-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LIzXoAtEsIPjuUOgXegFT7l/bgBCGPRbD47JVhVVW001D9gCHFStEd9tjLPrbbEG +6KyiHB2gP7dVxhapExxsQ== 0000950116-98-000220.txt : 19980206 0000950116-98-000220.hdr.sgml : 19980206 ACCESSION NUMBER: 0000950116-98-000220 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19980205 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TAM RESTAURANTS INC CENTRAL INDEX KEY: 0001048796 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 133905598 STATE OF INCORPORATION: DE FISCAL YEAR END: 0929 FILING VALUES: FORM TYPE: SB-2/A SEC ACT: SEC FILE NUMBER: 333-39937 FILM NUMBER: 98522899 BUSINESS ADDRESS: STREET 1: 1163 FORREST AVE. CITY: STATEN ISLAND STATE: NY ZIP: 10310 BUSINESS PHONE: 7187205959 MAIL ADDRESS: STREET 1: 1163 FORREST AVENUE CITY: STATEN ISLAND STATE: NY ZIP: 10310 SB-2/A 1 As filed with the Securities and Exchange Commission on February 5, 1998 Registration No. 333-39937 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- Amendment No. 2 To Form SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- TAM RESTAURANTS, INC. (Exact name of small business issuer as specified in its charter)
Delaware 5812 133905598 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification No.) Identification No.)
1163 Forest Avenue Staten Island, New York 10310 (718) 720-5959 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ---------------- Frank Cretella President and Chief Executive Officer TAM Restaurants, Inc. 1163 Forest Avenue Staten Island, New York 10310 (718) 720-5959 (Name, address and telephone number of agent for service) ---------------- Copies of all communications to: ROBERT J. MITTMAN, ESQ. ALAN H. ARONSON, ESQ. Tenzer Greenblatt LLP Akerman, Senterfitt & Eidson, P.A. The Chrysler Building One Southeast 3rd Avenue 405 Lexington Avenue Miami, Florida 33131-1704 New York, New York 10174-0208 Telephone: (305) 374-5600 Telephone: (212) 885-5000 Facsimile: (305) 374-5095 Facsimile: (212) 885-5001 Approximate date of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / ------ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / ------ If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. /X/ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TAM RESTAURANTS, INC. Cross Reference Sheet Pursuant to Rule 404
Registration Statement Item Number and Caption Prospectus Caption - ------------------------------------------------------- ---------------------------------------------------- 1. Front of the Registration Statement and Outside Front Cover Page of Prospectus ..................... Forepart of the Registration Statement and Outside Front Cover Page of Prospectus 2. Inside Front and Outside Back Cover Pages of Prospectus ........................................ Inside Front and Outside Back Cover Pages of Prospectus 3. Summary Information and Risk Factors .............. Prospectus Summary; Risk Factors 4. Use of Proceeds ................................... Use of Proceeds 5. Determination of Offering Price ................... Outside Front Cover Page of Prospectus; Risk Factors; Underwriting 6. Dilution .......................................... Risk Factors; Dilution 7. Selling Securityholders ........................... Selling Securityholders and Plan of Distribution 8. Plan of Distribution .............................. Outside Front Cover Page of Prospectus; Underwriting 9. Legal Proceedings ................................. Not Applicable 10. Directors, Executive Officers, Promoters and Control Persons ................................... Management 11. Security Ownership of Certain Beneficial Owners and Management ............................. Principal Stockholders 12. Description of Securities ......................... Outside and Inside Front Cover Pages of Prospectus; Prospectus Summary; Capitalization; Description of Securities 13. Interest of Named Experts and Counsel ............. Legal Matters 14. Disclosure of Commission Position on Indemnification for Securities Act Liabilities .... Exculpatory Provisions and Indemnification Matters 15. Organization Within Last Five Years ............... Prospectus Summary; Management's Discussion and Analysis of Financial Condition and Results of Operations 16. Description of Business ........................... Prospectus Summary; Risk Factors; Use of Proceeds; Business 17. Management's Discussion and Analysis or Plan of Operation ...................................... Management's Discussion and Analysis of Financial Condition and Results of Operations 18. Description of Property ........................... Business 19. Certain Relationships and Related Transactions..... Certain Transactions 20. Market for Common Equity and Related Stockholder Matters ............................... Outside Front Cover Page; Risk Factors; Dividend Policy; Description of Securities 21. Executive Compensation ............................ Management 22. Financial Statements .............................. Financial Statements 23. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure ......................................... Not Applicable
Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. [GRAPHIC OMITTED] PRELIMINARY PROSPECTUS DATED FEBRUARY 5, 1998 SUBJECT TO COMPLETION TAM RESTAURANTS, INC. 1,000,000 Shares of Common Stock and Redeemable Warrants to Purchase 500,000 Shares of Common Stock The Company is offering hereby 1,000,000 shares (the "Shares") of the common stock of the Company (the "Common Stock") and redeemable warrants to purchase 500,000 shares of Common Stock (the "Warrants"). The Shares and Warrants may be purchased separately and will be separately transferrable immediately upon issuance. Each Warrant entitles the registered holder thereof to purchase one share of Common Stock at a price of $6.00, subject to adjustment in certain circumstances, at any time commencing , 1999 (13 months following the date of this Prospectus) (or on such earlier date as to which the Underwriter consents) until , 2003. The Warrants are redeemable by the Company at any time commencing , 1999 (13 months following the date of this Prospectus) upon notice of not less than 30 days, at a price of $.10 per Warrant, provided that the closing bid quotation of the Common Stock on all 20 trading days ending on the third trading day prior to the day on which the Company gives notice (the "Call Date") has been at least 150% (currently $9.00, subject to adjustment) of the then effective exercise price of the Warrants and the Company obtains the written consent of the Underwriter to such redemption prior to the Call Date. See "Description of Securities." Prior to this offering there has been no public market for the Common Stock or Warrants and there can be no assurance that any such market will develop. It is anticipated that the Common Stock and Warrants will be quoted on the Nasdaq SmallCap Market ("Nasdaq") under the symbols "TAMR" and "TAMRW," respectively. The offering prices of the Shares and Warrants, and the exercise price of the Warrants, were determined pursuant to negotiations between the Company and the Underwriter and do not necessarily relate to the Company's book value or any other established criteria of value. For a discussion of the factors considered in determining the offering prices of the Shares and Warrants, see "Underwriting." This Prospectus also relates to the offer and sale by certain persons (the "Selling Securityholders") of up to 310,000 warrants (the "Selling Securityholders' Warrants"), which are identical to the Warrants and will be issued to the Selling Securityholders upon the consummation of this offering upon the conversion of outstanding warrants, and up to 310,000 shares (the "Selling Securityholders' Shares") of Common Stock issuable upon exercise of the Selling Securityholders' Warrants. The Selling Securityholders' Warrants are not part of the underwritten offering, however, and may not be offered or sold prior to, at the earliest, 15 months following the date of this Prospectus without the prior written consent of the Underwriter. The Company will not receive any of the proceeds from the sale of the Selling Securityholders' Warrants and Selling Securityholders' Shares. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" and "Selling Securityholders and Plan of Distribution." ------------------- THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION AND SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" COMMENCING ON PAGE 8 AND "DILUTION" ON PAGE 18. ------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ================================================================================ Price Underwriting Proceeds to Discounts and to Public Comissions(1) Company(2) - -------------------------------------------------------------------------------- Per Share ........... $ 5.00 $ .50 $ 4.50 - -------------------------------------------------------------------------------- Per Warrant ......... $ .10 $ .01 $ .09 - -------------------------------------------------------------------------------- Total (3) ........... $5,050,000 $505,000 $4,545,000 ================================================================================ (1) The Company has agreed to pay to the Underwriter a 3% nonaccountable expense allowance, to sell to the Underwriter warrants (the "Underwriter's Warrants") to purchase up to 100,000 shares of Common Stock and/or 50,000 warrants and to retain the Underwriter as a financial consultant. The Company has also agreed to indemnify the Underwriter against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses payable by the Company, including the Underwriter's nonaccountable expense allowance in the amount of $151,500 ($174,225 if the Underwriter's over-allotment option is exercised in full), estimated at $645,000. (3) The Company has granted to the Underwriter an option, exercisable within 45 days from the date of this Prospectus, to purchase up to 150,000 additional shares of Common Stock and/or 75,000 additional Warrants on the same terms set forth above, solely for the purpose of covering over-allotments, if any. If the Underwriter's over-allotment option is exercised in full, the total price to public, underwriting discounts and commissions and proceeds to Company will be $5,807,500, $580,750 and $5,226,750, respectively. See "Underwriting." ------------------- The Shares and Warrants are being offered, subject to prior sale, when, as and if delivered to and accepted by the Underwriter and subject to approval of certain legal matters by counsel and to certain other conditions. The Underwriter reserves the right to withdraw, cancel or modify this offering and to reject any order in whole or in part. It is expected that delivery of certificates representing the Shares and Warrants will be made against payment therefor at the offices of the Underwriter, 7 Hanover Square, New York, New York 10004, on or about , 1998. ------------------- [GRAPHIC OMITTED] The date of this Prospectus is , 1998 ------------------- CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS ON NASDAQ, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE, WHICH STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICES OF THE COMMON STOCK AND WARRANTS. SPECIFICALLY, THE UNDERWRITER MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING AND MAY BID FOR AND PURCHASE SHARES OF COMMON STOCK AND WARRANTS IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements, including the notes thereto, appearing elsewhere in this Prospectus. Each prospective investor is urged to read this Prospectus in its entirety. Unless otherwise indicated, all share and per share data and information in this Prospectus (i) gives retroactive effect to a 1 for 1.8135268 reverse split of the Common Stock effected in December 1997 and (ii) assumes no exercise of the Underwriter's over-allotment option to purchase up to 150,000 additional shares of Common Stock and/or 75,000 additional Warrants. See "Underwriting" and Note Q to Notes to Financial Statements. This Prospectus contains forward-looking statements that involve risks and uncertainties. The Company's actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in "Risk Factors." The Company TAM Restaurants, Inc. (the "Company") operates Lundy Bros. Restaurant ("Lundy's"), a high-volume, casual, upscale seafood restaurant located in Brooklyn, New York, and The Boathouse in Central Park ("The Boathouse"), a multi-use facility which features an upscale restaurant and catering pavilion, located on the lake in New York City's Central Park. Lundy's and The Boathouse are high-profile locations which host many special events and receive extensive press coverage. The Company is also constructing American Park at the Battery ("American Park"), which has been designed as a high-volume premium-quality restaurant to be located at the water's edge in Battery Park, a New York City landmark visited by approximately 4 million visitors during 1996. In addition, the Company's restaurants offer high-quality professional, on-premise and off-premise catering services. The Lundy's concept is designed to appeal to a broad range of guests by serving generous portions of premium-quality seafood and other menu items and by combining a grand dining experience with friendly and efficient service in a high-energy environment. Lundy's menu features a wide variety of fresh seafood items, including lobster, crab, shrimp, oysters, clams and daily fish specials, cooked to order in a variety of ways: steamed, sauteed, broiled, grilled, blackened and fried. In addition, Lundy's offers a selection of steaks, chicken dishes, pasta dishes, pizzas, appetizers, chowders, salads and fresh-baked desserts, as well as full bar service. Dinner entrees range in price from $7.95 to $28.95 and the average dinner check is approximately $32.00 per person. Lundy's is open for lunch and dinner seven days a week. Lundy's interior has been designed with a contemporary decor, rich polished woods and granite surfaces, accented with copper, pottery and brushed-stainless steel and earth tones, to impart "Old World" elegance and comfort. Lundy's commitment to offering its guests a casual, exciting dining experience is highlighted by its "exhibition" kitchen where all meals are cooked to order in view of its guests, a lobster pool from which guests can select their lobsters, an experienced waitstaff uniformed in crisp white linen jackets, a high waitstaff-to-customer ratio to assure attentive service and tables and multiple layers of colored linens covered with pristine white butcher paper. Lundy's offers guests several seating selections in its multi-level interior, which consists of an expansive, high-ceiling main dining area; a large upstairs dining room which is also used for special events and to cater private functions; a mezzanine-level cigar room which overlooks the main dining area; and a 30 foot long oyster and beverage bar; as well as outdoor seating. Lundy's also houses a seafood laboratory where seafood is tested to assure premium quality and freshness, and a gift shop which carries a variety of "Lundy's" and "Brooklyn" themed merchandise, such as T-shirts and other clothing items, hats, books, plates and coffee and beer mugs, as well as Lundy's chowders and sauces and seafood related products, such as lobster bibs, crackers and forks. The Boathouse is a multi-use, lakeside facility which features an upscale restaurant with primarily al fresco (outdoor) seating and offers guests a comfortable, relaxed and romantic atmosphere. The Boathouse 3 serves eclectic American cuisine that changes according to season and consumer trends, emphasizing herbs grown fresh on-site. The menu is limited in scope to permit the greatest attention to quality while offering sufficient breadth to appeal to a variety of taste preferences. Dinner entrees range in price from $19.00 to $28.00 and the average dinner check is approximately $44.00 per person. Other attractions of The Boathouse include a glass-enclosed, tented catering pavilion for private functions; a cocktail area with a jazz band performing live five nights a week; The Boathouse Express, a cafeteria-style convenience counter with indoor and outdoor seating which serves specialty sandwiches, salads, baked goods, and juices, as well as traditional fast-food items, such as hamburgers, hot dogs, french fries and sodas; carts and kiosks strategically located on the facility's grounds offering a variety of food and beverage items, such as fresh fruit drinks, New York-style pretzels, pita sandwiches and espresso and cappuccino; rowboat and bicycle rentals and Venetian gondola rides; and a merchandise counter. The restaurant is open for lunch and dinner on a seasonally adjusted basis, while the catering pavilion and The Boathouse Express are open year-round. American Park has been designed with an urban mountain lodge motif, incorporating natural fabrics, slate, stone, wood and brick with modern-style furnishings, vibrant colors and designer lighting, and providing panoramic views of the New York City harbor and downtown Manhattan skyline. American Park will offer seating selections in its main dining room, second floor dining room and bi-level outdoor patio. American Park is expected to serve contemporary American cuisine featuring wood-burning menu selections, such as steaks, whole fish, chicken and veal dishes. The lower-level outdoor patio will extend to the water's edge and is expected to incorporate a separate kitchen which serves selected items from the main restaurant menu and an expanded bar area. In addition, the Company intends to operate a free-standing kiosk as part of American Park which is expected to serve appetizers, sandwiches, cold beverages, beer and wine. The Company believes that providing friendly, courteous, efficient service is critical to the long-term success of each location. The Company maintains a guest service department which, among other things, contacts several customers from each location's previous night's reservation list to inquire about their dining experiences. The Company utilizes guest feedback to continually improve its service, update its menu selections and otherwise improve its operations. The Company also believes that the selection and training of its employees result in friendly, courteous, efficient guest service which contributes to a pleasurable dining experience for the guest. Lundy's and The Boathouse are approximately 16,500 and 20,000 square feet in size, respectively, and have a seating capacity of approximately 730 and 790 seats, respectively. American Park is approximately 18,300 square feet in size and is expected to have a seating capacity of approximately 750 seats. Sales for Lundy's and The Boathouse were $5,676,382 and $6,152,706, respectively, during the fiscal year ended September 29, 1996, and $6,791,707 and $7,217,655, respectively, during the fiscal year ended September 28, 1997. The Company's food and liquor sales accounted for 76.8% and 15.3% of revenues, respectively, for the fiscal year ended September 29, 1996, and 76.4% and 17.3% of revenues, respectively, for the fiscal year ended September 28, 1997. The Company's strategy is to initially develop and operate a limited number of additional Lundy's restaurants in the New York City metropolitan area and other urban and upscale suburban areas, particularly those with a large population of transplanted New Yorkers, such as Southern Florida, Los Angeles, Chicago and Washington D.C. With a substantial portion of the proceeds of this offering (approximately $3,500,000), projected cash flow from operations and anticipated financing, including equipment and vendor financing and landlord development concessions and rent allowances, the Company intends to open three additional Lundy's restaurants during the 12 months following the consummation of this offering. The Company is currently analyzing several possible locations but does not have any commitments or understanding with respect to any proposed location or other sources of financing. In addition, in connection with its expansion strategy, the Company may seek to open additional high-volume landmark-type restaurants, as appropriate opportunities arise. The Company has limited experience in expanding its operations and there can be no assurance that it will be able to successfully do so. 4 The Company was formed to act as a holding company and was incorporated under the laws of the State of Delaware in July 1996 under the name TAM Restaurant Holding Corp. and, in December 1997, changed its name to TAM Restaurants, Inc. Effective September 29, 1996, the Company acquired (the "Acquisition") all of the outstanding capital stock of TAM Restaurant Group, Inc. ("TAM") and Shellbank Restaurant Corp. ("Shellbank"). Unless the context requires otherwise, all references to "the Company" include its wholly-owned subsidiaries, TAM, Shellbank, Bay Landing Restaurant Corp., a wholly-owned subsidiary of Shellbank ("Bay Landing"), and Plum Third Street Corp., a wholly-owned subsidiary of Bay Landing. The Company's executive offices are located at 1163 Forest Avenue, Staten Island, New York 10310 and its telephone number is (718) 720-5959. Recent Financing In October 1997, Kayne Anderson Non-Traditional Investments, L.P. and ARBCO Associates, L.P., affiliates of Kayne Anderson Investment Management, Inc. (collectively, "Kayne Anderson"), loaned the Company an aggregate of $1,000,000. The loans bear interest at the rate of 10% per annum, payable quarterly commencing December 31, 1997, and are due May 31, 1999. Upon an event of default under the loans, the interest rate increases to 15% per annum and the Company would be required to pay to Kayne Anderson 50% of the operating profits from American Park on a monthly basis until the loan is fully repaid. The loan is guaranteed by Frank Cretella, President, Chief Executive Officer, a director and a principal stockholder of the Company, and the guarantee is secured by a pledge of 200,000 shares of Common Stock owned by Frank Cretella and Jeanne Cretella, Vice President, a director and principal stockholder of the Company. As partial consideration for the loans, the Company issued to Kayne Anderson warrants (the "KA Warrants") to purchase 200,000 shares of Common Stock. The KA Warrants are exercisable at a price of $5.00 per share (subject to adjustment under certain circumstances) and are exercisable at any time commencing 90 days following the date of this Prospectus until October 31, 2002. At the time of the investment, the Company granted to Kayne Anderson certain registration rights with respect to the shares issuable upon exercise of the KA Warrants. In connection with the loan, the Company agreed to use its best efforts to cause a representative designated by Kayne Anderson to be elected to the Company's Board of Directors. Kenneth L. Harris is Kayne Anderson's initial designee. The Offering Securities offered....... 