<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 29, 1997
REGISTRATION NO. 333-36181
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-3/A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
THE CHEESECAKE FACTORY INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
DELAWARE 51-0340466
(State or Other jurisdiction (I.R.S. Employer
of Incorporation or Identification
Organization) No.)
</TABLE>
26950 AGOURA ROAD
CALABASAS HILLS, CALIFORNIA 91301
(818) 871-3000
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
GERALD W. DEITCHLE
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
26950 AGOURA ROAD
CALABASAS HILLS, CALIFORNIA 91301
(818) 871-3000
(Name, address including zip code, and telephone number, including
area code, of agent for service)
------------------------
COPIES TO:
MARK A. BONENFANT, ESQ. EDWARD S. ROSENTHAL, ESQ.
BUCHALTER, NEMER, FIELDS & YOUNGER FRIED, FRANK, HARRIS, SHRIVER &
A PROFESSIONAL CORPORATION JACOBSON
601 SOUTH FIGUEROA STREET, SUITE 2400 350 SOUTH GRAND AVENUE
LOS ANGELES, CALIFORNIA 90017-5704 LOS ANGELES, CALIFORNIA 90071
(213) 891-0700 (213) 473-2000
------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / _______
If this Form is a post-effective amendment filed pursuant to Rule 462(b)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offer. / / _______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 29, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
<PAGE>
2,675,000 SHARES
[LOGO]
COMMON STOCK
OF THE 2,675,000 SHARES OF COMMON STOCK OFFERED HEREBY, 2,000,000 SHARES ARE
BEING SOLD BY THE COMPANY AND 675,000 SHARES ARE BEING SOLD BY THE SELLING
STOCKHOLDERS. SEE "PRINCIPAL AND SELLING STOCKHOLDERS". THE COMPANY WILL NOT
RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF SHARES BY THE SELLING STOCKHOLDERS.
THE COMMON STOCK IS TRADED ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL
"CAKE". ON OCTOBER 27, 1997, THE LAST SALE PRICE AS REPORTED BY NASDAQ WAS
$27.75 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>
PROCEEDS TO
PRICE UNDERWRITING PROCEEDS TO SELLING
TO PUBLIC DISCOUNT (1) COMPANY (2) STOCKHOLDERS
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE............... $ $ $ $
TOTAL (3)............... $ $ $ $
</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, ALL OF
WHICH ARE PAYABLE BY THE COMPANY.
(3) THE COMPANY HAS GRANTED THE UNDERWRITERS A 30-DAY OPTION TO PURCHASE UP TO
401,250 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
$ , THE UNDERWRITING DISCOUNT WILL TOTAL $ AND PROCEEDS TO THE
COMPANY WILL TOTAL $ . 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 ,
1997.
-------------------
NATIONSBANC MONTGOMERY SECURITIES, INC.
PIPER JAFFRAY INC.
SALOMON BROTHERS INC
, 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 21 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 two additional restaurants in
Cambridge, Massachusetts and Miami, Florida. The Company expects to open six
additional restaurants in 1998 and leases have been signed for two of these
units in Miami, Florida 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.
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
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 offered by the Selling Stockholders........... 675,000 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)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
FISCAL YEAR ----------------------------
----------------------------------------------------- SEPTEMBER 29, SEPTEMBER 28,
1992(1) 1993(2) 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- ------------- -------------
<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
Income from operations................ 4,322 6,866 8,902 10,326 8,757 7,545 10,343
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
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 $ 46,630
Total assets.............................................................................. 127,829 171,229
Total long-term debt (including current portion).......................................... 9,000 --
Stockholders' equity...................................................................... 91,012 143,412
</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 an assumed public offering price of $27.75 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 21 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 at an assumed price of $27.75 are estimated to be $52.4 million
($63.0 million if the Underwriters' over-allotment option is exercised in full).
The Company will not receive any of the proceeds from the sale of shares of
Common Stock offered by the Selling Stockholders.
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 October 27, 1997,
there were $12.0 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 System
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 System.
<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 October 27, 1997).................................. 30.25 24.25
</TABLE>
On October 27, 1997, the last sale price of the Company's Common Stock as
reported on the Nasdaq National Market System was $27.75.
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 an assumed public offering price of $27.75 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....................................... 55,587 107,967
Retained earnings................................................ 35,352 35,352
Marketable securities valuation account.......................... (37) (37)
----------- -----------
Total stockholders' equity..................................... 91,012 143,412
----------- -----------
Total capitalization......................................... $ 100,012 $ 143,412
----------- -----------
----------- -----------
</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 21 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 October 27, 1997, there were $12.0 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 a four-year
19
<PAGE>
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 four signed leases for potential new restaurant locations,
two of which are 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 21 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
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. The key elements of the
Company's strategy and its competitive positioning are as follows:
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 person 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 21 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
------- -----
Total......................................................... 230,400 6,606
------- -----
------- -----
</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 employees. In contrast to many "theme"
restaurant operations which rely heavily on tourist traffic, the
25
<PAGE>
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.
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 which include, 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.
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>
Cambridge, MA....................................... Fourth Quarter 1997 9,600
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, four of which have
been opened to date. During the fourth quarter of 1997, the Company will open
two additional restaurants in Cambridge, Massachusetts and 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,
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<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.
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<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.
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<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
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
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 5,457 persons of which approximately 5,186
employees work in the Company's restaurants, approximately 191 work in the
Company's bakery operations, and approximately 80 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
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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," and "White Chocolate Lemon 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. In
August 1997, the Company and the New Mexico corporation reached a confidential
settlement to resolve the issues raised in the litigation and are currently
negotiating the terms of a final settlement agreement. 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 21 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 have
reached a confidential settlement to resolve the issues raised in the litigation
and are currently negotiating the terms of a final settlement agreement. On
September 28, 1997, 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.
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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..................... 59 Director
</TABLE>
SELLING STOCKHOLDERS
The following table sets forth certain information regarding the Selling
Stockholders. Unless otherwise indicated, each of the stockholders has sole
voting and investment power with respect to the shares beneficially owned. The
address of each of the stockholders named below is the Company's principal
executive office.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES TO SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING BE OWNED AFTER OFFERING
----------------------- SOLD IN -----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENTAGE OFFERING NUMBER PERCENTAGE
- -------------------------------------------------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
David Overton(1)(2)............................... 1,869,369 16.9% 471,213 1,398,156 10.7%
Overton Family Limited Partnership(3)............. 395,863 3.6% 203,787 192,076 1.5%
Overton Family Trust B(2)......................... 46,023 * 46,023 -- --
Overton Family Trust C(2)......................... 425,190 3.9% 425,190 -- --
</TABLE>
- ------------------------
* Less than 1% ownership.
(1) Mr. Overton is the Chief Executive Officer and Chairman of the Board of the
Company. Mr. Overton's ownership includes shares held by The Overton Family
Trust B and The Overton Family Trust C. His ownership also includes 78,750
shares which he has the right to acquire upon the exercise of options
granted under the 1992 Stock Plan. His ownership does not include an
additional 45,000 shares issuable upon exercise of options granted under the
1992 Stock Plan which are not currently exercisable. Mr. Overton's ownership
also does not include shares over which his spouse has sole voting and
investment power including (i) 12,867 shares held directly, (ii) 7,000
shares which are issuable upon exercise of options granted under the 1992
Stock Plan and (iii) an additional 19,000 shares issuable upon exercise of
options granted under the 1992 Stock Plan which are not currently
exercisable.
(2) David Overton is the sole trustee of The Overton Family Trust B and The
Overton Family Trust C and has sole voting and investment power. As the
beneficiaries of the trusts, David Overton and his sister Renee Overton each
have a one half interest in each trust.
(3) The general partner of The Overton Family Limited Partnership is The Overton
Children's Trust of which Jerome Kransdorf, a director of the Company, is
the trustee and holds sole voting and investment power.
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<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, the Selling Stockholders and
the Underwriters, to purchase from the Company and the Selling Stockholders 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 to if they
purchase any.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
NationsBanc Montgomery Securities, Inc...........................................
Piper Jaffray Inc................................................................
Salomon Brothers Inc.............................................................
----------
Total.......................................................................... 2,675,000
----------
----------
</TABLE>
The Underwriters have advised the Company and the Selling Stockholders 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 $ per share, and the Underwriters may allow a concession of not
more than $ 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 401,250 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 and the Selling
Stockholders 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.
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, other than for the shares of Common
Stock offered by the Selling Stockholders hereby. 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
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<PAGE>
of this Prospectus or (iii) additional options under the 1992 Stock Plan and
1997 Stock Plan consistent with past practices.
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 he Underwriters will engaged 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
35
<PAGE>
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. 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;
(c) The Company's proxy statement filed with the Commission on April 18,
1997; and
(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>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
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
SELLING STOCKHOLDERS...................................................... 33
UNDERWRITING.............................................................. 34
LEGAL MATTERS............................................................. 35
EXPERTS................................................................... 35
AVAILABLE INFORMATION..................................................... 35
DOCUMENTS INCORPORATED BY REFERENCE....................................... 36
</TABLE>
2,675,000 SHARES
[LOGO]
COMMON STOCK
-------------------
PROSPECTUS
-------------------
NATIONSBANC MONTGOMERY
SECURITIES, INC,
PIPER JAFFRAY INC.
SALOMON BROTHERS INC
, 1997
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table shows the expenses, other than Underwriting discounts
and commissions, to be incurred in connection with the issuance and distribution
of the securities being registered by the Company and the Selling Stockholders.
Such expenses will be paid by the Company.
<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 26,402
NASD Filing Fee................................................... $ 9,213
Blue Sky Fees and Expenses........................................ $ 5,000
Legal Fees and Expenses........................................... $ 80,000
Accounting Fees and Expenses...................................... $ 100,000
Printing and Engraving Expenses................................... $ 80,000
Miscellaneous Expenses............................................ $ 24,385
---------
Total........................................................... $ 325,000
---------
---------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of Delaware provides, in summary,
that the directors and officers of the Company may, under certain circumstances,
be indemnified by the Company against all expenses incurred by or imposed upon
them as a result of actions, suits or proceedings brought against them as such
directors and officers, or as directors or officers of any other organization at
the request of the Company, if they act in good faith and in a manner they
reasonably believe to be in or not opposed to the best interests of the Company,
and with respect to any criminal action or proceeding, have no reasonable cause
to believe their conduct was unlawful. No indemnification shall be made,
however, against expenses with respect to any claim issued or matter as to which
such person shall have been adjudged to be liable to the Company unless and only
to the extent that the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, they are fairly and reasonably
entitled to indemnity for such expenses which such court shall deem proper.
Section 145 of the Delaware General Corporation Law also provides that directors
and officers of the Company are entitled to such indemnification by the Company
to the extent that such persons are successful on the merits or otherwise in
defending any such action, suit or proceeding. The Company's Bylaws provide for
the indemnification by the Company of officers and directors to the fullest
extent permitted by Section 145 of the Delaware General Corporation Law.
The Company has entered into agreements to indemnify its directors and
officers in addition to the indemnification provided for in the Bylaws. These
agreements, among other things, indemnify the Company's directors and officers
for certain expenses (including attorneys' fees), judgments, fines and
settlement amounts incurred by such person in any action or proceeding,
including any action by or in the right of the Company, on account of services
as a director or officer of the Company or as a director or officer of any
subsidiary of the Company, or as a director or officer of any other company or
enterprise that the person provides services to at the request of the Company.
The Company believes that these provisions and agreements are necessary to
attract and retain qualified persons as directors and officers.
Section 102 of the Delaware General Corporation Law provides that a
corporation, in its Certificate of Incorporation, may eliminate the personal
liability of its directors to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, other than liability for (1)
any breach of the director's duty of loyalty to the corporation or its
stockholders, (2) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) any transaction from
which the director derived an improper personal benefit and (4) unlawful payment
of dividends, or unlawful stock
II-1
<PAGE>
purchase or redemptions. The Company's Certificate of Incorporation provides for
the elimination of personal liability of its directors to the full extent
permitted by section 102 of the Delaware General Corporation Law.
ITEM 16. EXHIBITS.
<TABLE>
<C> <S>
1.1 Underwriting Agreement
5.1 Opinion of Buchalter, Nemer, Fields & Younger, a professional
corporation
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Buchalter, Nemer, Fields & Younger, a professional
corporation (incorporated as Exhibit 5.1)
*24.1 Power of Attorney
</TABLE>
- ------------------------
* Previously filed.
ITEM 17. UNDERTAKINGS.
The undersigned Company ("the Registrant") hereby undertakes that:
A. For purposes of determining any liability under the Securities Act of
1933, each filing of the Registrant's annual report pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
B. (1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
C. Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Los Angeles, State of California on 27th October,
1997.
<TABLE>
<S> <C> <C>
THE CHEESECAKE FACTORY INCORPORATED
By: /s/ GERALD W. DEITCHLE
-----------------------------------------
Gerald W. Deitchle
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
NAME TITLE DATE
- ---------------------------------------------------------- ------------------
Chairman of the Board,
* /s/ DAVID OVERTON Chief Executive Officer,
- --------------------------------
and President (Principal October 27, 1997
David Overton Executive Officer)
Executive Vice President
/s/ GERALD W. DEITCHLE and Chief Financial
- --------------------------------
Officer (Principal October 27, 1997
Gerald W. Deitchle Financial and Accounting
Officer)
- --------------------------------
Director October 27, 1997
Thomas L. Gregory
* /s/ JEROME I. KRANSDORF
- --------------------------------
Director October 27, 1997
Jerome I. Kransdorf
* /s/ WAYNE H.
WHITE
- --------------------------------
Director October 27, 1997
Wayne H. White
*By /s/ GERALD W. DEITCHLE
-------------------------
Gerald W. Deitchle
ATTORNEY-IN-FACT
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1 Underwriting Agreement
5.1 Opinion of Buchalter, Nemer, Fields & Younger, a professional
corporation
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Buchalter, Nemer, Fields & Younger, a professional
corporation (incorporated as Exhibit 5.1)
*24.1 Power of Attorney (included on page II-3 of Registration Statement)
</TABLE>
- ------------------------
* Previously filed.
