<PAGE>
FILED PURSUANT TO RULE 424(b)(3)
REGISTRATION NO. 333-46653
4,573,000 SHARES
[LOGO OF LANDRY'S APPEARS HERE]
COMMON STOCK
Of the 4,573,000 shares of Common Stock offered hereby, 3,370,000 are being
sold by the Company and 1,203,000 are being sold by Selling Stockholders. See
"Principal and Selling Stockholders." The Company will not receive any of the
proceeds from the sale of shares by the Selling Stockholders.
The Common Stock is traded on the Nasdaq National Market under the symbol
"LDRY." On March 12, 1998, the last sale price of the Common Stock as reported
by the Nasdaq National Market was $29.00 per share. See "Price Range of Common
Stock and Dividend Policy."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 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) Stockholders
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.......... $28.50 $1.425 $27.075 $27.075
- ------------------------------------------------------------------------------
Total(3)........... $130,330,500 $6,516,525 $91,242,750 $32,571,225
- ------------------------------------------------------------------------------
</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 Stockholders have granted the Underwriters a
30-day option to purchase up to an additional 440,950 and 245,000 shares
of Common Stock, respectively, 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
$149,880,075 the Underwriting Discount will total $7,494,004, the Proceeds
to Company will total $103,181,471 and the Proceeds to Selling
Stockholders will total $39,204,600. See "Principal and Selling
Stockholders" 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 NationsBanc Montgomery Securities LLC on or
about March 18, 1998.
----------------
NationsBanc Montgomery Securities LLC
J.C. Bradford & Co.
Morgan Stanley Dean Witter
Piper Jaffray Inc.
Sanders Morris Mundy
March 12, 1998
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
SECURITIES, AND THE IMPOSITION OF A PENALTY BID IN CONNECTION WITH THE
OFFERING. FOR A DESCRIPTION OF SUCH ACTIVITIES, 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 or incorporated
herein by reference. Unless otherwise indicated, all information in this
Prospectus assumes no exercise of the Underwriters' over-allotment option.
Unless the context requires otherwise, all references to the "Company" in this
Prospectus include Landry's Seafood Restaurants, Inc. and its subsidiaries.
Certain matters discussed under the caption "The Company," and elsewhere in
this Prospectus and the information incorporated herein by reference, may
constitute forward-looking statements for purposes of the Securities Act of
1933, as amended (the "Securities Act"), and the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and as such, may involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from future results, performance or achievements expressed or implied by such
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those disclosed herein under the caption "Risk
Factors."
THE COMPANY
As of March 12, 1998, Landry's Seafood Restaurants, Inc. (the "Company")
operated 123 full-service, mid-priced, casual dining seafood restaurants in 26
states, primarily under the division names "Joe's Crab Shack" (59 restaurants),
"Landry's Seafood House" (43 restaurants) and "The Crab House" (21
restaurants). In addition, the Company operates three limited-menu takeout
service units. 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 between 15% and 16% of the
Company's revenues in 1997. The Joe's Crab Shack restaurants are designed to
appear like an old fishing camp with a wood facade, tin roof and a raised
outside deck. Many of the Joe's Crab Shack facilities incorporate a small
playground area for children adjacent to family dining areas. 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 Crab House restaurants feature a casual nautical theme, and
many include a fresh seafood salad bar. In many locations, the Company's
restaurants provide outdoor patio service for a more casual, open-air dining
experience and often feature waterfront views. The Company's restaurants
average approximately 8,000 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
2
<PAGE>
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, 1997, the 78 restaurants opened
prior to January 1, 1997, generated average restaurant revenues of
approximately $3,000,000, average restaurant cash flow of approximately
$630,000 (or 21.0% of revenues), and average restaurant operating income (after
depreciation, but before amortization of pre-opening expenses) of approximately
$507,000 (or 16.9% 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 restaurant managers.
The executive headquarters and principal office of the Company are located at
1400 Post Oak Boulevard, Suite 1010, Houston, Texas 77056. The Company's
telephone number is (713) 850-1010.
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. The Company has no present
understandings or agreements to acquire any restaurant concept. During the next
several years, the Company plans to focus expansion efforts primarily in the
southern and mid-western portions of the United States, although the Company
has and will continue to develop or acquire restaurants in cities outside of
this area. 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.
The Company's current development plan is to open at least 45 new restaurants
in 1998, of which eight restaurants were open and 35 restaurants were under
construction or development as of March 12, 1998. The Company's primary growth
will be in its Joe's Crab Shack division although additional restaurants will
be built in the Landry's Seafood House and The Crab House divisions of the
Company. Restaurants may be opened in areas where another Company restaurant is
operating but which management believes can accommodate another quality seafood
restaurant, or where management believes the demographics better suit a
different 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 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, and general economic
conditions. See "Risk Factors--Growth."
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company........ 3,370,000 shares
Common Stock offered by the Selling Stock-
holders................................... 1,203,000 shares(1)
Common Stock to be outstanding after this
offering.................................. 29,687,449 shares
Use of proceeds............................ To repay outstanding bank loans, to
finance expansion and for general
corporate purposes. See "Use of
Proceeds."
Nasdaq National Market symbol.............. LDRY
</TABLE>
- --------
(1) Of the 1,203,000 shares offered by the Selling Stockholders, 313,000 shares
will be acquired immediately prior to the closing of this offering pursuant
to the exercise of options granted under the Company's Stock Option Plans.
See "Principal and Selling Stockholders."
4
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1993 1994 1995 1996 1997
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA (1)
Revenues.................... $60,667 $100,773 $157,620 $236,107 $311,673
Merger costs................ -- -- -- 25,971(2) --
Operating income............ 5,254 9,252 15,445 224 41,373
Income before income taxes
and cumulative effect of
accounting change.......... 5,431 10,128 16,994 2,285(2) 42,830
Provision for income taxes.. 1,543(3) 3,520 5,946 779 15,400
------- -------- -------- -------- --------
Income before cumulative
effect of accounting
change..................... 3,888(3) 6,608 11,048 1,506(2) 27,430
Cumulative effect of
accounting change.......... 223 -- -- -- --
------- -------- -------- -------- --------
Net income.................. $ 4,111(3) $ 6,608 $ 11,048 $ 1,506(2) $ 27,430
======= ======== ======== ======== ========
Net income before cumulative
effect of accounting change
per share.................. $ 0.34
Cumulative effect of
accounting change per
share...................... $ 0.02
-------
Net income per share--basic. $ 0.36 $ 0.41 $ 0.58 $ 0.06(2) $ 1.07
======= ======== ======== ======== ========
Net income per share--
diluted.................... $ 0.36 $ 0.41 $ 0.57 $ 0.06(2) $ 1.03
======= ======== ======== ======== ========
Weighted average number of
common shares--basic....... 11,266 16,098 19,051 23,360 25,518
======= ======== ======== ======== ========
Weighted average number of
common shares and common
share equivalents--diluted. 11,266 16,098 19,300 24,100 26,600
======= ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------
ACTUAL AS ADJUSTED(4)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA (AT END OF PERIOD)
Working capital....................................... $ 35,058 $ 81,557
Total assets.......................................... 382,281 427,271
Short-term notes payable and current portion of long-
term notes and other obligations..................... 72 72
Long-term notes and other obligations, noncurrent..... 50,235 235
Stockholders' equity.................................. $296,738 $393,237
</TABLE>
- --------
(1) On August 9, 1996, the Company acquired the Bayport Restaurant Group, Inc.
