CHEESECAKE FACTORY INCORPORATED, 424B4, 1997-11-18

CHEESECAKE FACTORY INCORPORATED
424B4, 1997-11-18
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<PAGE>
2,000,000 SHARES

[LOGO]

COMMON STOCK

ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE
CHEESECAKE FACTORY INCORPORATED (THE "COMPANY"). THE COMMON STOCK IS TRADED ON
THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL "CAKE." ON NOVEMBER 17, 1997, THE
LAST SALE PRICE AS REPORTED BY NASDAQ WAS $27.63 PER SHARE. SEE "PRICE RANGE OF
COMMON STOCK."

SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.

-----------------

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.

<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS TO
TO PUBLIC DISCOUNT (1) COMPANY (2)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE............................. $27.00 $1.35 $25.65
TOTAL (3)............................. $54,000,000 $2,700,000 $51,300,000
</TABLE>

(1) SEE "UNDERWRITING" FOR INFORMATION CONCERNING INDEMNIFICATION OF THE
UNDERWRITERS AND OTHER MATTERS.

(2) BEFORE DEDUCTING EXPENSES OF THE OFFERING ESTIMATED AT $325,000. THE
UNDERWRITERS HAVE AGREED TO REIMBURSE THE COMPANY $100,000 OF SUCH EXPENSES.
SEE "UNDERWRITING."

(3) THE COMPANY HAS GRANTED THE UNDERWRITERS A 30-DAY OPTION TO PURCHASE UP TO
300,000 ADDITIONAL SHARES OF COMMON STOCK AT THE PRICE TO PUBLIC LESS THE
UNDERWRITING DISCOUNT SOLELY TO COVER OVER-ALLOTMENTS, IF ANY. IF THE
UNDERWRITERS EXERCISE THIS OPTION IN FULL, THE PRICE TO PUBLIC WILL TOTAL
$62,100,000, THE UNDERWRITING DISCOUNT WILL TOTAL $3,105,000 AND PROCEEDS TO
THE COMPANY WILL TOTAL $58,995,000. SEE "UNDERWRITING."

THE SHARES OF COMMON STOCK ARE OFFERED BY THE SEVERAL UNDERWRITERS NAMED
HEREIN SUBJECT TO RECEIPT AND ACCEPTANCE BY THEM AND SUBJECT TO THEIR RIGHT TO
REJECT ANY ORDER IN WHOLE OR IN PART. IT IS EXPECTED THAT DELIVERY OF THE
CERTIFICATES REPRESENTING THE SHARES WILL BE MADE AGAINST PAYMENT THEREFOR AT
THE OFFICE OF NATIONSBANC MONTGOMERY SECURITIES, INC. ON OR ABOUT NOVEMBER 21,
1997.

-------------------

NATIONSBANC MONTGOMERY SECURITIES, INC.
PIPER JAFFRAY INC.
SALOMON BROTHERS INC

NOVEMBER 17, 1997
<PAGE>
PHOTO DESCRIPTIONS

DESCRIPTIONS OF FRONT COVER PAGE

DESCRIPTIONS OF INSIDE FRONT COVER

PANEL 1. Front entrance and two interior photographs of the Company's North
Bethesda, MD restaurant.

PANEL 2. Three interior photographs of the Chicago, IL restaurant.

PANEL 3. Various photographs of selected restaurant entrees and desserts.

2
<PAGE>
Certain persons participating in this offering may engage in transactions
that stabilize, maintain, or otherwise affect the price of the common stock,
including entering stabilizing bids, effecting syndicate covering transactions
or imposing penalty bids. For a description of these activities, see
"Underwriting."

PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS. PROSPECTIVE INVESTORS SHOULD
CONSIDER CAREFULLY THE INFORMATION DISCUSSED UNDER "RISK FACTORS." THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS BASED UPON CURRENT EXPECTATIONS
THAT INVOLVES RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS AND THE
TIMING OF CERTAIN EVENTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET
FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE
SPECIFIED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION.

THE COMPANY

The Company operates 22 upscale, high volume, casual dining restaurants
under "The Cheesecake Factory" name in California, Colorado, Florida, Georgia,
Illinois, Maryland, Massachusetts, Missouri, Nevada, New York, Texas and
Washington, D.C. The Company's restaurants offer over 200 menu items including
appetizers, pizza, seafood, steaks, chicken, burgers, pasta, specialty items,
salads, sandwiches, omelets and signature desserts including approximately 40
varieties of cheesecake. In contrast to many chain restaurant operations,
substantially all menu items (except desserts manufactured by the Company's
bakery production facility) are prepared on the restaurant premises using high
quality, fresh ingredients based on innovative and proprietary recipes. The
Company believes its restaurants are recognized by consumers for offering
exceptional value with generous food portions at moderate price points. The
Company's restaurants possess a distinctive, contemporary design and decor which
creates a high energy ambiance in a casual setting. Restaurants range in size
from 5,400 to 17,300 square feet, provide full liquor service and are open seven
days a week for lunch and dinner, as well as for Sunday brunch.

The Company believes that its ability to select suitable locations and
operate successful restaurants, coupled with the continuing popularity of its
restaurant concept with consumers, is reflected in its average sales per
restaurant which management believes are among the highest of any publicly-held
restaurant company. Average sales per restaurant open for the full year were
approximately $8.6 million and $9.3 million for fiscal 1995 and 1996,
respectively. Since each of the Company's restaurants has a customized layout
and differs in size (measured in square feet), management believes the most
effective method to analyze the fundamental unit economics of the concept is by
square foot. Average sales per productive square foot was approximately $854 for
restaurants open during fiscal 1996. On average, the Company targets a minimum
2.5 to 1 ratio of sales to its net cash investment when evaluating potential
restaurant locations.

The Company intends to continue to develop full-service casual dining
restaurants in high profile locations within densely populated areas. During the
fourth quarter of 1997, the Company will open an additional restaurant in Miami,
Florida (Dadeland). The Company expects to open six additional restaurants in
1998 and leases have been signed for two of these units in Miami, Florida
(Aventura) and Irvine, California. Overall, the Company's primary expansion
objective is to increase its restaurant square footage and operating weeks by
25% to 30% during each of fiscal 1998 and 1999.

3
<PAGE>
distributors. After exceeding the capacity of two leased bakery production
facilities during the past several years, the Company developed and constructed
a highly customized 45,000 square foot automated bakery production facility with
approximately four times the productive capacity of the former combined
facilities. The Company commenced initial production in the new facility in
December 1995 and full transition was completed in fiscal 1996.

In order to strengthen the Company's marketing capabilities for its bakery
products, the Company added two national salespeople and two product development
professionals to its bakery operations staff during the first quarter of fiscal
1997. In addition to increasing its domestic distribution, the Company has
commenced an expanded test of selected bakery products with an international
entity that operates over 5,000 foodservice and retail outlets. The initial
shipment of products to this entity occurred during September 1997. If the test
proves successful, a further expansion of products into additional outlets for
this entity would have the potential to increase bakery sales volumes during
fiscal 1998. The Company continues to develop and test products for other
potential large-account bakery customers.

The Company's principal business strategy is to develop "The Cheesecake
Factory" as a national brand fostering a high degree of consumer acceptance and
loyalty. The Company's competitive positioning is focused on offering consumers
broad selections of high quality food and bakery products at exceptional value
in distinctive settings with superior customer service. In addition to expanding
its full service restaurant concept and bakery operations, the Company plans to
selectively pursue other opportunities to leverage the competitive strengths of
its operations, which may include new restaurant concepts and new bakery product
lines and distribution channels. In order to facilitate its expansion strategy,
the Company plans to continue building its field supervision and corporate
support infrastructure to focus on the achievement of optimal leverage and
efficiencies in all of its operations.

The Company developed a "bakery cafe" concept during the first half of 1997
principally to extend "The Cheesecake Factory" brand and to provide an
additional source of sales and operating leverage for the bakery production
facility. The Company has opened four bakery cafes to date which range from 250
to 1,640 square feet and feature many of the Company's unique desserts and a
limited selection of beverages, sandwiches and salads in a self-service format.
The first bakery cafe opened on July 14, 1997 in the Ontario Mills outlet mall
complex near Los Angeles and is operated by Host Marriott Services Corporation
("Host Marriott") under a licensing agreement with the Company. During August
1997, the Company opened three additional bakery cafes in the new terminal of
the Washington National Airport. These three bakery cafes are operated by the
Company under a subcontract with Host Marriott. The Company is evaluating sites
for at least one additional bakery cafe for a planned opening in the Los Angeles
market during the first half of 1998. If successful, the bakery cafe concept
could be more rapidly expanded than the Company's full-service restaurants.

The Company entered into an agreement on October 13, 1997 with a subsidiary
of The Walt Disney Company to be the exclusive foodservice operator for Disney's
new DisneyQuest concept. DisneyQuest will feature innovative, interactive
technologies together with Disney characters to create a unique entertainment
adventure for families and guests of all ages. The worldwide launch of
DisneyQuest is planned for the summer of 1998 in Orlando, Florida at the Walt
Disney World Resort. A second location is planned for Chicago, Illinois in the
summer of 1999. Approximately 8,900 square feet of the 100,000 square foot
DisneyQuest--Orlando facility will be devoted to foodservice, which will feature
a limited selection of The Cheesecake Factory's quality menu items and desserts
in a self-service, "express" format at moderate price points. In addition to the
DisneyQuest opportunity, the Company signed a letter of intent in June 1997 to
develop and operate a 20,000 square foot casual dining concept in the Venetian
casino and resort complex scheduled to open in Las Vegas in 1999.

The Company was incorporated as a Delaware corporation in February 1992 to
succeed to the restaurant and bakery business of its predecessors operating
under "The Cheesecake Factory" name. The Company's principal executive offices
are located at 26950 Agoura Road, Calabasas Hills, California 91301, and its
telephone number is (818) 871-3000.

4
<PAGE>
THE OFFERING

<TABLE>
<CAPTION>
<S> <C>
Common Stock offered by the Company........................ 2,000,000 shares
Common Stock to be outstanding after the offering.......... 12,962,208 shares(1)
Use of proceeds............................................ To repay indebtedness, to finance the development of
additional restaurants and to provide working
capital. See "Use of Proceeds."
NASDAQ symbol.............................................. CAKE
</TABLE>

- ------------------------

(1) Does not include (i) 1,024,775 shares reserved for issuance upon exercise of
stock options granted to key employees under the Company's 1992 Performance
Employee Stock Option Plan ("1992 Stock Plan"), (ii) 75,000 shares reserved
for issuance upon exercise of stock options granted to non-employee
directors of the Company under the Company's 1997 Non-Employee Directors
Stock Option Plan and predecessor plan ("1997 Stock Plan"), and (iii)
457,325 additional shares reserved for future issuance under the 1992 Stock
Plan and 1997 Stock Plan.

SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND RESTAURANT OPERATING DATA)

RESTAURANT OPERATING DATA(3):
Average sales per restaurant.......... $8,571,000 $8,684,000 $8,451,000 $8,627,000 $9,293,000 $ 7,028,000 $ 7,469,000
Restaurants open (end of period)...... 5 8 10 14 17 16 20
Average sales per productive square
foot................................ $801 $806 $777 $855 $854 $653 $674
Percentage increase in comparable
restaurant sales.................... 3.1% 1.3% 1.8% 4.3% 5.1% 5.4% 6.2%
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 28, 1997
----------------------
AS
ACTUAL ADJUSTED(4)
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................................................... $ 3,230 $ 45,305
Total assets.............................................................................. 127,829 169,904
Total long-term debt (including current portion).......................................... 9,000 --
Stockholders' equity...................................................................... 91,012 142,087
</TABLE>

- ------------------------------

(1) Includes the combined results of predecessor entities prior to their
consolidation and operations as a C corporation concurrent with the
Company's initial public offering on September 17, 1992.

(2) Adjusted for a 3 for 2 stock split completed on March 15, 1994.

(3) Includes only restaurants open during the full period for each period.

(4) As adjusted to reflect the sale of 2,000,000 shares of Common Stock by the
Company at a public offering price of $27.00 per share and the application
of the estimated net proceeds therefrom. See "Use of Proceeds."

5
<PAGE>
RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING RISK
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY. THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE
RESULTS CONTEMPLATED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF A NUMBER
OF FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS" AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS
PROSPECTUS.

FUTURE GROWTH AND EXPANSION

Future growth in sales and profits will depend to a substantial extent on
the Company's ability to increase the number of its restaurants and to secure
additional large-account customers for its bakery operations. The Company's
ability to open additional restaurants will depend upon a number of factors,
including the availability of suitable locations, the ability of the Company to
negotiate leases on acceptable terms, the securing of required governmental
permits and approvals, the hiring and training of skilled restaurant management
and hourly employees, the availability of financing on acceptable terms (if at
all), general economic conditions and other factors, many of which are beyond
the control of the Company. Due to the highly customized nature of the Company's
restaurant concept and the complex design, construction, and preopening
processes for each new location, the lease negotiation and restaurant
development timeframes vary from location to location and can be subject to
unforeseen delays. There can be no assurance that the Company will be able to
open new restaurants or that, if opened, those restaurants will be operated
profitably. Competition for large-account wholesale and retail customers for the
Company's bakery operations is highly intense, and there can be no assurance
that such customers can be attracted and retained or that any business obtained
from such customers will always be profitable. See "Business--Restaurant
Locations and Site Selection" and "--Bakery Operations."