1,000,000 Shares and Warrants to purchase 500,000 shares of Common Stock. The Shares and Warrants may be purchased separately and will be separately transferable immediately upon issuance. See "Description of Securities." Common Stock to be outstand ing after this offering(1) 3,500,000 shares of Common Stock Warrants(2): Number to be outstanding after this offering..... 500,000 Warrants Exercise terms.......... Exercisable at any time commencing , 1999 (13 months following the date of this Prospectus) (or on such earlier date as to which the Underwriter consents), each to purchase one share of Common Stock at a price of $6.00, subject to adjustment in certain circumstances. See "Description of Securities -- Redeemable Warrants." Expiration date....... , 2003 Redemption.............. Redeemable by the Company at any time commencing , 1999 (13 months following the date of this Prospectus), upon notice of not less than 30 days, at a price of $.10 per Warrant, provided 5 that the closing bid quotation of the Common Stock on all 20 trading days ending on the third trading day prior to the day on which the Company gives notice (the "Call Date") has been at least 150% (currently $9.00, subject to adjustment) of the then effective exercise price of the Warrants and the Company obtains the written consent of the Underwriter with respect to such redemption prior to the Call Date. The Warrants will be exercisable until the close of business on the date fixed for redemption. See "Description of Securities -- Redeemable Warrants." Use of proceeds.......... The Company intends to use the net proceeds of this offering for the construction of new restaurants; and for working capital and general corporate purposes. See "Use of Proceeds." Risk factors............. The securities offered hereby are speculative and involve a high degree of risk and immediate substantial dilution and should not be purchased by investors who cannot afford the loss of their entire investment. See "Risk Factors" and "Dilution." Proposed Nasdaq symbols... Common Stock -- TAMR Warrants -- TAMRW - ------------- (1) Does not include: (i) 500,000 shares of Common Stock reserved for issuance upon exercise of the Warrants; (ii) an aggregate of 150,000 shares of Common Stock reserved for issuance upon exercise of the Underwriter's Warrants and the warrants included therein; (iii) an aggregate of 310,000 shares of Common Stock (the "Selling Securityholders' Shares") reserved for issuance upon exercise of outstanding warrants which will be converted into warrants (the "Selling Securityholders' Warrants") identical to the Warrants; (iv) 203,000 shares of Common Stock reserved for issuance upon exercise of other outstanding warrants; (v) 293,250 shares of Common Stock reserved for issuance upon exercise of outstanding options granted under the Company's 1997 Stock Option Plan (the "Option Plan"); and (vi) 231,750 shares of Common Stock reserved for issuance upon exercise of options available for future grant under the Option Plan. See "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Management -- 1997 Stock Option Plan," "Certain Transactions," "Description of Securities" and "Underwriting." (2) Does not include any of the warrants referred to in clauses (ii), (iii) or (iv) of footnote 1 above. ---------------------- For California Residents Only: Each purchaser of Shares and Warrants in California must satisfy one of the following suitability standards: (i) a minimum net worth (exclusive of home, home furnishings and automobiles) of at least $250,000 and, during the last taxable year (or such purchaser estimates that he or she will have during the current taxable year), gross income of at least $65,000; (ii) minimum net worth (exclusive of home, home furnishings and automobiles) of $500,000 or $1,000,000 (inclusive of home, home furnishings and automobiles); or (iii) during the last taxable year (or such purchaser estimates that he or she will have during the current taxable year) gross income of at least $200,000. 6 Summary Financial Information The summary financial information set forth below is derived from and should be read in conjunction with the financial statements, including the notes thereto, appearing elsewhere in this Prospectus. Statement of Operations Data:
Year Ended Year Ended September 29, 1996 September 28, 1997 -------------------- ------------------- Sales .......................................................... $ 11,829,088 $14,025,468 Gross profit ................................................... 3,957,648 5,950,056 Income (loss) from operations .................................. (1,703,222) 1,016,031 Income (loss) from continuing operations(1) .................... (2,870,815) 261,780 Income (loss) per share from continuing operations (1) ......... (1.33) .10 Weighted average number of shares outstanding .................. 2,160,676 2,526,957
Balance Sheet Data:
September 29, 1996 September 28, 1997 -------------------- ----------------------------------------------------- Actual Pro Forma(2) As Adjusted(3) ---------------- ---------------- --------------- Working capital (deficit) .............. $ (1,969,787) $ (2,551,009) $ (1,560,509) 2,467,813 Total assets ........................... 4,519,569 5,940,027 6,940,027 10,711,705 Total liabilities ...................... 4,655,445 5,614,123 6,132,123 6,003,801 Stockholders' equity (deficit) ......... (135,876) 325,904 807,904 4,707,904
- ------------- (1) Effective September 29, 1996, the Company transferred the assets relating to its concession business to American Leisure Today, Inc. ("American Leisure"), a company wholly-owned by Frank Cretella, President, Chief Executive Officer, a director and a principal stockholder of the Company. For the year ended September 29, 1996, net income from such operations was $30,142 or $.01 per share. See "Management's Discussion and Analysis of Financial Conditions and Results of Operations," "Certain Transactions" and Consolidated Financial Statements. (2) Gives effect to the issuance of the $1,000,000 principal amount of promissory notes and 200,000 warrants in October 1997 to Kayne Anderson and the receipt of the approximately $990,500 of net proceeds therefrom, of which $482,000 represents the amount allocable to the warrants and recorded as an original issue discount to the loans (the "Pro Forma Adjustment"). See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources," "Certain Transactions" and Note Q to Notes to Consolidated Financial Statements. (3) Gives effect to the sale of the Shares and Warrants offered hereby, the application of the estimated net proceeds therefrom, including the write-off of $128,322 of deferred stock offering costs relating to this offering. See "Use of Proceeds." 7 RISK FACTORS The securities offered hereby are speculative and involve a high degree of risk. Prospective investors should carefully consider the following risk factors before making an investment decision. Operating Losses; Future Operating Results. Although the Company has recently generated net income, during the year ended September 29, 1996, the Company incurred a net loss from continuing operations of $2,870,815 and, at September 28, 1997, had an accumulated deficit of $2,782,142. Due to the seasonal nature of its business, the Company incurred a net loss of approximately $430,000 for the three months ended December 28, 1997. The Company's operating expenses have increased and can be expected to increase significantly in connection with the Company's proposed expansion (including capital expenditures for construction of and rental payments for new locations prior to their opening). The Company's future profitability will depend upon, among other things, the Company's ability to generate a level of revenues sufficient to offset its cost structure in addition to reducing its operating costs on a per location basis. The Company believes that generation of that level of revenues is dependent upon the timely opening of additional restaurants and future restaurants achieving and maintaining market acceptance. In addition, the Company will incur a non-cash interest charge of $482,000 representing the original issue discount relating to the promissory notes issued to Kayne Anderson over the life of the promissory notes. There can be no assurance that the Company will achieve significantly increased revenues or maintain profitable operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Consolidated Financial Statements. Significant Capital Requirements; Need for Additional Financing. The Company's capital requirements have been and will continue to be significant and its cash requirements have been exceeding its cash flow from operations (at September 28, 1997, the Company had a working capital deficit of $2,551,009) due to, among other things, costs associated with development, opening and start-up costs of Lundy's and American Park and building a corporate infrastructure sufficient to support the Company's proposed expanded operations. As a result, the Company has been substantially dependent upon sales of its equity securities, loans from financial institutions and the Company's officers, directors and stockholders and bartering transactions with member dining clubs to finance a portion of its working capital requirements. The Company is dependent upon the proceeds of this offering to finance a portion of its proposed expansion over the 12 months following the consummation of this offering. Based on the Company's current proposed plans and assumptions relating to the implementation of its expansion strategy (including the timetable of opening American Park and new Lundy's locations and the costs associated therewith), the Company anticipates that the net proceeds of this offering, together with anticipated cash flow from operations and equipment, vendor and landlord financing, will be sufficient to satisfy its contemplated cash requirements for at least 12 months following the consummation of this offering. In the event that the Company's plans change or its assumptions prove to be inaccurate (due to unanticipated expenses, construction delays or other difficulties) or the proceeds of this offering otherwise prove to be insufficient to fund operations and implement the Company's proposed expansion strategy, the Company could be required to seek additional financing sooner than anticipated. Other than the ability to enter into bartering transactions with member dining clubs, the Company has no current arrangements with respect to, or potential sources of, additional financing, and it is not anticipated that any officers, directors or stockholders will provide any additional loans to the Company. Consequently, there can be no assurance that any additional financing will be available to the Company when needed, on commercially reasonable terms, or at all. Any inability to obtain additional financing when needed would have a material adverse effect on the Company, including requiring it to curtail its expansion efforts. In addition, any additional equity financing may involve substantial dilution to the interests of the Company's then existing stockholders. See "Use of Proceeds," "Dilution," "Capitalization" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." Limited Restaurant Base; Dependence Upon Principal Restaurants; High Restaurant Failure Rate. To date, all of the Company's revenues have been derived from only two restaurants, one of which has been in operation only since 1995 and both of which are located in New York City. The results achieved to date by the Company's small restaurant base may not be indicative of the prospects or market acceptance of a larger number of restaurants or of more geographically dispersed restaurants located in areas with more varied demographic characteristics. Moreover, the opening of new restaurants is characterized by a very high failure rate. Although The Boathouse has operated successfully for many years, there can be no assurance that American Park or any 8 new Lundy's restaurants will be successful or operate profitably. In addition, the Company expects that during the first several months of operation of a newly opened restaurant, such restaurant could operate at a loss. In the event of a prolonged period of unfavorable operating results for a restaurant, the Company may be required to close such restaurant, which could have a material adverse effect on the financial condition and results of operations of the Company. In the short term, the Company will remain dependent upon a limited number of high-volume restaurants for substantially all of its revenues. The lack of success or closing of any of the Company's existing restaurants, or the unsuccessful operation of a new restaurant, would have material adverse effect upon the financial condition and results of operations of the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." Risks Relating to Proposed Expansion. The Company is currently implementing a strategy to expand its operations and will seek to open American Park and additional Lundy's restaurants. The Company has limited experience in effectuating rapid expansion and in managing a large number of locations or locations that are geographically dispersed. The Company intends to open American Park by March 1998 and three Lundy's restaurants during the 12 months following the consummation of this offering. The Company's proposed expansion will be dependent on, among other things, the proceeds of this offering, the availability of other sources of financing, achieving significant market acceptance for its Lundy's concept, distinguishing the Lundy's concept from other seafood restaurants, developing customer recognition and loyalty for the Lundy's name, identifying a sufficient number of prime locations and entering into lease arrangements for such locations on favorable terms, timely development and construction of American Park and new Lundy's locations, securing required governmental permits and approvals, hiring, training and retaining skilled management and other personnel, the Company's ability to integrate new restaurants into its operations and the general ability to successfully manage growth (including monitoring restaurant operations, controlling costs and maintaining effective quality controls). In the event that cash flow from operations is insufficient or that the Company is unable to obtain adequate equipment, vendor or landlord financing, or other unexpected events occur, such as delays in identifying suitable locations, negotiating leases, obtaining permits or design and construction delays, the Company may not be able to open all of such locations in a timely manner, or at all. Moreover, the Company believes that consumer recognition and perception of the Lundy's name has contributed to the success of the existing Lundy's restaurant. Consumer recognition of the Lundy's name outside of the New York City area is likely to be significantly less than in the New York area and, therefore, the success of any future Lundy's restaurant will be dependent upon the Company's ability to distinguish such location from its competitors on bases such as price, quality and service. There can be no assurance that the Company will be successful in opening the number of restaurants currently planned in a timely manner, or at all, or that, if opened, those restaurants will operate profitably. See "Business -- Expansion Strategy." Long Start-up Cycles; Fluctuations in Operating Results; Start-up Expense. The Company's restaurant start-up cycle, which generally commences with site selection and ends upon the opening of the restaurant to customers, will vary by location and could extend for periods of six months or more. Difficulties or delays in site selection or events over which the Company will have no control, such as delays in construction due to governmental regulatory approvals, shortage of or the inability to obtain labor and/or materials, inability of the general contractor or subcontractors to perform under their contracts, strikes or availability and cost of needed debt or lease financing, could materially adversely affect the start-up costs and completion times of new locations. The Company expects that future quarterly operating results will fluctuate as a result of the timing of, and expenses related to, the openings of new restaurants (since the Company will incur significant expenses during the months preceding the opening of a restaurant), as well as due to various other factors, including the seasonal nature of its business, weather conditions in New York City, the health of New York City's economy in general and its tourism industry in particular. Accordingly, the Company's sales and earnings may fluctuate significantly from quarter to quarter and operating results for any quarter will not necessarily be indicative of the results that may be achieved for a full year. In addition, the capital resources required to construct each new location are significant. The Company estimates that the costs of constructing its future Lundy's locations will be approximately $1.5 million per location, net of anticipated landlord contributions. The Company expects that it will incur approximately $300,000 in additional pre-opening costs in connection with the opening of future sites. There can be no assurance that the costs to construct and open any new location will not be significantly higher than currently anticipated. See "Management's Discussion and Analysis of Results of Operations" and "Business -- Site Selection." 