<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 16, 1996
REGISTRATION NO. 333-4234
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
LANDRY'S SEAFOOD RESTAURANTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 1400 POST OAK BOULEVARD 76-0405386
(STATE OF INCORPORATION) SUITE 1010 (I.R.S. EMPLOYER
HOUSTON, TEXAS 77056 IDENTIFICATION NUMBER)
713/850-1010
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
TILMAN J. FERTITTA
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
LANDRY'S SEAFOOD RESTAURANTS, INC.
1400 POST OAK BOULEVARD, SUITE 1010
HOUSTON, TEXAS 77056
713/850-1010
(NAME, ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES OF ALL COMMUNICATIONS TO:
<TABLE>
<S> <C> <C>
ARTHUR S. BERNER, ESQ. STEVEN L. SCHEINTHAL, ESQ. THOMAS P. MASON, ESQ.
WINSTEAD SECHREST & MINICK P.C. GENERAL COUNSEL ANDREWS & KURTH L.L.P.
910 TRAVIS, SUITE 1700 LANDRY'S SEAFOOD RESTAURANTS, INC. 4200 TEXAS COMMERCE TOWER
HOUSTON, TEXAS 77002 1400 POST OAK BOULEVARD, HOUSTON, TEXAS 77002
713/650-2729 SUITE 1010 713/220-4200
HOUSTON, TEXAS 77056
713/850-1010
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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 THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 16, 1996
4,500,000 SHARES
[LOGO OF LANDRY'S APPEARS HERE]
LANDRY'S SEAFOOD RESTAURANTS, INC.
COMMON STOCK
Of the 4,500,000 shares of Common Stock offered hereby, 4,000,000 are being
sold by the Company and 500,000 are being sold by the Selling Stockholder. See
"Principal and Selling Stockholder." The Company will not receive any of the
proceeds from the sale of shares by the Selling Stockholder.
The Common Stock is traded on the Nasdaq National Market under the symbol
"LDRY." On May 10, 1996, the last sale price of the Common Stock as reported by
the Nasdaq National Market was $22.50 per share. See "Price Range of Common
Stock and Dividend Policy."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 HEREOF 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 to Underwriting Proceeds to Selling
Public Discount(1) Company(2) Stockholder
- -------------------------------------------------------------------------------
<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 payable by the Company estimated at $500,000.
(3) The Company and the Selling Stockholder have granted the Underwriters a 30-
day option to purchase up to an additional 675,000 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 $ , the Proceeds to Company will total $ and the
Proceeds to Selling Stockholder will total $ . See "Principal and
Selling Stockholder" and "Underwriting."
The shares of Common Stock are offered by the Underwriters named herein when,
as and if delivered to and accepted by the Underwriters 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 Montgomery Securities on or about , 1996.
-----------
Montgomery Securities
J.C. Bradford & Co.
Piper Jaffray inc.
, 1996
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. IN
CONNECTION WITH THIS OFFERING CERTAIN UNDERWRITERS AND SELLING GROUP MEMBERS
MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE
NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES
EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements and
related notes thereto appearing elsewhere in this Prospectus and incorporated
by reference herein. Unless otherwise indicated, all information in this
Prospectus assumes no exercise of the Underwriters' overallotment option.
Unless the context requires otherwise, all references to the "Company" in this
Prospectus include Landry's Seafood Restaurants, Inc. and its subsidiaries.
All share and per share data relating to the Company in this Prospectus
reflects the effect of a 2-for-1 stock split in the form of a stock dividend
of the Company's Common Stock in June 1995.
THE COMPANY
Landry's Seafood Restaurants, Inc. (the "Company") operates 50 full-service,
mid-priced, casual dining seafood restaurants in 16 states, primarily under
the names "Landry's Seafood House(R)," "Willie G's(R)" and "Joe's Crab
Shacksm." Management believes that the Company's restaurants appeal to a broad
range of customers by offering generous portions of fresh seafood and
excellent service in a high energy environment at an attractive price-value
relationship.
The Company's restaurants feature a wide variety of broiled, grilled and
fried seafood items including red snapper, shrimp, crawfish, lump crabmeat,
lobster, soft shell crabs, oysters, scallops, flounder, and other traditional
seafood items, many with a choice of the Company's signature toppings. The
restaurants are generally open for lunch and dinner and offer full liquor
service. Sales of alcoholic beverages accounted for approximately 17% of the
Company's revenues in 1995. The "Landry's Seafood House" restaurants feature a
prototype look that is readily identified by a large theater-style marquee
over the entrance and by a distinctive brick and wood facade creating the
feeling of a traditional old seafood house restaurant. The Company's
restaurants average approximately 9,100 square feet in size. All of the
Company's restaurants operate with very similar philosophies, management
policies and practices, training and control practices, purchasing, and menu
selections. Management believes the Company's restaurants enjoy a high level
of repeat business and customer loyalty due to high food quality, comfortable
atmosphere, and friendly, efficient service.
For the 12-month period ended December 31, 1995, the 24 Landry's restaurants
opened prior to January l, 1995, generated average restaurant revenues of
approximately $3,005,000, average restaurant cash flow of approximately
$660,000 (or 21.9% of revenues), and average restaurant operating income after
depreciation and amortization of approximately $540,000 (or 18.0% of
revenues).
Management believes its commitment to its customers and employees is
important to its long-term success. In addition to serving quality seafood at
affordable prices in attractive locations, the Company achieves customer
satisfaction through prompt, efficient service, low table-to-waitstaff ratios,
and an attentive management staff. The Company promotes a sense of personal
commitment from its employees through a monthly cash bonus program based on
achievement of restaurant specific performance objectives, and a stock option
plan which includes general, floor, and kitchen managers.
2
<PAGE>
The executive headquarters and principal office of the Company are located at
1400 Post Oak Boulevard, Suite 1010, Houston, Texas 77056. Its telephone number
is (713) 850-1010.
RECENT DEVELOPMENT
On April 18, 1996, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") pursuant to which a wholly-owned subsidiary of the
Company would merge with and into Bayport Restaurant Group, Inc. ("Bayport")
resulting in Bayport becoming a wholly-owned subsidiary of the Company (the
"Merger"). Bayport operates 17 full-service restaurants under the name "The
Crab House" and has four Crab House restaurants under construction. Bayport
also operates five take-away seafood restaurants under the name "Capt. Crab's
Take-Away." Bayport's Crab House restaurants are located primarily in Florida,
with additional locations in Georgia, Mississippi, South Carolina, and
Illinois. The four Crab House restaurants currently under construction are
located in New York, Tennessee and Maryland. Prior to the Merger, the Company
has agreed to loan Bayport up to $11 million to be used by Bayport to continue
construction of these four Crab House restaurants. Through May 10, 1996, the
Company had funded $1.8 million of such amount. Bayport is currently traded on
the Nasdaq National Market under the symbol "PORT." See "The Bayport
Acquisition," "Business--Bayport's Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations ("Management's
Discussion and Analysis")--Liquidity and Capital Resources."
The consummation of the Merger is subject to the satisfaction or waiver of
certain significant conditions, including, among others, approval by the
stockholders of Bayport, the receipt by the Company of an opinion from its and
Bayport's independent public accountants with respect to certain matters
relating to the availability of pooling-of-interest accounting treatment for
the Merger, the receipt of regulatory approval under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act") and the absence
of any material adverse change in the business, results of operations or
financial condition of either the Company or Bayport. The consummation of the
Merger is not a condition to the completion of this offering. See "Risk
Factors--Risks Associated with the Merger." Management anticipates that, if the
conditions to the Merger are satisfied or waived, the Merger will be
consummated within 30 to 60 days following the completion of this offering.
Pursuant to the Merger Agreement, the Company would issue approximately
2,033,000 shares of its common stock, $0.01 par value per share (the "Common
Stock"), to the holders of Bayport common stock and approximately 112,000
shares of its convertible preferred stock, $0.01 par value per share (the
"Preferred Stock"), to the holders of Bayport's convertible preferred stock
(the "Bayport Preferred Stock"), in each case subject to certain adjustments.
Each share of Preferred Stock is convertible into one share of Common Stock,
subject to certain anti-dilution adjustments. In addition, holders of warrants
or options to purchase Bayport's common stock (the "Bayport Warrants" and the
"Bayport Options," respectively) will, upon consummation of the Merger, be
entitled to exercise such Bayport Warrants and Bayport Options at their
respective exercise prices, adjusted for the exchange ratio established for the
Merger, to acquire shares of Common Stock. See "The Bayport Acquisition."
EXPANSION STRATEGY
Management believes that the relatively small number of national and regional
chain restaurants competing in the seafood segment of the restaurant industry,
as compared to other restaurant segments, provides the Company a significant
opportunity to capitalize on its high energy, casual dining seafood restaurant
concepts. Since 1990, the Company has pursued an accelerated expansion strategy
through the opening of new restaurants or the conversion of existing
restaurants. The Company has recently entered into the Merger Agreement
pursuant to which the Company has agreed to acquire Bayport. As of the
beginning of 1995, the Company planned to open approximately 26 restaurants
during 1995 and 1996. As of April 16, 1996, all of such restaurants had been
opened. The Company's current development plan is to be operating approximately
75 restaurants by December
3
<PAGE>
31, 1997 (excluding restaurants that may be acquired pursuant to the Merger),
of which 50 restaurants were open and six restaurants were under construction
as of April 16, 1996. If the Merger is not consummated the Company anticipates
further accelerating its expansion plans. The number of restaurants actually
opened will vary depending upon, among other things, the Company's ability to
locate suitable restaurant sites, the Company's ability to obtain satisfactory
lease or purchase arrangements for its restaurant locations, the availability
of funds to construct and open such restaurants, the Company's ability to
obtain on a timely basis all necessary governmental permits to construct and
operate such restaurants, the Company's ability to adequately manage the
construction or conversion of such restaurants, the Company's ability to hire,
train and retain skilled management and other restaurant personnel, general
economic conditions and whether the Merger is consummated. See "Risk Factors--
Growth" and "Risk Factors--Risks Associated with the Merger." The Company plans
to continue expanding principally through the opening of new restaurants. From
time-to-time, the Company will evaluate the strategic acquisition of existing
restaurants. Other than its agreement with Bayport, the Company has no present
understandings or agreements to acquire any restaurant concepts.
The Company's main emphasis in 1996 will be to open Landry's Seafood House
restaurants and Joe's Crab Shack restaurants, which cater to a more casual
clientele. In this connection, the Company will consider the conversion of
existing restaurant concepts to Landry's Seafood House or Joe's Crab Shack
concepts, as well as acquiring existing restaurants with complementary
concepts, such as Bayport. Willie G's restaurants may be opened in areas where
another Company restaurant is operating and which management believes can
accommodate another quality seafood restaurant or where management believes the
demographics better suit this concept.
The Company's site selection strategy is to locate its restaurants in markets
which provide a balanced mix of tourist, convention, business, and residential
clientele. A variety of factors are analyzed in the site selection process,
including local market demographics, site visibility, aesthetics (including
waterfront views), and accessibility and proximity to significant generators of
potential customers such as major retail centers, office complexes, hotel
concentrations, convention centers, historical areas, and entertainment
facilities (stadiums, arenas, theaters, etc.). Management believes that this
strategy results in a high volume of new and repeat customers and provides the
Company with increased name recognition in new markets.
Excluding real estate costs and pre-opening expenses, the average cash
investment to open the Company's new restaurants in 1995 was approximately $2.6
million. However, the average cash investment for the last seven restaurants
opened by the Company was approximately $2.2 million. The Company expects that
its average investment for units opened in the future will be further reduced
due primarily to an overall reduction of the average unit size from those
opened during 1995. However, individual unit investment costs could vary due to
a variety of factors. Moreover, average unit investment costs are dependent
upon many factors including competition for sites, location, construction
costs, unit size and the mix of conversions, build-to-suit and leased
locations. The Company currently anticipates that it will continue to purchase
a number of its new restaurant locations, which are expected to be more costly
than leased locations. The Company intends to fund its expansion from a
combination of proceeds from Common Stock offerings, internally generated funds
from operations, and borrowings.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the
Company........................... 4,000,000 shares
Common Stock offered by the Selling
Stockholder....................... 500,000 shares
Common Stock to be outstanding 22,214,160 shares(1)
after this offering...............
Use of proceeds.................... To finance expansion, to repay Bayport's
debt if the Merger is consummated, and for
general corporate purposes. See "Use of
Proceeds."
Nasdaq National Market symbol...... LDRY
</TABLE>
- --------
(1) Excludes 2,587,880 shares which may be issued to employees and non-employee
directors of the Company upon the exercise of options currently
outstanding, of which 412,680 are currently exercisable. Also excludes
approximately 2,145,000 shares which, assuming an exchange ratio of .2105
shares of Common Stock for each share of Bayport common stock in the Merger
and the conversion of the Bayport Preferred Stock, will be issued upon
consummation of the Merger. Also excludes approximately 590,000 shares of
Common Stock which may be issued upon exercise of all outstanding Bayport
Options and Bayport Warrants. The number of shares of Common Stock to be
issued pursuant to the Merger may be adjusted under certain circumstances.
See "The Bayport Acquisition."
5
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------- -----------------------
PRO
PRO FORMA FORMA
1991 1992 1993 1994 1995 1995(1) 1995 1996 1996(1)
------- ------- ------- ------- -------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data
Revenues................ $19,500 $22,435 $34,241 $62,527 $104,017 $157,620 $20,613 $34,819 $53,070
Operating income........ 2,371 3,073 4,346 7,885 12,950 15,445 2,635 4,799 5,487
Income before income
taxes and
extraordinary gain..... 2,093 3,090 4,289 8,806 14,843 16,994 2,795 4,899 5,388
Provision for income
taxes(2)(3)............ 867 1,112 1,544 3,126 5,259 5,946 992 1,764 1,930
Income before
extraordinary gain..... 1,226 1,978 2,745 5,680 9,584 11,048 1,803 3,135 3,458
Extraordinary gain(4)... 507 313 -- -- -- -- -- -- --
Net income(3)(4)........ $ 1,733 $ 2,291 $ 2,745 $ 5,680 $ 9,584 $ 11,048 $ 1,803 $ 3,135 $ 3,458
======= ======= ======= ======= ======== ======== ======= ======= =======
Net income before
extraordinary gain per
share (3)(4)........... $ 0.23 $ 0.28 $ 0.40 $ 0.55 $ 0.57 $ 0.12 $ 0.17 $ 0.16
Extraordinary gain per
share(4)............... 0.03 -- -- -- -- -- -- --
------- ------- ------- -------- -------- ------- ------- -------
Net income per
share(3)(4)............ $ 0.26 $ 0.28 $ 0.40 $ 0.55 $ 0.57 $ 0.12 $ 0.17 $ 0.16
======= ======= ======= ======== ======== ======= ======= =======
Weighted average number
of common shares and
common share
equivalents
outstanding(5)......... 8,794 9,862 14,126 17,320 19,526 14,850 19,000 21,182
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------------
AS PRO FORMA
ACTUAL ADJUSTED(6) AS ADJUSTED(7)
------- ---------- -------------
<S> <C> <C> <C>
Balance Sheet Data
Working capital............................. $4,332 $89,782 $71,944
Total assets................................ 142,212 227,662 259,739
Short-term notes payable and current portion
of long-term
notes and other obligations................ 265 265 265
Long-term notes and other obligations,
noncurrent................................. 317 317 317
Stockholders' equity........................ 127,025 212,475 235,347
</TABLE>
- -------
(1) Gives pro forma effect to the Merger for the year ended December 31, 1995
and for the three months ended March 31, 1996 assuming the Merger had been
consummated at the beginning of the period. See "The Bayport Acquisition"
and "Unaudited Pro Forma Condensed Combined Financial Statements."