<PAGE>
Draft
2,000,000 SHARES
THE CHEESECAKE FACTORY, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
DATED OCTOBER __, 1997
<PAGE>
TABLE OF CONTENTS
SECTION 1. REPRESENTATIONS AND WARRANTIES.................................. 2
A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
SHAREHOLDERS.......................................................... 2
COMPLIANCE WITH REGISTRATION REQUIREMENTS........................... 2
OFFERING MATERIALS FURNISHED TO UNDERWRITERS........................ 3
DISTRIBUTION OF OFFERING MATERIAL BY THE COMPANY.................... 3
THE UNDERWRITING AGREEMENT.......................................... 3
AUTHORIZATION OF THE COMMON SHARES.................................. 3
NO APPLICABLE REGISTRATION OR OTHER SIMILAR RIGHTS.................. 3
NO MATERIAL ADVERSE CHANGE.......................................... 3
INDEPENDENT ACCOUNTANTS............................................. 4
PREPARATION OF THE FINANCIAL STATEMENTS............................. 4
INCORPORATION AND GOOD STANDING OF THE COMPANY AND ITS
SUBSIDIARIES...................................................... 4
CAPITALIZATION AND OTHER CAPITAL STOCK MATTERS...................... 5
STOCK EXCHANGE LISTING.............................................. 5
NON-CONTRAVENTION OF EXISTING INSTRUMENTS; NO FURTHER
AUTHORIZATIONS OR APPROVALS REQUIRED.............................. 5
NO MATERIAL ACTIONS OR PROCEEDINGS.................................. 6
INTELLECTUAL PROPERTY RIGHTS........................................ 6
ALL NECESSARY PERMITS, ETC.......................................... 6
TITLE TO PROPERTIES................................................. 6
TAX LAW COMPLIANCE.................................................. 7
COMPANY NOT AN "INVESTMENT COMPANY"................................. 7
INSURANCE........................................................... 7
NO PRICE STABILIZATION OR MANIPULATION.............................. 7
RELATED PARTY TRANSACTIONS.......................................... 7
NO UNLAWFUL CONTRIBUTIONS OR OTHER PAYMENTS......................... 7
EXCHANGE ACT COMPLIANCE............................................. 8
COMPANY'S ACCOUNTING SYSTEM......................................... 8
ERISA COMPLIANCE.................................................... 8
B. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS............ 9
THE UNDERWRITING AGREEMENT.......................................... 9
THE CUSTODY AGREEMENT AND POWER OF ATTORNEY......................... 9
TITLE TO COMMON SHARES TO BE SOLD; ALL AUTHORIZATIONS OBTAINED...... 9
DELIVERY OF THE COMMON SHARES TO BE SOLD............................ 9
NON-CONTRAVENTION; NO FURTHER AUTHORIZATIONS OR APPROVALS
REQUIRED.......................................................... 9
NO REGISTRATION OR OTHER SIMILAR RIGHTS.............................10
NO FURTHER CONSENTS, ETC............................................10
DISCLOSURE MADE BY SUCH SELLING SHAREHOLDER IN THE PROSPECTUS.......10
NO PRICE STABILIZATION OR MANIPULATION..............................10
CONFIRMATION OF COMPANY REPRESENTATIONS AND WARRANTIES..............10
SECTION 2. PURCHASE, SALE AND DELIVERY OF COMMON SHARES....................11
THE FIRM COMMON SHARES..............................................11
THE FIRST CLOSING DATE..............................................11
THE OPTIONAL COMMON SHARES; THE SECOND CLOSING DATE.................11
PUBLIC OFFERING OF THE COMMON SHARES................................12
PAYMENT FOR THE COMMON SHARES.......................................12
DELIVERY OF THE COMMON SHARES.......................................13
i
<PAGE>
DELIVERY OF PROSPECTUS TO THE UNDERWRITERS..........................13
SECTION 3. ADDITIONAL COVENANTS............................................13
A. COVENANTS OF THE COMPANY..............................................13
UNDERWRITERS' REVIEW OF PROPOSED AMENDMENTS AND SUPPLEMENTS.........13
SECURITIES ACT COMPLIANCE.........................................13
AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS AND OTHER
SECURITIES ACT MATTERS..............................................14
COPIES OF ANY AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS..........14
BLUE SKY COMPLIANCE.................................................14
USE OF PROCEEDS.....................................................14
TRANSFER AGENT......................................................14
EARNINGS STATEMENT..................................................15
PERIODIC REPORTING OBLIGATIONS......................................15
AGREEMENT NOT TO OFFER OR SELL ADDITIONAL SECURITIES................15
FUTURE REPORTS TO THE UNDERWRITERS..................................15
EXCHANGE ACT COMPLIANCE.............................................16
B. COVENANTS OF THE SELLING SHAREHOLDERS.................................16
AGREEMENT NOT TO OFFER OR SELL ADDITIONAL SECURITIES................16
DELIVERY OF FORMS W-9...............................................16
SECTION 4. PAYMENT OF EXPENSES.............................................16
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS...............17
ACCOUNTANTS' COMFORT LETTER.........................................17
COMPLIANCE WITH REGISTRATION REQUIREMENTS; NO STOP ORDER, NO
OBJECTION FROM NASD...............................................17
NO MATERIAL ADVERSE CHANGE OR RATINGS AGENCY CHANGE.................18
OPINION OF COUNSEL FOR THE COMPANY..................................18
OPINION OF COUNSEL FOR THE UNDERWRITERS.............................18
OFFICERS' CERTIFICATE...............................................18
BRING-DOWN COMFORT LETTER...........................................19
OPINION OF COUNSEL FOR THE SELLING SHAREHOLDERS.....................19
SELLING SHAREHOLDERS' CERTIFICATE...................................19
SELLING SHAREHOLDERS' DOCUMENTS.....................................19
LOCK-UP AGREEMENT FROM CERTAIN SHAREHOLDERS OF THE COMPANY
OTHER THAN SELLING SHAREHOLDERS...................................19
ADDITIONAL DOCUMENTS................................................20
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES.........................20
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT.................................20
SECTION 8. INDEMNIFICATION.................................................21
INDEMNIFICATION OF THE UNDERWRITERS.................................21
INDEMNIFICATION OF THE COMPANY, ITS DIRECTORS AND OFFICERS..........22
NOTIFICATIONS AND OTHER INDEMNIFICATION PROCEDURES..................23
SETTLEMENTS.........................................................23
SECTION 9. CONTRIBUTION....................................................24
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS..............25
SECTION 11. TERMINATION OF THIS AGREEMENT...................................26
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY.............26
SECTION 13. NOTICES.........................................................27
SECTION 14. SUCCESSORS......................................................27
SECTION 15. PARTIAL UNENFORCEABILITY........................................28
ii
<PAGE>
SECTION 16. GOVERNING LAW PROVISIONS........................................28
SECTION 17. FAILURE OF ONE OR MORE OF THE SELLING SHAREHOLDERS TO
SELL AND DELIVER COMMON SHARES..................................28
SECTION 18. GENERAL PROVISIONS..............................................28
iii
<PAGE>
UNDERWRITING AGREEMENT
, 1997
NATIONSBANC MONTGOMERY SECURITIES, INC.
PIPER JAFFRAY INC.
SALOMON BROTHERS INC
c/o NATIONSBANC MONTGOMERY SECURITIES, INC.
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
INTRODUCTORY. The Cheesecake Factory, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to the several underwriters named in
SCHEDULE A (the "Underwriters") an aggregate of 2,000,000 shares of its
Common Stock, par value $.01 per share (the "Common Stock"); and the
Shareholders of the Company named in SCHEDULE B (collectively, the "Selling
Shareholders") severally propose to sell to the Underwriters an aggregate of
675,000 shares of Common Stock. The 2,000,000 shares of Common Stock to be
sold by the Company and the 675,000 shares of Common Stock to be sold by the
Selling Shareholders are collectively called the "Firm Common Shares." In
addition, the Company has granted to the Underwriters an option to purchase
up to an additional 401,250 shares (the "Optional Common Shares") of Common
Stock, as provided in Section 2. The Firm Common Shares and, if and to the
extent such option is exercised, the Optional Common Shares are collectively
called the "Common Shares."
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-3 (File No.
333-36181), which contains a form of prospectus to be used in connection with
the public offering and sale of the Common Shares. Such registration
statement, as amended, including the financial statements, exhibits and
schedules thereto, in the form in which it was declared effective by the
Commission under the Securities Act of 1933 and the rules and regulations
promulgated thereunder (collectively, the "Securities Act"), including all
documents incorporated or deemed to be incorporated by reference therein and
any information deemed to be a part thereof at the time of effectiveness
pursuant to Rule 430A or Rule 434 under the Securities Act or the Securities
Exchange Act of 1934 and the rules and regulations promulgated thereunder
(collectively, the "Exchange Act"), is called the "Registration Statement."
Any registration statement filed by the Company pursuant to Rule 462(b) under
the Securities Act is called the "Rule 462(b) Registration Statement," and
from and after the date and time of filing of the Rule 462(b) Registration
Statement the term "Registration Statement" shall include the Rule 462(b)
Registration Statement. Such prospectus, including all documents incorporated
or deemed to be incorporated by reference therein, in the form first used by
the Underwriters to confirm sales of the Common Shares, is called the
"Prospectus"; PROVIDED, HOWEVER, if the Company has, with the consent of
NationsBanc Montgomery Securities, Inc., elected to rely upon Rule 434 under
the Securities Act, the term "Prospectus" shall mean the Company's prospectus
subject to completion (each, a "preliminary
<PAGE>
prospectus") dated [___] (such preliminary prospectus is called the "Rule 434
preliminary prospectus"), together with the applicable term sheet (the "Term
Sheet") prepared and filed by the Company with the Commission under Rules 434
and 424(b) under the Securities Act and all references in this Agreement to
the date of the Prospectus shall mean the date of the Term Sheet. All
references in this Agreement to the Registration Statement, the Rule 462(b)
Registration Statement, a preliminary prospectus, the Prospectus or the Term
Sheet, or any amendments or supplements to any of the foregoing, shall
include any copy thereof filed with the Commission pursuant to its Electronic
Data Gathering, Analysis and Retrieval System ("EDGAR"). All references in
this Agreement to financial statements and schedules and other information
which is "contained," "included" or "stated" in the Registration Statement or
the Prospectus (and all other references of like import) shall be deemed to
mean and include all such financial statements and schedules and other
information which is or is deemed to be incorporated by reference in the
Registration Statement or the Prospectus, as the case may be; and all
references in this Agreement to amendments or supplements to the Registration
Statement or the Prospectus shall be deemed to mean and include the filing of
any document under the Exchange Act which is or is deemed to be incorporated
by reference in the Registration Statement or the Prospectus, as the case may
be.
The Company and each of the Selling Shareholders hereby confirm their
respective agreements with the Underwriters as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES.
A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents, warrants and covenants to each Underwriter as follows:
(a) COMPLIANCE WITH REGISTRATION REQUIREMENTS. The
Registration Statement and any Rule 462(b) Registration Statement have
been declared effective by the Commission under the Securities Act. The
Company has complied to the Commission's satisfaction with all requests
of the Commission for additional or supplemental information. No stop
order suspending the effectiveness of the Registration Statement or any
Rule 462(b) Registration Statement is in effect and no proceedings for
such purpose have been instituted or are pending or, to the best
knowledge of the Company, are contemplated or threatened by the
Commission.
Each preliminary prospectus and the Prospectus when filed
complied in all material respects with the Securities Act and, if filed
by electronic transmission pursuant to EDGAR (except as may be permitted
by Regulation S-T under the Securities Act), was identical to the copy
thereof delivered to the Underwriters for use in connection with the
offer and sale of the Common Shares. Each of the Registration Statement,
any Rule 462(b) Registration Statement and any post-effective amendment
thereto, at the time it became effective and at all subsequent times,
complied and will comply in all material respects with the Securities Act
and did not and will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. The Prospectus,
as amended or supplemented, as of its date and at all subsequent times,
did not and will not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading. The representations and
2
<PAGE>
warranties set forth in the two immediately preceding sentences do not
apply to statements in or omissions from the Registration Statement, any
Rule 462(b) Registration Statement, or any post-effective amendment
thereto, or the Prospectus, or any amendments or supplements thereto,
made in reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by the Underwriters
expressly for use therein. There are no contracts or other documents
required to be described in the Prospectus or to be filed as exhibits to
the Registration Statement which have not been described or filed as
required.
(b) OFFERING MATERIALS FURNISHED TO UNDERWRITERS. The Company
has delivered to each Underwriter one complete manually signed copy of
the Registration Statement and of each consent and certificate of experts
filed as a part thereof, and conformed copies of the Registration
Statement (without exhibits) and preliminary prospectuses and the
Prospectus, as amended or supplemented, in such quantities and at such
places as the Underwriters have reasonably requested for each of the
Underwriters.
(c) DISTRIBUTION OF OFFERING MATERIAL BY THE COMPANY. The
Company has not distributed and will not distribute, prior to the later
of the Second Closing Date (as defined below) and the completion of the
Underwriters' distribution of the Common Shares, any offering material in
connection with the offering and sale of the Common Shares other than a
preliminary prospectus, the Prospectus or the Registration Statement.
(d) THE UNDERWRITING AGREEMENT. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding
agreement of, the Company, enforceable in accordance with its terms,
except as rights to indemnification hereunder may be limited by
applicable law and except as the enforcement hereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights and remedies of creditors or by
general equitable principles.
(e) AUTHORIZATION OF THE COMMON SHARES. The Common Shares to
be purchased by the Underwriters from the Company have been duly
authorized for issuance and sale pursuant to this Agreement and, when
issued and delivered by the Company pursuant to this Agreement, will be
validly issued, fully paid and nonassessable.
(f) NO APPLICABLE REGISTRATION OR OTHER SIMILAR RIGHTS. There
are no persons with registration or other similar rights to have any
equity or debt securities registered for sale under the Registration
Statement or included in the offering contemplated by this Agreement.