LIMITED BASE OF OPERATIONS

The Company currently operates 22 restaurants. Due to this relatively small
number of restaurants, poor operations at any one restaurant could materially
affect the profitability of the entire Company. Even though its revenues have
experienced rapid growth since 1990, the Company's current restaurant field
supervision and corporate support infrastructures remain relatively small.
Accordingly, the Company remains vulnerable to a variety of business risks
generally associated with smaller, rapidly growing companies. Any failure to
continue to upgrade operating, financial, and restaurant support systems or
unexpected difficulties encountered during expansion could adversely affect the
Company's business, financial condition, and results of operations. Although the
Company believes that its systems and controls are adequate to address its
current needs and is in the process of upgrading certain of its operating and
financial systems and processes, there can be no assurance that such upgraded
systems and processes will be adequate to sustain future growth, and that
further upgrades will not be necessary.

DEPENDENCE ON SINGLE PRODUCTION FACILITY

The Company currently operates only one bakery production facility.
Accordingly, the Company remains vulnerable to a variety of business risks
associated with maintaining a single production facility for a key product of
the Company. Although the Company believes it has adequate production capacity
in the bakery facility to meet anticipated demand for its products, there can be
no assurance that future expansion of the Company's aggregate bakery production
capacity will not be necessary.

6
<PAGE>
CHANGES IN THE COSTS OF KEY OPERATING RESOURCES

The Company's profitability is dependent upon its ability to anticipate and
react to changes in the costs of key operating resources, including food and
other raw materials, labor, and other supplies and services. Various factors
beyond the Company's control, including adverse weather and general marketplace
conditions, may affect the availability and cost of food and other raw
materials. The impact of inflation on food, labor and occupancy costs can
significantly affect the Company's operations. While management has been able to
react to inflation and other changes in the costs of key operating resources by
increasing prices for its menu items and bakery products, there can be no
assurance that it will be able to continue to do so in the future. There can
also be no assurance that the Company will continue to generate increases in
comparable restaurant sales and bakery sales in amounts sufficient to offset
inflationary or other cost pressures.

DEPENDENCE ON SENIOR MANAGEMENT

The success of the Company's business will continue to be highly dependent
upon the services of David Overton, its co-founder and current Chairman of the
Board, President and Chief Executive Officer, and certain other senior
executives of the Company. The loss of the services of Mr. Overton or other
senior executives could have a material adverse effect upon the Company's
business and development. The Company's continued growth will also depend on its
ability to attract and retain additional skilled management employees at all
levels of its operations.

COMPETITION AND CONSUMER PREFERENCES

The restaurant industry is highly competitive. There are a substantial
number of restaurant operations that compete directly and indirectly with the
Company, some of which may have significantly greater financial resources,
higher revenues, and greater economies of scale than those of the Company. The
restaurant business is often affected by changes in consumer tastes and
discretionary spending patterns, national and regional economic conditions,
demographic trends, consumer confidence in the economy, traffic patterns, the
cost and availability of raw materials and labor, purchasing power, governmental
regulations and local competitive factors. Any change in these factors could
adversely affect the Company's restaurant operations. Multi-unit foodservice
operations such as those of the Company can also be substantially affected by
adverse publicity resulting from food quality, illness, injury, health concerns,
or operating issues stemming from a single restaurant or, with respect to the
Company's bakery operations, a single production run of bakery products. The
Company attempts to manage these factors, but the occurrence of any one of these
factors could cause the entire Company to be adversely affected. With regard to
the Company's bakery operations, competition within the premium dessert market
has historically been regionalized and fragmented. However, competition within
that market remains intense. The Company believes that its restaurants and
bakery operations compete favorably in the consumer marketplace with respect to
the attributes of quality, variety, taste, service, consistency, and overall
value.

STOCK PRICE VOLATILITY

The Company's Common Stock has been trading in the public market since
September 1992. The price at which the Company's Common Stock trades is
determined in the marketplace and may be influenced by many factors, including
the performance of the Company, investor expectations for the Company, the
trading volume in the Company's Common Stock, general economic and market
conditions and competition.

The market price of the Common Stock could fluctuate substantially due to a
variety of factors, including quarterly operating results of the Company or
other restaurant companies, changes in general conditions in the economy, the
financial markets or the restaurant industry, natural disasters or other
developments affecting the Company or its competitors. In addition, in recent
years the stock market has

7
<PAGE>
experienced extreme price and volume fluctuations. This volatility has had a
significant effect on the market prices of securities issued by many companies
for reasons unrelated to the operating performance of these companies. See
"Price Range of Common Stock."

SEASONALITY AND QUARTERLY RESULTS

The Company's business is subject to seasonal fluctuations. Historically,
the Company's highest earnings have occurred in the second and third quarters of
the fiscal year, as the Company's sales in most of its restaurants have
typically been higher during the second and third quarters of the fiscal year.
The Company's bakery operation is seasonal to the extent that the fourth
quarter's sales are typically higher due to holiday business. Additionally,
bakery sales comparisons may significantly vary from quarter to quarter due to
the timing and/or scope of large orders of promotional or seasonal bakery
products from large-account bakery customers. As a result of these factors,
results of operations for any single quarter are not necessarily indicative of
the results that may be achieved for a full fiscal year. Quarterly results have
been, and in the future will continue to be, significantly impacted by the
timing of new restaurant openings and their respective preopening costs.

POTENTIAL ANTI-TAKEOVER EFFECTS OF CHARTER DOCUMENTS AND DELAWARE LAW

The Company's Certificate of Incorporation and By-Laws contain various
provisions, including a classified Board of Directors, and Delaware law contains
certain provisions that could delay or impede the removal of incumbent directors
and could make more difficult a merger, tender offer or proxy contest involving
the Company, even if such events would be beneficial to the interests of the
stockholders of the Company. Such provisions could limit the price that certain
investors might be willing to pay in the future for shares of the Company's
Common Stock. In addition, the Company may issue shares of Preferred Stock
without stockholder approval on such terms as the Board of Directors may
determine. The rights of the holders of Common Stock will be subject to, and may
be adversely affected by, the rights of the holders of any Preferred Stock that
may be issued in the future. Moreover, although the ability to issue Preferred
Stock may provide flexibility in connection with possible acquisitions and other
corporate purposes, such issuance may make it more difficult for a third party
to acquire, or may discourage a third party from acquiring, a majority of the
voting stock of the Company. The Company has no current plans to issue any
shares of Preferred Stock. The Company may in the future adopt other measures
that may have the effect of delaying, deferring or preventing a change in
control of the Company. Certain of such measures may be adopted without any
further vote or action by the stockholders, although the Company has no present
plans to adopt any such measures.

GOVERNMENT REGULATION

The Company's business is subject to extensive state and local government
regulation in the various jurisdictions in which its restaurants and bakery are
located, including regulations relating to alcoholic beverage control, public
health and safety and fire codes. The failure to obtain or retain food and
liquor licenses could adversely affect the operation of the Company's
restaurants. Any difficulties, delays or failures in obtaining and/or retaining
licenses, permits or other regulatory approvals could delay or prevent the
opening and/or continued operation of a restaurant in a particular area.
Operating costs in both the restaurants and the bakery are affected by increases
in statutory minimum wages. The Company may also be subject to "dram shop"
statutes in certain states which generally provide a person injured by an
intoxicated person the right to recover damages from an establishment that
wrongfully served alcoholic beverages to the intoxicated person. See
"Business--Government Regulations."

8
<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of Common Stock offered by the
Company hereby will be approximately $51.1 million ($58.8 million if the
Underwriters' over-allotment option is exercised in full). The Company will
utilize a portion of the net proceeds of this Offering to fully repay
indebtedness outstanding under its $25 million revolving credit and term loan
facility (the "Credit Facility"). The Credit Facility bears interest at variable
rates and matures on September 30, 1998. As of November 17, 1997, there were
$14.0 million of borrowings outstanding under the Credit Facility. The remaining
portion of the proceeds, together with future borrowings under the Credit
Facility, will be used to fund the development of future restaurants and for
general corporate purposes. Pending the above uses, the net proceeds will be
invested in short-term, investment grade, interest-bearing securities.

DIVIDEND POLICY

The Company has not declared or paid any dividends on its Common Stock. The
Company currently intends to retain all earnings for the operation and expansion
of its business and does not anticipate paying any cash dividends in the
foreseeable future.

PRICE RANGE OF COMMON STOCK

The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "CAKE." The following table sets forth, for the periods indicated, the
high and low sale prices for the Common Stock as reported on the Nasdaq National
Market.

<TABLE>
<CAPTION>
FISCAL 1995 HIGH LOW
- --------------------------------------------------------------------------- ------- -------
<S> <C> <C>
First Quarter.............................................................. $19.50 $13.75
Second Quarter............................................................. 26.75 17.75
Third Quarter.............................................................. 30.25 23.50
Fourth Quarter............................................................. 27.00 18.75

FISCAL 1996
- ---------------------------------------------------------------------------
First Quarter.............................................................. $28.25 $20.25
Second Quarter............................................................. 28.75 23.25
Third Quarter.............................................................. 27.75 20.25
Fourth Quarter............................................................. 24.50 17.13

FISCAL 1997
- ---------------------------------------------------------------------------
First Quarter.............................................................. $25.13 $17.75
Second Quarter............................................................. 21.63 17.50
Third Quarter.............................................................. 28.38 20.75
Fourth Quarter (through November 17, 1997)................................. 34.00 24.25
</TABLE>

On November 17, 1997, the last sale price of the Company's Common Stock as
reported on the Nasdaq National Market was $27.63.

9
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company as of
September 28, 1997, and as adjusted to reflect the sale of 2,000,000 shares of
Common Stock by the Company at a public offering price of $27.00 per share and
the application of the estimated net proceeds therefrom.

<TABLE>
<CAPTION>
SEPTEMBER 28, 1997
------------------------
ACTUAL AS ADJUSTED
----------- -----------
(DOLLARS IN THOUSANDS)

<S> <C> <C>
Long-term debt, including current portion.......................... $ 9,000 $ --
----------- -----------
Stockholders' equity...............................................
Preferred Stock, $.01 par value, 5,000,000 shares authorized,
none issued and outstanding.................................... -- --
Common Stock, $.01 par value, 30,000,000 shares authorized;
10,962,208 and 12,962,208 shares issued and outstanding,
respectively(1)................................................ 110 130
Additional paid-in capital....................................... 55,587 106,642
Retained earnings................................................ 35,352 35,352
Marketable securities valuation account.......................... (37) (37)
----------- -----------
Total stockholders' equity..................................... 91,012 142,087
----------- -----------
Total capitalization......................................... $ 100,012 $ 142,087
----------- -----------
----------- -----------
</TABLE>

- ------------------------

(1) Does not include (i) 1,024,775 shares reserved for issuance upon exercise of
stock options granted to key employees under the Company's 1992 Stock Plan,
(ii) 75,000 shares reserved for issuance upon exercise of stock options
granted to non-employee directors of the Company under the Company's 1997
Stock Plan and (iii) 457,325 additional shares reserved for future issuance
under the 1992 Stock Plan and 1997 Stock Plan.

10
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION

The selected consolidated financial information for, and as of the end of
each of the fiscal years in the five-year period ended with fiscal 1996 have
been derived from the audited Consolidated Financial Statements of the Company.
The selected unaudited consolidated financial information presented below for,
and as of the end of each of the thirty-nine week periods ended September 29,
1996 and September 28, 1997 is derived from the Consolidated Financial
Statements of the Company. The Consolidated Financial Statements as of and for
the thirty-nine week periods ended September 29, 1996 and September 28, 1997
have not been audited but, in the opinion of management, include all material
adjustments (which were normal recurring adjustments) necessary for fair
presentation. The following selected consolidated financial information should
be read in conjunction with the Company's Consolidated Financial Statements and
related notes thereto, and with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere herein, or
incorporated by reference. The results of operations for the thirty-nine weeks
ended September 28, 1997 are not necessarily indicative of the results to be
expected the remainder of fiscal 1997.

