses (including attorneys' fees) actually and
reasonably incurred in the defense or settlement of the suit if he or she acted
in good faith and in a manner he or she reasonably believed to be in, or not
opposed to, the best interests of the Registrant except that if the Indemnitee
is adjusted to be liable for negligence or misconduct in the performance of his
or her duty to the Registrant, he or she cannot be made whole even for expenses
unless a court determines that he or she is fully and reasonably entitled to
indemnification for such expenses.
Also under Delaware law, expenses incurred by an officer or director in
defending a civil or criminal action, suit or proceeding may be paid by the
Registrant in advance of the final disposition of the suit, action or proceeding
upon receipt of an undertaking by or on behalf of the officer or director to
repay such amount if it is ultimately determined that he or she is not entitled
to be indemnified by the Registrant. The Registrant may also advance expenses
incurred by other employees and agents of the Registrant upon such terms and
conditions, if any, that the Board of Directors of the Registrant deems
appropriate.
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ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
EXHIBIT
NUMBER EXHIBIT
- ------ -------
3.1 Certificate of Incorporation of the Registrant(4)
3.2 Certificate of Amendment of Restated Certificate of Incorporation(10)
3.3 Amended and Restated Bylaws of the Registrant(4)
4.1 Form of Warrant Agreement(3)
4.2 Form of Deposit Agreement(4)
4.3 Form of Underwriters' Warrant Agreement(4)
5.0 Opinion of O'Connor, Cavanagh, Anderson, Killingsworth & Beshears, P.A.
10.1 Registrant's 1990 Stock Option Plan(3)
10.2 Purchase Agreement between the Registrant and TGI Friday's Inc.(1)
10.3 Development Agreement between the Registrant and TGI Friday's Inc.(1)
10.4 Purchase Agreement between the Registrant and WRI U.S., Inc.(3)
10.5 Development Agreement between the Registrant and TGI Friday's Inc.(2)
10.6 Form of Franchise Agreement between the Registrant and TGI Friday's
Inc.(1)
10.7 Lease Agreement between the Registrant and Grove Realty Associates(1)
10.8 Lease Agreement between the Registrant and Three Fountains Plaza
Limited Partnership(1)
10.9 Lease Agreement between the Registrant and Weksler-Casselman
Investments(1)
10.10 Lease Agreement between the Registrant and Mark Borough Nevada, Inc.(1)
10.11 Lease Agreement between the Registrant and Fringe Land Ore. Ltd.(2)
10.12 Lease Agreement between the Registrant and Kirkland Parkplace
Associates(2)
10.13 $900,000 Promissory Note dated June 20, 1991 in favor of WRI U.S.,
Inc.(2)
10.14 $75,000 Promissory Note dated June 20, 1991 in favor of WRI U.S.,
Inc.(2)
10.15 Management Assistance Agreement between the Registrant and AsianStar
Co., Ltd.(3)
10.16 Partnership Agreement between the Registrant and Suncor(3)
10.17 Lease Agreement between the Registrant and Galleria Limited Partnership
and Amendment thereto(3)
10.18 Construction Loan Agreement between the Registrant and Caliber Bank(3)
10.19 Employment Agreement between the Registrant and Steven A. Sherman(3)
10.20 Asset Purchase Agreement between the Registrant and Kansas City Cafe
Company(5)
10.21 Development Agreement between the Registrant and TGI Friday's Inc.(10)
10.22 Development Agreement between the Registrant and TGI Friday's Inc.(10)
10.23 Stock Purchase Agreement between the Registrant and Sun Street Limited
Partnership(7)
10.24 Lease agreement between the Registrant and 5050 North 40th St. LLC(9)
10.25 Lease agreement between the Registrant and East Iliff Associates(9)
10.26 Lease agreement between the Registrant and The Prudential Insurance
Company of America(9)
10.27 Lease agreement between the Registrant and Oak Park Investment(9)
10.28 Lease agreement between the Registrant and Ward Parkway Shops
Incorporated(9)
10.29 Lease agreement between the Registrant and The Cafaro Northwest
Partnership(9)
10.30 Lease agreement between the Registrant and FFCA Co. Investment Limited
Parnership(9)
10.31 Lease agreement between the Registrant and The Prudential Insurance
Company of America(9)
10.32 Lease agreement between the Registrant and FFCA Co. Investment Limited