(g) NO MATERIAL ADVERSE CHANGE. Except as otherwise disclosed
in the Prospectus, subsequent to the respective dates as of which
information is given in the Prospectus: (i) there has been no material
adverse change, or any development that could reasonably be expected to
result in a material adverse change, in the condition, financial or
otherwise, or in the earnings, business, operations or prospects, whether
or not arising from transactions in the ordinary course of business, of
the Company and its subsidiaries, considered as one entity (any such
change is called a "Material Adverse Change"); (ii) the Company and its
subsidiaries, considered as one entity, have not incurred any material
liability or obligation, indirect, direct or contingent, not in the
ordinary course of business nor entered into any material transaction or
agreement not in the ordinary course of business; and (iii) there has
been no dividend or distribution of any kind declared, paid or made by
the Company or,
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except for dividends paid to the Company or other subsidiaries, any of
its subsidiaries on any class of capital stock or repurchase or
redemption by the Company or any of its subsidiaries of any class of
capital stock.
(h) INDEPENDENT ACCOUNTANTS. Coopers & Lybrand L.L.P.,
independent accountants, who have expressed their opinion with respect to
the financial statements (which term as used in this Agreement includes
the related notes thereto) filed with the Commission as a part of the
Registration Statement and included in the Prospectus, are independent
public or certified public accountants as required by the Securities Act
and the Exchange Act.
(i) PREPARATION OF THE FINANCIAL STATEMENTS. The financial
statements filed with the Commission as a part of the Registration
Statement and included in the Prospectus present fairly the consolidated
financial position of the Company and its subsidiaries as of and at the
dates indicated and the results of their operations and cash flows for
the periods specified. Such financial statements have been prepared in
conformity with generally accepted accounting principles as applied in
the United States applied on a consistent basis throughout the periods
involved, except as may be expressly stated in the related notes thereto.
No other financial statements or supporting schedules are required to be
included in the Registration Statement. The financial data set forth in
the Prospectus under the captions "Prospectus Summary--Summary
Consolidated Financial Data," "Capitalization," "Selected Consolidated
Financial Information," "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations" and
"--Liquidity and Capital Resources" fairly present the information set
forth therein on a basis consistent with that of the audited financial
statements contained in the Registration Statement.
(j) INCORPORATION AND GOOD STANDING OF THE COMPANY AND ITS
SUBSIDIARIES. Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation and has corporate
power and authority to own, lease and operate its properties and to
conduct its business as described in the Prospectus and, in the case of
the Company, to enter into and perform its obligations under this
Agreement. Each of the Company and each subsidiary is duly qualified as a
foreign corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required whether by reason of
the ownership or leasing of property or the conduct of business, except
for such jurisdictions where the failure to so qualify or to be in good
standing would not, individually or in the aggregate, result in a
Material Adverse Change. All of the issued and outstanding capital stock
of each subsidiary has been duly authorized and validly issued, is fully
paid and nonassessable and is owned by the Company, directly or through
subsidiaries, free and clear of any security interest, mortgage, pledge,
lien, encumbrance or claim. The Company does not own or control,
directly or indirectly, any corporation, association or other entity
other than the subsidiaries listed in Exhibit 22.1 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 29, 1996.
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(k) CAPITALIZATION AND OTHER CAPITAL STOCK MATTERS. The
authorized, issued and outstanding capital stock of the Company is as set
forth in the Prospectus under the caption "Capitalization" (other than
for subsequent issuances, if any, pursuant to employee benefit plans
described in the Prospectus or upon exercise of outstanding options
described in the Prospectus). The Common Stock (including the Common
Shares) conforms in all material respects to the description thereof
contained in the Prospectus. All of the issued and outstanding shares of
Common Stock (including the shares of Common Stock owned by Selling
Shareholders) have been duly authorized and validly issued, are fully
paid and nonassessable and have been issued in compliance with federal
and state securities laws. None of the outstanding shares of Common Stock
were issued in violation of any preemptive rights, rights of first
refusal or other similar rights to subscribe for or purchase securities
of the Company. There are no authorized or outstanding options,
warrants, preemptive rights, rights of first refusal or other rights to
purchase, or equity or debt securities convertible into or exchangeable
or exercisable for, any capital stock of the Company or any of its
subsidiaries other than those accurately described in the Prospectus.
The description of the Company's stock option, stock bonus and other
stock plans or arrangements, and the options or other rights granted
thereunder, set forth in the Prospectus accurately and fairly presents
the information required to be shown with respect to such plans,
arrangements, options and rights.
(l) STOCK EXCHANGE LISTING. The Common Stock (including the
Common Shares) is registered pursuant to Section 12(g) of the Exchange
Act and is listed on the Nasdaq National Market, and the Company has
taken no action designed to, or likely to have the effect of, terminating
the registration of the Common Stock under the Exchange Act or delisting
the Common Stock from the Nasdaq National Market, nor has the Company
received any notification that the Commission or the National Association
of Securities Dealers, Inc. (the "NASD") is contemplating terminating
such registration or listing.
(m) NON-CONTRAVENTION OF EXISTING INSTRUMENTS; NO FURTHER
AUTHORIZATIONS OR APPROVALS REQUIRED. Neither the Company nor any of its
subsidiaries is in violation of its charter or by-laws or is in default
(or, with the giving of notice or lapse of time, would be in default)
("Default") under any indenture, mortgage, loan or credit agreement,
note, contract, franchise, lease or other instrument to which the Company
or any of its subsidiaries is a party or by which it or any of them may
be bound (including, without limitation, the Company's Revolving Credit
Facility with Sanwa Bank California, as lender), or to which any of the
property or assets of the Company or any of its subsidiaries is subject
(each, an "Existing Instrument"), except for such Defaults as would not,
individually or in the aggregate, result in a Material Adverse Change.
The Company's execution, delivery and performance of this Agreement and
consummation of the transactions contemplated hereby and by the
Prospectus (i) have been duly authorized by all necessary corporate
action and will not result in any violation of the provisions of the
charter or by-laws of the Company or any subsidiary, (ii) will not
conflict with or constitute a breach of, or Default under, or result in
the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any of its subsidiaries pursuant to,
or require the consent of any other part to, any Existing Instrument,
except for such conflicts, breaches, Defaults, liens, charges or
encumbrances as would not, individually or in the aggregate, result in a
Material Adverse Change and (iii) will not result in any violation of any
law, administrative regulation or administrative or court decree
applicable to the Company or any subsidiary. No consent, approval,
authorization or other order of, or registration or filing with, any
court or other
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governmental or regulatory authority or agency, is required for the
Company's execution, delivery and performance of this Agreement and
consummation of the transactions contemplated hereby and by the
Prospectus, except such as have been obtained or made by the Company and
are in full force and effect under the Securities Act, applicable state
securities or blue sky laws and from the NASD.
(n) NO MATERIAL ACTIONS OR PROCEEDINGS. Except as otherwise
disclosed in the Prospectus, there are no legal or governmental actions,
suits or proceedings pending or, to the best of the Company's knowledge,
threatened (i) against or affecting the Company or any of its
subsidiaries, (ii) which has as the subject thereof any officer or
director of, or property owned or leased by, the Company or any of its
subsidiaries or (iii) relating to environmental or discrimination
matters, where in any such case (A) there is a reasonable possibility
that such action, suit or proceeding might be determined adversely to the
Company or such subsidiary and (B) any such action, suit or proceeding,
if so determined adversely, would reasonably be expected to result in a
Material Adverse Change or adversely affect the consummation of the
transactions contemplated by this Agreement. No material labor dispute
with the employees of the Company or any of its subsidiaries exists or,
to the best of the Company's knowledge, is threatened or imminent.
(o) INTELLECTUAL PROPERTY RIGHTS. The Company and its
subsidiaries own or possess sufficient trademarks, trade names, patent
rights, copyrights, licenses, approvals, trade secrets and other similar
rights (collectively, "Intellectual Property Rights") reasonably
necessary to conduct their businesses as now conducted; and the expected
expiration of any of such Intellectual Property Rights would not result
in a Material Adverse Change. Except as otherwise disclosed in the
Prospectus, neither the Company nor any of its subsidiaries has received
any notice of infringement or conflict with asserted Intellectual
Property Rights of others, which infringement or conflict, if the subject
of an unfavorable decision, would result in a Material Adverse Change.
(p) ALL NECESSARY PERMITS, ETC. The Company and each
subsidiary possess such valid and current certificates, authorizations or
permits issued by the appropriate state, federal or foreign regulatory
agencies or bodies necessary to conduct their respective businesses, and
neither the Company nor any subsidiary has received any notice of
proceedings relating to the revocation or modification of, or
non-compliance with, any such certificate, authorization or permit which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, could result in a Material Adverse Change.
(q) TITLE TO PROPERTIES. The Company and each of its
subsidiaries has good and marketable title to all the properties and
assets reflected as owned in the financial statements referred to in
Section 1(A) (i) above (or elsewhere in the Prospectus), in each case
free and clear of any security interests, mortgages, liens, encumbrances,
equities, claims and other defects, except such as do not materially and
adversely affect the value of such property and do not materially
interfere with the use made or proposed to be made of such property by
the Company or such subsidiary. The real property, improvements,
equipment and personal property held under lease by the Company or any
subsidiary are held under valid and enforceable leases, with such
exceptions as are not material and do not materially interfere with the
use made or proposed to be made of such real property, improvements,
equipment or personal property by the Company or such subsidiary.
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(r) TAX LAW COMPLIANCE. The Company and its subsidiaries have
filed all necessary federal, state and foreign income and franchise tax
returns and have paid all taxes required to be paid by any of them and,
if due and payable, any related or similar assessment, fine or penalty
levied against any of them except as may be being contested in good faith
and by appropriate proceedings. The Company has made adequate charges,
accruals and reserves in the applicable financial statements referred to
in Section 1 (A) (i) above in respect of all federal, state and foreign
income and franchise taxes for all periods as to which the tax liability
of the Company or any of its subsidiaries has not been finally
determined.
(s) COMPANY NOT AN "INVESTMENT COMPANY." The Company has been
advised of the rules and requirements under the Investment Company Act of
1940, as amended (the "Investment Company Act"). The Company is not, and
after receipt of payment for the Common Shares will not be, an
"investment company" within the meaning of Investment Company Act and
will conduct its business in a manner so that it will not become subject
to the Investment Company Act.
(t) INSURANCE. Each of the Company and its subsidiaries are
insured by recognized, financially sound and reputable institutions with
policies in such amounts and with such deductibles and covering such
risks as are generally deemed adequate and customary for their businesses
including, but not limited to, policies covering real and personal
property owned or leased by the Company and its subsidiaries against
theft, damage, destruction, acts of vandalism and earthquakes. The
Company has no reason to believe that it or any subsidiary will not be
able (i) to renew its existing insurance coverage as and when such
policies expire or (ii) to obtain comparable coverage from similar
institutions as may be necessary or appropriate to conduct its business
as now conducted and at a cost that would not result in a Material
Adverse Change. Neither of the Company nor any subsidiary has been
denied any insurance coverage which it has sought or for which it has
applied.
(u) NO PRICE STABILIZATION OR MANIPULATION. The Company has
not taken and will not take, directly or indirectly, any action designed
to or that might be reasonably expected to cause or result in
stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Common Shares.
(v) RELATED PARTY TRANSACTIONS. There are no business
relationships or related-party transactions involving the Company or any
subsidiary or any other person required to be described in the Prospectus
which have not been described as required.
(w) NO UNLAWFUL CONTRIBUTIONS OR OTHER PAYMENTS. Neither the
Company nor any of its subsidiaries, nor, to the best of the Company's
knowledge, any employee or agent of the Company or any such subsidiary,
has made any contribution or other payment to any official of, or
candidate for, any federal, state or foreign office in violation of any
law or of the character required to be disclosed in the Prospectus.
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(x) EXCHANGE ACT COMPLIANCE. The documents incorporated or
deemed to be incorporated by reference in the Prospectus, at the time
they were or hereafter are filed with the Commission, complied and will
comply in all material respects with the requirements of the Exchange
Act, and, when read together with the other information in the
Prospectus, at the time the Registration Statement and any amendments
thereto become effective and at the First Closing Date and the Second
Closing Date, as the case may be, will not contain an untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the facts required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(y) COMPANY'S ACCOUNTING SYSTEM. The Company maintains a
system of accounting controls sufficient to provide reasonable assurances
that (i) transactions are executed in accordance with management's
general or specific authorization; (ii) transactions are recorded as
necessary to permit preparation of financial statements in conformity
with generally accepted accounting principles as applied in the United
States and to maintain accountability for assets; (iii) access to assets
is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(z) ERISA COMPLIANCE. The Company and its subsidiaries and
any "employee benefit plan" (as defined under the Employee Retirement
Income Security Act of 1974, as amended, and the regulations and
published interpretations thereunder (collectively, "ERISA")) established
or maintained by the Company, its subsidiaries or their "ERISA
Affiliates" (as defined below) are in compliance in all material respects
with ERISA. "ERISA Affiliate" means, with respect to the Company or a
subsidiary, any member of any group of organizations described in
Sections 414(b),(c),(m) or (o) of the Internal Revenue Code of 1986, as
amended, and the regulations and published interpretations thereunder
(the "Code") of which the Company or such subsidiary is a member. No
"reportable event" (as defined under ERISA) has occurred or is reasonably
expected to occur with respect to any "employee benefit plan" established
or maintained by the Company, its subsidiaries or any of their ERISA
Affiliates. No "employee benefit plan" established or maintained by the
Company, its subsidiaries or any of their ERISA Affiliates, if such
"employee benefit plan" were terminated, would have any "amount of
unfunded benefit liabilities" (as defined under ERISA). Neither the
Company, its subsidiaries nor any of their ERISA Affiliates has incurred
or reasonably expects to incur any liability under (i) Title IV of ERISA
with respect to termination of, or withdrawal from, any "employee benefit
plan" or (ii) Sections 412, 4971, 4975 or 4980B of the Code. Each
"employee benefit plan" established or maintained by the Company, its
subsidiaries or any of their ERISA Affiliates that is intended to be
qualified under Section 401(a) of the Code is so qualified and nothing
has occurred, whether by action or failure to act, which would cause the
loss of such qualification.
Any certificate signed by an officer of the Company and delivered to the
Underwriters or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
set forth therein.
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B. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS. In
addition to the representations, warranties and covenants set forth in
Section 1(A), each Selling Shareholder represents, warrants and covenants to
each Underwriter as follows:
(a) THE UNDERWRITING AGREEMENT. This Agreement has been duly
authorized, executed and delivered by or on behalf of such Selling
Shareholder and is a valid and binding agreement of such Selling
Shareholder, enforceable in accordance with its terms, except as rights
to indemnification hereunder may be limited by applicable law and except
as the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
the rights and remedies of creditors or by general equitable principles.