("Bayport") pursuant to a merger transaction (the "Bayport Merger"). The
Bayport Merger was accounted for as a pooling of interests and,
accordingly, the consolidated financial statements of the Company have been
restated to include the accounts and operations of Bayport for all periods
represented.
(2) In connection with the Bayport Merger, the Company incurred certain costs.
Without giving effect to such costs, the Company's income before income
taxes, net income, and net income per share (diluted) would have been
approximately $28,257, $18,000 and $0.75, respectively.
(3) Presented on a pro forma basis to give effect to a pro forma tax provision
as a result of the Company's conversion from S Corporation to C Corporation
status upon consummation of the Company's initial public offering.
(4) Gives effect to the sale of 3,370,000 shares of Common Stock of the Company
offered hereby at price per share of $28.50 and the application of the
estimated net proceeds therefrom and the exercise of 313,000 stock options
by certain Selling Stockholders. See "Use of Proceeds" and
"Capitalization."
5
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus or
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 owned 123 full service and three limited service restaurants as of
March 12, 1998. The Company's current development plan is to open 45 new
restaurants in 1998 of which eight restaurants were open and 35 restaurants
were under construction or development as of March 12, 1998. There can be no
assurance that the new 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.
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. The
Company will also evaluate, from time-to-time, the strategic acquisition of
existing restaurants. 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. The Company remains vulnerable to a variety of
business risks generally associated with 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.
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, a majority are
concentrated in the southern half of the United States. Accordingly, the
Company's results of operations may be adversely affected by economic
conditions in that region 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
6
<PAGE>
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 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 restaurant 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, 2000, 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."
7
<PAGE>
CONTROL BY MANAGEMENT AND PRINCIPAL STOCKHOLDER
Following the completion of this offering, Mr. Fertitta, the principal
stockholder of the Company, will beneficially own (excluding exercisable
options), in the aggregate, approximately 9.4% 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 Stockholders."
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. In 1997, between 15% and
16% of the Company's revenues were attributable to the sale of liquor.
Alcoholic beverage control regulations require each of the Company's
restaurants to apply for and obtain from state authorities a license or permit
to sell liquor on the premises and to provide service for extended hours and
on Sundays. Typically, licenses must be renewed annually and may be revoked or
suspended for cause at any time. Alcoholic beverage control regulations affect
various aspects of daily operations of the Company's restaurants, including
minimum age of patrons and employees, hours of operation, advertising,
wholesale purchasing, inventory control and handling, storage and dispensing
of alcoholic beverages. In certain states, the Company may be subject to "dram
shop" statutes, which generally provide a person injured by an intoxicated
person the right to recover damages from the establishment which wrongfully
served alcoholic beverages to the intoxicated person. The Company carries
liquor liability coverage as part of its comprehensive general liability
insurance.
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
have recently been increases in the minimum hourly wage and there are
proposals under consideration to further increase the minimum hourly wage
requirements. These and other initiatives could adversely affect the Company
as well as the restaurant industry in general. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
In 1997, the Food and Drug Administration ("FDA") adopted regulations
relating to the establishment of procedures for the safe processing and
importing of fish and fishery products. The FDA regulations, which do not
apply to retail restaurant establishments, establish regulations to assure the
safe processing and importing of seafood by means of implementation of
monitoring systems based upon hazard analysis critical control point
principles. As a result of the implementation of such regulations, the
Company's seafood costs could increase due to the increased expense to seafood
suppliers and processors in complying with such regulations.
Difficulties or failures in obtaining required licensing or other regulatory
approvals could delay or prevent the opening of a new restaurant. 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. The Company's
operations are also subject to requirements of local governmental entities
with respect to zoning, land use and environmental factors which could delay
or prevent the development of new restaurants in particular locations.
At the federal and state levels, there are from time to time various
proposals and initiatives under consideration to further regulate various
aspects of the Company's business and employment regulations. These and other
initiatives could adversely affect the Company as well as the restaurant
industry in general. In addition, seafood is harvested on a world-wide basis
and, on occasion, imported seafood is subject to federally imposed import
duties.
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
8
<PAGE>
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
Until July 1997, the Company did not subscribe to the workers' compensation
insurance program in the State of Texas. As such, the Company's employees have
the right to sue the Company for negligence relating to injuries that occurred
prior to the Company participating in such program, and the Company would be
prevented from asserting contributory negligence and certain other defenses in
connection with any such lawsuit. In addition, employees may be able to
recover compensatory and punitive damages in such actions that would not be
available to them if the Company had been a participant in the workers'
compensation insurance program in Texas at the time of an injury. However, the
Company maintained excess employer's occupational injury insurance to cover
large losses. 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 Company's Common Stock has been traded on the Nasdaq National Market
since its initial public offering, and the market price of the Common Stock
has fluctuated substantially since that time. In the future, the market price
of the Common Stock could continue to fluctuate substantially due to a variety
of factors, including quarterly operating results of the Company or other
restaurant companies in the restaurant industry, 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.
YEAR 2000
The Company is now assessing the potential impact of the situation commonly
referred to as the "Year 2000 Problem." The Year 2000 Problem, which is common
to most corporations, concerns the inability of information systems, primarily
computer software programs, to properly recognize and process date sensitive
information related to the year 2000 and beyond. The Company is currently
evaluating the expected cost to be incurred in connection with the Year 2000
Problem, but expects that such costs will not be significant.
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 Exchange
Act, which are intended to be covered by safe harbors created thereby.
