SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2001 Commission File Number: 0-18668
MAIN STREET AND MAIN INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 11-2948370
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
5050 NORTH 40TH STREET
SUITE 200, PHOENIX, ARIZONA 85018
(Address of principal executive offices) (Zip Code)
(602) 852-9000
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, $.001 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 [ ]
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 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. [ ]
At March 18, 2002, there were outstanding 14,052,600 shares of the registrant's
common stock, $.001 par value. The aggregate market value of common stock held
by nonaffiliates of the registrant (8,378,678 shares) based on the closing sale
price of the common stock as reported on the Nasdaq National Market on March 18,
2002, was $40,887,949. For purposes of this computation, all officers,
directors, and 10% beneficial owners of the registrant are deemed to be
affiliates. Such determination should not be deemed an admission that such
officers, directors, or 10% beneficial owners are, in fact, affiliates of the
registrant.
Documents incorporated by reference: Portions of the registrant's Proxy
Statement for the 2002 Annual Meeting of Stockholders are incorporated by
reference into Part III.
MAIN STREET AND MAIN INCORPORATED
ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED DECEMBER 31, 2001
TABLE OF CONTENTS
PART I PAGE
ITEM 1. BUSINESS....................................................... 1
ITEM 2. PROPERTIES..................................................... 24
ITEM 3. LEGAL PROCEEDINGS.............................................. 24
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............ 24
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.......................................... 25
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA........................... 25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................... 27
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..... 34
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................... 35
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.......................... 35
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............. 36
ITEM 11. EXECUTIVE COMPENSATION......................................... 36
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................... 36
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................. 36
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K.................................................. 37
SIGNATURES................................................................. 40
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STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
THE STATEMENTS CONTAINED IN THIS REPORT ON FORM 10-K THAT ARE NOT PURELY
HISTORICAL ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF APPLICABLE
SECURITIES LAWS. FORWARD-LOOKING STATEMENTS INCLUDE STATEMENTS REGARDING OUR
"EXPECTATIONS," "ANTICIPATION," "INTENTIONS," "BELIEFS," OR "STRATEGIES"
REGARDING THE FUTURE. FORWARD-LOOKING STATEMENTS ALSO INCLUDE STATEMENTS
REGARDING REVENUE, MARGINS, EXPENSES, AND EARNINGS ANALYSIS FOR FISCAL 2002 AND
THEREAFTER; FUTURE RESTAURANT OPERATIONS AND NEW RESTAURANT ACQUISITIONS OR
DEVELOPMENT; THE RESTAURANT INDUSTRY IN GENERAL; AND LIQUIDITY AND ANTICIPATED
CASH NEEDS AND AVAILABILITY. ALL FORWARD-LOOKING STATEMENTS INCLUDED IN THIS
REPORT ARE BASED ON INFORMATION AVAILABLE TO US AS OF THE FILING DATE OF THIS
REPORT, AND WE ASSUME NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING
STATEMENTS. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE FORWARD-LOOKING
STATEMENTS IN THIS REPORT. A VARIETY OF FACTORS COULD CAUSE OUR ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS, INCLUDING THE FACTORS
DISCUSSED IN ITEM 1, "BUSINESS - SPECIAL CONSIDERATIONS."
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PART I
ITEM 1. BUSINESS
We are the world's largest franchisee of T.G.I. Friday's restaurants,
currently owning 56 and managing five T.G.I. Friday's restaurants. We also own
five Redfish Cajun Grill and Bar restaurants and five Bamboo Club restaurants.
We currently have under construction one T.G.I. Friday's restaurant and one
Redfish restaurant in Chandler, Arizona that are scheduled to open in the later
part of April 2002 and in May 2002, respectively, and one Bamboo Club restaurant
in Tucson, Arizona scheduled to open in the beginning of April 2002. On November
19th, 2001, we entered into two license agreements with Celebrity Restaurants,
L.L.C., the owner of the exclusive rights to operate Alice Cooper'stown
restaurants and which operates one such restaurant in Phoenix, Arizona. The
agreements allow us to operate an Alice Cooper'stown restaurant in Cleveland,
Ohio and in San Diego, California. On approximately April 1, 2002, we plan to
open an Alice Cooper'stown restaurant in Cleveland, Ohio, in the location
formally occupied by one of our Redfish Cajun Grill and Bar restaurants.
T.G.I. Friday's restaurants are full-service, casual dining establishments
featuring a wide selection of freshly prepared, popular foods and beverages
served by well-trained, friendly employees in relaxed settings. Redfish Cajun
Grill and Bar restaurants are full-service, casual dining restaurants that
feature a broad selection of New Orleans style fresh seafood, Creole and Cajun
cuisine, and traditional southern dishes, as well as a "Voodoo" style lounge,
all under one roof. Bamboo Club restaurants are full-service, fine dining,
upscale restaurants that feature an extensive and diverse menu of innovative and
tantalizing Pacific Rim cuisine. Alice Cooper'stown restaurants are rock and
roll and sports themed and feature a connection to the music celebrity Alice
Cooper.
We own the exclusive rights to develop additional T.G.I. Friday's
restaurants in several territories in the western United States. We have
co-development privileges with Carlson Restaurants Worldwide to develop
additional T.G.I. Friday's restaurants in California. We plan to develop
additional T.G.I. Friday's restaurants in our existing development territories.
Our strategy is to
* capitalize on the brand-name recognition and goodwill associated with
T.G.I. Friday's restaurants;
* expand our restaurant operations through
- the development of additional T.G.I. Friday's restaurants in our
existing development territories,
- the development of additional Redfish and Bamboo Club
restaurants,
- the development of our rights to the Alice Cooper'stown
restaurants, and
- the acquisition or development of restaurants operating under
other restaurant concepts; and
* increase our profitability by continuing to enhance the dining
experience of our guests and improving operating efficiency.
We may explore opportunities to franchise the Redfish and Bamboo Club concepts
to third parties in the future.
We were incorporated in December 1988. We maintain our principal executive
offices at 5050 North 40th Street, Suite 200, Phoenix, Arizona 85018, and our
telephone number is (602) 852-9000. Our Web site, which is not a part of this
Report, is located at www.mainandmain.com. As used in this Report, the terms
"we," "our," "us," the "Company" or "Main Street" refers to Main Street and Main
Incorporated and its subsidiaries and operating divisions.
OUR BUSINESS
OUR T.G.I. FRIDAY'S RESTAURANTS
THE T.G.I. FRIDAY'S CONCEPT
The T.G.I. Friday's concept is franchised by Carlson Restaurants Worldwide,
Inc. (formerly TGI Friday's Inc.), a wholly owned subsidiary of Carlson
Companies Inc., which is a diversified company with business interests in the
restaurant and hospitality industries. The first T.G.I. Friday's restaurant was
opened in 1965 in New York City. Carlson Restaurants Worldwide, Inc. and its
1
predecessors, has conducted a business since 1972 that is substantially similar
to the business currently conducted by its franchisees. As of December 31 2001,
Carlson Restaurants Worldwide had 237 franchisor-operated and 274 franchised
T.G.I. Friday's restaurants operating worldwide. Carlson Restaurants Worldwide
currently owns approximately 1.8% of our outstanding common stock. Holders of
our common stock do not have any financial interest in Carlson Restaurants
Worldwide, and Carlson Restaurants Worldwide has no responsibility for the
contents of this Report.
T.G.I. Friday's restaurants are full-service, casual dining establishments
featuring a wide selection of high- quality, freshly prepared popular foods and
beverages, including a number of innovative and distinctive menu items, such as
menu items featuring "Jack Daniel's" sauces. The restaurants feature quick,
efficient, and friendly table service designed to minimize customer-waiting time
and facilitate table turnover. Our restaurants generally are open seven days a
week between the hours of approximately 11:00 a.m. and 1:00 a.m. We believe that
the design and operational consistency of all T.G.I. Friday's restaurants enable
us to benefit significantly from the name recognition and goodwill associated
with T.G.I. Friday's restaurants.
MENU
We attempt to capitalize on the innovative and distinctive menu items that
have been an important attribute of T.G.I. Friday's restaurants. The menu
consists of more than 85 food items, including
* appetizers, such as buffalo wings, stuffed potato skins, quesadillas,
fried onion rings, and pot stickers;
* a variety of soups, salads, sandwiches, burgers, and pasta;
* southwestern, oriental, and American specialty items;
* beef, seafood, and chicken entrees, including Jack Daniels(TM)grill
items;
* a children's menu; and
* desserts.
Beverages include a full bar featuring wines, beers, classic and specialty
cocktails, after dinner drinks, soft drinks, milk, milk shakes, malts, hot
chocolate, coffee, tea, frozen fruit drinks known as Friday's Smoothies(TM), and
sparkling fruit juice combinations known as Friday's Flings(R).
Menu prices range from $9 to $19 for beef, chicken, and seafood entrees; $9
to $12 for pasta and oriental and southwestern specialty items; $4 to $9 for
salads, sandwiches, and burgers; and $6 to $12 for appetizers and soups. Each
restaurant offers a separate children's menu with food entrees ranging from $2
to $3. Alcoholic beverage sales currently account for approximately 24% of total
revenue.
RESTAURANT LAYOUT
Each of our T.G.I. Friday's restaurants is similar in terms of exterior and
interior design. Each restaurant features a distinctive decor accented by
red-and-white striped awnings, brass railings, stained glass, and eclectic
memorabilia. Each restaurant has interior dining areas and bar seating.
Most of our T.G.I. Friday's restaurants are located in freestanding
buildings. These restaurants normally contain between 5,500 and 9,000 square
feet of space and average approximately 7,500 square feet. Most of our recently
developed restaurants, however, contain 5,800 to 6,500 square feet of space. Our
T.G.I. Friday's restaurants contain an average of 60 dining tables, seating an
average of 210 guests, and a bar area seating an average of approximately 30
additional guests.
UNIT ECONOMICS
We estimate that our total cost of opening a new T.G.I. Friday's restaurant
currently ranges from $2,450,000 to $2,800,000, exclusive of annual operating
expenses and assuming that we obtain the underlying real estate under a lease
arrangement. These costs include approximately (a) $1,650,000 to $2,000,000 for
building, improvements, and permits, including liquor licenses, (b) $600,000 for
furniture, fixtures, and equipment, (c) $150,000 in pre-opening expenses,
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including hiring expenses, wages for managers and hourly employees, and
supplies, and (d) $50,000 for the initial franchise fee. Actual costs, however,
may vary significantly depending upon a variety of factors, including the site
and size of the restaurant and conditions in the local real estate and
employment markets. Our T.G.I. Friday's restaurants open during all of fiscal
2001 generated an average of approximately $3,381,000 in annual revenue.
OUR REDFISH CAJUN GRILL AND BAR RESTAURANTS
THE REDFISH CONCEPT
Redfish Cajun Grill and Bar restaurants are full-service, casual dining
restaurants that feature a broad selection of New Orleans style fresh seafood,
Creole and Cajun cuisine, and traditional southern dishes, as well as a "Voodoo"
style lounge, all under one roof. The restaurants offer unique, freshly prepared
food that is served quickly and efficiently in a fun-filled New Orleans
atmosphere. Each Redfish restaurant's Voodoo lounge features a unique atmosphere
decorated with an eclectic collection of authentic New Orleans artifacts, signs,
and antiques. Local bands and, occasionally, national touring acts present live
rhythm and blues music on weekends. Redfish restaurants are open for lunch and
dinner seven days a week, although our Denver restaurant is not open on Sundays.