Partnership(9)
10.33 Lease agreement between the Registrant and Ocean Alexander Investments,
Inc.(9)
10.34 Lease agreement between the Registrant and McGrath-RHD Partners(8)
10.35 Lease agreement between the Registrant and Koll Santa Margarita Retail
Venture II(8)
10.36 Lease agreement between the Registrant and Bohannon Development
Company(8)
10.37 Lease agreement between the Registrant and May Centers, Inc.(8)
10.38 Lease agreement between the Registrant and Courtyard of San Ramon,
Inc.(8)
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EXHIBIT
NUMBER EXHIBIT
- ------ -------
10.39 Lease agreement between the Registrant and Robert A. Allison(8)
10.40 Lease agreement between the Registrant and F.A.B. Industries(8)
10.41 Lease agreement between the Registrant and Valencia Town Center
Associates(8)
10.42 Lease agreement between the Registrant and Oak Grove Investors(8)
10.43 Lease agreement between the Registrant and Rancho Consultants Realty
Fund IV(8)
10.44 Lease agreement between the Registrant and Tyler Mall Associates(8)
10.45 Lease agreement between the Registrant and Palm Desert Ltd.(8)
10.46 Lease agreement between the Registrant and Centrelake Partners, L.P.(8)
10.47 Lease agreement between the Registrant and The City(8)
10.48 Lease agreement between the Registrant and Villa Marina Center(8)
10.49 Lease agreement between the Registrant and La Jolla Village Center(8)
10.50 Lease agreement between the Registrant and Crossroads Associates(8)
10.51 Lease agreement between the Registrant and Brea Marketplace Building
Site Joint Venture(8)
10.52 Lease agreement between the Registrant and Vallco Fashion Park
Venture(8)
10.53 Lease agreement between the Registrant and Aetna Life Insurance
Company(8)
10.54 Lease agreement between the Registrant and Two Town Center
Associates(8)
10.55 Lease agreement between the Registrant and Buie-Area M. Ltd.(8)
10.56 Lease agreement between the Registrant and Homart Development Co.(8)
10.57 Development Agreement between the Registrant and TGI Friday's Inc.(8)
10.58 Form of Franchise Agreement between the Registrant and TGI Friday's
Inc.(8)
10.59 Stock Purchase Agreement, as amended, between the Registrant and TGI
Friday's Inc.(8)
10.60 Term Loan and Security Agreement between the Registrant and Sanwa
Business Credit Corporation(8)
10.61 Junior Secured Note from the Registrant to TGIF Holdings, Inc.(8)
10.62 Note from Registrant to TGI Friday's Inc.(8)
10.63 Agreement between the Registrant and Michael R. Stewart(9)
10.64 Modification of Stock Purchase Agreement between the Registrant and Sun
Street Limited Partnership(10)
10.65 Amendment No. 1 and Waiver No. 1 to term Loan and Security Agreement
between Registrant and Sanwa Business Credit Corporation(11)
10.66 Amended and Restated Development Agreement between Registrant and TGI
Friday's Inc.(11)
10.67 Amended and Restated Development Agreement (Washington/Oregon) between
the Registrant and TGI Friday's, Inc.(11)
10.68 Amended and Restated Development Agreement (Colorado Area Territory)
between Registrant and TGI Friday's Inc.(11)
10.69 First Amendment to Development Agreement between the Registrant and TGI
Friday's Inc.(11)
10.70 Fifth Amendment to Development Agreement between the Registrant and TGI
Friday's Inc.(11)
10.71 Amended and Restated Junior Secured Note from Registrant to TGI
Friday's of Minnesota, Inc.(11)
10.72 Amended and Restated Note from Registrant to TGI Friday's Inc.(10)
10.73 Joint Venture Agreement between Registrant and AsianStar Inc.(12)
10.74 Employment Agreement with Steven A. Sherman(12)
10.75 Employment Agreement with Joe W. Panter(12)
10.76 Restated Credit Facility between Registrant and Sanwa Business Credit
Corporation.(13)
10.77 Second Amended and Restated Note From Registrant to TGI Friday's of
Minnesota, Inc.(13)
10.78 Asset Conveance Agreement among CNL California Restaurants, LTD., Main
St. California, Inc. and Registrant.(14)
10.79 Stock Purchase Agreement among CNL California Restaurants, LTD., Main
St. California, Inc. and Registrant.(14)
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EXHIBIT
NUMBER EXHIBIT
- ------ -------
10.80 Form of Management Agreement between Main St. California II, Inc. and