<TABLE>
<CAPTION>
THIRTY-NINE
WEEKS ENDED
FISCAL YEAR ----------------------------
----------------------------------------------------- SEPTEMBER 29, SEPTEMBER 28,
1992(1) 1993(2) 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Restaurant sales..................... $ 42,857 $ 55,692 $ 72,974 $ 99,839 $ 139,715 $ 102,841 $ 136,744
Bakery sales......................... 9,110 11,338 12,618 17,326 20,590 13,948 13,033
--------- --------- --------- --------- --------- ------------- -------------
Total revenues................... 51,967 67,030 85,592 117,165 160,305 116,789 149,777
--------- --------- --------- --------- --------- ------------- -------------
Costs and expenses:
Cost of food, beverages and
supplies........................... 12,376 16,395 22,056 29,695 41,888 30,846 38,973
Bakery costs......................... 3,505 4,264 4,894 7,028 8,715 6,050 5,213
Operating expenses:
Labor.............................. 15,815 21,714 26,082 36,756 51,251 36,738 48,475
Occupancy and other................ 7,571 9,336 12,072 16,445 23,716 17,178 23,893
General and administrative expenses.. 6,994 6,204 7,937 11,060 15,234 10,330 13,814
Depreciation and amortization
expenses........................... 1,384 1,631 2,103 2,985 5,350 3,795 4,692
Preopening amortization expense...... -- 620 1,546 2,870 5,394 4,307 4,374
--------- --------- --------- --------- --------- ------------- -------------
Total costs and expenses......... 47,645 60,164 76,690 106,839 151,548 109,244 139,434
--------- --------- --------- --------- --------- ------------- -------------
Income from operations................. 4,322 6,866 8,902 10,326 8,757 7,545 10,343
Interest income (expense), net......... (177) 657 1,729 1,126 499 324 105
Other income (expense), net............ 6 68 91 198 (360) 139 283
--------- --------- --------- --------- --------- ------------- -------------
Income before income taxes............. 4,151 7,591 10,722 11,650 8,896 8,008 10,731
Income tax (benefit) provision......... (50) 2,841 3,475 3,041 2,984 2,602 3,702
--------- --------- --------- --------- --------- ------------- -------------
Net income............................. $ 4,201 $ 4,750 $ 7,247 $ 8,609 $ 5,912 $ 5,406 $ 7,029
--------- --------- --------- --------- --------- ------------- -------------
--------- --------- --------- --------- --------- ------------- -------------
Net income per common share............ -- $ 0.51 $ 0.69 $ 0.78 $ 0.53 $ 0.49 $ 0.64
--------- --------- --------- --------- --------- ------------- -------------
--------- --------- --------- --------- --------- ------------- -------------
Weighted average shares outstanding.... -- 9,265 10,526 10,989 11,076 11,099 11,062

BALANCE SHEET DATA (AT END OF PERIOD):
Working capital........................ $ 1,559 $ 5,917 $ 12,090 $ 14,019 $ 8,757 $ 8,394 $ 3,230
Total assets........................... 27,477 34,698 73,200 91,767 108,155 108,382 127,829
Total long-term debt (including current
portion)............................. 334 -- -- -- 6,000 3,000 9,000
Stockholders' equity................... 23,132 28,546 64,304 76,206 83,512 82,824 91,012
</TABLE>

- ------------------------

(1) Includes the combined results of predecessor entities prior to their
consolidation and operations as a C corporation concurrent with the
Company's initial public offering on September 17, 1992.

(2) Adjusted for a 3 for 2 stock split completed on March 15, 1994.

11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE
RESULTS CONTEMPLATED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF A NUMBER
OF FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS," AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS
PROSPECTUS.

GENERAL

The Company operates 22 upscale, high volume, casual dining restaurants in
12 states and a state-of-the-art bakery production facility in California. The
Company's revenues consist of sales from its restaurant operations and sales
from its bakery operations to other foodservice operators and distributors.
Certain costs and expenses relate only to restaurant sales (cost of food,
beverages and supplies) or only to bakery sales (bakery costs), while other
costs and expenses relate to both restaurant and bakery sales (operating
expenses including labor and occupancy, general and administrative expenses, and
depreciation and amortization expenses). The Company analyzes its revenues, in
part, based on comparable restaurant sales which is defined to include the sales
of all restaurants open during the full period of each period being compared.
Bakery sales can fluctuate from quarter to quarter based on the timing and scope
of orders from large-account bakery customers.

Commencing with its first completed year-end following the Company's initial
public offering in September 1992, the Company adopted a 52/53 week fiscal year
ending on Sunday closest to December 31 for financial reporting purposes.

RESULTS OF OPERATIONS

The following table presents, for the periods indicated, the Consolidated
Statements of Operations of the Company expressed as percentages of total
revenues.

<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
-----------------------------------------------------------------------
THIRTY-NINE WEEKS
ENDED
FISCAL YEAR --------------------------------
------------------------------------- SEPTEMBER 29, SEPTEMBER 28,
1994 1995 1996 1996 1997
----------- ----------- ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenues:
Restaurant sales.................................. 85.3% 85.2% 87.2% 88.1% 91.3%
Bakery sales...................................... 14.7 14.8 12.8 11.9 8.7
----- ----- ----- ----- -----
Total revenues.................................. 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Costs and expenses:
Cost of food, beverages and supplies.............. 25.8 25.3 26.1 26.4 26.0
Bakery costs...................................... 5.7 6.0 5.4 5.2 3.5
Operating expenses:
Labor........................................... 30.5 31.4 32.0 31.5 32.4
Occupancy and other............................. 14.1 14.1 14.8 14.7 15.9
General and administrative expenses............... 9.3 9.4 9.5 8.8 9.2
Depreciation and amortization expenses............ 2.4 2.5 3.3 3.2 3.2
Preopening amortization expense................... 1.8 2.5 3.4 3.7 2.9
----- ----- ----- ----- -----
Total costs and expenses........................ 89.6 91.2 94.5 93.5 93.1
----- ----- ----- ----- -----
Income from operations.............................. 10.4 8.8 5.5 6.5 6.9
Interest income (expense), net...................... 2.0 1.0 0.3 0.3 0.1
Other income (expense), net......................... 0.1 0.1 (0.2) 0.1 0.2
----- ----- ----- ----- -----
Income before income taxes.......................... 12.5 9.9 5.6 6.9 7.2
Income tax provision................................ 4.0 2.6 1.9 2.2 2.5
----- ----- ----- ----- -----
Net income.......................................... 8.5% 7.3% 3.7% 4.7% 4.7%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>

12
<PAGE>
THIRTY-NINE WEEKS ENDED SEPTEMBER 28, 1997 COMPARED TO THIRTY-NINE WEEKS ENDED
SEPTEMBER 29, 1996

REVENUES

For the thirty-nine weeks ended September 28, 1997, the Company's total
revenues increased 28% to $149.8 million versus $116.8 million for the
thirty-nine weeks ended September 29, 1996. Restaurant sales increased 33% to
$136.7 million versus $102.8 million for the same period of the prior year. This
$33.9 million increase consisted of a $5.9 million (6.2%) increase in comparable
restaurant sales for the period, a $1.8 million increase in the sales of the
Boca Raton restaurant which was excluded from the base of comparable restaurants
as a result of a 125-seat addition which was completed in December 1996, and
$26.2 million from the openings of new restaurants. Sales in comparable
restaurants benefited, in part, from the impact of two effective menu price
increases of approximately 1.5% each which were taken during December
1996/January 1997 and June/July 1997.

Bakery sales decreased 6.6% to $13.0 million for the thirty-nine weeks ended
September 28, 1997 versus the same period of the prior year. This decrease was
principally attributable to lower sales of promotional products to certain
large-account bakery customers compared to sales of such products in the same
period of the prior year. In July 1997, the Company commenced an expanded test
of selected bakery products with an international entity that operates over
5,000 foodservice and retail outlets. The initial shipment of products to this
entity occurred during September 1997. In October 1997, the entity advised the
Company that the test would be gradually expanded to include approximately 1,870
outlets by the end of 1997. If the expanded test is successful, a further
expansion of products into additional outlets for this customer would have the
potential to improve bakery sales volumes during fiscal 1998. The Company
continues to develop and test products for other potential large-account bakery
customers. In July 1997, the Company closed a small, ancillary restaurant
operation at its former bakery production facility in connection with the
expiration of the lease for that facility. Sales for that ancillary operation
were $1.4 million and $723,000 for fiscal 1996 and the thirty-nine weeks ended
September 28, 1997, respectively. In the future, bakery sales will include sales
from Company-operated bakery cafes. Bakery cafe sales are not expected to be
material to total Company revenues in the near future.

COST OF FOOD, BEVERAGES AND SUPPLIES

During the thirty-nine weeks ended September 28, 1997, cost of food,
beverages and supplies for the restaurants was $39.0 million versus $30.8
million for the comparable period last year. The increase of $8.2 million was
primarily attributable to new restaurant openings. As a percentage of restaurant
sales, these costs decreased to 28.5% versus 30.0% for the same period of the
prior year principally as a result of the impacts of menu price increases and
certain cost reduction programs implemented by the Company during the period.

The menu at the Company's restaurants is one of the most diversified in the
industry and, accordingly, is not overly dependent on a single commodity. With
respect to newly opened restaurants, these costs will typically be higher than
normal during the first 90-120 days of operations until the restaurant staffs
become more accustomed to optimally managing and servicing the high sales
volumes typically experienced by the Company's restaurants.

BAKERY COSTS

Bakery costs, which include ingredient, packaging and production supply
costs, were $5.2 million for the thirty-nine weeks ended September 28, 1997
versus $6.1 million for the same period of the prior year. The decrease of $0.9
million was primarily due to the 6.6% decrease in bakery sales for the
thirty-nine weeks ended September 28, 1997 and lower commodity costs. As a
percentage of bakery sales, bakery costs for the thirty-nine weeks ended
September 28, 1997 decreased to 40.0% versus 43.4% for the comparable quarter
last year. This decrease was primarily due to lower costs for dairy-related
commodities (principally cream cheese, whipped cream, and butter) coupled with
improved production yields in the Company's

13
<PAGE>
bakery production facility. The Company's costs for dairy-related commodities
increased as much as 25% during 1996 when the overall level of such costs rose
across the country. The Company's costs for its dairy-related commodities have
gradually decreased since the end of 1996, but in some cases have not yet
returned to their pre-1996 levels. There can be no assurance that future costs
for these commodities, or any commodities used in the Company's bakery or
restaurant operations, will not begin to rise again due to market conditions
beyond the Company's control.

OPERATING EXPENSES--LABOR

Labor expenses, which includes restaurant-level labor and bakery direct
labor costs (including associated fringe benefits), were $48.5 million for the
thirty-nine weeks ended September 28, 1997 versus $36.7 million for the same
period of the prior year. This increase was principally due to the impact of new
restaurant openings. As a percentage of total revenues, labor expenses were
32.4% versus 31.5% for the comparable period last year. The increase in labor as
a percentage of total revenues was principally attributable to higher costs for
hourly restaurant workers, due in part to increased statutory minimum wages.

OPERATING EXPENSES--OCCUPANCY AND OTHER

Occupancy and other expenses increased 39% to $23.9 million for the
thirty-nine weeks ended September 28, 1997 versus $17.2 million for the same
period of the prior year. This increase was principally attributable to new
restaurant openings. As a percentage of total revenues, occupancy and other
expenses were 15.9% for the thirty-nine weeks ended September 28, 1997 versus
14.7% for the same period of fiscal 1996. This increase was partially due to the
6.6% decrease in bakery sales for the thirty-nine weeks ended September 28, 1997
which resulted in less leveraging of the bakery's fixed and semi-fixed occupancy
costs for the period. One of the Company's principal goals for fiscal 1998 is to
more effectively leverage the fixed occupancy costs in the bakery production
facility with higher sales levels. The Company added two national salespeople
and two product development professionals to its bakery operations staff during
fiscal 1997 in order to strengthen the Company's marketing capabilities for its
bakery products.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses consist of bakery selling and
administrative expenses (including product development and marketing expenses),
certain restaurant administrative expenses (principally credit card discounts
and certain insurance-related expenses), restaurant field supervision expenses
(salaries and expenses of regional vice presidents and area directors of
operations), and corporate support expenses (salaries and related fringe
benefits, travel, and other administrative expenses). General and administrative
expenses increased to $13.8 million for the thirty-nine weeks ended September
28, 1997 from $10.3 million for the same period of fiscal 1996, an increase of
$3.5 million or 34%. As a percentage of total revenues, general and
administrative expenses increased to 9.2% for the thirty-nine weeks ended
September 28, 1997 versus 8.8% for the same period of fiscal 1996.

The Company plans to continue to strengthen its field supervision and
corporate support infrastructures during the remainder of fiscal 1997 and fiscal
1998 to support its planned future growth. This strengthening will likely result
in a higher level of general and administrative expenses during those respective
periods. Additionally, the Company plans to aggressively pursue new
large-account customers for its bakery operations, which will require continuing
investments in product development and marketing programs. One of the Company's
principal objectives for the balance of fiscal 1997 and fiscal 1998 is to more
effectively leverage its operational and corporate support infrastructures with
higher sales volumes.

14
<PAGE>
DEPRECIATION AND AMORTIZATION EXPENSES

Depreciation and amortization expenses increased to $4.7 million for the
thirty-nine weeks ended September 28, 1997 to $3.8 million for the thirty-nine
weeks ended September 29, 1996. This represented an increase of $0.9 million or
24%. As a percentage of total revenues, depreciation and amortization expenses
were 3.2% for the thirty-nine weeks ended September 28, 1997 versus 3.2% for the
same period of the prior year. The increase of $0.9 million for the thirty-nine
weeks ended September 28, 1997 principally consisted of incremental restaurant
depreciation expense which was principally attributable to the openings of new
restaurants.

PREOPENING AMORTIZATION EXPENSE

Preopening amortization expense was $4.4 million for the thirty-nine weeks
ended September 28, 1997 versus $4.3 million for the same period of the prior
year. As a percentage of total revenues, preopening expense amortization was
2.9% versus 3.7% for the thirty-nine weeks ended September 29, 1996.