9 Consumer Preferences; Factors Affecting the Restaurant Industry. The restaurant industry is characterized by the introduction of new concepts and is subject to changing consumer preferences, tastes and eating and purchasing habits. While the demand for premium quality seafood restaurants has grown significantly over the past several years, there can be no assurance that such demand will continue to grow or that these trends will not be reversed. Moreover, since prices for seafood menu items are typically higher than those for other menu items, unfavorable national, regional or local economic factors could adversely affect consumer willingness to pay higher prices for the Company's menu items. The Company's success will depend on its ability to anticipate and respond to changing consumer preferences, tastes and eating and purchasing habits, as well as other factors affecting the food service industry, including new market entrants, demographic trends and unfavorable national, regional and local economic conditions, inflation, increasing seafood and other food and labor costs. Failure to respond to such factors in a timely manner could have a material adverse effect on the Company. See "Business." Geographic Concentration. Both of the Company's existing restaurants are located in New York City and the restaurant currently under construction is also located in New York City. Given the Company's present geographic concentration, adverse publicity relating to the Company's restaurants could have a more pronounced adverse effect on the Company's operating results than might be the case if the Company's restaurants were more geographically dispersed. A decline in tourism in New York City, or in general economic conditions, which would likely affect the New York City economy or tourism industry, particularly during the time of peak sales, could have a material adverse effect on the Company's operations and prospects. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." Seasonality. The Company's business is seasonal. The restaurant and bicycle and rowboat rentals at The Boathouse currently are open only March through November, with dinner served in the restaurant from May 1 through October 1. All of the seating of The Boathouse restaurant and a portion of the seating at Lundy's is outdoors. In addition, since Lundy's is a waterside location, it attracts more guests during the warmer weather months. As a result, the Company's restaurant sales generally increase from May through September, and decrease from November through March. See "Management's Discussion and Analysis of Results of Operations -- Seasonality and Fluctuations in Quarterly Operating Results" and "Business." Menu Emphasis on Seafood; Seafood Quality. Lundy's currently has a limited product offering which specializes in seafood. Sales of seafood accounted for approximately 58% and 62% of the Company's sales during the years ended September 29, 1996 and September 28, 1997, respectively. The Company anticipates that sales of seafood products will continue to account for a substantial portion of the Company's revenues for the foreseeable future, particularly as a result of the planned expansion of the Lundy's concept. Accordingly, a rise in prices or decline in sales of such menu items, due to evolving consumer preferences, industry trends, or other reasons, could have an adverse effect on the Company. Moreover, some types of seafood have been subject to adverse publicity because of claims of contamination by lead, mercury or other chemicals in the oceans, which can adversely affect both market demand and supply for such food products. Customer demand may also be negatively impacted by reports of medical or other risks resulting from the consumption of seafood. The Company maintains a continuous inspection program for its food purchases and believes that it has not experienced any adverse effect from contaminated seafood. Nevertheless, there can be no assurance that food contamination or consumer perception of inadequate food quality, in the industry in general or as to the Company in particular, will not have a material adverse effect on the Company's operations and profitability. See "Business -- Lundy's Concept -- Menu" and "--Restaurant Operations." Fluctuations in Food and Other Costs; Supply of Seafood. The Company's profitability is dependent on its ability to anticipate and react to increases in food, labor, employee benefits, and similar costs over which the Company has limited control. Specifically, the Company's dependence on frequent deliveries of seafood, meat and produce subjects it to the risk of possible shortages or interruptions in supply caused by adverse weather, labor, transportation or other conditions which could adversely affect the availability and cost of such items. In recent years, the availability of certain types of seafood has fluctuated, resulting in corresponding fluctuations in prices. The Company has been able to anticipate and react to fluctuations in food costs through selected menu price adjustments, purchasing seafood directly from numerous suppliers and promoting certain alternative menu selections (in response to price and availability of supply). However, there can be no assurance that the Company will be able to continue to anticipate and respond to such supply and price fluctuations in the future or that 10 the Company will not be subject to significantly increased costs in the future. Moreover, the Company does not maintain contracts with any of its suppliers and purchases products pursuant to purchase orders placed from time to time in the ordinary course of business. Although the Company believes that its relationships with its suppliers are satisfactory and that alternative sources are readily available, the loss of certain suppliers, or substantial price increases, could have a material adverse effect on the Company. See "Business - -- Restaurant Operations." Operating License Requirements; Audit By New York City Comptroller. The Boathouse and American Park are located in New York City's Central Park and Battery Park, respectively. In order to operate these restaurants, the Company obtained licenses from the New York City Department of Parks (the "Parks Department") through an open bidding process. The license agreements impose certain requirements and operating restrictions on the Company, such as minimum hours of operation. Although certain aspects of the Company's operating practices are not in full conformity with the terms of The Boathouse license, including the hours of operation of the facility, the Company believes that the Parks Department is aware of its operating practices and the Parks Department has not objected to the variances from the terms of such license. The license agreement relating to The Boathouse expires on June 29, 2000 and each license can nevertheless be terminated by the Parks Department on short notice. There can be no assurance that the Company will be able to obtain an extension or a new license to operate The Boathouse or that either license will not be terminated. In the event that a license is terminated or not renewed (due to non-conformity with the terms of the license or otherwise), or a new license is not obtained upon expiration of The Boathouse license, the Company would be required to cease operating the location, which would have a material adverse effect on the Company. In addition, the licenses require the Company to pay a license fee based on the greater of a minimum annual fee or a percentage of gross sales. The Company is subject to audit by the New York City Comptroller to determine the accuracy of license fees paid by the Company. See "Business." Significant Outstanding Indebtedness. In order to finance its capital requirements, the Company has incurred significant indebtedness. At September 28, 1997, there was outstanding approximately $3,737,233 of current liabilities and, in October 1997, the Company borrowed $1,000,000. The Company has not allocated any portion of the proceeds of this offering to repay a portion of its outstanding indebtedness. There can be no assurance that cash flow from operations will be sufficient to repay indebtedness, and the Company could be required to use a portion of the proceeds of this offering to repay the amounts then outstanding and would result in less funds available for proposed expansion. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." Competition. The restaurant industry is intensely competitive with respect to price, service, location and food quality and variety. There are many well-established competitors with substantially greater financial and other resources than the Company, as well as a significant number of new market entrants. Such competitors include national, regional and local full-service casual dining chains, many of which specialize in or offer seafood products, as well as single location restaurants. Some of the Company's competitors have been in existence for substantially longer periods than the Company, may be better established in the markets where the Company's restaurants are or may be located and engage in extensive advertising and promotional campaigns, both generally and in response to efforts by competitors to open new locations or introduce new concepts or menu offerings. The Company can also be expected to face competition from a broad range of other restaurants and food service establishments which specialize in a variety of cuisines. While the Company believes that it offers a broad variety of quality menu items, there can be no assurance that consumers will regard the Company's menu and concepts as sufficiently distinguishable from competitive menus and restaurant concepts or that substantially equivalent menus and restaurant concepts will not be introduced by the Company's competitors. Moreover, the Company believes that the start-up costs associated with opening a seafood restaurant are not a significant impediment to enter the seafood restaurant industry. See "Business - -- Competition." Litigation; Insurance and Potential Liability. The operation of restaurants and rowboat and bicycle rentals subjects the Company to potential claims from others, including consumers, employees and other service providers, for personal injury (resulting from, among other things, contaminated or spoiled food or beverages or accidents). The Company is a defendant in several lawsuits arising in ordinary course of its business relating to personal injury claims by plaintiffs which are seeking damages substantially in excess of the Company's assets and insurance coverage. The Company is vigorously defending each action and believes that such matters are 11 adequately covered by insurance or, if not so covered, are without merit or are of such nature or involve such amounts that an unfavorable disposition would not have a material adverse effect on the financial position or operations of the Company. However, since these matters are in the preliminary stages, there can be no assurance that any such action will be resolved in favor of the Company or that the outcome of any litigation or settlement will not have a material adverse effect on financial conditions or operations of the Company. The Company maintains personal injury and products liability insurance (with coverage in amounts up to $1,000,000 per occurrence and $5,000,000 ($10,000,000 for Lundy's) of umbrella liability coverage), including insurance relating to property insurance, in amounts which the Company currently considers adequate. Nevertheless, a partially or completely uninsured claim against the Company, if successful, could have a material adverse effect on the Company. See "Business - -- Insurance" and "--Legal Proceedings." Potential Liability for Sale of Alcoholic Beverages. The Company is subject to "dram-shop" statutes, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. New York law currently provides that a vendor of alcoholic beverages may be held liable in a civil cause of action for injury or damage caused by or resulting from the intoxication of a minor (under 21 years of age) if the vendor willfully, knowingly and unlawfully sells or furnishes alcoholic beverages to the minor and knows that the minor will soon thereafter be driving a motor vehicle. A vendor can similarly be held liable if it knowingly provides alcoholic beverages to a person who is in a noticeable state of intoxication, knows that person will soon thereafter be driving a motor vehicle and injury or damage is caused by that person. In addition, significant national attention is focused on the problem of drunk driving, which could result in the adoption of additional legislation and increased potential liability of the Company for damage or injury caused by its customers. See "Business -- Government Regulation." Government Regulation. The Company is subject to extensive state and local government regulation by various governmental agencies, including state and local licensing, zoning, land use, construction and environmental regulations and various regulations relating to the sale of food and beverages, sanitation, disposal of refuse and waste products, public health, safety and fire standards. The Company's restaurants are subject to periodic inspections by governmental agencies to assure conformity with such regulations. Difficulties or failure in obtaining required licensing or other regulatory approvals could delay or prevent the opening of a new restaurant, and the suspension of, or inability to renew, a license at an existing restaurant would adversely affect the operations of the Company. Restaurant operating costs are also affected by other government actions which are beyond the Company's control, including increases in the minimum hourly wage requirements, workers compensation insurance rates, health care insurance costs and unemployment and other taxes. The Federal Americans With Disabilities Act ("ADA") prohibits discrimination on the basis of disability in public accommodations and employment. The Company's restaurants are currently designed to be accessible to the disabled, and the Company believes that it is in compliance with all current applicable regulations relating to accommodations for the disabled. However, there can be no assurance that the Company will not be deemed to violate the ADA, and could be required to expend significant funds to provide service to or make reasonable accommodations for disabled persons. See "Business -- Government Regulation." Uncertainty of Protection of Proprietary Information. The Company's business prospects will depend largely on the Company's ability to capitalize on favorable consumer recognition of the Lundy's name. Although the Company holds a trademark registration for use of the Lundy's name by the U.S. Patent and Trademark Office, there can be no assurance that the Company's marks do not or will not violate the proprietary rights of others or that the Company's marks would be upheld, or that the Company would not be prevented from using its marks, if challenged, any of which could have an adverse effect on the Company. In addition, the Company relies on trade secrets and proprietary know-how, and employs various methods, to protect its concepts and recipes. However, such methods may not afford complete protection and there can be no assurance that others will not independently develop similar know-how or obtain access to the Company's know-how, concepts and recipes. The Company does not maintain confidentiality and non-competition agreements with all of its executives, key personnel or suppliers. There can be no assurance that the Company will be able to adequately protect its trade secrets. In the event competitors independently develop or otherwise obtain access to the Company's know-how, concepts, recipes or trade secrets, the Company may be adversely affected. See "Business -- Intellectual Property." 12 Control by Management. Upon the consummation of this offering, the Company's current officers and directors will, in the aggregate, beneficially own approximately 56.5% of the outstanding Common Stock of the Company. Accordingly, such persons will be able to control the Company and generally direct the Company's affairs, including electing a majority of the Company's directors and causing an increase in the Company's authorized capital or the dissolution, merger, or sale of the Company or substantially all of its assets. See "Principal Stockholders." Dependence Upon Key Personnel. The success of the Company will be largely dependent upon the efforts of Frank Cretella, Chief Executive Officer and President of the Company. Although the Company has entered into an employment agreement with Mr. Cretella, Mr. Cretella is only required to devote a majority of his business time to the Company's business and affairs. The loss of the services of Mr. Cretella or other key personnel would have a material adverse effect on the Company's business and prospects. The Company maintains key-man insurance on the life of Mr. Cretella in the amount of $500,000. The success of the Company will also be dependent on its ability to attract and retain experienced management and restaurant industry personnel. The Company faces considerable competition from other food service businesses for such personnel, many of which have significantly greater resources than the Company. There can be no assurance that the Company will be able to attract and retain such personnel, and the inability to do so could have a material adverse effect on the Company. See "Management." Conflicts of Interest. The Company has, from time to time, entered into transactions with certain of its officers, directors and stockholders and/or affiliates of such persons, which could result in potential conflicts of interest. Although in connection with the Acquisition, the assets relating to TAM's food concession operations were transferred to American Leisure and American Leisure assumed the Company's obligations under its agreement to operate the concession in the Central Park Zoo, the Company is still a party to such agreement and, in the event that American Leisure fails to pay any amounts due under such agreement, the Company will be responsible for such obligations. There can be no assurance that future transactions or arrangements between the Company and its affiliates will be advantageous to the Company, that conflicts of interest will not arise with respect thereto, or that, if conflicts do arise, they will be resolved in a manner favorable to the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" and "Certain Transactions." No Dividends. The Company has never paid any dividends on its Common Stock and does not anticipate paying cash dividends in the foreseeable future. The Company currently intends to retain all earnings for use in connection with the expansion of its business and for general corporate purposes. The declaration and payment of future dividends, if any, will be at the sole discretion of the Company's Board of Directors and will depend upon the Company's profitability, financial condition, cash requirements, future prospects, and other factors deemed relevant by the Board of Directors. See "Dividend Policy" and "Description of Securities -- Capital Stock." Dilution. This offering involves an immediate and substantial dilution of $3.66 per Share (or 73.2%) between the adjusted net tangible book value per share of Common Stock after this offering and the initial public offering price per Share in this offering. See "Dilution." Shares Eligible for Future Sale. Upon consummation of this offering, the Company will have 3,500,000 shares of Common Stock outstanding (assuming no exercise of the Warrants), of which the 1,000,000 shares of Common Stock offered hereby will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the "Securities Act"). All of the remaining 2,500,000 shares of Common Stock outstanding are "restricted securities," as that term is defined under Rule 144 promulgated under the Securities Act and all of such restricted shares will become eligible for sale, pursuant to Rule 144, 90 days following the date of this Prospectus, subject to the agreements set forth below. The holders of 227,730 shares of Common Stock and the holders of the 310,000 Selling Securityholders' Warrants and 3,000 other outstanding warrants have agreed not to sell such securities for a period of 15 months from the date of this Prospectus without the Underwriter's prior written consent; the holders of 241,592 shares of Common Stock and the holders of 200,000 outstanding warrants have agreed not to sell such securities for a period of 18 months from the date of this Prospectus without the Underwriter's prior written consent; and the holders of 1,979,673 shares of Common Stock have agreed not to sell such shares for a period of 24 months from the date of this Prospectus without the prior 13 written consent of the Underwriter. The Underwriter has not entered into any agreements to waive the foregoing lockup agreements. No prediction can be made as to the effect, if any, that sales of shares of Common Stock or even the availability of such shares for sale will have on the market prices prevailing