(2) See Notes 1 and 3 of Notes to the Consolidated Financial Statements,
incorporated herein by reference.
(3) Gives effect in 1992 and 1993 to the pro forma provision for federal and
state income taxes as a C corporation on the combined income of the
Company, at an effective tax rate of 36%, as a result of the consummation
of the initial public offering of Common Stock by the Company in August
1993 (the "Initial Public Offering"), which resulted in the termination of
the S corporation status of certain subsidiaries of the Company, as if the
Company was subject to federal income taxes for the entire periods.
(4) Gives effect to the pro forma recording in 1992 of an extraordinary gain of
$489,133 ($313,000 net of pro forma income taxes) related to the repayment
of debt at a discount effective November 20, 1992. During 1991, the Company
recognized an extraordinary gain of $506,665 as a result of the tax benefit
from the use of net operating loss carryforwards.
(5) See Note 8 of Notes to the Consolidated Financial Statements, incorporated
herein by reference.
(6) Adjusted to reflect the sale of 4,000,000 shares of Common Stock by the
Company at an assumed offering price of $22.50 per share (the closing price
per share on the Nasdaq National Market on May 10, 1996) and the
application of the estimated net proceeds therefrom. See "Use of Proceeds"
and "Capitalization."
(7) Gives effect to (i) the sale of 4,000,000 shares of Common Stock by the
Company offered hereby at an assumed offering price of $22.50 per share
(the closing price per share on the Nasdaq National Market on May 10, 1996)
and the application of the estimated net proceeds therefrom and (ii) the
Merger as if it had been consummated at March 31, 1996, including the
issuance of approximately 2,033,000 shares of Common Stock and
approximately 112,000 shares of Preferred Stock to be issued in connection
therewith. The actual number of shares of Common Stock and Preferred Stock
of the Company to be issued in the Merger is subject to certain
adjustments. See "The Bayport Acquisition," "Use of Proceeds,"
"Capitalization," and "Unaudited Pro Forma Condensed Combined Financial
Statements."
6
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus and
incorporated herein by reference, prospective investors should carefully
consider the following factors in evaluating an investment in the shares of
Common Stock offered by this Prospectus.
GROWTH
The Company has pursued an accelerated expansion strategy since 1990. The
Company has agreed to acquire Bayport in the Merger, subject to the
satisfaction of certain conditions, and the Company will continue to consider
other possible strategic acquisitions. As of the beginning of 1995, the
Company planned to open approximately 26 restaurants during 1995 and 1996. As
of April 16, 1996, all of such restaurants had been opened. The Company's
current development plan is to be operating approximately 75 restaurants by
December 31, 1997 (excluding restaurants that may be acquired pursuant to the
Merger), of which 50 restaurants were open and six restaurants were under
construction as of April 16, 1996. There can be no assurance that the new and
acquired restaurants will perform in accordance with management's
expectations, or that the Company will not encounter unanticipated problems or
liabilities in connection with the new restaurants. Many of its new
restaurants will be in geographic markets in which the Company has limited or
no previous operating experience. There can be no assurance that the Company
will be successful in opening the number of restaurants anticipated in a
timely manner, or that, if opened, those restaurants will be operated
profitably. Further, there can be no assurance that the Bayport restaurants
and other operations proposed to be acquired by the Company pursuant to the
Merger can be operated profitably by the Company.
The Company's ability to expand the number of its restaurants will depend
upon a number of factors, including the selection and availability of suitable
restaurant sites, the negotiation of acceptable lease or purchase terms, the
securing of required governmental permits and approvals, the adequate
supervision of construction, the hiring, training, and retaining of skilled
management and other personnel, the availability of adequate financing,
general economic conditions, and other factors, many of which are beyond the
control of the Company. The Company's approach to opening new restaurants has
been to control its required investment by developing its own in-house
construction and development capabilities as general contractor and to lease a
substantial number of its restaurant sites. The Company currently anticipates
that it will continue to purchase in fee a number of its new restaurant
locations, which are expected to be more costly than leased locations. In view
of its planned growth, increased competition for sites and inherent
uncertainties of construction costs, there can be no assurance that the
Company's required net investment for leased or fee owned units will not be
higher in the future. See "Business--Expansion Strategy" and "Business--Unit
Economics."
Since 1989, the Company has experienced rapid growth in revenues, restaurant
level profit, and net income. In view of its limited operating history, the
Company remains vulnerable to a variety of business risks generally associated
with young, rapidly growing companies. Failure to continue to upgrade
operating and financial controls and systems or unexpected difficulties
encountered during expansion could adversely affect the Company's business,
financial condition, and results of operation. Although the Company believes
that its systems and controls are adequate to address its current needs, there
can be no assurance that such systems and controls will be adequate to sustain
future growth.
RISKS ASSOCIATED WITH THE MERGER
Uncertainty as to Future Financial Results. The Company believes that the
Merger will offer opportunities for long-term efficiencies in operations that
should positively affect future operating results of the combined operations
of the Company and Bayport. However, the combined companies will be more
complex and diverse than the Company individually, and the combination and
continued operation of their distinct business operations will present
difficult challenges for the Company's management due to the increased time
and resources required in the management effort. While management and the
Board of Directors of the Company believe that the combination can be effected
in a manner which will realize the value of the two companies, management has
no experience in combinations of this size. See "Management's Discussion and
Analysis."
7
<PAGE>
Following the Merger, in order to maintain and increase profitability, the
combined companies will need to successfully integrate and streamline
overlapping functions. The Company and Bayport have different systems and
procedures in many operational areas which must be rationalized and
integrated. There can be no assurance that integration will be successfully
accomplished. The difficulties of such integration may be increased by the
necessity of coordinating geographically separate organizations. The
integration of certain operations following the Merger will require the
dedication of management resources which may temporarily distract attention
from the day-to-day business of the combined companies. Failure to effectively
accomplish the integration of the two companies' operations could have an
adverse effect on the Company's results of operations and financial condition.
Merger Expenses. Transaction costs relating to the negotiation of,
preparation for, and consummation of the Merger and the anticipated
combination of certain operations of the Company and Bayport are expected to
result in a one-time charge to the Company's earnings. Although it will not be
feasible to determine the actual amount of the charge until the operational
and transaction plans are completed, management of the Company believes that
the charge will be between $8.0 million and $10.0 million before taxes,
although such amount may be increased by unanticipated additional costs or
expenses incurred in connection with, or caused by, the Merger. See "Unaudited
Pro Forma Condensed Combined Financial Statements." This charge, the actual
amount of which will be based, in part, on future developments arising from
the change of control of Bayport, is expected to include the estimated costs
associated with workforce reductions, contractual payment obligations and
other restructuring activities, fees and expenses payable to financial
advisors, legal fees and other transaction expenses related to the Merger.
While the exact timing of this charge cannot be determined at this time,
management of the Company anticipates that this charge to earnings will be
recorded primarily in the quarter in which the Merger is consummated (expected
to be the third quarter of 1996). In addition, there can be no assurance that
the Company will not incur additional charges in subsequent quarters to
reflect costs associated with the Merger and the integration of the Company's
and Bayport's operations.
Potential Dilution to Existing Stockholders. If the Merger is consummated,
the Company would issue a substantial number of shares of Common Stock and
Preferred Stock to holders of shares of common stock and preferred stock of
Bayport, and the Company would be obligated to issue additional shares of
Common Stock following the Merger upon conversion of the Preferred Stock that
would be issued in the Merger as well as upon exercise of Bayport Options and
Bayport Warrants that would become exercisable for shares of Common Stock in
connection with the Merger. Based on an assumed exchange ratio of .2105 shares
of Common Stock of the Company to be issued for each share of Bayport common
stock outstanding, the Company would issue approximately 2,033,000 shares of
Common Stock in the Merger in exchange for outstanding shares of Bayport
common stock and would be obligated to issue approximately 702,000 additional
shares of Common Stock upon the conversion of Preferred Stock issuable in the
Merger and upon exercise of Bayport Options and Bayport Warrants. Based on
such assumed exchange ratio, the aggregate of 2,735,000 shares of Common Stock
issuable in connection with the Merger would represent approximately 11.3% of
the number of shares of Common Stock to be outstanding upon completion of this
offering (assuming no exercise of the Underwriters' over-allotment option).
The actual number of shares of Common Stock that would be issued in the Merger
is subject to certain adjustments. See "The Bayport Acquisition." Pursuant to
the Merger Agreement, if the Average Market Price (as defined in the Merger
Agreement) of the Common Stock of the Company for the five trading days prior
to the second business day prior to the consummation of the Merger is less
than $15 per share, the number of shares of Common Stock that would be issued
in the Merger in exchange for common stock of Bayport would be increased.
Shares Eligible for Public Sale. Sales of substantial amounts of Common
Stock in the public market after the consummation of the Merger could
adversely affect prevailing market prices. The approximately 2,033,000 shares
of Common Stock (assuming an exchange ratio of .2105) to be issued in the
Merger will be eligible for immediate sale in the public market, subject to
certain limitations under the Securities Act of 1933, as amended (the
"Securities Act"), applicable to affiliates of Bayport. In addition,
approximately 444,000 shares of Common Stock issuable upon the exercise of
Bayport Options, approximately 146,000 shares of Common Stock issuable
8
<PAGE>
upon exercise of Bayport Warrants and approximately 112,000 shares of Common
Stock issuable upon conversion of the Bayport Preferred Stock, in each case
assuming an exchange ratio of .2105, are anticipated to be eligible for sale
pursuant to Registration Statements on Forms S-3 and S-8 following the Merger.
Pursuant to the Merger Agreement, if the Average Market Price (as defined in
the Merger Agreement) is less than $15 per share, the number of shares of
Common Stock issuable pursuant to the Merger, and therefore the number of
shares of Common Stock that may be immediately sold in the public market would
be increased.
Closing of the Merger. The closing of this offering is not conditioned upon
the closing of the Merger, which is subject to the conditions contained in the
Merger Agreement. Many of these conditions are beyond the control of the
Company. Although the Company believes that such conditions will be satisfied
or waived, there can be no assurance that the closing of the Merger will
occur. The consummation of the Merger is subject to the satisfaction of
certain significant conditions, including, among others, approval by the
stockholders of Bayport, the receipt by the Company of an opinion from its and
Bayport's independent public accountants with respect to certain matters
relating to the availability of pooling-of-interests accounting treatment for
the Merger, the receipt of regulatory approval under the HSR Act and the
absence of any material adverse change in the business, results of operations
or financial condition of either the Company or Bayport. In addition, the
Merger Agreement may be terminated by either party if the closing does not
occur by December 31, 1996. See "The Bayport Acquisition."
If the closing of the Merger does not occur, the Company will not succeed to
the business and operations of Bayport and, accordingly, the business and
operations of the Company will not include any of the business and operations
of Bayport described in this Prospectus, except as discussed below. In such
event, the Company would have loaned up to $11 million to Bayport, which under
certain circumstances Bayport may not be able or willing to repay. In such
event, the Company would be required to acquire, in full satisfaction of such
loan, certain restaurants which secure such loan. In addition, the Company
would be required to take a one-time charge to earnings to reflect the costs
of the payment of certain amounts relating to the Merger but would not have
increased revenues or earnings from the Bayport restaurants to offset such
charge. See "The Bayport Acquisition," "Management's Discussion and Analysis--
Introduction" and "Unaudited Pro Forma Condensed Combined Financial
Statements."
LIMITED OPERATING HISTORY
A significant number of the Company's restaurants have been open for less
than two years. Consequently, the earnings achieved to date by such
restaurants may not be indicative of future operating results.
GEOGRAPHIC CONCENTRATION
Of the Company's existing and planned restaurants, including the Bayport
restaurants, a majority are concentrated in the southern half of the United
States. Giving effect to the Merger, as of April 16, 1996, 39 restaurants
would have been located in Texas and Florida. See "Business--Restaurant
Locations" and "Business--Bayport's Business." Accordingly, the Company's
results of operations may be adversely affected by economic conditions in
those regions and other geographic areas into which the Company may expand.
Also, given the Company's present geographic concentration, adverse publicity
relating to the Company's restaurants could have a more pronounced adverse
effect on the Company's overall sales than might be the case if the Company's
restaurants were more broadly dispersed. In addition, in view of the location
of many of the Company's existing and planned restaurants in the Gulf Coast
area from Texas to Florida, the Company is particularly susceptible to damage
caused by hurricanes or other severe weather conditions. While the Company
maintains business interruption insurance, there can be no assurance that if a
severe hurricane or other natural disaster should affect the Company's
geographical areas of operations, the Company would be able to maintain its
current level of operations or profitability.
SEAFOOD SUPPLY AND QUALITY
In the recent past, certain types of seafood have experienced fluctuations
in supply availability. The Company has in the past utilized several seafood
suppliers and has not experienced any difficulty in obtaining
9
<PAGE>
adequate supplies of fresh seafood on a timely basis. In addition, some types
of seafood have been subject to adverse publicity due to certain levels of
contamination at their source, which can adversely affect both supply and
market demand. The Company maintains an in-house inspection program for its
seafood purchases and in the past has not experienced any detriment from
contaminated seafood. However, the Company can make no assurances that in the
future either seafood contamination or inadequate supplies of seafood might
not have a significant and materially adverse effect on the Company's
operations and profitability.
CHANGES IN FOOD AND OTHER COSTS
The Company's profitability is dependent on its ability to anticipate and
react to increases in food, labor, employee benefits, and similar costs over
which the Company has limited or no control. Specifically, the Company's
dependence on frequent deliveries of fresh seafood and produce subjects it to
the risk of possible shortages or interruptions in supply caused by adverse
weather or other conditions which could adversely affect the availability and
cost of such items. The Company's business may also be affected by inflation.
In the past, management has been able to anticipate and avoid any adverse
effect on the Company's profitability from increasing costs through its
purchasing practices and menu price adjustments, but there can be no assurance
that it will be able to do so in the future.
RESTAURANT INDUSTRY AND COMPETITION
The restaurant industry is affected by changes in consumer tastes and by
national, regional, and local economic conditions and demographic trends. The
performance of individual restaurants may be affected by factors such as
traffic patterns, demographic considerations, and the type, number, and
location of competing restaurants. The restaurant industry is intensely
competitive based on the type and quality of food offered, location, and other
factors. The Company has many well established competitors with substantially
greater financial resources and longer histories of operation than the
Company, including competitors already established in regions into which the
Company is planning to expand, as well as competitors planning to expand in
the same regions. The Company faces competition from mid-priced, full-service,
casual dining restaurants offering seafood and other types and varieties of
cuisine. The Company's competitors include national, regional, and local
chains as well as local owner-operated restaurants. The Company also competes
with other restaurants and retail establishments for sites.
DEPENDENCE ON CHIEF EXECUTIVE OFFICER AND OTHER EMPLOYEES
The Company believes that the development of its business has been, and will
continue to be, dependent on Tilman J. Fertitta, the Chief Executive Officer,
President, and Chairman of the Board of the Company, and other key executive
employees. The loss of Mr. Fertitta's services could have a material adverse
effect upon the Company's business and development, and there can be no
assurance that an adequate replacement could be found for Mr. Fertitta in the
event of his unavailability. Mr. Fertitta has entered into an Employment
Agreement with the Company expiring December 31, 1996, subject to renewal. The
Company's continued growth will also depend on its ability to attract and
retain additional skilled management personnel. See "Business--Management and
Employees."