Investors are cautioned that all forward-looking statements involve risks and
uncertainty, including without limitation, the ability of the Company to
continue its accelerated expansion strategy, changes in costs of food, labor
and employee benefits, the ability of the Company to acquire prime locations
at acceptable lease or purchase terms, seasonality of results, ability to make
projected capital expenditures, store unit sales and the ability to achieve
projected quarterly results, as well as general market conditions,
competition, and pricing. All statements, other than statements of historical
facts, included or incorporated by reference in this Prospectus that address
activities, events or developments that the Company expects or anticipates
will or may occur in the future, including such things as future capital
expenditures (including the amount and nature thereof), business strategy and
measures to implement such strategy, competitive strengths, goals, expansion
and growth of the Company's business and operations, plans, references to
future success as well as other statements which include
9
<PAGE>
words such as "anticipate," "believe," "plan," "estimate," "expect," and
"intend" and other similar expressions constitute forward-looking statements.
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.
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 March 12,
1998, there were approximately 1,943 stockholders of record of the Common
Stock.
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, 1995.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
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........................................... 25.75 17.50
Third Quarter............................................ 28.38 18.75
Fourth Quarter........................................... 26.25 19.50
1997
First Quarter............................................ $23.25 $15.63
Second Quarter........................................... 23.00 13.13
Third Quarter............................................ 30.00 20.88
Fourth Quarter........................................... 32.38 18.00
1998
First Quarter (through March 12, 1998)................... $29.25 $21.25
</TABLE>
On March 12, 1998, the last sale price of the Common Stock as reported on
the Nasdaq National Market was $29.00 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 earnings
levels, capital requirements, financial condition, and other factors deemed
relevant by the Board of Directors. Pursuant to the Company's revolving credit
facility with a group of banks headed by Bank of America, the Company is
restricted in paying cash dividends to an amount not to exceed 10% of the
Company's net income for the previous fiscal year.
10
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,370,000 shares of
Common Stock offered by the Company hereby are estimated to be $90,742,750
($102,681,500 if the over-allotment option is fully exercised). In addition,
the Company will receive $4,247,000 upon the exercise of stock options by
certain Selling Stockholders for shares to be sold in this offering
($4,692,000 if the over-allotment option is fully exercised). The Company
intends to use the net proceeds to repay approximately $50 million that has
been drawn under the revolving credit facility, finance the development or
acquisition of additional restaurants and for general corporate purposes. The
revolving credit facility permits the Company to borrow from time to time up
to $125 million and terminates on June 1, 2000. Amounts drawn under the
revolving credit facility bear per annum interest generally payable quarterly
at the Eurodollar rate plus 0.6% or at a defined bank's Base Rate. The
revolving credit facility is governed by certain financial covenants,
including minimum tangible net worth, a maximum leverage ratio and a minimum
fixed charge coverage ratio.
The Company will not receive any of the proceeds from the sale of shares of
Common Stock by the Selling Stockholders.
CAPITALIZATION
The following table sets forth the short-term debt and the capitalization of
the Company as of December 31, 1997, (i) on an actual basis, and (ii) on an as
adjusted basis to reflect the sale of 3,370,000 shares of Common Stock offered
by the Company hereby, and to reflect the repayment of approximately $50
million of debt incurred under the Company's revolving credit facility and the
exercise of 313,000 stock options by certain of the Selling Stockholders. See
"Use of Proceeds."
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------
(IN THOUSANDS)
ACTUAL AS ADJUSTED(1)
-------- --------------
<S> <C> <C>
Short-term notes payable and current portion of long-
term notes and other obligations...................... $ 72 $ 72
======== ========
Long-term notes and other obligations, noncurrent...... $ 50,235 $ 235
Stockholders' equity:
Preferred Stock, $0.01 par value; 2,000,000 shares
authorized; 2,702 shares outstanding................. -- --
Common Stock, $0.01 par value; 60,000,000 shares
authorized; actual: 26,004,449 shares outstanding; as
adjusted: 29,687,449 shares outstanding.............. 260 297
Additional paid-in capital............................ 250,936 347,398
Retained earnings..................................... 45,542 45,542
-------- --------
Total stockholders' equity......................... 296,738 393,237
-------- --------
Total capitalization............................. $346,973 $393,472
======== ========
</TABLE>
- --------
(1) Includes 313,000 shares of Common Stock to be issued upon exercise of
stock options immediately prior to the closing of this offering which will
be sold by certain Selling Stockholders in this offering for which the
Company will receive $4,247,000 of option exercise proceeds.
11
<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,
1997 is derived from the consolidated financial statements of the Company. 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>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
(1)
Revenues:
Restaurant............ $ 58,041 $ 96,262 $149,737 $232,597 $311,673
Processing plant...... 2,626 4,511 7,883 3,510 --
-------- -------- -------- -------- --------
Total revenues........ $ 60,667 $100,773 $157,620 $236,107 $311,673
Operating costs and ex-
penses:
Cost of sales......... 18,759 31,424 47,978 72,304 95,639
Restaurant labor...... 14,591 23,986 38,595 60,249 80,837
Other restaurant
operating expenses... 13,614 21,606 31,662 51,077 66,227
Merger costs.......... -- -- -- 25,971(2) --
Depreciation and
amortization......... 1,783 4,060 7,817 12,978 17,080
Processing plant cost
of sales and
operating expenses... 2,519 4,328 7,686 3,857 --
General and
administrative
expenses............. 4,147 6,117 8,437 9,447 10,517
-------- -------- -------- -------- --------
Total operating
costs and expenses. 55,413 91,521 142,175 235,883 270,300
Operating income........ 5,254 9,252 15,445 224(2) 41,373
Other (income) expense:
Interest (income)
expense, net......... (47) (915) (1,604) (2,379) (1,063)
Other, net............ (130) 39 55 318 (394)
-------- -------- -------- -------- --------
Total other (income)
expense............ (177) (876) (1,549) (2,061) (1,457)
Income before income
taxes and cumulative
effect of accounting
change ................ 5,431 10,128 16,994 2,285(2) 42,830
Provision for income
taxes.................. 1,543(3) 3,520 5,946 779 15,400
-------- -------- -------- -------- --------
Income before cumulative
effect of accounting
change................. 3,888(3) 6,608 11,048 1,506(2) 27,430
Cumulative effect of
accounting change...... 223 -- -- -- --
-------- -------- -------- -------- --------
Net income.............. $ 4,111(3) $ 6,608 $ 11,048 $ 1,506(2) $ 27,430
======== ======== ======== ======== ========
Net income before
cumulative effect of
accounting change per
share.................. $ 0.34
Cumulative effect of
accounting change per
share.................. $ 0.02
--------
Net income per share--
basic.................. $ 0.36 $ 0.41 $ 0.58 $ 0.06(2) $ 1.07
======== ======== ======== ======== ========
Net income per share--
diluted................ $ 0.36 $ 0.41 $ 0.57 $ 0.06(2) $ 1.03
======== ======== ======== ======== ========
Weighted average number
of common shares--
basic.................. 11,266 16,098 19,051 23,360 25,518
======== ======== ======== ======== ========
Weighted average number
of common shares and
common share
equivalents--diluted... 11,266 16,098 19,300 24,100 26,600
======== ======== ======== ======== ========
BALANCE SHEET DATA (AT
END OF PERIOD)(1)
Working capital......... $ 8,931 $ 23,258 $ 11,279 $ 64,377 $ 35,058
Total assets............ 48,339 99,667 187,866 281,199 382,281
Short-term notes payable
and current portion of
long-term notes and
other obligations...... 896 855 2,677 492 72
Long-term notes and
other obligations,
noncurrent............. 3,054 5,494 16,204 221 50,235
Stockholders' equity.... $ 38,428 $ 82,966 $144,791 $256,447 $296,738
</TABLE>
- --------
(1) On August 9, 1996, the Company acquired Bayport pursuant to the Bayport
Merger. The Bayport Merger was accounted for as a pooling of interests
and, accordingly, the consolidated financial statements of the Company
have been restated to include the accounts and operations of Bayport for
all periods represented.