from time to time. The possibility that substantial amounts of Common Stock may be sold in the public market may adversely affect the prevailing market price for the Common Stock and could impair the Company's ability to raise capital through the sale of its equity securities. See "Shares Eligible for Future Sale" and "Underwriting." Possible Adverse Effect of Outstanding Warrants and Options. Upon the consummation of this offering, there will be 500,000 shares reserved for issuance upon exercise of the Warrants, approximately 310,000 shares reserved for issuance upon the exercise of the Selling Securityholders' Warrants at an exercise price of $6.00 per share, 3,000 shares reserved for issuance upon the exercise of other outstanding warrants at an exercise price of $.01 per share, 200,000 shares reserved for issuance upon exercise of other outstanding warrants at an exercise price of $5.00 per share, an aggregate of 150,000 shares of Common Stock reserved for issuance upon exercise of the Underwriter's Warrants and the warrants included therein and 293,250 shares reserved for issuance upon exercise of options granted under the Option Plan at an exercise price of $5.00 per share. To the extent that any outstanding warrants or options are exercised, dilution of the interests of the holders of the Company's Common Stock will occur and any sales in the public market of the shares underlying such warrants and options may adversely affect prevailing market prices for the Common Stock and the Warrants. Moreover, the terms upon which the Company will be able to obtain additional equity may be adversely affected since the holders of the outstanding warrants and options can be expected to exercise them at a time when the Company would, in all likelihood, be able to obtain capital on terms more favorable to the Company than those provided by such securities. See "Management" and "Description of Securities." Indemnification and Exculpation of Officers and Directors. The Company's Certificate of Incorporation provides for indemnification of officers and directors to the fullest extent permitted by Delaware law. In addition, under the Company's Certificate of Incorporation, no director shall be liable personally to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that the Certificate of Incorporation does not eliminate the liability of a director for (i) any breach of the director's duty of loyalty to the Company or its stockholders; (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) acts or omissions in respect of certain unlawful dividend payments or stock redemptions or repurchases; or (iv) any transaction from which such director derives improper personal benefit. As a result of such provisions in the Certificate of Incorporation and the By-Laws of the Company, stockholders may be unable to recover damages against the directors and officers of the Company for actions taken by them which constitute negligence, gross negligence or a violation of their fiduciary duties, which may reduce the likelihood of stockholders instituting derivative litigation against directors and officers and may discourage or deter stockholders from suing directors, officers, employees and agents of the Company for breaches of their duty of care, even though such an action, if successful, might otherwise benefit the Company and its stockholders. See "Management -- Indemnification and Exculpation Provisions." Delaware Anti-Takeover Statute; Possible Adverse Effects of Authorization of Preferred Stock. As a Delaware corporation, upon the consummation of this offering, the Company will become subject to prohibitions imposed by Section 203 of the Delaware General Corporation Law ("DGCL"). In general, this statute will prohibit the Company from entering into certain business combinations without the approval of its Board of Directors and/or stockholders and, as such, could prohibit or delay mergers or other attempted takeovers or changes in control with respect to the Company. Such provisions may discourage attempts to acquire the Company. In addition, the Company's Certificate of Incorporation authorizes the Company's Board of Directors to issue up to 1,000,000 shares of "blank check" preferred stock (the "Preferred Stock") without stockholder approval, in one or more series and to fix the dividend rights, terms, conversion rights, voting rights, redemption rights and terms, liquidation preferences, and any other rights, preferences, privileges, and restrictions applicable to each new series of Preferred Stock. The issuance of shares of Preferred Stock in the future could, among other results, adversely affect the voting power of the holders of Common Stock and, under certain circumstances, could make it difficult for a third party to gain control of the Company, prevent or substantially delay a change in control, discourage bids for the Common Stock at a premium, or otherwise adversely affect the market price of the Common Stock. See "Description of Securities." No Assurance of Public Market; Arbitrary Determination of Offering Prices; Possible Volatility of Market Price of Common Stock and Warrants; Underwriter's Potential Influence on the Market. Prior to this offering, 14 there has been no public trading market for the Common Stock or Warrants. There can be no assurance that a regular trading market for the Common Stock or Warrants will develop after this offering or that, if developed, it will be sustained. Moreover, the initial public offering prices of the Common Stock and the Warrants and the exercise price of the Warrants have been determined by negotiations between the Company and the Underwriter and, as such, are arbitrary in that they do not necessarily bear any relationship to the assets, book value or potential earnings of the Company or any other recognized criteria of value and may not be indicative of the prices that may prevail in the public market. The market prices of the Company's securities following this offering may be highly volatile as has been the case with the securities of other emerging companies. Factors such as the Company's operating results, openings of new locations, announcements by the Company or its competitors and various factors affecting the restaurant industry generally may have a significant impact on the market price of the Company's securities. In addition, in recent years, the stock market has experienced a high level of price and volume volatility and market prices for the stock of many companies have experienced wide price fluctuations which have not necessarily been related to the operating performance of such companies. Although it has no obligation to do so, the Underwriter intends to make a market in the Common Stock and Warrants and may otherwise effect transactions in the Common Stock and Warrants. If the Underwriter makes a market in the Common Stock or Warrants, such activities may exert a dominating influence on the market and such activity may be discontinued at any time. The prices and liquidity of the Common Stock and Warrants may be significantly affected to the extent, if any, that the Underwriter participates in such market. See "Underwriting." Possible Delisting of Securities from Nasdaq System; Risks Relating to Low-Priced Stocks. It is currently anticipated that the Company's Common Stock and Warrants will be eligible for listing on Nasdaq upon the completion of this offering. In order to continue to be listed on Nasdaq, however, the Company must maintain $2,000,000 in net tangible assets (total assets, other than goodwill, less total liabilities), and a $1,000,000 market value of the public float. In addition, continued inclusion requires two market-makers, a minimum bid price of $1.00 per share and adherence to certain corporate governance provisions. The failure to meet these maintenance criteria in the future may result in the delisting of the Company's securities from Nasdaq, and trading, if any, in the Company's securities would thereafter be conducted in the non-Nasdaq over-the-counter market. As a result of such delisting, an investor could find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, the Company's securities. In addition, if the Common Stock and Warrants were to become delisted from trading on Nasdaq and the trading price of the Common Stock were to fall below $5.00 per share, trading in the Common Stock would also be subject to the requirements of certain rules promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which require additional disclosure by broker-dealers in connection with any trades involving a stock defined as a penny stock (generally, any non-Nasdaq equity security that has a market price of less than $5.00 per share, subject to certain exceptions). Such rules require the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors (generally defined as an investor with a net worth in excess of $1,000,000 or annual income exceeding $200,000 individually or $300,000 together with a spouse). For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and have received the purchaser's written consent to the transaction prior to the sale. The broker-dealer also must disclose the commissions payable to the broker-dealer, current bid and offer quotations for the penny stock and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer's presumed control over the market. Such information must be provided to the customer orally or in writing before or with the written confirmation of trade sent to the customer. Monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. The additional burdens imposed upon broker-dealers by such requirements could, in the event the Common Stock were deemed to be a penny stock, discourage broker-dealers from effecting transactions in the Common Stock which could severely limit the market liquidity of the Common Stock and the ability of purchasers in this offering to sell the Common Stock in the secondary market. Potential Adverse Effect of Warrant Redemption. The Warrants are subject to redemption by the Company at any time upon notice of not less than 30 days, at a price of $.10 per Warrant, provided that the closing bid quotation of the Common Stock on all 20 trading days ending on the third trading day prior to the day on which 15 the Company gives notice (the "Call Date") has been at least 150% (currently $9.00, subject to adjustment) of the then effective exercise price of the Warrants and the Company obtains the written consent of the Underwriter to such redemption prior to the Call Date. Redemption of the Warrants could force the holders to exercise the Warrants and pay the exercise price at a time when it may be disadvantageous for the holders to do so, to sell the Warrants at the then current market price when they might otherwise wish to hold the Warrants, or to accept the redemption price, which is likely to be substantially less than the market value of the Warrants at the time of redemption. See "Description of Securities -- Redeemable Warrants. " Possible Inability to Exercise Warrants. The Company intends to qualify the sale of the securities offered hereby in a limited number of states. Although certain exemptions in the securities laws of certain states might permit the Warrants to be transferred to purchasers in states other than those in which the Warrants are initially qualified, the Company will be prevented from issuing Common Stock in such states upon the exercise of the Warrants unless an exemption from qualification is available or unless the issuance of Common Stock upon exercise of the Warrants is qualified. The Company may decide not to seek or may not be able to obtain qualification of the issuance of such Common Stock in all of the states in which the ultimate purchasers of the Warrants reside. In such a case, the Warrants held by purchasers will expire and have no value if such Warrants cannot be sold. Accordingly, the market for the Warrants may be limited because of these restrictions. Further, a current prospectus covering the Common Stock issuable upon exercise of the Warrants must be in effect before the Company may accept Warrant exercises. There can be no assurance the Company will be able to have a current prospectus in effect when this Prospectus is no longer current, notwithstanding the Company's commitment to use its best efforts to do so. See "Description of Securities -- Redeemable Warrants." Possible Restrictions on Market-Making Activities in the Company's Securities. The Company believes that the Underwriter intends to make a market in the Company's securities and may be responsible for a substantial portion of the market making activities in the Company's securities. Regulation M of the federal securities laws may prohibit the Underwriter from engaging in any market-making activities with regard to the Company's securities for the period from five business days (or such other applicable period as Regulation M may provide) prior to any solicitation by the Underwriter of the exercise of Warrants until the termination (by waiver or otherwise) of any right that the Underwriter may have to receive a fee for the exercise of Warrants following such solicitation; and for any period during which the Underwriter, or any affiliated parties, participate in a distribution of any securities of the Company for the account of the Underwriter or any such affiliate. As a result, the Underwriter may be unable to provide a market for the Company's securities during certain periods, including while the Warrants are exercisable. Any temporary cessation of such market-making activities could have an adverse effect on the liquidity and market price of the Company's securities. See "Underwriting." 16 USE OF PROCEEDS The net proceeds to the Company from the sale of the 1,000,000 Shares and 500,000 Warrants offered hereby are estimated to be $3,900,000 ($4,559,025 if the Underwriter's over-allotment option is exercised in full). The Company expects to use the net proceeds over the next 12 months approximately as follows:
Approximate Approximate Percentage of Application of Proceeds Dollar Amount Dollar Amount - ----------------------------------------------------------- --------------- -------------- Construction of new restaurants(1) ........................ $3,500,000 89.7% Working capital and general corporate purposes(2) ......... 400,000 10.3 ---------- ----- Total .................................................. $3,900,000 100.0% ========== =====
- ------------ (1) Represents net proceeds allocated to construct three Lundy's restaurants. The Company estimates that the cost to construct a Lundy's restaurant will be approximately $1,500,000 per location (net of anticipated landlord contributions) and that the cost, if any, to open such restaurants in excess of the net proceeds of this offering allocated for such purpose will be financed through cash flow from operations, equipment and vendor financing and landlord development concessions and rent allowances. In connection with its expansion strategy, to the extent appropriate opportunities arise, the Company may use a portion of such proceeds to open high-volume landmark-type restaurants. In the event that cash flow from operations is insufficient or that the Company is unable to obtain adequate equipment, vendor or landlord financing, or other unexpected events occur, such as delays in identifying suitable locations, negotiating leases, obtaining permits or design and construction delays, the Company will not be able to open all of such locations in a timely manner, or at all. See "Business --Expansion Strategy" and "-- Site Selection." (2) Includes costs of general corporate overhead, capital expenditures for existing restaurants and maintaining inventory. To the extent cash flow from operations is insufficient, such proceeds may be used to finance the pre-opening expenses of Lundy's restaurants. If the Underwriter exercises its over-allotment option in full, the Company will realize additional net proceeds of $659,025, which will be added to the Company's working capital. The allocation of the net proceeds from this offering set forth above represents the Company's best estimate based upon its currently proposed plans and assumptions relating to its operations and certain assumptions regarding general economic conditions. If any of these factors change, the Company may find it necessary or advisable to reallocate some of the proceeds within the above-described categories or to use portions thereof for other purposes. Based on the Company's current proposed plans and assumptions relating to the implementation of its expansion strategy (including the timetable of opening American Park and new Lundy's locations and the costs associated therewith), the Company anticipates that the net proceeds of this offering, together with anticipated cash flow from operations and equipment, vendor and landlord financing, will be sufficient to satisfy its contemplated cash requirements for at least 12 months following the consummation of this offering. In the event that the Company's plans change or its assumptions prove to be inaccurate (due to unanticipated expenses, construction delays or other difficulties) or the proceeds of this offering otherwise prove to be insufficient to fund operations and implement the Company's proposed expansion strategy, the Company could be required to seek additional financing sooner than anticipated. Because the Company's strategy is to open a limited number of high-volume restaurants, the costs associated with opening any such restaurant may vary substantially. Other than the ability to enter into bartering transactions with member dining clubs, the Company has no current arrangements with respect to, or potential sources of, additional financing, and it is not anticipated that any officers, directors or stockholders will provide any additional loans to the Company. Consequently, there can be no assurance that any additional financing will be available to the Company when needed, on commercially reasonable terms, or at all. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." Proceeds not immediately required for the purposes described above will be invested principally in United States government securities, short-term certificates of deposit, money market funds or other short-term interest bearing investments. 17 DILUTION The difference between the initial public offering price per Share and the adjusted net tangible book value per share of Common Stock after this offering constitutes the dilution to investors in this offering. Net tangible book value per share of Common Stock on any given date is determined by dividing the net tangible book value of the Company (total tangible assets less total liabilities) on that date, by the number of shares of Common Stock outstanding on that date. As of September 28, 1997, the net tangible book value of the Company was $176,980 or $.07 per share of Common Stock. After giving effect to the Pro Forma Adjustment (see footnote 2 of "Prospectus Summary -- Summary Financial Information") the net tangible book value of the Company was $658,980 or $.26 per share. After also giving effect to the sale of the 1,000,000 Shares and 500,000 Warrants being offered hereby (less underwriting discounts and commissions and estimated expenses of this offering), the adjusted net tangible book value of the Company as of September 28, 1997 would have been $4,687,302 or $1.34 per share, representing an immediate increase in net tangible book value of $1.08 per share of Common Stock to existing stockholders and an immediate dilution of $3.66 per share (or 73.2%) to new investors. The following table illustrates this dilution to new investors on a per share basis: Public offering price ........................................... $ 5.00 Net tangible book value before Pro Forma Adjustment ............ $ .07 Increase attributable to Pro Forma Adjustment .................. .19 ----- Pro forma net tangible book value before this offering ......... .26 Increase attributable to this offering ......................... 1.08 ----- Adjusted net tangible book value after this offering ............ 1.34 ------- Dilution to investors in this offering .......................... $ 3.66 =======
The following table sets forth, with respect to existing stockholders and new investors in this offering, a comparison of the number of shares of Common Stock issued by the Company, the percentage of ownership of such shares, the total cash consideration paid, the percentage of total cash consideration paid and the average price per share.