Main St. California, Inc., a wholly owned subsidiary of Registrant.(14)
10.81 Master Incentive Agreements between Main St. California II, Inc. and
Main St. California, Inc., a wholly owned subsidiary of Registrant.(14)
10.82 Employment Agreement with Bart A. Brown, Jr.(16)
10.83 Employment Agreement with Gerard T. Bisceglia.(16)
10.84 Promissory Note between Registrant and CNL Financial I, Inc.(16)
10.85 Promissory Note between Registrant and CNL Financial I, Inc.(16)
10.86 Promissory Note between Registrant and CNL Financial I, Inc.(16)
10.87 Registrant's 1995 Stock Option Plan(15)
21 List of Subsidiaries(11)
23.1 Consent of Arthur Andersen LLP
23.2 Consent of O'Connor, Cavanagh, Anderson, Killingsworth, and Beshears,
P.A. (included in the opinion filed as Exhibit 5)
- -------------------
(1) Incorporated by reference to the Registrant's Form 10-K for the year ended
December 31, 1990, filed with the Securities and Exchange Commission on or
about April 1, 1991.
(2) Incorporated by reference to the Registrant's Form 8-K filed with the
Securities and Exchange Commission on July 12, 1991.
(3) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (Registration No. 33-40993) which became effective in September
1991.
(4) Incorporated by reference to the Registrant's Form 10-K for the year ended
December 30, 1991, filed with the Securities and Exchange Commission on or
about March 31, 1992.
(5) Incorporated by reference to the Registrant's Form 8-K filed with the
Securities and Exchange Commission in May 1992.
(6) Incorporated by reference to the Registrant's Form 8-K filed with the
Securities and Exchange Commission in October 1992.
(7) Incorporated by reference to the Registrant's Registration Statement on
Form 8-K filed with the Securities and Exchange Commission in January 1994.
(8) Incorporated by reference to the Registrant's Form 8-K filed with the
Securities and Exchange Commission on or about April 15, 1994.
(9) Incorporated by reference to the Registrant's Form 10-K for the year ended
December 31, 1993, filed with the Securities and Exchange Commission on or
about April 15, 1994.
(10) Incorporated by reference to the Registrant's Registration Statement on
Form S-3 (Registration No. 33-71230) which became effective in July 1994.
(11) Incorporated by reference to the Registrant's Form 10-K Report for the year
ended December 26, 1994 as filed with the Securities and Exchange
Commission on or about April 28, 1995.
(12) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (Registration No. 33-94164) which became effective in September
1995.
(13) Incorporated by reference to the Registrant's Form 10-K for the year ended
December 25, 1995 filed with the Securities and Exchange Commission on or
about April 15, 1996.
(14) Incorporated by reference to the Registrant's Form 8-K Report filed with
the Commission in January 1997.
(15) Incorporated by reference to Registrant's Proxy Statement for its 1995
Annual Meeting of Stockholders.
(16) Incorporated by reference to the Registrant's Form 10-K Report for the year
ended December 30, 1996. Filed with the Securities and Exchange Commission
on or about April 14, 1997.
(b) Financial Statement Schedules
Report of Independent Public Accountants
Other schedules are omitted because they are not applicable, not required or
because required information is included in the consolidated financial
statements or notes thereto.
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<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrase in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement,
provided, however, that clauses (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant
pursuant to Section 12 or Section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference into the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be a part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilites arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is,
R-5
<PAGE>
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registant of expenses incurred
or paid be a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
MAIN STREET AND MAIN INCORPORATED
Date: June 2, 1997 By: /s/ BART A. BROWN, JR.