Hours of operation are usually from 11:00 a.m. until Midnight Monday through
Thursday and 11:00 a.m. until 2:00 a.m. on weekends.
MENU
We have developed a menu of more than 50 items for our Redfish restaurants.
Signature dishes include blackened redfish, Bourbon Street jambalaya, southern
fried catfish, and crawfish etoufee. The menu also features a selection of
appetizers, including Looziana egg rolls, Dungeness Maryland-style crab cakes,
"Alligator Bites," buffalo crawfish tails, and crab & artichoke dip. Our Redfish
menu also features a variety of fresh seafood, delicious pastas, fresh seasonal
salads, sandwiches, and tempting desserts, such as bananas foster, chocolate
bread pudding, and our signature key lime pie. The spacious Voodoo lounge offers
a wide selection of the finest beers on tap, a full wine list, and an extensive
specialty drink list.
Menu prices range from $7.00 to $25.00 for an entree and $5.00 to $11.00
for salads and appetizers. Alcohol sales currently account for approximately 31%
of total revenue.
RESTAURANT LAYOUT
We developed the Redfish restaurant layout to provide a refined southern
roadhouse atmosphere. Each of our Redfish restaurants is decorated with
nostalgic mementos of the South, together with decorative elements that are
derived from the individual restaurant's locale. The decor generally creates a
tribute to the legends of American music that created the blues, as well as to
the regions that developed the classic Creole, Cajun, and American cuisine
served in our Redfish restaurants.
Most of our Redfish restaurants are located in high-traffic urban office
environments. These restaurants contain between 6,000 and 12,000 square feet of
space and average approximately 8,500 square feet. Our Redfish restaurants
contain an average of 60 dining tables, seating an average of 250 guests, and a
bar area seating an average of approximately 25 additional guests. We have
developed a prototype for use in developing Redfish restaurants in the future.
We constructed our first restaurant using this prototype in Scottsdale, Arizona.
This restaurant opened on February 8, 2001. We plan to use this prototype
whenever possible in order to standardize the construction process and to reduce
costs.
UNIT ECONOMICS
We estimate that our total cost of opening a new Redfish restaurant
currently ranges from $2,400,000 to $2,600,000, exclusive of annual operating
expenses and assuming that we obtain the underlying real estate under a lease
arrangement. These costs include approximately (a) $1,650,000 to $1,850,000 for
building, improvements, and permits, including liquor licenses, (b) $600,000 for
furniture, fixtures, and equipment, (c) $150,000 in pre-opening expenses,
including hiring expenses, wages for managers and hourly employees, and
supplies. Actual costs, however, may vary significantly depending upon a variety
of factors, including the site and size of the restaurant and conditions in the
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local real estate and employment markets. Our Redfish restaurants open during
all of fiscal 2001 generated an average of approximately $2,423,500 in annual
revenue.
OUR BAMBOO CLUB RESTAURANTS
THE BAMBOO CLUB CONCEPT
Bamboo Club restaurants are full-service, fine dining restaurants that
feature an extensive and diverse menu of innovative and tantalizing Pacific Rim
cuisine. Bamboo Club restaurants use fresh ingredients and premium herbs and
spices in creative combinations to serve high-quality food and beverages that
deliver a unique combination of delicious taste, eye-appealing color, appetizing
aroma, and delightful texture. The entire Bamboo Club concept has been designed
to deliver a consistent and enjoyable dining experience to each guest in an
elegant, upscale atmosphere. The restaurants feature a modern decor that
provides a dramatic yet comfortable impression, with food and beverages prepared
and served by a highly trained and skilled staff.
Bamboo Club restaurants are open for lunch and dinner, with hours of 11:30
a.m. to midnight Sunday through Thursday and 11:30 a.m. to 1:00 a.m. on Friday
and Saturday. The kitchen remains open until 11:00 p.m. Monday through Thursday
and until midnight on Friday and Saturday to accommodate guests who prefer to
dine late. Bamboo Club restaurants take reservations and can serve large parties
or groups.
MENU
Bamboo Club restaurants feature a menu of more than 80 items inspired by
the diverse and exotic cuisines found in locations such as Bangkok, Canton,
Singapore, Seoul, Hong Kong, Indonesia, Hawaii, and other Pacific Rim cities and
provinces. Each Bamboo Club restaurant also features a full-service bar that
serves a variety of popular drinks and liquors, such as martinis and tropical
drinks, as well as traditional mixed beverages, fine wines, a wide selection of
popular Asian and domestic beers, and fine cigars.
Menu prices range from $6 to $10 for salads; $5 to $16 for appetizers; and
$9 to $29 for entrees. The average guest check is approximately $25 per person.
Alcoholic beverage sales account for approximately 22% of total revenue.
Take-out orders represent approximately 5% of total revenue. In addition, sales
through a third-party delivery service in Phoenix, Arizona, represent
approximately 3% of total Phoenix revenue.
RESTAURANT LAYOUT AND STAFFING
Bamboo Club restaurants have been designed to create a dramatic impression
in an atmosphere that is both spacious and intimate. The restaurants' decor
features artful lighting, dramatic murals, an eclectic mix of background music,
and a general color theme of black, copper, and bamboo to create a "hip," exotic
feeling of warmth and color.
The restaurants also feature an "exhibition kitchen" adjacent to the
seating area, where diners can watch highly skilled wok chefs prepare and serve
the restaurants' appetizers and entrees. Most dishes are prepared and served
within five to ten minutes from the time when the order is placed.
The five Bamboo Club restaurants are located in high-traffic retail
shopping environments. Each restaurant contains approximately 6,340 square feet
of space in leased facilities, excluding patio areas. Each of these restaurants
feature indoor seating and bar area seating for a total of approximately 200
guests, which does not include outdoor patio seating.
Bamboo Club restaurants have developed an extensive program to train and
motivate restaurant employees. The Bamboo Club serving staff are professional,
friendly, highly skilled, and knowledgeable about the restaurant's cuisine and
menu selections. Servers are trained to make suggestions or recommendations for
new or different menu items or combinations that patrons might try, which helps
each guest to enjoy a memorable dining experience. We have developed a prototype
for use in developing inline Bamboo Club restaurants in the future. We
constructed our first restaurant using this prototype in Tampa, Florida. This
restaurant opened on September 25, 2001. Since that date we have opened two more
Bamboo Club restaurants, one in West Palm Beach, Florida on October 12, 2001,
and the other in Tempe, Arizona, on November 21, 2001. We plan to use this
prototype whenever possible in order to standardize the construction process and
4
to reduce costs. We have signed a lease for a freestanding Bamboo Club location
and currently are developing a prototype for this type of location.
UNIT ECONOMICS
After opening three Bamboo Club restaurants, our total cost of opening
averaged $1,125,000, exclusive of annual operating expenses. These costs
included approximately (a) $550,000, net of a reduction for landlord's
contribution, for building improvements and permits, including liquor licenses,
(b) $400,000 for furniture, fixtures, and equipment, and (c) $175,000 in
pre-opening expenses, including hiring expenses, wages for managers and hourly
employees, and supplies. We are currently developing plans for a free standing
Bamboo Club restaurant and anticipate that this cost will be in excess of the
preceding averages. Actual costs for future openings may vary significantly,
depending on a variety of factors. Our two Bamboo Club restaurants open during
all of fiscal 2001 generated an average of approximately $3,026,600 in annual
revenue.
ALICE COOPER'STOWN RESTAURANTS
THE ALICE COOPER'STOWN CONCEPT
The Alice Cooper'stown concept was developed by Celebrity Restaurants,
L.L.C. and is rock and roll and sports themed, featuring a connection to Alice
Cooper. We own no interest in Celebrity Restaurants, L.L.C., and it owns no
interest in us. Celebrity Restaurants operates one Alice Cooper'stown
restaurant, which opened in December 1998 in Phoenix, Arizona. Although we have
the right to operate Alice Cooper'stown restaurants in Cleveland, Ohio and in
San Diego, California, we have to date only elected to open in Cleveland, Ohio.
That restaurant is currently scheduled for opening in April 2002, in a location
formally occupied by a Redfish Cajun Grill and Bar restaurant. The Cleveland
location's proximity to Jacobs Field, the home of the Cleveland Indians, and the
fact that Cleveland is the home of the Rock and Roll Hall of Fame, resulted in
our decision to convert the location into a Alice Cooper'stown. Celebrity
Restaurant's Alice Cooper'stown restaurants are full-service, casual dining
establishments featuring a wide selection of high quality, freshly prepared
popular foods and beverages, including a number of innovative and distinctive
menu items, such as menu items that are sports and rock and roll themed. In
addition, the restaurants sell sports and rock and roll memorabilia. The
restaurants feature quick, efficient, and friendly table service designed to
minimize customer-waiting time and facilitate table turnover. Although we have
not yet opened our Alice Cooper'stown restaurant, we believe it will benefit
significantly from the name recognition of Alice Cooper and the proximity to
Jacobs Field, the home of the Cleveland Indians, and the Rock and Roll Hall of
Fame.
MENU
Our menu in Cleveland will include salads and sandwiches, pizza and burgers
and tempting appetizers and desserts.
Menu prices are expected to range from $4.00 to $9.00 for appetizers and
desserts, $5.00 to $18.00 for entrees and $6.00 to $11.00 for pizzas and
burgers.
RESTAURANT LAYOUT AND STAFFING
Our Alice Cooper'stown restaurant has been designed to feature a rock and
roll and sports theme, featuring the connection to rock and roll legend Alice
Cooper. The general decor is rock and roll and sports memorabilia. The logo
reads "Where Rock and Roll and Sports Collide". The restaurant will feature a
video wall in the bar and a large screen (semi) video in the dining room. In
keeping with its sports bar theme, there will be more than 35 TV screens in the
restaurant. Some of the Cleveland Redfish staff, including management personnel,
will be operating this restaurant.
UNIT ECONOMICS
We anticipate that the construction costs to convert this location will be
approximate $400,000 and that pre-opening expenses will approximate $150,000.
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SITE SELECTION
When evaluating whether and where to seek expansion of our restaurant
operations, we analyze a restaurant's profit potential. We consider the location
of a restaurant to be one of the most critical elements of the restaurant's
long-term success. Accordingly, we expend significant time and effort in
investigating and evaluating potential restaurant sites. In conducting the site
selection process, we obtain and examine detailed demographic information (such
as population characteristics, density, and household income levels), evaluate
site characteristics (such as visibility, accessibility, and traffic volume),
consider the proposed restaurant's proximity to demand generators (such as
shopping malls, lodging, and office complexes), and analyze potential
competition. Our senior corporate management evaluates and approves each
restaurant site prior to acquisition after extensive consultation with all
levels of our operations group. Carlson Restaurants Worldwide provides site
selection guidelines and criteria as well as site selection counseling and
assistance for our T.G.I. Friday's restaurant sites. We also must obtain Carlson
Restaurants Worldwide's consent before we enter into definitive agreements for a
T.G.I. Friday's restaurant site.