(b) THE CUSTODY AGREEMENT AND POWER OF ATTORNEY. Each of the
(i) Custody Agreement signed by such Selling Shareholder and [___], as
custodian (the "Custodian"), relating to the deposit of the Common Shares
to be sold by such Selling Shareholder (the "Custody Agreement") and (ii)
Power of Attorney appointing certain individuals named therein as such
Selling Shareholder's attorneys-in-fact (each, an "Attorney-in-Fact") to
the extent set forth therein relating to the transactions contemplated
hereby and by the Prospectus (the "Power of Attorney"), of such Selling
Shareholder has been duly authorized, executed and delivered by such
Selling Shareholder and is a valid and binding agreement of such Selling
Shareholder, enforceable in accordance with its terms, except as rights
to indemnification thereunder may be limited by applicable law and except
as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
the rights and remedies of creditors or by general equitable principles.
(c) TITLE TO COMMON SHARES TO BE SOLD; ALL AUTHORIZATIONS
OBTAINED. Such Selling Shareholder has, and on the First Closing Date
and the Second Closing Date (as defined below) will have, good and valid
title to all of the Common Shares which may be sold by such Selling
Shareholder pursuant to this Agreement on such date and the legal right
and power, and all authorizations and approvals required by law, to enter
into this Agreement and its Custody Agreement and Power of Attorney, to
sell, transfer and deliver all of the Common Shares which may be sold by
such Selling Shareholder pursuant to this Agreement and to comply with
its other obligations hereunder and thereunder.
(d) DELIVERY OF THE COMMON SHARES TO BE SOLD. Delivery of the
Common Shares which are sold by such Selling Shareholder pursuant to this
Agreement will pass good and valid title to such Common Shares, free and
clear of any security interest, mortgage, pledge, lien, encumbrance or
other claim.
(e) NON-CONTRAVENTION; NO FURTHER AUTHORIZATIONS OR APPROVALS
REQUIRED. The execution and delivery by such Selling Shareholder of, and
the performance by such Selling Shareholder of its obligations under,
this Agreement, the Custody Agreement and the Power of Attorney will not
contravene or conflict with, result in a breach of, or constitute a
Default under, or require the consent of any other party to, any
partnership agreement, trust agreement or other organizational documents
of such Selling Shareholder or any other agreement or instrument to which
such Selling Shareholder is a party or by which it is bound or under
which it is entitled to any right or benefit, any provision of applicable
law or any judgment, order, decree or regulation applicable to such
Selling Shareholder of any court,
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regulatory body, administrative agency, governmental body or arbitrator
having jurisdiction over such Selling Shareholder. No consent, approval,
authorization or other order of, or registration or filing with, any
court or other governmental authority or agency, is required for the
consummation by such Selling Shareholder of the transactions contemplated
in this Agreement, except such as have been obtained or made and are in
full force and effect under the Securities Act, applicable state
securities or blue sky laws and from the NASD.
(f) NO REGISTRATION OR OTHER SIMILAR RIGHTS. Such Selling
Shareholder does not have any registration or other similar rights to
have any equity or debt securities registered for sale by the Company
under the Registration Statement or included in the offering contemplated
by this Agreement.
(g) NO FURTHER CONSENTS, ETC. No consent, approval or waiver
is required under any instrument or agreement to which such Selling
Shareholder is a party or by which it is bound or under which it is
entitled to any right or benefit, in connection with the offering, sale
or purchase by the Underwriters of any of the Common Shares which may be
sold by such Selling Shareholder under this Agreement or the consummation
by such Selling Shareholder of any of the other transactions contemplated
hereby.
(h) DISCLOSURE MADE BY SUCH SELLING SHAREHOLDER IN THE
PROSPECTUS. All information furnished by or on behalf of such Selling
Shareholder in writing expressly for use in the Registration Statement
and Prospectus is, and on the First Closing Date and the Second Closing
Date will be, true, correct, and complete in all material respects, and
does not, and on the First Closing Date and the Second Closing Date will
not, contain any untrue statement of a material fact or omit to state any
material fact necessary to make such information not misleading. Such
Selling Shareholder confirms as accurate the number of shares of Common
Stock set forth opposite such Selling Shareholder's name in the
Prospectus under the caption "Selling Stockholders" (both prior to and
after giving effect to the sale of the Common Shares).
(i) NO PRICE STABILIZATION OR MANIPULATION. Such Selling
Shareholder has not taken and will not take, directly or indirectly, any
action designed to stabilize or manipulate the price of the Common Stock,
or that might be reasonably expected to cause or result in stabilization
or manipulation of the price of the Common Stock, to facilitate the sale
or resale of the Common Shares.
(j) CONFIRMATION OF COMPANY REPRESENTATIONS AND WARRANTIES.
Although the Selling Shareholder has not conducted any investigation,
nothing has come to the Selling Shareholder's attention that would lead
it to believe that the representations and warranties of the Company
contained in Section 1(A) hereof are not true and correct. Such Selling
Shareholder has read the Registration Statement and the Prospectus and
has no knowledge of any material fact, condition or information not
disclosed in the Registration Statement or the Prospectus which has had
or may have a Material Adverse Effect and is not prompted to sell shares
of Common Stock by any information concerning the Company which is not
set forth in the Registration Statement and the Prospectus.
Any certificate signed by or on behalf of any Selling Shareholder and
delivered to the Underwriters or to counsel for the Underwriters shall be
deemed to be a representation and warranty by such Selling Shareholder to
each Underwriter as to the matters covered thereby.
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SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES.
THE FIRM COMMON SHARES. Upon the terms herein set forth, (i) the Company
agrees to issue and sell to the several Underwriters an aggregate of
2,000,000 Firm Common Shares and (ii) the Selling Shareholders agree to sell
to the several Underwriters an aggregate of 675,000 Firm Common Shares, each
Selling Shareholder selling the number of Firm Common Shares set forth
opposite such Selling Shareholder's name on SCHEDULE B. On the basis of the
representations, warranties and agreements herein contained, and upon the
terms but subject to the conditions herein set forth, the Underwriters agree,
severally and not jointly, to purchase from the Company and the Selling
Shareholders the respective number of Firm Common Shares set forth opposite
their names on SCHEDULE A. The purchase price per Firm Common Share to be
paid by the several Underwriters to the Company and the Selling Shareholders
shall be $[___] per share.
THE FIRST CLOSING DATE. Delivery of certificates for the Firm Common
Shares to be purchased by the Underwriters and payment therefor shall be made
at the offices of NationsBanc Montgomery Securities, Inc., 600 Montgomery
Street, San Francisco, California (or such other place as may be agreed to
by the Company and the Underwriters) at 6:00 a.m. San Francisco time, on
[____], or such other time and date not later than 10:30 a.m. San Francisco
time, ten business days following the original contemplated First Closing
Date, as the Underwriters shall designate by notice to the Company (the time
and date of such closing are called the "First Closing Date"). The Company
and the Selling Shareholders hereby acknowledge that circumstances under
which the Underwriters may provide notice to postpone the First Closing Date
as originally scheduled include, but are in no way limited to, any
determination by the Company, the Selling Shareholders or the Underwriters to
recirculate to the public copies of an amended or supplemented Prospectus or
a delay as contemplated by the provisions of Section 10.
THE OPTIONAL COMMON SHARES; THE SECOND CLOSING DATE. In addition, on the
basis of the representations, warranties and agreements herein contained, and
upon the terms but subject to the conditions herein set forth, the Company
hereby grants an option to the several Underwriters to purchase, severally
and not jointly, up to an aggregate of 401,250 Optional Common Shares from
the Company at the purchase price per share to be paid by the Underwriters
for the Firm Common Shares. The option granted hereunder is for use by the
Underwriters solely in covering any over-allotments in connection with the
sale and distribution of the Firm Common Shares. The option granted
hereunder may be exercised at any time (but not more than once) upon notice
by the Underwriters to the Company, which notice may be given at any time
within 30 days from the date of this Agreement. Such notice shall set forth
(i) the aggregate number of Optional Common Shares as to which the
Underwriters are exercising the option, (ii) the names and denominations in
which the certificates for the Optional Common Shares are to be registered
and (iii) the time, date and place at which such certificates will be
delivered (which time and date may be simultaneous with, but not earlier
than, the First Closing Date; and in such case the term "First Closing Date"
shall refer to the time and date of delivery of certificates for the Firm
Common Shares and the Optional Common Shares). Such time and date of
delivery, if subsequent to the First Closing Date, is called the "Second
Closing Date" and shall be determined by the Underwriters and shall not be
earlier than three nor later than five full business days after delivery of
such notice of exercise. If any Optional Common Shares are to be purchased,
each Underwriter agrees, severally and not jointly, to purchase the number of
Optional Common
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Shares (subject to such adjustments to eliminate fractional shares as the
Underwriters may determine) that bears the same proportion to the total
number of Optional Common Shares to be purchased as the number of Firm Common
Shares set forth on SCHEDULE A opposite the name of such Underwriter bears to
the total number of Firm Common Shares, and the Company agrees to sell such
Optional Common Shares. The Underwriters may cancel the option at any time
prior to its expiration by giving written notice of such cancellation to the
Company.
PUBLIC OFFERING OF THE COMMON SHARES. The Underwriters hereby advise the
Company and the Selling Shareholders that the Underwriters intend to offer
for sale to the public, as described in the Prospectus, their respective
portions of the Common Shares as soon after this Agreement has been executed
and the Registration Statement has been declared effective as the
Underwriters, in their sole judgment, have determined is advisable and
practicable.
PAYMENT FOR THE COMMON SHARES. Payment for the Common Shares to be sold
by the Company shall be made at the First Closing Date (and, if applicable,
at the Second Closing Date) by wire transfer of immediately available funds
to the order of the Company. Payment for the Common Shares to be sold by the
Selling Shareholders shall be made at the First Closing Date (and, if
applicable, at the Second Closing Date) by wire transfer of immediately
available funds to the order of the Custodian.
NationsBanc Montgomery Securities, Inc., individually and not as the
representative of the Underwriters, may (but shall not be obligated to) make
payment for any Common Shares to be purchased by any Underwriter whose funds
shall not have been received by NationsBanc Montgomery Securities, Inc. by
the First Closing Date or the Second Closing Date, as the case may be, for
the account of such Underwriter, but any such payment shall not relieve such
Underwriter from any of its obligations under this Agreement.
Each Selling Shareholder hereby agrees that (i) it will pay all
stock transfer taxes, stamp duties and other similar taxes, if any, payable
upon the sale or delivery of the Common Shares to be sold by such Selling
Shareholder to the several Underwriters, or otherwise in connection with the
performance of such Selling Shareholder's obligations hereunder and (ii) the
Custodian is authorized to deduct for such payment any such amounts from the
proceeds to such Selling Shareholder hereunder and to hold such amounts for
the account of such Selling Shareholder with the Custodian under the Custody
Agreement.
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DELIVERY OF THE COMMON SHARES. The Company and the Selling Shareholders
shall deliver, or cause to be delivered, to the Underwriters certificates for
the Firm Common Shares to be sold by them at the First Closing Date, against
the irrevocable release of a wire transfer of immediately available funds for
the amount of the purchase price therefor. The Company shall also deliver,
or cause to be delivered, to the Underwriters certificates for the Optional
Common Shares the Underwriters have agreed to purchase at the First Closing
Date or the Second Closing Date, as the case may be, against the irrevocable
release of a wire transfer of immediately available funds for the amount of
the purchase price therefor. The certificates for the Common Shares shall be
in definitive form and registered in such names and denominations as the
Underwriters shall have requested at least two full business days prior to
the First Closing Date (or the Second Closing Date, as the case may be) and
shall be made available for inspection on the business day preceding the
First Closing Date (or the Second Closing Date, as the case may be) at a
location in New York City as the Underwriters may designate. Time shall be
of the essence, and delivery at the time and place specified in this
Agreement is a further condition to the obligations of the Underwriters.
DELIVERY OF PROSPECTUS TO THE UNDERWRITERS. Not later than 12:00 p.m. on
the second business day following the date the Common Shares are released by
the Underwriters for sale to the public, the Company shall deliver or cause
to be delivered copies of the Prospectus in such quantities and at such
places as the Underwriters shall request.
SECTION 3. ADDITIONAL COVENANTS.
A. COVENANTS OF THE COMPANY. The Company further covenants and agrees
with each Underwriter as follows:
(a) UNDERWRITER'S REVIEW OF PROPOSED AMENDMENTS AND
SUPPLEMENTS. During such period beginning on the date hereof and ending
on the later of the First Closing Date or such date, as in the opinion of
counsel for the Underwriters, the Prospectus is no longer required by law
to be delivered in connection with sales by an Underwriter or dealer (the
"Prospectus Delivery Period"), prior to amending or supplementing the
Registration Statement (including any registration statement filed under
Rule 462(b) under the Securities Act) or the Prospectus (including any
amendment or supplement through incorporation by reference of any report
filed under the Exchange Act), the Company shall furnish to the
Underwriters for review copies of each such proposed amendment or
supplement, and the Company shall not file any such proposed amendment or
supplement to which the Underwriters reasonably object.
(b) SECURITIES ACT COMPLIANCE. After the date of this
Agreement, the Company shall promptly advise the Underwriters in writing
(i) of the receipt of any comments of, or requests for additional or
supplemental information from, the Commission, (ii) of the time and date
of any filing of any post-effective amendment to the Registration
Statement or any amendment or supplement to any preliminary prospectus or
the Prospectus, (iii) of the time and date that any post-effective
amendment to the Registration Statement becomes effective and (iv) of the
issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement or any post-effective amendment thereto or
of any order preventing or suspending the use of any preliminary
prospectus or the Prospectus, or of any proceedings to remove, suspend or
terminate from listing or quotation the Common Stock from any securities
exchange upon which it is listed for trading or included or designated
for quotation,
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or of the threatening or initiation of any proceedings for any of such
purposes. If the Commission shall enter any such stop order at any time,
the Company will use its best efforts to obtain the lifting of such order
at the earliest possible moment. Additionally, the Company agrees that
it shall comply with the provisions of Rules 424(b), 430A and 434, as
applicable, under the Securities Act and will use its reasonable efforts
to confirm that any filings made by the Company under such Rule 424(b)
were received in a timely manner by the Commission.