CONTROL BY MANAGEMENT AND PRINCIPAL STOCKHOLDER
Following the completion of this offering, Mr. Fertitta, the principal
stockholder of the Company, will beneficially own, in the aggregate,
approximately 18.5% of the outstanding Common Stock. As a result he may have
significant ability to influence the election of the Board of Directors of the
Company and the direction of the affairs of the Company. See "Management" and
"Principal and Selling Stockholder."
GOVERNMENT REGULATION
The restaurant industry is subject to extensive state and local government
regulation relating to the sale of food and alcoholic beverages and to
sanitation, public health, fire and building codes. Termination of the liquor
10
<PAGE>
license for any restaurant would adversely affect the revenues of that
restaurant. Restaurant operating costs are also affected by other government
actions that are beyond the Company's control, including workers' compensation
insurance rates, and unemployment and other taxes. At the federal level, there
are proposals under consideration to increase the minimum hourly wage
requirements. These and other initiatives could adversely affect the Company
as well as the restaurant industry in general. Difficulties or failures in
obtaining required licensing or other regulatory approvals could delay or
prevent the opening of a new restaurant. Although seafood is not currently
subject to a comprehensive nationwide program of inspection by the Food and
Drug Administration ("FDA"), the FDA has in the past proposed such a program
for inspection of seafood suppliers and processors, but not retail sellers
such as restaurants. If such a program were to be implemented, the Company's
seafood costs could increase due to the increased expense to seafood suppliers
and processors in complying with such a program. The suspension of, or
inability to renew, a license could interrupt operations at an existing
restaurant, and the inability to retain or renew such licenses would adversely
affect the operations of such restaurant.
TAX LIABILITIES
The State of Texas currently imposes a franchise tax on each corporation
that is organized or does business in the State of Texas at a rate, in
general, of 4.5% of such entity's reported federal taxable income. A portion
of the Company's revenues are utilized to pay licensing and management fees to
certain of the Company's subsidiaries. The income received by certain of these
subsidiaries is not subject to Texas franchise tax under current state law.
However, there can be no assurance that the state of Texas might not attempt
to enact legislation or assert positions which would attempt to assess
additional franchise tax payments on the Company's operations. In the event of
any assessment, the Company's income and results of operations could be
affected up to the amount of the tax imposed.
WORKERS' COMPENSATION
Like a large number of companies operating in Texas, including many
restaurant companies, the Company does not subscribe to the workers'
compensation insurance program in Texas. As such, the Company's employees have
the right to sue the Company for negligence, and the Company may not assert
contributory negligence and certain other defenses. In addition, employees
might be able to recover compensatory and punitive damages in such actions
that would not be available to them if the Company subscribed to the workers'
compensation insurance program in Texas. However, the Company maintains excess
employer's occupational injury insurance to cover large losses. Prior to 1989,
the Company subscribed to the workers' compensation insurance program. Since
1989, the Company has had a limited number of lawsuits by employees in
connection with workers' compensation claims and the results of such lawsuits,
individually and collectively, have not had a material adverse effect upon the
Company's results of operations.
STOCK PRICE VOLATILITY
The Common Stock has been traded on the Nasdaq National Market since the
Initial Public Offering, and the market price of the Common Stock has risen
substantially since such time. In the future, 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
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.
RISKS ASSOCIATED WITH FORWARD LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act, and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), which are
intended to be covered by the safe harbors created thereby. Investors are
cautioned that all forward-
11
<PAGE>
looking statements involve risks and uncertainty, including without
limitation, the ability of the Company to continue its accelerated expansion
strategy (including the consummation of the Merger), changes in costs of food,
labor, and employee benefits, the ability of the Company to continue to
acquire prime locations at acceptable lease or purchase terms, as well as
general market conditions, competition, and pricing. Although the Company
believes that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be inaccurate,
and therefore, there can be no assurance that the forward-looking statements
included in this Prospectus will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and
plans of the Company will be achieved.
12
<PAGE>
THE BAYPORT ACQUISITION
On April 18, 1996, the Company and Landry's Acquisition, Inc., a wholly-
owned subsidiary of the Company, entered into the Merger Agreement with
Bayport. Pursuant to the Merger Agreement, Landry's Acquisition, Inc. would be
merged with and into Bayport with the result that Bayport would become a
wholly-owned subsidiary of the Company. The Merger is expected to be a tax-
free exchange for the stockholders of Bayport. Bayport operates 17 casual,
full-service restaurants under the name "The Crab House," has four Crab House
restaurants in various stages of construction, and has leases on three
additional restaurant sites. Bayport also operates five take-away seafood
restaurants under the name "Capt. Crab's Take-Away." Bayport's restaurants are
located primarily in Florida, with additional locations in Georgia,
Mississippi, South Carolina and Illinois. The restaurants currently under
construction are located in New York City, the metropolitan New York area,
Baltimore, Maryland and Nashville, Tennessee. See "Business--Bayport's
Business." Management expects the Merger to be consummated within 30 to 60
days after completion of this offering if the conditions specified in the
Merger Agreement have been satisfied or waived, unless the Merger Agreement is
earlier terminated.
THE MERGER AGREEMENT
Pursuant to the Merger, the Company (i) would issue approximately 2,033,000
shares of Common Stock, calculated pursuant to an exchange ratio (the
"Exchange Ratio") of .2105 shares of Common Stock for each share of Bayport
common stock, to the holders of Bayport's common stock and (ii) would issue
approximately 112,000 shares of Preferred Stock to the holders of Bayport
Preferred Stock on the basis of a fraction of a share of Preferred Stock for
each share of Bayport Preferred Stock, which fraction is equal to the Exchange
Ratio divided by four, in each case subject to adjustment as described below.
The shares of Preferred Stock to be issued in the Merger would be convertible
into an equal number of shares of Common Stock. In addition, approximately
146,000 shares of Common Stock would be issuable upon the exercise of Bayport
Warrants and approximately 444,000 shares of Common Stock would be issuable
upon exercise of Bayport Options. The Merger will be accounted for as a
pooling-of-interests. The Exchange Ratio is subject to downward adjustment at
the closing in the event that projected construction and/or pre-opening costs,
calculated separately, of certain Bayport restaurants currently being
constructed exceed a stipulated amount. In addition, the Exchange Ratio is
subject to adjustment depending upon whether or not the Average Market Price
(as defined in the Merger Agreement) of the Common Stock exceeds $22 per share
or is less than $15 per share. If the Average Market Price is greater than
$22, the Company will issue less shares than as set forth above, and if the
Average Market Price is less than $15, the Company will issue more shares than
set forth above. At the closing, the Exchange Ratio will be fixed to reflect
all of such adjustments. A Proxy Statement/Prospectus relating to the proposed
Merger and the registration under the Securities Act of the Common Stock to be
issued in connection therewith will be filed with the Securities and Exchange
Commission (the "Commission") and is expected to be distributed to Bayport's
stockholders on or about the time this offering is made.
The consummation of the Merger is subject to certain significant conditions
contained in the Merger Agreement, many of which are beyond the control of the
Company. The conditions to the consummation of the Merger include, among
others, (i) approval by the stockholders of Bayport, (ii) receipt by the
Company of an opinion from its and Bayport's independent public accountants
with respect to certain matters relating to the availability of pooling-of-
interest accounting treatment for the Merger, (iii) the declaration of
effectiveness by the Commission of a Registration Statement relating to the
Common Stock to be issued by the Company in the Merger, (iv) the receipt of
regulatory approval under the HSR Act, (v) the receipt by Bayport of a tax
opinion from its outside counsel with respect to the non-taxable nature of the
Merger for the stockholders of Bayport, (vi) the absence of any material
adverse change in the business, results of operations or financial condition
of either the Company or Bayport, (vii) the accuracy of representations and
warranties of the Company and Bayport set forth in the Merger Agreement,
(viii) no withdrawal of the fairness opinions rendered by the financial
advisors of the Company and Bayport with respect to the fairness of the terms
of the Merger to the stockholders of the Company and Bayport, respectively,
(ix) the release from third parties of Bayport's lease obligations with
respect
13
<PAGE>
to two restaurants and (x) the receipt of certain legal opinions from the
outside counsel of each of the Company and Bayport.
The Merger Agreement may be terminated and the Merger abandoned at any time
prior to the consummation of the Merger as follows: (i) by mutual consent of
the Boards of Directors of Bayport and the Company, (ii) by the Board of
Directors of either Bayport or the Company if there has been a material breach
by the other of any representation or warranty in the Merger Agreement or of
any covenant in the Merger Agreement which is not, or cannot be, cured within
15 days after written notice thereof, (iii) by the Board of Directors of
either the Company or Bayport if the conditions to closing set forth in the
Merger Agreement are not met or waived by December 31, 1996, or the Merger has
not occurred by such date (except that neither Bayport nor the Company shall
be entitled to terminate if such party is in willful and material violation of
the Merger Agreement), (iv) by the Board of Directors of either the Company or
Bayport, if any required approval of the stockholders of Bayport shall not
have been obtained by reason of the failure to obtain the required vote at a
meeting of Bayport stockholders and (v) if a governmental authority shall have
issued a final and nonappealable order or ruling enjoining, restraining or
otherwise prohibiting the Merger. If the Merger Agreement is terminated by
Bayport's Board of Directors because it has received a Superior Proposal (as
defined in the Merger Agreement) for Bayport, or because of Bayport's failure
to satisfy certain conditions to closing set forth in the Merger Agreement,
Bayport must pay to the Company a fee in cash in an amount equal to the
product of the closing sale price of the Common Stock on the day of
termination of the Merger Agreement multiplied by the number of shares of
Common Stock which would have been issued or reserved for issuance if the
Merger had been consummated, plus any Bayport debt on such day (the "Deal
Value") multiplied by 2.5%, plus all expenses including legal, accounting and
tax expenses, incurred by the Company in connection with the Merger Agreement
(the "Expenses") or, if the Merger Agreement is terminated by the Company
because of Bayport's inability to obtain approval of the Merger by its
stockholders, or for other reasons set forth in the Merger Agreement,
Bayport's obligations shall be equal to the Deal Value multiplied by 1.5%,
plus Expenses. The Merger Agreement further provides that in the event Bayport
terminates the Merger Agreement because of the receipt of a Superior Proposal,
the Company will be required to acquire the ownership of the restaurants
securing the Bayport Loan (defined below) by paying the Bayport Collateral
Payment Amount (defined below).
The Company has also entered into a loan agreement (the "Loan Agreement")
with Bayport pursuant to which the Company has agreed to loan to Bayport up to
$11 million (the "Bayport Loan") to be used by Bayport to finance the
continued construction of four Crab House restaurants, in various stages of
construction. Outstanding indebtedness under the Loan Agreement will bear
interest at the prime rate, as published in the Wall Street Journal, plus 2%
and will be secured by various Bayport restaurants (the "Collateral"). Through
May 10, 1996, the Company had funded $1.8 million under the Bayport Loan.
Pursuant to the Loan Agreement, if the Merger Agreement is terminated for any
reason (other than the receipt of a Superior Proposal), Bayport will have the
opportunity to repay the loan amount for 120 days, during which time the
Company has agreed to take no action against Bayport. If Bayport has not
repaid any of the principal balance of the Bayport Loan, together with accrued
but unpaid interest at the end of such period, the Company will be required to
acquire, in full consideration and repayment of the then outstanding Bayport
Loan amount, the Collateral and, in connection therewith, to pay to the
lenders under Bayport's revolving credit and term loan facility, an amount
equal to the unfunded balance of the Bayport Loan, less accrued but unpaid
interest thereon, certain fees and expenses and the unfunded advances that
would otherwise be required to be made with respect to two Bayport restaurants
currently under construction (the "Bayport Collateral Payment Amount").
Pursuant to the Merger Agreement, if the Merger Agreement is terminated by
Bayport because of the receipt of a Superior Proposal, the Company will be
required to immediately acquire the Collateral by paying the Bayport
Collateral Payment Amount. See "Management's Discussion and Analysis--
Liquidity and Capital Resources."
14
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
PRICE RANGE OF COMMON STOCK
The Company effected its Initial Public Offering of Common Stock on August
18, 1993, at a price to the public of $6.00 per share (adjusted for the
Company's 2-for-1 stock split effected in June 1995). Since that date, the
Common Stock has been traded on the Nasdaq National Market. As of May 10,
1996, there were approximately 157 stockholders of record of the Common Stock
and the Company estimates that there are in excess of 6,000 beneficial owners.
The table below sets forth, for the periods indicated, the high and low sale
prices as reported on the Nasdaq National Market for the Common Stock since
January 1, 1994.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1994
First Quarter.............................................. $13.75 $10.50
Second Quarter............................................. 13.00 8.63
Third Quarter.............................................. 12.75 8.75
Fourth Quarter............................................. 15.38 10.13
1995
First Quarter.............................................. $15.75 $12.75
Second Quarter............................................. 22.25 14.88
Third Quarter.............................................. 22.00 16.00
Fourth Quarter............................................. 18.25 12.50
1996
First Quarter.............................................. $19.75 $14.00
Second Quarter (through May 10, 1996)...................... 25.50 17.50
</TABLE>
On May 10, 1996, the closing sale price of the Common Stock as reported by
the Nasdaq National Market was $22.50 per share.
DIVIDEND POLICY
The Company's Board of Directors does not anticipate payment of any cash
dividends in the foreseeable future and intends to maintain a policy of
retaining earnings for reinvestment in the Company's operations. The payment
of cash dividends in the future will depend upon the Company's earning levels,
capital requirements, financial condition, and other factors deemed relevant
by the Board of Directors.
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 4,000,000 shares of
Common Stock offered by the Company hereby are estimated to be $85,450,000
($99,954,062 if the over-allotment option is fully exercised and provided for
solely by the Company) assuming a public offering price of $22.50 per share
(the closing price of the Common Stock on May 10, 1996). The Company intends
to use the net proceeds to finance the development or acquisition of
additional restaurants and for general corporate purposes. If the Merger is
consummated, the Company currently anticipates utilizing approximately $18
million of the proceeds to repay the outstanding amounts owed by Bayport under
revolving credit and term loans (the "Revolving Loans") to certain banks. Such
Revolving Loans bear per annum interest at a bank's base rate plus one-half
percent for approximately $16 million and at the prime rate published by The
Wall Street Journal plus 1% for the remaining $2 million. The Revolving Loans
terminate on December 14, 2001 and are secured by substantially all of the
assets of Bayport. The Revolving Loans were incurred to fund Bayport's working
capital requirements in connection with Bayport's restaurant expansion. In
connection with the Company's agreement to fund the Bayport Loan the banks
have waived all defaults that may occur through December 31, 1996, so long as
the Merger Agreement remains in effect and all required payments of interest
on the Revolving Loans are made. In addition, if the Merger is consummated,
the Company will utilize approximately (i) $1.2 million to repay a note due to
a related party of Bayport which is payable in monthly installments of $7,861
and a final payment of $951,195 in April 1999, and which bears interest at
1.5% over a designated bank's prime rate; (ii) $0.8 million of other
indebtedness; and (iii) up to $11.0 million to repay amounts drawn on the
Company's line of credit which will be utilized to fund the Bayport Loan.
The Company will not receive any of the proceeds from the sale of shares of
Common Stock by the Selling Stockholder.