CURRENT RESTAURANTS
The following table sets forth information relating to each restaurant we
own or manage as of March 20, 2002.
IN OPERATED BY
SQUARE SEATING OPERATION OUR COMPANY
LOCATION FOOTAGE CAPACITY SINCE SINCE
- -------- ------- -------- --------- -----------
ACQUIRED T.G.I. FRIDAY'S RESTAURANTS (OWNED)
Phoenix, Arizona............................. 9,396 298 1985 1990
Mesa, Arizona................................ 9,396 298 1985 1990
Tucson, Arizona.............................. 7,798 290 1982 1990
Las Vegas, Nevada............................ 9,194 298 1982 1990
Kansas City, Missouri........................ 8,500 270 1983 1993
Overland Park, Kansas........................ 6,000 220 1992 1993
San Diego, California........................ 8,002 234 1979 1993
Costa Mesa, California....................... 8,345 232 1980 1993
Woodland Hills, California................... 8,358 283 1980 1993
Valencia, California......................... 6,500 232 1993 1993
Torrance, California......................... 8,923 237 1982 1993
La Jolla, California......................... 9,396 225 1984 1993
Palm Desert, California...................... 9,194 235 1983 1993
West Covina, California...................... 9,396 232 1984 1993
North Orange, California..................... 9,194 213 1983 1993
Ontario, California.......................... 5,700 190 1993 1993
Laguna Niguel, California.................... 6,730 205 1990 1993
San Bernardino, California................... 9,396 236 1986 1993
Brea, California............................. 6,500 195 1991 1993
Riverside, California........................ 6,500 172 1991 1993
Pleasanton, California....................... 8,000 255 1995 1998
Salinas, California.......................... 6,500 240 1994 1998
Oakland, California.......................... 5,966 230 1994 1998
Sacramento, California....................... 6,200 230 1979 1998
Citrus Heights, California................... 8,500 270 1982 1998
Fresno, California........................... 5,950 230 1978 1998
DEVELOPED T.G.I. FRIDAY'S RESTAURANTS (OWNED)
Glendale, Arizona............................ 5,200 230 1993 1993
Albuquerque, New Mexico...................... 5,975 270 1993 1993
Reno, Nevada................................. 6,500 263 1994 1994
Oxnard, California........................... 6,500 252 1994 1994
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IN OPERATED BY
SQUARE SEATING OPERATION OUR COMPANY
LOCATION FOOTAGE CAPACITY SINCE SINCE
- -------- ------- -------- --------- -----------
Carmel Mountain, California.................. 6,500 252 1995 1995
Rancho Santa Margarita, California........... 6,548 252 1995 1995
Cerritos, California......................... 6,250 223 1996 1996
Las Vegas, Nevada............................ 6,700 251 1997 1997
Superstition Springs (Mesa), Arizona......... 6,250 240 1998 1998
Puente Hills, California..................... 5,800 272 1999 1999
San Diego, California........................ 6,800 277 1999 1999
Independence, Missouri....................... 5,800 240 1999 1999
Rancho San Diego, California................. 5,800 240 1999 1999
Yorba Linda, California...................... 5,800 240 1999 1999
Simi Valley, California...................... 5,800 240 1999 1999
Tucson, Arizona.............................. 5,800 240 1999 1999
Henderson, Nevada............................ 5,800 240 1999 1999
Carlsbad, California......................... 8,146 302 1999 1999
Temecula, California......................... 6,400 278 1999 1999
Chandler, Arizona............................ 6,000 240 1999 1999
Goodyear, Arizona............................ 6,000 207 2000 2000
Shawnee, Kansas.............................. 6,400 245 2000 2000
Thousand Oaks, California.................... 6,400 249 2000 2000
Union City - San Francisco, California....... 6,400 240 2000 2000
Leawood, Kansas.............................. 7,248 240 2000 2000
N. Long Beach, California.................... 7,177 291 2000 2000
Scottsdale, Arizona.......................... 7,100 263 2000 2000
Albuquerque West, New Mexico................. 6,426 241 2001 2001
Roseville, California........................ 6,426 245 2001 2001
Porter Ranch, California..................... 6,426 245 2001 2001
MANAGED T.G.I. FRIDAY'S RESTAURANTS
San Bruno, California........................ 8,345 200 1980 1993
San Jose, California......................... 8,002 228 1977 1993
San Mateo, California........................ 9,396 252 1984 1993
San Ramon, California........................ 6,000 182 1990 1993
El Paso, Texas............................... 4,800 198 1997 1997
ACQUIRED REDFISH RESTAURANTS
Denver, Colorado............................. 7,925 321 1997 1997
Chicago, Illinois............................ 6,200 214 1996 1997
Cincinnati, Ohio............................. 7,133 239 1997 1997
San Diego, California........................ 11,994 347 1999 1999
DEVELOPED REDFISH RESTAURANTS
Scottsdale, Arizona.......................... 7,285 218 2001 2001
ACQUIRED BAMBOO CLUB RESTAURANTS
Phoenix, Arizona............................. 5,400 200 1995 2000
Scottsdale, Arizona.......................... 5,400 200 1997 2000
DEVELOPED BAMBOO CLUB RESTAURANTS
Tampa, Florida............................... 8,100 235 2001 2001
West Palm Beach, Florida..................... 6,317 180 2001 2001
Tempe, Arizona............................... 6,400 210 2001 2001
7
The average size of our acquired T.G.I. Friday's restaurants is
approximately 8,000 square feet, and the average size of our developed T.G.I.
Friday's restaurants is approximately 6,100 square feet. The Redfish restaurants
average 8,600 square feet. The acquired Bamboo Club restaurants average 5,400
square feet and our developed Bamboo Club restaurants average approximately
6,340 square feet. The size of our Alice Cooper'stown restaurant to be opened in
Cleveland is 10,964 square feet.
RESTAURANT OPERATIONS
THE T.G.I. FRIDAY'S SYSTEM
T.G.I. Friday's restaurants are developed and operated pursuant to a
specified system. Carlson Restaurants Worldwide maintains detailed standards,
specifications, procedures, and operating policies to facilitate the success and
consistency of all T.G.I. Friday's restaurants. To ensure that the highest
degree of quality and service is maintained, each franchisee of Carlson
Restaurants Worldwide, including our company, must operate each T.G.I. Friday's
restaurant in strict conformity with these methods, standards, and
specifications. The T.G.I. Friday's system includes
* distinctive exterior and interior design, decor, color scheme, and
furnishings;
* uniform specifications and procedures for operations;
* standardized menus featuring special recipes and menu items;
* procedures for inventory and management control;
* formal training and assistance programs;
* advertising and promotional programs;
* requirements for quality and uniformity of products and services
offered;
* requirements that franchisees purchase or lease from approved
suppliers equipment, fixtures, furnishings, signs, inventory, recorded
music, ingredients, and other products and materials that conform with
the standards and specifications of Carlson Restaurants Worldwide; and
* standards for the maintenance, improvement, and modernization of
restaurants, equipment, furnishings, and decor.
Carlson Restaurants Worldwide has committed to its franchisees to continue
to improve and further develop the T.G.I. Friday's system and to provide such
new information and techniques to the franchisees by means of confidential
franchise operating manuals. The T.G.I. Friday's system is identified by means
of certain trade names, service marks, trademarks, logos, and emblems, including
the marks T.G.I. Friday's(R) and Friday's(R). We believe the support as well as
the standards, specifications, and operating procedures of Carlson Restaurants
Worldwide are important elements to our restaurant operations. Our policy is to
execute these specifications, procedures, and policies to the highest level of
the standards of Carlson Restaurants Worldwide.
T.G.I. FRIDAY'S, REDFISH, AND BAMBOO CLUB OPERATIONS
Once a restaurant is integrated into our operations, we provide a variety
of corporate services to assure the operational success of the restaurant. Our
executive management
* continually monitors restaurant operations;
* maintains management controls;
* inspects individual restaurants to assure the quality of products and
services and the maintenance of facilities;
* develops employee programs for efficient staffing, motivation,
compensation, and career advancement;
* institutes procedures to enhance efficiency and reduce costs; and
* provides centralized support systems.
8
We also maintain quality assurance procedures designed to assure compliance
with the high quality of products and services mandated by our company and, for
our T.G.I. Friday's restaurants, by Carlson Restaurants Worldwide. We respond to
and investigate inquiries and complaints, initiate on-site resolution of
deficiencies, and consult with each restaurant's staff to assure that proper
action is taken to correct any deficiency. Our personnel and contracted
third-party quality assurance professionals make unannounced visits to
restaurants to evaluate the facilities, products, and services. We believe that
our quality review program and executive oversight enhance restaurant
operations, reduce operating costs, improve customer satisfaction, and
facilitate the highest level of compliance with the T.G.I. Friday's system.
We maintain a zero tolerance policy for discrimination of any type towards
both our employees and customers, and to this end constantly enforce this policy
through our training of new employees, our policy and training manuals, and
periodic re-enforcement programs.
RESTAURANT MANAGEMENT
Our T.G.I. Friday's regional and restaurant management personnel are
responsible for complying with Carlson Restaurants Worldwide's and our
operational standards. Our one senior regional manager and five regional
managers are responsible for between 5 and 12 of our restaurants within their
region. These regional managers and three Directors of Operations report to our
Senior Vice President of Restaurant Operations. The Senior Vice President of
Restaurant Operations and three other Directors of Operations report to our
President and Chief Operating Officer, who has responsibility for our T.G.I.
Friday's and Redfish operations. Our Bamboo Club system is run by the Vice
President of Bamboo Club operations, who reports to our President and Chief
Operating Officer. Restaurant managers are responsible for day-to-day restaurant
operations, including customer relations, food preparation and service, cost
control, restaurant maintenance, and personnel relations. We typically staff our
restaurants with an on-site general manager, two or three assistant managers,
and a kitchen manager. Our T.G.I. Friday's restaurants average between 80 and 90
hourly employees. Our Redfish restaurants average approximately 65 hourly
employees and our Bamboo Club restaurants average approximately 72 hourly
employees.
We have established a program of appointing multi-location general managers
in geographic areas having locations close enough to each other to support this
concept. We currently have ten multi-location general managers. In addition to
improving efficiency, this program allows us to promote and compensate key
general managers and create a position that improves our ability to retain key
employees in our company. We currently have three employees in these positions.
RECRUITMENT AND TRAINING
We attempt to hire employees who are committed to the standards maintained
by our company and, for our T.G.I. Friday's restaurants, by Carlson Restaurants
Worldwide. We also believe that our high unit sales volume, the image and
atmosphere of the T.G.I. Friday's, Redfish, and Bamboo Club concepts, and our
career advancement and employee benefit programs enable us to attract high
quality management and restaurant personnel.