------------------------------------
Bart A. Brown, Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1933, this
Registration Statement has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
/s/ JOHN F. ANTIOCO Chairman of the Board June 2, 1997
-----------------------
John F. Antioco
/s/ BART A. BROWN, JR. President and Chief Executive Officer June 2, 1997
----------------------- (Principal Executive Officer)
Bart A. Brown, Jr.
/s/ GERARD T. BISCEGLIA Executive Vice President and Director June 2, 1997
-----------------------
Gerard T. Bisceglia
/s/ JOE W. PANTER Executive Vice President and Director June 2, 1997
-----------------------
Joe W. Panter
/s/ MARK C. WALKER Chief Financial Officer (Principal June 2, 1997
----------------------- Financial and Accounting Officer),
Mark C. Walker Secretary and Treasurer
/s/ JANE EVANS Director June 2, 1997
-----------------------
Jane Evans
/s/ JOHN C. METZ Director June 2, 1997
-----------------------
John C. Metz
/s/ STEVEN A. SHERMAN Director June 2, 1997
-----------------------
Steven A. Sherman
R-7
The Law Offices of
O'CONNOR, CAVANAGH, ANDERSON, KILLINGSWORTH & BESHEARS
One East Camelback Road, Suite 1100
Phoenix, Arizona 85012
Telephone: (602) 263-2400
Fax: (602) 263-2900
June 6, 1997
Main Street and Main Incorporated
5050 North 40th Street, Suite 200
Phoenix, Arizona 85018
Re: Registration Statement on Form S-3
Main Street and Main Incorporated
Ladies and Gentlemen:
We have acted as legal counsel to Main Street and Main
Incorporated (the "Company"), in connection with the preparation of the
Company's Registration Statement on Form S-3 (the "Registration Statement"), to
be filed with the Securities and Exchange Commission (the "Commission") on or
about June 6, 1997 under the Securities Act of 1933, as amended, covering an
aggregate of 2,313,104 shares of the Company's common stock, par value $.001 per
share (the "Common Stock"), that may be sold from time to time by certain of the
Company's stockholders (the "Selling Stockholders") (all such shares of Common
Stock collectively called the "Shares").
With respect to the opinion set forth below, we have examined
originals, certified copies, or copies otherwise identified to our satisfaction
as being true copies, of the Registration Statement and such other corporate
records of the Company, agreements and other instruments, and certificates of
public officials and officers of the Company as we have deemed necessary as a
basis for the opinions hereinafter expressed. As to various questions of fact
material to such opinions, we have, where relevant facts were not independently
established, relied upon statements of officers of the Company.
Subject to the assumptions that (i) the documents and
signatures examined by us are genuine and authentic, and (ii) the persons
executing the documents examined by us have the legal capacity to execute such
documents, and subject to such further limitations and qualifications set forth
below, it is our opinion that when (a) the Registration Statement as then
amended shall have been declared effective by the Commission, and (b) the Shares
have been
<PAGE>
Main Street and Main Incorporated
June 6, 1997
Page 2
sold by the Selling Stockholders as described in the Registration Statement, the
Shares will be validly issued, fully paid, and non-assessable.
For purposes of our opinion, we have assumed (i) the payment
by the Selling Stockholders (or the prior holders thereof) of the full and
sufficient consideration due from them to the Company for such Shares, and (ii)
that the Shares have been duly issued, executed, and authenticated by the
Company. For purposes of our opinion, we also have assumed that the Company has
paid all taxes, penalties and interest which are due and owing to the State of
Arizona.
We express no opinion as to the applicability or effect of any
laws, orders or judgments of any state or other jurisdiction other than federal
securities laws and the substantive laws of the State of Arizona. Further, our
opinion is based solely upon existing laws, rules and regulations, and we
undertake no obligation to advise you of any changes that may be brought to our
attention after the date hereof.
We hereby expressly consent to any reference to our firm in
the Registration Statement, the inclusion of this opinion as an exhibit to the
Registration Statement, and to the filing of this opinion with any other
appropriate governmental agency.
Very truly yours,
/s/ O'Connor, Cavanagh, Anderson,
Killingsworth & Beshears, P.A.
RSK/rr
25829-83/POO1745B
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our firm included in or made part of this Registration
Statement.
ARTHUR ANDERSEN LLP
Phoenix, Arizona
June 5, 1997