(2) In connection with the Bayport Merger, the Company incurred certain costs.
Without giving effect to such costs, the Company's income before income
taxes, net income, and net income per share (diluted) would have been
approximately $28,257, $18,000 and $0.75, respectively.
(3) Presented on a pro forma basis to give effect to a pro forma tax provision
as a result of the Company's conversion from S Corporation to C
Corporation status upon consummation of the Company's initial public
offering.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
As of December 31, 1997, the Company owned and operated 115 full-service,
casual dining seafood restaurants located in 25 states. In addition, the
Company operates three limited-menu take-out service units.
The Company's operations may be impacted by changes in federal and state
taxes and other federal and state governmental policies, which include many
possible factors such as the level of minimum wages, the deductibility of
business and entertainment expenses, levels of disposable income, and national
and regional economic growth. The enactment of staged increases to the
federally mandated minimum wage has increased the Company's labor costs.
Effective October 1, 1996, the federal minimum wage increased from $4.25/hour
to $4.75/hour, and further increased to $5.15/hour effective September 1,
1997. The new minimum wage increases affected primarily initial entry-level
wages of the least skilled jobs in the Company's restaurant kitchens, as the
federal law mandated an offsetting increase in the tip-credit amounts for
tipped employees (i.e., waitstaff). However, the increases in minimum wage
have increased pressure for further wage increases of the other restaurant
staff.
Upon the consummation of the Bayport Merger in 1996 the Company recognized a
one-time charge of approximately $26 million before taxes and $17 million
after provision for income taxes. The American Institute of Certified Public
Accountants may issue a proposed accounting standard during 1998 that would
require entities to expense pre-opening costs as incurred. If adopted, the
standard may require the Company to expense previously capitalized pre-opening
costs as a cumulative effect of a change in accounting principle. At December
31, 1997, unamortized pre-opening costs were $5,162,503.
RESULTS OF OPERATIONS
Restaurant Profitability
The following table sets forth the percentage relationship to total
restaurant revenues of certain restaurant operating data for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Restaurant revenues.................................. 100.0% 100.0% 100.0%
Restaurant cost of sales............................. 32.0 31.1 30.7
Restaurant labor..................................... 25.8 25.9 25.9
Other restaurant operating expenses (1).............. 21.2 21.9 21.2
----- ----- -----
Restaurant level profit (1).......................... 21.0% 21.1% 22.2%
===== ===== =====
</TABLE>
- --------
(1) Excludes depreciation and amortization.
Year Ended December 31, 1997 Compared to the Year Ended December 31, 1996
Revenues increased $75,565,680, or 32.0%, from $236,106,877 to $311,672,557
for the year ended December 31, 1997, compared to the year ended December 31,
1996. The increase in revenues was attributable to revenues from new
restaurant openings offset by a reduction in processing plant revenues. There
was a nominal change in revenues from units opened prior to 1996.
As a primary result of increased restaurant revenues, restaurant cost of
sales increased $23,335,688, or 32.3%, from $72,303,748 to $95,639,436 for the
year ended December 31, 1997 compared to the prior year. Restaurant cost of
sales as a percentage of restaurant revenues for the year ended December 31,
1997 decreased
13
<PAGE>
to 30.7% from 31.1% in 1996. The decrease in restaurant cost of sales as a
percentage of restaurant revenues reflects slightly lower product costs and
better management cost controls in 1997. Product prices for shrimp, which are
a very high use product, are expected to be higher in 1998 than in 1997. This
cost increase may be partially offset by decreases in other product costs and
management measures, but the overall effect may increase restaurant cost of
sales as a percentage of revenues in 1998.
Restaurant labor expenses increased $20,588,224, or 34.2%, from $60,248,830
to $80,837,054 for the year ended December 31, 1997 compared to the prior
year, primarily as a result of increased openings of new restaurants.
Restaurant labor expenses as a percentage of restaurant revenues for the year
ended December 31, 1997, remained flat in 1997 and 1996 at 25.9%. The Company
continues to experience labor cost pressures attributable in part to recent
increases in federally mandated minimum wages.
Other restaurant operating expenses increased $15,150,467, or 29.7%, from
$51,076,737 to $66,227,204 for the year ended December 31, 1997, compared to
the prior year, as a result of increased revenues and the opening of new
restaurants. Such expenses decreased as a percentage of restaurant revenues to
21.2% from 21.9% primarily due to revenue growth of newly opened restaurants
exceeding the increase in other restaurant operating expenses.
Depreciation and amortization expenses increased $4,101,307, or 31.6%, from
$12,978,075 to $17,079,382 in 1997, compared to the prior year. The dollar
increase was primarily due to the addition of new restaurants and purchases of
new equipment. Depreciation and amortization as a percentage of restaurant
revenue remained flat in 1997 and 1996 at 5.5%. A decrease in pre-opening
amortization expense during the first six months of 1997 was offset by a
subsequent increase in pre-opening expense during the last six months of 1997.
These changes were due to changes in the number of units subject to
amortization and changes in the per unit pre-opening expenses.
General and administrative expenses increased $1,069,952, or 11.3%, from
$9,446,541 to $10,516,493 for the year ended December 31, 1997, compared to
the prior year, and decreased as a percentage of restaurant revenues to 3.4%
from 4.1%. During the first seven months of 1996, Landry's and Bayport
operated as separate companies and were, therefore, incurring separate general
and administrative expenses to support each company's separate growth plans.