Our T.G.I. Friday's restaurant personnel participate in continuing training
programs maintained by Carlson Restaurants Worldwide and our company. In
addition, we supplement those programs by hiring personnel devoted solely to
employee training. Each T.G.I. Friday's restaurant general and assistant manager
completes a formal training program conducted by our company and Carlson
Restaurants Worldwide. This program provides our T.G.I. Friday's restaurant
managers 14 weeks of training. The training covers all aspects of management
philosophy and overall restaurant operations, including supervisory skills,
operating and performance standards, accounting procedures, and employee
selection and training necessary for restaurant operations.
Our Redfish and Bamboo Club restaurant managers and personnel participate
in extensive training programs consistent with our operating standards. Many of
our Redfish restaurant managers are experienced T.G.I. Friday's managers who
have accepted positions in our Redfish operations. We plan to implement all of
our policies and training programs in order to operate the Alice Cooper'stown
restaurant with the same high standards we have established for our other
brands.
We believe that our incentive, motivation, and training and re-training
programs enhance employee performance, result in better customer service, and
increase restaurant efficiency. We have implemented incentive programs that
9
reward restaurant managers when the restaurant's operating results surpass
designated goals and a reward and recognition program for outstanding
achievements by employees.
MAINTENANCE AND IMPROVEMENT OF RESTAURANTS
We maintain our restaurants and all associated fixtures, furnishings, and
equipment in conformity with the T.G.I. Friday's system or standards we have
developed for our Redfish and Bamboo Club restaurants. We also make necessary
additions, alterations, repairs, and replacements to our T.G.I. Friday's
restaurants as required by Carlson Restaurants Worldwide, including periodic
repainting or replacement of obsolete signs, furnishings, equipment, and decor.
We may be required, subject to certain limitations, to modernize our restaurants
to the then-current standards and specifications of Carlson Restaurants
Worldwide. We are currently developing plans to convert some of our T.G.I.
Friday's locations to develop a take out program, and our Chandler, Arizona
T.G.I. Friday's has been designed for this program. One Bamboo Club restaurant
lease requires us to periodically refurbish the location.
MANAGEMENT INFORMATION SYSTEMS
We have devoted considerable resources to develop and implement management
information systems that improve the quality and flow of information throughout
our company. These systems include systems that complement proprietary systems
developed and maintained by Carlson Restaurants Worldwide as well as systems we
have developed for our Redfish and Bamboo Club restaurants. Inventory control
and transaction processing are accomplished by means of a computerized sales
system, which is integrated into data processing systems we utilize for
financial and management control, centralized accounting, and management
information systems.
We use five to seven touch-screen computer registers located conveniently
throughout each of our restaurants. Servers enter guest orders by touching the
appropriate sections of the register's computer screen, which transfers the
information electronically to the kitchen and bar for preparation. These
registers also are connected to a personal computer in the restaurant office and
to our corporate information system via frame relay. Management receives
detailed comparative reports on each restaurant's sales and expense performance
daily, weekly, and monthly. Our existing in-store accounting system in the
T.G.I. Friday's we own and manage is currently supported by Carlson Restaurants
Worldwide. We are presently re-designing our store point of sale (POS), back
office accounting system and corporate enterprise resource planning system
(ERP). The selected software vendors are considered restaurant industry market
leaders and are expected to increase our store productivity and enhance
corporate information flow. These new systems will not be supported by Carlson
Restaurants Worldwide, but will be utilized uniformly in all of our restaurant
concepts. Management and support of the POS and back office accounting system
hardware and software will be outsourced to the selected POS vendor. Management
and support of the corporate ERP system will be outsourced to an appropriate
third party vendor. We are currently in final negotiations with each of the
selected vendors. Upon successful completion of the final contract negotiations,
full system implementation is expected to begin in April 2002 and be completed
by the end of fiscal year 2002.
We believe that our management information systems enable us to increase
the speed and accuracy of order taking and pricing, to better assess guest
preferences, to efficiently schedule labor to better serve guests, to quickly
and accurately monitor food and labor costs, to promptly access financial and
operating data, and to improve the accuracy and efficiency of store-level
information and reporting.
EQUIPMENT, FOOD PRODUCTS, AND OTHER SUPPLIES
We lease or purchase all fixtures, furnishings, equipment, signs, recorded
music, food products, supplies, inventory, and other products and materials
required for the development and operation of our T.G.I. Friday's restaurants
from suppliers approved by Carlson Restaurants Worldwide. In order to be
approved as a supplier, a prospective supplier must demonstrate to the
reasonable satisfaction of Carlson Restaurants Worldwide its ability to meet the
then-current standards and specifications of Carlson Restaurants Worldwide for
such items, possess adequate quality controls, and have the capacity to provide
supplies promptly and reliably. We are not required to purchase supplies from
any specified suppliers, but the purchase or lease of any items from an
unapproved supplier requires the prior approval of Carlson Restaurants
Worldwide.
Carlson Restaurants Worldwide maintains a list of approved suppliers and a
set of the T.G.I. Friday's system standards and specifications. Carlson
Restaurants Worldwide receives no commissions on direct sales to its
10
franchisees, but may receive rebates and promotional discounts from
manufacturers and suppliers, some of which are passed on proportionately to our
company. Carlson Restaurants Worldwide is an approved supplier of various
kitchen equipment and store fixtures, decorative memorabilia, and various paper
goods, such as menus and in-store advertising materials and items. We are not,
however, required to purchase such items from Carlson Restaurants Worldwide. If
we elect to purchase such items from Carlson Restaurants Worldwide, Carlson
Restaurants Worldwide may derive revenue as a result of such purchases.
Celebrity Restaurants is assisting us in converting the Cleveland location
into an Alice Cooper'stown restaurant. They are providing guidance in restaurant
design, acquisition of themed memorabilia for decor, developing the menu, and
locating sources for the purchase of memorabilia for sale to guests.
In January 2000, we entered into an agreement with U.S. Foodservice, a
company with which we had an existing relationship, to serve substantially all
of our restaurants in California, Arizona, and Nevada. During the second quarter
of fiscal 2000, we completed the transition to U.S. Foodservice in California,
Arizona, and Nevada and to Performance Food Group in Missouri, Kansas, Texas,
and New Mexico for all our T.G.I. Friday's and Redfish restaurants. Our two
acquired and three new Bamboo Club restaurants currently utilize the
distribution operations that were in place when we acquired the original
restaurants, although we are in negotiation to convert this distribution to U.S.
Foodservice. Orders are sent electronically to the supplier. Our suppliers have
comprehensive warehouse and delivery outlets servicing each of our markets.
We believe that our purchases from our primary suppliers will enable us to
* maintain a high level of quality consistent with our T.G.I. Friday's,
Redfish, and Bamboo Club restaurants;
* realize convenience and dependability in the receipt of our supplies;
* avoid the costs of maintaining a large purchasing department, large
inventories, and product warehouses; and
* attain cost advantages as the result of volume purchases.
We believe, however, that all essential products are available from other
national suppliers as well as from local suppliers in the cities in which our
restaurants are located in the event we determine to purchase our supplies from
other suppliers.
ADVERTISING AND MARKETING
T.G.I. FRIDAY'S RESTAURANTS
We participate in the national marketing and advertising programs conducted
by Carlson Restaurants Worldwide, which were suspended by Carlson Restaurants
Worldwide for the fourth quarter of 2001 because they changed advertising
agencies. These programs resumed in February of 2002. The programs use network
and cable television and national publications and feature new menu innovations
and various promotional programs. In addition, from time to time, we supplement
the marketing and advertising programs conducted by Carlson Restaurants
Worldwide through local radio, newspaper, and magazine advertising media and
sponsorship of community events. In conjunction with Carlson Restaurants
Worldwide, we maintain a "frequent diner" program that includes awards of food,
merchandise, and travel to frequent diners based upon points accumulated through
purchases.
As a franchisee of Carlson Restaurants Worldwide, we are able to utilize
the trade names, service marks, trademarks, emblems, and indicia of origin of
Carlson Restaurants Worldwide, including the marks T.G.I. Friday's(R) and
Friday's(R). We advertise in various media utilizing these marks to attract new
customers to our restaurants.
11
REDFISH AND BAMBOO CLUB RESTAURANTS
Our in-house marketing department develops advertising and marketing
programs for our Redfish and Bamboo Club restaurants. We develop these programs
with an emphasis on building awareness of the "Redfish" and "Bamboo Club" brand
in the communities in which we operate Redfish and Bamboo Club restaurants and
generating sales for those restaurants. Advertising and marketing campaigns have
included radio and print advertising, as well as point-of-sale marketing
promotions. We conduct a comprehensive advertising and public relations campaign
in advance of each Redfish and Bamboo Club restaurant grand opening.
ALICE COOPER'STOWN RESTAURANT
Our in-house marketing department is developing advertising and marketing
programs for our Alice Cooper'stown restaurant. We will emphasize the sports and
rock and roll connection and feature Alice Cooper.
EXPANSION OF OPERATIONS
Between 1990 and 2001, we acquired 31 existing T.G.I. Friday's restaurants
as well as the exclusive and co-development rights to develop restaurants in
specified territories. The acquisitions include 25 restaurants in California,
three in Arizona, and one in each of Kansas, Missouri, and Nevada. We
subsequently sold five of the restaurants we had previously acquired in
California that we continue to manage. Between 1990 and 2001, we also developed
31 new T.G.I. Friday's restaurants, including three during 2001. These include
16 in California, six in Arizona, three in Nevada, two in each of New Mexico and
Kansas, and one in each of Missouri and Texas. In 2001, we closed our T.G.I.
Friday's restaurant in Texas. We plan to open two T.G.I. Friday's restaurants in
2002, one in Chandler, Arizona and the other in north Phoenix, Arizona.
We, with the concurrence of the franchisee for whom we managed, closed one
under-performing T.G.I. Friday's restaurant in San Francisco, California, in
2002. We closed one under-performing T.G.I. Friday's restaurant in El Paso,
Texas and one under-performing Redfish Cajun Grill and Bar restaurant in
Cleveland, Ohio during 2001.
In 1997, we acquired a 52% ownership interest and in 1999 we acquired the
remaining minority interest in Redfish America, LLC, which operated our four
original Redfish Cajun Grill and Bar restaurants. We opened two additional
Redfish restaurants in 1999 and closed one in each of 2000 and 2001. We plan to
open one Redfish restaurant in Chandler, Arizona in 2002. We also may explore
opportunities to franchise the Redfish concept to third parties in the future.
In July 2000, we acquired the business and substantially all of the assets
of two Bamboo Club restaurants. As part of the acquisition, we also acquired the
right, title, and interest under, in, and to the "Bamboo Club" name and
restaurant concept. The two Bamboo Club restaurants are located in Phoenix and
Scottsdale, Arizona. In 2001 we opened three Bamboo Club restaurants, two in
Florida, in Tampa and West Palm Beach and one in Tempe, Arizona. We plan to open
seven additional Bamboo Clubs in 2002, in Tucson, Arizona; Novi (Detroit),
Michigan; Fairfax (Washington D.C.), Virginia; San Antonio (River walk), Texas;
North Phoenix, Arizona; Aventura, Florida; and Raleigh/Durham, North Carolina.