As a result of the highly customized and operationally complex nature of the
Company's restaurants, the restaurant preopening process is extensive and costly
relative to that of most chain restaurant operations. Preopening costs, which
often exceed $1 million per restaurant, include recruiting, training, relocation
and related costs for developing management and hourly staff for new
restaurants, as well as other costs directly related to the opening of new
restaurants. Preopening costs will vary from location to location depending on a
number of factors including, among others, the proximity of other established
Company restaurants, the size and layout of each location, and the relative
difficulty of the restaurant staffing and training process. As is currently the
practice for of many upscale, highly customized and "theme" restaurant entities,
the Company defers its restaurant preopening costs and then amortizes them over
the 12-month period immediately following the opening of the respective
restaurant. Total restaurant preopening amortization will vary from quarter to
quarter depending on the timing of restaurant openings and the number of newer
restaurants amortizing their preopening costs in a given quarter. Based on the
Company's expansion plans, management believes that total preopening
amortization for each of fiscal 1997 and fiscal 1998 will exceed the respective
amount for each immediate prior year. During fiscal 1996, the Company
reevaluated its restaurant preopening process with the objective of reducing its
timeframe, intensiveness, and overall cost. The Company continues to review this
process during fiscal 1997. However, there can be no assurance that preopening
costs will be reduced for future restaurants. A new accounting standard is
currently under consideration by the American Institute of Certified Public
Accountants which, if adopted, would require a change in the Company's
accounting for preopening costs to an expense-as-incurred basis. See "--Proposed
New Accounting Standards."

FISCAL 1996 COMPARED TO FISCAL 1995

REVENUES

Total revenues increased to $160.3 million for fiscal 1996 from $117.2
million for fiscal 1995, an increase of $43.1 million or 37%. Restaurant sales
increased to $139.7 million for fiscal 1996 from $99.8 million for fiscal 1995,
an increase of $39.9 million or 40%. Restaurant operating weeks increased 32% to
786 for fiscal 1996 versus 596 for the prior fiscal year. Average sales per
restaurant operating week increased to $177,800 for fiscal 1996 versus $167,500
for fiscal 1995. New restaurants opened during fiscal 1996 (Skokie, IL;
Baltimore, MD; and Kansas City, MO) accounted for approximately $9.6 million or
24% of the increase in total restaurant sales during fiscal 1996, and
noncomparable sales at the Company's four restaurants opened during fiscal 1995
accounted for approximately $25.3 million or 63% of the increase. Comparable
restaurant sales increased approximately $5.0 million or 5.1% for fiscal 1996.
This increase was principally attributable to a higher average guest check
amount. In December 1996, the Company instituted an approximate 1.5% effective
menu price increase for its six restaurants in California. The

15
<PAGE>
Company's non-California restaurants similarly increased their menu prices in
January 1997 in order to partially offset increasing operating costs.

Bakery sales increased to $20.6 million for fiscal 1996 from $17.3 million
for fiscal 1995, an increase of $3.3 million or 19%. Lower sales of promotional
and other bakery products to certain large-account restaurant customers was more
than offset by higher sales to foodservice distributors and warehouse club
outlets. Sales at the bakery's cafe operation were essentially unchanged at $1.4
million for fiscal 1996.

COST OF FOOD, BEVERAGES AND SUPPLIES

Cost of food, beverages, and supplies for the restaurants increased to $41.9
million for fiscal 1996 from $29.7 million for fiscal 1995, an increase of $12.2
million or 41%. This increase was principally attributable to the 40% increase
in restaurant sales for fiscal 1996. As a percentage of restaurant sales, cost
of food, beverages and supplies increased slightly to 30.0% of restaurant sales
for fiscal 1996 versus 29.7% for fiscal 1995.

BAKERY COSTS

Bakery costs increased to $8.7 million for fiscal 1996 from $7.0 million for
fiscal 1995, an increase of $1.7 million or 24%. This increase was principally
due to the 19% increase in bakery sales for fiscal 1996. As a percentage of
bakery sales, bakery costs increased to 42.3% for fiscal 1996 versus 40.6% for
fiscal 1995. This increase was primarily attributable to higher costs for
dairy-related ingredients (cream cheese, whipped cream, and butter) during the
last half of fiscal 1996 which reflected the rise in the general level of dairy
commodity costs across the country. As a percentage of bakery sales,
dairy-related costs were 15.1% for fiscal 1996 versus 13.1% for fiscal 1995.

OPERATING EXPENSES--LABOR

Labor expenses were $51.3 million for fiscal 1996 versus $36.8 million for
fiscal 1995, an increase of $14.5 million or 39%. As a percentage of total
revenues, labor expenses for fiscal 1996 were 32.0% versus 31.4% for fiscal
1995. This increase was principally due to the impact of new restaurant
openings, coupled with certain duplicative and inefficient labor expenses
associated with the transition to the Company's new bakery production facility.

OPERATING EXPENSES--OCCUPANCY AND OTHER

Occupancy and other operating expenses increased 44% to $23.7 million for
fiscal 1996 versus $16.4 million for fiscal 1995. This increase was principally
attributable to the 37% increase in total revenues for fiscal 1996 and higher
costs associated with the Company's transition to its new bakery production
facility. As a percentage of total revenues, occupancy and other operating
expenses were 14.8% for fiscal 1996 versus 14.0% for fiscal 1995.

The Company incurred certain duplicative and inefficient operating costs in
connection with the transition to its new bakery production facility during the
first three quarters of fiscal 1996. Additionally, management estimates that
occupancy-related costs for its bakery operations, excluding depreciation and
amortization, increased by approximately $700,000 during fiscal 1996 as a result
of the estimated four-fold increase in production capacity offered by the new
facility.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses increased to $15.2 million for fiscal
1996 from $11.1 million for fiscal 1995 an increase of $4.2 million or 38%. As a
percentage of total revenues, general and administrative expenses increased
slightly to 9.5% for fiscal 1996 versus 9.4% for fiscal 1995. Fiscal 1996
general and administrative expenses included charges totaling approximately $1.0
million relating to the write-off of

16
<PAGE>
certain unrecoverable bakery assets and the settlement of an employment
practices and related claim against the Company.

DEPRECIATION AND AMORTIZATION EXPENSES

Depreciation and amortization expenses increased to $5.4 million for fiscal
1996 from $3.0 million for fiscal 1995, an increase of $2.4 million or 79%. As a
percentage of total revenues, depreciation and amortization expenses were 3.3%
for fiscal 1996 versus 2.5% for fiscal 1995. The increase of $2.4 million for
fiscal 1996 consisted of the following components: a $1.1 million increase (to
$1.6 million) in bakery depreciation and amortization; a $1.2 million increase
(to $3.6 million) in restaurant depreciation; and a $0.1 million increase (to
$0.2 million) in corporate support-related depreciation. The increase in bakery
depreciation was attributable to the estimated four-fold increase in productive
capacity offered by the Company's new, expanded bakery production facility.

PREOPENING AMORTIZATION EXPENSE

Preopening amortization expense was $5.4 million for fiscal 1996 versus $2.9
million for fiscal 1995, an increase of $2.5 million or 88%. As a percentage of
total revenue, preopening expense amortization was 3.4% for fiscal 1996 versus
2.5% for fiscal 1995.

INTEREST AND OTHER INCOME (EXPENSE)

Interest income for fiscal 1996 was $0.5 million versus $1.1 million for
fiscal 1995, a decrease of $0.6 million or 55%. This decrease was primarily due
to lower levels of investments in marketable securities which, in turn, was
attributable to capital expenditure activity during fiscal 1996. Other income
(expense) for fiscal 1996 resulted in a net other expense of $0.3 million versus
a net other income of $0.2 million for fiscal 1995. The fiscal 1996 amount
included a charge of approximately $0.7 million attributable to the liquidation
of certain debt securities acquired during fiscal 1994 and the write-off of a
related receivable with respect to the Company's investments in marketable
securities.

INCOME TAX PROVISION

The Company's effective tax rate for fiscal 1996 was 33.5% versus 26.2% for
fiscal 1995. The lower effective rate for fiscal 1995 was principally due to
higher research and related tax credits associated with the Company's
development of its new bakery production facility.

FISCAL 1995 COMPARED TO FISCAL 1994

REVENUES

Total revenues increased to $117.2 million for fiscal 1995 from $85.6
million for fiscal 1994, an increase of $31.6 million or 37%. Restaurant sales
increased to $99.8 million for fiscal 1995 from $73.0 million for fiscal 1994,
an increase of $26.8 million or 37%. Restaurant operating weeks for fiscal 1995
were 596 versus 453 for fiscal 1994, an increase of approximately 32%. Average
sales per restaurant operating week for fiscal 1995 were approximately $167,500
versus $161,100 for fiscal 1994. New restaurants opened during fiscal 1995 (Boca
Raton, FL; Chicago, IL; Houston, TX; and Boston, MA) accounted for approximately
$13.5 million or approximately half of the increase in total restaurant sales
during fiscal 1995. Noncomparable sales at the North Bethesda, MD and Coconut
Grove, FL locations (which opened during fiscal 1994) accounted for
approximately $10.2 million of the increase. Comparable restaurant sales
increased approximately $3.1 million or 4.3% for fiscal 1995. This increase
consisted of a 1.7% increase in customer counts and a 2.6% increase in the
average guest check amount. In December 1995, the Company instituted an
approximate 2.5% effective menu price increase for its six restaurants in
California, which represented the first significant menu price increase in
approximately three years. The non-California

17
<PAGE>
restaurants similarly increased their menu prices in January 1996 in order to
partially offset increasing operating costs.

Bakery sales increased to $17.3 million for fiscal 1995 from $12.6 million
for fiscal 1994, an increase of $4.7 million or 37%. This increase was
principally attributable to increased sales to the bakery's larger restaurant,
foodservice distributor, and warehouse club operators. Sales at the bakery's
cafe operation increased by approximately 4% to $1.4 million for fiscal 1995.

COST OF FOOD, BEVERAGES AND SUPPLIES

Cost of food, beverages and supplies for the restaurants increased to $29.7
million in fiscal 1995 from $22.1 million in fiscal 1994, an increase of $7.6
million or 35%. As a percentage of restaurant sales, the cost of food, beverages
and supplies decreased slightly to 29.7% for fiscal 1995 versus 30.2% for fiscal
1994.

BAKERY COSTS

Bakery costs increased by $2.1 million or 44% to $7.0 million for fiscal
1995 versus $4.9 million for fiscal 1994. As a percentage of bakery sales,
bakery costs increased to 40.6% for fiscal 1995 versus 38.8% for fiscal 1994.
This increase was principally attributable to slightly higher packaging costs
and lower gross profit margins realized on incremental sales to certain large
foodservice and warehouse club accounts.

OPERATING EXPENSES--LABOR

Labor expenses were $36.8 million for fiscal 1995 versus $26.1 million for
fiscal 1994, an increase of $10.7 million or 41%. This increase was principally
due to the impact of new restaurant openings. As a percentage of total revenues,
labor expenses for fiscal 1996 were 31.4% versus 30.5% for fiscal 1995. The
increase in labor expense as a percentage of total revenues was primarily due to
a significant, one-time reduction in labor expense during fiscal 1994 which
resulted from workers' compensation insurance premium refunds that were not
received by the Company in like amounts during fiscal 1995.

OPERATING EXPENSES--OCCUPANCY AND OTHER

Occupancy and other operating expenses increased 36% to $16.4 million for
fiscal 1995 versus $12.1 million for fiscal 1994. This increase was principally
attributable to the 37% increase in total revenues for fiscal 1995. As a
percentage of total revenues, occupancy and other operating expenses were 14.0%
for fiscal 1995 versus 14.1% for fiscal 1994.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses increased 39.4% to $11.1 million in
fiscal 1995 versus $7.9 million for fiscal 1994. As a percentage of total
revenues, general and administrative expenses increased 0.1% to 9.4% in fiscal
1995 versus 9.3% in fiscal 1994. This slight increase was principally
attributable to the continued strengthening of the Company's restaurant and
bakery operational support infrastructure, as well as increased product
development and promotional expenses related to the solicitation of large-
account bakery customers.

DEPRECIATION AND AMORTIZATION EXPENSES

Depreciation and amortization expenses increased $0.9 million, or 42%, to
$3.0 million for fiscal 1995 versus $2.1 million for fiscal 1994. As a
percentage of total revenues, depreciation and amortization expenses was 2.5%
for fiscal 1995 versus 2.4% for fiscal 1994. This increase was principally
attributable to the opening of new restaurants.

18
<PAGE>
PREOPENING AMORTIZATION EXPENSE

Preopening amortization expense was $2.9 million for fiscal 1995 versus $1.5
million for fiscal 1994, an increase of $1.4 million or 86%. As a percentage of
total revenue, preopening expense amortization was 2.5% for fiscal 1995 versus
1.8% for fiscal 1994.

INTEREST INCOME

Interest income for fiscal 1995 decreased 35% to $1.1 million versus $1.7
million for fiscal 1994. This decrease was attributable to lower levels of
investments in marketable securities which, in turn, was attributable to capital
expenditure activity during fiscal 1995.