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<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and the capitalization of
the Company as of March 31, 1996, (i) on an actual basis, (ii) on an as
adjusted basis to reflect the sale of 4,000,000 shares of Common Stock offered
by the Company hereby at an assumed public offering price of $22.50 per share
(based on the closing price of the Common Stock on May 10, 1996), and (iii) on
a pro forma as adjusted basis to give effect to the sale of 4,000,000 shares
of Common Stock offered by the Company hereby at an assumed public offering
price of $22.50 per share (based on the closing price of the Common Stock on
May 10, 1996) and to reflect the Merger, including the issuance of
approximately 2,033,000 shares of Common Stock and approximately 112,000
shares of Preferred Stock on March 31, 1996 to be issued in connection
therewith (based on an assumed Exchange Ratio of .2105), and to reflect the
repayment of approximately $20.0 million of Bayport debt, as if the Merger had
occurred at March 31, 1996. The actual number of shares of Common Stock and
Preferred Stock of the Company to be issued in the Merger is subject to
certain adjustments. See "The Bayport Acquisition," "Use of Proceeds," and
"Unaudited Pro Forma Condensed Combined Financial Statements."
<TABLE>
<CAPTION>
MARCH 31, 1996(1)(2)
--------------------------------
PRO FORMA
ACTUAL AS ADJUSTED AS ADJUSTED
-------- ----------- -----------
<S> <C> <C> <C>
Short-term notes payable and current
portion of long-term notes and other
obligations.................................. $ 265 $ 265 $ 265
======== ======== ========
Long-term notes and other obligations,
noncurrent................................... $ 317 $ 317 $ 317
Stockholders' equity:
Preferred Stock, $0.01 par value; 2,000,000
shares authorized; actual and as adjusted:
none outstanding; pro forma as adjusted:
112,433 shares outstanding.................. -- -- 1
Common Stock, $0.01 par value; 30,000,000
shares authorized; actual: 18,204,220 shares
outstanding; as adjusted: 22,204,220 shares
outstanding; pro forma as adjusted:
24,236,724 shares outstanding (1)(2)........ 182 222 242
Additional paid-in capital................... 107,921 193,331 215,468
Retained earnings............................ 18,922 18,922 20,065
Notes receivable from officers............... -- -- (429)
-------- -------- --------
Total stockholders' equity................... 127,025 212,475 235,347
-------- -------- --------
Total capitalization........................ $127,342 $212,792 $235,664
======== ======== ========
</TABLE>
- --------
(1) Excludes 2,597,820 shares of Common Stock reserved for issuance upon
exercise of options pursuant to the Company's stock option plans as of
March 31, 1996.
(2) On a pro forma as adjusted basis excludes 444,471 shares of Common Stock
issuable upon the exercise of Bayport Options, 145,575 shares of issuable
upon exercise of Bayport Warrants and 112,433 shares of Common Stock
issuable upon conversion of the Bayport Preferred Stock (based on an
assumed Exchange Ratio of .2105).
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected consolidated financial information presented below for, and as
of the end of, each of the years in the five-year period ended December 31,
1995, and each of the three-month periods ended March 31, 1995 and 1996, is
derived from the consolidated financial statements of the Company. The
consolidated financial statements as of the end of, and for each of the years
in the five-year period ended December 31, 1995 have been audited by Arthur
Andersen LLP, independent public accountants. The consolidated financial
statements as of and for the three-month periods ended March 31, 1995 and 1996
have not been audited, but, in the opinion of management, such financial
statements 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 and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein, or incorporated by reference.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data
Revenues................ $19,500 $22,435 $34,241 $62,527 $104,017 $20,613 $ 34,819
Operating costs and
expenses:
Cost of sales.......... 6,120 6,852 10,459 19,273 31,631 6,373 10,476
Restaurant labor....... 4,831 5,519 8,593 15,717 26,717 5,261 8,874
Other restaurant
operating expenses.... 4,644 5,136 7,788 13,980 22,571 4,421 7,265
Depreciation and
amortization.......... 499 630 1,194 2,891 5,513 1,042 2,133
General and
administrative
expenses.............. 1,035 1,225 1,861 2,781 4,635 881 1,272
------- ------- ------- ------- -------- ------- --------
Total operating costs
and expenses.......... 17,129 19,362 29,895 54,642 91,067 17,978 30,020
------- ------- ------- ------- -------- ------- --------
Operating income........ 2,371 3,073 4,346 7,885 12,950 2,635 4,799
Other (income) expense:
Interest (income)
expense, net.......... 206 276 187 (960) (1,948) (176) (158)
Other, net............. 72 (293) (130) 39 55 16 58
------- ------- ------- ------- -------- ------- --------
Total other (income)
expense, net.......... 278 (17) 57 (921) (1,893) (160) (100)
Income before income
taxes and extraordinary
gain................... 2,093 3,090 4,289 8,806 14,843 2,795 4,899
Provision for income
taxes (pro forma in
1992 and 1993)(1)...... 867 1,112 1,544 3,126 5,259 992 1,764
------- ------- ------- ------- -------- ------- --------
Income before
extraordinary gain..... 1,226 1,978 2,745 5,680 9,584 1,803 3,135
Extraordinary gain (pro
forma in 1992)(2)...... 507 313 -- -- -- -- --
------- ------- ------- ------- -------- ------- --------
Net income(3)........... $ 1,733 $ 2,291 $ 2,745 $ 5,680 $ 9,584 $ 1,803 $ 3,135
======= ======= ======= ======= ======== ======= ========
Net income before
extraordinary gain per
share (pro forma
in 1992 and 1993)(3)... $ 0.23 $ 0.28 $ 0.40 $ 0.55 $ 0.12 $ 0.17
Extraordinary gain per
share (pro forma in
1992)(2)............... 0.03 -- -- -- -- --
------- ------- ------- -------- ------- --------
Net income per share
(pro forma in 1992 and
1993)(3)............... $ 0.26 $ 0.28 $ 0.40 $ 0.55 $ 0.12 $ 0.17
======= ======= ======= ======== ======= ========
Weighted average number
of common shares and
common shares
equivalents outstanding
(pro forma in 1992 and
1993)(4)............... 8,794 9,862 14,126 17,320 14,850 19,000
Balance Sheet Data (at
end of period)
Working capital
(deficit).............. ($1,922) ($1,472) $ 3,661 $14,877 $ 8,521 $ 4,332
Total assets............ 7,105 10,449 24,921 71,141 140,001 142,212
Short-term notes payable
and current portion of
long-term
notes and other
obligations............ 2,089 2,375 669 271 299 265
Long-term notes and
other obligations,
noncurrent............. 1,677 1,731 1,793 716 368 317
Stockholders' equity.... 845 3,385 18,422 61,959 122,210 127,025
</TABLE>
- -------
(1) Income taxes for 1992 and 1993 reflect a pro forma provision for income
taxes as a C corporation. See Notes 1 and 3 of Notes to the Consolidated
Financial Statements, incorporated herein by reference.
(2) During 1992, the Company recorded an extraordinary gain of $489,133
($313,000 net of pro forma income tax) related to the repayment of debt at
a discount effective November 20, 1992. During 1991, the Company
recognized an extraordinary gain of $506,665 as a result of the tax
benefit from the use of net operating loss carryforwards.
(3) Reflects pro forma net income and extraordinary gain per share in 1992 and
1993 after a pro forma provision for income taxes. See Notes 1 and 3 of
Notes to the Consolidated Financial Statements, incorporated herein by
reference.
(4) See Note 8 of the Notes to the Consolidated Financial Statements,
incorporated herein by reference.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
A reduced income tax provision was made in 1993 as discussed in the Notes to
the Consolidated Financial Statements, incorporated herein by reference. For
comparative purposes, pro forma income taxes are reflected as if the Company
and all of its corporate subsidiaries were C corporations.
The Company's operations may be impacted by changes in federal tax and other
governmental policies which affect the deductibility of business and
entertainment expenses and levels of disposable income. The Revenue
Reconciliation Act of 1993 included matters which could impact the restaurant
business and the Company's operations. These included a reduction in the
business tax deduction available for restaurant meals, as well as an increase
in the tax rate for individuals, with a greater increase for those persons who
are in the higher income bracket and, therefore, could reasonably be expected
to eat in the Company's restaurants on a more frequent basis. The Company can
make no prediction as to the ultimate effect of the Revenue Reconciliation Act
of 1993 on the Company's business and operations; however, the Company does
not believe the Revenue Reconciliation Act of 1993 will significantly affect
its on-going business. Additionally, on-going proposals mandating medical and
parental leave benefits, requiring employers to provide health insurance to
part-time employees and increases in the federal or certain states' minimum
wage will, if enacted, increase the Company's employee costs.
If the Merger is consummated, the Company would recognize a one-time charge
that it believes will be approximately $8.0 million to $10.0 million. This
charge would be recorded in the quarter in which the Merger is consummated
(expected to be the third quarter of 1996). The actual expenses would be
significant for such quarter. In addition, the Company's restaurant base would
increase significantly through the acquisition of the Bayport restaurants
pursuant to the Merger. Such restaurants have materially different profit
margins, costs to construct, costs of sales as percentages of restaurant
sales, operating expenses, and other restaurant performance factors than the
Company's restaurants. The Company would attempt to reduce construction and
operating costs of the Bayport restaurants without reducing the quality of
their service or food. However, there can be no assurances that the Company
would be able to operate the Bayport restaurants in a manner that is different
from the way such restaurants are currently being constructed and operated. As
a result, the Company's profit margin, cost to construct, cost of sales as
percentages of restaurant sales, operating expenses and other restaurant
performance factors may be materially different than the Company's on a stand-
alone basis and the margins reflected on a pro forma basis herein.
19
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to total revenues
of certain income statement data, for the periods indicated:
<TABLE>
<CAPTION>
THREE
MONTHS
YEAR ENDED ENDED MARCH
DECEMBER 31, 31,
------------------- ------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Operating costs and expenses:
Cost of sales............................ 30.5 30.8 30.4 30.9 30.1
Restaurant labor......................... 25.1 25.1 25.7 25.5 25.5
Other restaurant operating expenses...... 22.8 22.4 21.7 21.4 20.9
Depreciation and amortization............ 3.5 4.6 5.3 5.1 6.1
General and administrative expenses...... 5.4 4.4 4.5 4.3 3.7
----- ----- ----- ----- -----
Total operating costs and expenses..... 87.3 87.3 87.6 87.2 86.3
----- ----- ----- ----- -----
Operating income........................... 12.7 12.7 12.4 12.8 13.7
----- ----- ----- ----- -----
Other (income) expense:
Interest (income) expense, net........... 0.5 (1.5) (1.8) (0.8) (0.5)
Other, net............................... (0.3) 0.1 -- 0.1 0.2
----- ----- ----- ----- -----
Total other (income) expense, net...... 0.2 (1.4) (1.8) (0.7) (0.3)
----- ----- ----- ----- -----
Income before income taxes................. 12.5 14.1 14.2 13.5 14.0
Provision for income taxes (pro forma for
1993)..................................... 4.5 5.0 5.0 4.8 5.0
----- ----- ----- ----- -----
Net income................................. 8.0% 9.1% 9.2% 8.7% 9.0%
===== ===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1995
Revenues increased $14,206,982, or 68.9%, from $20,612,615 to $34,819,597 in
the three months ended March 31, 1996, compared to the three months ended
March 31, 1995. The increase in revenue was attributable to revenues from new
restaurant openings. There was a nominal change in revenues from units opened
prior to 1995. Several of the Company's restaurants that opened during late
1994 and early 1995 opened at volumes in excess of the Company's average unit
volumes. Subsequently, however, the Company has experienced a moderation of
their initial unit volumes.
As a primary result of increased revenues, cost of sales increased
$4,102,728, or 64.4%, from $6,373,332 to $10,476,060 in the three months ended
March 31, 1996 compared to the same period in the prior year. Cost of sales as
a percentage of revenues for the three months ended March 31, 1996 decreased
to 30.1% from 30.9% in 1995. The decrease in cost of sales as a percentage of
revenues reflects favorable product prices and better management cost controls
in 1996.
Restaurant labor expenses increased $3,612,957, or 68.7%, from $5,260,776 to
$8,873,733 in the three months ended March 31, 1996 compared to the same
period in the prior year. Restaurant labor expenses as a percentage of
revenues for three months ended March 31, 1996, remained flat at 25.5%.
Other restaurant operating expenses increased $2,843,920, or 64.3%, from
$4,421,083 to $7,265,003 in the three months ended March 31, 1996, compared to
the same period in the prior year, as a result of increased revenues and the
opening of new restaurants since March 31, 1995. Such expenses decreased as a
percentage of revenues to 20.9% from 21.4% primarily due to revenue growth
exceeding the increase in other restaurant operating expenses, and tighter
controls on various cost and expense categories.
Depreciation and amortization expenses increased $1,091,253 or 104.8% from
$1,041,648 to $2,132,901 in the three months ended March 31, 1996, compared to
the same period in the prior year. The increase was primarily due to the
addition of new restaurants and purchases of new equipment.
20
<PAGE>
General and administrative expenses increased $391,969, or 44.5%, from
$880,694 to $1,272,663 compared to the same period of the prior year, and
decreased as a percentage of revenues to 3.7% from 4.3%. The increase resulted
primarily from increased office personnel, salaries and travel to support the
Company's expansion plans. The percentage of revenues decrease was
attributable to revenue growth exceeding the increase in general and
administrative expense for the comparable three month period.
The decrease in net interest income of $18,184 and change in other expense,
net of $41,471, are not deemed significant.
Provision for income taxes increased by $771,592 from $992,115 in 1995 to
$1,763,707 in 1996 primarily due to the change in the Company's income. The
effective income tax rate increased to approximately 36% from the 1995
effective tax rate of approximately 35.5% due to a higher effective federal
rate in 1996 as compared to 1995, and as a result of higher state income
taxes.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994
Revenues increased $41,490,529, or 66.4% from $62,526,965 to $104,017,494 in
1995, compared to 1994. The increase in revenues was attributable to revenues
from new restaurant openings, and there was a nominal change in the revenues
from units opened prior to 1994. Several of the Company's restaurants opened
during 1994 and 1995 opened at initial volumes in excess of the Company's
average unit volumes. Subsequently, however, the Company has experienced a
moderation of their initial unit volumes.
As a primary result of increased revenues, cost of sales increased
$12,358,208, or 64.1% from $19,273,349 to $31,631,557 in 1995, compared to
1994. Cost of sales as a percentage of revenues for 1995 decreased 0.4% from
30.8% in 1994 to 30.4%. The decrease in cost of sales as a percentage of
revenues reflects favorable product prices, particularly lower shrimp prices,
and better management controls in 1995.
Restaurant labor expenses increased $11,000,232, or 70.0% from $15,716,557
to $26,716,789 in 1995, compared to 1994. Restaurant labor expenses as a
percentage of revenues increased 0.6% from 25.1% to 25.7%. The increase in
labor expenses resulted primarily from new restaurant openings and the hiring
of management and kitchen personnel required to support the Company's
expansion. The increase in labor expenses as a percentage of revenues reflects
a combination of competitive pressures in the restaurant industry, generally
higher labor costs for units outside of the State of Texas, higher restaurant
management bonuses, and a greater vesting of employee benefits due to
seniority.
Other restaurant operating expenses increased $8,591,191 or 61.5% from
$13,979,699 to $22,570,890 in 1995 compared to 1994 as a result of increased
revenues and the opening of new restaurants. Such expenses decreased as a
percentage of revenues from 22.4% to 21.7% primarily due to revenue growth
exceeding the increase in other restaurant operating expenses, and reductions
in rent expense, as a percentage of revenues due to more owned restaurant
locations, and reductions in insurance and advertising expenses.
Depreciation and amortization expenses increased $2,622,310, or 90.7% from
$2,891,125 to $5,513,435 in 1995 compared to 1994. The increase was primarily
due to the addition of restaurants and purchases of equipment.
