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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED DECEMBER
29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE TRANSITION PERIOD FROM
TO
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Commission File No. 0-27366
RAINFOREST CAFE, INC.
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(Exact name of registrant as specified in its charter)
MINNESOTA 41-1779527
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
720 SOUTH FIFTH STREET
HOPKINS, MINNESOTA 55343
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(Address of principal executive offices) (Zip Code)
(612) 945-5400
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, NO
PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
As of March 24, 1997, 17,265,889 shares of the Registrant's Common Stock were
outstanding. The aggregate market value of the Common Stock held by
non-affiliates of the Registrant on such date, based upon the last sale price
of the Common Stock as reported on the Nasdaq National Market on March 24,
1997, was $316,266,374. For purposes of this computation, affiliates of the
Registrant are deemed only to be the Registrant's executive officers and
directors.
DOCUMENTS INCORPORATED BY REFERENCE
PART II and IV - Portions of the Registrant's Annual Report to Shareholders for
the year ended December 29, 1996, are incorporated by reference into Items 5
through 8, inclusive.
PART III - Portions of the Registrant's definitive proxy statement in
connection with the annual meeting of the shareholders to be held on May 22,
1997, are incorporated by reference into Items 10 through 13, inclusive.
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ITEM 1. BUSINESS
The Company owns and operates six large, high volume, themed
restaurant/retail facilities under the name "Rainforest Cafe -- A Wild Place to
Shop and Eat." The Company's Units are designed to provide a visually and
audibly stimulating and entertaining rainforest environment that appeals to a
broad range of customers of all ages. Each Rainforest Cafe consists of a
Restaurant and a Retail Village. The Restaurant provides an attractive value to
customers by offering a full menu of high quality food and beverage items,
generous portions and excellent service in a unique and exciting environment.
The Retail Village features apparel, toys and gifts with the Rainforest Cafe
logo and eight proprietary Animal Characters, and other items reflecting the
rainforest theme.
THE RAINFOREST CONCEPT AND STRATEGY
The Company seeks to differentiate itself by providing high quality,
freshly prepared food and proprietary retail merchandise in a themed
environment. The key factors of the Company's market positioning and operating
strategy are as follows:
Distinctive Concept. The Company's rainforest theme is promoted by a
simulated unique rainforest environment throughout the Unit. Each Rainforest
Cafe features a visually and audibly exciting environment that includes a
variety of live tropical birds, exotic saltwater fish in large custom-designed
aquariums, animated robotic animals and sculpted banyan trees that create a
canopy of foliage. The dynamic rainforest atmosphere is further enhanced by
simulated thunder and lightning storms, tropical rain showers, waterfalls,
mists that emanate from extensive rock formations, and specially-developed
aromatic scents. This entertaining rainforest environment makes each
Rainforest Cafe "A Wild Place to Shop and Eat."
Broad-Based Appeal. Management believes that the Company's Rainforest
Cafe concept has broader appeal than other theme-based restaurant concepts
because it attracts customers of all ages. The Company's distinctive concept,
combined with high quality food and retail merchandise, make the Rainforest
Cafe appealing to children, teenagers, adults, and senior citizens.
High Profile Unit Locations. In order to take maximum advantage of the
Company's broad-based appeal, the Company believes that the placement of its
Units in high profile, heavy-traffic locations is critical to its success. By
being in such locations, the Company believes its Units appeal to both
destination customers as well as passers-by who are drawn to its visually and
audibly exciting environment. The Company believes that its format, as
developed at its existing Units, can be utilized in multiple high traffic
locations with favorable demographics such as shopping malls, entertainment
centers and Disney theme parks.
High Quality Food. The Restaurant provides an attractive value to
customers by offering a moderately-priced, full menu of high quality food and
beverage items served in generous portions in a distinctive environment. The
Restaurant features a wide variety of appetizers, pastas, sandwiches, salads,
pizzas, burgers and full-platter entrees, presented in a visually appealing
manner. Menu items are prepared on-site using fresh, high quality ingredients.
Lunch and dinner entrees range in price from $7.95 to $15.95 and the average
guest check was approximately $13.00 at the end of the fiscal
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year ended December 29, 1996. Management believes that its high quality food
contributes to a significant level of repeat business.
Commitment to Retail and Building Brand Awareness. In order to enter
the Restaurant, all customers must pass through the Unit's Retail Village. The
Retail Village offers over 3,000 SKUs which includes apparel, toys and gifts
with the Rainforest Cafe logo and other items suggesting the rainforest theme.
The Company has also developed eight proprietary Animal Characters, each with a
distinct personality, as an additional method of merchandising its retail
products. The Company intends to utilize each Animal Character for clothing,
toys and gifts. By offering items featuring the Rainforest Cafe logo and Animal
Characters, the Company believes it is building "brand equity" in the
Rainforest Cafe name that will allow it to attract more customers and to
enhance its competitive retail position. The Company plans to introduce future
products such as story books and games which are intended to further enhance
the value of the Company's proprietary animal characters. The Retail Village
is also intended to be educational, with displays of live exotic tropical birds
and fish and an animated talking tree that gives environmental messages.
Focus on Customer Satisfaction. The Company is committed to staffing
each Unit with an experienced management team and providing its customers with
prompt, friendly and efficient service. A customer's experience is also
enhanced by the attitude and attention of Unit personnel, including "tour
guides" (greeters), "safari guides" (food servers), "navigators" (bartenders),
"pathfinders" (retail staff) and tropical bird curators. The Company recognizes
that, in order to maintain a high level of repeat customers and to attract new
business through word of mouth, it must provide superior customer service.
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 believes its compensation structure and positive
corporate culture enable it to attract and maintain quality employees. The
Company believes that Unit management is important for the profitability of
each Rainforest Cafe and accordingly, places particular emphasis on recruiting
Unit-level Directors of Operations that have significant restaurant and
management experience. The Company anticipates that, prior to opening a Unit, a
Director of Operations will have been trained at one or more Rainforest Cafes
for four to six months.
UNIT ECONOMICS
To date, with the exception of the Company's Walt Disney World
Marketplace Unit, Units have ranged from between 15,000 to 23,000 square feet
and cost between $4.0 and $6.0 million, net of landlord contributions of
approximately $1.0 million, to develop. Such existing Units have had
pre-opening costs ranging from $550,000 to $650,000. The 30,000 square foot
Walt Disney World Marketplace Unit was developed at cost of approximately $11.2
million, net of landlord contributions. In addition, the Company incurred
approximately $1.2 million in pre-opening costs and purchased approximately
$600,000 in inventory in connection with such Unit.
The Company expects that most of its future Units will be between
16,000 and 23,000 square feet and cost between $4.0 and $6.0 million, net of
anticipated landlord contributions. Anticipated landlord contributions would
likely consist of allowances for leasehold improvements and/or rental
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abatement or similar concessions from the landlord. The Company expects that
pre-opening and inventory costs at its future locations will be approximately
$650,000 and $400,000, respectively. The Company also expects to open selected
Units, such as its planned Units in downtown Chicago, at the MGM Grand Hotel
and Casino and Disney's Animal Kingdom, which may cost significantly more.
UNIT LOCATIONS
The following table sets forth certain information about the Company's
existing and planned Units and Units planned to be developed by licensees of
the Company:
<TABLE>
<CAPTION>
DATE OPENED OR
RESTAURANT PLANNED
LOCATION SQUARE FOOTAGE SEATS TO BE OPENED
-------- -------------- ----- ------------
<S> <C> <C> <C>
Mall of America . . . . . . . . . . . . . . . . . 14,900 295 October 1994
Bloomington, MN
23,000 425 October 1995
Woodfield Mall . . . . . . . . . . . . . . . . .
Schaumburg, IL
20,000 300 June 1996
Gurnee Mills . . . . . . . . . . . . . . . . . .
Gurnee, IL
30,000 550 July 1996
Walt Disney World Marketplace . . . . . . . . . .
Orlando, FL
19,500 350 October 1996
Tysons Corner Center I . . . . . . . . . . . . .
McLean, VA
20,000 350 November 1996
Sawgrass Mills . . . . . . . . . . . . . . . . .
Ft. Lauderdale, FL
London(2) . . . . . . . . . . . . . . . . . . . . . 18,000 300 Second Quarter 1997
London, England
Cancun (1) . . . . . . . . . . . . . . . . . . . . 16,000 220 Third Quarter 1997
Cancun, Mexico
South Coast Plaza . . . . . . . . . . . . . . . . 18,000 300 Third Quarter 1997
Costa Mesa, CA
Palisades Center . . . . . . . . . . . . . . . . 22,500 375 Third Quarter 1997
West Nyack, NY
Chicago (Downtown) . . . . . . . . . . . . . . . 21,000 375 Third Quarter 1997
Chicago, IL
The Source . . . . . . . . . . . . . . . . . . . 22,500 375 Third Quarter 1997
Westbury, Long Island, NY
MGM Grand Hotel and Casino . . . . . . . . . . . 23,000 350 Fourth Quarter 1997
Las Vegas, NV
Grapevine Mills . . . . . . . . . . . . . . . . . 21,000 300 Fourth Quarter 1997
Dallas, TX
Phoenix Mills . . . . . . . . . . . . . . . . . . 20,000 300 Fourth Quarter 1997
Phoenix, AZ
Aventura Mall . . . . . . . . . . . . . . . . . . . 22,500 350 Fourth Quarter 1997
Miami, FL
</TABLE>
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<TABLE>
<S> <C> <C> <C>
Disney's Animal Kingdom . . . . . . . . . . . . . 34,000 550 Second Quarter 1998
Orlando, FL
Cherry Creek Mall . . . . . . . . . . . . . . . . 22,000 350 Third Quarter 1998
Denver, CO
</TABLE>
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(1) Developed pursuant to License and Area Development Agreement with
Empresas de Comunicacion y Entretenimiento. See "International License and
Joint Venture Agreements" below.
(2) Developed pursuant to License and Area Development Agreement with
Glendola Leisure Ltd. See "International License and Joint Venture
Agreements" below.
The Company has executed leases for all planned Company-owned Units
indicated above.
INTERNATIONAL LICENSE AND JOINT VENTURE AGREEMENTS
The Company has entered into three separate license arrangements
relating to the development of Rainforest Cafes in the United Kingdom and
Ireland, Mexico and Canada.
United Kingdom and Ireland. In August 1996, the Company entered into
a License and Area Development Agreement with Glendola Leisure Ltd.
("Glendola"), an affiliate of the Foundation Group, a London-based hotel and
restaurant developer and operator, pursuant to which Glendola will develop five
Units over a ten year period in the United Kingdom and Ireland. Pursuant to
this agreement, the Company will have the option to purchase up to 20% of the
equity interest in any Unit developed by Glendola, will receive per Unit
development fees and will receive royalties based upon a percentage of gross
sales. Pursuant to this agreement, the Company has agreed to finance a 20%
interest in a Unit which will be opened at the Trucadero in London during the
second quarter of 1997.
Mexico. In November 1996, the Company entered into a License and Area
Development Agreement with Empresas de Comunicacion y Entretenimiento ("ECE"),
a Mexican-based restaurant owner and operator, pursuant to which ECE will
develop seven Units over a ten year period in Mexico. Pursuant to this
agreement, the Company received a non-refundable development fee, and will
receive per Unit development fees and license fees based upon a percentage of
gross revenues. Pursuant to this agreement, ECE is developing a Unit which
will be opened in Cancun during the second quarter of 1997.
Canada. In January 1997, the Company entered into a Joint Venture
and License Agreement with Elephant & Castle Group, Inc.("Elephant & Castle"),
a Vancouver-based operator of restaurants and pubs. Pursuant to the joint
venture agreement, Elephant & Castle and the Company will each own 50% of a
joint venture that will open 5 Units over a 7 year period. Pursuant to this
agreement, the Company will receive a non- refundable development fee and a
five year option to purchase up to 600,000 shares of Elephant & Castle Common
Stock at $8.00 per share. The first Canadian Unit is scheduled to open during
the first quarter of 1998. Martin J. O'Dowd, President and Chief Operating
Officer of the Company, is a director of Elephant & Castle.
DOMESTIC EXPANSION PLANS AND SITE SELECTION
The Company's domestic site selection strategy is to locate its Units
in high profile, heavy traffic locations. A variety of factors are analyzed in
the site selection process, including local market
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demographics, site visibility, business seasonality and projected Unit
economics. By operating in high profile, heavy traffic locations, the Company
believes its Units appeal to both destination customers as well as passers-by
who are drawn to its visually and audibly exciting environment. The Company
believes that its format, as developed at its existing Units, can be utilized
in a number of high traffic venues with favorable demographics such as shopping
malls, entertainment centers and Disney theme parks.