INCOME TAX PROVISION

The Company's effective tax rate for fiscal 1995 was 26.2% versus 32.4% for
fiscal 1994. The lower effective tax rate for fiscal 1995 was principally
attributable to increased FICA tip credits generated from the Company's
restaurant operations and higher research and related tax credits associated
with the Company's development of its new bakery production facility.

LIQUIDITY AND CAPITAL RESOURCES

The following table presents, for the periods indicated, a summary of the
Company's key liquidity measurements.

<TABLE>
<CAPTION>
THIRTY-NINE WEEKS
ENDED
FISCAL YEAR --------------------------------
------------------------------- SEPTEMBER 29, SEPTEMBER 28,
1994 1995 1996 1996 1997
--------- --------- --------- --------------- ---------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Cash and marketable securities on
hand, end of period.............. $ 30.3 $ 17.0 $ 10.6 $ 16.1 $ 12.1
Net working capital, end of
period........................... $ 12.1 $ 14.0 $ 8.8 $ 8.4 $ 3.2
Current ratio, end of period....... 2.4:1 1.9:1 1.5:1 1.4:1 1.1:1
Long-term debt, end of period...... -- -- $ 6.0 $ 3.0 $ 9.0
Cash provided by operations........ $ 7.6 $ 12.8 $ 9.6 $ 10.6 $ 16.1
Capital expenditures............... $ 13.1(1) $ 29.5(1) $ 23.3 $ 15.8 $ 18.1
</TABLE>

- ------------------------

(1) Capital expenditures in 1994 and 1995 were funded in part from proceeds of
sales of marketable securities held-to-maturity.

During the thirty-nine weeks ended September 28, 1997, the Company's total
amount of cash and marketable securities on hand decreased by $4.0 million to
$12.1 million versus $16.1 million as of September 29, 1996. Similarly, the
Company's net working capital position decreased by $5.6 million during the
period to $3.2 million as of September 28, 1997. It is not uncommon for
operators in the restaurant industry to maintain a minimal or slightly negative
net working capital position as the restaurant business receives substantially
immediate payment for sales, while payment terms to suppliers for most food and
supply items often range from 10 to 30 days.

As of November 17, 1997, there were $14.0 million of borrowings outstanding
under the Credit Facility. Borrowings under the Credit Facility bear interest at
variable rates based, at the Company's option, on either the prime rate of
interest, the lending institution's cost of funds rate plus 1%, or the
applicable LIBOR rate plus 1%. The Credit Facility expires on September 30,
1998. On that date, a maximum of $15 million of any borrowings outstanding under
the Credit Facility automatically convert into

19
<PAGE>
a four-year term loan, payable in equal quarterly installments at an interest
rate of 0.5% higher than the former revolving credit rates. A portion of the net
proceeds of this Offering will be utilized to fully repay all outstanding
borrowings under the Credit Facility. The Company intends to keep a revolving
credit facility in place after this Offering with available proceeds of at least
$25 million.

During the thirty-nine weeks ended September 28, 1997, the Company's total
capital expenditures were $18.1 million, most of which were related to its
restaurant operations. For fiscal 1997, the Company estimates that its total
capital expenditure requirement will be approximately $26 million, excluding an
estimated $7 million of noncapitalizable restaurant preopening costs. Estimated
capital expenditures include approximately $22 million (net of expected landlord
construction contributions) to open six new restaurants and to provide for an
anticipated increase in construction-in-progress disbursements for anticipated
fiscal 1998 openings. The Company has historically leased the land and building
shells for its restaurant locations; however, the Company has expended cash for
leasehold improvements and furnishings, fixtures, and equipment for the
locations. The remaining estimated capital expenditures for fiscal 1997 consist
of approximately $1 million for the bakery cafe concept and approximately $3
million for capitalizable maintenance-related expenditures for the Company's
existing restaurants, bakery, and corporate center.

The Company has three signed leases for potential new restaurant locations,
one of which is expected to open before the end of fiscal 1997. The Company's
primary expansion objective is to increase its total restaurant productive
square footage and operating weeks by 25% to 30% during fiscal 1998 and 1999,
which will necessitate the opening of at least seven to eight restaurants
(including DisneyQuest) in each of those years. In addition to growing its
full-service restaurant concept, the Company has entered into an agreement to
lease and operate foodservice facilities in the first two DisneyQuest
entertainment facilities (currently planned for 1998 and 1999 openings) and has
signed a letter of intent for the new Venetian casino and resort in Las Vegas
(currently planned for a 1999 opening), all of which will require additional
capital resources. The bakery cafe concept, if successful, will also require
capital resources for expansion. As a result, management estimates the Company's
total capital expenditure requirement for fiscal 1998 will be approximately $30
million, excluding any potential landlord construction contributions and
associated preopening costs.

Based on its current expansion objectives and opportunities, the Company
believes that the net proceeds of this Offering, together with its existing cash
resources, cash provided by operations, Credit Facility, and landlord
construction contributions (when available) will be sufficient to finance its
capital expenditures and other operating activities through fiscal 1999. The
Company anticipates that it will seek additional funds to finance its future
growth. However, there can be no assurance that such funds will be available
when needed or be available on terms acceptable to the Company.

IMPACT OF INFLATION AND CHANGES IN THE COSTS OF KEY OPERATING RESOURCES

The Company's profitability is dependent, among other things, upon its
ability to anticipate and react to changes in the costs of key operating
resources, including food and other raw materials, labor, and other supplies and
services. Various factors beyond the Company's control, including adverse
weather and general marketplace conditions, may affect the availability and cost
of food and other raw materials. The impact of inflation on food, labor and
occupancy costs can significantly affect the Company's operations. Many of the
Company's restaurant and bakery employees are paid hourly rates related to the
federal minimum wage which increased in 1988, 1991, 1996, and 1997.
Additionally, a general shortage in the availability of qualified restaurant
management and hourly workers in certain geographical areas in which the Company
operates has caused related increases in the costs of recruiting and
compensating such employees. Certain operating costs, such as utilities, taxes,
insurance, and outside services continue to increase with the general level of
inflation. With respect to the Company's bakery operations, changes in the
general level of costs for dairy-related commodities can impact the results of
those operations. Dairy-

20
<PAGE>
related commodity costs (principally cream cheese, whipped cream, and butter)
represented 12.8%, 13.1% and 15.1% of bakery sales for fiscal 1994, 1995 and
1996, respectively.

While management has been able to react to inflation and other changes in
the costs of key operating resources by increasing prices for its menu items and
bakery products, coupled with more efficient purchasing practices and economies
of scale, there can be no assurance that it will be able to continue to do so in
the future. Substantially all of the leases for the Company's restaurants
provide for additional rent obligations based on a percentage of sales. As a
result, rent expense will absorb a proportionate share of any menu price
increases in the restaurants. There can be no assurance that the Company will
continue to generate increases in comparable restaurant sales and bakery sales
in amounts sufficient to offset inflationary or other cost pressures.

SEASONALITY AND QUARTERLY RESULTS

The Company's business is subject to seasonal fluctuations. Historically,
the Company's highest earnings have occurred in the second and third quarters of
the fiscal year, as the Company's sales in its existing restaurants have
typically been higher during the second and third quarters of the fiscal year.
The Company's bakery operations are seasonal to the extent that the fourth
quarter's sales are typically higher due to holiday business. Additionally,
bakery sales comparisons may significantly vary from quarter to quarter due to
the timing and scope of large orders of seasonal or promotional bakery products
from large-account bakery customers. As a result of the seasonality of the
Company's business, results for any quarter are not necessarily indicative of
the results that may be achieved for a full fiscal year. Quarterly results have
been, and in the future are likely to be, significantly impacted by the timing
of new restaurant openings and their respective preopening costs.

PROPOSED NEW ACCOUNTING STANDARDS

In February 1997, the Financial Accounting Standards Board issued two
statements--Statement of Financial Accounting Standards ("SFAS") No. 128
"Accounting for Earnings per Share" and No. 129 "Disclosure of Information About
Capital Structure", which will be adopted by the Company at the end of fiscal
1997. Upon adoption, SFAS No. 128 will slightly change the calculation of
primary net income per share.

In April 1997, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants (AICPA) issued an exposure draft
entitled "Reporting on the Costs of Start-Up Activities." The proposed
accounting standard contained in this draft would require entities to expense as
incurred all start-up and preopening costs that are not otherwise capitalizable
as long-lived assets. If adopted by the AICPA, this new accounting standard
would be effective for fiscal years beginning after December 15, 1997 with
earlier application encouraged. The comment period for the exposure draft ended
in July 1997, and the AICPA is expected to issue a final pronouncement on this
standard before the end of 1997.

As is currently the practice of many upscale, highly customized and "theme"
restaurant entities, the Company defers its restaurant preopening costs and
amortizes them over the twelve-month period following the opening of each
respective restaurant. At December 29, 1996 and September 28, 1997, total
deferred preopening costs were $6.2 million and $8.2 million, respectively. For
fiscal 1996 and the thirty-nine weeks ended September 28, 1997, preopening
expense amortization was approximately $5.4 million and $4.4 million,
respectively. If the new accounting principle is adopted by the AIPCA, the
Company will choose early implementation during fiscal 1997. This implementation
will involve the recognition of the cumulative effect of the change in
accounting principle required by the new standard as a one-time charge against
earnings, net of any related income tax effect, retroactive to the beginning of
fiscal 1997.

21
<PAGE>
BUSINESS

GENERAL

The Company operates 22 upscale, high volume, casual dining restaurants
under "The Cheesecake Factory" name in California, Colorado, Florida, Georgia,
Illinois, Maryland, Massachusetts, Missouri, Nevada, New York, Texas and
Washington, D.C. The Company's restaurants offer over 200 menu items, including
appetizers, pizza, seafood, steaks, chicken, burgers, pasta, specialty items,
salads, sandwiches, omelets and signature desserts including approximately 40
varieties of cheesecake. In contrast to many chain restaurant operations,
substantially all menu items (except desserts manufactured by the Company's
bakery production facility) are prepared on the restaurant premises using high
quality, fresh ingredients based on innovative and proprietary recipes. The
Company believes its restaurants are recognized by consumers for offering
exceptional value with generous food portions at moderate price points. The
Company's restaurants possess a distinctive, contemporary design and decor which
creates a high energy ambiance in a casual setting. Restaurants range in size
from 5,400 to 17,300 square feet, provide full liquor service, and are open
seven days a week for lunch and dinner, as well as for Sunday brunch.

In addition to growing its base of restaurants, the Company has also focused
on increasing its sales of high quality cheesecakes and baked desserts to other
foodservice operators and distributors. The Company's bakery production facility
creates, produces and markets approximately 50 varieties of cheesecake and other
quality baked desserts for its restaurants and for sale to these foodservice
operators and distributors. After exceeding the capacity of two leased bakery
production facilities during the past several years, the Company developed and
constructed a highly customized 45,000 square foot automated bakery production
facility with approximately four times the productive capacity of the former
combined facilities. The Company commenced initial production in the new
facility in December 1995 and full transition was completed in fiscal 1996.

BUSINESS STRATEGY AND COMPETITIVE POSITIONING

EXTENSIVE, CREATIVE AND CONTEMPORARY MENU AND BAKERY PRODUCT OFFERINGS. The
Company's restaurants offer over 200 items, including appetizers, pizza,
seafood, steaks, chicken, burgers, pasta, specialty items, salads, sandwiches,
and omelets. The menu is updated twice each year to respond to changing consumer
dining preferences and trends. The Company's bakery production facility produces
over 50 varieties of quality cheesecake and other baked desserts, of which
approximately 40 varieties are offered at any one time in the Company's
restaurants.

HIGH QUALITY PRODUCTS. Substantially all menu items (except the desserts
manufactured at the Company's bakery production facility) are prepared on the
restaurant premises using high quality, fresh ingredients based on innovative
and proprietary recipes. The Company uses high quality dairy and other raw
ingredients in its bakery products.

EXCEPTIONAL VALUE. The Company believes its restaurants are recognized by
consumers for offering exceptional value with generous food portions at moderate
price points. The average check per customer, including beverages and desserts,
was approximately $14.50 for the thirty-nine weeks ended September 28, 1997.

SUPERIOR CUSTOMER SERVICE. The Company's goal is to consistently meet or
exceed the expectations of every restaurant guest in all facets of the dining
experience. Management believes that its restaurant-level

22
<PAGE>
employee recruitment, selection, training, and incentive programs allow the
Company to attract and retain well qualified employees who are motivated to
provide consistent excellence in customer service.

FLEXIBLE MENU OFFERINGS AND OPERATIONAL EXECUTION. The Company's
restaurants have been strategically designed with sufficient capacity,
equipment, and operating systems to allow for the successful preparation and
delivery of an extensive and flexible menu which requires multiple food
preparation and cooking methods executed simultaneously.

DISTINCTIVE RESTAURANT DESIGN AND DECOR. The Company's restaurants possess
a distinctive contemporary design and decor which creates a high energy ambiance
in a casual setting. Whenever possible, outdoor patio seating is also
incorporated in the design of the restaurants, thus allowing for additional
restaurant capacity (weather permitting) at a relatively low investment and
occupancy cost per seat.