General and administrative expenses increased $1,853,910 or 66.7% from
$2,781,302 to $4,635,212 and remained relatively flat as a percentage of
revenues. The dollar increase resulted primarily from increased office
personnel, salaries and travel to support the Company's expansion.
Net interest income increased by $988,778 from $959,676 to $1,948,454 in
1995 compared to 1994. The increase resulted primarily from the Company's
investment of excess cash in interest bearing securities subsequent to the
Company's public stock offerings.
21
<PAGE>
Provision for income taxes increased by $2,133,273 from $3,125,962 to
$5,259,235 in 1995 primarily due to the change in the Company's pre-tax
income. The effective income tax rates as a percentage of income before income
taxes remained relatively flat at 35%.
The Company anticipates that the effective income tax rates for 1996 will
increase to approximately 36% from the 1995 effective tax rates due to a
higher effective federal rate of 35% in 1996 as compared to approximately 34%
in 1995, and as a result of higher state income taxes.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO THE YEAR ENDED DECEMBER 31, 1993
Revenues increased $28,285,466, or 82.6%, from $34,241,499 to $62,526,965 in
1994, compared to 1993. Of this increase, approximately $26,000,000 was
attributable to revenues from restaurants which opened since the beginning of
1993. The balance of the increase resulted primarily from an approximate 5%
increase in comparable restaurant revenues.
As a primary result of increased revenues, cost of sales increased
$8,813,919, or 84.3%, from $10,459,430 to $19,273,349 in 1994, compared to
1993. Cost of sales as a percentage of revenues for 1994 remained relatively
flat as the percentage increased 0.3% to 30.8% from 30.5% in the prior year.
The increase in cost of sales as a percentage of revenues reflects primarily
the effect of an increased number of new restaurant openings that typically
incur higher initial cost of sales.
Restaurant labor expenses increased $7,123,333, or 82.9%, from $8,593,224 to
$15,716,557 in 1994, compared to 1993. Restaurant labor expenses remained flat
as a percentage of revenues at 25.1%, as increases in restaurant labor
expenses were offset by increases in revenues.
Other restaurant operating expenses increased $6,191,317, or 79.5%, from
$7,788,382 to $13,979,699 in 1994, compared to 1993 as a result of increased
revenues and the opening of new restaurants since December 31, 1993. Such
expenses decreased as a percentage of revenues from 22.8% to 22.4% primarily
due to strong revenue growth exceeding the increase in other restaurant
operating expenses.
Depreciation and amortization expenses increased $1,697,352, or 142.2%, from
$1,193,773 to $2,891,125 in 1994, compared to 1993. The increase was primarily
due to the addition of restaurants and purchases of equipment.
General and administrative expenses increased $920,369, or 49.5%, from
$1,860,933 to $2,781,302 in 1994, compared to 1993, but decreased as a
percentage of revenues to 4.4% from 5.4%. The dollar increase resulted
primarily from increased office personnel, salaries and travel to support the
Company's expansion plans, and incremental professional fees and related costs
of being a publicly owned company. The percentage of revenues decrease in 1994
was attributable to revenue growth exceeding the increase in general and
administrative expenses.
Net interest (income) expense changed by $1,147,020, from $187,344 of net
interest expense in 1993 to ($959,676) of net interest income in 1994. The
change resulted primarily from the Company's reduction of outstanding debt and
investment of excess cash in interest bearing securities subsequent to the
Company's public stock offerings.
Other (income) expense, net changed by $169,211, from ($130,130) of net
other income to $39,081 of net other expense in 1994 compared to 1993. This
change was primarily attributable to a reduction in miscellaneous income
recorded in 1994.
Income taxes increased $1,582,087, from $1,543,875 pro forma income taxes in
1993 to $3,125,962 income taxes in 1994 due to the increase in the Company's
income. The effective income tax rates as a percentage of income before taxes
remained relatively flat. Subsequent to the Company's August 1993 initial
public offering,
22
<PAGE>
the Company's consolidated income became subject to federal corporate income
taxes. However, the income tax liability for the year ended December 31, 1994,
was partially offset by an approximate $400,000 credit attributable to an
income tax deduction available to the Company as a result of the exercise of
certain stock options in March 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company does not have significant receivables or inventory and receives
trade credit based upon negotiated terms in purchasing food and supplies. In
connection with its Initial Public Offering, the Company received $17,122,745
in net proceeds in August 1993. In March 1994, the Company received
$37,457,255 from a second common stock offering and the exercise of certain
stock options, and in April 1995, the Company received approximately
$50,000,000 from a third common stock offering. Historically, the Company has
leased many of its restaurant locations and pursued a strategy of controlled
growth, financing its expansion principally from proceeds from common stock
offerings, operating cash flow and to a lesser extent, borrowings. In 1993,
1994, 1995 and the three months ended March 31, 1996, the Company spent
$10,237,787, $31,908,332, $71,332,802, and $10,205,119 respectively, on
capital expenditures, which was funded in part out of cash flows from
operations of $5,115,841, $9,813,944, $18,719,141, and $2,935,460
respectively, plus borrowings in 1993 of $1,212,767 and from proceeds of the
common stock offerings. Payments on notes payable and other long-term
obligations amounted to $3,536,256, $1,474,745, $320,109, and $85,989 in 1993,
1994, 1995 and the three months ended March 31, 1996, respectively.
As of the beginning of 1995, the Company planned to open approximately 26
restaurants during 1995 and 1996. As April 16, 1996, all of such restaurants
had been opened. The Company's current development plan is to be operating
approximately 75 restaurants by December 31, 1997 (excluding restaurants that
may be acquired pursuant to the Merger), of which 50 restaurants were open and
six restaurants were under construction as of April 16, 1996. If the Merger is
not consummated, the Company anticipates further accelerating its expansion
plans. Excluding real estate costs and pre-opening expenses, the average cash
investment to open the Company's new restaurants in 1995 was approximately
$2.6 million. However, the average cash investment for the last seven
restaurants opened by the Company was approximately $2.2 million. The Company
expects that its average investments for units opened in the future will be
further reduced due primarily to an overall reduction of the average unit size
from those opened during 1995. However, individual unit investment costs could
vary from management's expectations due to a variety of factors Moreover,
average unit investment costs are dependent upon many factors including
competition for sites, location, construction costs, unit size and the mix of
conversions, build-to-suit and leased locations. The Company currently
anticipates that it will continue to purchase a portion of its new restaurant
locations, which are expected to be more costly than leased locations. The
Company believes that existing cash balances, the proceeds from this offering,
cash generated from operations and potential financing sources will be
sufficient to satisfy the Company's working capital and capital expenditure
requirements through 1997, including working capital and capital expenditure
requirements resulting from the consummation of the Merger.
The Company has a $25.0 million line of credit which is subject to renewal
in May 1997. The Company had no funds borrowed under the line of credit as of
March 31, 1996. However, up to $11.0 million of amounts available under the
line of credit may be utilized to fund the Bayport Loan prior to the
consummation of the Merger.
On April 18, 1996, the Company entered into the Loan Agreement with Bayport
pursuant to which the Company agreed to loan to Bayport up to $11 million to
be used by Bayport to finance the continued construction of four Crab House
restaurants. The first Bayport Loan advance in the aggregate amount of $1.5
million was made on April 22, 1996. Subsequent advances in varying amounts,
will be made on or about the fifteenth day of each month beginning in May,
subject to the satisfaction of certain conditions contained in the Loan
Agreement. As of May 10, 1996, the Company had funded $1.8 million of such
Bayport Loan. The Company expects to borrow funds under its line of credit to
fund the Bayport Loan. The Bayport Loan is secured by the Collateral,
23
<PAGE>
including certain existing restaurants of Bayport and certain restaurants
currently being constructed by Bayport. The Company has the right to convert
the Bayport Loan into ownership of the Collateral if the Merger is not
consummated under certain circumstances by paying the Bayport Collateral
Payment Amount. See "The Bayport Acquisition."
SEASONALITY AND QUARTERLY RESULTS
The Company's business is seasonal in nature, with revenues and, to a
greater degree, operating profits being lower in the first and fourth quarters
than in other quarters due to the Company's reduced winter volumes. Several of
the Company's restaurants during 1994 and 1995 have opened at initial volumes
in excess of Company average unit volumes; particularly in the seasonally
slower first and fourth quarters. As anticipated, the Company experienced some
moderation in revenues from the initial volumes of such units. The timing of
unit openings can and will affect quarterly results.
IMPACT OF INFLATION
Management does not believe inflation has had significant effect on the
Company's operations during the past several years. Management believes the
Company has historically been able to pass on increased costs through menu
price increases, but there can be no assurance that it will be able to do so
in the future. Future increases in land and construction costs could adversely
affect the Company's ability to expand.
24
<PAGE>
BUSINESS
GENERAL
The Company owns and operates full-service, mid-priced, casual dining,
seafood restaurants located in fifteen states, under the names "Landry's
Seafood House," "Willie G's" and "Joe's Crab Shack." As of April 16, 1996, the
Company operated 50 restaurants including 38 Landry's Seafood Houses, ten
Joe's Crab Shacks and two Willie G's. Management believes that the Company's
restaurants appeal to a broad range of customers by offering generous portions
of fresh seafood and excellent service in a high energy environment at an
attractive price-value relationship. The first Landry's Seafood House
restaurant opened in 1980 and the first Willie G's opened in 1981. In 1988,
Mr. Tilman J. Fertitta acquired sole ownership of these restaurants. The first
Joe's Crab Shack was acquired by the Company in 1994. Following his 1988
acquisition, Mr. Fertitta instituted: (i) new financial, accounting and
reporting systems; (ii) financial incentives for employees; (iii) a system for
training, supervising and retaining employees; (iv) a program for hiring top
management personnel; (v) a site selection and growth strategy; and (vi) an
operating philosophy emphasizing customer service and quality control. As a
result of the implementation of these programs, profitability increased
substantially, and the Company commenced an expansion program.
RESTAURANT CONCEPTS AND STRATEGY
Management believes that the relatively small number of national and
regional chain restaurants competing in the seafood segment of the restaurant
industry, as compared to other restaurant segments, provides the Company a
significant opportunity to capitalize on its high energy, casual dining
seafood restaurant concepts.
The key elements of the Company's restaurant concepts and strategy include
the following:
Variety and Value. The Company's restaurants provide customers an attractive
price-value relationship by serving generous portions of fresh, high quality
seafood at moderate prices. The restaurants feature a wide variety of seafood
items complemented by unique side dishes, salads, garlic bread, appetizers,
and desserts presented in a visually appealing manner.
Commitment to Customer Satisfaction. The Company is committed to providing
its customers prompt, friendly, efficient service, keeping table-to-waitstaff
ratios low, and staffing each restaurant with an experienced management team
to ensure attentive customer service and consistent food quality. Through the
use of comment cards and a 1-800 telephone number, senior management receives
valuable feedback from customers and, through prompt responses, demonstrates a
continuing interest in customer satisfaction.
Distinctive Design and Decor and Casual Atmosphere. Each restaurant concept
has a similar appearance and a flexible design which can accommodate a wide
variety of available sites. For Landry's Seafood House, the Company has
developed a prototype look that is readily identified by a large theater-style
marquee over the entrance and by a distinctive brick and wood facade creating
the feeling of a traditional old seafood house restaurant. Joe's Crab Shack is
designed to appear like an old fishing camp with a wood facade, tin roof, and
a raised deck outside. A casual, energetic dining atmosphere is created for
all of the Company's restaurants through the design and decor of the dining
areas, which generally display vibrant, colorful murals reflecting the
restaurant's location or regional area. In many locations, the restaurants
provide outdoor patio service for a more casual, open-air dining experience
and often feature waterfront views.
High Profile Restaurant Locations. The Company's site selection strategy is
to locate its restaurants in markets which provide a balanced mix of tourist,
convention, business, and residential clientele. A variety of factors are
analyzed in the site selection process, including local market demographics,
site visibility, aesthetics (including waterfront views) and accessibility and
proximity to significant generators of potential customers such as major
retail centers, office complexes, hotel concentrations, convention centers,
historical areas and entertainment facilities (stadiums, arenas, theaters,
etc.). Management believes that this strategy results in a high
25
<PAGE>
volume of new and repeat customers and provides the Company with increased
name recognition in new markets. The Company's current restaurants are located
in areas that satisfy the Company's site selection strategy.
Commitment to Attracting and Retaining Quality Employees. By providing
extensive training and attractive compensation, the Company fosters a strong
corporate culture and encourages a sense of personal commitment from its
employees. The Company has a monthly cash bonus program establishing
performance goals on a restaurant-by-restaurant basis for each restaurant's
management team pursuant to which management believes restaurant managers
typically earn bonuses equal to between 15% and 25% of their total cash
compensation. The Company has historically utilized a program of extensive
background checks for prospective management employees (including criminal
checks, credit checks and drug screening). Management believes its policies
have resulted in a low rate of management-level employee turnover.
EXPANSION STRATEGY
The Company plans to continue expanding principally through the opening of
new restaurants. From time-to-time, the Company will evaluate the conversion
or strategic acquisition of existing restaurants. Other than its agreement
with Bayport, the Company has no present understandings or agreements to
acquire any restaurant concepts. During the next several years, the Company
plans to focus expansion efforts primarily in the southern half of the United
States, although the Company will review situations that might arise in major
cities outside of this area. Second locations in a market are likely only when
management believes the area can effectively support another quality seafood
restaurant. The Company believes that the taste, variety, and perceived health
advantages of seafood, support the Company's decision to concentrate its
expansion efforts on quality seafood restaurants in strategically targeted
markets.
As of the beginning of 1995, the Company planned to open approximately 26
restaurants during 1995 and 1996. As of April 16, 1996, all of such
restaurants had been opened. The Company's current development plan is to be
operating approximately 75 restaurants by December 31, 1997 (excluding
restaurants that may be acquired pursuant to the Merger), of which 50
restaurants were open and six restaurants were under construction as of April
16, 1996. If the Merger is not consummated the Company anticipates further
accelerating its expansion plans. The Company's main emphasis will be to open
Landry's Seafood House and Joe's Crab Shacks restaurants, and, if the Merger
is consummated, Crab House restaurants. Willie G's restaurants may be opened
in areas where another Company restaurant is operating and which management
believes can accommodate another quality seafood restaurant, or where
management believes the demographics better suit this concept. The number of
restaurants actually opened will vary depending upon, among other things, the
Company's ability to locate suitable restaurant sites, the Company's ability
to obtain satisfactory lease or purchase arrangements for its restaurant
locations, the availability of funds to construct and open such restaurants,
the Company's ability to obtain on a timely basis all necessary governmental
permits to construct and operate such restaurants, the Company's ability to
adequately manage the construction or conversion of such restaurants, the
Company's ability to hire, train and retain skilled management and other
restaurant personnel, general economic conditions and whether the Merger is
consummated. See "Risk Factors--Growth" and "Risk Factors--Risks Associated
with the Merger."
The Company has designated a team of employees that is responsible for
opening new locations, including the hiring and training of kitchen personnel
and other individuals who will serve as hosts, waiters, floor managers and
bartenders. Currently, eight to 10 assistant general managers are trained and
ready to be promoted to general managers, which will allow experienced general
managers to be transferred to new locations, and approximately 40 to 50
employees are currently participating in the Company's management training
program.