While most of the future Rainforest Cafes will be located in shopping
malls or entertainment centers, the Walt Disney World Marketplace Unit is a
stand-alone facility located near Orlando, Florida. Customers are able to enter
the Walt Disney World Marketplace Unit without having to enter Disney's
adjacent theme parks. The Rainforest Cafe at Disney's Animal Kingdom, will also
be a stand-alone facility and will be at the entrance to Disney's Animal
Kingdom so patrons will pass the Rainforest Cafe upon entering and leaving the
park. Disney's Animal Kingdom, scheduled to open in 1998, will be approximately
five times larger than Disney's Magic Kingdom, and will feature live and
simulated animal attractions. The 34,000 square foot, 550 seat Unit will be the
only sit-down restaurant at Disney's Animal Kingdom. The Company is continuing
discussions with Disney regarding opening Rainforest Cafes at other locations;
however, no assurance can be given that other Disney sites will be developed.
The Company's Disney leases provide, among other things, that the Company will
not own, operate, develop or manage a restaurant: (i) within a 75 mile radius
of Walt Disney World Marketplace or Disney's Animal Kingdom or (ii) in a theme
park located anywhere in the world that is not affiliated with Disney or its
affiliates. The Company also agreed that it would not open a Unit within 50
miles of current or future theme parks owned by Disney without giving Disney
the right of first refusal with regard to such proposed Unit. The Company
believes that it is currently in compliance with its contractual obligations to
Disney.
RAINFOREST FEATURES
To create a simulated rainforest environment, each Rainforest Cafe
includes the following:
Live Exotic Birds -- Rainforest Cafes display live exotic birds such
as macaws and cockatoos in the Retail Village. The Company has curators
specifically devoted to caring for the birds and fish and for answering guest
questions. When the exotic birds are not on display they are kept and
maintained in a specially designed "habitat room."
Aquariums -- Rainforest Cafes have large aquarium systems, including
walk-through aquariums that contain many varieties of saltwater fish from
locales such as Africa and South America. Aquariums range in size from 750 to
10,000 gallons and are placed throughout each Unit to maximize visibility to
customers.
Tropical Rainstorms and Waterfalls -- Simulated lightning and
thunderstorms "sweep" across each Rainforest Cafe every 20 to 30 minutes.
Rainforest Cafes also utilize a mist system emanating from rock formations
throughout the Unit and rain showers around the perimeter of the Restaurant and
Mushroom Bar area. Other Rainforest Cafe features include cascading waterfalls,
fountains and a ventilation system emitting a light floral aroma.
Trees, Foliage and Animated Animals -- The ceiling level of the
Restaurant and Retail Village of a Rainforest Cafe are intertwined with a
"forest" of sculpted life-like banyan trees that
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creates a canopy of foliage over diners and shoppers. Each banyan tree is
hand-sculpted for a very realistic presentation of its overgrown rooting
system. The Restaurant and Retail Village contains several rock formations,
abundant foliage and jungle-like scenes. Interspersed throughout the facility
are robotic animals such as life-size crocodiles, elephants, gorillas,
dolphins, snakes, butterflies and frogs.
Educational Commitment -- The Company makes each Rainforest Cafe an
environmentally educational experience. The Rainforest Cafe's talking banyan
tree "Tracy" gives environmental messages to help educate and entertain
children. Each Rainforest Cafe has an on-site curator who educates customers,
including school groups, on the tropical birds and the rainforest. The curator
also makes presentations at schools and community organizations.
RESTAURANT
For the fiscal year ended December 29, 1996, approximately 76% of the
Company's total revenues were derived from Restaurant sales. The Company
believes that Rainforest Cafes enjoy a high level of repeat business and
customer diversity because of the Company's commitment to providing high
quality food and customer service in an exciting and entertaining environment.
Features of the Restaurant are as follows:
Menu -- The Company considers its extensive menu selection to be an
important factor in the appeal of its Restaurant and, accordingly, continuous
attention is devoted to the development of new menu items. The Restaurant
features casual cuisine that caters to broad customer preferences. The menu
presently offers several types of appetizers such as "Jungle Chowder,"
"Rainforest Pita Quesadillas" and "Caribbean Chicken Tenders." The menu also
offers different types of pastas, sandwiches, salads, pizzas, burgers and
full-platter entrees, such as "Rasta Pasta" (bow tie pasta tossed in a garlic
cream sauce with grilled chicken, broccoli and pesto), "The Old Man and the
Sea" (swordfish sauteed in cajun spices topped with corn and shrimp salsa), and
"Rumble in the Jungle" (grilled pita bread stuffed with roasted turkey and
Caesar salad). A children's menu and complete dessert selection are also
available. Lunch and dinner entrees range in price from $7.95 to $15.95. The
Restaurant's full-service bar, the "Mushroom Bar," features a number of
customized alcoholic and non-alcoholic drinks, such as the "Don't Panic It's
Organic" (carrot juice), the "Margarilla" (a margarita blended with orange
sherbet) and the "Spotted Chocolate Monkey" (fresh banana- chocolate syrup,
vanilla ice cream and banana liqueur). Alcoholic beverages are primarily served
to complement meals and account for approximately 10% of total restaurant
sales. The average check per person for the fiscal year ended December 29, 1996
was approximately $13.00. Portions are generous and significant attention is
placed on presentation and the quality of preparation. Because the Unit's menu
is not tied to any particular type of food or beverage, the Company can
introduce and eliminate items based on local or current consumer trends without
altering its rainforest theme. The Company endeavors to hire experienced chefs
and invests substantial time training kitchen employees to maintain consistent
food preparation.
Decor -- Restaurant decor is divided into distinctive dining
environments developed around the rainforest and other nature themes. Current
themes include the rainforest atlas and waterfall, gorillas, elephants,
tropical fish and star gazing. Table decor complements the rainforest theme
through the use of brilliantly-colored tablecloths and upholstery with patterns
of animals, wildlife and plant life. In an effort to enhance the dining
experience, attempts are made to maximize restaurant
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seating near aquariums, waterfalls, sculpted rock formations or one of the
Restaurant's several banyan trees. An integral part of the Restaurant is the
"Mushroom Bar," the "stem" of which consists of the bar with a "cap" extending
over the customers. Seating at the bar is provided by customized stools
designed to resemble the legs of wild animals.
Staffing -- An important part of the Company's mission is to ensure
that during each visit to a Rainforest Cafe, customers receive excellent
service. To extend the adventure theme, Restaurant customers are greeted at the
entrance by "tour guides", food servers are known as "safari guides" and the
bartenders are known as "navigators." The "tour guides" at the front desk are
trained to communicate, via headsets, with the floor management staff who
greet Restaurant customers and seat them at their tables. The Company believes
that a customer's experience is enhanced by the attitude and attention of its
personnel. Customer service is based on a team approach so that each customer
is continually attended to, and employees go through extensive ongoing training
to ensure consistent service.
RETAIL VILLAGE
For the fiscal year ended December 29, 1996, approximately 22% of the
Company's total revenues were derived from retail sales. In order to enter the
Restaurant, all customers must pass through the Unit's Retail Village. The
Retail Village offers over 3,000 SKUs and includes apparel and gifts with the
Rainforest Cafe logo and other items with a rainforest theme such as toys and
educational games. The Company has also developed eight proprietary Animal
Characters, each with a distinct personality including Ozzie, a rascally
orangutang; Rio, a colorful, tropical macaw; Tuki Makeeta, an imaginative baby
elephant; Cha! Cha!, an adventuresome tree frog; Nile, a proud crocodile; Maya,
a regal feline; Bamba, a gentle gorilla; and Iggy, a philosophical iguana.
These Animal Characters are designed to appeal to a broad range of customers,
thereby increasing retail sales and repeat business. The Company intends to
utilize each Animal Character for clothing and gifts. Custom designed t-shirts
and sweatshirts with colorful animals spelling out the "Rainforest Cafe" logo
and Animal Characters are signature items. By offering items featuring the
Rainforest Cafe logo and Animal Characters, the Company believes it is building
"brand equity" in the Rainforest Cafe name that will allow it to attract more
customers and to enhance its competitive retail position. The Retail Village
also includes a large selection of colorful rocks, plush and animated toys and
puppets, and educational and entertaining games and puzzles. Gift items and
other artifacts suggesting the rainforest theme, including colorful animal
figurines and prints, kitchen magnets, serving plates and other tableware,
handmade wood products and other unique rainforest related home accessories,
are also available. The Company varies approximately 30% of its retail items
every 60 to 90 days, which management believes provides the Company with an
increased opportunity to generate repeat customer sales. The Company is also
increasing its commitment to private label products, which the Company expects
will improve the Company's retail margins due to the lower cost of private
label products.
OPERATIONS, MANAGEMENT AND EMPLOYEES
The Company's ability to manage complex operations including high
volume Restaurants and Retail Villages has been, and will continue to be,
central to its overall success. The Company believes that its management must
include skilled personnel at all levels, including senior corporate management,
Unit Directors of Operations, and other Unit employees. The Company's senior
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corporate management, including the Company's Chairman and Chief Executive
Officer, Lyle Berman, and the Company's President and Chief Operating Officer,
Martin O'Dowd, has significant restaurant and retail experience. The Company
believes that Unit management is important for the profitability of each
Rainforest Cafe and accordingly, places particular emphasis on recruiting
Directors of Operations that have significant restaurant and management
experience. The Company anticipates that, prior to opening a Unit, a Director
of Operations will have been trained at one or more Rainforest Cafes for four
to six months.
The Company strives to maintain quality and consistency in each of its
Units through the careful training and supervision of personnel and the
establishment of, and adherence to, high standards relating to personnel
performance, food and beverage preparation, and maintenance of facilities. All
managers must complete an eight-week training program during which they are
instructed in areas such as food quality and preparation, customer service, and
employee relations. New staff members participate in approximately three weeks
of training under the close supervision of Company management. The Company has
also prepared operations manuals relating to food and beverage quality and
service standards. Management strives to instill enthusiasm and dedication in
its employees, regularly solicits employee suggestions concerning Company
operations and endeavors to be responsive to employees' concerns. In addition,
the Company has extensive and varied programs designed to recognize and reward
employees for superior performance. The Company believes that it has been able
to attract high quality, experienced restaurant and retail management and
personnel with its competitive compensation and bonus programs.
In general, each Unit has between 250 and 500 employees, although
staffing levels vary according to the size of the Unit. As of March 1, 1997 the
Company had approximately 1900 employees, including 60 employees at its
corporate headquarters. The Company believes that its relationship with its
employees is good.
PURCHASING
The Company strives to obtain consistent quality items at competitive
prices from reliable sources. 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 includes a purchasing manager who 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. Food and supplies are
shipped directly to the Units. The Company purchases perishable food products
locally. The Company does not maintain a central food product warehouse or
commissary. With respect to retail products, the Company maintains over 3,000
SKUs, which it purchases from several suppliers. The Company maintains a
centralized warehouse for retail product distribution. The Company is committed
to private label manufacturing which it believes will improve the Company's
retail margins due to the lower cost of private label products. The Company has
not experienced any significant delays in receiving restaurant or retail
supplies and equipment. The Company is not dependent on any one supplier for
its restaurant or retail goods.
MANAGEMENT INFORMATION SYSTEMS/ACCOUNTING
The Company uses integrated management information systems that are
designed to be utilized in future Units. These systems include a computerized
point-of-sale system which facilitates
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the movement of customer food and beverage orders between the customer areas
and kitchen operations, controls cash, handles credit card authorizations,
keeps track of revenues on a per employee basis and provides management with
revenue and inventory data. The Company's retail/bar coding system allows
management to track inventory daily. The point-of-sale system is accessed by
service personnel who are assigned individual identification keys and
appropriate information is printed in the kitchen and bar areas which
eliminates the need to read handwritten tickets. The point-of-sale system
electronically transfers data nightly to Company headquarters. The Company also
uses a computerized time management system which determines the time worked by
each employee, allows management to gather data and schedule work hours, and
produces payroll reports. Each Unit also uses computerized systems to control
and gather data with respect to food, beverage, retail and supplies
inventories.
The Company's automated Unit-level point-of-sale, time management and
inventory management systems provide data for posting directly to the Company's
general ledger and to other accounting subsystems. The automated general ledger
system provides various management reports comparing current and prior
operating results as well as measuring performance against predetermined
operating budgets. The results are reported to and reviewed with Company
management by accounting personnel. Such reporting includes (i) weekly reports
of revenues, cost of revenues and selected controllable Unit expenses, (ii)
detailed monthly Unit performance reports of revenues and expenses and (iii)
monthly reports of Unit-by-Unit and administrative expense performance.
MARKETING AND PROMOTION
To date, the Company has primarily relied upon "word of mouth"
advertising to attract customers to its Rainforest Cafes. The Company also
utilizes outdoor billboards, distinctive exterior signage and limited print
advertising. The unique and dynamic environment of the Rainforest Cafe and its
tropical bird habitat have resulted in a significant amount of unsolicited
positive media publicity. Additionally, the Company has attempted to create
equity in its "Rainforest Cafe" name by offering items featuring the Rainforest
Cafe logo and Animal Characters. At certain Units, the Company employs a Group
Sales Manager who is responsible for promoting and arranging corporate and
other group catering events at the Unit.
COMPETITION
The restaurant and specialty retail businesses are highly competitive.