HIGH PROFILE RESTAURANT LOCATIONS AND FLEXIBLE SITE LAYOUTS. The Company
locates its restaurants in high profile locations within densely populated areas
with a balanced mix of residences, businesses, and entertainment outlets. In
contrast to many "theme" restaurant operations which rely heavily on tourist
traffic, the Company's restaurants principally rely on the visit frequency and
loyalty of consumers who work, reside, or shop near each of its restaurants. The
design of the Company's restaurants is flexible to accommodate a wide variety of
site layouts, including multi-level locations.

COMMITMENT TO SELECTING, TRAINING, REWARDING, AND RETAINING QUALITY
EMPLOYEES. The Company believes its employee recruitment and selection criteria
are among the most rigorous in the restaurant industry. By providing extensive
training and innovative compensation opportunities, the Company believes its
employees develop a sense of personal commitment to the Company's culture which
emphasizes customer satisfaction. Management believes these programs have
resulted in employee turnover rates which are lower than average for the
restaurant industry.

RESTAURANT CONCEPT AND MENU

The Company strives to provide excellent value and an enjoyable and
distinctive dining experience by offering an extensive, original and evolving
menu in an upscale casual setting with efficient, attentive, and friendly
service. As a result, the Company's restaurants appeal to a diverse customer
base. The concept's broad menu enables it to compete for substantially all
dining preferences and occasions, including the mid-afternoon and late-night
which are traditionally weaker day-parts for most chain restaurant operations.
The Company's restaurants are not open for breakfast, but do offer Sunday
brunch. All of the Company's restaurants are open seven days a week. All items
on the menu, including approximately 40 varieties of cheesecake and other
quality baked desserts, may be purchased for take-out. Management estimates that
items purchased for takeout represent approximately 10% of total restaurant
sales.

The Company's menu consists of approximately 17 pages and features over 200
items including appetizers, pizza, seafood, steaks, chicken, burgers, specialty
items, pastas, salads, sandwiches and omelets. Signature items include
Firecracker Salmon Rolls, Cajun Jambalaya Pasta, Beverly Hills Pizza Salad,
Bangkok B-B-Q Chicken, Shrimp Scampi and Caribbean Steak. Menu items are
prepared daily with high quality, fresh ingredients using innovative and
proprietary recipes. The Company considers the extensive selection of items on
its menu to be an important factor in the differentiation of its restaurants
from its competitors. Menu entrees range in price from approximately $5.95 to
$17.95, appetizers range in price from $4.25 to $7.95, and desserts range from
$4.75 to $6.95. The average check per customer at the Company's restaurants,
including beverages and desserts, during the thirty-nine weeks ended September
28, 1997 was approximately $14.50.

One of the Company's competitive strengths is its ability to both anticipate
consumer dining and taste preferences and quickly adapt its menu to incorporate
the latest trends in food consumption. The Company develops new menu items to
keep pace with changing consumer tastes and preferences and regularly updates
its ingredients and cooking methods to improve the quality and consistency of
its food

23
<PAGE>
offerings. Every six months, the Company evaluates the appeal and pricing of its
menu items, and often updates or replaces 10 to 20 of the items. All new menu
items are tested and selected based on uniqueness, sales popularity, ease of
preparation, and profitability.

The ability of the Company to create, promote and attractively display its
unique line of baked desserts is also important to the Company's image and
success. The Company believes that its brand identity and reputation for
offering high quality desserts results in a higher percentage of dessert sales
relative to that of most chain restaurant operators. Dessert sales represented
approximately 14.5% and 14.8% of total restaurant sales during fiscal 1996 and
the thirty-nine weeks ended September 28, 1997, respectively.

Alcoholic beverages are served at the table with meals, and each restaurant
maintains a full-service bar where appetizers or the full menu may also be
purchased. The sale of alcoholic beverages accounted for less than 15% of total
restaurant sales for fiscal 1996 and the thirty-nine weeks ended September 28,
1997. Management estimates that sales of alcoholic beverages purchased with
meals represented approximately 60% of total sales of alcoholic beverages, with
the remainder purchased at the full-service bar in each restaurant.

The Company places significant emphasis on the unique interior design and
decor of its restaurants which results in a higher investment cost per square
foot of restaurant space than is typical for the industry. However, each of the
Company's restaurants has historically generated annual sales per square foot
that is also typically higher than others in the industry. The Company believes
its stylish design and decor contributes to the distinctive dining experience
enjoyed by its customers. Each restaurant features large, open dining areas and
a contemporary kitchen design featuring exhibition cooking. Two restaurants
offer oyster bars and three restaurants offer banquet facilities. Approximately
half of the Company's restaurants offer outdoor patio seating (weather
permitting), and three of the Company's restaurants overlook waterfronts, which
complement the over-all dining experience. The table and seating layouts of the
Company's restaurants are flexible, permitting tables and seats to be easily
rearranged to accommodate large groups or parties, thus permitting more
effective utilization of seating capacity. See "--Restaurant Sales and
Investment Characteristics."

24
<PAGE>
RESTAURANT LOCATIONS AND SITE SELECTION

The Company currently operates 22 upscale, high volume, casual dining
restaurants in 12 states. The following table sets forth information with
respect to the Company's existing restaurant locations:

<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
OPENING INTERIOR SQUARE INTERIOR
LOCATION YEAR FOOTAGE(1) SEATS(2)
- ---------------------------------------------------------------------- ----------- ----------------- -------------
<S> <C> <C> <C>
Beverly Hills, CA..................................................... 1978 5,400 160
Marina del Rey, CA.................................................... 1983 6,000 195
Redondo Beach, CA..................................................... 1988 14,000(3) 500
Woodland Hills, CA.................................................... 1989 10,500 323
Washington, DC........................................................ 1991 12,500 410
Newport Beach, CA..................................................... 1993 9,500 252
Brentwood, CA......................................................... 1993 7,000 200
Atlanta, GA........................................................... 1993 14,000 446
North Bethesda, MD.................................................... 1994 9,900 265
Coconut Grove, FL..................................................... 1994 6,100 193
Boca Raton, FL........................................................ 1995 15,800 426
Chicago, IL........................................................... 1995 15,600 430
Houston, TX........................................................... 1995 12,500 336
Boston, MA............................................................ 1995 10,600 292
Skokie, IL............................................................ 1996 17,300 439
Baltimore, MD......................................................... 1996 7,200 258
Kansas City, MO....................................................... 1996 12,800 264
Pasadena, CA.......................................................... 1997 8,000 212
Denver, CO............................................................ 1997 11,500 280
Westbury, NY.......................................................... 1997 12,700 350
Las Vegas, NV......................................................... 1997 11,500 375
Cambridge, MA......................................................... 1997 9,600 275
------- -----
Total......................................................... 240,000 6,881
------- -----
------- -----
</TABLE>

- ------------------------------

(1) Excludes outside patio area, if applicable.

(2) Average seats, including bar and banquet facilities. Excludes outdoor patio
seating of approximately 22 at Beverly Hills, 256 at Marina del Rey, 125 at
Redondo Beach, 92 at Woodland Hills, 112 at Brentwood, 138 at Atlanta, 80 at
Chicago, 40 at Boston, 132 at Baltimore, 125 at Kansas City and 80 at
Denver. Outdoor patio seating is typically available, weather permitting, in
the Southern California locations during most of each year and during the
spring and summer seasons for the other locations.

(3) Excludes approximately 7,000 square feet of banquet space.

While the Company's restaurants typically share common interior decor
elements, the layouts of the restaurants differ to accommodate different types
of buildings and different square footage of available space. Restaurants have
been opened both as freestanding structures and as components of existing
shopping malls and office complexes and are located in both urban and suburban
areas.

The Company believes that the locations of its restaurants are critical to
its long-term success and devotes significant time and resources to analyzing
each prospective site. Since the Company's concept can be executed within a wide
range of restaurant sizes and site types, management can be highly selective in
choosing suitable locations. In general, the Company prefers to open its
restaurants at attractive high profile sites within larger metropolitan areas
with dense population and above-average household incomes. In addition to
carefully analyzing demographic information for each prospective site,
management considers other factors such as the site's visibility, traffic
patterns, and general accessibility; the availability of suitable parking; the
proximity of shopping and entertainment activities, office parks and tourist
attractions; the degree of competition within the site's trade area; and the
availability of restaurant-level

25
<PAGE>
employees. In contrast to many "theme" restaurant operations which rely heavily
on tourist traffic, the Company's restaurants principally rely on the visit
frequency and loyalty of consumers who work, reside, or shop in each of its
trade areas.

Management believes the historically favorable sales productivity and
popularity of its restaurants provide opportunities to obtain suitable leasing
terms, including contributions toward restaurant development and construction
costs, from landlords in most instances. Due to the uniquely flexible and
customized nature of its restaurant operations and the complex design,
construction, and preopening processes for each new location, the Company's
lease negotiation and restaurant development timeframes vary from location to
location and can be subject to unforeseen delays. On average, the entire
development process ranges from nine to twelve months in length after lease
signing.

The timing and number of new restaurants actually opened by the Company will
depend on a number of factors including, among others, the availability of
suitable locations and lease arrangements for such locations; the availability
of suitable financing to develop the restaurants; the Company's ability to
obtain all necessary governmental licenses and permits to operate the
restaurants; the Company's ability to successfully manage the development and
preopening processes for each restaurant; the availability of suitable
restaurant management and hourly employees; and general economic conditions.

EXPANSION STRATEGY

The Company plans to continue expanding its restaurant operations
principally through the opening of additional upscale, casual dining restaurants
under "The Cheesecake Factory" name. While the Company intends to focus
primarily on this expansion opportunity, the Company also plans to take
advantage of opportunities to leverage both its brand and its operational
strengths in other venues. The following table sets forth information with
respect to future locations under development for which leases have been signed:

<TABLE>
<CAPTION>
APPROXIMATE
INTERIOR SQUARE
LOCATION EXPECTED OPENING DATE FOOTAGE
- ---------------------------------------------------- ------------------------ ---------------
<S> <C> <C>
Miami, FL (Dadeland)................................ Fourth Quarter 1997 10,000
Miami, FL (Aventura)................................ Second Quarter 1998 10,500
Irvine, CA.......................................... Third Quarter 1998 6,000
</TABLE>

The Company plans to open six restaurants in fiscal 1997, five of which have
been opened to date. During the fourth quarter of 1997, the Company will open an
additional restaurant in Miami, Florida (Dadeland). The Company plans to open
six restaurants in 1998 for which two leases have been signed in Miami, Florida
(Aventura) and Irvine, California. The Company is currently negotiating
additional leases for potential future locations. From time to time, management
will evaluate opportunities to acquire and convert other restaurant operations
to "The Cheesecake Factory" concept. However, the Company currently has no
understandings, binding commitments (other than four signed leases), or
agreements to acquire or convert any other restaurant operations to its concept.

26
<PAGE>
The Company developed a "bakery cafe" concept during the first half of 1997
principally to extend "The Cheesecake Factory" brand and provide an additional
source of sales and operating leverage for the bakery production facility. The
Company has opened four outlets to date which range from 250 to 1,640 square
feet and feature many of the Company's unique desserts and a limited selection
of beverages, sandwiches and salads in a self-service format. The first bakery
cafe opened on July 14, 1997 in the Ontario Mills outlet mall complex near Los
Angeles and is operated by Host Marriott Services Corporation ("Host Marriott")
under a licensing agreement with the Company. During August 1997, the Company
opened three additional bakery cafe outlets in the new terminal of the
Washington National Airport. These three outlets are operated by the Company
under a subcontract with Host Marriott, which manages the food-service and
retail concessions for that airport. The Company is evaluating additional sites
for at least one additional bakery cafe for a planned opening in the Los Angeles
market during the first half of 1998. If successful, the bakery cafe concept
could be more rapidly expanded than the Company's full-service restaurants.

The Company entered into an agreement on October 13, 1997 with a subsidiary
of The Walt Disney Company to be the exclusive foodservice operator for Disney's
new DisneyQuest concept. DisneyQuest will feature innovative, interactive
technologies together with Disney characters to create a unique entertainment
adventure for families and guests of all ages. The worldwide launch of
DisneyQuest is planned for the summer of 1998 in Orlando, Florida at the Walt
Disney World Resort. A second location is planned for Chicago, Illinois in the
summer of 1999. Approximately 8,900 square feet of the 100,000 square foot
DisneyQuest--Orlando facility will be devoted to foodservice, which will feature
a limited selection of The Cheesecake Factory's quality menu items and desserts
in a self-service, "express" format at moderate price points. The Company
currently expects to incur a gross capital expenditure per square foot similar
to that of its full-service restaurants in order to furnish and equip the
foodservice portion of each DisneyQuest. In addition to the DisneyQuest
opportunity, the Company signed a letter of intent in June 1997 to develop and
operate a 20,000 square foot casual dining concept in the Venetian casino and
resort complex scheduled to open in Las Vegas in 1999. The Company's restaurant
concept for this site is currently expected to require a gross capital
expenditure per square foot similar to that of "The Cheesecake Factory"
restaurant concept.