UNIT ECONOMICS
For the 12-month period ended December 31, 1995, the 24 restaurants opened
prior to January 1, 1995 generated average restaurant revenues of
approximately $3,005,000, average restaurant cash flow of approximately
$660,000 (or 21.9% of revenues), and average restaurant operating income after
depreciation and
26
<PAGE>
amortization of approximately $540,000 (or 18.0% of revenues). Historically,
the Company has leased a substantial number of its restaurants sites to
minimize the costs of opening a new restaurant. However, the Company has
purchased a number of its restaurant locations. The Company's approach to
opening new restaurants has been to control its required investment by using
landlord development allowances and by using its own in-house construction
capabilities as a general contractor to build-out or renovate its new
restaurant sites. Excluding real estate costs and pre-opening expenses, the
average cash investment to open new restaurants in 1995 was approximately $2.6
million per unit. However, the average cash investment for the last seven
restaurants opened by the Company was approximately $2.2 million. In the
future, the Company expects that its average investment for unit opened will
be further reduced due primarily to an overall reduction of the average unit
size from those opened during 1995. The Company currently anticipates that it
will continue to purchase a number of its new restaurant locations, which are
expected to be more costly than leased locations.
RESTAURANT LOCATIONS
The following table provides information with respect to the location of
each of the Company's existing restaurants as of April 16, 1996:
<TABLE>
<CAPTION>
NUMBER
OF
LOCATION UNITS
-------- ------
<S> <C>
Alabama................. 1
Arizona................. 2
Arkansas................ 1
California.............. 1
Colorado................ 2
Florida................. 4
Louisiana............... 3
Mississippi............. 1
Missouri................ 2
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF
LOCATION UNITS
-------- ------
<S> <C>
Nevada.................... 1
New Mexico................ 1
Ohio...................... 1
Oklahoma.................. 2
South Carolina............ 2
Tennessee................. 1
Texas..................... 25
---
Total................... 50
===
</TABLE>
MENU
The Company's restaurants offer a wide variety of high quality, broiled,
grilled, and fried seafood items at moderate prices, including red snapper,
shrimp, crawfish, lump crabmeat, lobster, oysters, scallops, flounder, and
other traditional seafood items, many with a choice of unique seasonings,
stuffings and toppings. The Company's restaurants' menus also include a wide
variety of seafood appetizers, salads, soups and side dishes. In order to
provide an alternative to seafood items, the Company's restaurants also offer
Certified Angus beef, fowl, pastas, and other American food entrees. The
Company's restaurants also feature a unique selection of desserts made fresh
on a daily basis at each location. Each Landry's Seafood House offers
complimentary salad and garlic bread with each entree, as well as certain
lunch specials and lower priced children's entrees.
All of the Company's restaurants emphasize a complete dining experience,
and, accordingly, full liquor service is available. Alcoholic beverages are
primarily served to complement meals, with sales of alcoholic beverages
accounting for 17% of the Company's revenues in 1995. The Company's
restaurants generally serve both lunch and dinner. The average dinner entree
menu price for the Company's restaurants is between $11 and $13, excluding
menu entree items which are priced daily "at market," based on cost and
availability to the Company's restaurants. At certain of the Company's
restaurants there is a separate lunch menu with reduced prices on selected
entrees.
MANAGEMENT AND EMPLOYEES
The Company's policy is to staff its restaurants with management that has
significant experience in the restaurant industry. The Company believes its
strong team-oriented culture helps it attract and retain highly motivated
employees who provide customers with a level of service superior to that
normally found in other restaurants. The Company trains its kitchen employees
and waitstaff to take great pride in preparing and serving
27
<PAGE>
food in accordance with the strict standards established by the Company.
Restaurant managers and staff are trained to be courteous and attentive to
customer needs, and the managers, in particular, are instructed to visit each
table. Senior corporate management holds monthly group meetings with
restaurant general managers to discuss individual restaurant performance and
customer comments. Moreover, the Company requires general managers to hold
regular staff meetings at their individual restaurants. Compliance with the
Company's quality requirements is monitored through periodic on-site visits
and formal periodic inspections by the regional manager and supervisory
personnel from the Company's corporate offices.
The management staff of a typical Company restaurant consists of a five-
person management team (one general manager, two kitchen managers, and two
floor managers) with the general manager having overall responsibility for
restaurant operations. The general managers typically have been promoted after
training in all areas of restaurant level management within the Company. The
kitchen managers in each restaurant supervise kitchen operations, which allows
the general managers to spend most of their time in the dining area of the
restaurant supervising the staff and providing service to customers. Each
restaurant management team is eligible to receive monthly incentive bonuses
subject to achievement of operating performance objectives specifically
tailored for such restaurant for each monthly period. Management believes
these employees typically earn bonuses equal to between 15% and 25% of their
total cash compensation under this program. In addition, general managers,
kitchen managers and floor managers, are entitled to participate in the
Company's stock option plans.
The Company has historically spent considerable effort in screening
prospective employees and training and developing employees, allowing it to
promote from within. The Company requires each employee to participate in a
formal training program that utilizes departmental training manuals,
examinations and a scheduled evaluation process. Newly hired waitstaff are
required to spend from five to 10 days in training before they serve
customers. The Company has historically utilized a program of extensive
background checks for prospective management employees (including criminal
checks, credit checks, and drug screening). Management believes that its
policies have resulted in a very low rate of management-level employee
turnover. Management training encompasses three general areas: (i) all service
positions; (ii) management accounting, personnel management, and dining room
and bar operations; and (iii) kitchen management, which entails food
preparation and quality controls, cost controls, training, ordering and
receiving, and sanitation operations. Management training customarily lasts
eight to 12 weeks, depending upon the trainee's prior experience and
performance relative to the Company's objectives. As the Company expands, it
will need to hire additional management personnel and its continued success
will depend in large part on its ability to attract, train, and retain quality
management employees. As the Company grows, it plans to increase the number of
regional managers, and to have each regional manager responsible for a limited
number of restaurants within those geographic regions. The Company plans to
promote experienced restaurant level management personnel to serve as future
regional managers as well as hire needed personnel from outside the Company.
As of April 28, 1996, the Company employed approximately 4,400 persons, of
whom approximately 291 were restaurant managers or manager-trainees,
approximately 116 were corporate and administrative, and the rest were hourly.
Each restaurant employs an average of approximately 80 to 100 people,
depending on seasonal needs. The Company considers its employees to be high
quality and believes that its management level employee turnover rate is low.
None of the Company's employees is covered by a collective bargaining
agreement. The Company considers its relationship with employees to be good.
CUSTOMER SATISFACTION
The Company is committed to providing its customers prompt, friendly,
efficient service, keeping table-to-waitstaff ratios low and staffing each
restaurant with an experienced management team to ensure attentive customer
service and consistent food quality. Through the use of comment cards and a 1-
800 telephone number, senior management receives valuable feedback from
customers and through prompt responses demonstrates a continuing interest in
customer satisfaction. The Company emphasizes availability of the items on its
menu and, if an item is in short supply, restaurant level management is
expected to use its initiative to procure the item immediately.
28
<PAGE>
PURCHASING
The Company strives to obtain consistent quality items at competitive prices
from reliable sources. The Company continually researches and surveys various
products in an effort to obtain the highest quality products possible and to
be responsive to changing customer tastes. In order to maximize operating
efficiencies and to provide the freshest ingredients for its food products
while obtaining the lowest possible prices for the required quality, each
restaurant's management team determines the daily quantities of food items
needed and orders such quantities from major suppliers at prices often
negotiated directly with the Company's corporate office.
The Company currently uses many distributors for obtaining its seafood
products in order to maintain the freshness and quality required by the
Company, all of which are available on short notice from qualified suppliers.
For non-seafood items, the Company generally uses one national distributor in
order to achieve certain cost efficiencies, but such items are available on
short notice from alternative qualified suppliers. The Company has not
experienced any significant delays in receiving its food and beverage
inventories, restaurant supplies or equipment.
ADVERTISING AND MARKETING
The Company employs a marketing strategy that utilizes frequent, high
profile advertising in order to attract new customers and establish a high
level of name recognition. The Company relies primarily on word-of-mouth
publicity, billboards with distinctive graphics, travel and hospitality
magazines and print advertising. The Company uses multiple billboards on
highways leading to its restaurants to direct potential customers from the
highways to the restaurants, as well as to build name recognition within each
market. Additionally, many of the restaurants offer facilities for banquets,
meetings and private parties. The Company's advertising expenditures for 1995
were approximately 1.0% of revenues.
RESTAURANT REPORTING
Financial controls are maintained through management of an accounting and
management information system that is implemented at the restaurant level.
Administrative and management staff prepare daily reports of cash, deposits,
sales, sales mix, labor, and customer counts. Physical inventories of food,
beverage and supply items are taken weekly. Weekly and monthly costs of sales
and profit and loss statements are compiled by the Company's accounting
department and provided to the regional managers for analysis and comparison
to the Company's budgets. The Company closely monitors sales, costs of sales,
labor and restaurant trends. Weekly sales data is used by management to detect
trends from location to location and negative trends are immediately
investigated and remedied where possible. The Company purchases food carefully
and, through tight controls, keeps food and beverage waste and theft to a
minimum. Management believes that its current systems are adequate for its
planned expansion.
RESTAURANT SECURITY
The Company takes precautions to protect individual restaurant locations
against theft, robbery and other breaches of security through security
procedures and sophisticated alarm and surveillance systems. A component of
the Company's emphasis on restaurant security is the employment of a licensed
peace officer as Director of Security. The Director of Security, who reports
directly to the corporate office, supervises the installation and operation of
individual restaurant security systems and performs monthly security
inspections at each restaurant to monitor compliance with the Company's
policies relating to theft prevention, employee related security issues and
restaurant facility protection. As a result of the Company's program, it has
experienced no material security problem in its operations.
29
<PAGE>
COMPETITION
The restaurant industry is intensely competitive with respect to price,
service, the type and quality of food offered, location and other factors. The
Company has many well established competitors, both seafood and non-seafood,
with substantially greater financial resources and a longer history of
operations than the Company. The Company competes with both locally-owned
seafood and non-seafood restaurants, as well as national and regional seafood
and non-seafood restaurant chains, some of which may be better established in
the Company's existing and future markets. In particular, Red Lobster, a
national seafood restaurant chain, operates over 600 seafood restaurants
nationwide, many of which operate in the Company's existing and potential
markets. The Company also competes with other restaurant and retail
establishments for sites. Changes in customer tastes, economic conditions,
demographic trends and the location and number of, and type of food served by,
competing restaurants could adversely affect the Company's business as could
the unavailability of experienced management and hourly employees. Management
believes its restaurants enjoy a high level of repeat business and customer
loyalty due to high food quality, comfortable atmosphere, and friendly
efficient service.
BAYPORT'S BUSINESS
Bayport's business is principally the operation of casual, full-service
seafood restaurants. Bayport operates 17 full-service restaurants under the
name "The Crab House," has four Crab House restaurants in various stages of
construction and has leases covering three additional restaurant sites upon
which construction has not commenced. The average revenue from Bayport's
restaurants opened for the full year in 1995 was approximately $3.7 million
per unit. The cash investment to open new restaurants, excluding real estate
and pre-opening expenses, has historically ranged between $2.7 and $3.2
million. The Crab House restaurants feature a broad assortment of crab, shrimp
and fresh fish entrees and all but three of the Crab House restaurants feature
a seafood salad and seafood raw bar. The restaurants range in size from 4,500
square feet to 13,000 square feet and operate in both tourist markets and
densely populated areas with upper middle income demographics. The Crab House
restaurants have capacities ranging from 200 to 400 seats. The average check
per person at the Crab House (with liquor) is higher than that of Landry's
Seafood Houses or Joe's Crab Shacks. The Crab House decor has a simple, clean,
nautical motif with generous use of varnished wood wainscoting, high ceilings,
exposed wooden beams, colorful ceramic tile, and gentle lighting. The design
objective is to create a light, airy, comfortable space. As a signature design
statement, brown paper is used instead of linen table cloths, highlighting the
casual nature of the restaurant and its origins as a simple crab house. The
decor, quality of food, and attentiveness of service personnel are meant to
appeal to a clientele that has moderately high income, but enjoys a relaxed
atmosphere and good value.
The location of the existing Crab House restaurants is as follows:
<TABLE>
<CAPTION>
NUMBER
OF
LOCATION UNITS*
-------- ------
<S> <C>
Florida............................................................ 10
Georgia............................................................ 2
Illinois........................................................... 1
Mississippi........................................................ 2
South Carolina..................................................... 2
---
Total............................................................ 17
===
</TABLE>
- --------
* The Crab House Restaurants in Mississippi and two restaurants in Florida are
located in hotels. In addition to their regular dining room and lounge
services, these restaurants provide complete food and beverage service for
each of the related hotels, including banquets and room service. If the
Merger is consummated, the Mississippi restaurants may be sold.
Bayport currently has four restaurants under construction that are located
in New York City, the metropolitan New York area, Baltimore, Maryland and
Nashville, Tennessee.
30
<PAGE>
Bayport also operates five take-away seafood restaurants under the name
"Capt. Crab's Take-Away." The Capt. Crab's Take-Away Restaurants, with drive
through pick-up windows and little or no interior seating, feature garlic
crabs, steamed crabs, and other seafood entrees served with a selection of
side dishes. Three of the restaurants are located in Florida and two are in
the Baltimore, Maryland/Washington, D.C. area.
To ensure that it has an adequate supply of blue crab products to meet
customer demand, Bayport processes and markets blue crab products through a
wholly-owned subsidiary, which operates a processing plant in North Carolina.
Blue crabs are found in the Atlantic Ocean and its tributaries, the Gulf of
Mexico, and in the waters of Africa, Central America, Mexico, and South
America. This operation produces, on a seasonal basis, fresh crab meat,
pasteurized crab meat, frozen whole blue crabs and crab clusters. Bayport
cooks, chills, and picks crab meat and cooks and freezes whole blue crabs, and
crab clusters. The crab meat is canned and pasteurized or sold fresh or vacuum
packed and frozen. Bayport sold approximately 76% and 78% of its output to
third parties during the 1994 and 1995 fiscal years, respectively. Bayport
markets its production under the "Ocean Blue Gourmet" and "Crystal Coast
Gourmet" brands. In December 1992, Bayport entered into a five year lease
agreement for the plant. This lease may be extended by Bayport, at its option,
for a maximum of 15 years. The plant is located along a waterway, allowing
Bayport access to local crab fishermen. The processing plant has crab meat
picking, processing and cryogenic freezing operations.
For a more complete description of Bayport, reference is made to Bayport's
Annual Report on Form 10-K and Form 10-K/A for the year ended December 25,
1995, included as exhibits to the Company's Form 8-K Report, and thereby
incorporated by reference herein. See "Incorporation of Certain Documents by
Reference."
31
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The directors and executive officers of the Company and their ages are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Tilman J. Fertitta............... 38 Chairman of the Board, President and Chief
Executive Officer
E.A. Jaksa, Jr................... 49 Executive Vice President, Chief Operating
Officer, and Director
Steven L. Scheinthal............. 34 Vice President of Administration, General
Counsel, Secretary, and Director
Paul S. West..................... 37 Vice President of Finance, Chief Financial
Officer and Director
Richard E. Ervin................. 40 Vice President of Restaurant Operations
Sarah A. Veach................... 36 Controller of Restaurant Operations
James E. Masucci(1).............. 63 Director
Joe Max Taylor(1)................ 63 Director
</TABLE>
- --------
(1) Member of Audit and Compensation Committees.