In the restaurant industry, competition is based primarily upon price, service,
food quality and location. There are numerous well-established competitors,
including national, regional and local restaurant chains, possessing
substantially greater financial, marketing, personnel and other resources than
the Company. The Company also competes on a general basis with a large variety
of national and regional restaurant operations, as well as with locally owned
restaurants, diners, and other establishments that offer moderately priced
food. The Company competes with other theme restaurants in the highly
competitive and developing theme restaurant market. Other restaurants and
companies utilize the rainforest or related themes. Additionally, the Company
competes with a number of well-established specialty retailers possessing
substantially greater financial, marketing, personnel and other resources than
the Company. In the retail industry, competition is based primarily
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upon merchandise selection, price and customer service. There can be no
assurance that the Company will be able to respond to various competitive
factors affecting the restaurant and retail industries.
The performance of individual Units may also be affected by factors
such as traffic patterns, demographic considerations, and the type, number and
location of competing restaurants. In addition, factors such as inflation,
increased food, labor and employee benefit costs, and the availability of
experienced management and hourly employees may also adversely affect the
restaurant and retail industries in general and the Company's Units in
particular. Restaurant and retail operating costs may be further affected by
increases in the minimum hourly wage, unemployment tax rates, real estate taxes
and similar matters over which the Company has no control.
REGULATION
Restaurants are subject to licensing and regulation by state and local
health, sanitation, safety, fire, and other authorities and are also subject to
state and local licensing and regulation of the sale of alcoholic beverages and
food. Additionally, businesses that maintain or sell animals are subject to
additional levels of state and local health and sanitation regulations. Having
tropical birds as part of the Rainforest Cafe concept requires the Company to
adhere to stringent health codes that prohibit crossover between kitchen
workers and animal handlers, and any exchange of air from the bird areas to the
rest of the Unit. The Company overcame this problem at its existing Units by
installing specially designed air exhaust hoods for the birds' perch area.
Additionally, a separate waste disposal system is provided for the birds.
Although, to date, the Company has satisfied animal-related licensing for its
existing Units, no assurance can be given that the Company will be able to
maintain such approvals or obtain such approvals at other locations.
Difficulties or failure in obtaining required licenses and approvals will
result in delays in, or cancellation of, the opening of Units.
TRADEMARKS
The Company's ability to implement successfully its Rainforest Cafe
concept will depend in part on its ability to further establish "brand equity"
through the use of its trademarks, service marks, trade dress and other
proprietary intellectual property, including its name and logos, the Animal
Characters and unique features of its rainforest theme decor. It is the
Company's policy to seek to protect and to defend vigorously its rights to this
intellectual property; any failure to do so could have a material adverse
effect on the Company's operations.
The Company's mark "A WILD PLACE TO SHOP AND EAT" is now a federally
registered service mark for its restaurant and retail store services.
Additionally, in June 1996 the Company filed federal trademark applications for
"RAINFOREST CAFE A WILD PLACE TO SHOP AND EAT" and the related design, which
includes the Company's new logo, illustrating six of the Company's eight
proprietary Animal Characters. These applications cover the Company's use of
this mark on restaurant and associated retail services and a wide range of
retail products. The Company intends also to protect its proprietary Animal
Characters by the filing of copyright applications and, in certain instances,
trademark registration applications.
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<PAGE> 12
There is no assurance, however, that any such registrations, including the
registration of the name and logo, will be obtained. The denial of one of the
Company's trademark applications could lower the barriers for entry for
potential competitors of the Company.
There is also no assurance that any of the Company's rights in any of
its intellectual property will be enforceable, even if registered, against any
prior users of similar intellectual property or competitors of the Company who
seek to utilize similar intellectual property in areas where the Company
operates or intends to conduct operations. The failure to enforce any of the
Company's intellectual property rights could have the effect of reducing the
Company's ability to capitalize on its efforts to establish brand equity. The
Company is aware of trademark applications, registrations and uses that may
accord to third parties certain rights in the word "rainforest" or in certain
elements of some of the proprietary Animal Character names and illustrations
with respect to utilization of these marks on certain clothing and retail
products. The existence of any such third party rights could result in claims
of infringement against the Company with respect to its uses of "Rainforest
Cafe" or its Animal Characters in connection with its sales of clothing and
other retail products. It is also possible that the Company will encounter
claims from prior users of similar intellectual property in areas where the
Company operates or intends to conduct operations, thereby limiting the
Company's operations, and possibly causing the Company to pay damages to a
prior user or registrant of similar intellectual property. In this regard, the
Company has communicated with other businesses with respect to their use of a
rainforest theme decor that may constitute infringement of, or that may be
infringed upon by, the Company's trade dress.
ITEM 2. PROPERTIES
The Company intends to lease the facilities for each of its Units. It
has entered into long-term ten year leases with respect to its existing Mall of
America, Woodfield Mall, Gurnee Mills and Walt Disney World Marketplace Units,
Tysons Corner Center I and Sawgrass Mills, and its planned Units at Palisades
Center, The Source, Grapevine Mills, Disney's Animal Kingdom, Cherry Creek
Mall, Chicago Downtown, MGM Grand, Arizona Mills, and Aventura Mall and an
eleven year lease for South Coast Plaza. The Company's leases with Disney are
cancelable by the landlord at any time upon 60 days notice and payment by
Disney of the Company's unamortized value of leasehold improvements at the Walt
Disney World Unit or Disney's Animal Kingdom Units, respectively, and an amount
equal to the net operating income generated by such Unit for the previous lease
year. With regard to the Tysons Corner Center I and Cherry Creek Mall leases,
in the event the Company fails to achieve specified gross sales by a certain
date, the lease may be terminated by the landlords. The Company's leases
typically have annual base rent and percentage rents that range from 5 to 15
percent depending upon location and volume of sales.
The Company's executive offices, including retail warehouse space, are
located in Hopkins, Minnesota, under a lease which terminates in June 2000.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material litigation and is not aware
of any threatened litigation that would have a material adverse effect on its
business.
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<PAGE> 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year ended December 29, 1996.
EXECUTIVE OFFICERS OF THE REGISTRANT
Lyle Berman, age 55, has been Chairman of the Board and Chief
Executive Officer of the Company since its inception in February 1994. Mr.
Berman has been Chief Executive Officer and Chairman of the Board of Grand
Casinos, Inc. and its predecessor since October 1990. Mr. Berman is also Chief
Executive Officer and a director of Stratosphere Corporation, and a director of
G-III Apparel Group Ltd., Innovative Gaming Corporation of America and New
Horizon Kids Quest, Inc. Stratosphere Corporation filed for Chapter 11
bankruptcy protection in January 1997.
Martin J. O'Dowd, age 47, has been President and Chief Operating
Officer since May 1995 and has served as a director and Secretary since June
1995. From July 1987 to May 1995, Mr. O'Dowd was Corporate Director, Food &
Beverage Services for Holiday Inn Worldwide. From August 1985 to July 1987, Mr.
O'Dowd was Vice President and General Operations Manager for the Hard Rock Cafe
in New York. Mr. O'Dowd is also a director of Elephant & Castle Group, Inc. and
Famous Daves of America, Inc.
Steven W. Schussler, age 41, has been Executive Vice
President-Development of the Company since its inception and a director of the
Company since January 1995. From 1983 to February 1992, Mr. Schussler was an
officer of Juke Box Saturday Night of Minneapolis, Inc. ("JBSN"), a 1950's and
1960's theme restaurant and nightclub. JBSN filed for bankruptcy in January
1992.
Ercu Ucan, age 41, has been Executive Vice President-Retail of the
Company since its inception and a director of the Company since January 1995.
From September 1992 until December 1993, Mr. Ucan served as President of the
Orjin Textile Group in Istanbul, Turkey, a garment factory employing
approximately 150 persons. From January 1989 until August 1992, Mr. Ucan served
as Director of Trend Merchandising and Director of Product Development for
Wilsons.
Mark S. Robinow, age 40, has been Chief Financial Officer since
November 1995. From August 1993 to June 1995, Mr. Robinow served as Senior Vice
President and Chief Financial Officer of Edina Realty, Inc., the country's
fourth largest residential real estate brokerage company. From December 1986 to
August 1993, Mr. Robinow served as Chief Financial Officer, Secretary and
Treasurer of Ringer Corporation, a publicly held manufacturer of natural lawn
and garden products for the consumer market. Mr. Robinow is a certified public
accountant.
Mark L. Bartholomay, age 37, has been Senior Vice President -
International Development and Operations of the Company since February 1997.
From May 1995 to February 1997 Mr. Bartholomay served as a Vice President and
research analyst of Dain Bosworth, Incorporated, an investment banking firm.
From April 1993 to May 1995, Mr. Bartholomay was Senior Vice President and
Regional Director of Corporate Finance for Principal Financial Securities, Inc.
Prior to that, Mr. Bartholomay was Vice President and Chief Financial Officer
for Universal International, Inc. from
13
<PAGE> 14
February 1992 to April 1993. Before that, Mr. Bartholomay worked in investment
banking from December 1985 to February 1992.
Gregory C. Carey, age 44, has been Vice President-Operations since
August 1996. From May 1996 to August 1996, Mr. Carey served as Director of
Operations at the Company's Walt Disney World Marketplace Unit. From June 1994
to May 1996, Mr. Carey served as Director of Operations at the Company's Mall
of America Unit. From July 1989 to June 1994, Mr. Carey served as Senior
General Manager at Restaurants Unlimited, Inc., an upscale restaurant operating
company. From November 1987 to July 1989, Mr. Carey served as Regional Manager
at General Mills Restaurants, Inc.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Page 24 of the Company's Annual Report to Shareholders for the fiscal
year ended December 29, 1996, are incorporated herein by reference.
The Company has never paid any cash dividends with respect to its
Common Stock and the current policy of the Board of Directors is to retain any
earnings to provide for the growth of the Company.
ITEM 6. SELECTED FINANCIAL DATA
The inside front cover of the Company's Annual Report to Shareholders
for the fiscal year ended December 29, 1996, is incorporated herein by
reference.
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<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Pages 10 through 14 of the Company's Annual Report to Shareholders for
the fiscal year ended December 29, 1996, are incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS
Pages 15 through Page 23 of the Company's Annual Report to
Shareholders for the fiscal year ended December 29, 1996, are incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information beginning immediately following the caption "Election
of Directors" to, but not including, the caption "Executive Compensation" in
the Company's Proxy Statement, to be filed with the Securities and Exchange
Commission within 120 days after the close of the Company's fiscal year ended
December 29, 1996 and forwarded to stockholders prior to the Company's 1997
Annual Meeting of Shareholders (the "1997 Proxy Statement"), is incorporated
herein by reference.
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<PAGE> 16
ITEM 11. EXECUTIVE COMPENSATION
The information in the 1997 Proxy Statement beginning immediately
following the caption "Executive Compensation" to, but not including, the
caption "Compensation Committee Interlocks and Insider Participation," is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information in the 1997 Proxy Statement beginning immediately
following the caption "Voting Securities and Principal Holders Thereof" to, but
not including, the caption "Election of Directors," is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information in the 1997 Proxy Statement under the caption "Certain
Transactions" is incorporated herein by reference.
16
<PAGE> 17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
<TABLE>
<CAPTION>
(a)(1) Financial Statements:
Page
----
<S> <C>
Balance Sheets as of December 29, 1996 and December 31, 1995
15
Statements of Operations for the fiscal years ended December 29, 1996 and December 16
31, 1995 and for the period from February 3, 1994 through January 1, 1995
Statements of Shareholders' Equity for the fiscal years ended December 29, 1996 and 17
December 31, 1995 and for the period from February 3, 1994 through January 1, 1995
Statements of Cash Flows for the fiscal years ended December 29, 1996 and December 18
31, 1995 and for the period from February 3, 1994 through January 1, 1995
Notes to Financial Statements 19
Independent Auditors' Reports 23
-------------------------------
</TABLE>
17
<PAGE> 18
(a)(3) Exhibits
<TABLE>
<S> <C>
3.1 Articles of Incorporation, as amended. (1)
3.2 By-laws. (1)
10.1 Lease Agreement by and between Mall of America, Inc. and the Company dated March 31, 1994. (1)
10.2 Lease Agreement by and between the Company and Woodfield Mall dated April 1995. (2)
10.3 Lease Agreement by and between the Company and Walt Disney World dated September 6, 1995. (3)
10.4 Company's 1995 Stock Option and Compensation Plan. (1)
10.5 Employment Agreement dated February 1, 1995 by and between the Company and Steven W. Schussler. (1)
10.6 Employment Agreement dated April 6, 1995 by and between the Company and Martin J. O'Dowd. (1)
10.7 Indemnification Agreement dated April 6, 1995 by and between the Company and Steven Schussler. (1)
10.8 Form of Director Stock Option Agreement dated April 7, 1995. (1)
10.9 Form of Escrow Agreement dated April 7, 1995 by and among the Company, the Commissioner of Commerce of the State
of Minnesota, Lyle Berman, Steve Schussler, Ercu Ucan, David Rogers and Joel Waller. (1)
10.10 Lease Agreement by and between the Company and Trump Taj Mahal Associates dated December 6, 1995.(3)
10.11 Form of Lease Agreement by and between the Company and Strato-Retail LLC.(4)
10.12 Company's 1996 Employee Stock Purchase Plan.
13. Annual Report to Shareholders for the fiscal year ended December 29, 1996.
21. Subsidiaries of Company.
23.1 Consent of Lund Koehler Cox & Company, PLLP.
23.2 Consent of Arthur Andersen LLP.
27. Financial Data Schedule.
</TABLE>
- -----------------
(1) Incorporated herein by reference to the Company's Registration Statement on
Form SB-2, File No. 33-89256C.