We may open one additional Bamboo Club restaurant in Newport (Cincinnati)
Kentucky. We plan to expand the Bamboo Club concept by opening other additional
restaurants in the future. We also may explore opportunities to franchise the
Bamboo Club concept to third parties in the future.
Generally when we close a location due to underperformance or other reasons
that management deems appropriate, our first priority is to transfer useable
assets to other locations. Other assets that are not transferable, including
leasehold improvements and certain kitchen equipment are written off at the time
of closure.
In November of 2001, we received a license to open two Alice Cooper'stown
restaurants; we plan to open one in Cleveland, Ohio in 2002.
We plan to expand our restaurant operations through the development of
additional T.G.I. Friday's restaurants in our existing development territories
and the development of additional Redfish and Bamboo Club restaurants in
suitable locations. We opened three T.G.I. Friday's, one Redfish, and three
Bamboo Club restaurants during 2001.
12
We have signed leases for nine locations and we are negotiating leases for
three additional restaurants, two of which are scheduled to be developed during
2002. We currently are considering other sites for additional restaurants, but
have not entered into leases or purchase agreements for such sites. We do not
know how many sites will materialize, as that depends on a variety of factors
and economic conditions.
The opening of new restaurants will depend on our ability to
* locate suitable sites in terms of favorable population
characteristics, density and household income levels, visibility,
accessibility, traffic volume, proximity to demand generators
(including shopping malls, lodging, and office complexes), and
proximity to potential competition;
* obtain financing for construction, tenant improvements, furniture,
fixtures, equipment, and other expenditures;
* negotiate acceptable leases or terms of purchase;
* secure zoning, environmental, health and similar regulatory approvals
and liquor licenses;
* recruit and train qualified personnel; and
* manage successfully the rate of expansion and expanded operations.
The opening of new restaurants also may be affected by increased
construction, utility, and labor costs, delays resulting from governmental
regulatory approvals, strikes, or work stoppages, adverse weather conditions,
and acts of God. Newly opened restaurants may operate at a loss for a period
following their opening. The length of this period will depend upon a number of
factors, including the time of year the restaurant is opened, sales volume, and
operating costs.
The acquisition of existing restaurants will depend upon our ability to
identify and purchase restaurants that meet our criteria on satisfactory terms
and conditions. There can be no assurance that we will be successful in
achieving our expansion goals through the development or acquisition of
additional restaurants or that any additional restaurants that are developed or
acquired will be profitable. In addition, the opening of additional restaurants
in an existing market may have the effect of drawing customers, from and
reducing, the sales volume of our existing restaurants in those markets.
DEVELOPMENT AGREEMENTS
We are a party to four development agreements with Carlson Restaurants
Worldwide. Each development agreement grants us the right to develop additional
T.G.I. Friday's restaurants in a specified territory and obligates us to develop
additional T.G.I. Friday's restaurants in that territory in accordance with a
specified development schedule. We own the exclusive rights to develop
additional T.G.I. Friday's restaurants in territories encompassing the states of
Arizona, Nevada, and New Mexico, and the Kansas City, Kansas/Missouri and E1
Paso, Texas metropolitan areas. We also have the non-exclusive right, together
with Carlson Restaurants Worldwide, to develop additional T.G.I. Friday's
restaurants in the state of California. We plan to develop additional T.G.I.
Friday's restaurants in our existing development territories.
In the past, we have successfully renegotiated our franchisee development
obligations for new T.G.I. Friday's locations, primarily in Northern California.
Our renegotiated development schedule has reduced our development obligation in
Northern California, extended the dates for new store development in all of
California, and increased to a lesser extent our development obligations in
other territories. As part of the new agreement, Carlson Restaurants Worldwide
now has the right to co-develop the California market.
During the middle of 2000, we experienced difficulty finding sites,
particularly in Northern California, that we believed we could successfully
develop and operate. We commenced discussions with Carlson Restaurants Worldwide
to adjust and modify our development agreements. We reached substantial
agreement to reduce development obligations in certain areas and to alter some
area obligations. Before this agreement was finalized, increases in workers'
compensation, minimum wage, and energy costs made development in California,
especially Northern California, very problematic. As a result, we agreed with
Carlson Restaurants Worldwide not to enter into a modification of our
development agreements until we could fully assess the effects of these issues.
13
We subsequently analyzed these effects entered into modifications of our
Northern and Southern California Development Agreements on November 6, 2001.
The following table sets forth information regarding our minimum
requirements to open new T.G.I. Friday's restaurants under our current
development agreements, as well as the number of existing restaurants in each of
our development territories.
SOUTHERN NORTHERN
CALIFORNIA CALIFORNIA SOUTHWEST MIDWEST
YEAR TERRITORY(1) TERRITORY(1) TERRITORY(2) TERRITORY(3) TOTAL
- ---- ------------ ------------ ------------ ------------ -----
2002................... -- -- 1 1 2
2003................... 2 1 1 1 5
---- ---- ---- ---- ----
Total............. 2 1 2 2 7
==== ==== ==== ==== ====
Existing Restaurants... 30 6(4) 15(5) 5 56
- ----------
(1) Carlson Restaurants Worldwide also may develop restaurants in this region.
(2) Includes the states of Arizona, Nevada, and New Mexico and the E1 Paso,
Texas metropolitan area.
(3) Includes metropolitan Kansas City, Kansas and Kansas City, Missouri.
(4) Does not include the four restaurants managed in the Northern California
Territory.
(5) Does not include the one restaurant managed in the Southwest Territory.
Each development agreement gives Carlson Restaurants Worldwide certain
remedies in the event that we fail to comply in a timely manner with our
schedule for restaurant development, if we otherwise default under the
development agreement or any franchise agreement relating to a restaurant within
that development territory as described above, or if our officers or directors
breach the confidentiality or non-compete provisions of the development
agreement. The remedies available to Carlson Restaurants Worldwide include (a)
the termination of our exclusive right to develop restaurants in the related
territory; (b) a reduction in the number of restaurants we may develop in the
related territory; (c) the termination of the development agreement; and (d) an
acceleration of the schedule for development of restaurants in the related
territory pursuant to the development agreement. None of these remedies would
affect adversely our ability to continue to operate our then-existing T.G.I.
Friday's restaurants.
FRANCHISE AGREEMENTS
We enter into or assume a separate franchise agreement with respect to each
T.G.I. Friday's restaurant that we acquire or develop pursuant to a development
agreement. Each franchise agreement grants us an exclusive license to operate a
T.G.I. Friday's restaurant within a designated geographic area, which generally
is a three-mile limit from each restaurant, and obligates us to operate such
restaurant in accordance with the requirements and specifications established by
Carlson Restaurants Worldwide relating to food preparation and quality of
service as well as general operating procedures, advertising, records
maintenance, and protection of trademarks. The franchise agreements restrict our
ability to transfer our interest in our T.G.I. Friday's restaurants without the
consent of Carlson Restaurants Worldwide.
Each franchise agreement requires us to pay Carlson Restaurants Worldwide
an initial franchise fee, generally in the amount of $50,000. In addition, we
are obligated to pay Carlson Restaurants Worldwide a royalty in the amount of 4%
of the gross revenue as defined in the franchise agreement for each restaurant.
Royalty payments under these agreements totaled $7,444,000 during fiscal 2001,
$6,634,000 during fiscal 2000 and $4,830,000 during fiscal 1999. Each franchise
agreement also requires us to spend at least 4% of gross sales on local
marketing and to contribute to a national marketing pool Carlson Restaurants
Worldwide administers. All funds contributed to the national advertising fund
are credited against the local advertising requirement. Carlson Restaurants
Worldwide required us as well as all other franchisees to contribute 2.1% of
gross sales in fiscal years 1999, 2000, and the first three quarters of 2001 to
the national marketing fund, this sum was reduced to 1.7% during the last fiscal
quarter of 2001, but has now been increased to 2.7%. Marketing expenses totaled
$4,163,000 during fiscal 2000 and $4,774,000 during fiscal 2001.
14
A default under one of our franchise agreements will not constitute a
default under any of our other franchise agreements. A default under the
franchise agreement for a restaurant in a development territory may, however,
constitute a default under the development agreement for that development
territory.
LICENSE AGREEMENTS
Our two license agreements with Celebrity Restaurants, L.L.C., allow us to
open Alice Cooper'stown restaurants in Cleveland, Ohio and San Diego,
California. The agreements grant us the right to use Celebrity Restaurants'
exclusive rights to Alice Cooper's likeness and its trademarks and trade names
to operate sport and rock and roll themed restaurants featuring Alice Cooper.
Each license agreement requires us to pay Celebrity Restaurants a royalty
fee in the amount of 1% of gross sales for food and beverage sales up to the
amount of gross sales derived in 2001 in each location through its existing
operations; 2.5% from that point to $3,500,000 and 3% over $3,500,000. For the
sale of merchandise products, such as logo and memorabilia, we pay a royalty of
20 % of gross sales.
Our license agreements are not inter-related and a default under one will
not be a default under the other.
GOVERNMENT REGULATION
Each of our restaurants is subject to licensing and regulation by state and
local departments and bureaus of alcohol control, health, sanitation, and fire
and to periodic review by the state and municipal authorities for areas in which
the restaurants are located. In addition, we are subject to local land use,
zoning, building, planning, and traffic ordinances and regulations in the
selection and acquisition of suitable sites for constructing new restaurants.
Delays in obtaining, or denials of, or revocation or temporary suspension of,
necessary licenses or approvals could have a material adverse impact on our
development of restaurants.
We also are subject to regulation under the Fair Labor Standards Act, which
governs such matters as working conditions and minimum wages. An increase in the
minimum wage rate or the cost of workers' compensation insurance, both of which
recently occurred in California, or changes in tip-credit provisions, employee
benefit costs (including costs associated with mandated health insurance
coverage), or other costs associated with employees could adversely affect our
company.
In addition, we are subject to the Americans with Disabilities Act of 1990.
That act may require us to make certain installations in new restaurants or
renovations to existing restaurants to meet federally mandated requirements. To
our knowledge, we are in compliance in all material respects with all applicable
federal, state, and local laws affecting our business.
COMPETITION
The restaurant business is highly competitive with respect to price,
service, food type, and quality. In addition, restaurants compete for the
availability of restaurant personnel and managers. Our restaurants compete with
a large number of other restaurants, including national and regional restaurant
chains and franchised restaurant systems, many of which have greater financial
resources, more experience, and longer operating histories than we possess. We
also compete with locally owned, independent restaurants.
Our casual dining business also competes with various types of food
businesses, as well as other businesses, for restaurant locations. We believe
that site selection is one of the most crucial decisions required in connection
with the development of restaurants. As the result of the presence of competing
restaurants in our development territories, our management devotes great
attention to obtaining what we believe will be premium locations for new
restaurants, although we can provide no assurance that we will be successful in
these efforts.