The principal occupations and positions for the past five years of each of
the Directors and Executive Officers of the Company are as follows:
Mr. Fertitta has served as President and Chief Executive Officer of the
Company since 1987. In 1988, he became the controlling shareholder and assumed
full responsibility for all of the Company's operations. Prior to serving as
President and Chief Executive Officer of the Company, Mr. Fertitta devoted his
full time to the control and operation of a hospitality and development
company. Mr. Fertitta is a director of the Mobil Cotton Bowl, an advisory
director of the Houston Rockets National Basketball Association team and
serves on the boards of the Variety Club, Houston Livestock Show and Rodeo,
Crohn's and Colitis Foundation, the Better Business Bureau of Houston, and the
Childress Foundation.
Mr. Jaksa has served as the Executive Vice President and Chief Operating
Officer of the Company since 1988. His primary responsibility is new site
selection, lease negotiations and restaurant construction and development.
Before joining the Company, Mr. Jaksa served as President of Richmark
Bancshares in Houston, Texas for five years. Mr. Jaksa is a licensed real
estate broker in Texas and has owned and operated his own real estate firm and
construction company.
Mr. Scheinthal has served as Vice President of Administration, General
Counsel and Secretary to the Company since September 1992. He devotes a
substantial amount of time to lease and contract negotiations and is primarily
responsible for the Company's compliance with all federal, state and local
ordinances. Prior to joining the Company, he was a partner in the law firm of
Stumpf & Falgout in Houston, Texas. Mr. Scheinthal represented the Company for
approximately five years before joining the Company. He has been licensed to
practice law in the state of Texas since November 1984.
Mr. West has served as Vice President of Finance and Chief Financial Officer
of the Company since June 1993. Prior to joining the Company, Mr. West was a
senior manager at Deloitte & Touche and a leader of their
Restaurant/Entertainment Advisors Group in Dallas, Texas. He was responsible
for numerous restaurant audits and performed the annual restaurant industry
operations survey and study on behalf of the National Restaurant Association
and many state restaurant associations. Mr. West had been engaged in public
accounting and auditing since 1981, and a certified public accountant since
1983.
32
<PAGE>
Mr. Ervin has served as Vice President of Restaurant Operations since 1991.
Prior to that time, he was the Vice-President of Internal Controls and
Director of Beverage Operations. He has 15 years of experience in high volume,
multi-unit food and beverage operations. His experience includes new
restaurant development and employee training programs.
Ms. Veach has served as Controller of Restaurant Operations since January
1990. Prior to joining the Company in 1989 as an accountant, she worked as
controller for American General Investment Corp. and as a tax associate for
the accounting firm of Coopers & Lybrand.
Mr. Masucci has been employed by Capital Cities/ABC since 1956. He presently
serves as President and General Manager of KTRK-TV, an owned station of
Capital Cities/ABC in Houston, Texas, a position he has held since August
1990. Prior to serving as President, Mr. Masucci served in various executive
positions with KTRK and has served as Division Vice President and Vice
President of the Broadcast Division of Capital Cities/ABC.
Mr. Taylor is a director and member of the Executive Committee of American
National Insurance Company, a publicly traded insurance company. He also
serves on the Board of Commonwealth Life and Accident Insurance, and is
President of Moody Gardens, Inc. which operates a public resort and
entertainment facility in Galveston, Texas. Mr. Taylor is also the chief law
enforcement administrator for Galveston County, Texas and serves on the
Galveston County Pre-Trial Board as well as the Board of Directors of
Harbourview Care Center.
33
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDER
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock by (a) the Selling Stockholder, (b)
each person known to the Company owning beneficially more than five percent of
the outstanding shares of the Company's Common Stock, (c) each director of the
Company, and (d) all officers and directors of the Company as a group. The
stockholder has sole voting and investment power with respect to the shares
beneficially owned. The percentages set forth herein do not take into account
Common Stock to be issued pursuant to the Merger.
<TABLE>
<CAPTION>
SHARES BEFORE THE SHARES AFTER THE
OFFERING SHARES OFFERING
----------------- OFFERED -----------------
NUMBER PERCENT HEREBY NUMBER PERCENT
--------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
Tilman J. Fertitta(2)(3).......... 4,800,000 26.1% 500,000 4,300,000 19.2%
E.A. Jaksa, Jr.(3)................ 72,500 (1) -- 72,500 (1)
Steven L. Scheinthal(3)........... 28,500 (1) -- 28,500 (1)
Paul S. West...................... 44,500 (1) -- 44,500 (1)
James E. Masucci(3)............... 4,000 (1) -- 4,000 (1)
Joe Max Taylor.................... -0- -- -- -0- --
Putnam Investments, Inc. (4)...... 2,384,430 13.1% -- 2,384,430 10.7%
The TCW Group, Inc.(5)............ 924,100 5.1% -- 924,100 4.2%
Wellington Management Company(6).. 993,200 5.5% -- 993,200 4.5%
All officers and directors as a
group (10 persons) (3)............ 4,959,500 26.8% 500,000 4,459,500 19.8%
</TABLE>
- --------
(1) Less than 1%.
(2) Pursuant to an option granted to the Underwriters, Mr. Fertitta may sell
shares to cover a portion of the Underwriters' over-allotments, if any.
The address of the Selling Stockholder is the Company's principal
executive office.
(3) Includes 200,000, 72,500, 27,500 and 4,000 shares which are subject to
options that are or become exercisable within 60 days for Messrs.
Fertitta, Jaksa, Scheinthal and Masucci, respectively.
(4) The Company has been informed by Putnam Investments, Inc. ("Putnam") that
certain Putnam investment managers (together with their parent
corporations, Putnam and Marsh & McLennan Companies), are considered
"beneficial owners" in the aggregate of 2,384,430 shares, or 13.1%, of the
Company's Common Stock. Such shares were acquired for investment purposes
by such investment managers for certain of their advisory clients. The
information set forth in this table has been provided to the Company by
Putnam as reported on its Schedule 13G filed with the SEC. Putnam's
address is One Post Office Square, 10th Floor, Boston, Massachusetts
02109.
(5) Based on a Schedule 13G filed in February 1996, The TCW Group, Inc.
("TCW") is considered "beneficial owner" in the aggregate of 924,100
shares or 5.1% of the Company's Common Stock, although no Common Stock is
held directly by TCW. TCW's address is 865 South Figueroa Street, Los
Angeles, California 90017.
(6) Based on Schedule 13G filed in February 1996, 993,200 shares or 5.5% of
Common Stock of the Company are owned by various investment advisory
clients of Wellington Management Company ("WMC") which is deemed
beneficial owner of shares only by virtue of direct or indirect investment
and/or voting discretion it possesses pursuant to the provisions of
investment advisory agreements with such clients. WMC's address is 75
State Street, Boston, Massachusetts 02109.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company.
34
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), represented by Montgomery
Securities, J.C. Bradford & Co. and Piper Jaffray Inc. (the
"Representatives"), have severally agreed, subject to the terms and conditions
contained in the underwriting agreement (the "Underwriting Agreement") by and
among the Company, the Selling Stockholder and the Underwriters, to purchase
from the Company and the Selling Stockholder the number of shares of Common
Stock indicated below opposite their respective names at the 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 conditions precedent and that the
Underwriters are committed to purchase all of the shares if they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Montgomery Securities...........................................
J.C. Bradford & Co..............................................
Piper Jaffray Inc...............................................
---------
Total......................................................... 4,500,000
=========
</TABLE>
The Representatives have advised the Company and the Selling Stockholder
that the Underwriters propose initially to offer the Common Stock directly to
the public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers, including the Underwriters, at such price
less a concession not in excess of $ per share. The Underwriters may
allow, and such dealers may reallow, a concession of not in excess of $
to certain other dealers. After the offering, the public offering price and
other selling terms may be changed by the Representatives. 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 and the Selling Stockholder have 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 675,000 additional
shares of Common Stock, to cover over-allotments, if any, at the same price
per share as the initial shares to be purchased by the Underwriters. Pursuant
to the terms of the option, the Selling Stockholder has the right to sell all
or any part of the shares to be sold to the Underwriters, and the Company has
the obligation to sell to the Underwriters the difference between what the
Selling Stockholder sells and the aggregate amount of shares required to
satisfy the Underwriters' option exercise. To the extent that 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 Company and the Selling Stockholder have agreed to indemnify the
Underwriters against, or to contribute to losses arising out of, certain
liabilities in connection with this offering, including liabilities under the
Securities Act.
The Company's officers and directors (including the Selling Stockholder)
have agreed that, for a period of 90 days from the date of this Prospectus,
they will not offer to sell, contract to sell or otherwise sell or dispose of
any shares of their Common Stock without the prior written consent of
Montgomery Securities. The Company has agreed not to sell any shares of Common
Stock for a period of 90 days from the date of this Prospectus
35
<PAGE>
without the prior written consent of Montgomery Securities, except that the
Company may, without consent, issue shares of stock to Bayport upon
consummation of the Merger and issue shares of Common Stock upon exercise of
stock options outstanding as of the date of this Prospectus and grant
additional options under the Company's stock option plans consistent with past
practices.
In connection with this offering, the Underwriters and other members of the
selling group may engage in passive market-making transactions in the Common
Stock on the Nasdaq National Market immediately prior to the commencement of
sales in this offering, in accordance with Rule 10b-6A under the Exchange Act.
Passive market-making consists of displaying bids on the Nasdaq National
Market limited by the bid prices of independent market-makers and purchases
limited by such prices and effected in response to order flow. Net purchases
by a passive market-maker on each day are limited to a specified percentage of
the passive market-maker's average daily trading volume in the Common Stock
during a specified prior period and must be discontinued when such limit is
reached. Passive market-making may stabilize the market price of the Common
Stock at a level above that which might otherwise prevail and, if commenced,
may be discontinued at any time.
In connection with the Merger, Montgomery Securities is acting as a
financial advisor to the Company and will receive a fee plus reimbursement of
a portion of its expenses.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby is being passed
upon for the Company and the Selling Stockholder by Winstead Sechrest & Minick
P.C., Houston, Texas. Certain legal matters will be passed upon for the
Underwriters by Andrews & Kurth L.L.P., Houston, Texas and for Bayport by
Akerman, Senterfitt & Eidson, P.A., Miami, Florida. No attorneys who
participated in the preparation of this Prospectus own shares of Common Stock
of the Company.
EXPERTS
The financial statements of the Company incorporated by reference in this
Prospectus and Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as set forth in their report included in
the Company's Annual Report on Form 10-K. The financial statements of Bayport
incorporated by reference in this Prospectus and Registration Statement have
been audited by Grant Thornton LLP, independent public accountants, as set
forth in their report included as an exhibit in the 8-K Report (defined
below), and incorporated herein by reference through incorporation by
reference of Bayport's Annual Report on Form 10-K for the year ended December
25, 1995. Such financial statements are included or incorporated by reference
in reliance upon the authority of such firms as experts in giving said
reports.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Exchange Act
and in accordance therewith files reports and other information with the
Commission. The reports and other information filed by the Company with the
Commission can be inspected and copied at the Public Reference Facilities
maintained by the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following regional offices of the
Commission, 14th Floor, Seven World Trade Center, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material may be obtained from the Commission upon payment of the charges
prescribed by the Commission. The Company's Common Stock is traded on the
Nasdaq National Market. The foregoing material also should be available for
inspection at the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission, a Registration Statement on Form
S-3 (the "Registration Statement") under the Securities Act with respect to
the shares of Common Stock offered hereby. This Prospectus does not contain
all the information set forth in the Registration Statement and the exhibits
and schedules thereto. For further information with respect to the Company and
the Common Stock, reference is
36
<PAGE>
made to the Registration Statement and the exhibits and schedules filed as a
part thereof. Statements made in this Prospectus as to the contents of any
contract or any other document referred to are not necessarily complete, and,
in each instance, reference is made to the copy of such contract or documents
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference to such exhibit. The Registration
Statement, including exhibits and schedules thereto, may be inspected without
charge at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the Commission's Regional Offices at 14th Floor, Seven World Trade Center, New
York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60621. Copies of the Registration Statement and the exhibits and
schedules thereto may be obtained from the Commission at such offices upon
payment of the charges prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed by the Company with the Commission under the
Exchange Act, are incorporated in this Prospectus by reference:
(a) The Company's Annual Report on Form 10-K for the year ended December
31, 1995.
(b) The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A filed with the Commission on
July 21, 1993.
(c) Current report on Form 8-K dated April 24, 1996 (the "8-K Report")
which includes as exhibits thereto Bayport's Annual Report on Form 10-K and
Form 10-K/A for the year ended December 25, 1995.
(d) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996.
(e) The Company's Current Report on Form 8-K dated May 16, 1996 (the "May
8K") which includes as an exhibit thereto, Bayport's Quarterly Report on
Form 10-Q for the quarter ended March 25, 1996.
All documents filed by the Company pursuant to Section 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 the offering of the shares offered hereby shall be
deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of any such person, a
copy of any or all of the documents incorporated herein by reference (other
than exhibits to such documents which are not specifically incorporated by
reference in such documents). Written request for such copies should be
directed to Mr. Steven L. Scheinthal, Vice President-Administration and
Secretary, 1400 Post Oak Blvd., Houston, Texas 77056, telephone number (713)
850-1010.
37
<PAGE>
COMPANY AND BAYPORT
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The unaudited pro forma condensed combined statements of operations for the
year ended December 31, 1995 and for the three months ended March 31, 1996
assume that the Merger had been consummated at the beginning of such periods.
The unaudited pro forma condensed combined balance sheet as of March 31, 1996
assumes that the Merger had been consummated on March 31, 1996.
The following unaudited pro forma condensed combined financial statements
are presented to reflect the estimated impact on the historical Consolidated
Financial Statements of the Company of the Merger and of the issuance of
2,020,920, as of December 31, 1995 (2,032,504 as of March 31, 1996) shares of
Common Stock and 120,720 as of December 31, 1995 (112,433 as of March 31,
1996) shares of Preferred Stock in connection therewith (based on an assumed
Exchange Ratio of .2105). The Merger will be accounted for as a pooling-of-
interests.
The unaudited pro forma condensed combined financial statements give effect
only to the reclassifications and adjustments set forth in the accompanying
Notes to unaudited pro forma condensed combined financial statements.
Unaudited pro forma information is not necessarily indicative of the results
of operations or financial position which would have occurred had the Merger
been consummated at the beginning of the earliest period presented, nor is it
necessarily indicative of the Company's future results of operations or
financial position.
These statements have been prepared from the consolidated financial
statements of the Company and the consolidated financial statements of Bayport
and should be read in conjunction with such statements and the related Notes.
Such statements and related notes are incorporated herein by reference. See
"Incorporation of Certain Documents By Reference."