(2) Incorporated herein by reference to the Company's Form 10-QSB for the
quarter ended April 2, 1995.
(3) Incorporated herein by reference to the Company's Registration Statement on
Form S-1, File No. 33-99836.
(4) Incorporated herein by reference to the Company's Form 10-K for the fiscal
year ended December 31, 1995.
(b) Reports on Form 8-K.
No Current Reports on Form 8-K were filed during the fourth quarter ended
December 29, 1996.
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<PAGE> 19
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
RAINFOREST CAFE, INC.
Registrant
Date: March 26, 1997 By:/s/ Lyle Berman
--------------------------------
Name:
Title: Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities
indicated on March 26, 1996.
<TABLE>
<CAPTION>
Name Title
---- -----
<S> <C>
/s/ Lyle Berman Chairman of the Board, Chief Executive Officer, and
- ---------------------------------------------------- Secretary (principal executive officer)
Lyle Berman
/s/ Steven W. Schussler Executive Vice President and Director
- ----------------------------------------------------
Steven W. Schussler
President, Chief Operating Officer and Director
- ----------------------------------------------------
Martin J. O'Dowd
Executive Vice President and Director
- ----------------------------------------------------
Ercu Ucan
/s/ David W. Anderson Director
- ----------------------------------------------------
David W. Anderson
Director
- ----------------------------------------------------
David L. Rogers
/s/ Joel N. Waller Director
- ----------------------------------------------------
Joel N. Waller
/s/ Kenneth W. Brimmer Director
- ----------------------------------------------------
Kenneth W. Brimmer
/s/ Mark S. Robinow Chief Financial Officer (principal financial
- ---------------------------------------------------- officer and principal accounting officer)
Mark S. Robinow
</TABLE>
19
<PAGE> 1
EXHIBIT 10.12
RAINFOREST CAFE, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
1. WHAT IS THE PURPOSE OF THE PLAN?
The purpose of this 1996 Employee Stock Purchase Plan (the "Plan") is
to provide employees of Rainforest Cafe, Inc. (the "Company") and its
subsidiaries (as defined in Section 424(f) of the Internal Revenue
Code of 1986, as amended (the "Code")) an opportunity to share in the
Company's financial growth through ownership of Common Stock of the
Company (the "Common Stock") made available to employees at
preferential prices.
The Plan provides a convenient method for employees to purchase the
Common Stock at a cost below the market price and without payment of
brokerage commissions or fees. Purchases under the Plan are intended
to qualify as exercises of options (the "Purchase Rights") granted
under an employee stock purchase plan, as defined by Section 423 of
the Code. The Plan is intended as an incentive for continuing
employment with the Company and to encourage employees to take an
ownership interest in the Company's future.
2. WHO IS ELIGIBLE TO PARTICIPATE IN THE PLAN?
All regular, full-time employees of the Company who have been so
employed for more than 90 days at the most current Enrollment Date
(the "Eligible Employees") are eligible to participate in the Plan.
The "Enrollment Date" shall be the first business day of each calendar
quarter.
Any employee who beneficially owns 5% or more of the total voting
power or value of the stock of the Company is not eligible to
participate in the Plan.
No purchase rights shall be granted under the Plan to any person who
is not an Eligible Employee, and no Eligible Employee shall be granted
purchase rights under the Plan (a) if such Eligible Employee,
immediately after receiving the grant of such purchase rights under
the Plan owns (under the rules of Section 423(b)(3) and 425(d) of the
Code) stock possessing five percent or more of the total combined
voting power or value of all classes of stock of the Company or any of
its subsidiary corporations (as defined by Section 425(f) of the
Code); or (b) which permits such Eligible Employee's rights to
purchase stock under all employee stock purchase plans of the Company
to accrue at a rate which exceeds $25,000 of fair market value of
stock (determined at the time such purchase rights are granted) for
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each calendar year in which such purchase rights are outstanding at
any time. For purposes of the preceding sentence, the determination
of when the right to purchase stock pursuant to purchase rights
granted under the Plan accrues, and the rate at which such rights
accrue, shall be made in the manner provided by Section 423(b)(8) of
the Code.
3. HOW MAY I ENROLL IN THE PLAN?
Each Eligible Employee who completes and delivers the payroll
deduction authorization forms to the Human Resources Department shall
become a "Participant." These forms authorize a regular payroll
deduction from employee compensation and must state the date on which
the deductions should begin. This may not be retroactive.
4. HOW OFTEN WILL THE PURCHASE OF STOCK BE OFFERED?
The Plan shall become effective on July 1, 1996, provided that the
Plan has then been adopted by the Board of Directors (hereinafter
called the "Board") of the Company, and approved at a duly called
meeting (or any adjournment thereof) of the shareholders of the
Company, by the holders of a majority of the then outstanding shares
of stock of the Company voting at such meeting.
The Company will issue shares under the Plan, and the Plan will
purchase such shares for Participants, on the last business day of
each calendar quarter in which there are sufficient funds in a
Participant's account to purchase one or more full shares (or, if such
stock is not traded on such say, the next preceding business day on
which such stock was traded).
5. WHAT AMOUNT MAY I HAVE DEDUCTED?
The Company will maintain payroll deduction accounts for all
Participants. No amounts other than such payroll deductions may be
credited to such deduction amounts. No interest shall be payable to
Participants on account of any amounts held in the deduction accounts.
With respect to any offering made under this plan, each Eligible
Employee may authorize a payroll deduction of whole number percentages
of a minimum of 2% up to a maximum of 15% of the gross compensation of
such Eligible Employee received during the offering period (or during
such portion thereof as elects to participate).
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<PAGE> 3
6. WHAT KIND OF SHARES MAY I PURCHASE?
The shares of Common Stock of the Company to be issued under this Plan
are authorized but unissued shares or the Company's Common Stock.
7. HOW MANY SHARES MAY I PURCHASE?
Participants participating in any offering of this Plan (upon the
effective date of such offering), will be granted an option to
purchase as many full shares of Common Stock of the Company as such
Participant chooses to purchase using the following amounts:
a. up to 15% of compensation received during the specified
offering period (or during the portion such Participant
chooses to participate), to be paid by payroll deductions
during such period; and
b. the balance of fractional shares (if any) carried forward from
the payroll deduction account of such Participant for the
preceding offering period.
Notwithstanding the foregoing, in no event may the value of shares of
Common Stock purchased by a Participant, pursuant to the Plan during a
calendar year exceed $25,000.
8. WHAT PRICE WILL I PAY?
The purchase price for each share purchased will be the lower of 85%
of the fair market value on 1) the first business day of each calendar
quarter or 2) the last business day of each calendar quarter in which
there are sufficient funds in a Participant's account to purchase one
or more full shares.
The fair market value of a share of Common Stock shall be deemed to be
the closing sales price of such stock on the Nasdaq National Market,
or any successor national securities exchange on which the Common
Stock is listed or, if such Common Stock is not traded on that day,
then on the next preceding day on which such Common Stock was traded.
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<PAGE> 4
9. WHAT ACCOUNTING OF MY CONTRIBUTIONS AND STOCK PURCHASES IS MAINTAINED?
The Plan will be administered by a committee (the "Committee") as
designated by the Board of Directors of the Company. Members of the
Committee may be appointed from time to time by the Board and shall be
subject to removal by the Board. The decision of a majority in number
of the members of the Committee in office at the time shall be deemed
to be the decision of the Committee.
The Committee, together with an agent (the "Agent") appointed by the
Committee, shall administer the Plan so as to ensure that all
Participants granted purchase rights under the Plan have the same
rights and privileges as provided by Section 423(b)(5) of the Code.
The Committee may, from time to time, approve the forms of any
documents or writings provided for in the Plan, may adopt, amend and
rescind rules and regulations not inconsistent with the Plan for
carrying out the Plan and may construe the Plan. As of the last
business day of each month during any offering period, the Agent will
total each deduction account. To the extent a Participant's deduction
account contains sufficient funds to purchase one or more full shares
as of that date, such Participant will be deemed to have exercised an
option to purchase a full share or shares and his or her deduction
account will be charged for the amount of purchase. Subsequent full
shares would be purchased in the same manner.
Any balance of fractional shares remaining in any Participant's
deduction account at the end of an offering period will be carried
forward into his or her deduction account for the following offering
period. In no event will the balance carried forward be equal to or
greater than the purchase price of one share on the last business day
of the last month of the offering period.
For example:
If in the month of March, $17 is withheld from a Participant's
paycheck, that Participant's deduction account will be credited with
that amount. Then the Committee will allocate shares of Common Stock
to the account of such Participant based on the market price on the
last business day of March (the end of the calendar quarter).
Assuming the market price on that day is $20, the account of the
Participant would be charged for the $17 ($20 x 85%), one full share
of Common Stock would be credited to the account of such Participant.
If $24.50 had been withheld from the paycheck of the Participant in
March, his or her deduction account would be credited with 1.441
shares of Common Stock ($24.50 divided by the $17 share price).
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<PAGE> 5
10. HOW DO I RECEIVE SHARES?
Notwithstanding any other provision of the Plan, the Company shall
have no obligation to issue any shares of Common Stock under the Plan
unless such issuance would comply with all applicable laws and the
applicable regulations or requirements of any securities exchanges or
similar entities. If, at any time, the Company, in its sole
discretion, determines that the listing, registration or qualification
(or any updating of any such document) of the shares of Common Stock
issuable pursuant thereto is necessary on any securities exchange or
under any federal or state securities or blue sky law, or that the
consent or approval of any governmental regulatory body is necessary
or desirable as a condition of, or in connection with, the issuance of
shares of Common Stock pursuant to the exercise of purchase rights,
shares shall not be issued pursuant to such exercise, in whole or in
part, unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions
not acceptable to the Company.
With respect to any person who is subject to section 16(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Committee may, at any time, add such conditions and limitations to any
purchase rights under the Plan that it deems necessary or desirable to
comply with the requirements of Rule 16b-3 promulgated under the
Exchange Act; provided, however, that any rights or privileges that
are extended to such persons shall be extended uniformly to all
eligible employees.
The Company will periodically (but not less often than annually)
deliver to each Participant certificates for full common shares
purchased under the Plan. Otherwise, the certificates will be
delivered only if:
a) a Participant withdraws from the Plan, or
b) a Participant or his or her legal Representative
requests them.
An Eligible Employee or Participant shall not by reason of the Plan or
any purchase rights granted under the Plan, have any rights of a
shareholder until and to the extent (s)he shall, from time to time,
exercise his or her purchase rights, but, upon each such exercise,
(s)he shall have all the rights of a shareholder of record on the day
on which such exercise occurs with respect to the shares of Common
Stock as to which such purchase rights are exercised, and the Company
may defer delivery of certificates evidencing such shares for a
reasonable time.
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11. HOW DO I RECEIVE REPORTS OF MY ACCOUNT?
The Committee or the Agent will provide each Participant with a
periodic statement showing the cash withheld and invested, purchase
price per share, shares purchased and shares held for such Participant
by the Committee or the Agent.
12. CAN I CHANGE THE AMOUNT OF MY DEDUCTION?
A payroll deduction may be increased only once and reduced only once
during any offering period (see 4.0). Each Participant may increase
or decrease his or her payroll deduction at any time by filling out
new authorization forms. The change may not become effective sooner
than the next pay period after receipt of the form.
13. MAY I WITHDRAW FROM THE PLAN ANY TIME?
Each Participant may at any time and for any reason permanently
withdraw the balance accumulated in his or her deduction account and
thereby withdraw from participation in the Plan. Such Participants
may thereafter begin participation again only at or after the
commencement of a new offering period. Partial withdrawals may be
permitted at the discretion of the Committee.
14. IN WHOSE NAME MAY STOCK CERTIFICATES BE ISSUED?
Certificates may be registered in the name of the Participant only,
or, if such Participant indicates on his or her authorization form, in
the name of such Participant jointly with a member of his or her
family with right of survivorship. If the Participant is a resident
of a jurisdiction which does not recognize such a joint tenancy, such
Participant may have certificates registered in the name of such
Participant as tenant in common with a member of his or her family,
without right of survivorship.
15. ARE MY RIGHTS UNDER THIS PLAN TRANSFERABLE?
Rights under this Plan are not transferable other than by will or the
laws of descent and distribution, and are exercisable by the
Participant only, during the lifetime of such Participant.