However, upon the consummation of the Bayport Merger, Bayport's corporate
offices were closed and substantially all of Bayport's office employees were
terminated. As a result, general and administrative expenses, as a percentage
of revenues, were less than the combined expenses of the separate companies
for 1997, compared to the prior year. The dollar increase resulted primarily
from increased personnel, salaries and travel to support the combined
Company's expansion plans offset by the reduction of Bayport's general and
administrative expenses upon consummation of the Bayport Merger.
The decrease in net interest income of $1,317,014 is the result of lower
excess cash balances in 1997, as compared to the prior year. The change in
other expense was not deemed significant.
Provision for income taxes increased due to the increase in the Company's
income. The Company anticipates that its 1998 effective tax rate may decline
primarily due to the effect of FICA tax tip credits.
Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995
Restaurant revenues increased $82,859,829, or 55.3%, from $149,736,680 to
$232,596,509 for the year ended December 31, 1996, compared to the year ended
December 31, 1995. The increase in revenues 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
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, restaurant cost of sales
increased $24,325,584, or 50.7%, from $47,978,164 to $72,303,748 for the year
ended December 31, 1996 compared to the prior year. Restaurant cost
14
<PAGE>
of sales as a percentage of restaurant revenues for the year ended December
31, 1996 decreased to 31.1% from 32.0% in 1995. The decrease in restaurant
cost of sales as a percentage of restaurant revenues reflects favorable
product prices and better management cost controls in 1996.
Restaurant labor expenses increased $21,654,012, or 56.1%, from $38,594,818
to $60,248,830 for the year ended December 31, 1996 compared to the prior
year. Restaurant labor expenses as a percentage of restaurant revenues for the
year ended December 31, 1996, increased to 25.9% from 25.8% in 1995. The
increase in restaurant labor expenses as a percentage of restaurant revenues
was primarily a result of increased labor costs of new Crab House restaurants.
Other restaurant operating expenses increased $19,413,943, or 61.3%, from
$31,662,794 to $51,076,737 for the year ended December 31, 1996, compared to
the prior year, as a result of increased revenues and the opening of new
restaurants in 1996. Such expenses increased as a percentage of restaurant
revenues to approximately 21.9% in 1996 from 21.2% in 1995 primarily a result
of higher occupancy and other operating costs of new Crab House restaurants.
Depreciation and amortization expenses increased $5,160,809, or 66.0%, from
$7,817,266 to $12,978,075 for the year ended December 31, 1996, compared to
the prior year. The increase was primarily due to the addition of new
restaurants and purchases of new equipment.
General and administrative expenses increased $1,009,657, or 12.0%, from
$8,436,884 to $9,446,541 for the year ended December 31, 1996, compared to the
prior year, and decreased as a percentage of total revenues to 4.0% from 5.4%.
During 1995 and the first seven months of 1996 Landry's and Bayport operated
as separate companies and were, therefore, incurring separate general and
administrative expenses to support each company's separate growth plans.
However, upon the consummation of the Bayport Merger, Bayport's corporate
offices were closed and substantially all of Bayport's office employees were
terminated. As a result, general and administrative expenses were less than
the combined expenses of the separate companies, causing the decrease in
general and administrative expenses as a percentage of sales in 1996 compared
to 1995. In August 1996, merger costs were incurred related to the Bayport
Merger. These costs primarily include investment banking fees, legal and
accounting fees, printing, filing and related costs, employee severance
payments and write-off of specific assets which included duplicative
facilities locations and certain non-operating properties.
Net interest income increased by $775,350 from $1,604,081 to $2,379,431 in
1996 compared to 1995. The increase resulted primarily from the Company's
investment of excess cash in interest bearing securities subsequent to the
Company's public stock offerings. Other expenses were not deemed significant.
Provision for income taxes decreased by $5,166,399 from $5,945,850 in 1995
to $779,451 in 1996 primarily due to the change in the Company's income.
LIQUIDITY AND CAPITAL RESOURCES
In 1995, the Company, exclusive of Bayport, spent approximately $71 million
on capital expenditures. Since 1993, the Company has funded capital
expenditures primarily from proceeds of common stock offerings, and in part
from cash flow from operations. Separately, Bayport spent approximately $19
million in 1995 on capital expenditures, which was primarily funded out of
borrowings.
In 1996, the combined capital expenditures of the Company were approximately
$64 million. The Company funded capital expenditures out of existing cash
balances and cash flow from operations during 1996. Bayport's portion of
capital expenditures was funded, up to the date of the Bayport Merger, out of
additional borrowings. In addition, the Company incurred merger costs related
to the acquisition of Bayport and repaid the pre-merger outstanding
indebtedness of Bayport. As a result, the combined entities cash balances
declined from approximately $119 million at June 30, 1996, immediately prior
to the Bayport Merger, to approximately $57 million at December 31, 1996, and
the majority of the outstanding debt of the combined companies was repaid. For
the year ended December 31, 1997, the capital expenditures of the Company were
approximately $136 million which were primarily funded out of existing cash
balances, cash flow from operations and borrowings.
15
<PAGE>
The Company has a $125 million line of credit from a syndicate of banks
which expires in June 2000. The line of credit is available for expansion,
acquisitions and general corporate purposes. At December 31, 1997, the Company
had $50 million outstanding under this credit facility at an average interest
rate of 6.65% and had cash balances aggregating approximately $17.2 million.
These borrowings were used to fund capital expenditures and working capital.
The Company's current development plans are to open approximately 45
restaurants during 1998, of which eight were opened as of March 12, 1998, and
35 were under construction or development. During 1997, the Company commenced
construction on a development plan for a waterfront area in South Houston (the
"Kemah Development"). The Kemah Development includes up to eight restaurant
sites, with additional light retail and hotel/motel facilities in a master
planned development. The Company currently operates five restaurants in this
development, and has not determined which portions of the remaining
development it will operate or sublease. Further, the Company is evaluating
the feasibility of building a multistory office building for the Company's
corporate headquarters. Due to the Company's rapid growth and increasing
office needs, the Company has experienced difficulty in obtaining adequate
office space within the desired immediate area of its existing office. To this
end, in July 1997 the Company acquired a four acre undeveloped land parcel in
Houston.