Total Cash Average Shares Purchased Consideration Paid ----------------------- ------------------------- Price Number Percent Amount Percent Per Share ----------- --------- ------------- --------- ---------- Existing stockholders ......... 2,500,000 71.4% $3,108,046 38.3% $ 1.24 New investors ................. 1,000,000 28.6 5,000,000 61.7 5.00 --------- ----- ---------- ----- Total ...................... 3,500,000 100.0% $8,108,046 100.0% ========= ===== ========== =====
The above table assumes no exercise of the Underwriter's over-allotment option. If such option is exercised in full, the new investors will have paid $5,750,000 for 1,150,000 shares of Common Stock, representing approximately 64.9% of the total consideration for 31.5% of the total number of shares of Common Stock outstanding. In addition, the table assumes no exercise of other outstanding stock options or warrants. As of the date of this Prospectus, there are also outstanding Selling Securityholders' Warrants to purchase an aggregate of 310,000 shares of Common Stock at an exercise price of $6.00, warrants to purchase 3,000 shares of Common Stock at an exercise price of $.01 per share, warrants to purchase 200,000 shares of Common Stock at an exercise price of $5.00 per share and outstanding stock options granted under the Option Plan to purchase an aggregate of 293,250 shares of Common Stock at an exercise price of $5.00 per share. To the extent that these options and warrants are exercised, there will be further dilution to new investors. See "Management -- 1997 Stock Option Plan," "Description of Securities" and "Underwriting." 18 DIVIDEND POLICY The Company has never paid any dividends on its Common Stock, and the Board does not intend to declare or pay any dividends on its Common Stock in the foreseeable future. The Board of Directors currently intends to retain all available earnings (if any) generated by the Company's operations for the development and growth of its business. The declaration in the future of any cash or stock dividends on the Common Stock will be at the discretion of the Board and will depend upon a variety of factors, including the earnings, capital requirements and financial position of the Company and general economic conditions at the time in question. Moreover, the payment of cash dividends on the Common Stock in the future could be limited or prohibited by the terms of financing agreements that may be entered into by the Company (e.g., a bank line of credit or an agreement relating to the issuance of other debt securities of the Company) or by the terms of any Preferred Stock that may be issued and then outstanding. See "Description of Securities -- Capital Stock." CAPITALIZATION The following table sets forth the short-term debt and capitalization of the Company as of September 28, 1997, (i) on an actual basis, (ii) on a pro forma basis, giving effect to the Pro Forma Adjustment (see footnote 2 of "Prospectus Summary -- Summary Financial Information") and (iii) as adjusted to give effect to the sale of the 1,000,000 Shares and 500,000 Warrants offered hereby and the anticipated application of the estimated net proceeds therefrom:
September 28, 1997 --------------------------------------------------- Actual Pro Forma As Adjusted --------------- --------------- --------------- Short-term debt (including current portion of long-term debt and capitalized lease obligations)(1) .................. $ 574,895 $ 574,895 $ 574,895 ============ ============ ============ Long term debt and capitalized lease obligations (2) ......... $ 1,644,535 $ 2,162,535 $ 2,162,535 ------------ ------------ ------------ Stockholders' equity: ........................................ Common Stock, $.0001 par value, 19,000,000 autho- rized, 2,500,000 shares issued and outstanding (actual), 2,500,000 shares issued and outstanding (pro forma), 3,500,000 shares issued and outstanding (as adjusted)(3) .............................................. 250 250 350 Preferred Stock, $.0001 par value, issuable in series: 1,000,000 shares authorized: no shares issued and out- standing .................................................. -- -- -- Additional paid-in-capital .................................. 3,107,796 3,589,796 7,489,696 Accumulated deficit ......................................... (2,782,142) (2,782,142) (2,782,142) ------------ ------------ ------------ Total stockholders' equity ................................ 325,904 807,904 4,707,904 ------------ ------------ ------------ Total capitalization ..................................... $ 1,970,439 $ 2,970,439 $ 6,870,439 ============ ============ ============
- ------------ (1) Includes $56,680 of loans payable to related parties. See Consolidated Financial Statements. (2) Includes $926,550 of loans payable to related parties. See Consolidated Financial Statements. (3) Does not include (i) 500,000 shares of Common Stock reserved for issuance upon exercise of the Warrants; (ii) an aggregate of 150,000 shares of Common Stock reserved for issuance upon exercise of the Underwriter's Warrants and the warrants included therein; (iii) an aggregate of 310,000 shares of Common Stock reserved for issuance upon exercise of the Selling Securityholders' Warrants; (iv) 203,000 shares of Common Stock reserved for issuance upon exercise of other outstanding warrants; (v) 293,250 shares of Common stock reserved for issuance upon exercise of outstanding options under the Option Plan; and (vi) 231,750 shares of Common Stock reserved for issuance upon exercise of options available for future grant under the Option Plan. See "Management -- 1997 Stock Option Plan," "Description of Securities" and "Underwriting." 19 SELECTED FINANCIAL DATA The following selected consolidated financial data with respect to the Company's financial position at September 29, 1996 and September 28, 1997, and its results of operations for the years ended September 29, 1996 and September 28, 1997, has been derived from the audited consolidated financial statements of the Company included elsewhere in this Prospectus. The selected consolidated financial data set forth below is qualified by reference to and should be read in conjunction with the Company's consolidated financial statements, related notes and other financial information contained in this Prospectus, as well as "Management's Discussion and Analysis of Financial Condition and Results of Operations." Statement of Operations:
Year Ended Year Ended September 29, September 28, 1996 1997 --------------- -------------- Sales ......................................................... $ 11,829,088 $14,025,468 Cost of sales ................................................. 7,871,440 8,075,412 Gross profit .................................................. 3,957,648 5,950,056 Operating and administrative expenses ......................... 5,660,870 4,934,025 Income (loss) from operations ................................. (1,703,222) 1,016,031 Other expenses ................................................ 1,266,181 754,251 Income (loss) from continuing operations ...................... (2,870,815) 261,780 Net income (loss) ............................................. (2,840,673) 261,780 Income (loss) per share from continuing operations(1) ......... (1.33) .10 Net income (loss) per share ................................... (1.32) .10 Weighted average number of shares outstanding(1) .............. 2,160,676 2,526,957
Balance Sheet Data:
September 29, 1996 September 28, 1997 -------------------- ------------------- Working capital (deficit) ............... $ (1,969,787) $ (2,551,009) Total assets ............................ 4,519,569 5,940,027 Total liabilities ....................... 4,655,445 5,614,123 Stockholders' equity (deficit) .......... (135,876) 325,904
- ------------ (1) Effective September 29, 1996, the Company transferred the assets relating to its concession business to American Leisure, a company wholly-owned by Frank Cretella, President, Chief Executive Officer, a director and a principal stockholder of the Company. For the year ended September 29, 1996 net income from such operations was $30,142 or $.01 per share. See "Management's Discussion and Analysis of Financial Conditions and Results of Operations," "Certain Transactions" and Consolidated Financial Statements. 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The Company operates Lundy's, a high-volume, casual, upscale seafood restaurant located in Brooklyn, New York, and The Boathouse, a multi-use facility featuring an upscale restaurant and catering pavilion, located on the lake in New York City's Central Park. Lundy's and The Boathouse are high-profile locations which host many special events and receive extensive press coverage. The Company is also constructing American Park, which has been designed as a high-volume premium-quality restaurant to be located at the water's edge in Battery Park, a New York City landmark visited by approximately 4 million visitors during 1996. During the three months ended December 28, 1997, the Company incurred a net loss of approximately $430,000 as compared to a net loss of approximately $500,000 for the three months ended December 29, 1996. Results of Operations Year Ended September 28, 1997 Compared to Year Ended September 29, 1996 Sales for the year ended September 28, 1997 ("fiscal 1997") were $14,025,468, an increase of $2,196,380, or 18.6%, as compared to $11,829,088 for the year ended September 29, 1996 ("fiscal 1996"). Sales for Lundy's and The Boathouse for fiscal 1997 were $6,791,707 and $7,217,655, respectively, compared to $5,676,382 and $6,152,706, respectively, during fiscal 1996. The increase in sales for Lundy's was primarily due to Lundy's being opened for approximately ten months during fiscal 1996 (Lundy's opened in December 1995) and catering an increased number of special events. The increase in sales for The Boathouse were primarily due to catering an increased number of special events. The Company's food, liquor and other sales accounted for 76.8%, 15.3% and 7.9% of sales, respectively, for fiscal 1996 and 76.4%, 17.3% and 6.3% of sales, respectively, for fiscal 1997. Cost of sales for fiscal 1997 were $8,075,412, an increase of $203,972 or 2.6%, as compared to $7,871,440 for fiscal 1996. The increase in cost of sales was attributable to increased sales. Gross profit for fiscal 1997 was $5,950,056, or 42.4% of sales, as compared to $3,957,648, or 33.5% of sales for fiscal 1996. The increase in gross profit as a percentage of sales was primarily attributable to reduced food and labor costs and the Company's restructuring of its menu to encourage customers to purchase food items with higher gross profit margins. Food costs for fiscal 1997 were reduced as a result of the Company's ability to favorably renegotiate certain supply arrangements and expand the number of vendors and suppliers from which the Company solicits bids for food products. Labor costs for fiscal 1997 were reduced as a result of the Company's implementation of a labor management program during fiscal 1997 whereby the Company began to actively manage restaurant level staffing requirements and more efficiently staffed its restaurants. In addition, the Company was able to replace certain higher salaried restaurant positions with lower salaried personnel. Operating and administrative expenses for fiscal 1997 were $4,934,025, a decrease of $726,845, or 12.8%, as compared to $5,660,870 for fiscal 1996. Operating and administrative expenses for fiscal 1997 were lower primarily as a result of a non-cash compensation expense of approximately $561,000 in fiscal 1996 resulting from the issuance of securities as consideration for services rendered to the Company. During fiscal 1997 and fiscal 1996, operating and administrative expenses were reduced by $181,012 and $71,670 of management income fee, respectively, received under the Company's operating agreement with American Leisure. A portion of the management income fee received by the Company during fiscal 1997, $125,000, was an initial fee relating to the formation of American Leisure and establishment of operations relating to the operating agreement. The Company believes that the additional expenses incurred during fiscal 1996 are non-recurring in nature. See "Certain Transactions." Other expenses for fiscal 1997 were $754,251, a decrease of $511,930, or 40.4%, as compared to $1,266,181 for fiscal 1996. Other expenses for fiscal 1997 consisted of $341,295 of interest expense and $412,956 of barter expense. Other expenses for fiscal 1996 consisted of a write-off of an advance to an affiliate of $558,943, $363,994 of interest expense and $304,135 of barter expense. The write-off of an advance represents cash advances and equipment transferred to Forest Avenue Corporation ("Forest") and deferred management fees due from Forest, an affiliate of Mr. Cretella and Jeanne Cretella, Vice President, a director and a principal stockholder of the Company, upon the sale of the assets of Forest to an unrelated third party, since the Company determined that such advances were uncollectible. See "Certain Transactions." During fiscal 1996, the Company received an income tax benefit of only 3.3% due to a deferred tax valuation allowance. 21 As a result of the foregoing, income from continuing operations for fiscal 1997 was $261,780 as compared to a loss from continuing operations of $2,870,815 for fiscal 1996. Income from discontinued operations for fiscal 1996 was $30,142 (net of income taxes of $20,093). Discontinued operations were TAM's concession business which were transferred to American Leisure in connection with the Acquisition. See "Certain Transactions." Net income for fiscal 1997 was $261,780, as compared to a net loss of $2,840,673 for fiscal 1996. Liquidity and Capital Resources The Company's capital requirements have been and will continue to be significant and its cash requirements have been exceeding its cash flow from operations (at September 28, 1997, the Company had a working capital deficit of $2,551,009), due to, among other things, costs associated with development, opening and start-up costs of Lundy's and American Park and building a corporate infrastructure sufficient to support the Company's proposed expanded operations. As a result, the Company has been substantially dependent upon sales of its equity securities, loans from financial institutions and the Company's officers, directors and stockholders and bartering transactions with member dining clubs to finance a portion of its working capital requirements. During fiscal 1997, net cash increased by $215,009. Net cash provided by operating activities was $1,044,290, net cash used in investing activities was $1,117,856, relating to the acquisition of property and equipment primarily for American Park, and net cash provided from financing activities was $288,575, consisting primarily of long-term borrowings of $905,158 and proceeds of $200,000 from sales of equity securities, which was partially offset by principal payments on long-term debt and capitalized lease obligations of $527,558. During the year ended September 29, 1996, net cash decreased by $81,138. Net cash used in operating activities was $342,820, net cash used in investing activities was $2,458,971, consisting primarily of the acquisition of property and equipment for Lundy's in connection with its opening in December 1995, and net cash provided by financing activities was $2,720,653, consisting primarily of proceeds of $1,613,933 from the sale of equity securities and $1,215,470 of long-term borrowings. The Company enters into bartering agreements with member dining clubs whereby member dining clubs advance cash to the Company in exchange for the Company's agreement to provide to the clubs' members food and beverages at a designated Company restaurant. The restaurant must permit the clubs' members to purchase food and beverages at rates between 160% and 200% of the amount advanced. Upon entering into the agreement, the Company records its obligation to provide food and beverages at the amount of the advance it receives. Upon a guest purchasing food or beverages, the Company records revenue for the amount of food and beverage purchased by the guest, and the barter discount as a barter expense. During 1995 and 1996, the Company borrowed an aggregate of $840,000 from Fleet Bank, N.A. Such loans were collateralized by the Company's principal executive offices, which are owned by Mr. Cretella, the warehouse leased by the Company and owned by Leisure Time Services, Inc. ("Leisure Time"), a company owned by Jeanne Cretella, and Mr. and Ms. Cretella's personal residence, and guaranteed by Mr. and Mrs. Cretella and Leisure Time. In June 1997, Mr. Cretella agreed to pay to Fleet $640,000 as payment for the amount owed by the Company (approximately $720,000 as of October 15, 1997). In August 1997, Mr. Cretella paid to Fleet $140,000 as part of the settlement. Mr. Cretella paid the balance of the principal owed to Fleet and the Company paid the accrued interest of approximately $39,000 owed to Fleet in October 1997. As consideration for repaying the loan, the Company issued to Mr. Cretella a promissory note in the principal amount of $720,405 which bears interest at the rate of 10% per annum. Interest is payable in monthly installments of $6,003, with the outstanding principal payable in November 2002 upon maturity of the note. During fiscal 1996, the Company issued and sold an aggregate of 510,084 shares of Common Stock and warrants to purchase 181,600 shares of Common Stock to 31 investors for which it received gross proceeds of approximately $1,925,643 and issued 59,602 shares of Common Stock and warrants to purchase 21,530 shares of Common Stock upon conversion of $235,000 of indebtedness owed to three individuals. Ernest and Madeline Cretella, the parents of Frank Cretella, purchased 13,785 shares of Common Stock and warrants to purchase 1,379 shares of Common Stock for an aggregate purchase price of $50,000. The holders of such warrants have agreed to convert such warrants into Selling Securityholders' Warrants upon the consummation of this offering. 