16. DO I RECEIVE INTEREST ON CASH WITHHELD FROM MY PAYCHECK?
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In view of the discounted purchase price, no interest will be paid on
cash withheld prior to purchase of shares.
17. WHAT HAPPENS DURING MY ABSENCE FROM WORK?
Payroll deductions continue during any time off with pay, but stop
during approved time off without pay, though such Participant is still
enrolled in the Plan. Deductions automatically resume upon each
Participant's return to work.
18. WHAT IF MY EMPLOYMENT ENDS?
In the event retirement or termination of employment with the Company,
the balance of shares and cash in the deduction account of such
Participant will be issued to such Participant, or in the event of the
death of a Participant, to the estate of such Participant.
19. WHAT IS THE MAXIMUM NUMBER OF SHARES IN THE PLAN AND WHAT ARE THE
EFFECTS OF A STOCK SPLIT OR DIVIDEND?
The maximum number of shares of Common Stock which may be purchased
under the Plan is 150,000, subject to adjustment as hereinafter set
forth.
In the event of a subdivision of outstanding shares, or the payment of
a stock dividend, the number of shares approved for this Plan shall be
increased proportionately, and such other adjustment shall be made as
may be deemed equitable by the Board of Directors. In the event of
any other change affecting the Company's shares of Common Stock, such
adjustment shall be made as may be deemed equitable by the Board of
Directors to give proper effect to such event.
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20. WHAT ARE THE TAX CONSEQUENCES?
All amounts withheld pursuant to the Plan, shares issued pursuant to
the exercise of any purchase rights and any payments pursuant to the
Plan are subject to withholding of all applicable taxes and the
Company shall have the right to withhold from any payment or
distribution of shares or to collect as a condition of any payment or
distribution under the Plan, as applicable, any taxes required by law
to be withheld. To the extent provided by the Committee, an employee
may elect to have any distribution of shares otherwise required to be
made pursuant to the Plan to be withheld or to surrender to the
Company or Company shares of Common Stock already owned by the
employee to fulfill any tax withholding obligation.
This description of federal income tax consequences is merely to help
Participants understand them and is in no way complete. Participants
having questions on how the Plan affects their individual tax
situation, should seek competent professional advice.
21. WHAT ARE MY CONTRIBUTIONS TO THE PLAN USED FOR?
All funds received or held by the Company under this Plan may be used
for any corporate purpose.
22. HOW IS THE PLAN ADMINISTERED?
The Plan is administered by the Board of Directors of the Company or
by a committee of directors who are not eligible to participate in the
Plan.
The Directors are responsible for general administration of the Plan,
proper execution of its provisions, construction of the Plan and
determination of all questions arising thereunder. It has power to
establish, interpret and enforce rules and regulations for
administration, provided such rules and regulations are uniformly
applicable to all persons similarly situated.
23. WHEN DOES THE PLAN END?
This Plan and all rights of Participants under any offering hereunder
shall terminate:
a. on the date that Participants become entitled to purchase a
number of shares equal to or greater than the number of shares
remaining available for purchase.
A-8
<PAGE> 9
If the number of shares so purchasable is greater than the
shares remaining available, the available shares shall be
allocated by the Committee among such participating employees
in such manner as it deems fair; or
b. at any time, at the discretion of the Board of Directors.
Upon termination of this Plan, all amounts in the accounts of
Participants shall be carried forward into such Participant's
deduction account under a successor Plan, if any, or promptly
refunded.
A-9
<PAGE> 10
AUTHORIZATION FOR ENROLLMENT IN
1996 EMPLOYEE STOCK PURCHASE PLAN
I hereby authorize Rainforest Cafe, Inc. to establish an account in my name and
make payroll deductions to purchase shares of Common Stock of Rainforest Cafe,
Inc.
This authorization is given with the understanding that I may withdraw from the
Plan at any time by notifying Cindee Kohagen of Rainforest Cafe, Inc.
EMPLOYEE'S NAME ________________________________________________________________
SOCIAL SECURITY NO._____________________________________________________________
ACCOUNT REGISTRATION Individual / / Joint / /
NAME(S):
EMPLOYEE: ______________________________________________________________________
First Middle Last
JOINT OWNER:____________________________________________________________________
(if any) First Middle Last
ADDRESS: ______________________________________________________________________
Number Street Apt./Suite No.
______________________________________________________________________
City State
Zip
Telephone: _____________________________________________________
DATE _________________
EMPLOYEE SIGNATURE _____________________________________________________________
JOINT OWNER SIGNATURE __________________________________________________________
(if any)
A-10
<PAGE> 11
1996 EMPLOYEE STOCK PURCHASE PLAN
AUTHORIZATION FOR PAYROLL DEDUCTION
Name _______________________________________________ Date _____________________
First Middle Last
Social Security No. ____________ Employee No. ________________________________
Department _____________________
In accordance with the 1996 Employee Stock Purchase Plan of Rainforest Cafe,
Inc., I hereby authorize the Company to:
/ / Deduct _____ % of my gross payroll earnings during each pay period.
/ / Change my payroll deduction to __________ % per pay period.
/ / Withdraw my enrollment to the plan.
I understand the terms of the Employee Stock Purchase Plan as outlined in the
Prospectus, and can withdraw my voluntary participation at any time.
_______________________________
Signature of Employee
A-11
<PAGE> 1
EXHIBIT 13
FINANCIAL HIGHLIGHTS DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
FISCAL YEAR 1996 1995 1994
<S> <C> <C> <C>
Revenues $ 48,706 $ 13,451 $ 2,066
Operating Income (Loss) 8,889 2,166 (20)
Pre-Tax Income (Loss) 9,240 1,169 (1) (1,628)
Net Income (Loss) 5,924 1,169 (1) (1,628)
Net Income (Loss) Per Share .41 .16 (1) (.46)
Weighted Average Shares Outstanding 14,391,000 7,312,000 3,543,000
AT YEAR END
Working Capital $ 118,320 $ 15,490 $ (467)
Total Assets 220,701 31,209 3,837
Shareholders' Equity 203,954 26,355 1,793
</TABLE>
(1) Before extraordinary item
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The Company, founded in February 1994, owns, operates, and licenses themed
restaurant/retail facilities ("Unit") under the name "Rainforest Cafe - A Wild
Place to Shop and Eat(R)." As of December 29, 1996, the Company operated six
Units. The Company's initial Unit opened on October 3, 1994 in the Mall of
America in Bloomington, Minnesota. The Company's second Unit opened on October
20, 1995 in the Woodfield Mall in Schaumburg, Illinois, a suburb of Chicago.
The Company's third Unit opened June 2, 1996, in the Gurnee Mills Mall in
Gurnee, Illinois, a suburb of Chicago.
The Company opened its fourth and largest Unit on July 25, 1996, at Walt Disney
World Marketplace near Orlando, Florida. The Walt Disney World Marketplace Unit
is approximately 30,000 square feet, which includes approximately 6,000 square
feet of retail selling space. The Walt Disney World Marketplace Unit had
revenues for the twenty-two and one half weeks ended December 29, 1996 of $13.2
million, which is not necessarily indicative of the results that would actually
occur for a full fiscal year of operations. The Company opened its fifth unit
on October 3,1996, at Tysons Corner Center I, in McLean Virginia, a suburb of
Washington, D.C. and its sixth unit on November 22, 1996, at Sawgrass Mills
Mall in Fort Lauderdale, Florida.
The Company presently plans to develop eight domestic Units each in 1997 and
1998. Because the Company anticipates rapid expansion, period to period
comparisons may not be meaningful. The Company intends to lease its domestic
Units and anticipates that most of its future domestic Units will range in size
from approximately 16,000 to 23,000 square feet, with between 300 and 400
restaurant seats and approximately 20-25% of square footage dedicated to retail
selling space. However, some Units may be significantly larger, such as the
free-standing Walt Disney World Marketplace Unit, and the planned free-standing
Disney's Animal Kingdom Unit, which is expected to comprise approximately 36,000
square feet and have approximately 550 restaurant seats.
In September 1996, the Company entered into an exclusive license agreement with
Empresas de Comunicacion y Entretenimiento ("ECE"), a Mexican based owner and
operator of seven Hard Rock Cafes, three Planet Hollywoods and an Official
All-Star Cafe in Mexico, under which ECE will develop seven Rainforest Cafes in
Mexico over a ten year period. Pursuant to this agreement, the Company received
a non-refundable licensing fee of $750,000 in September 1996. Under the terms of
the agreement the Company will receive per Unit development and licensing fees
of $100,000 and royalties of six percent of food and beverage sales and ten
percent of merchandise sales. The Company anticipates that the first Unit will
be opened in Cancun in the third quarter of 1997.
In October 1996, the Company entered into an exclusive license agreement with
Glendola Leisure, Ltd., ("Glendola") a wholly-owned subsidiary of the Foundation
Group, a London-based hotel and restaurant operator, under which Glendola will
develop five Rainforest Cafes in the United Kingdom and Ireland over a ten year
period. Pursuant to this agreement, the Company will have the option to purchase
up to 20% of the equity interest in any Unit developed by Glendola. The Company
will receive per Unit development fees of $100,000 and will receive royalties of
approximately five percent of sales. The Company has elected to purchase
twenty-percent of the first Unit to be opened under this agreement at the
Trucadero in London, England in late June of 1997.
In March 1997, the Company completed a joint venture and exclusive license
agreement with the Elephant and Castle Group ("E & C"), a Vancouver based owner
and operator of Elephant and Castle pubs and restaurants. E & C and the Company
agreed to develop five Rainforest Cafes in Canada over a seven year period.
Under the terms of the above agreements, the Company will receive from E & C a
$500,000 non refundable licensing fee and a warrant to purchase 600,000 shares
of E & C stock at $8.00 per share exercisable for a period of five years. In
addition, the Company and E & C will have a fifty-percent equity interest in the
joint venture Rainforest Cafe Canada, Inc. ("RCCI"). The Company will receive
per Unit development fees of $100,000 and will receive royalties of
approximately six percent of food and beverage sales and ten percent of
merchandise sales. The Company will have the option to purchase the remaining
fifty-percent of RCCI after seven years based on a predetermined formula of cash
flow and investment.
Components of operating expenses include operating payroll and fringe benefits
costs, occupancy costs, maintenance costs related to the bird habitat and
aquariums, and advertising and promotion costs. The majority of these costs are
variable and will increase with sales volume. Management projects that when a
new Unit opens, it will incur higher than normal levels of labor and food costs
as Unit personnel complete training. Management believes, however, that as new
staff
10
<PAGE> 3
gain experience, hourly labor schedules over the ensuing 30-60 day period will
be gradually adjusted to provide operating efficiences similar to those at
established Units. Each of the Company's current leases includes both fixed
rate and percentage rent provisions.
The Company's policy is to capitalize costs associated with the opening of
Units, including the cost of hiring and training the initial workforce, travel
and other direct costs, if it is determined these costs are recoverable. These
costs are then amortized over the eleven month period following the opening of
a Unit beginning the first full month of operation. The Company charged to
operations all pre-opening costs for the Mall of America Unit during the period
ended October 2, 1994 due to the developmental nature of this Unit. Pre-opening
costs for units opened in fiscal year 1995 and 1996 averaged approximately
$650,000 per unit except for the Walt Disney World Marketplace Unit which
incurred approximately $1.2 million pre-opening costs. General, administrative
and development expenses include all corporate and administrative functions
that serve to support existing operations and provide an infrastructure to
support future growth. In addition, certain expenses of recruiting and training
Unit management personnel prior to meeting the criteria to be capitalized as
pre-opening expenses are also included. Management, supervisory and staff
salaries, employee benefits, travel, information systems, training, rent and
office supplies are major items of costs in this category.
The Company uses a 52 or 53 week fiscal year ending on the Sunday nearest
December 31.
RESULTS OF OPERATIONS
The operating results of the Company expressed as a percentage of total
revenues (except where noted) were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 3, 1994
DECEMBER 29, DECEMBER 31, (INCEPTION) THROUGH
1996 1995 JANUARY 1, 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Restaurant sales 76.2% 74.2% 64.7%
Retail sales 22.3 25.8 35.3
Licensing fee 1.5 - -
----------------------------------------------
Total revenues 100.0 100.0 100.0
Costs and expenses
Food and beverage costs(1) 25.0 27.8 33.7
Cost of retail goods sold(2) 44.8 44.6 53.9
Restaurant operating expenses(1) 49.3 53.8 57.5
Retail operating expenses(2) 32.7 28.9 55.3
Depreciation and amortization(3) 4.8 3.5 3.4
Preopening amortization(3) 3.1 0.8 -
----------------------------------------------
Total costs and expenses(3) 81.7 83.9 100.9
----------------------------------------------
Income (loss) from unit operations & licensing 18.3 16.1 (0.9)
----------------------------------------------
Other (income) expenses
General, administrative and development expences 9.6 9.4 65.6
Interest income 10.7 (2.0) --
Other 0.4 - 12.3
----------------------------------------------
Total other (income) expenses (0.7) 7.4 77.9
----------------------------------------------
Income before income taxes and extraordinary item 19.0 8.7 (78.8)
Provision for income taxes 6.8 - -
----------------------------------------------
Income before extraordinary item 12.2 8.7 (78.8)
Extraordinary item - 7.8 -
----------------------------------------------
Net income (loss) 12.2% 0.9% (78.8)%
==============================================
</TABLE>
(1)Percentage of restaurant sales, (2)Percentage of retail sales,
(3)Percentage of unit sales
11
<PAGE> 4
YEAR ENDED DECEMBER 29, 1996 COMPARED
TO THE YEAR ENDED DECEMBER 31, 1995
Results of operations for the fiscal year ended December 31, 1995 reflect the
operations of the Mall of America Unit for the entire year and the Woodfield
Mall Unit which commenced operations on October 20, 1995. Revenues for the Mall
of America Unit and Woodfield Mall Unit were $10.4 million and $3.1 million
respectively in 1995.