Exclusive of any acquisitions or large real estate purchases, the Company
currently expects to incur capital expenditures of approximately $125 million
in l998, depending upon the actual timing of construction expenditures, the
number of land purchases, the amount of expenditures spent on remodels, and
the mix of leased, owned or conversion type locations, and the actual timing
and number of restaurants built. The Company expects that its average per unit
investment cost, excluding real estate costs, capitalized interest costs and
pre-opening expenses, will approximate $1.9 million. However, individual unit
investment costs can 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, leased and fee-owned
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. Separately, the Company may spend up to $12 to
$15 million on the Kemah Development and approximately $5 million on the
corporate headquarters development, both of which will be spread over the next
several fiscal years. The Company is reviewing its alternative options related
to the corporate headquarters development, including the viability of a sale-
leaseback, an outright sale and other options. The Company believes that
existing cash balances, cash generated from operations and potential financing
sources will be sufficient to satisfy the Company's working capital and
planned capital expenditures through 1998.
Upon completion of this offering, the Company believes there will be
sufficient finances to complete planned capital expenditures through 1999.
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. The
Company has and continues to open restaurants in highly seasonal tourist
markets and has further noted that the Joe's Crab Shack concept restaurants
tend to experience an even greater seasonality and sensitivity to weather. The
timing of unit openings can and will affect quarterly results. The Company
anticipates some moderation in revenues from the initial volumes of new units.
IMPACT OF INFLATION
Management does not believe inflation has had a 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.
16
<PAGE>
BUSINESS
GENERAL
The Company owns and operates full-service, mid-priced, casual dining,
seafood restaurants located in 26 states, under the restaurant divisional
names "Joe's Crab Shack," "Landry's Seafood House," and "The Crab House." As
of March 12, 1998, the Company operated 123 full service restaurants,
including 59 Joe's Crab Shack restaurants, 43 Landry's Seafood House division
restaurants and 21 The Crab House restaurants. In addition, the Company
operates three limited-menu take-out service units. 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. In 1988, Mr. Tilman J. Fertitta
acquired sole ownership of the two existing Landry's 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 broiled,
grilled and fried seafood items, including red snapper, shrimp, crawfish, crab
and lump crabmeat, lobster, soft shell crabs, oysters, scallops, flounder and
other traditional seafood items, many with a choice of unique seasonings,
stuffings and toppings. These items are 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 distinctive appearance and a flexible design which can accommodate a
wide variety of available sites. The Joe's Crab Shack restaurants are designed
to appear like an old fishing camp with a wood facade, tin roof and a raised
outside deck. Many of the Joe's Crab Shack facilities incorporate a small
playground area for children adjacent to family dining areas. 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. The Crab House restaurants feature a casual nautical
theme, and many include a fresh seafood salad bar. 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
interiors. In many locations, the Company's 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
17
<PAGE>
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 and entertainment complexes, 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. 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
Since 1990, the Company has pursued an accelerated expansion strategy
through the opening of new restaurants or the conversion of existing
restaurants. The Company's current development plan is to open at least 45 new
restaurants in 1998, of which eight restaurants were open and 35 restaurants
were under construction or development as of March 12, 1998. 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 and general economic conditions. See "Risk Factors--
Growth." 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. The Company will also consider
the conversion of existing restaurant concepts to one of its existing
concepts, as well as possibly acquiring existing restaurants with
complementary concepts. The Company has no present understandings or
agreements to acquire any restaurant concepts.
The Company plans to focus expansion efforts primarily in the southern and
midwestern portions of the United States, although the Company has and will
continue to develop or acquire restaurants in cities outside of this area.
Further development of locations in an existing market are likely to occur
where management believes the area can effectively support additional quality
seafood restaurants. In connection with this expansion effort, the Company's
primary growth will utilize the Joe's Crab Shack concept although additional
restaurants will be built in the Landry's Seafood House and The Crab House
divisions of the Company. The Company believes that the increased consumption
of seafood due to its taste, variety and perceived health advantages, combined
with the excellent unit economics of its restaurants, support the Company's
decision to concentrate its expansion efforts on quality seafood restaurants
in strategically targeted markets. The Company has designated a team of
employees that are responsible for opening new restaurant locations, including
kitchen personnel and other individuals who are trained as hosts, waiters,
floor managers and bartenders. The Company has enhanced its management
training program to enable assistant general managers to be promoted to
general managers. The Company believes that through its training program and
the hiring of outside personnel it will be able to support its expansion
strategy.
UNIT ECONOMICS
For the 12-month period ended December 31, 1997, the 78 restaurants opened
prior to January 1, 1997 generated average restaurant revenues of
approximately $3,000,000, average restaurant cash flow of
18
<PAGE>
approximately $630,000 (or 21.0% of revenues), and average restaurant
operating income (after depreciation, but before amortization of pre-opening
expenses) of approximately $507,000 (or 16.9% of revenues). Historically, the
Company has leased a substantial number of its restaurant 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 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 1997 was
approximately $1.97 million per unit. However, the average cash investment for
the last 10 restaurants opened in 1997 by the Company, which were all Joe's
Crab Shack restaurants, was approximately $1.67 million. The Company expects
that its average investment per unit opened will be reduced from the overall
1997 average to an average of approximately $1.9 million in 1998 due primarily
to an overall reduction of the average unit size from those opened during 1997
and its continued emphasis on the Joe's Crab Shack concept. Such restaurants
generally cost less to construct than Landry's Seafood House or The Crab House
restaurants. 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.
RESTAURANT LOCATIONS
The Company's restaurants range in size from 5,000 square feet to 16,000
square feet, with the average restaurant approximating 8,000 square feet. The
restaurants generally have dining room floor seating for approximately 215
customers, many with patio seating on a seasonal basis, and bar seating for
approximately 10 to 20 additional customers.
The following table provides information with respect to the states in which
the Company's existing full service restaurants were open as of March 12,
1998:
<TABLE>
<CAPTION>
NUMBER
OF
STATE UNITS
- ----- ------
<S> <C>
Alabama................. 3
Arizona................. 4
Arkansas................ 1
California.............. 2
Colorado................ 5
Florida................. 18
Georgia................. 3
Illinois................ 4
Indiana................. 1
Kentucky................ 1
Louisiana............... 4
Maryland................ 1
Michigan................ 1
Mississippi............. 1
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF
STATE UNITS
- ----- ------
<S> <C>
Missouri.................. 3
Nevada.................... 2
New Jersey................ 1
New Mexico................ 1
New York.................. 2
North Carolina............ 1
Ohio...................... 5
Oklahoma.................. 2
South Carolina............ 8
Tennessee................. 7
Texas..................... 41
Virginia.................. 1
---
Total................... 123
===
</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
high quality beef, fowl, pastas, and
19
<PAGE>
other American food entrees. The Company's restaurants also feature a unique
selection of desserts made fresh on a daily basis at each location. Many of
the Company's restaurants offer complimentary salad and garlic bread with each
entree, as well as certain lunch specials and lower priced children's entrees.