(c) AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS AND OTHER
SECURITIES ACT MATTERS. If, during the Prospectus Delivery Period, any
event shall occur or condition exist as a result of which it is necessary
to amend or supplement the Prospectus in order to make the statements
therein, in the light of the circumstances when the Prospectus is
delivered to a purchaser, not misleading, or if in the opinion of the
Underwriters or counsel for the Underwriters it is otherwise necessary to
amend or supplement the Prospectus to comply with law, the Company agrees
to promptly prepare (subject to Section 3(A)(a) hereof), file with the
Commission and furnish at its own expense to the Underwriters and to
dealers, amendments or supplements to the Prospectus so that the
statements in the Prospectus as so amended or supplemented will not, in
the light of the circumstances when the Prospectus is delivered to a
purchaser, be misleading or so that the Prospectus, as amended or
supplemented, will comply with law.
(d) COPIES OF ANY AMENDMENTS AND SUPPLEMENTS TO THE
PROSPECTUS. The Company agrees to furnish the Underwriters, without
charge, during the Prospectus Delivery Period, as many copies of the
Prospectus and any amendments and supplements thereto (including any
documents incorporated or deemed incorporated by reference therein) as
the Underwriters may request.
(e) BLUE SKY COMPLIANCE. The Company shall cooperate with the
Underwriters and counsel for the Underwriters to qualify or register the
Common Shares for sale under (or obtain exemptions from the application
of) the Blue Sky or state securities laws of those jurisdictions
designated by the Underwriters, shall comply with such laws and shall
continue such qualifications, registrations and exemptions in effect so
long as required for the distribution of the Common Shares. The Company
shall not be required to qualify as a foreign corporation or to take any
action that would subject it to general service of process in any such
jurisdiction where it is not presently qualified or where it would be
subject to taxation as a foreign corporation. The Company will advise
the Underwriters promptly of the suspension of the qualification or
registration of (or any such exemption relating to) the Common Shares for
offering, sale or trading in any jurisdiction or any initiation or threat
of any proceeding for any such purpose, and in the event of the issuance
of any order suspending such qualification, registration or exemption,
the Company shall use its best efforts to obtain the withdrawal thereof
at the earliest possible moment.
(f) USE OF PROCEEDS. The Company shall apply the net proceeds
from the sale of the Common Shares sold by it in the manner described
under the caption "Use of Proceeds" in the Prospectus.
(g) TRANSFER AGENT. The Company shall engage and maintain, at
its expense, a registrar and transfer agent for the Common Stock.
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(h) EARNINGS STATEMENT. As soon as practicable, the Company
will make generally available to its security holders and to the
Underwriters an earnings statement (which need not be audited) covering
the twelve-month period ending December ___, 1998 that satisfies the
provisions of Section 11(a) of the Securities Act.
(i) PERIODIC REPORTING OBLIGATIONS. During the Prospectus
Delivery Period the Company shall file, on a timely basis, with the
Commission and the Nasdaq National Market all reports and documents
required to be filed under the Exchange Act. Additionally, the Company
shall file with the Commission all reports on Form SR as may be required
under Rule 463 under the Securities Act.
(j) AGREEMENT NOT TO OFFER OR SELL ADDITIONAL SECURITIES.
During the period of 90 days following the date of the Prospectus, the
Company will not, without the prior written consent of NationsBanc
Montgomery Securities, Inc. (which consent may be withheld at the sole
discretion of NationsBanc Montgomery Securities, Inc.), directly or
indirectly, issue, sell, offer, contract or grant any option to sell,
pledge, transfer or establish an open "put equivalent position" within
the meaning of Rule 16a-1(h) under the Exchange Act, or otherwise dispose
of or transfer, or announce the offering of, or file any registration
statement under the Securities Act in respect of, any shares of Common
Stock, options or warrants to acquire shares of the Common Stock or
securities exchangeable or exercisable for or convertible into shares of
Common Stock (other than as contemplated by this Agreement with respect
to the Common Shares); PROVIDED, HOWEVER, that the Company may issue
shares of its Common Stock or options to purchase its Common Stock, or
Common Stock upon exercise of options, pursuant to any stock option,
stock bonus or other stock plan or arrangement described in the
Prospectus, but only if the holders of such shares, options, or shares
issued upon exercise of such options, agree in writing not to sell,
offer, dispose of or otherwise transfer any such shares or options during
such 90 day period without the prior written consent of NationsBanc
Montgomery Securities, Inc. (which consent may be withheld at the sole
discretion of NationsBanc Montgomery Securities, Inc.).
(k) FUTURE REPORTS TO THE UNDERWRITERS. During the period of
five years hereafter the Company will furnish to the Underwriters at 600
Montgomery Street, San Francisco, CA 94111 Attention:[____]: (i) as soon
as practicable after the end of each fiscal year, copies of the Annual
Report of the Company containing the balance sheet of the Company as of
the close of such fiscal year and statements of income, Shareholders'
equity and cash flows for the year then ended and the opinion thereon of
the Company's independent public or certified public accountants; (ii) as
soon as practicable after the filing thereof, copies of each proxy
statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q,
Current Report on Form 8-K or other report filed by the Company with the
Commission, the NASD or any securities exchange; and (iii) as soon as
available, copies of any report or communication of the Company mailed
generally to holders of its capital stock.
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(l) EXCHANGE ACT COMPLIANCE. During the Prospectus Delivery
Period, the Company will file all documents required to be filed with the
Commission pursuant to Section 13, 14 or 15 of the Exchange Act in the
manner and within the time periods required by the Exchange Act.
B. COVENANTS OF THE SELLING SHAREHOLDERS. Each Selling Shareholder
further covenants and agrees with each Underwriter:
(a) AGREEMENT NOT TO OFFER OR SELL ADDITIONAL SECURITIES.
Such Selling Shareholder will not, without the prior written consent of
NationsBanc Montgomery Securities, Inc. (which consent may be withheld in
its sole discretion), directly or indirectly, sell, offer, contract or
grant any option to sell (including without limitation any short sale),
pledge, transfer, establish an open "put equivalent position" within the
meaning of Rule 16a-1(h) under the Exchange Act, 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 currently or hereafter owned
either of record or beneficially (as defined in Rule 13d-3 under
Securities Exchange Act of 1934, as amended) by the undersigned, or
publicly announce the undersigned's intention to do any of the foregoing,
for a period commencing on the date hereof and continuing through the
close of trading on the date 90 days after the date of the Prospectus.
(b) DELIVERY OF FORMS W-9. To deliver to the Underwriters
prior to the First Closing Date a properly completed and executed United
States Treasury Department Form W-9.
NationsBanc Montgomery Securities, Inc., on behalf of the several
Underwriters, may, in its sole discretion, waive in writing the performance
by the Company or any Selling Shareholder of any one or more of the foregoing
covenants or extend the time for their performance.
SECTION 4. PAYMENT OF EXPENSES. The Company agrees to pay all costs,
fees and expenses incurred in connection with the performance of their
obligations hereunder and in connection with the transactions contemplated
hereby, including without limitation (i) all expenses incident to the
issuance and delivery of the Common Shares (including all printing and
engraving costs), (ii) all fees and expenses of the registrar and transfer
agent of the Common Stock, (iii) all necessary issue, transfer and other
stamp taxes in connection with the issuance and sale of the Common Shares to
the Underwriters, (iv) all fees and expenses of the Company's counsel,
independent public or certified pubic accountants and other advisors, (v) all
costs and expenses incurred in connection with the preparation, printing,
filing, shipping and distribution of the Registration Statement (including
financial statements, exhibits, schedules, consents and certificates of
experts), each preliminary prospectus and the Prospectus, and all amendments
and supplements thereto, and this Agreement, (vi) all filing fees, attorneys'
fees and expenses incurred by the Company or the Underwriters in connection
with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Common Shares for
offer and sale under the Blue Sky laws, and, if requested by the
Underwriters, preparing and printing a "Blue Sky Survey" or memorandum, and
any supplements thereto, advising the Underwriters of such qualifications,
registrations and exemptions, (vii) the filing fees incident to, and the
reasonable fees and expenses of counsel for the Underwriters in connection
with, the NASD's review and approval of the Underwriters' participation in
the
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offering and distribution of the Common Shares, (viii) the fees and expenses
associated with including the Common Shares on the Nasdaq National Market,
and (ix) all other fees, costs and expenses referred to in Item 14 of Part II
of the Registration Statement. Except as provided in this Section 4, Section
6, Section 8 and Section 9 hereof, the Underwriters shall pay their own
expenses, including the fees and disbursements of their counsel.
The Selling Shareholders further agree with each Underwriter to pay
(directly or by reimbursement) all fees and expenses incident to the
performance of their obligations under this Agreement which are not otherwise
specifically provided for herein, including but not limited to (i) fees and
expenses of counsel and other advisors for such Selling Shareholders, (ii)
fees and expenses of the Custodian and (iii) expenses and taxes incident to
the sale and delivery of the Common Shares to be sold by such Selling
Shareholders to the Underwriters hereunder (which taxes, if any, may be
deducted by the Custodian under the provisions of Section 2 of this
Agreement).
This Section 4 shall not affect or modify any separate, valid agreement
relating to the allocation of payment of expenses between the Company, on the
one hand, and the Selling Shareholders, on the other hand.
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Common
Shares as provided herein on the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date, shall be subject to the
accuracy of the representations and warranties on the part of the Company and
the Selling Shareholders set forth in Sections 1(A) and 1(B) hereof as of the
date hereof and as of the First Closing Date as though then made and, with
respect to the Optional Common Shares, as of the Second Closing Date as
though then made, to the timely performance by the Company and the Selling
Shareholders of their respective covenants and other obligations hereunder,
and to each of the following additional conditions:
(a) ACCOUNTANTS' COMFORT LETTER. On the date hereof, the
Underwriters shall have received from Coopers & Lybrand L.L.P.,
independent accountants for the Company, a letter dated the date hereof
addressed to the Underwriters, in form and substance satisfactory to the
Underwriters, containing statements and information of the type
ordinarily included in accountant's "comfort letters" to underwriters,
delivered according to Statement of Auditing Standards No. 72 (or any
successor bulletin), with respect to the audited and unaudited financial
statements and certain financial information contained in the
Registration Statement and the Prospectus (and the Underwriters shall
have received additional conformed copies of such accountants' letter for
each of the several Underwriters).
(b) COMPLIANCE WITH REGISTRATION REQUIREMENTS; NO STOP ORDER;
NO OBJECTION FROM NASD. For the period from and after effectiveness of
this Agreement and prior to the First Closing Date and, with respect to
the Optional Common Shares, the Second Closing Date:
(i) the Company shall have filed the Prospectus with the
Commission (including the information required by Rule 430A under the
Securities Act) in the manner and within the time period required by
Rule 424(b) under the Securities Act; or the Company shall have filed
a post-effective
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amendment to the Registration Statement containing the information
required by such Rule 430A, and such post-effective amendment shall
have become effective; or, if the Company elected to rely upon Rule
434 under the Securities Act and obtained the Underwriters' consent
thereto, the Company shall have filed a Term Sheet with the
Commission in the manner and within the time period required by such
Rule 424(b);
(ii) no stop order suspending the effectiveness of the
Registration Statement, any Rule 462(b) Registration Statement, or
any post-effective amendment to the Registration Statement, shall be
in effect and no proceedings for such purpose shall have been
instituted or threatened by the Commission; and
(iii) the NASD shall have raised no objection to the
fairness and reasonableness of the underwriting terms and
arrangements.
(c) NO MATERIAL ADVERSE CHANGE OR RATINGS AGENCY CHANGE. For
the period from and after the date of this Agreement and prior to the
First Closing Date and, with respect to the Optional Common Shares, the
Second Closing Date:
(i) in the judgment of the Underwriters there shall not
have occurred any Material Adverse Change; and
(ii) there shall not have occurred any downgrading, nor
shall any notice have been given of any intended or potential
downgrading or of any review for a possible change that does not
indicate the direction of the possible change, in the rating accorded
any securities of the Company or any of its subsidiaries by any
"nationally recognized statistical rating organization" as such term
is defined for purposes of Rule 436(g)(2) under the Securities Act.
(d) OPINION OF COUNSEL FOR THE COMPANY. On each of the First
Closing Date and the Second Closing Date the Underwriters shall have
received the opinion of Buchalter, Nemer, Fields & Younger (a
professional corporation), counsel for the Company, dated as of such
Closing Date, the form of which is attached as EXHIBIT A (and the
Underwriters shall have received additional conformed copies of such
counsel's legal opinion for each of the several Underwriters).
(e) OPINION OF COUNSEL FOR THE UNDERWRITERS. On each of the
First Closing Date and the Second Closing Date the Underwriters shall
have received the opinion of Fried, Frank, Harris, Shriver & Jacobson (a
partnership including professional corporations), counsel for the
Underwriters, dated as of such Closing Date, with respect to the matters
set forth in paragraphs (i), (vii), (viii), (ix), (x), (xi) and (xiii)
and the next-to-last paragraph of EXHIBIT A (and the Underwriters shall
have received additional conformed copies of such counsel's legal opinion
for each of the several Underwriters).
(f) OFFICERS' CERTIFICATE. On each of the First Closing Date
and the Second Closing Date the Underwriters shall have received a
written certificate executed by the Chairman of the Board, Chief
Executive Officer or President of the Company and the Chief Financial
Officer or Chief Accounting Officer of the Company, dated as of such
Closing Date, to the effect set forth in subsections (b)(ii) and (c)(ii)
of this Section 5, and further to the effect that:
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(i) for the period from and after the date of this
Agreement and prior to such Closing Date, there has not occurred any
Material Adverse Change;
(ii) the representations, warranties and covenants of the
Company set forth in Section 1(A) of this Agreement are true and
correct with the same force and effect as though expressly made on
and as of such Closing Date; and
(iii) the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied
at or prior to such Closing Date.
(g) BRING-DOWN COMFORT LETTER. On each of the First Closing
Date and the Second Closing Date the Underwriters shall have received
from Coopers & Lybrand L.L.P., independent accountants for the Company, a
letter dated such date, in form and substance satisfactory to the
Underwriters, to the effect that they reaffirm the statements made in the
letter furnished by them pursuant to subsection (a) of this Section 5,
except that the specified date referred to therein for the carrying out
of procedures shall be no more than three business days prior to the
First Closing Date or Second Closing Date, as the case may be (and the
Underwriters shall have received additional conformed copies of such
accountants' letter for each of the several Underwriters).