Total revenues increased 262% to $48.7 million in 1996 from $13.5 million in
1995. The increase in total revenues was primarily due to the operation of the
Woodfield Mall Unit for the entire year ($10.4 million), the addition of the
Gurnee Mills Unit ($5.6 million), the addition of the Walt Disney World
Marketplace Unit ($13.2 million), the addition of the Tysons Corner Unit ($3.0
million), the addition of the Sawgrass Mills Unit ($1.4 million) and the
addition of 85 restaurant seats at the Mall of America Unit in August 1995
($1.2 million). Retail sales decreased as a percentage of total sales from
25.8% for the 1995 fiscal year to 22.3% for the 1996 fiscal year. The decrease
in the percentage of retail sales is primarily due to the increase in
restaurant seating at the Mall of America Unit and the addition of the
Woodfield, Gurnee, Tysons and Sawgrass Units where retail sales as a
percentage of total sales averaged approximately 20%.
Food and beverage costs increased 233% to $9.3 million for fiscal 1996
compared to $2.8 million for fiscal 1995. The increase in food and beverage
cost was primarily due to Unit expansion. Food and beverage costs decreased as
a percentage of restaurant sales for 1996 compared to 1995 largely due to
improvements of food preparation, purchasing efficiencies and favorable
commodity prices.
Cost of retail goods sold increased 214% to $4.9 million for fiscal 1996
compared to $1.5 million fiscal 1995. The increase in cost of retail goods sold
was due to Unit expansion and the addition of an expanded retail distribution
center during 1996. Cost of retail goods sold remained relatively flat as a
percentage of retail sales in 1996 and 1995.
Restaurant and retail operating expenses increased 241% and 255% respectively
in fiscal 1996 compared to fiscal 1995. The increase in restaurant and retail
operating expenses was primarily due to Unit expansion. Restaurant operating
expenses decreased as a percentage of restaurant sales from 53.8% in 1995
to 49.3% in 1996. The decrease as a percentage of restaurant sales was
due to more efficient labor usage, negotiated price reductions for restaurant
supplies and lower occupancy costs as a percentage of sales for the Company's
Gurnee Mills, Tysons Corner and Sawgrass Mills Units.
Retail operating expenses as a percentage of retail sales increased from 28.9%
in 1995 to 32.7% in 1996. During August of 1996 the Company introduced new
retail packaging materials which adversely affected retail operating expenses
in the later part of the year. In addition, the increase in retail operating
expenses as a percentage of retail sales was due to the decrease in retail
sales as a percentage of total sales and increased floor coverage during peak
selling periods.
Depreciation and amortization expense increased 391% to $2.3 million in fiscal
1996 from $475,000 in fiscal 1995. Preopening amortization increased from
$115,000 in 1995 to $1.5 million in 1996. Preopening amortization during fiscal
1995 included two months of amortization expense for the Woodfield Mall Unit
only. The increase in depreciation and amortization and preopening amortization
expense was primarily due to unit expansion in 1996.
General, administration and development expenses increased 271% to $4.7 million
in fiscal 1996 compared to $1.3 million in fiscal 1995. The increase in
general, administrative and development expenses in fiscal 1996 was due to the
addition of senior management, corporate employees and Unit management
personnel in training.
Interest income of $5.2 million for fiscal 1996 was generated primarily by
investing the proceeds from the Company's two secondary public offerings
completed in January and September 1996. Interest income of $482,000 for fiscal
1995 was generated primarily by investing the proceeds from the exercise of the
Class A Warrants and common stock issued as part of the Company's initial public
offering (IPO). During fiscal 1995 the Company recorded $186,000 in interest
expense due to amortization of loan discount.
The Provision for income taxes in 1996 is based upon the Company's effective
tax rate, including benefits for approximately $350,000 in net operating loss
carryforwards and approximately $800,000 in tax exempt interest income. The
Company did not record a provision for federal or state income taxes in 1995
because net operating loss carryforwards were used to offset income tax
liabilities.
12
<PAGE> 5
PERIOD FROM FEBRUARY 3, 1994 (INCEPTION) THROUGH JANUARY 1, 1995
The Company had no revenues for the period from February 3, 1994 (Inception)
through October 2, 1994. During this period, the Company developed the
Rainforest Cafe concept and completed construction of the Mall of America Unit
during the period ended January 1, 1995.
For the period from February 3, 1994 (Inception) through January 1, 1995, the
Company reported total revenues of $2.1 million and a net loss of $1.6 million.
This loss can be attributed primarily to the costs and expenses related to the
development of the Rainforest Cafe concept, the Mall of America Unit and the
building of the Company's operating structure. Accordingly, comparisons
between this period and the corresponding 1995 period are not meaningful.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital needs arise from the development and opening of
new Units. Prior to the IPO, completed on April 7, 1995, the Company met its
capital requirements through the private placement of debt and Common Stock,
landlord contributions and cash flow from operations. During the period from
February 3, 1994 (inception) through July 2, 1994, the Company sold 2,969,400
shares of Common Stock in private transactions resulting in net proceeds to the
Company of approximately $2.0 million. The Company also received approximately
$1.3 million from the issuance of promissory notes to certain of its
shareholders. In addition, the Company acquired certain assets from a principal
shareholder in exchange for a $370,125 promissory note.
In April 1995, the Company completed an IPO of 2,587,500 units with each unit
consisting of one share of Common Stock and one Class A Warrant. The IPO
resulted in net proceeds to the Company of approximately $9.0 million.
Simultaneous with the IPO, approximately $1.2 million owed under the Notes was
converted into 458,438 shares of Common Stock. The conversion of the Notes to
equity resulted in an extraordinary charge to earnings of approximately $1.1
million for the early extinguishment of debt. In August 1995, the Company
received additional net proceeds of approximately $14.2 million resulting from
the exercise of its Class A Warrants, at an exercise price of $5.50 per share.
From its IPO in April 1995 through December 31, 1995, the Company financed its
capital requirements through the proceeds from that offering, the exercise of
the Class A Warrants and cash flow from operations. In January 1996, the
Company issued an aggregate of 4,140,000 shares of Common Stock pursuant to a
secondary public offering at $19.00 per share. The net proceeds to the Company,
after payment of underwriting feed and offering expenses was approximately
$73.6 million. In May 1996, the Company received approximately $1.0 million net
proceeds from the exercise of warrants at $4.80 per share issued to
Underwriters of the Company's IPO. In September 1996, the Company issued an
aggregate of 3,225,000 shares of Common Stock pursuant to an additional
public offering at $31.50 per share. The net proceeds to the Company, after
payment of underwriting fees and offering expenses, were approximately $96.0
million. On December 29, 1996 the Company had working capital of approximately
$118.3 million and long-term investment of $42.3 million.
During 1996, the Company generated $11.7 million in cash flow from operating
activities compared to $2.6 million in cash flow from operating activities for
1995. The Company believes that it will continue to generate cash from
operating activities and interest income which will be utilized for future
development and working capital purposes.
The Company's total expenditures required to develop the Mall of America Unit
were approximately $4.1 million, including costs related to the expansions of
its restaurant and enhancements of thematic elements, net of landlord
contributions of approximately $500,000. Total expenditures required to open
the Woodfield Mall Unit were approximately $5.7 million, net of landlord
contributions of $1.0 million. Additionally, the Company incurred $630,000 in
preopening costs and purchased approximately $320,000 of inventory in
connection with the opening of its Woodfield Mall Unit.
The average gross investment to open the Company's Gurnee Mills, Tysons Corner,
and Sawgrass Mills Units during 1996 was $6.6 million. The Company recorded
landlord contributions of $2.7, $1.0 and $.5 million associated with the
Gurnee, Tysons and Sawgrass Units respectively. Total expenditures to develop
the Walt Disney World Marketplace Unit were $11.2 million net of $1.5 million
landlord contributions. Additionally, the Company averaged approximately
$650,000 in preopening expenses and purchased an average of $300,000
of inventory in connection with the 1996 openings of the Gurnee, Tysons,
and Sawgrass Units. Preopening expenses incurred for the opening of
Walt Disney World Marketplace Unit were approximately $1.2 million and the
initial inventory purchased was approximately $600,000.
13
<PAGE> 6
During the year ended December 29, 1996, the Company spent approximately $5.4
million, before deducting landlord contributions related to the development of
Units planned to be opened in 1997 and early 1998. In March 1997, the Company
announced that during the first quarter of 1997, it would write off
approximately $1.9 million of development costs associated with planned Units at
Trump Taj Mahal in Atlantic City, New Jersey and Stratosphere in Las Vegas,
Nevada. The Company determined that future negotiations for Trump Taj Mahal
would not result in a mutually agreeable space by both parties for the planned
unit. The Company also determined that due to Stratosphere seeking a bankruptcy
reorganization, that the required space for the unit would not be delivered
according to the required timelines. All such development costs were included in
the $5.4 million spent for future units at December 29, 1996.
Management anticipates capital expenditures of approximately $45 million net of
landlord contributions for fiscal 1997, related to the completion and opening
of eight domestic Units in 1997, a portion of the costs associated with the
opening of Units in 1998 and capital expenditures associated with maintenance
of its existing Units and corporate office expansion. Currently anticipated
international Units are expected to require in aggregate approximately $5
million investment during 1997. The Company expects that future domestic
locations will each cost between $4.0 million and $6.0 million to develop, net
of anticipated landlord contributions. In addition, the Company expects that it
will incur approximately $650,000 in pre-opening costs and purchase
approximately $300,000 of inventory in connection with the opening of each of
these Units. The Company also expects to open selected, larger Units, such as
its planned Units in downtown Chicago, the MGM Grand Hotel and Casino and
Disney's Animal Kingdom, which may cost significantly more. In connection with
the construction of existing Units, the Company has received landlord
contributions, reducing the cost of opening these Units. There can be no
assurance, however, that landlord contributions will be available in the future
or that the Company will be able to raise additional capital on terms
satisfactory to the Company or at all.
The Company contemplates that the development and opening of each of its Units
in 1997 through 1999 will be financed with existing cash on hand and cash flow
from operations. The Company may require additional equity or debt financing
for expansion beyond 1999.
It is not anticipated that the Company's business will require substantial
working capital to meet its operating requirements. Virtually all of the
Company's revenues are collected in cash or pursuant to credit card processing.
Food and beverage inventories and merchandise inventories are expected to
increase in relation to trade accounts payable.
QUARTERLY FLUCTUATIONS, SEASONALITY
AND INFLATION
As a result of the substantial revenues associated with each new Unit, the
timing of new Unit openings will result in significant fluctuations in
quarterly results. The mall-based Units may also have higher third or fourth
quarter revenues than the other two quarters as a result of seasonal traffic
increases at mall locations and seasonally stronger retail sales. Units at
entertainment centers or Disney theme parks may slow fluctuations in accordance
with any overall seasonality at these locations.
The primary inflationary factors affecting the Company's operations include
food and beverage and labor costs. Management does not anticipate any
significant labor cost increases as a result of the minimum wage increases
enacted in 1996 and 1997. In addition, the Company's leases require the Company
to pay taxes, maintenance, repairs and utilities, and these costs are subject
to inflationary increases. The Company believes low inflation rates have
contributed to relatively stable costs. There is no assurance, however, that
low inflation rates will continue.
FORWARD-LOOKING DISCLOSURE
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
annual report and other materials filed or to be filed by the Company with the
Securities and Exchange Commission (as well as information included in oral
statements or other written statements made or to be made by the Company)
contain statements that are forward-looking, such as statements relating to
plans for future expansion and other business development activities as well as
other capital spending, financial sources and the effects of competition. Such
forward-looking information involves important risks and uncertainties that
could significantly affect anticipated results in the future and, accordingly,
such results may differ from those expressed in any forward-looking statements
made by or on behalf of the Company. These risks and uncertainties include, but
are not limited to, those relating to development and construction activities,
including delays in opening new Units, acceptance of the Rainforest Cafe
concept, the quality of the Company's restaurant and retail operations,
dependence on discretionary consumer spending, the Company's failure to defend
its intellectual property rights, dependence on existing management, general
economic conditions, changes in federal or state laws or regulations.