RESTAURANT SALES AND INVESTMENT CHARACTERISTICS

Since each of the Company's restaurants has a customized layout and differs
in size (measured in square feet), management believes the most effective method
to analyze the fundamental unit economics of the concept is by square foot.
Average sales per productive square foot for restaurants open during the entire
period of fiscal 1996 was approximately $854. The Company currently leases the
land and building for each of its restaurants, but is usually required to expend
cash for leasehold improvements and furnishings, fixtures, and equipment which
ranges, on average, from $375 to $425 per square foot in total (excluding
preopening costs). The Company seeks to obtain construction contributions from
its landlords which, if obtained, usually take the form of up-front cash, full
or partial credits against minimum or percentage rents otherwise payable by the
Company, or a combination thereof. While the Company has been generally
successful in obtaining landlord construction contributions in the past, there
can be no assurance that such contributions will be available in similar
amounts, if at all, for every potential location the Company elects to develop
into a new restaurant. On average, the Company targets a minimum 2.5 to 1 ratio
of sales to its net cash investment when evaluating potential restaurant
locations. If a potential restaurant location is selected for acquisition and
development by the Company, the actual performance of the location, when opened,
may differ from its originally targeted performance.

RESTAURANT OPERATIONS AND MANAGEMENT

The Company's ability to successfully execute a broad, complex menu and
effectively manage high volume restaurants is critical to its overall success.
Detailed operating procedures, standards, controls,

27
<PAGE>
food line management systems, and cooking methods and processes have been
implemented at the restaurants to accommodate the Company's extensive menu and
high unit sales volumes. However, the successful day-to-day operation of the
Company's restaurant operations remains critically dependent on the quality,
ability, dedication, and enthusiasm of the general manager, executive kitchen
manager, and all other management and hourly employees at each restaurant.

The Company's restaurants are open every day of the year except Thanksgiving
and Christmas. Hours of operation are typically from 11:00 a.m. to 11:00 p.m.,
except for Sunday when the restaurants open at 10:00 a.m. for brunch.
Additionally, most restaurants remain open past midnight on weekends. Outdoor
patio seating is available (weather permitting) at approximately half of the
Company's restaurants.

Management believes that the relatively high average sales volume and
popularity of its restaurants with consumers allow the Company to attract and
retain higher quality, experienced restaurant-level management and other
operational personnel. Management believes the Company's restaurants have
experienced a lower level of employee turnover than the restaurant industry in
general. Each restaurant is typically staffed with one general manager, one
executive kitchen manager, and from four to ten additional management personnel
depending on the sales volume of the restaurant. On average, general managers
possess approximately two years of experience with the Company. All restaurant
management personnel complete an extensive training program during which they
receive both classroom and on-the-job instruction in food quality and
preparation, customer service, alcoholic beverage service, liquor liability
avoidance, financial management and cost controls, and human relations.
Restaurant managers are also provided with detailed operations manuals covering
food and beverage standards and the proper operation of the Company's
restaurants. Management is committed to operational excellence in every
component of its restaurant operations, including guest service and
satisfaction. ln addition to receiving feedback directly from its customers, the
Company also uses a "mystery shopper" quality control program to independently
monitor guest satisfaction.

Efficient, attentive and friendly guest service is integral to the Company's
overall concept and brand identity. Each restaurant is staffed, on average, with
approximately 200 hourly employees. The Company requires each hourly employee to
participate in a formal training program for their respective position in the
restaurant. For example, new servers at each restaurant participate in
approximately three weeks of training during which the server works under the
supervision of restaurant management. Management strives to instill enthusiasm
and dedication in its employees and regularly solicits suggestions concerning
restaurant operations and all aspects of its business.

The future success of the Company will continue to be highly dependent upon
its ability to attract, develop, and retain qualified employees who are capable
of successfully managing high volume restaurants and consistently executing the
concept's extensive and complex menu. The availability of qualified restaurant
management employees continues to be a significant industry-wide issue facing
chain restaurant operators. To enable it to more effectively compete for and
retain the highest quality restaurant management personnel available, the
Company adopted in fiscal 1997 an innovative and comprehensive compensation
program for its restaurant general managers and executive kitchen managers. Each
participant in the program receives a competitive base salary and has the
opportunity to earn an annual cash bonus based on the performance of his or her
restaurant. Participating restaurant general managers also are eligible to
utilize a company-leased vehicle, for which all nonbusiness use thereof is
valued and added to the participants' taxable income pursuant to income tax
regulations. For all participating restaurant general managers and executive
kitchen managers, a longer-term deferred compensation opportunity is also
available which will be dependent upon the participants' extended service to the
Company (at least five years) and their achievement of certain performance
objectives during that period. For financial accounting purposes, the average
annual expense of the program over a five-year participation period is expected
to be approximately $60,000-$65,000 per restaurant.

28
<PAGE>
Each restaurant general manager reports to an area director of operations,
who typically supervises the operations of three to seven restaurants, depending
upon geographical and management experience considerations. In turn, each area
director of operations currently reports to one of two regional vice presidents.
The restaurant field supervision organization also includes area kitchen
operations and performance development (training) personnel. As the Company
opens new restaurants, its field supervision organization will also
appropriately expand.

The Company maintains financial and accounting controls in its restaurants
through the use of a point-of-sale (POS) cash register and personal computer
system in each location. The POS and personal computer system provides daily and
weekly information with respect to sales, cash receipts, inventory, food and
beverage costs, labor costs, and other controllable operating expenses for
restaurant management. Each restaurant also has an onsite accountant who assists
in the accumulation and processing of accounting data and other administrative
information. During fiscal 1997, the Company strengthened its internal
information systems staff and commenced a comprehensive review of the
information systems in its restaurants with the objective of improving their
overall timeliness, effectiveness, and ability to more automatically interface
into the Company's central accounting and administrative systems.

BAKERY OPERATIONS

The Company originated in 1972 as a producer and retail and wholesale
distributor of high quality cheesecakes and other baked desserts. The creation,
production and marketing of quality cheesecakes and other baked desserts remain
a cornerstone of the Company's brand identity and growth plans. At its bakery
production facility, the Company produces approximately 50 varieties of
cheesecake and other baked desserts based on the Company's proprietary recipes.
Some of the Company's popular cheesecakes include the Original Cheesecake, White
Chocolate Raspberry Truffle-Registered Trademark-, Chocolate Peanut Butter
Cookie-Dough, Kahlua Almond Fudge, Dutch Apple Caramel Streusel, Fresh
Strawberry and Triple Chocolate Brownie Truffle. Other popular baked desserts
include chocolate fudge cake, carrot cake, blackout cake and apple dumplings.

The Company markets its cheesecakes and other baked desserts on a wholesale
basis to grocery and retail outlets, other restaurant operators, and foodservice
distributors. Historically, approximately three-fourths of the bakery's
production has been devoted to third-party foodservice wholesalers and
retailers. The remaining one-fourth of production has been devoted to supplying
the Company's restaurants. Cheesecakes and other items produced for third party
accounts are marketed under "The Cheesecake Factory" name as well as private
labels. Current large account customers include warehouse club operators,
institutional foodservice marketers and distributors, supermarkets, and other
restaurant and foodservice operators. The Company's bakery products are
delivered daily to customers in the Southern California area by the bakery's
delivery vehicles, and are shipped frozen throughout the United States by common
carrier and, in the case of mail order sales, by overnight air freight. The
Company also ships frozen bakery products internationally.

As a result of the Company's anticipated growth rate and the ultimate
capacity constraint of its former bakery production facility, the Company began
work in 1993 to design and develop a new, highly customized and automated bakery
production facility with sufficient capacity to accommodate the Company's
medium-term growth requirements. During 1995, the Company substantially
completed the construction of a new 60,000 square-foot bakery production
facility and corporate center in Calabasas Hills, California, of which
approximately 45,000 square feet is devoted to bakery production. During the
first three quarters of fiscal 1996, the Company gradually transitioned its
production operations from the former production facility to the new production
facility. The new facility was fully commissioned from an engineering and
operational perspective in October 1996. The total capitalized cost to develop
and construct the new facility, including the portion of the facility devoted to
the Company's corporate center, was approximately $18.6 million. The Company
currently owns the land, building, and all of the equipment at the new facility.
Management estimates that the new facility has approximately four times the
productive capacity of the former leased facility. As a result of the increased
capacity offered by the new facility, management estimates that occupancy costs,
including depreciation and amortization expense, for its bakery operations
increased by approximately $1.5 million to $2.7 million during fiscal 1996.

29
<PAGE>
In order to strengthen the Company's marketing capabilities for its bakery
products, the Company added two national salespeople and two product development
professionals to its bakery operations staff during the first quarter of fiscal
1997. In addition to increasing its domestic distribution, the Company has
commenced an expanded test of selected bakery products with an international
entity that operates over 5,000 food service and retail outlets. The initial
shipment of products to this entity occurred during September 1997. If the test
proves successful, a further expansion of products into additional outlets for
this entity would have the potential to improve bakery sales volumes during
fiscal 1998. The Company continues to develop and test products for other
potential large-account bakery customers.

ADVERTISING AND PROMOTION

The Company competes in the upscale, casual dining segment of the restaurant
industry. This segment is generally positioned between easily-replicated casual
dining operations and highly customized, expensive "fine dining" operations.
Management believes the Company's commitment to providing consistent,
exceptional value to consumers in an upscale casual dining environment continues
to be the most effective approach to attracting and retaining customers.
Accordingly, the Company has historically focused its resources on meeting and
exceeding customer expectations and has relied primarily on high profile
locations and "word of mouth" advertising to attract new customers.

Management believes that its commitment to delivering exceptional value to
its customers has enabled newer restaurants to benefit from the name recognition
and reputation for quality developed by existing restaurants. From time to time,
the Company participates in local promotional activities of a community service
nature in each of its restaurant trade areas. With respect to its bakery
operations, the Company currently maintains a full-time staff of four
salespeople and three product development professionals. Additionally, outside
foodservice brokers are utilized from time to time for certain product
distributing channels. During fiscal 1996 and the thirty-nine weeks ended
September 28, 1997, the Company's expenditures for advertising were less than 1%
of total revenues.

PURCHASING AND DISTRIBUTION

The Company strives to obtain quality menu ingredients, raw materials, and
other supplies and services for its operations from reliable sources at
competitive prices. Management continually researches and evaluates various
ingredients and products in an effort to maintain high quality and to be
responsive to changing consumer tastes. Other than for cheesecakes and other
baked products, the Company's restaurants do not utilize a central food
commissary. Substantially all menu items are prepared from scratch using fresh
ingredients. In order to maximize purchasing efficiencies and to provide for the
freshest ingredients for its menu items while obtaining the lowest possible
prices for the required quality and consistency, each restaurant's management
determines the quantities of food and supplies required and orders the items
from local and regional suppliers on terms negotiated by each restaurant's
management or by the Company's centralized purchasing staff. Management believes
that all essential food and beverage products are available from several
qualified suppliers in all cities in which its restaurants and bakery operations
are located. Most food and supply items are delivered daily to the Company's
restaurants by independent foodservice distributors.

COMPETITION

30
<PAGE>
restaurant operations. Multi-unit foodservice operations such as those of the
Company can also be substantially affected by adverse publicity resulting from
food quality, illness, injury, health concerns, or operating issues stemming
from a single restaurant or, with respect to the Company's bakery operations, a
single production run of bakery products. The Company attempts to manage these
factors, but the occurrence of any one of these factors could cause the entire
Company to be adversely affected. With regard to the Company's bakery
operations, competition within the premium dessert market has historically been
regionalized and fragmented. However, competition within that market remains
intense. The Company believes that its restaurants and bakery operations compete
favorably in the consumer marketplace with respect to the attributes of quality,
variety, taste, service, consistency, and overall value.

GOVERNMENT REGULATION

The Company is subject to various federal, state and local laws affecting
its business. Each of the Company's restaurants is subject to licensing and
regulation by a number of governmental authorities, which may include alcoholic
beverage control, health and safety and fire agencies in the state or
municipality in which the restaurant is located. Difficulties in obtaining or
failures to obtain the required licenses or approvals could delay or prevent the
development of new restaurants in particular areas. However, management believes
the Company is in compliance in all material respects with all relevant
regulations, and the Company has not experienced abnormal difficulties or delays
in obtaining the required licenses or approvals required to open any new
restaurant to date.

Alcoholic beverage control regulations require each of the Company's
restaurants to apply to a state authority and, in certain locations, county and
municipal authorities for a license and permit to sell alcoholic beverages on
the premises. Typically, licenses must be renewed annually and may be revoked or
suspended for cause at any time. Alcoholic beverage control regulations relate
to numerous aspects of the daily operations of the Company's restaurants,
including minimum age of patrons and employees, hours of operation, advertising,
wholesale purchasing, inventory control and handling, and storage and dispensing
of alcoholic beverages. The Company has not encountered any material problems
relating to alcoholic beverage licenses to date. The failure to receive or
retain, or a delay in obtaining, a liquor license in a particular location could
adversely affect the Company's ability to obtain such a license elsewhere.

The Company is subject to "dram-shop" statutes in most of the states in
which it has operations, which generally provide a person injured by an
intoxicated person the right to recover damages from an establishment which
wrongfully served alcoholic beverages to such person. The Company carries liquor
liability coverage as part of its existing comprehensive general liability
insurance which it believes is consistent with coverage carried by other
entities in the restaurant industry. Even though the Company is covered by
insurance, a judgment against the Company under a dram-shop statute in excess of
the Company's liability coverage could have a material adverse effect on the
Company. The Company has not been the subject of a "dram-shop" claim to date.