EMPLOYEES
We employ approximately 2,410 people on a full-time basis, of whom 74 are
corporate management and staff personnel. We also employ approximately 3,615
part-time employees, which results in our employment of 6,025 total personnel,
of which 5,951 are restaurant personnel. Except for corporate and management
personnel, we generally pay our employees on an hourly basis. We employ an
average of approximately 90 full-time and part-time hourly employees at each of
15
our restaurants. None of our employees are covered by a collective bargaining
agreement with us. We have never experienced a major work stoppage, strike, or
labor dispute. We consider our relations with our employees to be good.
EXECUTIVE OFFICERS
The following table sets forth certain information regarding our executive
officers:
NAME AGE POSITION
---- --- --------
Bart A. Brown, Jr..... 70 Chief Executive Officer, and Director
William G. Shrader.... 54 President, Chief Operating Officer, and Director
Lawrence K. White..... 37 Vice President - Finance and Treasurer
Jeff Smit............. 43 Senior Vice President-Restaurant Operations
David C. Moore........ 52 Vice President of Bamboo Club Operations
Michael J. Herron..... 61 General Counsel and Secretary
BART A. BROWN, JR. has served as our Chief Executive Officer and as a
director since December 1996. Mr. Brown served as our President from December
1996 until June 2001. Mr. Brown was affiliated with Investcorp International,
N.A., and an international investment-banking firm, from April 1996 until
December 1996. Mr. Brown served as the Chairman and Chief Executive Officer of
Color Tile, Inc. at the request of Investcorp International, Inc., which owned
all of that company's common stock, from September 1995 until March 1996. In
January 1996, Color Tile filed for reorganization under Chapter 11 of the United
States Bankruptcy Code. Mr. Brown served as Chairman of the Board of The Circle
K Corporation from June 1990, shortly after that company filed for
reorganization under Chapter 11 of the United States Bankruptcy Code, until
September 1995. From September 1994 until September 1996, Mr. Brown served as
the Chairman and Chief Executive Officer of Spreckels Industries, Inc. Mr. Brown
engaged in the private practice of law from 1963 through 1990 after seven years
of employment with the Internal Revenue Service.
WILLIAM G. (BILL) SHRADER has served as our President and Chief Operating
Officer and as a director since March 1999. Mr. Shrader served as our Executive
Vice President from March 1999 until June 2001. Prior to joining our company,
Mr. Shrader was Senior Vice President of Marketing for Tosco Marketing Company
from February 1997 to March 1999. From August 1992 to February 1997, Mr. Shrader
served in several capacities at Circle K Stores, Inc., including President of
the Arizona Region, President of the Petroleum Products/Services Division, Vice
President of Gasoline Operations, and Vice President of Gasoline Marketing. Mr.
Shrader began his career in 1976 at The Southland Corporation and departed in
1992 as National Director of Gasoline Marketing.
LAWRENCE K. WHITE has served as our Vice President-Finance and Treasurer
since August 2000. Prior to joining our company, Mr. White served as the Vice
President of Accounting for the Arizona Diamondbacks of Major League Baseball
(MLB), the Phoenix Suns of the National Basketball Association (NBA), Bank One
Ballpark, and America West Arena. Mr. White began his career in public
accounting with the Boston offices of Price Waterhouse and Pannell Kerr Forster
from 1987 through 1992. Thereafter, he worked for two Boston area real estate
companies until his hiring by the Arizona Diamondbacks in early 1996.
JEFF SMIT has served as our Senior Vice President-Restaurant Operations
since June 2001. Mr. Smit served as our Vice President of Operations prior to
June of 2001. Mr. Smit joined us in 1994 and has been a general and regional
manager. Prior to joining us, Mr. Smit worked for Carlson Restaurants Worldwide
as a general manager in its T.G.I. Friday's operation. Prior to that, Mr. Smit
worked in a variety of capacities in various restaurants.
DAVID C. MOORE has served as vice president of Bamboo Club operations since
November of 2001. From 1999 until he joined the company Mr. Moore was in the
custom home building business, building under the name Ponderosa Homes, LLC, and
owned a sports grill and bar franchise called Famous Sams through a company
called Grand Slam 7, LLC. From 1995 through 1999 Mr. Moore was Senior Vice
President for Tosco Marketing Company. Prior to that Mr. Moore was a Senior Vice
President of Circle K Corporation.
MICHAEL J. HERRON joined our company as General Counsel in March 2001 and
has been Secretary since June 2001. Prior to joining us, Mr. Herron was actively
engaged in the private practice of law in Miami Beach, Florida and in Aspen,
Colorado. From April 1990 to February 2001 Mr. Herron was a member of the law
firm of Garfield & Hecht, P.C., in Aspen, Colorado. Mr. Herron is a former
President of the Miami Beach, Florida Bar Association and was a member of the
Florida Bar Association's standing Ethics Committee.
16
SPECIAL CONSIDERATIONS-RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS, IN ADDITION TO THE
OTHER INFORMATION IN THIS REPORT, IN EVALUATING OUR COMPANY AND OUR BUSINESS.
WE DEPEND ON CARLSON RESTAURANTS WORLDWIDE, INC.
We currently operate 56 T.G.I. Friday's restaurants as a T.G.I. Friday's
franchisee. We also manage an additional five T.G.I. Friday's restaurants for
other franchisees. Carlson Restaurants Worldwide, Inc. (formerly TGI Friday's,
Inc.) is the franchisor of T.G.I. Friday's restaurants. As a result of the
nature of franchising and our franchise agreements with Carlson Restaurants
Worldwide, our long-term success depends, to a significant extent, on
* the continued vitality of the T.G.I. Friday's restaurant concept and
the overall success of the T.G.I. Friday's system;
* the ability of Carlson Restaurants Worldwide to identify and react to
new trends in the restaurant industry, including the development of
popular menu items;
* the ability of Carlson Restaurants Worldwide to develop and pursue
appropriate marketing strategies in order to maintain and enhance the
name recognition, reputation, and market perception of T.G.I. Friday's
restaurants;
* the goodwill associated with the T.G.I. Friday's trademark;
* the quality, consistency, and management of the overall T.G.I.
Friday's system; and
* the successful operation of T.G.I. Friday's restaurants owned by
Carlson Restaurants Worldwide and other T.G.I. Friday's franchisees.
We believe that the experience, reputation, financial strength, and
franchisee support of Carlson Restaurants Worldwide represent positive factors
for our business. We have no control, however, over the management or operation
of Carlson Restaurants Worldwide or other T.G.I. Friday's franchisees. A variety
of factors affecting Carlson Restaurants Worldwide or the T.G.I. Friday's
concept could have a material adverse effect on our business. These factors
include the following:
* any business reversals that Carlson Restaurants Worldwide may
encounter;
* a failure by Carlson Restaurants Worldwide to promote the T.G.I.
Friday's name or restaurant concept;
* the inability or failure of Carlson Restaurants Worldwide to support
its franchisees, including our company;
* the failure to operate successfully the T.G.I. Friday's restaurants
that Carlson Restaurants Worldwide itself owns; and
* negative publicity with respect to Carlson Restaurants Worldwide or
the T.G.I. Friday's name.
The future results of the operations of our restaurants will not necessarily
reflect the results achieved by Carlson Restaurants Worldwide or its other
franchisees, but will depend upon such factors as the effectiveness of our
management team, the locations of our restaurants, and the operating results of
those restaurants.
FRANCHISE AGREEMENTS IMPOSE RESTRICTIONS AND OBLIGATIONS ON OUR BUSINESS.
Our franchise agreement with Carlson Restaurants Worldwide for each T.G.I.
Friday's restaurant that we own generally requires us to
* pay an initial franchise fee of $50,000;
* pay royalties of 4% of the restaurant's gross sales; and
17
* spend up to 4% of the restaurant's gross sales on advertising, which
may include contributions to a national marketing pool administered by
Carlson Restaurants Worldwide.
During fiscal 2000, Carlson Restaurants Worldwide required us and its other
franchisees to contribute 2.1% of gross sales to the national marketing pool.
That sum was reduced to 1.7% during the last four months of 2001, as Carlson had
no national campaign during that period. In 2002, Carlson Restaurants Worldwide
intends to increase the national marketing pool to 2.7% and to have an active
national campaign. We must pay or accrue these amounts regardless of whether or
not our restaurants are profitable. In addition, the franchise agreements
require us to operate our T.G.I. Friday's restaurants in accordance with
requirements and specifications established by Carlson Restaurants Worldwide.
These requirements and specifications relate to a variety of factors, including
the following:
* the exterior and interior design, decor, and furnishings of
restaurants;
* menu selection;
* the preparation of food products;
* quality of service;
* general operating procedures;
* advertising;
* maintenance of records; and
* protection of trademarks.
If we fail to satisfy these requirements or otherwise default under the
franchise agreements, we could be subject to potential damages for breach of
contract and could lose our franchise rights for some or all of our T.G.I.
Friday's restaurants. We also could lose our rights to develop additional T.G.I.
Friday's restaurants.
OUR DEVELOPMENT AGREEMENTS WITH CARLSON RESTAURANTS WORLDWIDE REQUIRE US TO OPEN
ADDITIONAL T.G.I. FRIDAY'S RESTAURANTS.
The acquisition of restaurants may not constitute the opening of new
restaurants under the development agreements. We may not be able to secure
sufficient restaurant sites that we believe are suitable or we may not be able
to develop restaurants on sites on terms and conditions that we consider
favorable in order to satisfy the requirements of the development agreements.
The development agreements give Carlson Restaurants Worldwide certain remedies
in the event that we fail to comply with the development schedule in a timely
manner or if we breach the confidentiality or noncompete provisions of the
development agreements. These remedies include, under certain circumstances, the
right to reduce the number of restaurants we may develop in the related
development territory or to terminate our exclusive right to develop restaurants
in the related development territory.
At our request, Carlson Restaurants Worldwide from time to time has agreed
to amend the development schedules to extend the time by which we were required
to develop new restaurants in certain development territories. We requested
those amendments because we were unable to secure sites that we believed to be
attractive on favorable terms and conditions. Carlson Restaurants Worldwide may
decline to extend the development schedule in the future if we experience any
difficulty in satisfying the schedule for any reason, including a shortage of
capital.
WE MAY NOT BE ABLE TO COMPLY WITH ALL OF THE REQUIREMENTS OF OUR DEVELOPMENT
AGREEMENTS.
During 2001, we renegotiated our development agreements with Carlson
Restaurants Worldwide for southern and northern California. While we expect to
fulfill our obligations under the terms of our development agreements as they
exist for the south and Midwest areas and for California as they have been
renegotiated, we can provide no assurance that we will successfully fulfill
these obligations.
18
WE FACE RISKS ASSOCIATED WITH THE ACQUISITION AND INTEGRATION OF THE REDFISH,
THE BAMBOO CLUB AND ALICE COOPER'STOWN RESTAURANTS, AND ANY OTHER ACQUIRED
RESTAURANTS, WITH OUR EXISTING OPERATIONS.
We must integrate the operations of our Redfish, Bamboo Club and Alice
Cooper'stown restaurants with our existing operations in order to enhance
revenue, realize cost savings, and achieve anticipated operating efficiencies.
Because Redfish and Bamboo Club restaurants feature, and Alice Cooper'stown
restaurants will feature, diverse menus served in an upscale atmosphere, these
restaurants present operating requirements that differ from our existing T.G.I.