14
<PAGE> 7
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA) 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $83,894 $16,323
Short-term investments 35,934 -
Accounts receivable and other 5,072 1,448
Inventories 2,865 1,076
Preopening expenses 2,302 514
-----------------
Total current assets 130,067 19,361
Long-Term Investments 42,274 -
Property, Equipment and Leasehold Improvements, net 48,351 11,848
Deferred Income Taxes 2,009 -
-----------------
$222,701 $31,209
=================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $6,237 $3,213
Accrued liabilities -
Payroll and payroll taxes 466 289
Other 843 369
Income taxes payable 4,201 -
-----------------
Total current liabilities 11,747 3,871
DEFERRED RENT 7,000 983
-----------------
Total liabilities 18,747 4,854
-----------------
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDERS' EQUITY:
Common stock, no par value, 50,000,000 shares authorized;
17,186,506 and 9,484,347 shares issued and outstanding 199,542 27,867
Retained earnings (deficit) 4,412 (1,512)
-----------------
Total shareholders' equity 203,954 26,355
-----------------
$222,701 $31,209
=================
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
15
<PAGE> 8
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FEBRUARY 3, 1994
(INCEPTION)
YEAR ENDED YEAR ENDED THROUGH
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) DECEMBER 29, 1996 DECEMBER 31, 1995 JANUARY 1, 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Restaurant sales $ 37,088 $ 9,979 $ 1,337
Retail sales 10,868 3,472 729
Licensing fee 750 - -
----------------------------------------------
Total revenues 48,706 13,451 2,066
----------------------------------------------
COSTS AND EXPENSES:
Food and beverage costs 9,254 2,778 450
Cost of retail goods sold 4,867 1,548 393
Restaurant operating expenses 18,288 5,366 769
Retail operating expenses 3,558 1,003 404
Depreciation and amortization 2,331 475 70
Amortization of preopening costs 1,519 115 -
----------------------------------------------
Total costs and expenses 39,817 11,285 2,086
----------------------------------------------
INCOME (LOSS) FROM UNIT OPERATIONS AND LICENSING 8,889 2,166 (20)
----------------------------------------------
OTHER (INCOME) EXPENSES:
General, administrative and development expenses 4,688 1,265 1,354
Interest income (5,220) (482) --
Other 181 214 254
----------------------------------------------
Total other (income) expense (351) 997 1,608
----------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 9,240 1,169 (1,628)
PROVISION FOR INCOME TAXES 3,316 - -
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 5,924 1,169 (1,628)
EXTRAORDINARY ITEM - EXTINGUISHMENT OF DEBT - 1,053 -
----------------------------------------------
Net income (loss) $ 5,924 $ 116 $ (1,628)
==============================================
NET INCOME (LOSS) PER COMMON SHARE:
Earnings (loss) before extraordinary item $0.41 $0.16 $(0.46)
Extraordinary item - (0.14) -
----------------------------------------------
Net income (loss) per common share $0.41 $0.02 $(0.46)
----------------------------------------------
WEIGHTED AVERAGE SHARES OUTSTANDING 14,391,307 7,312,379 3,543,134
==============================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
16
<PAGE> 9
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
------------------- EARNINGS
(IN THOUSANDS, EXCEPT SHARE DATA) SHARES AMOUNT (DEFICIT) TOTAL
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, FEBRUARY 3, 1994 (INCEPTION) - $- $- $-
Issuance of common stock 2,969,400 1,969 - 1,969
Issuance of common stock
in connection with issuance of debt 871,500 1,453 - 1,453
Net loss - - (1,628) (1,628)
-----------------------------------------
BALANCE, JANUARY 1, 1995 3,840,900 3,422 (1,628) 1,794
Conversion of debt to common stock
at $4.00 per share 458,438 1,222 - 1,222
Initial public offering, net 2,587,500 9,025 - 9,025
Common stock issued upon exercise of warrants 2,585,010 14,198 - 14,198
Stock options exercised 12,500 - - -
Net income - - 116 116
-----------------------------------------
BALANCE, DECEMBER 31, 1995 9,484,347 27,867 (1,512) 26,355
Common stock issued upon exercise of warrants 225,000 1,061 - 1,061
Sale of common stock 7,365,000 169,510 - 169,510
Stock options exercised, net of tax effect 109,507 1,033 - 1,033
Employee stock purchases 2,701 71 - 71
Shares retired upon stock split (49) - - -
Net income - - 5,924 5,924
-----------------------------------------
BALANCE, DECEMBER 29, 1996 17,186,506 $199,542 $4,412 $203,954
=========================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
17
<PAGE> 10
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FEBRUARY 3, 1994
(INCEPTION)
YEAR ENDED YEAR ENDED THROUGH
(IN THOUSANDS) DECEMBER 29, 1996 DECEMBER 31, 1995 JANUARY 1, 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 5,924 $ 116 $ (1,628)
Adjustments to reconcile net loss to cash flows
provided by (used in) operating activities-
Depreciation and amortization 7,093 693 72
Amortization of long-term debt discount - 186 213
Loss on extinguishment of debt - 1,053 -
Loss on disposal of equipment 181 27 -
Deferred income tax benefit (2,021) - -
Expenses paid with note payable - - 280
Change in assets and liabilities:
Accounts receivable and other (3,090) (942) (106)
Inventories (1,789) (636) (440)
Preopening expenses (3,282) (629) -
Accounts payable 3,024 2,323 890
Accrued liabilities 5,662 385 273
---------------------------------------------------
Net cash provided by (used in) operating activities 11,702 2,576 (446)
---------------------------------------------------
INVESTING ACTIVITIES:
Purchases of short-term investments, net (35,934) - -
Purchases of long-term investments, net (42,274) - -
Purchases of furniture, equipment and
leasehold improvements, net (39,937) (9,532) (2,819)
---------------------------------------------------
Net cash used in investing activities (118,145) (9,532) (2,819)
---------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from the issuance of debt to shareholders - 100 1,262
Payments on long-term debt to shareholders - (510) -
Proceeds from the sale of common stock, net 169,510 9,025 1,969
Proceeds from the exercise of warrants, net 1,061 14,198 -
Proceeds from stock options exercised 293 - -
Tenant allowances collected 3,150 - 500
---------------------------------------------------
Net cash provided by financing activities 174,014 22,813 3,731
---------------------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 67,571 15,857 466
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 16,323 466 -
---------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 83,894 $ 16,323 $ 466
===================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for-
Interest $ - $ 86 $ -
Income taxes 195 - -
Noncash investing and financing activities-
Conversion of debt to common stock - 1,222 -
Common stock issued in connection with debt - - 1,453
Decoration and birds purchased with note payable - - 90
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS DECEMBER 29, 1996 and December 31, 1995
1. NATURE OF BUSINESS AND SIGNIFICANT
ACCOUNTING POLICIES
Nature of Business - Rainforest Cafe, Inc. (the Company) was incorporated in
the state of Minnesota on February 3, 1994. The Company currently owns and
operates six Rainforest Cafe restaurant and retail stores. The first unit
opened on October 3, 1994 in the Mall of America in Bloomington, Minnesota, a
suburb of Minneapolis. Prior to the opening of this unit, the Company was in
its development stage. The Company intends to open eight additional units in
the U.S. during 1997.
Fiscal Year - The Company has adopted a 52-53-week year ending on the Sunday
nearest December 31 of each year. All references herein to "1996" and "1995"
represent the 52-week fiscal years ended December 29, 1996 and December 31,
1995, respectively.
Cash and Cash Equivalents - The Company includes as cash equivalents all
highly liquid investments with original maturities of three months or less
when purchased, which are recorded at the lower of cost or market. At December
31, 1995, certain marketable securities, consisting of a money market fund, a
government securities fund and corporate debt obligations carried at market
value, were recorded as equivalents in the accompanying balance sheet.
Inventories - Inventories consist primarily of retail goods for resale and
food and beverages used in restaurant operations and are recorded at the lower
of cost or market value as determined by the retail inventory method on the
first-in, first-out (FIFO) basis for retail goods and average cost for food
and beverages. Inventories consisted of the following as of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
---------------------------------------------
<S> <C> <C>
Retail goods $2,661 $989
Food and beverage 204 87
--------------------
$2,865 $1,076
====================
</TABLE>
Preopening Expenses - It is the Company's policy to capitalize the direct and
incremental costs associated with opening a new unit, which consist primarily
of hiring and training the initial work force, mock service and other direct
costs. These costs are amortized over the 11 months of each unit's operations
beginning in the first full month of operation, if the recoverability of such
costs can be reasonably assured. Expenses incurred prior to opening the Mall
of America location were charged to operations when incurred due to the
developmental nature of the first unit.
Investments - The Company determines the appropriate classification of
investment securities at the time of purchase and reevaluates such designation
as of each balance sheet date. The Company classifies investments with original
maturities of more than three months and less than one-year on their acquisition
date as short-term investments and investments with original maturities of more
than one year as long-term investments. All investment securities held by the
Company at December 29, 1996, have been classified as available-for-sale.
Available-for-sale securities are stated at fair value, with the unrealized
gains and losses, net of tax, reported as a separate component of shareholders'
equity, if significant. The amortized cost of debt securities is adjusted for
amortization of premiums and accretion of discounts to maturity. Such
amortization and accretion, along with interest and dividends earned and
realized gains and losses, are included in interest income. The cost of
securities sold is based on the specific identification method.
The Company's investments consisted of the following as of December 29, 1996
(in thousands, there were no significant differences between amortized cost
and estimated fair value):
<TABLE>
<S> <C>
---------------------------------------------
U.S. Treasury and agency securities $ 57,246
Municipal debt securities 44,715
Mutual funds 42,453
Equity securities 10,149
Other debt securities 4,264
U.S. Corporate debt securities 935
--------
$159,762
Less Cash equivalents (81,554)
--------
$ 78,208
========
</TABLE>
The estimated fair value of debt and marketable equity securities at December
29, 1996 was $117,488,000 due in one year or less, $35,984,000 due in one to
three years and $6,290,000 due after three years.
Property, Equipment and Leasehold Improvements - Property, equipment and
leasehold improvements are recorded at cost. Improvements are capitalized,
while repair and maintenance costs are charged to operations when incurred.
Furniture, fixtures and equipment are depreciated using the straight-line
method over their estimated useful lives of 5 to 15 years. Leasehold
improvements are amortized using the straight-line method over the shorter of
their estimated useful lives or the initial lease term.
Property and equipment consisted of the following as of
(in thousands):
<TABLE>
<CAPTION>
December 29, December 31,
1996 1995
-------------------------------------------------------------
<S> <C> <C>
Live birds $67 $30
Furniture, fixtures and equipment 11,465 3,370
Leasehold improvements 33,718 7,167
Construction in progress 6,518 1,825
------- -------
51,768 12,392
Accumulated depreciation
and amortization (3,417) (544)
------- -------
$48,351 $11,848
======= =======
</TABLE>
Licensing Fees - During 1996, the Company entered into an exclusive license
agreement which allows a Mexican company to develop seven units in Mexico over a
ten-year period.
19
<PAGE> 12
Under the terms of the agreement, the Company receives a nonrefundable, upfront
licensing fee, per unit licensing fees and royalties based on a percentage of
sales. The Company has entered into two additional international licensing
agreements with similar terms.
Income Taxes - The Company and its subsidiaries file a consolidated federal
income tax return and separate state returns. Deferred income taxes are
provided for differences between the financial reporting basis and tax basis
of the Company's assets and liabilities at currently enacted tax rates.
Net Income (Loss) Per Common Share - Net income (loss) per common share is
computed by dividing net income (loss) by the weighted average number of
common shares outstanding and dilutive common equivalent shares assumed to be
outstanding during each period. Common equivalent shares consist of dilutive
options and warrants to purchase com-mon stock. However, pursuant to rules of
the Securities and Exchange Commission, the calculation also includes equity
securities, including options and warrants, issued within one year of an
initial public offering with an issue price less than the initial public
offering price, even if the effect is antidilutive. The treasury stock method
was used in determining the dilutive effect of such issuances.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Ultimate results could differ from those estimates.
2. EXTINGUISHMENT OF DEBT
In April 1995, the holders of $1,222,500 of promissory notes made an
irrevocable election, effective upon the effective date of an initial public
offering, to convert their notes into shares of the Company's common stock at
a conversion price of $2.67 per share. The Company recorded the conversion as
an extinguishment of debt, which resulted in an extraordinary charge to
operations of $1,053,128 at the date of conversion.
3. SHAREHOLDERS' EQUITY
Initial Public Stock Offering - In April 1995, the Company consummated an
initial public offering of 2,587,500 units at an offering price of $4.00 per
unit, including 337,500 units from the exercise of the underwriters'
overallotment option which occurred in May 1995. Each unit consisted of one
share of common stock and one Redeemable Class A Warrant. The Company received
net proceeds of $9.0 million after the payment of $1.3 million in related
underwriting discount and offering costs.