Various federal and state labor laws govern the Company's relationship with
its employees, including such matters as minimum wage and citizenship
requirements, overtime, safety and other working conditions. Significant
additional government-imposed increases in minimum wages, paid leaves of absence
and mandated health benefits, or increased tax reporting and tax payment
requirements for employees who receive gratuities, could be detrimental to the
profitability of the Company's restaurants and bakery operations. Management is
not aware of any environmental regulations that have had a material effect on
the operations of the Company to date.

EMPLOYEES

The Company employs approximately 5,654 persons of which approximately 5,381
employees work in the Company's restaurants, approximately 189 work in the
Company's bakery operations, and approximately 84 employees work in the
Company's corporate center and restaurant field supervision organization. None
of the Company's employees are covered by collective bargaining agreements, and
the

31
<PAGE>
Company has never experienced an organized work stoppage, strike, or labor
dispute. The Company believes its working conditions and compensation packages
are competitive with those offered by its competitors and considers relations
with its employees to be good.

TRADEMARKS

The Company has registered "The Cheesecake Factory," "White Chocolate
Raspberry Truffle," "White Chocolate Lemon Truffle" and "Chocolate Raspberry
Truffle" with the United States Patent and Trademark Office. The Company regards
its trademarks as having substantial value and as being an important factor in
the marketing of its restaurants and bakery products. On February 13, 1997, a
New Mexico corporation claiming to have an exclusive right to the use of "The
Cheesecake Factory" name in certain states and geographical areas brought suit
against the Company. The Company and the New Mexico corporation entered into a
confidential settlement, effective September 1997, to resolve the issues raised
in the litigation. The Company has also made application to register its
trademarks in more than 70 foreign countries, although there can be no assurance
that its name and marks are registerable in every country for which registration
is being sought. See "--Legal Proceedings."

PROPERTIES

All of the Company's 22 existing restaurants are located on leased
properties, and the Company has no current plans to own land and buildings for
future restaurants. The Company owns substantially all of the fixtures and
equipment in all of its restaurants. Existing restaurant leases have primary
terms ranging from December 31, 1997 to September 5, 2017 (excluding existing
renewal options). The Company does not anticipate any difficulties renewing its
existing leases as they expire; however, there can be no assurance that the
Company will be able to renew such leases. Leases typically provide for rent
based on a percentage of restaurant sales (with a minimum base rental) and
payment of certain lease-related expenses. See Note 6 of the Notes to
Consolidated Financial Statements on the Company's Annual Report on Form 10-K
incorporated herein by reference, for information regarding aggregate minimum
and percentage rentals paid by the Company for recent periods and information
regarding the Company's obligation to pay minimum rentals in future years.

The Company's corporate center and bakery production facility are located in
Calabasas Hills, California in a 60,000 square foot facility on a 3.3 acre
parcel of land. The Company currently owns the entire facility (land, building,
and equipment) in fee simple.

LEGAL PROCEEDINGS

On February 13, 1997, a New Mexico corporation named Cheesecake Factory,
Inc. (the "Plaintiff') brought suit in the U.S. District Court of New Mexico
against the Company, its subsidiaries, and certain of its bakery customers
alleging trademark, service mark and trade name infringements and wrongful
registration with respect to the Company's incontestable registration and use of
"The Cheesecake Factory" mark. The Plaintiff claimed an exclusive right to the
use of "The Cheesecake Factory" mark in New Mexico and other states, and sought
to enjoin the Company from any further sales of products under "The Cheesecake
Factory" mark and from operating any restaurants and selling bakery products
under that mark within such states or areas. The Company and the Plaintiff
entered into a confidential settlement, effective September 1997, to resolve the
issues raised in the litigation. The Company accrued a $1.9 million liability
and corresponding addition to its trademark assets which reflects the Company's
agreement to purchase all of Plaintiff's interests in those assets. The purchase
cost, together with associated legal fees, will be amortized over the economic
life of the assets purchased, currently estimated to be 20 years.

From time to time, other lawsuits are filed against the Company in the
ordinary course of business. Other than the lawsuit set forth above, the Company
is not a party to any other litigation that could have a material adverse effect
on the Company's results of operations and financial position or its business
and is not aware that any such liquidation is threatened.

32
<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information with respect to each
person who is a director or executive officer of the Company.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- -----------------------------------------------------------------------
<S> <C> <C>
David Overton...................... 51 Chairman of the Board, President and Chief Executive Officer
Gerald W. Deitchle................. 46 Executive Vice President and Chief Financial Officer
Michael A. Nahkunst................ 47 Executive Vice President and Chief Operating Officer
Thomas L. Gregory.................. 62 Director
Jerome I. Kransdorf................ 58 Director
Wayne H. White..................... 60 Director
</TABLE>

33
<PAGE>
UNDERWRITING

The Underwriters named below (the "Underwriters") have severally agreed,
subject to the terms and conditions contained in the underwriting agreement (the
"Underwriting Agreement") by and among the Company and the Underwriters, to
purchase from the Company the number of shares of Common Stock indicated below
opposite their respective names at the initial public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain contains precedent and that the Underwriters are committed to
purchase all of the shares if they purchase any.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
NationsBanc Montgomery Securities, Inc........................................... 800,000
Piper Jaffray Inc................................................................ 600,000
Salomon Brothers Inc............................................................. 600,000
----------
Total.......................................................................... 2,000,000
----------
----------
</TABLE>

The Underwriters have advised the Company that the Underwriters propose
initially to offer the Common Stock to the public on the terms set forth on the
cover page of this Prospectus. The Underwriters may allow, and such dealers may
reallow, to selected dealers a concession of not more than $0.75 per share, and
the Underwriters may allow a concession of not more than $0.10 per share to
certain other dealers. After the offering, the public offering price and other
selling terms may be changed by the Underwriters. The Common Stock is offered
subject to receipt and acceptance by the Underwriters and to certain other
conditions, including the right to reject orders in whole or in part.

The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to an
aggregate maximum of 300,000 additional shares of Common Stock, to cover
over-allotments, if any, at the same price per share as the initial shares to be
purchased by the Underwriters. To the extent the Underwriters exercise this
option, the Underwriters will be committed, subject to certain conditions, to
purchase such additional shares in approximately the same proportion as set
forth in the above table. The Underwriters may purchase such shares only to
cover over-allotments made in connection with this offering.

The Underwriting Agreement provides that the Company will indemnify the
Underwriters and their controlling persons against certain liabilities,
including civil liabilities under the Securities Act of 1933, as amended, or
will contribute to payments the Underwriters may be required to make in respect
thereof.

Total expenses of the offering are estimated to be approximately $325,000.
The Underwriters have agreed to reimburse the Company $100,000 of such expenses.

All of the Company's executive officers and directors have agreed that, for
a period of 90 days after the date of this Prospectus, they will not, without
the prior written consent of NationsBanc Montgomery Securities, Inc., directly
or indirectly sell, offer, contract or grant any option to sell, pledge,
transfer, or otherwise dispose of any shares of Common Stock options or warrants
to acquire shares of Common Stock, or securities exchangeable or exercisable for
or convertible into shares of Common Stock. In addition, the Company has agreed
that, for a period of 90 days after the date of this Prospectus, it will not,
without the prior written consent of NationsBanc Montgomery Securities, Inc.,
directly or indirectly issue, sell, offer, contract or grant any option to sell,
pledge, transfer, or otherwise dispose of any shares of Common Stock, options or
warrants to acquire shares of Common Stock or securities exchangeable or
exercisable for or convertible into shares of Common Stock other than (i) the
shares of Common Stock offered by the Company hereby or (ii) shares of Common
Stock issued pursuant to the exercise of stock options outstanding as of the
date of this Prospectus or (iii) additional options under the 1992 Stock Plan
and 1997 Stock Plan consistent with past practices.

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<PAGE>
Certain persons participating in this offering may over-allot or effect
transactions which stabilize, maintain or otherwise prevail in the open market.
Such transactions may include stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or effecting any purchase for the purpose of pegging, fixing or
maintaining the price of the Common Stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the offering. The Underwriters may also elect to reduce any short position by
exercising all or part of the over-allotment options described above. A penalty
bid means an arrangement that permits the Underwriters to reclaim a selling
concession from a syndicate member in connection with the offering when shares
of Common Stock sold by the syndicate member are purchased in syndicate covering
transactions. Such transactions may be effected on the Nasdaq National Market,
in the over-the-counter market, or otherwise.

In general, the purchase of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchase. Neither the Company nor any of
the Underwriters makes any representation or prediction as to the direction or
magnitude of any effect that the transactions described above may have on the
price of the Common Stock. In addition, neither the Company nor any of the
Underwriters makes any representation that the Underwriters will engage in such
transactions or that such transactions, once commenced, will not be discontinued
without notice.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Buchalter, Nemer, Fields & Younger, a professional
corporation, Los Angeles, California. Certain legal matters relating to this
offering will be passed upon for the Underwriters by Fried, Frank, Harris,
Shriver & Jacobson, a partnership including professional corporations, Los
Angeles, California. Certain shareholders and other employees of Buchalter,
Nemer, Fields & Younger, a professional corporation, own shares of the Company's
Common Stock.

EXPERTS

The consolidated balance sheets of The Cheesecake Factory Incorporated and
Subsidiaries as of December 29, 1996 and December 31, 1995, and the related
consolidated statements of operations, equity and cash flows for each of the
three fiscal years in the period ended December 29, 1996 incorporated by
reference in this registration statement have been incorporated by reference
herein in reliance upon the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information filed by the Company and the
Registration Statement and exhibits and schedules thereto can be inspected and
copied at the public reference section of the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at certain regional
offices located at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and
at certain regional offices of the Commission located at 75 Park Place, 14th
Floor, New York, New York 1007 and Northwest Atrium Center, 500 Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials can be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Room 1025, Washington, D.C. 20549, at prescribed rates, the Commission maintains
a World Wide Web site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that filed
electronically with the Commission.

35
<PAGE>
Information concerning the Company is also available for inspection at the
offices of the Nasdaq National Market, Reports Section, 1735 "K" Street, N.W.,
Washington , D.C. 20006.

The Company has filed with the Commission a Registration Statement on Form
S-3 (herein together
with all amendments and exhibits, referred to as the "Registration Statement")
under the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information contained in the Registration
Statement and reference is made to the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission, and the exhibits and schedules thereto for further information with
respect to the Company and the Common Stock offered hereby. Statements contained
herein concerning the provisions of any documents are not necessarily complete,
and in each instance reference is made to the copy of such document filed as an
exhibit to the Registration Statement. Each such statement is qualified in its
entirety by such reference.

DOCUMENTS INCORPORATED BY REFERENCE

The following documents or portions thereof filed by the Company with the
Commission pursuant to the Exchange Act are incorporated herein by reference:

(a) The Company's Annual Report on Form 10-K for the year ended December 29,
1996;

(b) The Company's Quarterly Reports on Form 10-Q for the periods ended March
30, 1997, June 29, 1997 and September 28, 1997 (as amended);

(d) The Company's Registration Statement on Form 8-A, declared effective by
the Commission on September 17, 1992.

All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of this offering shall be deemed to be incorporated by reference
herein and such documents shall be deemed to be a part hereof from the date of
filing of such documents. Any statement contained in a document 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 statements so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.

The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, upon the written or oral
request of any such person, a copy of any or all of the documents referred to
above which have been or may be incorporated in this Prospectus by reference
(other than exhibits). Requests for such copies should be directed to: The
Cheesecake Factory Incorporated, 26950 Agoura Road, Calabasas Hills, California
91301, Attention: Investor Relations.

36
<PAGE>
PHOTO DESCRIPTIONS

DESCRIPTION OF INSIDE BACK COVER

1. Front entrance and two interior photographs of Company's Denver, CO
restaurant.
<PAGE>
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NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SHARES OF COMMON STOCK TO WHICH IT RELATES OR AN OFFER TO, OR A
SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL. NEITHER 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 INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME, SUBSEQUENT TO THE DATE HEREOF.

----------------------

TABLE OF CONTENTS
----------------------

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY........................................................ 3
RISK FACTORS.............................................................. 6
USE OF PROCEEDS........................................................... 9
DIVIDEND POLICY........................................................... 9
PRICE RANGE OF COMMON STOCK............................................... 9
CAPITALIZATION............................................................ 10
SELECTED CONSOLIDATED FINANCIAL INFORMATION............................... 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.............................................................. 12
BUSINESS.................................................................. 22
MANAGEMENT................................................................ 33
UNDERWRITING.............................................................. 34
LEGAL MATTERS............................................................. 35
EXPERTS................................................................... 35
AVAILABLE INFORMATION..................................................... 35
DOCUMENTS INCORPORATED BY REFERENCE....................................... 36
</TABLE>

2,000,000 SHARES

[LOGO]

COMMON STOCK

-------------------

PROSPECTUS

-------------------

NATIONSBANC MONTGOMERY
SECURITIES, INC,

PIPER JAFFRAY INC.

SALOMON BROTHERS INC

NOVEMBER 17, 1997

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