(h) OPINION OF COUNSEL FOR THE SELLING SHAREHOLDERS. On each
of the First Closing Date and the Second Closing Date the Underwriters
shall have received the opinion of Buchalter, Nemer, Fields & Younger (a
professional corporation), counsel for the Selling Shareholders, dated as
of such Closing Date, the form of which is attached as EXHIBIT B (and the
Underwriters shall have received additional conformed copies of such
counsel's legal opinion for each of the several Underwriters).
(i) SELLING SHAREHOLDERS' CERTIFICATE. On each of the First
Closing Date and the Second Closing Date the Underwriters shall received
a written certificate executed by each Selling Shareholder or its
Attorney-in-Fact, dated as of such Closing Date, to the effect that:
(i) the representations, warranties and covenants of
such Selling Shareholder set forth in Section 1(B) of this Agreement
are true and correct with the same force and effect as though
expressly made by such Selling Shareholder on and as of such Closing
Date; and
(ii) such Selling Shareholder has complied with all the
agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to such Closing Date.
(j) SELLING SHAREHOLDERS' DOCUMENTS. On the date hereof, the
Company and the Selling Shareholders shall have furnished for review by
the Underwriters copies of the Powers of Attorney and Custody Agreements
executed by each of the Selling Shareholders and such further
information, certificates and documents as the Underwriters may
reasonably request.
(k) LOCK-UP AGREEMENT FROM CERTAIN SHAREHOLDERS OF THE COMPANY
OTHER THAN SELLING SHAREHOLDERS. On the date hereof, the Company shall
have furnished to the Underwriters an agreement in the form of EXHIBIT C
hereto from each director and executive
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officer of the Company, and such agreement shall be in full force and
effect on each of the First Closing Date and the Second Closing Date.
(l) ADDITIONAL DOCUMENTS. On or before each of the First
Closing Date and the Second Closing Date, the Underwriters and counsel
for the Underwriters shall have received such information, documents and
opinions as they may reasonably require for the purposes of enabling them
to pass upon the issuance and sale of the Common Shares as contemplated
herein, or in order to evidence the accuracy of any of the
representations and warranties, or the satisfaction of any of the
conditions or agreements, herein contained.
If any condition specified in this Section 5 is not satisfied when and as
required to be satisfied, this Agreement may be terminated by the
Underwriters by notice to the Company and the Selling Shareholders at any
time on or prior to the First Closing Date and, with respect to the Optional
Common Shares, by notice to the Company at any time prior to the Second
Closing Date, which termination shall be without liability on the part of any
party to any other party, except that Section 4, Section 6, Section 8 and
Section 9 shall at all times be effective and shall survive such termination.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this Agreement
is terminated by the Underwriters pursuant to Section 5, Section 7, Section
10, Section 11 or Section 17, or if the sale to the Underwriters of the
Common Shares on the First Closing Date is not consummated because of any
refusal, inability or failure on the part of the Company or the Selling
Shareholders to perform any agreement herein or to comply with any provision
hereof, the Company agrees to reimburse the Underwriters (or such
Underwriters as have terminated this Agreement with respect to themselves),
severally, upon demand for all out-of-pocket expenses that shall have been
reasonably incurred by the Underwriters in connection with the proposed
purchase and the offering and sale of the Common Shares, including but not
limited to fees and disbursements of counsel, printing expenses, travel
expenses, postage, facsimile and telephone charges.
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT.
This Agreement shall not become effective until the later of (i) the
execution of this Agreement by the parties hereto and (ii) notification by
the Commission to the Company and the Underwriters of the effectiveness of
the Registration Statement under the Securities Act.
Prior to such effectiveness, this Agreement may be terminated by any
party by notice to each of the other parties hereto, and any such termination
shall be without liability on the part of (a) the Company or the Selling
Shareholders to any Underwriter, except that the Company and the Selling
Shareholders shall be obligated to reimburse the expenses of the Underwriters
pursuant to Sections 4 and 6 hereof, (b) of any Underwriter to the Company or
the Selling Shareholders, or (c) of any party hereto to any other party
except that the provisions of Section 8 and Section 9 shall at all times be
effective and shall survive such termination.
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SECTION 8. INDEMNIFICATION.
(a) INDEMNIFICATION OF THE UNDERWRITERS. The Company, David
Overton and each of the Selling Shareholders, jointly and severally,
agree to indemnify and hold harmless each Underwriter, its officers and
employees, and each person, if any, who controls any Underwriter within
the meaning of the Securities Act and the Exchange Act against any loss,
claim, damage, liability or expense, as incurred, to which such
Underwriter or such controlling person may become subject, under the
Securities Act, the Exchange Act or other federal or state statutory law
or regulation, or at common law or otherwise (including in settlement of
any litigation, if such settlement is effected with the written consent
of the Company), insofar as such loss, claim, damage, liability or
expense (or actions in respect thereof as contemplated below) arises out
of or is based (i) upon any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement, or any
amendment thereto, including any information deemed to be a part thereof
pursuant to Rule 430A or Rule 434 under the Securities Act, or the
omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not
misleading; or (ii) upon any untrue statement or alleged untrue statement
of a material fact contained in any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto), or the omission or
alleged omission therefrom of a material fact necessary in order to make
the statements therein, in the light of the circumstances under which
they were made, not misleading; or (iii) in whole or in part upon any
inaccuracy in the representations and warranties of the Company or the
Selling Shareholders contained herein; or (iv) in whole or in part upon
any failure of the Company or the Selling Shareholders to perform their
respective obligations hereunder or under law; or (v) any act or failure
to act or any alleged act or failure to act by any Underwriter in
connection with, or relating in any manner to, the Common Stock or the
offering contemplated hereby, and which is included as part of or
referred to in any loss, claim, damage, liability or action arising out
of or based upon any matter covered by clause (i) or (ii) above, PROVIDED
that the Company shall not be liable under this clause (v) to the extent
that a court of competent jurisdiction shall have determined by a final
judgment that such loss, claim, damage, liability or action resulted
directly from any such acts or failures to act undertaken or omitted to
be taken by such Underwriter through its gross negligence or willful
misconduct; and to reimburse each Underwriter and each such controlling
person for any and all expenses (including the fees and disbursements of
counsel chosen by NationsBanc Montgomery Securities, Inc.) as such
expenses are reasonably incurred by such Underwriter or such controlling
person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense
or action; PROVIDED, HOWEVER, that the foregoing indemnity agreement
shall not apply to any loss, claim, damage, liability or expense to the
extent, but only to the extent, arising out of or based upon any untrue
statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with written information
furnished to the Company and the Selling Shareholders by the Underwriters
expressly for use in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto);
and provided, further, that with respect to any preliminary prospectus,
the foregoing indemnity agreement shall not inure to the benefit of any
Underwriter from whom the person asserting any loss, claim, damage,
liability or expense purchased Common Shares, or any person controlling
such Underwriter, if copies of the Prospectus were timely delivered to
the Underwriter pursuant to Section 2 and a copy of the Prospectus (as
then amended or supplemented if the Company shall have
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furnished any amendments or supplements thereto) was not sent or given by
or on behalf of such Underwriter to such person, if required by law so to
have been delivered, at or prior to the written confirmation of the sale
of the Common Shares to such person, and if the Prospectus (as so amended
or supplemented) would have cured the defect giving rise to such loss,
claim, damage, liability or expense; and PROVIDED, FURTHER, that the
liability of each Selling Shareholder under the foregoing indemnity
agreement shall be limited to an amount equal to the aggregate initial
public offering price of the Common Shares sold by such Selling
Shareholder, less the underwriting discount, as set forth on the front
cover page of the Prospectus (in the case of Mr. Overton, based on the
shares sold by The Overton Family Trust B and The Overton Family Trust C,
with the aggregate liability of Mr. Overton, The Overton Family Trust B
and The Overton Family Trust C limited to the amount sold by such Selling
Shareholders). Mr. Overton shall not be obligated to indemnify the
Underwriters hereunder unless the Company, the Overton Family Trust B
and/ or the Overton Family Trust C shall fail to agree to indemnify in
full the Underwriters hereunder within 90 days of demand therefor or the
Company, the Overton Family Trust B and the Overton Family Trust C shall
not collectively have the financial ability to satisfy such
indemnification obligations in full. The indemnity agreement set forth
in this Section 8(a) shall be in addition to any liabilities that the
Company and the Selling Shareholders may otherwise have.
(b) INDEMNIFICATION OF THE COMPANY, ITS DIRECTORS AND
OFFICERS. Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, each of its directors, each of
its officers who signed the Registration Statement, the Selling
Shareholders and each person, if any, who controls the Company within the
meaning of the Securities Act or the Exchange Act, against any loss,
claim, damage, liability or expense, as incurred, to which the Company,
or any such director, officer, Selling Shareholder or controlling person
may become subject, under the Securities Act, the Exchange Act, or other
federal or state statutory law or regulation, or at common law or
otherwise (including in settlement of any litigation, if such settlement
is effected with the written consent of such Underwriter), insofar as
such loss, claim, damage, liability or expense (or actions in respect
thereof as contemplated below) arises out of or is based upon any untrue
or alleged untrue statement of a material fact contained in the
Registration Statement, any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto), or arises out of or is based upon
the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in the Registration Statement, any preliminary
prospectus, the Prospectus (or any amendment or supplement thereto), in
reliance upon and in conformity with written information furnished to the
Company and the Selling Shareholders by the Underwriters expressly for
use therein; and to reimburse the Company, or any such director, officer,
Selling Shareholder or controlling person for any legal and other expense
reasonably incurred by the Company, or any such director, officer,
Selling Shareholder or controlling person in connection with
investigating, defending, settling, compromising or paying any such loss,
claim, damage, liability, expense or action. The Company and each of the
Selling Shareholders hereby acknowledge that the only information that
the Underwriters have furnished to the Company and the Selling
Shareholders expressly for use in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto) are the statements set forth (A) as the first paragraph on page
3 of the Prospectus concerning stabilization by the Underwriters and (B)
in the table in the first paragraph and as the second paragraph and as
the last two paragraphs under the caption "Underwriting" in the
22
<PAGE>
Prospectus; and the Underwriters confirm that such statements are
correct. The indemnity agreement set forth in this Section 8(b) shall be
in addition to any liabilities that each Underwriter may otherwise have.
23
<PAGE>
(c) NOTIFICATIONS AND OTHER INDEMNIFICATION PROCEDURES.
Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action, such indemnified party will, if
a claim in respect thereof is to be made against an indemnifying party
under this Section 8, notify the indemnifying party in writing of the
commencement thereof, but the omission so to notify the indemnifying
party will not relieve it from any liability which it may have to any
indemnified party for contribution or otherwise than under the indemnity
agreement contained in this Section 8 or to the extent it is not
prejudiced as a proximate result of such failure. In case any such
action is brought against any indemnified party and such indemnified
party seeks or intends to seek indemnity from an indemnifying party, the
indemnifying party will be entitled to participate in, and, to the extent
that it shall elect, jointly with all other indemnifying parties
similarly notified, by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified
party, to assume the defense thereof with counsel reasonably satisfactory
to such indemnified party; PROVIDED, HOWEVER, if the defendants in any
such action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that a conflict
may arise between the positions of the indemnifying party and the
indemnified party in conducting the defense of any such action or that
there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right
to select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified
party or parties. Upon receipt of notice from the indemnifying party to
such indemnified party of such indemnifying party's election so to assume
the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified
party under this Section 8 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof
unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being
understood, however, that the indemnifying party shall not be liable for
the expenses of more than one separate counsel (together with local
counsel), approved by the indemnifying party (NationsBanc Montgomery
Securities Inc. in the case of Section 8(b) and Section 9), representing
the indemnified parties who are parties to such action) or (ii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of the action, in each of which cases
the fees and expenses of counsel shall be at the expense of the
indemnifying party.
(d) SETTLEMENTS. The indemnifying party under this Section 8
shall not be liable for any settlement of any proceeding effected without
its written consent, but if settled with such consent or if there be a
final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party against any loss, claim, damage,
liability or expense by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified
party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by
Section 8(c) hereof, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its written
consent if (i) such settlement is entered into more than 30 days after
receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in
accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement, compromise or consent to the
entry of judgment in any pending or threatened action, suit or proceeding
in respect of which any indemnified party
24
<PAGE>
is or could have been a party and indemnity was or could have been
sought hereunder by such indemnified party, unless such settlement,
compromise or consent includes an unconditional release of such
indemnified party from all liability on claims that are the subject
matter of such action, suit or proceeding.
SECTION 9. CONTRIBUTION.
If the indemnification provided for in Section 8 is for any reason held
to be unavailable to or otherwise insufficient to hold harmless an
indemnified party in respect of any losses, claims, damages, liabilities or
expenses referred to therein, then each indemnifying party shall contribute
to the aggregate amount paid or payable by such indemnified party, as
incurred, as a result of any losses, claims, damages, liabilities or expenses
referred to therein (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Selling Shareholders, on
the one hand, and the Underwriters, on the other hand, from the offering of
the Common Shares pursuant to this Agreement or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company
and the Selling Shareholders, on the one hand, and the Underwriters, on the
other hand, in connection with the statements or omissions or inaccuracies in
the representations and warranties herein which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company and
the Selling Shareholders, on the one hand, and the Underwriters, on the other
hand, in connection with the offering of the Common Shares pursuant to this
Agreement shall be deemed to be in the same respective proportions as the
total net proceeds from the offering of the Common Shares pursuant to this
Agreement (before deducting expenses) received by the Company and the Selling
Shareholders, and the total underwriting discount received by the
Underwriters, in each case as set forth on the front cover page of the
Prospectus (or, if Rule 434 under the Securities Act is used, the
corresponding location on the Term Sheet) bear to the aggregate initial
public offering price of the Common Shares as set forth on such cover. The
relative fault of the Company and the Selling Shareholders, on the one hand,
and the Underwriters, on the other hand, shall be determined by reference to,
among other things, whether any such untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact or any
such inaccurate or alleged inaccurate representation or warranty relates to
information supplied by the Company or the Selling Shareholders, on the one
hand, or the Underwriters, on the other hand, and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 8(c), any legal or
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. The provisions set forth in
Section 8(c) with respect to notice of commencement of any action shall apply
if a claim for contribution is to be made under this Section 9; PROVIDED,
HOWEVER, that no additional notice shall be required with respect to any
action for which notice has been given under Section 8(c) for purposes of
indemnification.