Exercise of Warrants - In August 1995, the holders of 2,585,010 of the
Redeemable Class A Warrants (the Warrants) discussed above exercised the
Warrants at an exercise price of $5.50. A total of 2,490 warrants were not
exercised, and the Company redeemed those 2,490 warrants at $.01 per warrant.
The Company received net proceeds of $14.2 million.
Secondary Public Offerings - In January 1996, the Company consummated a public
offering of 4,140,000 shares of common stock at an offering price of $19.00
per share. The Company received proceeds of $73.6 million, net of
approximately $5.1 million in offering costs.
In September 1996, the Company consummated a public offering of 3,450,000
shares of common stock at an offering price of $31.50 per share. Of the
3,450,000 shares sold, 225,000 shares were sold by selling shareholders. The
Company received proceeds of $96.0 million, net of approximately $5.6 million
in offering costs.
Stock Split - In May 1996, the Company's board of directors approved a
three-for-two stock split in the form of a 50% stock dividend on its
no par value common stock. The split was payable to shareholders of record as
of June 21, 1996 and was effective July 2, 1996. All references to earnings
per share, number of shares and share amounts prior to July 1996 have been
retroactively restated throughout the accompanying financial statements to
reflect the stock split.
4. INCOME TAXES
The Company has recorded the following net deferred income taxes as of (in
thousands):
<TABLE>
DECEMBER 29,
1996
<S> <C>
Current deferred income tax benefits $ 166
Current deferred income taxes (154)
------
Net current deferred income tax benefits 12
------
Noncurrent deferred income tax benefits 2,398
Noncurrent deferred income taxes (389)
------
Net noncurrent deferred income tax benefits 2,009
------
Net deferred income taxes 2,021
======
</TABLE>
The tax effect of significant temporary differences representing
deferred tax assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Preopening costs $ (118) $(191)
Accelerated depreciation (272) (49)
Landlord inducements 2,398 175
Net operating loss carryforwards - 139
Other 13 27
Valuation allowance - (101)
-----------------------------------
Net deferred taxes $ 2,021 $ -
===================================
</TABLE>
20
<PAGE> 13
The provision for income taxes consisted of the following (in thousands):
<TABLE>
<CAPTION>
1996
- -------------------------------------------------------------------------
<S> <C>
Current:
Federal $ 4,489
State 848
Deferred (2,021)
-------
Provision for income taxes $ 3,316
=======
</TABLE>
The differences between the effective tax rate and income taxes computed using
the federal statutory rate were as follows:
<TABLE>
<CAPTION>
1996
----------------------------------------------------------
<S> <C>
Federal statutory rate 34.0%
State income taxes, net of federal tax benefit 6.2
Tax exempt income (3.3)
Other, net (1.0)
-----
35.9%
=====
</TABLE>
5. STOCK OPTIONS
Stock Option and Compensation Plan - The Company has a Stock Option and
Compensation Plan as Amended (the Plan), pursuant to which options and other
awards to acquire an aggregate of 1,500,000 shares of the Company's common
stock may be granted to full-time employees of the Company. Stock options,
stock appreciation rights, restricted stock, other stock and cash awards may
be granted under the Plan. The Plan is administered by the Company's
compensation committee which has the discretion to determine the number and
purchase price of shares subject to stock options, which may not be below 100%
of the fair market value of the common stock on the date granted, the term of
each option, and the time or times during its term when the option becomes
exercisable. The Company has granted options on 1,094,994 shares through
December 29, 1996.
Other Stock Options - As of its inception (February 3, 1994), the Company
granted options to acquire an aggregate of 300,000 shares of common stock with
an exercise price of $.01 per share to two of its employees. Of the options
granted, 262,500 are to an employee who is an officer and director of the
Company. These options vest on a pro rata basis on the first, second and third
anniversaries of the grant and are exercisable for a period of ten years from
the date of grant. The Company has granted options on 275,001 shares through
December 29, 1996.
During 1995, the Company adopted the Directors' Stock Option Plan, whereby
stock options are granted to the Company's outside directors. These options
vest on a pro rata basis over three years and are exercisable for a period of
ten years from the date of grant. The Company has granted options on 137,500
shares through December 29, 1996.
The Company accounts for these plans under APB Opinion No. 25, under which no
compensation cost has been recognized. Had compensation cost for these plans
been determined consistent with Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation," the Company's net
income and income per share would have been decreased to the following pro
forma amounts:
<TABLE>
1996 1995
-----------------------------
<S> <C> <C>
Net Income
As Reported $5,924 $116
Pro Forma 5,283 (86)
Primary EPS
As Reported 0.41 0.02
Pro Forma 0.37 (0.01)
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost
may not be representative of that to be expected in future years.
A summary of the status of the Company's three stock option plans at year-end,
with changes during the year then ended, is presented in the table and
narrative below:
<TABLE>
<CAPTION>
1995 1996
---------------------------- ---------------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
- --------------------------------------------------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 300,000 $.01 1,108,000 $3.35
Granted 822,000 4.52 567,500 19.90
Exercised 12,500 .01 109,507 5.01
Forfeited 1,500 3.40 58,500 13.76
Expired - - - -
------------------------------------------------------------------
Outstanding, end of year 1,108,000 $3.35 1,507,495 $9.20
==================================================================
Exercisable, end of year 149,900 $2.40 361,895 $2.67
==================================================================
Weighted average fair value of options granted $ 2.33 $ 9.43
========= =========
</TABLE>
21
<PAGE> 14
At December 29, 1996, 977,495 of the 1,507,495 options outstanding have exercise
prices between $.01 and $13.60, with a weighted average exercise price of $3.38
and a weighted average remaining contractual life of 8 years. The remaining
530,000 options have exercise prices between $13.67 and $32.75, with a weighted
average exercise price of $19.93 and a weighted average remaining contractual
life of 9 years. None of these options are exercisable.
The fair value of each option grant is estimated on the date of grant using
the Cox Rubenstein option pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995, respectively: risk-free interest
rates of 6.0% and 5.5%; no expected dividend yields; expected lives of 6 and 5
years; and expected volatility of 40% and 50%.
Employee Stock Purchase Plan - During 1996, the Company adopted the 1996
Employee Stock Purchase Plan (the 1996 Plan) which allows employees to set aside
up to 15% of their earnings for the purchase of the Company's common stock.
Shares are purchased quarterly under the 1996 Plan at a price equal to 85% of
the lessor of the market price on either the first or last day of the quarter.
During 1996, 2,701 shares were issued under the 1996 Plan and, at December 29,
1996, 147,299 shares were available for future issuance.
Warrants - In connection with its initial public offering in April 1995, the
Company issued a warrant to the underwriters to purchase 225,000 shares of
common stock at $4.80 per share. The warrant became exercisable on April 7, 1996
and is exercisable until April 2000. During 1996, 225,000 shares of common stock
were issued upon exercise of the outstanding warrants.
6. COMMITMENTS AND CONTINGENCIES
Operating Leases - The Company has entered into various operating leases for
its existing and future units which typically have an initial lease term of
ten years with an option for renewal. All of these leases contain provisions
for contingent rentals based on a percentage of gross revenues, as defined,
and contain renewal options and provisions for payments of real estate taxes,
insurance and common area costs. In addition, certain of the leases provide
for tenant inducements and rent abatement. Total rent expense, including
common area costs, real estate taxes and percentage rent, was $5,067,000 in
1996 and $793,000 in 1995.
Future minimum rental payments (including six units which are not yet open and
excluding percentage rents) are as follows (in thousands):
<TABLE>
<S> <C>
-------------------
1997 $8,098
1998 9,028
1999 9,058
2000 9,068
Thereafter 62,311
-------
Total $97,563
=======
</TABLE>
Employment Agreements - The Company entered into employment agreements with
two of its officers which require the payment of annual compensation of
$140,000 and $175,000 per year for up to three years and include bonus
provisions. If terminated by the Company during this period without "good
cause," the employees are entitled to up to one year's base compensation.
7. QUARTERLY DATA (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
The following is a summary of quarterly consolidated results of operations for
1996 and 1995:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30, SEPTEMBER 29, DECEMBER 29,
QUARTER ENDED 1996 1996 1996 1996
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $5,744 $7,070 $15,718 $20,174
Income from unit operations 858 1,319 2,626 4,086
Net income 548 833 1,924 2,619
Net income per common share 0.06 0.06 0.13 0.15
<CAPTION>
APRIL 2, JULY 2, OCTOBER 1, DECEMBER 31,
QUARTER ENDED 1995 1995 1995 1995
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $1,991 $2,503 $3,128 $5,829
Income from unit operations 120 496 751 799
Net income (loss) (281) (770) 535 632
Net income (loss) per common share (0.11) (0.18) 0.09 0.09
</TABLE>
22
<PAGE> 15
8. TERMINATION OF PLANNED UNITS (UNAUDITED)
On March 3, 1997, the Company announced that it would write-off development
costs related to previously planned units at Trump Taj Mahal (Atlantic City,
New Jersey) and Stratosphere (Las Vegas, Nevada). Subsequent to December 29,
1996, the Company determined that future negotiations for Trump Taj Mahal would
not result in a mutually agreeable space by both parties for the planned unit.
The Company also determined that due to Stratosphere's announcement that it was
seeking a bankruptcy reorganization, that the required space for the unit would
not be delivered according to the required timeline. The nonrecurring, pre-tax
charge to earnings of approximately $1.9 million has been during the first
quarter of fiscal 1997.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO RAINFOREST CAFE, INC.:
We have audited the accompanying consolidated balance sheets of Rainforest
Cafe, Inc. (a Minnesota corporation) as of December 29, 1996 and December 31,
1995, and the related consolidated statements of operations, shareholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Rainforest Cafe, Inc. as of
December 29, 1996 and December 31, 1995, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
February 14, 1997
TO RAINFOREST CAFE, INC.:
We have audited the accompanying balance sheet of Rainforest Cafe, Inc. (a
Minnesota corporation), as of January 1, 1995 (not included herein), and the
related statements of operations, shareholders' equity and cash flows for the
period from February 3, 1994 (inception) through January 1, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Rainforest Cafe, Inc. as of
January 1, 1995, and the results of its operations and its cash flows for the
period from February 3, 1994 (inception) through January 1, 1995 in conformity
with generally accepted accounting principles.
LUND KOEHLER COX & COMPANY, PLLP
Minneapolis, Minnesota,
February 17, 1995
23
<PAGE> 16
COMMON STOCK INFORMATION
The company's common stock trades on the National Market tier of the Nasdaq
Stock Market under the symbol RAIN. At March 20, 1997 there were approximately
790 shareholders of record. The following table sets forth for the quarters
indicated the high and low sale prices of the Company's common stock, as
reported by The Nasdaq Stock Market.
<TABLE>
<CAPTION>
1996 HIGH LOW
----------------------------------------------------
<S> <C> <C>
First Quarter $22.50 $14.75
Second Quarter $34.00 $20.00
Third Quarter $34.25 $20.00
Fourth Quarter $36.25 $22.25
1995
----------------------------------------------------
Second Quarter (from April 7, 1995) $10.25 $ 3.00
Third Quarter $15.50 $ 8.00
Fourth Quarter $23.00 $13.00
</TABLE>
Since its initial public offering of common stock in April 1995, the Company
has not paid dividends on its common stock, and has no plans to do so in the
forseeable future.
24
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF COMPANY
Rainforest Cafe, Inc. - Rain
Rainforest Cafe, Inc. - Atlantic City
Rainforest Cafe, Inc. - Thunder
Rainforest Cafe, Inc. - Sawgrass
Rainforest Cafe, Inc. - Mist
Rainforest Cafe, Inc. - Cha Cha
Rainforest Cafe, Inc. - Las Vegas
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K into the Company's
previously filed Registration Statement File No. 33-96430.
LUND KOEHLER COX & COMPANY, PLLP
Minneapolis, Minnesota
March 27, 1997.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report incorporated by reference in this Form 10-K, into
the Company's previously filed Registration Statement Form S-8 relating to the
1995 Stock Option and Compensation Plan (Registration No. 33-96430).
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
March 27, 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AND STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 29, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-29-1996
<CASH> 119,840
<SECURITIES> 42,274
<RECEIVABLES> 5,060
<ALLOWANCES> 0
<INVENTORY> 2,865
<CURRENT-ASSETS> 130,067
<PP&E> 51,768
<DEPRECIATION> 3,417
<TOTAL-ASSETS> 222,701
<CURRENT-LIABILITIES> 11,747
<BONDS> 0
0
0
<COMMON> 199,542
<OTHER-SE> 4,412
<TOTAL-LIABILITY-AND-EQUITY> 222,701
<SALES> 47,956
<TOTAL-REVENUES> 48,706
<CGS> 14,121
<TOTAL-COSTS> 39,817
<OTHER-EXPENSES> (351)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 9,240
<INCOME-TAX> 3,316
<INCOME-CONTINUING> 5,924
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,924
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
</TABLE>