Friday's restaurants. These requirements could result in unanticipated
challenges to our management team. We may wish to acquire other complementary
restaurant operations in the future. We may not be able to identify suitable
acquisition candidates or make acquisitions on commercially acceptable terms. We
also cannot provide assurance that we will be able to
* effectively complete the integration of the Redfish, Bamboo Club, and
Alice Cooper'stown operations or any future acquired businesses with
our existing operations;
* effectively manage the Redfish, Bamboo Club, and Alice Cooper'stown
restaurants or the combined operations of our different restaurant
concepts;
* achieve our operating and growth strategies with respect to these
businesses;
* obtain increased revenue opportunities as a result of the anticipated
synergies created by the Redfish, Bamboo Club, Alice Cooper'stown, and
other acquisitions; or
* reduce the overall selling, general, and administrative expenses
associated with acquired operations.
The integration of the management, personnel, restaurant operations, and
facilities of Redfish, Bamboo Club, and Alice Cooper'stown and any other
businesses that we may acquire in the future could involve unforeseen
difficulties. These difficulties could disrupt our ongoing business, distract
our management and employees, and increase our expenses, which could have a
material adverse effect on our business, financial condition, and operating
results.
We conduct due diligence reviews of each acquired business, and we obtain
professional opinions regarding each acquired business. Unforeseen liabilities
and difficulties, however, can arise in connection with the operation of an
acquired business. Contractual or other remedies may not be sufficient to
compensate us in the event unforeseen liabilities or other difficulties arise.
We strive to take advantage of the opportunities created by the combination
of acquired operations to achieve significant revenue opportunities and
substantial cost savings, including increased product offerings and decreased
operating expenses as a result of the elimination of duplicative facilities and
personnel associated with sales, marketing, administrative, and purchasing
functions. Significant uncertainties, however, accompany any business
combination. We may not be able to achieve revenue increases; integrate
facilities, functions, and personnel in order to achieve operating efficiencies;
or otherwise realize cost savings as a result of acquisitions. The inability to
achieve revenue increases or cost savings could have a material adverse effect
on our business, financial condition, and operating results.
WE FACE RISKS ASSOCIATED WITH THE EXPANSION OF OUR OPERATIONS.
The success of our business depends on our ability to expand the number of
our restaurants, either by developing or acquiring additional restaurants. Our
success also depends on our ability to operate and manage successfully our
growing operations. Our ability to expand successfully will depend upon a number
of factors, including the following:
* the availability and cost of suitable restaurant locations for
development;
* the availability of restaurant acquisition opportunities;
* the hiring, training, and retention of additional management and
restaurant personnel;
* the availability of adequate financing;
* the continued development and implementation of management information
systems;
19
* competitive factors; and
* general economic and business conditions.
The rate at which we will be able to increase the number of restaurants we
operate will vary depending upon whether we acquire existing restaurants or
develop new restaurants. The acquisition of existing restaurants depends upon
our ability to identify and acquire restaurants on satisfactory terms and
conditions. The opening of new restaurants depends upon our ability to
* locate suitable sites in terms of
- favorable population characteristics,
- density and household income levels,
- visibility, accessibility, and traffic volume,
- proximity to demand generators, including shopping malls,
lodging, and office complexes, and
- potential competition;
* obtain financing for construction, tenant improvements, furniture,
fixtures, and equipment;
* negotiate acceptable leases or terms of purchase;
* secure liquor licenses and zoning, environmental, health, and similar
regulatory approvals;
* recruit and train qualified personnel; and
* manage successfully the rate of expansion and expanded operations.
Increased construction costs and delays resulting from governmental
regulatory approvals, strikes or work stoppages, adverse weather conditions, and
various acts of God may also affect the opening of new restaurants. Newly opened
restaurants may operate at a loss for a period following their initial opening.
The length of this period will depend upon a number of factors, including
* the time of year the restaurant is opened,
* sales volume, and
* our ability to control costs.
We may not successfully achieve our expansion goals. Additional restaurants
that we develop or acquire may not be profitable. In addition, the opening of
additional restaurants in an existing market may have the effect of drawing
customers from and reducing the sales volume of our existing restaurants in
those markets.
WE MAY NEED ADDITIONAL CAPITAL.
The development of new restaurants requires funds for construction, tenant
improvements, furniture, fixtures, equipment, training of employees, permits,
initial franchise fees, and other expenditures. We expect that cash flow from
operations, together with financing commitments, will be sufficient to develop
the two T.G.I. Friday's restaurants, the one new Redfish restaurant, the one
Alice Cooper'stown restaurant, and the eight new Bamboo Club restaurants that we
plan to open during 2002. We will require funds to develop additional T.G.I.
Friday's, Redfish, Bamboo Club, and Alice Cooper'stown restaurants after 2002
and to pursue any additional restaurant development or restaurant acquisition
opportunities that may develop. In the future, we may seek additional equity or
debt financing to provide funds so that we can develop or acquire additional
restaurants. Such financing may not be available or may not be available on
satisfactory terms. If financing is not available on satisfactory terms, we may
be unable to satisfy our obligations under our development agreements with
Carlson Restaurants Worldwide or otherwise to expand our restaurant operations.
See "Special Considerations - We may not be able to comply with all of the
requirements of our development agreements." While debt financing will enable us
to add more restaurants than we otherwise would be able to add, debt financing
increases expenses and we must repay the debt regardless of our operating
results. Future equity financings could result in dilution to our stockholders.
20
WE HAVE SIGNIFICANT BORROWINGS.
We have incurred significant indebtedness in connection with our growth
strategy. Our growth strategy has focused on restaurant acquisitions and
internal restaurant development. As of December 31, 2001, we had long-term debt
of approximately $47.2 million and a working capital deficit of $8.0 million.
Our borrowings will result in interest expense of approximately $4.0
million in 2002 and $4.4 million in 2003, based on currently prevailing interest
rates and assuming outstanding and contemplated indebtedness is paid in
accordance with the existing payment schedules without any prepayments or
additional borrowings. We must make these interest payments regardless of our
operating results. Currently, 58 of our restaurants are pledged to secure our
debt obligations. We also may seek additional equity or debt financing in the
future to provide funds to develop or acquire additional restaurants. See
"Special Considerations - We may need additional capital."
WE WILL BE SUBJECT TO THE RISKS ASSOCIATED WITH FRANCHISING OPERATIONS IF WE
BEGIN FRANCHISING THE REDFISH OR BAMBOO CLUB CONCEPTS.
We will be subject to the risks associated with franchising if we begin
franchising activities in the future. If we develop a franchising program, our
success as a franchisor will depend upon our ability to
* develop and implement a successful system of concepts and operating
standards;
* attract and identify suitable franchisees with adequate business
experience and access to sufficient capital to enable them to open and
operate restaurants in a manner consistent with our concepts and
operating standards;
* monitor the operations of our franchisees to ensure compliance with
our concepts and operating standards;
* identify suitable sites for restaurant development; and
* negotiate favorable purchasing terms with national distribution
companies.
We cannot provide assurance that we would be able to successfully meet these
challenges as a franchisor. In addition, as a franchisor we would be subject to
a variety of federal and state laws and regulations, including Federal Trade
Commission regulations, governing the offer and sale of franchises. These laws
and regulations
* impose registration and disclosure requirements on franchisors in the
offer and sale of franchises, and
* regulate the termination of franchises, the refusal to renew
franchises, and other substantive aspects of the relationships between
franchisors and franchisees.
These laws and regulations could result in significant increased expenses and
potential liabilities for our company in the event we engage in franchising
activities in the future.
WE FACE RISKS THAT AFFECT THE RESTAURANT INDUSTRY IN GENERAL.
A variety of factors over which we have no control may affect the ownership
and operation of restaurants. These factors include the following:
* adverse changes in national, regional, or local economic or market
conditions;
* increased costs of labor or food products;
* fuel, utility, and energy and other price increases;
* competitive factors;
* the number, density, and location of competitors;
* changing demographics;
* changing traffic patterns;
* changing consumer tastes, habits, and spending priorities;
* the cost and availability of insurance coverage;
* management problems;
* uninsured losses;
* limited alternative uses for properties and equipment;
* changes in government regulation; and
* weather conditions.
21
Third parties may file lawsuits against us based on discrimination,
personal injury, claims for injuries or damages caused by serving alcoholic
beverages to an intoxicated person or to a minor, or other claims. As a
multi-unit restaurant operator, our business could be adversely affected by
publicity about food quality, illness, injury, or other health and safety
concerns or operating issues at one restaurant or a limited number of
restaurants operated under the same name, whether or not we actually own or
manage the restaurants in question. We cannot predict any of these factors with
any degree of certainty. Any one or more of these factors could have a material
adverse effect on our business.
Employees may file claims or lawsuits against us based on discrimination or
wrongful termination. These claims or lawsuits could result in unfavorable
publicity and could have a material adverse effect on our business.
WE FACE INTENSE COMPETITION.
The restaurant business is highly competitive with respect to price,
service, and food type and quality. Restaurant operators also compete for
attractive restaurant sites and qualified restaurant personnel and managers. Our
restaurants compete with a large number of other restaurants, including national
and regional restaurant chains and franchised restaurant systems, as well as
with locally owned, independent restaurants. Many of our competitors have
greater financial resources, more experience, and longer operating histories
than we possess.
WE DEPEND UPON OUR SENIOR MANAGEMENT.
Our success depends, in large part, upon the services of our senior
management. The loss of the services of any members of our senior management
team could have a material adverse effect on our business.
WE FACE RISKS ASSOCIATED WITH GOVERNMENT REGULATION.
Various federal, state, and local laws affect our business. The development
and operation of restaurants depend to a significant extent on the selection and
acquisition of suitable sites. These sites are subject to zoning, land use,
environmental, traffic, and other regulations of state and local governmental
agencies. City ordinances or other regulations, or the application of such
ordinances or regulations, could impair our ability to construct or acquire
restaurants in desired locations and could result in costly delays. In addition,
restaurant operations are subject to
* licensing and regulation by state and local departments relating to
health, sanitation, safety standards, and fire codes;
* federal and state labor laws, including applicable minimum wage
requirements, tip-credit provisions, overtime regulations, workers'
compensation insurance rates, unemployment and other taxes, working
and safety conditions, and citizenship requirements; and
* state and local licensing of the sale of alcoholic beverages.
The delay or failure to obtain or maintain any licenses or permits
necessary for operations could have a material adverse effect on our business.
In addition, an increase in the minimum wage rate, employee benefit costs, or
other costs associated with employees could adversely affect our business. We
also are subject to the Americans with Disabilities Act of 1990 that, among
other things, may require us to install certain fixtures or accommodations in
new restaurants or to renovate existing restaurants to meet federally mandated
requirements.
Sales of alcoholic beverages represent an important source of revenue for
each of our restaurants. The temporary suspension or permanent loss or the
inability to maintain a liquor license for any restaurant would have an adverse
effect on the operations of that restaurant. We do not plan to open a restaurant
in any location for which we believe we cannot obtain or maintain a liquor
license.
22
THE MARKET PRICE OF OUR COMMON STOCK MAY BE VOLATILE.