22 During fiscal 1997, the Company issued and sold 55,141 shares of Common Stock and warrants to purchase 27,571 shares of Common Stock to one investor at a purchase price of $200,000. The holders of such warrants have agreed to convert such warrants into Selling Securityholders' Warrants upon the consummation of this offering. In October 1997, Kayne Anderson Non-Traditional Investments, L.P. and ARBCO Associates, L.P. affiliates of Kayne Anderson Investment Management, Inc. (collectively, "Kayne Anderson"), loaned the Company an aggregate of $1,000,000. The loans bear interest at the rate of 10% per annum, payable quarterly commencing December 31, 1997, and are due May 31, 1999. Upon an event of default under the loans, the interest rate increases to 15% per annum and the Company would be required to pay to Kayne Anderson 50% of the operating profits from American Park on a monthly basis until the loan is fully repaid. The loan is guaranteed by Frank Cretella, President, Chief Executive Officer, a director and a principal stockholder of the Company, and the guarantee is secured by a pledge of 200,000 shares of Common Stock owned by Frank Cretella and Jeanne Cretella, Vice President, a director and principal stockholder of the Company. As partial consideration for the loans, the Company issued to Kayne Anderson warrants (the "KA Warrants") to purchase 200,000 shares of Common Stock. The KA Warrants are exercisable at a price of $5.00 per share (subject to adjustment under certain circumstances) and are exercisable at any time commencing 90 days following the date of this Prospectus until October 31, 2002. The Company will incur a non-cash interest charge of $482,000 representing the original issue discount relating to the promissory notes issued to Kayne Anderson over the life of the promissory notes. In connection with the loan, the Company agreed to use its best efforts to cause a representative designated by Kayne Anderson to be elected to the Company's Board of Directors. Kenneth Harris is Kayne Anderson's initial designee. See "Management." Based on the Company's current proposed plans and assumptions relating to the implementation of its expansion strategy (including the timetable of opening American Park and new Lundy's locations and the costs associated therewith), the Company anticipates that the net proceeds of this offering, together with anticipated cash flow from operations and equipment, vendor and landlord financing, will be sufficient to satisfy its contemplated cash requirements for at least 12 months following the consummation of this offering. In the event that the Company's plans change or its assumptions prove to be inaccurate (due to unanticipated expenses, construction delays or other difficulties) or the proceeds of this offering otherwise prove to be insufficient to fund operations and implement the Company's proposed expansion strategy, the Company could be required to seek additional financing sooner than anticipated. Other than the ability to enter into bartering transactions with member dining clubs, the Company has no current arrangements with respect to, or potential sources of, additional financing, and it is not anticipated that any officers, directors or stockholders will provide any additional loans to the Company. Consequently, there can be no assurance that any additional financing will be available to the Company when needed, on commercially reasonable terms, or at all. Seasonality and Fluctuations in Quarterly Operating Results. The Company's business is seasonal. The restaurant and bicycle and rowboat rentals at The Boathouse currently are open only March through November, with dinner served in the restaurant May 1 through October 1. All of the seating of The Boathouse restaurant and a portion of the seating at Lundy's is outdoors. In addition, since Lundy's is a waterside location, it attracts more guests during the warmer weather months. As a result, the Company's restaurant sales generally increase from May through September, and decrease from November through March. See "Business." The Company also expects that future quarterly operating results will fluctuate as a result of the timing of and expenses related to the openings of new restaurants (as the Company will incur significant expenses during the months preceding the opening of a restaurant), as well as due to various factors, including the seasonal nature of its business, weather conditions in New York City, the health of New York City's economy in general and its tourism industry in particular. Accordingly, the Company's sales and earnings may fluctuate significantly from quarter to quarter and operating results for any quarter will not necessarily be indicative of the results that may be achieved for a full year. Inflation The effect of inflation on the Company has not been significant during the last two fiscal years. 23 BUSINESS The Company operates Lundy's, a high-volume, casual, upscale seafood restaurant located in Brooklyn, New York, and The Boathouse, a multi-use facility featuring an upscale restaurant and catering pavilion, located on the lake in New York City's Central Park. Lundy's and The Boathouse are high-profile locations which host many special events and receive extensive press coverage. The Company is also constructing American Park, which has been designed as a high-volume premium-quality restaurant to be located at the water's edge in Battery Park, a New York City landmark visited by approximately 4 million visitors during 1996. Lundy's Lundy's is a high-volume, casual, upscale seafood restaurant located in Brooklyn, New York. The Company opened Lundy's in December 1995, approximately 16 years after the original Lundy's restaurant closed. The original Lundy's, a storied Brooklyn landmark, originally opened in 1934 and is believed to have been the largest restaurant in the United States during the time it was open, with seating capacity for approximately 2,400 guests. The building which Lundy's occupies was declared a historic landmark building by the New York City Landmarks Preservation Commission in 1992. The Lundy' Concept The Lundy's concept is designed to appeal to a broad range of guests by serving generous portions of premium-quality seafood and other menu items and by combining a grand dining experience with friendly and efficient service in a high-energy environment. Lundy's commitment to offering its guests a casual, exciting dining experience is highlighted by its "exhibition" kitchen where all meals are cooked to order in view of its guests, a lobster pool from which guests can select their lobsters, an experienced waitstaff uniformed in crisp white linen jackets which are knowledgeable about the preparation of seafood and the history of Lundy's, a high waitstaff-to-customer ratio to assure attentive service and tables covered with multiple layers of colored linens and pristine white butcher paper. Menu Lundy's menu features a wide variety of fresh seafood items, including lobster, crab, shrimp, oysters, clams and daily fish specials, cooked to order in a variety of ways: steamed, sauteed, broiled, grilled, blackened and fried. In addition, Lundy's offers a selection of steaks, chicken dishes, pasta dishes, pizzas, appetizers, chowders, salads and fresh-baked desserts. Lundy's also offers full bar service, from which a variety of brand name alcohols, mixed drinks, wines and beers, including selected micro-brewed beers, can be ordered, at the bar or with table service. Lundy's feature menu selection is its "Shore Dinner," which consists of a chowder or salad; steamed or baked clams, lobster and chicken; fruit pie; and a beverage, for $21.95. The Company believes that Lundy's is widely recognized for its "signature" biscuits, chowders and apple and blueberry pies. The menu mix has been carefully developed to balance the higher priced items, such as lobster and fresh fish, with lower cost items, such as pizza and pasta dishes. Dinner entrees range in price from $7.95 to $28.95 and the average dinner check is approximately $32.00 per person. Design, Decor and Atmosphere Lundy's interior has been designed with a contemporary decor, rich polished woods and granite surfaces, accented with copper, pottery, brushed-stainless steel and earth tones, to impart "Old World" elegance and comfort. Lundy's offers guests several seating selections in its multi-level interior, which consists of an expansive, high-ceiling main dining area; a large upstairs dining room which is also used for special events and to cater private functions; a mezzanine level cigar room which overlooks the main dining area; and a 30-foot long oyster and beverage bar; as well as outdoor seating. Facility Operations Lundy's occupies approximately 17,000 square feet and has a seating capacity of approximately 730 seats. Lundy's is open for dinner from 5:00 P.M. to 11:00 P.M. on weekdays (10:00 P.M. on Mondays) and for dining from 1:00 P.M. to 12:00 midnight on Sunday. Lundy's oyster and beverage bar and outside bar (weather permitting) are also open during such hours and also from 12:00 noon to 5:00 P.M. on weekdays. 24 In addition to the restaurant operations, Lundy's also houses a seafood laboratory where seafood is tested to assure quality and freshness, and a gift shop which carries a variety of "Lundy's" and "Brooklyn" themed merchandise, such as T-shirts and other clothing, hats, plates and coffee and beer mugs, as well as Lundy's chowders and sauces and seafood related products, such as lobster bibs, crackers and forks. During the year ended September 29, 1996 and year ended September 28, 1997, Lundy's sales were $5,678,382 and $6,791,707, respectively. The Boathouse The Boathouse is a multi-use, lakeside facility which features an upscale restaurant and catering pavilion, located on the lake in New York City's Central Park. Restaurant The Boathouse restaurant provides customers a pleasurable dining experience in a comfortable, relaxed and romantic atmosphere and primarily al fresco seating. The restaurant serves eclectic American cuisine that changes according to season and consumer trends, emphasizing herbs grown fresh on site. The menu is limited in scope to permit the greatest attention to quality while offering sufficient breadth to appeal to a variety of taste preferences. The restaurant also offers full bar service. Dinner entrees range in price from $19.00 to $28.00 and the average dinner check is approximately $44.00 per person. The dining area occupies approximately 6,000 square feet of space and has a seating capacity of approximately 225 seats, most of which are covered, expanding approximately 150 feet alongside the Central Park lake. The restaurant is open from early March until the Sunday in early November on which the New York City Marathon is held. Catering Pavilion The catering pavilion is glass-enclosed, tented and heated. The catering pavilion occupies approximately 4,600 square feet of space, is surrounded by an english garden on two sides and resides a few feet from the Central Park lake. The catering pavilion hosts private functions for up to 500 persons year round. Other Attractions The Boathouse incorporates the following additional attractions: o Cocktail Area. The cocktail area offers full bar service at an approximately 21-foot long bar with waitress service and features a jazz band performing five nights a week. The cocktail area has a capacity of 150 persons, including 100 seats, and is open from March through early November. o The Boathouse Express. The Boathouse Express is a cafeteria-style convenience counter which serves specialty sandwiches, salads, baked goods and juices, as well as standard fast-food items, such as hamburgers, hotdogs, french fries and sodas. The Boathouse Express has indoor and outdoor seating available for approximately 75 persons year round. o Carts and Kiosks. Approximately six to eight free standing carts and kiosks are strategically located on the facility's grounds offering a variety of food and beverage items, such as fresh fruit drinks, New York- style pretzels, pita sandwiches and espresso and cappuccino, from early March to early November. o Rowboat and Bicycle Rentals and Venetian Gondola Rides. Approximately 110 rowboats are available for rental by the hour on the Central Park lake and approximately 120 bicycles are available for rental by the hour or day from early March to early November. Additionally, Venetian gondola rides on the lake are available from early March to early November. o Merchandise Counter. The merchandise counter carries a variety of The Boathouse and other Central Park and New York City themed merchandised, including T-shirts, sweatshirts, hats and coffee mugs, as well as sundry items. 25 o Shuttle Bus. The Boathouse operates a shuttle bus which transports guests between the facility and the Fifth Avenue and 72nd Street entrance to Central Park. The shuttle bus runs when the restaurant is opened for dinner and during special events at the catering pavilion. The Company operates The Boathouse pursuant to a 15-year license agreement with the City of New York Department of Parks and Recreation (the "Parks Department"). Pursuant to the license agreement, the Company is required to pay a fee to the Parks Department each license year (June 30 through the following June 29) equal to the greater of (i) $85,000 (increasing to $90,000 per year on June 30, 1998) or (ii) the sum of 13% of gross revenue from food and merchandise sales and 16% of gross revenues (increasing to 17% on June 30, 1999) from rowboat and bicycle rentals. The Company is required to maintain certain minimum levels of insurance with respect to the facility. The license agreement expires on June 29, 2000, provided that the Parks Department may terminate the license upon ten days written notice so long as the termination is not arbitrary or capricious. See "Risk Factors -- Operating License Requirements; Audit By New York City Comptroller." During the year ended September 29, 1996 and year ended September 28, 1997, The Boathouse's sales were $6,152,706 and $7,217,655, respectively. American Park American Park has been designed as a high-volume premium-quality restaurant and is currently under construction in Battery Park, a New York City landmark visited by approximately 4 million visitors in 1996. The Company anticipates that American Park will open in March 1998. American Park has been designed with an urban mountain lodge motif, incorporating natural fabrics, slate, stone, wood and brick with modern-style furnishings, vibrant colors and designer lighting. Guests will have panoramic views of the New York City harbor and landmarks such as the Statute of Liberty, Ellis Island, Governor's Island and the downtown Manhattan skyline. American Park will offer seating selections in its main dining room, second floor dining room and bi-level outdoor patios. American Park is expected to serve contemporary American cuisine featuring wood-burning menu selections, such as steaks, whole fish, chicken and veal dishes. The lower-level outdoor patio will extend to the water's edge and is expected to incorporate a separate kitchen which serves selected items from the main restaurant menu and an expanded bar area. American Park will also feature a cigar lounge which will offer waitress service, and personal humidors which can be leased on an annual basis. The Company also intends to sell cigars and related paraphernalia in the cigar lounge. The Company intends to operate a free-standing kiosk as part of American Park which is expected to serve appetizers, sandwiches, cold beverages, beer and wine. In December 1994, the Company entered into a license agreement with the Parks Department to construct and operate a restaurant, American Park, in Battery Park. The Company is required to pay to the Parks Department a fee each license year (November 1 through the following October 31) equal to the greater of (i) $50,000 and (ii) 8% of gross receipts from the restaurant and 10% of gross receipts from merchandise sales (increasing to 12% on November 1, 1999). For the license year ended October 31, 1996, the license fee was $50,000. The Company anticipates that the license fee will increase substantially upon the opening of American Park. The Company is required to maintain a certain level of insurance. The license agreement expires on October 31, 2015, provided, however, that the Parks Department may terminate the license upon 30 days written notice. American Park is approximately 18,300 square feet in size and is expected to have a seating capacity of approximately 750 seats, as well as capacity for approximately 75 persons standing in the bar area located on the lower-level outdoor patio. Expansion Strategy The Company's strategy is to initially develop and operate a limited number of additional Lundy's restaurants. The Company intends to focus its expansion efforts in the New York City metropolitan area and other urban and upscale suburban areas, particularly those with a large population of transplanted New Yorkers, such as Southern Florida, Los Angeles, Chicago and Washington D.C. With a substantial portion of the proceeds of 26 this offering (approximately $3,500,000), projected cash flow from operations and anticipated financing, including equipment and vendor financing and landlord development concessions and rent allowances, the Company intends to open three additional Lundy's restaurants during the 12 months following the consummation of this offering. The Company is currently analyzing several possible locations but does not have any commitments or understanding with respect to any proposed location. The Company has limited experience in expanding its operations and there can be no assurance that it will be able to successfully do so. The Company's strategy is to capitalize on what it perceives to be a high consumer recognition of the Lundy's name in markets where there is a significant percentage of the population which remembers and had visited the old Lundy's restaurant. The Company anticipates that future Lundy's restaurants will incorporate the Lundy's concept into the existing building architecture to give each location the atmosphere of a long-standing restaurant. The Company's long-term