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 between 15% and 16% of the Company's revenues in 1997. 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 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 weekly 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 field 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. These employees
typically earn between 15% and 25% of their total cash compensation under this
program. In addition, restaurant 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 5 to 10 days in training before they serve customers.
The Company has historically utilized a program of extensive background checks
for prospective management employees such as criminal checks, credit checks,
and drug screening. Management believes that its policies have resulted in a
reduced rate of management-level employee turnover. Management training
encompasses three general areas including: (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. Due to the Company's enhanced training program,
management training customarily lasts approximately 8 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 of January 1, 1998, there were approximately 30 individuals involved in
regional management functions. As the Company grows, it plans to increase the
number of regional managers, and to have each regional manager
20
<PAGE>
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 December 31, 1997, the Company employed approximately 8,200 persons,
of whom approximately 640 were restaurant managers or manager-trainees,
approximately 260 were corporate and administrative employees, and the rest
were hourly employees. Each restaurant employs an average of approximately 70
to 100 people, depending on seasonal needs. The Company considers its
employees to be high quality and believes that its management level employee
turnover is within industry standards. None of the Company's employees is
covered by a collective bargaining agreement. The Company considers its
relationship with employees to be satisfactory.
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.
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 1997
were approximately 1.5% 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
21
<PAGE>
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
strategy.
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.
SERVICE MARKS
Landry's Seafood House and Joe's Crab Shack are each registered as a federal
service mark on the Principal Register of the United States Patent and
Trademark Office. The Crab House is a registered design mark. In addition, the
Company has registered numerous other marks related to its business and
advertising.
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 approximately 700 seafood
restaurants nationwide, many of which operate in the Company's existing and
future 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.
22
<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(1)(3). 40 Chairman of the Board, President and Chief
Executive Officer
E.A. Jaksa, Jr.(3)....... 51 Executive Vice President, Chief Operating Officer,
and Director
Steven L. Scheinthal(3).. 36 Vice President of Administration, General Counsel,
Secretary, and Director
Paul S. West(3).......... 38 Vice President of Finance, Chief Financial Officer
and Director
Richard E. Ervin......... 41 Vice President of Restaurant Operations
Sarah A. Veach........... 37 Controller of Restaurant Operations
James E. Masucci(1)(2)(4) 65 Director
Joe Max Taylor(1)(2)(4).. 65 Director
</TABLE>
- --------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
(3) Member of Executive Committee.
(4) Member of Stock Option Committee.
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 an advisory director of the Houston Rockets National
Basketball Association team and serves on the boards of the Houston Livestock
Show and Rodeo, Space Center Houston, the Children's Museum of Houston, The
Greater Houston Convention and Visitors Bureau, 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 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
23
<PAGE>
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 has been a certified public accountant
since 1983.
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 is self-employed as an advertising consultant. From 1956 until
June 1996 he was employed by Capital Cities/ABC ("ABC"). His last position
with ABC was as President and General Manager of KTRK-TV, an owned station of
ABC in Houston, Texas, a position he held from August 1990 to June 1996. Prior
to serving as President, Mr. Masucci served in various executive positions
with KTRK-TV and has served as Division Vice President and Vice President of
the Broadcast Division of 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 and Audit Committee of the Transitional Learning Center of
Galveston and is President and a member of the Executive Committee 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.
24
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock by (a) the Selling Stockholders, (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 executive officers and directors of the Company as a
group. The Selling Stockholders have sole voting and investment power with
respect to the shares beneficially owned.
<TABLE>
<CAPTION>
SHARES BEFORE THE
OFFERING SHARES SHARES AFTER THE OFFERING
----------------- OFFERED ---------------------------
NUMBER PERCENT HEREBY(1) NUMBER PERCENT TOTAL(3)
--------- ------- --------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Tilman J. Fertitta(2)... 4,380,000 16.4% 890,000 3,490,000 11.5% 3,690,000
E.A. Jaksa, Jr.(2)...... 189,167 * 125,000 64,167 * 205,000
Steven L. Scheinthal(2). 112,667 * 80,000 32,667 * 148,500
Paul S. West(2)......... 93,667 * 70,000 23,667 * 137,000
Richard E. Ervin(2)..... 53,334 * 38,000 15,334 * 92,000
James E. Masucci........ 9,800 * -- 9,800 * 14,000
Joe Max Taylor.......... 3,800 * -- 3,800 * 8,000
Putnam Investments, Inc.
(4).................... 3,693,549 14.2% -- 3,693,549 12.6% 3,693,549
FMR Corp (5)............ 2,375,000 9.1% -- 2,375,000 8.2% 2,375,000
All executive officers
and directors as a
group (8 persons) (2).. 4,846,435 17.9% 1,203,000 3,643,435 12.0% 4,299,000
</TABLE>
- --------
* Less than 1%.
(1) Pursuant to an option granted to the Underwriters, the Selling
Stockholders may sell shares to cover a portion of the Underwriters' over-
allotments, if any. See "Underwriting." The address of each of the Selling
Stockholders is the Company's principal executive office.
(2) Includes options to acquire 700,000, 139,167, 80,167, 81,667, 53,334 and
1,066,935 shares of the Company's Common Stock held by Messrs. Fertitta,
Jaksa, Scheinthal, West, Ervin and all executive officers and directors as
a group respectively, which are exercisable within 60 days of the date of
this offering. Options to purchase 125,000, 80,000, 70,000 and 38,000
shares for Messrs. Jaksa, Scheinthal, West and Ervin will be exercised
immediately prior to the closing of this offering and such shares will be
sold pursuant hereto.
(3) Includes all unvested options held by the Selling Stockholders and all
executive officers and directors as a group.
(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 3,693,549 shares, or 14.2%, 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 1998, FMR Corp. ("FMR") is
considered the "beneficial owner" in the aggregate of 2,375,000 shares, or
9.1% of the Company's Common Stock, although no Common Stock is held
directly by FMR. FMR's address is 82 Devonshire Street, Boston,
Massachusetts 02109.
25
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters") have severally agreed,
subject to the terms and conditions contained in the underwriting agreement
(the "Underwriting Agreement") by and among the Company, the Selling
Stockholders and the Underwriters, to purchase from the Company and the
Selling Stockholders the number of shares of Common Stock indicated below
opposite their respective names at the 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>
NationsBanc Montgomery Securities LLC........................... 1,028,925
J.C. Bradford & Co.............................................. 1,028,925
Morgan Stanley & Co. Incorporated............................... 1,028,925
Piper Jaffray Inc............................................... 1,028,925
Sanders Morris Mundy Inc........................................ 457,300
---------
Total......................................................... 4,573,000
=========
</TABLE>
The Underwriters have advised the Company and the Selling Stockholders 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 $.80 per share. The Underwriters may allow,
and such dealers may reallow, a concession of not in excess of $.10 to certain
other dealers. After the offering, the public offering price and other selling
terms may be changed by the Underwriters. The Common Stock is offered subject
to receipt and acceptance by the Underwriters and to certain other conditions,
including the right to reject orders in whole or in part.