The Company, the Selling Shareholders and the Underwriters agree that it
would not be just and equitable if contribution pursuant to this Section 9 were
determined by pro rata allocation
25
<PAGE>
(even if the Underwriters were treated as one entity for such purpose) or by
any other method of allocation which does not take account of the equitable
considerations referred to in this Section 9.
Notwithstanding the provisions of this Section 9, no Underwriter shall be
required to contribute any amount in excess of the underwriting commissions
received by such Underwriter in connection with the Common Shares
underwritten by it and distributed to the public. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations
to contribute pursuant to this Section 9 are several, and not joint, in
proportion to their respective underwriting commitments as set forth opposite
their names in SCHEDULE A. For purposes of this Section 9, each officer and
employee of an Underwriter and each person, if any, who controls an
Underwriter within the meaning of the Securities Act and the Exchange Act
shall have the same rights to contribution as such Underwriter, and each
director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company
with the meaning of the Securities Act and the Exchange Act shall have the
same rights to contribution as the Company.
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS. If, on
the First Closing Date or the Second Closing Date, as the case may be, any
one or more of the several Underwriters shall fail or refuse to purchase
Common Shares that it or they have agreed to purchase hereunder on such date,
and the aggregate number of Common Shares which such defaulting Underwriter
or Underwriters agreed but failed or refused to purchase does not exceed 10%
of the aggregate number of the Common Shares to be purchased on such date,
the other Underwriters shall be obligated, severally, in the proportions that
the number of Firm Common Shares set forth opposite their respective names on
SCHEDULE A bears to the aggregate number of Firm Common Shares set forth
opposite the names of all such non-defaulting Underwriters, or in such other
proportions as may be specified by the non-defaulting Underwriters, to
purchase the Common Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase on such date. If, on the First
Closing Date or the Second Closing Date, as the case may be, any one or more
of the Underwriters shall fail or refuse to purchase Common Shares and the
aggregate number of Common Shares with respect to which such default occurs
exceeds 10% of the aggregate number of Common Shares to be purchased on such
date, and arrangements satisfactory to the Underwriters and the Company for
the purchase of such Common Shares are not made within 48 hours after such
default, this Agreement shall terminate without liability of any party to any
other party except that the provisions of Section 4, Section 6, Section 8 and
Section 9 shall at all times be effective and shall survive such termination.
In any such case either the Underwriters or the Company shall have the right
to postpone the First Closing Date or the Second Closing Date, as the case
may be, but in no event for longer than seven days in order that the required
changes, if any, to the Registration Statement and the Prospectus or any
other documents or arrangements may be effected.
26
<PAGE>
As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this
Section 10. Any action taken under this Section 10 shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
SECTION 11. TERMINATION OF THIS AGREEMENT. Prior to the First Closing
Date this Agreement may be terminated by the Underwriters by notice given to
the Company and the Selling Shareholders if at any time (i) trading or
quotation in any of the Company's securities shall have been suspended or
limited by the Commission or by the Nasdaq Stock Market, or trading in
securities generally on either the Nasdaq Stock Market or the New York Stock
Exchange shall have been suspended or limited, or minimum or maximum prices
shall have been generally established on any of such stock exchanges by the
Commission or the NASD; (ii) a general banking moratorium shall have been
declared by any of federal, New York, Delaware or California authorities;
(iii) there shall have occurred any outbreak or escalation of national or
international hostilities or any crisis or calamity, or any change in the
United States or international financial markets, or any substantial change
or development involving a prospective substantial change in United States'
or international political, financial or economic conditions, as in the
judgment of the Underwriters is material and adverse and makes it
impracticable to market the Common Shares in the manner and on the terms
described in the Prospectus or to enforce contracts for the sale of
securities; (iv) in the judgment of the Underwriters there shall have
occurred any Material Adverse Change; or (v) the Company shall have sustained
a loss by strike, fire, flood, earthquake, accident or other calamity of such
character as in the judgment of the Underwriters may interfere materially
with the conduct of the business and operations of the Company regardless of
whether or not such loss shall have been insured. Any termination pursuant
to this Section 11 shall be without liability on the part of (a) the Company
or the Selling Shareholders to any Underwriter, except that the Company and
the Selling Shareholders shall be obligated to reimburse the expenses of the
Underwriters pursuant to Sections 4 and 6 hereof, (b) any Underwriter to the
Company or the Selling Shareholders, or (c) of any party hereto to any other
party except that the provisions of Section 8 and Section 9 shall at all
times be effective and shall survive such termination.
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers, of the Selling Shareholders and
of the several Underwriters set forth in or made pursuant to this Agreement
will remain in full force and effect, regardless of any investigation made by
or on behalf of any Underwriter or the Company or any of its or their
partners, officers or directors or any controlling person, or the Selling
Shareholders, as the case may be, and will survive delivery of and payment
for the Common Shares sold hereunder and any termination of this Agreement.
27
<PAGE>
SECTION 13 NOTICES. All communications hereunder shall be in writing and
shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Underwriters:
NationsBanc Montgomery Securities, Inc.
Piper Jaffray Inc.
Salomon Brothers Inc
c/o NationsBanc Montgomery Securities, Inc.
600 Montgomery Street
San Francisco, California 94111
Facsimile: 415-249-5512
Attention: Murray C. Huneke
with a copy to:
NationsBanc Montgomery Securities, Inc.
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5553
Attention: David A. Baylor, Esq.
If to the Company:
The Cheesecake Factory, Inc.
26950 Agoura Road
Calabasas Hills, CA 91301
Facsimile: (818) 880-6501
Attention: Gerald W. Deitchle
If to the Selling Shareholders:
[Custodian]
[address]
Facsimile: [___]
Attention: [___]
Any party hereto may change the address for receipt of communications by
giving written notice to the others.
SECTION 14. SUCCESSORS. This Agreement will inure to the benefit of
and be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 10 hereof, and to the benefit of the employees, officers
and directors and controlling persons referred to in Section 8 and Section 9,
and in each case their respective successors, and personal representatives,
and no other person will have any right or obligation hereunder. The term
"successors" shall not include any purchaser of the Common Shares as such
from any of the Underwriters merely by reason of such purchase.
28
<PAGE>
SECTION 15. PARTIAL UNENFORCEABILITY. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement
shall not affect the validity or enforceability of any other Section,
paragraph or provision hereof. If any Section, paragraph or provision of this
Agreement is for any reason determined to be invalid or unenforceable, there
shall be deemed to be made such minor changes (and only such minor changes)
as are necessary to make it valid and enforceable.
SECTION 16. GOVERNING LAW PROVISIONS. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW
YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
SECTION 17. FAILURE OF ONE OR MORE OF THE SELLING SHAREHOLDERS TO SELL
AND DELIVER COMMON SHARES. If one or more of the Selling Shareholders shall
fail to sell and deliver to the Underwriters the Common Shares to be sold and
delivered by such Selling Shareholders at the First Closing Date pursuant to
this Agreement, then the Underwriters may at their option, by written notice
from the Underwriters to the Company and the Selling Shareholders, either (i)
terminate this Agreement without any liability on the part of any Underwriter
or, except as provided in Sections 4, 6, 8 and 9 hereof, the Company or the
Selling Shareholders, or (ii) purchase the shares which the Company and other
Selling Shareholders have agreed to sell and deliver in accordance with the
terms hereof. If one or more of the Selling Shareholders shall fail to sell
and deliver to the Underwriters the Common Shares to be sold and delivered by
such Selling Shareholders pursuant to this Agreement at the First Closing
Date or the Second Closing Date, then the Underwriters shall have the right,
by written notice from the Underwriters to the Company and the Selling
Shareholders, to postpone the First Closing Date or the Second Closing Date,
as the case may be, but in no event for longer than seven days in order that
the required changes, if any, to the Registration Statement and the
Prospectus or any other documents or arrangements may be effected.
SECTION 18. GENERAL PROVISIONS. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written
or oral and all contemporaneous oral agreements, understandings and
negotiations with respect to the subject matter hereof. This Agreement may
be executed in two or more counterparts, each one of which shall be an
original, with the same effect as if the signatures thereto and hereto were
upon the same instrument. This Agreement may not be amended or modified
unless in writing by all of the parties hereto, and no condition herein
(express or implied) may be waived unless waived in writing by each party
whom the condition is meant to benefit. The Table of Contents and the Section
headings herein are for the convenience of the parties only and shall not
affect the construction or interpretation of this Agreement.
Each of the parties hereto acknowledges that it is a sophisticated business
person who was adequately represented by counsel during negotiations regarding
the provisions hereof, including, without limitation, the indemnification
provisions of Section 8 and the contribution provisions of Section 9, and is
fully informed regarding said provisions. Each of the parties hereto further
acknowledges that the provisions of Sections 8 and 9 hereto fairly allocate the
risks
29
<PAGE>
in light of the ability of the parties to investigate the Company, its
affairs and its business in order to assure that adequate disclosure has been
made in the Registration Statement, any preliminary prospectus and the
Prospectus (and any amendments and supplements thereto), as required by the
Securities Act and the Exchange Act.
30
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to the Company and the Custodian the
enclosed copies hereof, whereupon this instrument, along with all
counterparts hereof, shall become a binding agreement in accordance with its
terms.
Very truly yours,
THE CHEESECAKE FACTORY, INC.
By:
--------------------------
President
By:
--------------------------
David Overton
SELLING SHAREHOLDERS
By:
--------------------------
Attorney-in-Fact
The foregoing Underwriting Agreement is hereby confirmed and accepted by
the Underwriters in San Francisco, California as of the date first above
written.
NATIONSBANC MONTGOMERY SECURITIES, INC.
PIPER JAFFRAY INC.
SALOMON BROTHERS INC
By NATIONSBANC MONTGOMERY SECURITIES, INC.
By:
--------------------------
Richard A. Smith
Authorized Signatory
31
<PAGE>
SCHEDULE A
UNDERWRITERS NUMBER OF
FIRM COMMON
SHARES TO BE
PURCHASED
NationsBanc Montgomery Securities, Inc. .... [___]
Piper Jaffray Inc. ......................... [___]
Salomon Brothers Inc........................ [___]
Total ...................................... 2,675,000
<PAGE>
SCHEDULE B
SELLING SHAREHOLDER NUMBER OF MAXIMUM NUMBER
FIRM COMMON OF OPTIONAL
SHARES COMMON SHARES
T0 BE SOLD TO BE SOLD
Overton Family Limited Partnership
The Cheesecake Factory, Inc.
26950 Agoura Road
Calabasas Hills, CA 91301
Facsimile: (818) 880-6501................... 203,787 0
Overton Family Trust B
The Cheesecake Factory, Inc.
26950 Agoura Road
Calabasas Hills, CA 91301
Facsimile: (818) 880-6501................... 46,023 0
Overton Family Trust C
The Cheesecake Factory, Inc.
26950 Agoura Road
Calabasas Hills, CA 91301
Facsimile: (818) 880-6501 .................. 425,190 0
Total: 675,000 0
<PAGE>
EXHIBIT A
THE FINAL OPINION IN DRAFT FORM SHOULD BE ATTACHED AS EXHIBIT A AT THE
TIME THIS AGREEMENT IS EXECUTED.
Opinion of counsel for the Company to be delivered pursuant to Section
5(d) of the Underwriting Agreement.
References to the Prospectus in this EXHIBIT A include any supplements
thereto at the Closing Date.
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware.
(ii) The Company has corporate power and authority to own,
lease and operate its properties and to conduct its business as described
in the Prospectus and to enter into and perform its obligations under the
Underwriting Agreement.
(iii) The Company is duly qualified as a foreign corporation
to transact business and is in good standing in the State of California
and in each other jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the conduct
of business, except for such jurisdictions where the failure to so
qualify or to be in good standing would not, individually or in the
aggregate, result in a Material Adverse Change.
(iv) Each significant subsidiary (as defined in Rule 405
under the Securities Act), meaning ___________, has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has corporate
power and authority to own, lease and operate its properties and to
conduct its business as described in the Prospectus and, to the best
knowledge of such counsel, is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which
such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except for such
jurisdictions where the failure to so qualify or to be in good standing
would not, individually or in the aggregate, result in a Material Adverse
Change.
(v) All of the issued and outstanding capital stock of each
such significant subsidiary has been duly authorized and validly issued,
is fully paid and non-assessable and is owned by the Company, directly or
through subsidiaries, free and clear of any security interest, mortgage,
pledge, lien, encumbrance known to such counsel or, to the best knowledge
of such counsel, any pending or threatened claim.
(vi) The authorized, issued and outstanding capital stock of
the Company (including the Common Stock) conform to the descriptions
thereof set forth or incorporated by reference in the Prospectus. All of
the outstanding shares of Common Stock (including the
A-1
<PAGE>
shares of Common Stock owned by Selling Shareholders) have been duly
authorized and validly issued, are fully paid and nonassessable and, to
the best of such counsel's knowledge, have been issued in compliance with
the registration and qualification requirements of federal and state
securities laws. The form of certificate used to evidence the Common
Stock is in due and proper form and complies with all applicable
requirements of the charter and by-laws of the Company and the General
and Business Corporation Law of the State of Delaware. The description
(or lack thereof) of the Company's stock option, stock bonus and other
stock plans or arrangements set forth in the Prospectus accurately and
fairly presents the information required to be shown with respect to such
plans, arrangements, options and rights.
(vii) No shareholder of the Company or any other person has
any preemptive right, right of first refusal or other similar right to
subscribe for or purchase securities of the Company arising (i) by
operation of the charter or by-laws of the Company or the General and
Business Corporation Law of the State of Delaware or (ii) to the best
knowledge of such counsel, otherwise.
(viii) The Underwriting Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of, the
Company, enforceable in accordance with its terms, except as rights to
indemnification thereunder may be limited by applicable law and except as
the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles.