38
<PAGE>
COMPANY AND BAYPORT
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------------------
PRO
PRO FORMA FORMA
ASSETS COMPANY BAYPORT ADJUSTMENTS COMBINED
------ -------- ------- ----------- --------
<S> <C> <C> <C> <C>
Current Assets........................ $ 16,976 $10,450 $ 27,426
Property and Equipment, net........... 120,281 39,083 159,364
Goodwill and Other Assets............. 4,955 2,582 7,537
-------- ------- --------
Total Assets........................ $142,212 $52,115 $194,327
======== ======= ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C> <C>
Current Liabilities................... $ 12,644 $26,351 $ 38,995
Notes payable, other long-term
obligations and deferred taxes....... 2,543 2,892 5,435
Stockholders' Equity
Preferred Stock..................... -- 21 ($20) 1
Common Stock........................ 182 10 10 202
Additional Paid-In Capital.......... 107,921 22,127 10 130,058
Retained Earnings................... 18,922 1,143 20,065
Notes Receivable from Officers...... -- (429) (429)
-------- ------- --------
Total Stockholders' Equity.......... 127,025 22,872 149,897
-------- ------- --------
Total Liabilities and Stockholders'
Equity............................. $142,212 $52,115 $194,327
======== ======= ========
</TABLE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED
1995 MARCH 31, 1996
-------------------------- -------------------------
PRO PRO
FORMA FORMA
COMPANY BAYPORT COMBINED COMPANY BAYPORT COMBINED
-------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues................. $104,018 $53,602 $157,620 $34,819 $18,251 $53,070
Operating Costs and
Expenses................ 91,068 51,107 142,175 30,020 17,563 47,583
-------- ------- -------- ------- ------- -------
Operating Income......... 12,950 2,495 15,445 4,799 688 5,487
Other (Income) Expense,
Net..................... (1,893) 344 (1,549) (100) 199 99
-------- ------- -------- ------- ------- -------
Income Before Income
Taxes................... 14,843 2,151 16,994 4,899 489 5,388
Provisions for Income
Taxes................... 5,259 687 5,946 1,764 166 1,930
-------- ------- -------- ------- ------- -------
Net Income............... $ 9,584 $ 1,464 $ 11,048 $ 3,135 $ 323 $ 3,458
======== ======= ======== ======= ======= =======
Net Income Per Common
Share................... $ 0.55 $ 0.14 $ 0.57 $ 0.17 $ 0.03 $ 0.16
======== ======= ======== ======= ======= =======
Weighted Average Number
of Common Shares and
Common Share Equivalents
Outstanding............. 17,320 10,479 19,526 19,000 10,364 21,182
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma
condensed combined financial statements.
39
<PAGE>
COMPANY AND BAYPORT
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. FISCAL PERIODS
The Company's fiscal year ends on the calendar year-end, December 31, and
each quarter is comprised of three month periods. Bayport's fiscal year ends
on the last Monday in December, which was December 25, 1995, and the first
quarter ended on March 25, 1996. The 1995 fiscal year consisted of 52 weeks
and the first quarter of 1996 was approximately 13 weeks for both the Company
and Bayport. The differences between Bayport's actual year-end and a year-end
of December 31, and Bayport's actual first quarter-end and March 31,
consistent with the Company's, are not deemed material.
2. STOCKHOLDERS' EQUITY
The pro forma adjustments to common stock, preferred stock, and additional
paid-in-capital as of December 31, 1995 and March 31, 1996, reflect the
issuance of 2,020,920 and 2,032,504 shares, respectively, of Common Stock for
all the outstanding common stock of Bayport, representing an Exchange Ratio of
.2105 share of Common Stock for each share of Bayport common stock, and to
reflect the issuance of 120,720 and 112,433 shares, respectively, of the
Company's Convertible Preferred Stock for all the outstanding convertible
Series B Preferred shares of Bayport, representing an Exchange Ratio of .0526
Landry's preferred share for each share of Bayport Series B Preferred Stock.
Upon the Merger, each newly issued Landry Preferred Stock share will be
convertible into Landry Common Stock share on a basis of one-to-one, subject
to mandatory conversion into Common Stock on August 19, 1998. For the purpose
of these unaudited pro forma condensed combined financial statements, the
number of shares of Landry's Common and Preferred Stock to be issued
represents the estimated number of shares which may be issued by Landry's
pursuant to the Merger Agreement assuming there are no adjustments to the
Exchange Ratio. See "The Bayport Acquisition."
3. RECLASSIFICATIONS
Certain reclassifications have been made to historical amounts of Bayport to
conform the financial presentation of the two companies.
4. MERGER EXPENSES
Under the pooling-of-interests method of accounting, costs associated with
the merger of the Company and Bayport are treated as an expense of the
combined company. The accompanying unaudited pro forma condensed combined
statements of income do not reflect the expenses associated with the Merger,
which are estimated to be approximately $8,000 to $10,000, that will be
recorded in the first period that consolidated financial statements of the
combined companies are presented, since the expenses are non-recurring. Merger
expenses consist primarily of professional fees, proxy preparation and
solicitation costs, and estimated severance and office consolidation costs,
including termination payments on pre-existing employment contracts
aggregating approximately $3,100 to two senior executive officers of Bayport.
5. WEIGHTED AVERAGE SHARES OUTSTANDING
The weighted average number of outstanding shares of common stock and common
stock equivalents on a pro forma basis gives effect to the number of
equivalent shares of the Company's Common Stock into which such common stock
and common stock equivalents of Bayport may be exchanged utilizing the assumed
Exchange Ratio of .2105, applied to the historical weighted number of shares
of Bayport common stock and common stock equivalents outstanding.
6. CERTAIN OTHER UNAUDITED PRO FORMA RESULTS
Landry's and Bayport's statements of operations on an unaudited pro forma
combined basis for the quarter ended March 31, 1995, and the year ended
December 31, 1994 and 1993 includes combined revenues of $33,010, $100,774 and
$60,668, respectively, combined operating income of $3,505, $9,263 and $5,255,
respectively, combined net income of $2,397, $6,619 and $4,111, respectively,
and net income per common share of $0.14, $0.41 and $0.36, respectively.
40
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other person has been authorized to give any infor-
mation or to make any representations other than those contained in this Pro-
spectus in connection with this offering and, if given or made, such informa-
tion or representation must not be relied upon as having been authorized by the
Company or the Selling Stockholder or any Underwriter. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any of the se-
curities offered hereby in any jurisdiction to any person to whom it is unlaw-
ful to make such offer in such jurisdiction. Neither the delivery of this Pro-
spectus nor any sale made hereunder shall, under any circumstances, create any
implication that the information herein is correct as of any time subsequent to
the date hereof or that there has been no change in the affairs of the Company
since such date.
----------------
TABLE OF CONTENTS
----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 2
Risk Factors............................................................. 7
The Bayport Acquisition.................................................. 13
Price Range of Common Stock and Dividend Policy.......................... 15
Use of Proceeds.......................................................... 16
Capitalization........................................................... 17
Selected Consolidated Financial Information.............................. 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 25
Management............................................................... 32
Principal and Selling Stockholder........................................ 34
Underwriting............................................................. 35
Legal Matters............................................................ 36
Experts.................................................................. 36
Available Information.................................................... 36
Incorporation of Certain Documents by Reference.......................... 37
Unaudited Pro Forma Condensed Combined Financial Statements.............. 38
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,500,000 SHARES
LANDRY'S SEAFOOD
RESTAURANTS, INC.
[LOGO OF LANDRY'S APPEARS HERE]
COMMON STOCK
-----------------
PROSPECTUS
-----------------
Montgomery Securities
J.C. Bradford & Co.
Piper Jaffray inc.
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses of this offering will be paid by Landry's Seafood Restaurants,
Inc. (the "Registrant") and, exclusive of underwriting discounts and
commissions, are estimated as follows:
<TABLE>
<S> <C>
SEC registration fee............................................ $ 41,275
National Association of Securities Dealers filing fee........... 12,470
NASDAQ listing fee.............................................. 17,500
Printing including engraving of share certificate............... 100,000*
Legal fee and expenses.......................................... 75,000*
Accounting fees and expenses.................................... 60,000*
Blue Sky filing fees and expenses (including counsel fees)...... 20,000*
Transfer Agent and Registrar fees and expenses.................. 10,000*
Miscellaneous................................................... 163,755*
--------
Total......................................................... $500,000
========
</TABLE>
- --------
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to Section 102(b)(7) of the Delaware General Corporation
Law (the "DGCL"), which enables a corporation in its original certificate of
incorporation or an amendment thereto to eliminate or limit the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of the director's fiduciary duty, except (i) for any breach
of the director's duty of loyalty to the corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the
DGCL (providing for liability of directors for unlawful payment of dividends
or unlawful stock purchases or redemptions), or (iv) for any transaction from
which the director derived an improper personal benefit. The Registrant's
Certificate of Incorporation contains provisions permitted by Section
102(b)(7) of the DGCL.
The Company is incorporated under the laws of the State of Delaware. Section
145 of the DGCL ("Section 145") provides that a Delaware corporation may
indemnify any persons who are, or are threatened to be made, parties to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of such corporation), by reason of the fact that such person is or was
an officer, director, employee or agent of such corporation, or is or was
serving at the request of such corporation as a director, officer, employee or
agent of another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
action, suit or proceeding, provided such person acted in good faith and in a
manner he reasonably believed to be in or not opposed to the corporation's
best interests and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful. A Delaware
corporation may indemnify any persons who were or are parties or are
threatened to be made a party, to any threatened, pending or completed action
or suit by or in the right of the corporation by reason of the fact that such
person is or was a director, officer, employee or agent of such corporation,
or enterprise. The indemnity may include expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection with the defense
or settlement of such action or suit, provided such person acted in good faith
and in a manner he reasonably believed to be in or not opposed to the
corporation's best interest except that no indemnification is permitted
without judicial approval if the officer is adjudged to be liable to the
corporation. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses which such officer or director has actually
and reasonably incurred.
II-1
<PAGE>
Article IX of the Company's Certificate of Incorporation provides that the
Company shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending, or completed action, suit or
proceeding, whether civil, criminal, administrative, or investigative (other
than an action by or in the right of the Company) by reason of the fact that
he is or was a director, officer, employee or agent of the Company, or is or
was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit, or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in
a manner which he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
The Certificate of Incorporation further provides that the Company shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of
the Company to procure a judgment in its favor by reason of the fact that he
is or was a director, officer, employee or agent of the Company, or is or was
serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company and
except that no indemnification shall be made in respect of any claim, issue,
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 Delaware Court of Chancery or
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, such person is fairly and reasonably entitled to
indemnify for such expenses which the Delaware Court of Chancery of such other
court shall deem proper.
The Certificate of Incorporation also provides that to the extent that a
director, officer, employee or agent of the Company has been successful on the
merits or otherwise in defense of any action, suit or proceeding referred to
above, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
The Certificate of Incorporation further provides that any indemnification
under the above paragraphs (unless ordered by a court) shall be made by the
Company only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set fort
in the above paragraph. Such determination shall be made (i) by the Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (ii) if such a quorum is not
obtainable, or, even if obtainable, if a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (iii) by the
stockholders. Notwithstanding the foregoing, a director, officer, employee or
agent of the Company shall be able to contest any determination that the
director, officer, employee or agent has not met the applicable standard of
conduct set fort in the above paragraphs by petitioning a court of appropriate
jurisdiction.
The Certificate of Incorporation also provides that expenses (including
attorneys' fees) incurred by an officer or director in defending or settling
any civil, criminal, administrative or investigative action, suit or
proceeding may be paid by the Company in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or on behalf
of such director or officer to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the Company as
authorized in these paragraphs. Such expenses incurred by other employees and
agents may be so paid upon such terms and conditions, if any, as the Board of
Directors deems appropriate.
II-2
<PAGE>
The Certificate of Incorporation further provides that the indemnification
and advancement of expenses provided by, or granted pursuant to, the other
sections of these paragraphs shall not be deemed exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled under any Bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.
The Certificate of Incorporation further provides that the Company shall
have the power to purchase and maintain insurance on behalf of any person who
is or was a director, officer, employee or agent of the Company, or is or was
serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of these paragraphs.
The indemnification and advancement of expenses provided by, or granted
pursuant to, the Certificate of Incorporation, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
Article VIII of the Company's Bylaws, requires the Company to indemnify the
Company's directors and officers to the extent permitted under the DGCL and
the Certificate of Incorporation.
The Company has entered into indemnification agreements with the Directors
and certain officers.
The foregoing discussion is qualified in its entirety by reference to the
DGCL and the Registrant's Certificate of Incorporation and By-Laws.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
Certain of the exhibits to this Registration Statement are hereby
incorporated by reference to the Company's Registration Statement on Form S-1
No. 33-65498 as filed with the Securities and Exchange Commission and all
amendments thereto with which they were filed as exhibits with the same
exhibit number in such Registration Statement. Such exhibits are denoted with
the letter "A". Exhibits denoted by * have been previously filed with this
Registration Statement. Exhibits denoted by "B" are incorporated by reference
to the Company's current report on Form 8-K dated April 26, 1996. Exhibits
denoted by ** are filed herewith.
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
------- -------
<C> <S>
1 --Form of Underwriting Agreement. -To be filed by amendment.
2.1 --Form of Plan and Agreement of Corporate Restructuring--Pirogue -A-
2.2 --Form of Plan and Agreement of Corporate Restructuring -A-
2.3 --Agreement and Plan of Merger among the Registrant, Bayport
Restaurant Corp, Inc. and Landry's Acquisition, Inc. -B-
3.1 --Certificate of Incorporation of Landry's Seafood Restaurants, Inc.
as filed with the Delaware Secretary of State on June 23, 1993, as
amended -A-
3.2 --Bylaws of Landry's Seafood Restaurants, Inc. -A-
4 --Specimen Common Stock Certificate, $ .01 par value of Landry's
Seafood Restaurants, Inc. -A-
*5 --Opinion of Winstead Sechrest & Minick P.C. regarding legality.
*10.1 --Agreement regarding credit facility among the Registrant, Bayport
Restaurant Group, Inc. et al. -B-
*10.2 --Loan Agreement between the Registrant and Bayport Restaurant
Group, Inc. -B-
**23.1 --Consent of Arthur Andersen LLP.
**23.2 --Consent of Grant Thornton LLP.
*23.3 --Consent of Winstead Sechrest & Minick P.C. (included in their
opinion filed as Exhibit 5).
*24 --Powers of Attorney.
</TABLE>
II-3
<PAGE>
(b) Financial Statement Schedules.
All schedules are omitted because the required information is included in
the Consolidated Financial Statements or the Notes thereto or is otherwise
inapplicable.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described in Item 15
above, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the 1933 Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 403A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the 1933 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 1933 Act, 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 the
initial bona fide offering thereof.
(3) For purposes of determining any liability under the Securities Act of
1933, each filing of the Registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934 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.
II-4
<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 HOUSTON, STATE OF TEXAS, ON THE 15TH DAY OF MAY,
1996.
Landry's Seafood Restaurants, Inc.
/s/ Tilman J. Fertitta
By:__________________________________
Tilman J. Fertitta,
Chairman of the Board/President
and Chief Executive Officer
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Tilman J. Fertitta Chairman, President and May 15, 1996
____________________________________ Chief Executive Officer and
Tilman J. Fertitta Director (Principal
Executive Officer)
* Paul S. West Vice President, Principal May 15, 1996
____________________________________ Financial Officer,
Paul S. West Principal Accounting
Officer and Director
* E.A. Jaksa, Jr. Executive Vice President and May 15, 1996
____________________________________ Director
E.A. Jaksa, Jr.
* Steven L. Scheinthal Vice President, May 15, 1996
____________________________________ Administration, Secretary,
Steven L. Scheinthal General Counsel and
Director
* James E. Masucci Director May 15, 1996
____________________________________
James E. Masucci
* Joe Max Taylor Director May 15, 1996
____________________________________
Joe Max Taylor
/s/ Tilman J. Fertitta May 15, 1996
____________________________________
Tilman J. Fertitta
*Attorney-in-Fact
</TABLE>
II-5
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
Registration Statement.
ARTHUR ANDERSEN LLP
Houston, Texas
May 15, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have issued our report dated March 8, 1996, accompanying the consolidated
financial statements included in the Annual Report of Bayport Restaurant
Group, Inc. and Subsidiaries on Form 10-K for the year ended December 25,
1995. We hereby consent to the incorporation by reference of said report in
the Registration Statement of Landry's Seafood Restaurants, Inc. and
Subsidiaries on Amendment No. 1 to Form S-3 (File No. 333-4234) and to the use
of our name as it appears under the caption "Experts."
GRANT THORNTON LLP
Miami, Florida
May 15, 1996