Historically, the market price of our common stock has been volatile. In
the future, the market price of our common stock will be subject to wide
fluctuations as a result of a variety of factors, including the following:
* quarterly variations in our operating results or those of other
restaurant companies;
* changes in analysts' estimates of our financial performance;
* changes in national and regional economic conditions, the financial
markets, or the restaurant industry;
* natural disasters; and
* other developments affecting our business or other restaurant
companies.
The trading volume of our common stock has been limited, which may increase
the volatility of the market price for our stock. In addition, the stock market
has experienced extreme price and volume fluctuations in recent years. This
volatility has had a significant effect on the market prices of securities
issued by many companies for reasons not necessarily related to the operating
performances of these companies.
OUR MANAGEMENT CONTROLS A SIGNIFICANT PORTION OF THE VOTING POWER OF OUR COMMON
STOCK.
Our directors and officers currently own, directly or indirectly,
approximately 5,673, 922 shares, or 40.4%, of our outstanding common stock.
These directors and officers also hold options to purchase an aggregate of
2,172,000 shares of common stock at exercise prices ranging from $1.88 to $5.00
per share. As a result, these persons voting together will have significant
voting power.
THE EXISTENCE OF STOCK OPTIONS AND WARRANTS MAY ADVERSELY AFFECT THE TERMS OF
FUTURE FINANCINGS.
Stock options, to others than directors or officers, to acquire an
aggregate of 865,497 shares of common stock currently are outstanding. An
additional 193,000 have been reserved for issuance upon exercise of options that
may be granted under our existing stock option plans. In addition, warrants to
acquire 231,000 shares of common stock currently are outstanding. During the
terms of those options and warrants, the holders of those securities will have
the opportunity to profit from an increase in the market price of our common
stock. The existence of options and warrants may adversely affect the terms on
which we can obtain additional financing in the future, and the holders of
options and warrants can be expected to exercise those options and warrants at a
time when, in all likelihood, we would be able to obtain additional capital by
offering shares of common stock on terms more favorable to us than those
provided by the exercise of such options and warrants.
SALES OF LARGE NUMBERS OF SHARES COULD ADVERSELY AFFECT THE PRICE OF OUR COMMON
STOCK.
Sales of substantial amounts of common stock in the public market, or even
the potential for such sales, could adversely affect prevailing market prices
for our common stock and could adversely affect our ability to raise capital. As
of March 18, 2002, there were outstanding 14,052,600 shares of our common stock.
All of these shares are freely transferable without restriction under the
securities laws, unless they are held by our "affiliates," as that term is
defined in the securities laws. Affiliates also are subject to certain of the
resale limitations of Rule 144. Generally, under Rule 144, each person that
beneficially owns restricted securities with respect to which at least one year
has elapsed since the later of the date the shares were acquired from us or one
of our affiliates may, every three months, sell in ordinary brokerage
transactions or to market makers an amount of shares equal to the greater of 1%
of our then-outstanding common stock or the average weekly trading volume for
the four weeks prior to the proposed sale of such shares.
WE DO NOT ANTICIPATE THAT WE WILL PAY DIVIDENDS.
We have never paid any dividends on our common stock, and we do not
anticipate that we will pay dividends in the foreseeable future. We intend to
apply any earnings to the expansion and development of our business. In
addition, the terms of our credit facilities limit our ability to pay dividends
on our common stock.
23
ITEM 2. PROPERTIES
In December 1998, we entered into a five-year lease for space to serve as
our corporate offices. We acquired additional space in 2001 and in the first
quarter of 2002. We believe that the leased space is adequate for our current
and reasonably anticipated needs and that we will be able to secure adequate
space upon the expiration of the lease.
We also lease space for all of our restaurants. The initial lease terms
range from 10 to 20 years and usually contain renewal options for up to 20
years. The leases typically provide for a fixed rental payment plus a percentage
of our revenue in excess of a specified amount.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are subject to routine contract, negligence,
employment related, and other litigation in the ordinary course of business. We
do not believe, based on the advice of legal council, that we are subject to any
pending litigation that will have a material adverse effect on our business or
financial condition, results of operations or liquidity.
In 2001, we settled our dispute with Ameriserve, our former primary
restaurant supplier, which in January 2000 filed for protection under Chapter 11
of the U.S. Bankruptcy Code. Under the terms of the settlement we recouped
approximately $1,591,000 (net of related expenses) of previously increased food
costs, labor costs, and other expenses we incurred as a result of Ameriserve's
breach of its obligations with us.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
24
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our common stock has been quoted on the NASDAQ National Market under the
symbol "MAIN" since October 30, 1992. The following table sets forth the
quarterly high and low sales prices of our common stock for the periods
indicated as reported by the NASDAQ Stock Market.
HIGH LOW
------ ------
2000
First Quarter.............................. $ 3.47 $ 3.00
Second Quarter............................. 3.56 2.78
Third Quarter.............................. 3.38 2.19
Fourth Quarter............................. 3.56 2.63
2001
First Quarter.............................. $ 3.13 $ 2.50
Second Quarter............................. 4.15 2.94
Third Quarter.............................. 5.91 3.35
Fourth Quarter............................. 5.81 3.55
2002
First Quarter (through March 18, 2002)..... $ 5.10 $ 4.00
On March 18, 2002, there were 889 holders of record of our common stock. On
March 18, 2002, the closing sale price of our common stock on the NASDAQ
National Market was $4.88 per share.
We have never declared or paid any cash dividends. We intend to retain any
earnings to fund the growth of our business and do not anticipate paying any
cash dividends in the foreseeable future. In addition, our existing debt
obligations limit our ability to pay cash dividends.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data for our
company for the periods indicated. The selected consolidated financial data for
each of the five fiscal years in the period ended December 31, 2001 has been
derived from our consolidated financial statements, which have been audited by
Arthur Andersen LLP, our former independent accountants, for the period through
December 25, 2000, and for the year ended December 31, 2001, by KPMG LLP our
current independent accountants.
25
These data should be read in conjunction with, and are qualified by
reference to, our consolidated financial statements and the notes thereto and
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations" included elsewhere in this Report.
FISCAL YEARS ENDED
(IN THOUSANDS EXCEPT FOR SHARE AMOUNTS)
-------------------------------------------------------------
DEC. 31, DEC. 25, DEC. 27, DEC. 28, DEC. 29,
2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
STATEMENT OF OPERATIONS DATA:
Revenue .................................................. 211,823 $ 186,542 $ 140,294 $ 114,242 $ 107,018
Restaurant operating expenses:
Cost of sales .......................................... 59,139 53,671 39,960 33,242 30,995
Payroll and benefits ................................... 64,435 55,971 42,405 33,701 31,907
Depreciation and amortization .......................... 8,632 7,490 4,664 3,730 3,265
Other operating expenses ............................... 61,285 52,008 38,923 31,004 30,589
Reduction of disputed liabilities ...................... -- (1,591) -- -- --
--------- --------- --------- --------- ---------
Total restaurant operating expenses .................. 193,491 167,549 125,952 101,677 96,756
--------- --------- --------- --------- ---------
Income from restaurant operations ........................ 18,332 18,993 14,342 12,565 10,262
Amortization of intangibles ............................ 1,044 996 990 983 953
General and administrative expenses .................... 8,105 7,868 5,955 4,906 4,559
Pre-opening expenses ................................... 1,417 1,370 2,228 661 287
New manager training expenses .......................... 1,676 1,914 1,748 731 562
Impairment charges and other ........................... 3,453 (92) 494 (17) (2,390)
Management fee income .................................. (432) (611) (865) (1,082) (979)
--------- --------- --------- --------- ---------
Operating income ......................................... 3,069 7,548 3,792 6,383 7,270
Non-operating gain ..................................... -- (11) -- -- --
Interest expense and other, net ........................ 3,825 3,615 2,604 2,218 2,466
--------- --------- --------- --------- ---------
Income (loss) before income taxes, extraordinary loss, and
cumulative effect of change in accounting principle .... (756) 3,944 1,188 4,165 4,804
Income tax expense (benefit) ............................. (645) 250 50 -- --
--------- --------- --------- --------- ---------
Net income (loss) before extraordinary loss and cumulative
effect of change in accounting principle ............... (111) $ 3,694 $ 1,138 $ 4,165 $ 4,804
========= ========= ========= ========= =========
Net income (loss)(1)(2)(3) ............................... (111) $ 3,678 $ 970 $ 4,165 $ 3,166
========= ========= ========= ========= =========
DILUTED EARNINGS PER SHARE:
Net income (loss) before extraordinary loss and
cumulative effect of change in accounting principle .. (0.01) $ 0.34 $ 0.11 $ 0.39 $ 0.47
Net income (loss)(1)(2)(3) ............................. (0.01) $ 0.33 $ 0.09 $ 0.39 $ 0.31
Weighted average shares outstanding - diluted .......... 14,048 11,117 10,407 10,608 10,098
BALANCE SHEET DATA:
Working capital (deficiency) ........................... $ (7,987) $ (7,692) $ (16,652) $ (2,807) $ (1,330)
Total assets ........................................... 112,462 108,261 86,525 70,255 61,168
Long-term debt, net of current portion ................. 47,232 44,395 31,513 28,264 24,308
Stockholders' equity ................................... 40,207 40,499 27,383 26,372 22,203
- ----------
(1) Fiscal 2000 includes a charge of $16,000 for early extinguishment of debt.
(2) Fiscal 1999 includes a charge of $168,000, or $0.02 per share, due to the
cumulative effect of change in accounting principle related to the adoption
of SOP 98-5. See Note 3 to our consolidated financial statements.
(3) Fiscal 1997 includes an extraordinary loss from debt extinguishment of
$1,638,000, or $0.16 per share.
26
QUARTERLY RESULTS OF OPERATIONS
The following table presents unaudited consolidated statements of
operations data for each of the eight quarters in the period ended December 31,
2001. We believe that all necessary adjustments have been included to present
fairly the quarterly information when read in conjunction with our consolidated
financial statements. The operating results for any quarter are not necessarily
indicative of the results for any subsequent quarter.
FISCAL QUARTER ENDED
---------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2001 2000
-------------------------------------------- ---------------------------------------------
MAR. 26 JUNE 25 SEPT. 24 DEC. 31 MAR. 27 JUNE 26 SEPT. 25 DEC. 25(1)
-------- -------- -------- -------- -------- -------- -------- ----------
Revenue ....................... $ 51,705 $ 53,229 $ 52,222 $ 54,667 $ 44,339 $ 47,297 $ 48,293 $ 46,613
Cost of sales ................. 14,598 14,783 14,628 15,130 13,273 13,697 13,561 13,140
Income (loss) before income
taxes, extraordinary loss,
and cumulative effect of
change in accounting
principle ................... 788 1,554 723 (3,821) 318 1,103 1,104 1,419
Net income (loss) ............. 788 1,554 723 (3,176) 404 1,083 1,013 1,178
======== ======== ======== ======== ======== ======== ======== ========
Net income (loss) per share
before income taxes,
extraordinary loss, and
cumulative effect of change
in accounting principle ..... 0.06