(ix) The Common Shares to be purchased by the Underwriters
from the Company have been duly authorized for issuance and sale pursuant
to the Underwriting Agreement and, when issued and delivered by the
Company pursuant to the Underwriting Agreement against payment of the
consideration set forth therein, will be validly issued, fully paid and
nonassessable.
(x) Each of the Registration Statement and the Rule 462(b)
Registration Statement, if any, has been declared effective by the
Commission under the Securities Act. To the best knowledge of such
counsel, no stop order suspending the effectiveness of either of the
Registration Statement or the Rule 462(b) Registration Statement, if any,
has been issued under the Securities Act and no proceedings for such
purpose have been instituted or are pending or are contemplated or
threatened by the Commission. Any required filing of the Prospectus and
any supplement thereto pursuant to Rule 424(b) under the Securities Act
has been made in the manner and within the time period required by such
Rule 424(b).
(xi) The Registration Statement, including any Rule 462(b)
Registration Statement, the Prospectus including any document
incorporated by reference therein, and each amendment or supplement to
the Registration Statement and the Prospectus including any document
incorporated by reference therein, as of their respective effective or
issue dates (other than the financial statements and supporting schedules
included or incorporated by reference therein or in exhibits to or
excluded from the Registration Statement, as to which
A-2
<PAGE>
no opinion need be rendered) comply as to form in all material respects
with the applicable requirements of the Securities Act and the Exchange
Act.
(xii) Each document filed pursuant to the Exchange Act (other
than the financial statements and supporting schedules included therein,
as to which no opinion need be rendered) and incorporated or deemed to be
incorporated by reference in the Prospectus complied as to form in all
material respects with the Exchange Act.
(xiii) The Common Shares have been approved for listing on the
Nasdaq National Market.
(xiv) The statements (i) in the Prospectus under the caption
"Risk Factors--Government Regulation," in the second paragraph under the
caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources," under the
caption "Business--Government Regulation" and under the caption
"Business--Legal Proceeding" and (ii) in Item 15 of the Registration
Statement, insofar as such statements constitute matters of law,
summaries of legal matters, the Company's charter or by-law provisions,
documents or legal proceedings, or legal conclusions, has been reviewed
by such counsel and fairly present and summarize, in all material
respects, the matters referred to therein.
(xv) To the best knowledge of such counsel, there are no
legal or governmental actions, suits or proceedings pending or threatened
which are required to be disclosed in the Registration Statement, other
than those disclosed therein.
(xvi) To the best knowledge of such counsel, there are no
Existing Instruments required to be described or referred to in the
Registration Statement or to be filed as exhibits thereto other than
those described or referred to therein or filed or incorporated by
reference as exhibits thereto; and the descriptions thereof and
references thereto are correct in all material respects.
(xvii) No consent, approval, authorization or other order of,
or registration or filing with, any court or other governmental authority
or agency is required for the Company's execution, delivery and
performance of the Underwriting Agreement and consummation of the
transactions contemplated thereby and by the Prospectus, except as
required under the Securities Act, applicable state securities or blue
sky laws and from the NASD.
(xviii) The execution and delivery of the Underwriting
Agreement by the Company and the performance by the Company of its
obligations thereunder (other than performance by the Company of its
obligations under the indemnification section of the Underwriting
Agreement, as to which no opinion need be rendered) (i) have been duly
authorized by all necessary corporate action on the part of the Company;
(ii) will not result in any violation of the provisions of the charter or
by-laws of the Company or any subsidiary; (iii) will not constitute a
breach of, or Default under, or result in the creation or imposition of
any lien, charge or encumbrance upon any property or assets of the
Company or any of its subsidiaries pursuant to, (A) the Company's
Revolving Credit Facility with Sanwa Bank California, as
A-3
<PAGE>
lender, or (B) to the best knowledge of such counsel, any other material
Existing Instrument; or (iv) to the best knowledge of such counsel, will
not result in any violation of any law, administrative regulation or
administrative or court decree applicable to the Company or any
subsidiary.
(xix) The Company is not, and after receipt of payment for
the Common Shares will not be, an "investment company" within the meaning
of Investment Company Act.
(xx) Except as disclosed in the Prospectus, to the best
knowledge of such counsel, there are no persons with registration or
other similar rights to have any equity or debt securities registered for
sale under the Registration Statement or included in the offering
contemplated by the Underwriting Agreement.
(xxi) To the best knowledge of such counsel, neither the
Company nor any subsidiary is in violation of its charter or by-laws or
any law, administrative regulation or administrative or court decree
applicable to the Company or any subsidiary or is in Default under any
material Existing Instrument, except in each such case for such
violations or Defaults as would not, individually or in the aggregate,
result in a Material Adverse Change.
In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Company,
representatives of the independent public or certified public accountants for
the Company and with representatives of the Underwriters at which the contents
of the Registration Statement and the Prospectus, and any supplements or
amendments thereto, and related matters were discussed and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus (other than as specified above), and
any supplements or amendments thereto, on the basis of the foregoing, nothing
has come to their attention which would lead them to believe that either the
Registration Statement or any amendments thereto, at the time the Registration
Statement or such amendments became effective, contained an untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus, as of its date or at the First Closing Date or the Second Closing
Date, as the case may be, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no belief as to
the financial statements or schedules or other financial or statistical data
derived therefrom, included or incorporated by reference in the Registration
Statement or the Prospectus or any amendments or supplements thereto).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the General
Corporation Law of the State of Delaware, the General Corporation Law of the
State of California or the federal law of the United States, to the extent they
deem proper and specified in such opinion, upon the opinion (which shall be
dated the First Closing Date or the Second Closing Date, as the case may be,
shall be satisfactory in form and substance to the Underwriters, shall expressly
state that the Underwriters may rely on such opinion as if it were addressed to
them and shall be furnished to the
A-4
<PAGE>
Underwriters) of other counsel of good standing whom they believe to be
reliable and who are satisfactory to counsel for the Underwriters; provided,
however, that such counsel shall further state that they believe that they
and the Underwriters are justified in relying upon such opinion of other
counsel, and (B) as to matters of fact, to the extent they deem proper, on
certificates of responsible officers of the Company and public officials.
A-5
<PAGE>
EXHIBIT B
THE FINAL OPINION IN DRAFT FORM SHOULD BE ATTACHED AS EXHIBIT B AT THE TIME THIS
AGREEMENT IS EXECUTED.
The opinion of such counsel pursuant to Section 5(h) shall be rendered to
the Underwriters at the request of the Company and shall so state therein.
References to the Prospectus in this EXHIBIT B include any supplements thereto
at the Closing Date.
(i) The Underwriting Agreement has been duly authorized,
executed and delivered by or on behalf of, and is a valid and binding
agreement of, such Selling Shareholder, enforceable in accordance with
its terms, except as rights to indemnification thereunder may be limited
by applicable law and except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general
equitable principles.
(ii) The execution and delivery by such Selling Shareholder
of, and the performance by such Selling Shareholder of its obligations
under, the Underwriting Agreement and its Custody Agreement and its Power
of Attorney will not, to the best of such counsel's knowledge, violate or
contravene any provision of applicable law or regulation, or violate,
result in a breach of or constitute a default under the terms of such
Selling Shareholder's organizing documents.
(iii) Such Selling Shareholder has the legal right and power,
and all authorizations and approvals required to enter into the
Underwriting Agreement and its Custody Agreement and its Power of
Attorney, to sell, transfer and deliver all of the Common Shares which
may sold by such Selling Shareholder under the Underwriting Agreement and
to comply with its other obligations under the Underwriting Agreement,
its Custody Agreement and its Power of Attorney.
(iv) Each of the Custody Agreement and Power of Attorney of
such Selling Shareholder has been duly authorized, executed and delivered
by such Selling Shareholder and is a valid and binding agreement of such
Selling Shareholder, enforceable in accordance with its terms, except as
rights to indemnification thereunder may be limited by applicable law and
except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to
or affecting creditors' rights generally or by general equitable
principles.
(v) Assuming that the Underwriters purchase the Common
Shares which are sold by such Selling Shareholder pursuant to the
Underwriting Agreement for value, in good faith and without notice of any
adverse claim, the delivery of such Common Shares pursuant to the
Underwriting Agreement will pass good and valid title to such Common
Shares, free and clear of any security interest, mortgage, pledge, lien,
encumbrance or other claim.
B-1
<PAGE>
(vi) To the best of such counsel's knowledge, no consent,
approval, authorization or other order of, or registration or filing
with, any court or governmental authority or agency, is required for the
consummation by such Selling Shareholder of the transactions contemplated
in the Underwriting Agreement, except as required under the Securities
Act, applicable state securities or blue sky laws, and from the NASD.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the General
Corporation Law of the State of Delaware, the General Corporation Law of the
State of California or the federal law of the United States, to the extent they
deem proper and specified in such opinion, upon the opinion (which shall be
dated the First Closing Date or the Second Closing Date, as the case may be,
shall be satisfactory in form and substance to the Underwriters, shall expressly
state that the Underwriters may rely on such opinion as if it were addressed to
them and shall be furnished to the Underwriters) of other counsel of good
standing whom they believe to be reliable and who are satisfactory to counsel
for the Underwriters; PROVIDED, HOWEVER, that such counsel shall further state
that they believe that they and the Underwriters are justified in relying upon
such opinion of other counsel, and (B) as to matters of fact, to the extent they
deem proper, on certificates of the Selling Shareholders and public officials.
B-2
<PAGE>
EXHIBIT C
October __, 1997
NationsBanc Montgomery Securities, Inc.
Piper Jaffray Inc.
Salomon Brothers Inc
c/o NationsBanc Montgomery Securities, Inc.
600 Montgomery Street
San Francisco, California 94111
RE: The Cheesecake Factory, Inc. (the "Company")
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of certain shares of
Common Stock of the Company ("Common Stock") or securities convertible into
or exchangeable or exercisable for Common Stock. The Company proposes to
carry out a public offering of Common Stock (the "Offering") for which you
will act as the underwriters. The undersigned recognizes that the Offering
will be of benefit to the undersigned and will benefit the Company by, among
other things, raising additional capital for its operations. The undersigned
acknowledges that you are relying on the representations and agreements of
the undersigned contained in this letter in carrying out the Offering and in
entering into underwriting arrangements with the Company with respect to the
Offering.
In consideration of the foregoing, the undersigned hereby agrees that the
undersigned will not, without the prior written consent of NationsBanc
Montgomery Securities, Inc. (which consent may be withheld in its sole
discretion), directly or indirectly, sell, offer, contract or grant any
option to sell (including without limitation any short sale), pledge,
transfer, establish an open "put equivalent position" within the meaning of
Rule 16a-1(h) under the Securities Exchange Act of 1934, 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 currently or hereafter owned either of record or
beneficially (as defined in Rule 13d-3 under Securities Exchange Act of 1934,
as amended) by the undersigned, or publicly announce the undersigned's
intention to do any of the foregoing, for a period commencing on the date
hereof and continuing through the close of trading on the date 90 days after
the date of the Prospectus. The undersigned also agrees and consents to the
entry of stop transfer instructions with the Company's transfer agent and
registrar against the transfer of shares of Common Stock or securities
convertible into or exchangeable or exercisable for Common Stock held by the
undersigned except in compliance with the foregoing restrictions.
With respect to the Offering only, the undersigned waives any registration
rights relating to registration under the Securities Act of any Common Stock
owned either of record or beneficially by the undersigned, including any
rights to receive notice of the Offering.
C-1
<PAGE>
This agreement is irrevocable and will be binding on the undersigned and the
respective successors, heirs, personal representatives, and assigns of the
undersigned.
- -------------------------------------
Printed Name of Holder
By:----------------------------------
Signature
- -------------------------------------
Printed Name of Person Signing
(AND INDICATE CAPACITY OF PERSON SIGNING IF
SIGNING AS CUSTODIAN, TRUSTEE, OR ON BEHALF
OF AN ENTITY)
C-2
<PAGE>
[Buchalter, Nemer, Fields & Younger Letterhead]
October 28, 1997
The Cheesecake Factory Incorporated
26950 Agoura Road
Calabasas Hills, California 91301
RE: The Cheesecake Factory Incorporated Registration Statement
on Form S-3 (Registration No. 333-36181)
----------------------------------------
Gentlemen:
We have acted as counsel to The Cheesecake Factory Incorporated, a
Delaware corporation (the "Company"), in connection with the registration of
2,675,000 shares of common stock, $.01 par value per share (the "Shares")
with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "1933 Act"), pursuant to a
registration statement on Form S-3 (No. 333-36181) (the "Registration
Statement"). The Shares are registered on behalf of the Company and the
selling stockholders named in the Registration Statement ("Selling
Stockholders").
This opinion is being delivered in accordance with the requirements of
Item 601(b)(5)(i) of Regulation S-K under the 1933 Act.
In our capacity as counsel to the Company, we have reviewed such
documents and made such inquiries as we have reasonably deemed necessary to
enable us to render the opinion expressed below. In all such reviews we have
made certain customary assumptions such as the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, the lack of
any undisclosed modifications, waivers, or amendments to any documents
reviewed by us and the conformity to authentic original documents of all
documents submitted to us as conformed or photostatic copies. For purposes
of rendering this opinion, we have investigated such questions of law as we
have deemed necessary.
On the basis of the foregoing, and in reliance thereon and subject to
the assumptions, qualifications, exceptions and limitations expressed herein,
we are of the opinion that the Shares are duly authorized, legally issued,
fully paid and non-assessable.
This opinion is limited to the present laws of the State of California
and of the United States of America, and the corporate laws of the State of
Delaware.
<PAGE>
The Cheesecake Factory Incorporated
October 28, 1997
Page 2
We hereby consent to reference of our opinion and name in the Prospectus
which is part of the Registration Statement, and the inclusion of this
opinion as Exhibit 5.1 to the Registration Statement.
Very truly yours,
BUCHALTER, NEMER, FIELDS & YOUNGER
a Professional Corporation
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
------------------------
We consent to the incorporation by reference in this registration statement
on Form S-3 of our report dated February 24, 1997 on our audits of the
consolidated financial statements of The Cheesecake Factory Incorporated and
Subsidiaries as of December 29, 1996 and December 31, 1995 and for each of the
three years in the period ended December 29, 1996, which report is included in
the Company's Annual Report on Form 10-K. We also consent to the reference to
our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Los Angeles, California
October 29, 1997