The Company and the Selling Stockholders 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 685,950 additional
shares of Common Stock, to cover over-allotments, if any, at the same price
per share as the initial shares to be purchased by the Underwriters. To the
extent 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 Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the Underwriters and their controlling persons
against certain liabilities, including civil liabilities under the Securities
Act, or will contribute to payments the Underwriters may be required to make
in respect thereof.
All of the Company's officers and directors have agreed that, for a period
of 90 days from the date of this Prospectus, they will not, without the prior
written consent of NationsBanc Montgomery Securities LLC, directly or
indirectly sell, offer, contract or grant any option to sell, pledge,
transfer, or otherwise dispose of any shares of Common Stock, options or
warrants to acquire shares of Common Stock, or securities exchangeable or
convertible for or convertible into shares of Common Stock, other than for the
shares of Common Stock offered by the Selling Stockholders hereby provided
that the foregoing will not prohibit them from making bona fide gifts to
persons who agree in writing with the Underwriters to be bound by the same
disposition restrictions. In addition, the Company has agreed that, for a
period of 90 days after the date of this Prospectus, it will not, without the
prior written consent of NationsBanc Montgomery Securities LLC, directly or
indirectly issue, sell, offer, contract or grant any option to sell, pledge,
transfer, or otherwise dispose of any shares of Common Stock, options or
warrants to acquire shares of Common Stock or securities exchangeable or
exercisable for or convertible into shares of Common Stock other than (i) the
shares of Common Stock offered by the Company hereby, (ii) shares of Common
Stock issued upon exercise of stock options and warrants and conversion of
preferred stock outstanding as of the date of this Prospectus and (iii) the
grant of additional options under the Company's stock option plans consistent
with past practices.
26
<PAGE>
Certain persons participating in this offering may over-allot or effect
transactions which stabilize, maintain or otherwise prevail in the open
market. Such transactions may include stabilizing bids, effecting syndicate
covering transactions or imposing penalty bids. A stabilizing bid means the
placing of any bid or effecting any purchase for the purpose of pegging,
fixing or maintaining the price of the Common Stock. A syndicate covering
transaction means the placing of any bid on behalf of the underwriting
syndicate or the effecting of any purchase to reduce a short position created
in connection with the offering. The Underwriters may also elect to reduce any
short position by exercising all or part of the over-allotment options
described above. A penalty bid means an arrangement that permits the
Underwriters to reclaim a selling concession from a syndicate member in
connection with the offering when shares of Common Stock sold by the syndicate
member are purchased in syndicate covering transactions. Such transactions may
be effected on the Nasdaq National Market, in the over-the-counter market, or
otherwise.
In general, the purchase of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchase. Neither the Company nor any
of the Underwriters makes any representation or prediction as to the direction
or magnitude of any effect that the transactions described above may have on
the price of the Common Stock. In addition, neither the Company nor any of the
Underwriters makes any representation that the Underwriters will engage in
such transactions or that such transactions, once commenced, will not be
discontinued without notice.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby is being passed
upon for the Company and the Selling Stockholders 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. No attorneys who
participated in the preparation of this Prospectus own shares of Common Stock
of the Company.
EXPERTS
The consolidated 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. In that report, that firm states that with respect to Bayport, its
opinion for the 1995 period is based on the report of other independent public
accountants, namely Grant Thornton LLP. The consolidated financial statements
referred to above have been incorporated by reference herein in reliance upon
the authority of those firms as experts in giving said reports.
27
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus is a part) on
Form S-3 under the Securities Act, with respect to the securities offered
hereby. This Prospectus does not contain all of the information set forth in
the Registration Statement, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. Statements contained
in this Prospectus as to the content of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of
the contract or other document filed as an exhibit to the Registration
Statement, each statement being qualified in all respects by that reference
and the exhibits to the Registration Statement. For further information
regarding the Company and the securities offered hereby, reference is hereby
made to the Registration Statement and the exhibits to the Registration
Statement which may be obtained from the Commission at its principal office in
Washington, D.C., upon payment of fees prescribed by the Commission.
The Company is subject to the informational requirements of the Exchange
Act, and, in accordance therewith, files reports, proxy statements and other
information with the Commission. Reports, proxy statements and other
information filed by the Company can be inspected and copied, at prescribed
rates, at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington D.C. 20549; and at its Regional Offices located
at Suite 1400, 500 West Madison Street, Chicago, Illinois 60661; and 13th
Floor, Seven World Trade Center, New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the
Commission. The address of the Commission's Web site is: http://www.sec.gov.
The Company furnishes its stockholders with annual reports containing
financial statements audited by its independent auditors and makes available
quarterly reports containing unaudited summary financial information for each
of the first three quarters of each fiscal year.
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, 1997.
(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.
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, General Counsel and Secretary, 1400 Post Oak Blvd., Houston,
Texas 77056, telephone number (713) 850-1010.
28
<PAGE>
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No dealer, salesperson or other person has been authorized to give any in-
formation or to make any representations other than those contained in this
Prospectus in connection with this offering and, if given or made, such infor-
mation or representation must not be relied upon as having been authorized by
the Company or the Selling Stockholders or any Underwriter. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any
of the securities offered hereby in any jurisdiction to any person to whom it
is unlawful to make such offer in such jurisdiction. Neither the delivery of
this Prospectus 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.
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
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<S> <C>
Prospectus Summary........................................................ 2
Risk Factors.............................................................. 6
Price Range of Common Stock and Dividend Policy........................... 10
Use of Proceeds........................................................... 11
Capitalization............................................................ 11
Selected Consolidated Financial Information............................... 12
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 13
Business.................................................................. 17
Management................................................................ 23
Principal and Selling Stockholders........................................ 25
Underwriting.............................................................. 26
Legal Matters............................................................. 27
Experts................................................................... 27
Available Information..................................................... 28
Incorporation of Certain Documents by Reference........................... 28
</TABLE>
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4,573,000 SHARES
[LOGO OF LANDRY'S APPEARS HERE]
COMMON STOCK
----------------
PROSPECTUS
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NationsBanc Montgomery
Securities LLC
J.C. Bradford & Co.
Morgan Stanley Dean Witter
Piper Jaffray Inc.
Sanders Morris Mundy
March 12, 1998
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