plans include seeking to capitalize upon the Lundy's name by marketing food and related products by mail, such as chowders sauces, pies, cookbooks, lobster bibs, crackers and forks and "Lundy's" and "Brooklyn" themed T-shirts and other clothing items, hats, plates and coffee and beer mugs. In addition, in connection with its expansion strategy, the Company may seek to open additional, high-volume landmark type restaurants as appropriate opportunities arise. Site Selection The choice of site selection is critical to the potential success of a particular restaurant. As a result, the Company devotes a significant amount of time and resources to identifying and analyzing potential sites. The Company seeks to identify locations in close proximity to upscale high-traffic, suburban residential neighborhoods, hotel complexes and/or urban business or entertainment centers. The Company also seeks to identify large spaces in tourist centers, such as government buildings, concession stands and offices in municipal parks which are not utilized to their potential. Additionally, to the extent opportunities arise, the Company seeks to identify waterfront locations, which type of location the Company believes has a synergy with the Lundy's concept and primarily seafood menu. The Company, however, has no commitments or understandings with respect to any proposed location. The Company generally seeks to lease properties with 12,000 to 20,000 square feet of total space and seating capacity for 400 to 750 persons. The Company anticipates that three to six months will typically be required to open a new Lundy's restaurant from the time a location is identified and a lease is negotiated. The Company believes that future Lundy's restaurants will be destination restaurants, similar to its existing restaurants, and that customers will travel by automobile up to 15 to 30 minutes to the location. The Company anticipates that the cost of opening additional Lundy's restaurants, other than lease expenses, will average approximately $1,500,000 (net of anticipated equipment and vendor financing and landlord contributions), consisting of construction ($800,000), equipment ($350,000), smallwares ($100,000), furniture ($100,000), point-of-sales account and cash management system ($75,000), inventory ($60,000), cash and deposits ($15,000). The Company also anticipates that it will incur pre-opening expenses of approximately $300,000 for each new Lundy's restaurant it opens, which it intends to finance from the net proceeds of this offering allocated to working capital and general corporate purposes to the extent cash flow from then existing operations is insufficient. Annual rental costs will vary significantly depending upon the geographic market and square footage. The Company will seek to negotiate landlord development concessions and rent allowances with respect to future locations. The Company anticipates that leases relating to future locations will be long-term (20 to 30 years) in duration. Restaurant Operations Management and Employees Each location's operations is managed by a general manager and managers for certain operations of the location, such as kitchen, dining room (waiters and busboys), office (administration) and catering. Each location's staff consists of approximately 160 employees. Because the restaurant and certain other operations at The Boathouse are not open year round, the Company is required to hire new personnel annually for The Boathouse. The Company is currently refining its management bonus plan which will provide for bonuses based on the financial results of the manager's particular location. 27 Service and Guest Satisfaction The Company believes that providing friendly, courteous, efficient service is critical to the long-term success of each location. The Company will attempt to recruit managers for future locations with significant experience in the restaurant industry. The Company is currently refining its training program in anticipation of opening additional Lundy's restaurants to teach restaurant managers to promote the Company's team-oriented atmosphere among restaurant employees, with emphasis on preparing and serving food in accordance with strict standards and providing friendly, courteous and attentive service. Each location's staff is trained on site by location managers and other designated employees. The Company believes that the selection and training of its location managers and staff result in friendly, courteous, efficient guest service which contributes to a pleasurable dining experience for the guest. The Company monitors each location's service and guest satisfaction. The Company maintains a guest service department which contacts several guests from each location's previous night's reservation list to inquire about their dining experiences. The guest service department also contacts each party which utilizes the Company's catering services to obtain feedback about their experiences. The Company also maintains a toll-free telephone line for guests to call with complaints or suggestions about the Company's locations. All calls are personally responded to by an executive officer of the Company. The Company utilizes guest feedback to continually improve its service, update its menu selections and otherwise improve its operations. Purchasing Obtaining a reliable supply of quality seafood and other food and beverage items at competitive prices is critical to the Company's success. The Company has formed long-term relationships with several seafood suppliers, fish markets and operators of fishing boats. Each restaurant purchases its own supply of food and beverage items through a central purchasing department which maintains a list of approved suppliers. The Company regularly sends buyers to local seafood markets to purchase fresh seafood. In addition, the Company regularly arranges to purchase a fishing boat's day catch of lobsters and select fish, reducing its price per pound and ensuring superior quality. The Company maintains a current database of suppliers and continuously updates supplier's pricing to enable its restaurants to obtain the lowest prices available from Company-approved suppliers. The Company believes its diverse menu selection reduces the risk and minimizes the effect of the shortage of any seafood products. The Company has been able to anticipate and react to fluctuations in food costs through selected menu price adjustments, purchasing seafood directly from numerous suppliers, fish markets and fishing boats and promoting certain alternative menu selections (in response to availability and price of supply). To date, the Company generally has not experienced any significant delays in receiving its food and beverage inventories, restaurant supplies or equipment. Quality Control The Company maintains a continuous inspection program for all of its seafood purchases. Each shipment of seafood and other food items is inspected for quality and weight by the restaurant steward. All food items must be purchased from Company-approved suppliers. In addition, Lundy's houses a seafood laboratory where shipments of seafood are randomly tested to assure quality. The restaurants' management are responsible for properly training employees and ensuring that the Company's restaurants are operated in accordance with strict health and quality standards. Each restaurant employee is educated as to the correct handling and proper characteristics of each product. Compliance with the Company's quality standards are monitored by periodic on-site visits and formal periodic inspections by management and third-party food sanitation consultants. The Company believes that its inspection procedure and its employee training practices assist the Company in maintaining high standards of quality for the food and services it provides. Restaurant Reporting The Company maintains financial and accounting controls for each restaurant through a central point-of-sale, accounting and cash management systems. Sales data is collected daily, and store managers are provided 28 with daily sales, cash and inventory information for their respective restaurants. The point-of-sale, accounting and cash management systems enables both store-level management and senior management to quickly react to changing sales trends, better manage food, beverage and labor costs, minimize theft and improve the quality and efficiency of accounting and audit procedures. Catering Operations The Company's restaurants offer high-quality professional, on-premise and off-premise catering services. Each restaurant provides its own catering services and specially designs menus to the guests requirements. Lundy's upstairs dinning room is used to cater private functions and has a capacity of 200 persons. In addition to catering private functions in the banquet area, The Boathouse caters larger functions of up to 1,000 persons in the combined space of the catering pavilion and restaurant. The Company anticipates offering catering services at American Park in its upstairs dining room, as well as at other restaurants opened in the future. In April 1997, the Company entered into a five-year agreement with Bay Cruises LLC ("Bay Cruises") to act as exclusive caterer for all entertainment cruises conducted by Bay Cruises from any location in the New York metropolitan area. Bay Cruises conducts entertainment cruises aboard the Liberty I yacht. The Company provides several breakfast, lunch and dinner menu selections and is paid an amount based on the number of guests for catered cruises and based on the number of meals served for non-catered cruises. The Company may terminate the agreement upon sixty days notice. During the year ended September 29, 1996 and year ended September 28, 1997, Lundy's catered 59 and 157 private functions, respectively, and The Boathouse catered 284 and 317 private functions, respectively. Advertising and Marketing The Company employs a marketing strategy that seeks continuous visibility and name recognition through the use of local radio, print and billboard advertisements, as well as community events, for each restaurant. The Company contracts with public relations and advertising agencies to more effectively coordinate its advertising efforts. The Company also publishes and distributes a quarterly newsletter which apprises readers of upcoming events at the Company's restaurants and recent celebrity guests, answers guests' food, wine and restaurant etiquette questions and provides recipes. Each restaurant engages in community-based promotions designed to promote the restaurant and foster goodwill within the community. Each restaurant participates in the Company's "make a dent with 10%" program whereby 10% of the proceeds from three designated tables from the restaurant are donated to local charities. Lundy's and The Boathouse are high-profile locations which host many special events and receive extensive press coverage. Lundy's and The Boathouse have been featured in several magazines, including Gourmet, Travel & Leisure and The New York Times Magazine, and have been the subject of several television news stories. As a result, these restaurants receive a great deal of publicity in addition to the publicity obtained from the Company's advertising efforts. Competition The restaurant industry is intensely competitive with respect to price, service, location and food quality and variety. There are many well-established competitors with substantially greater financial and other resources than the Company, as well as a significant number of new market entrants. Such competitors include national, regional and local full-service casual dining chains, many of which specialize in or offer seafood products, as well as single location restaurants. Some of the Company's competitors have been in existence for substantially longer periods than the Company, may be better established in the markets where the Company's restaurants are or may be located and engage in extensive advertising and promotional campaigns, both generally and in response to efforts by competitors to open new locations or introduce new concepts or menu offerings. The Company can also be expected to face competition from a broad range of other restaurants and food service establishments which specialize in a variety of cuisines. 29 Intellectual Property The Company's business prospects will depend largely upon the Company's ability to capitalize on favorable consumer recognition of the Lundy's name. Although the Company holds a trademark registration for use of the Lundy's name by the U.S. Patent and Trademark Office, there can be no assurance that the Company's marks do not or will not violate the proprietary rights of others or that the Company's marks would be upheld, or that the Company would not be prevented from using its marks, if challenged, any of which could have an adverse effect on the Company. The Company also relies on trade secrets and proprietary know-how, and employs various methods, to protect its concepts and recipes. However, such methods may not afford complete protection and there can be no assurance that others will not independently develop similar know-how or obtain access to the Company's know-how, concepts and recipes. The Company does not maintain confidentiality and non-competition agreements with all of its executives, key personnel or suppliers. There can be no assurance that the Company will be able to adequately protect its trade secrets. Government Regulation The Company is subject to extensive state and local government regulation by various governmental agencies, including state and local licensing, zoning, land use, construction and environmental regulations and various regulations relating to the sale of food and beverages, sanitation, disposal of refuse and waste products, public health, safety and fire standards. The Company's restaurants are subject to periodic inspections by governmental agencies to assure conformity with such regulations. Difficulties or failure in obtaining required licensing or other regulatory approvals could delay or prevent the opening of a new restaurant, and the suspension of, or inability to renew, a license at an existing restaurant would adversely affect the operations of the Company. Restaurant operating costs are also affected by other government actions which are beyond the Company's control, including increases in the minimum hourly wage requirements, workers compensation insurance rates, health care insurance costs and unemployment and other taxes. The Federal Americans With Disabilities Act prohibits discrimination on the basis of disability in public accommodations and employment. The Company's restaurants are currently designed to be accessible to the disabled, and the Company believes that it is in compliance with all current applicable regulations relating to accommodations for the disabled. The Company is subject to "dram-shop" statutes, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. New York law currently provides that a vendor of alcoholic beverages may be held liable in a civil cause of action for injury or damage caused by or resulting from the intoxication of a minor (under 21 years of age) if the vendor willfully, knowingly and unlawfully sells or furnishes alcoholic beverages to the minor and knows that the minor will soon thereafter be driving a motor vehicle. A vendor can similarly be held liable if it knowingly provides alcoholic beverages to a person who is in a noticeable state of intoxication, knows that person will soon thereafter be driving a motor vehicle and injury or damage is caused by that person. Insurance The operation of restaurants subjects the Company to possible liability claims from others, including customers, employees and other service providers for personal injury (resulting from, among other things, contaminated or spoiled food or beverages, accidents or injuries caused by intoxicated persons served alcoholic beverages by a restaurant). The Company maintains insurance (with coverage in amounts up to $1,000,000 per occurrence and $5,000,000 of umbrella liability coverage), including insurance relating to personal injury, in amounts which the Company believes to be adequate. The Company also maintains property insurance for each location it operates in amounts it believes to be adequate. Nevertheless, a partially or completely uninsured claim against the Company, if successful, could have a material adverse effect on the Company. Properties The Company leases approximately 2,500 square feet of space in Staten Island, New York for its executive offices from Frank Cretella, Chief Executive Officer, President, a director and a principal stockholder of the 30 Company. The current annual rent payable under the lease is currently $37,500 and increased by 1.5% per annum commencing January 1998. The lease expires December 31, 2001. The Company believes that this lease is on commercially reasonable terms. See "Certain Transactions." The Company leases 16,505 square feet of space in Sheepshead Bay, Brooklyn, New York, where Lundy's is located pursuant to a lease which expires in 2014. The current annual rent payable under the lease is $300,000 during 1997. Upon the expiration of the lease, the Company has two 10-year renewal options. The Company leases an approximately 6,000 square feet warehouse in Bayonne, New Jersey, from Leisure Time Services, Inc., a company wholly-owned by Jeanne Cretella, Vice President, a director and a principal stockholder of the Company. The annual rent payable under the lease is currently $30,000 and increases by 1.5% per annum commencing January 1998. The Company believes that this lease is on commercially reasonable terms. See "Certain Transactions." The Company operates The Boathouse in Central Park, New York City pursuant to a license from the Parks Department which expires in June 2000. The Company has a license from the Parks Department to operate American Park in Battery Park, New York City. The license expires in 2015. Employees As of September 28, 1998, the Company employed 504 persons, of whom 26 were in management and 478 were in non-management restaurant operations. Approximately 34 of those individuals were employed on a salary basis. The Company believes its employee relations to be good. None of the Company's employees is covered by a collective bargaining agreement. Legal Proceedings The operation of restaurants and rowboat and bicycle rentals subjects the Company to potential claims from others, including customers, employees and other service providers for personal injury (resulting from, among other things, contaminated or spoiled food or beverages and accidents). The Company is a defendant in several lawsuits arising in the ordinary course of its business relating to personal injury claims by plaintiffs which are seeking damages substantially in excess of the Company's assets and insurance coverage. The lawsuits are being handled by the Company's insurance carriers. The Company is vigorously defending each lawsuit and believes that such matters are adequately covered by insurance or, if not so covered, are without merit or are of such nature or involve such amounts that an unfavorable disposition would not have a material adverse effect on the financial condition or operations of the Company. However, since each lawsuit is in an early stage, there can be no assurance that any of such actions will be resolved in favor of the Company or that the outcome of any litigation or settlement will not have a material adverse effect on the Company. In the ordinary course of business, the Company is a party to other legal proceedings, the outcome of which, either singly, or in the aggregate, is not expected to be material. 31 MANAGEMENT Directors and Executive Officers The following are the directors and executive officers of the Company:
Name Age Position - ----------------------------- ----- ------------------------------------------------ Frank Cretella .............. 39 President, Chief Executive Officer and Director Jeanne Cretella ............. 39 Vice President and Director Anthony B. Golio ............ 37 Vice President Lorenzo T. Vanore ........... 45 Chief Financial Officer Kenneth L. Harris ........... 55 Chairman of the Board Peter J. Salvatore .......... 60 Director Barry E. Krantz ............. 53 Director
Frank Cretella co-founded the Company's predecessor in 1981 and has been President, Chief Executive Officer and a director of the Company since inception. Jeanne Cretella co-founded the Company's predecessor in 1981, and has been Vice President, Secretary and a director of the Company since inception. Ms. Cretella is the wife of Frank Cretella. Anthony B. Golio has been Vice President of the Company since October 1997. In June 1996, Mr. Golio founded The Pineapple Group Inc., a consulting company to the restaurant industry. From February 1994 until October 1996, Mr. Golio was director of operations of Whiskey River Restaurant Group, a restaurant holding company. From January 1991 through February 1994, Mr. Golio was Vice President - Operations and Marketing of HMG, Inc., a restaurant holding company. From 1988 to 1991, Mr. Golio was manager of guest services in the food service division of the New York Zoological Society. From 1984 to 1988, Mr. Golio was area manager of Chi-Chi's Restaurants, Inc. Lorenzo T. Vanore has agreed to serve as Chief Financial Officer of the Company commencing February 15, 1998. From June 1995 through January 1998, Mr. Vanore was Chief Financial Officer of Ecce Panis, Inc., a privately-owned wholesale and retail bakery chain. From 1984 through May 1995, Mr. Vanore was employed by New York Cruise Lines, Inc., the operator of Circle Line and World Yacht cruise lines, most recently as its Chief Financial Officer. From 1979 to 1984, Mr. Vanore was Vice President of Financial Services of Lifestyle Restaurants, Inc., a publicly-traded restaurant chain. Kenneth L. Harris has been Chairman of the Board since June 1997. Since January 1995, Mr. Harris has been President and Chief Executive Officer of Platinum Restaurant Group, a management consulting firm. From February 1994 through January 1995, Mr. Harris was Chief Operating Officer of HOB Entertainment, Inc., a theme restaurant company. From January 1975 through January 1994, Mr. Harris was employed by W.R. Grace & Co. ("Grace") and its subsidiary, Restaurant Enterprises Group, Inc. ("REGI"), most recently as President and Chief Executive Officer of REGI's Dinnerhouse division. In 1994, REGI filed for bankruptcy under Chapter 11 in the United States Bankruptcy Court, as part of a pre-packaged plan in connection with Grace's sale of such subsidiary, and emerged as Family Restaurants, Inc. In January 1998, Mr. Harris joined Kayne Anderson as an associate. Mr. Harris is the designee of Kayne Anderson to the Company's Board of Directors. Peter J. Salvatore has agreed to serve as a director of the Company upon the consummation of this offering. Mr. Salvatore has been Managing Director of Spear Leeds & Kellogg, an NASD member firm, since March 1991. Barry E. Krantz has agreed to serve as a director of the Company upon the consummation of this offering. Mr. Krantz has been an independent restaurant industry consultant since August 1995. Mr. Krantz was Chief Operating Officer and a director of REGI from January 1989 through January 1994 (when it filed for bankruptcy under Chapter 11). From January 1994 to August 1995, Mr. Krantz was President, Chief Operating Officer of Family Restaurants, Inc., the successor of REGI. Mr. Krantz is currently a director of Sizzler International, Inc., a publicly traded company in the restaurant industry. All directors currently hold office until the next annual meeting of stockholders and until their successors are duly elected and qualified. Executive officers of the Company serve at the direction of the Board and until their successors are duly elected and qualified. The Company reimburses directors for reasonable travel expenses incurred in connection with their activities on behalf of the Company but does not pay its directors any fees for Board participation. 32 In connection with this offering, the Company has agreed that it will, for a period of three years following the date of this Prospectus, upon the request of the Underwriter, nominate and use its best efforts to elect a designee of the Underwriter (which designee may change from time to time) as a director of the Company or, at the Underwriter's option, appoint such designee as a non-voting advisor to the Company's Board of Directors. The Underwriter has not yet exercised its rights to designate such a person. See "Underwriting." Audit Committee The Board of Directors has established an audit committee which, upon the consummation of this offering, will be comprised of Messrs. Kenneth L. Harris and Peter J. Salvatore. The audit committee will be responsible for making recommendations concerning the engagement of independent public accountants, reviewing the plans and results of the audit engagement with the independent public accounts, approving professional services provided by the independent public accounts and reviewing the adequacy of the Company's internal accounting contracts. Executive Compensation The following table sets forth certain compensation paid by the Company during the fiscal years ended September 28, 1997 and September 29, 1996 to Frank Cretella, its President and Chief Executive Officer. No other officer of the Company received compensation in excess of $100,000 for either such fiscal year. Summary Compensation Table
Annual Compensation ------------------------------------- Other Annual Name and Principal Position Year Salary Bonus Compensation - ------------------------------------------------ ------ ----------- ------- ------------- Frank Cretella President and Chief Executive Officer ......... 1997 $150,000 $ 0 $2,000 1996 $168,000 $ 0 $2,000
The Company did not grant any options to its executive officers during the years ended September 28, 1997 and September 29, 1996. Employment Agreements The Company has entered into three-year employment agreements with Frank Cretella and Jeanne Cretella, effective as of the date of this Prospectus, which is automatically renewable and provides for an annual base compensation of $175,000 and $75,000, respectively, and such bonuses as the Board of Directors may from time to time determine. Each of the employment agreements requires the officer to devote a majority of such officer's business time to the Company's business and affairs and contains a provision that such officer will not compete or engage in a business competitive with the current or anticipated business of the Company during the term of the employment agreement and for a period of one year thereafter. Each of the agreements also provides that if the officer is terminated without cause (including as a result of a change in control), such officer will be entitled to receive severance pay equal to the base compensation through the term of the agreement, provided that if such officer is terminated during the third year or the last year of any renewal term, such officer will be entitled to receive additional compensation equal to the base compensation received from the Company during the one-year period prior to the date of termination. Consulting Agreement In July 1996, the Company entered into a two-year consulting agreement with Kenneth L. Harris, Chairman of the Board of the Company, pursuant to which Mr. Harris (through Platinum Restaurant Group, a company wholly owned by Mr. Harris) has provided strategic planning, restaurant operations, marketing and site 33 evaluation consulting services for a fee equal to $2,500 per month through December 1997 and $5,000 per month thereafter. The agreement is automatically renewable for successive one-year periods, unless either party gives written notice of its intention not to renew the agreement at least 30 days prior to the end of the term or renewal term. In addition, pursuant to the consulting agreement, the Company agreed to pay to Mr. Harris $50,000 as payment for consulting services rendered to the Company prior to entering into the consulting agreement. Such payment is due in July 1998. 1997 Stock Option Plan In October 1997, the Company's stockholders approved a stock option plan (the "Option Plan") pursuant to which 525,000 shares of Common Stock have been reserved for issuance upon the exercise of options designated as either (i) incentive stock options ("ISOs") under the Internal Revenue Code of 1986, as amended (the "Code") or (ii) nonqualified options. ISOs may be granted under the Option Plan to officers and employees of the Company. Non-qualified options may be granted to consultants, directors (whether or not they are employees), employees or officers of the Company. The purpose of the Option Plan is to encourage stock ownership by certain directors, officers and employees of the Company and other persons instrumental to the success of the Company. The Option Plan is intended to qualify under Rule 16b-3 under the Exchange Act, and is administered by the Board of Directors. The Board, within the limitations of the Option Plan, determines the persons to whom options will be granted, the number of shares to be covered by each option, whether the options granted are intended to be ISOs, the duration and rate of exercise of each option, the option purchase price per share and the manner of exercise, and the time, manner and form of payment upon exercise of an option. ISOs granted under the Option Plan may not be granted at a price less than the fair market value of the Common Stock on the date of grant (or 110% of fair market value in the case of persons holding 10% or more of the voting stock of the Company). The aggregate fair market value of shares for which ISOs granted to any employee are exercisable for the first time by such employee during any calendar year (under all stock option plans of the Company and any related corporation) may not exceed $100,000. Non-qualified options granted under the Option Plan may not be granted at a price less than the fair market value of the Common Stock on the date of grant. Options granted under the Option Plan will expire not more than ten years from the date of grant (five years in the case of ISOs granted to persons holding 10% or more of the voting stock of the Company). All options granted under the Option Plan are not transferable during an optionee's lifetime but are transferable at death by will or by the laws of descent and distribution. In general, upon termination of employment of an optionee, all options granted to such person which are not exercisable on the date of such termination immediately terminate, and any options that are exercisable terminate 90 days following termination of employment. The Company has granted options under the Option Plan, effective as of the date of this Prospectus, to purchase an aggregate of 293,250 shares. Of such options, options to purchase 75,000, 50,000, 35,000, 25,000 and 30,000 shares were granted to Mr. Cretella, Ms. Cretella, Mr. Harris, Mr. Golio and Mr. Vanore, respectively, at an exercise price of $5.00 per share. The options granted to Mr. Cretella, Ms. Cretella, Mr. Harris and Mr. Golio vest as to 50%, 25% and 25% of the shares covered thereby on the date of this Prospectus and the first and second anniversaries of the date of this Prospectus, respectively. The options granted to Mr. Vanore vest as to one-third of the shares covered thereby on each of the first, second and third anniversaries of the date of this Prospectus. All of such options are exercisable upon vesting and expire five years from the date of vesting, except for the options granted to Mr. Vanore which expire five years from the date of this Prospectus, in each case, subject to earlier expiration upon termination. The Company also intends to grant options under the Option Plan to purchase 5,000 shares of Common Stock to each non-employee director of the Company upon their re-election by the Company's stockholders at each annual meeting of the Company's stockholders. All of such options will be exercisable at the market value of the Common Stock on the date of grant. Indemnification and Exculpation Provisions The Company's Certificate of Incorporation provides for indemnification of officers and directors to the fullest extent permitted by Delaware law. In addition, under the Company's Certificate of Incorporation, no 34 director shall be liable personally to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director; provided that the Certificate of Incorporation does not eliminate the liability of a director for (i) any breach of the director's duty of loyalty to the Company or its stockholders; (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) acts or omissions in respect of certain unlawful dividend payments or stock redemptions or repurchases; or (iv) any transaction from which such director derives improper personal benefit. The Company has also obtained directors and officers insurance. PRINCIPAL STOCKHOLDERS The following table sets forth certain information, immediately prior to the consummation of this offering and as adjusted to reflect the sale by the Company of the 1,000,000 Shares offered hereby (based on information obtained from the persons named below), relating to the beneficial ownership of shares of Common Stock by: (i) each person or entity who is known by the Company to own beneficially five percent or more of the outstanding Common Stock, (ii) each of the Company's directors and (iii) all directors and executive officers of the Company as a group.
Percentage of Shares Beneficially Owned(2) ---------------------- Number of Shares Before After Name and Address of Beneficial Owners(1) Beneficially Owned Offering Offering - ------------------------------------------ -------------------- ---------- --------- Frank Cretella ........................... 1,679,235(3) 67.2% 48.0% Jeanne Cretella .......................... 1,679,235(3) 67.2 48.0 Peter J. Salvatore(4) .................... 176,371(5) 7.1 5.0 Kenneth L. Harris ........................ 110,282(6) 4.4 3.2 Barry E. Krantz .......................... 0 0 0 All directors and executive officers as a group (seven persons) ................... 1,979,673(7) 79.1% 56.5%
- ------------ (1) Unless otherwise indicated, the address for each named individual or group is in care of TAM Restaurants, Inc., 1163 Forest Avenue, Staten Island, New York 10310. (2) Unless otherwise indicated, the Company believes that all persons named in the table have sole voting and investment power with respect to all shares of Common Stock beneficially owned by them. A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days from the date of this Prospectus upon the exercise of options, warrants or convertible securities. Each beneficial owner's percentage ownership is determined by assuming that options, warrants or convertible securities that are held by such person (but not those held by any other person) and which are exercisable within 60 days of the date of this Prospectus have been exercised and converted. Assumes a base of 2,500,000 shares of Common Stock outstanding prior to this offering and a base of approximately 3,500,000 shares of Common Stock outstanding immediately after this offering, before any consideration is given to other outstanding options or warrants. See "Description of Securities." (3) Represents (i) 1,179,235 shares held jointly by Frank Cretella and Jeanne Cretella and (ii) 500,000 shares held by trusts of which Mr. Cretella is a co-trustee and Mr. and Mrs. Cretella's daughter is the beneficiary. Mr. Cretella has sole voting and dispositive power over the shares held in the trusts. Does not include (i) options to purchase 75,000 shares of Common Stock held by Frank Cretella, (ii) options to purchase 50,000 shares of Common Stock held by Jeanne Cretella and (iii) Selling Securityholders' Warrants to purchase 4,724 shares of Common Stock held by Jeanne Cretella. (4) The address for Mr. Salvatore is 35 Seagate Road, Staten Island, New York 10310. (5) Includes 6,082 shares of Common Stock held by Peter and Gail Salvatore Foundation, Inc., a trust of which by Mr. and Mrs. Salvatore are the beneficiaries. Does not include Selling Securityholders' Warrants to purchase 88,191 shares of Common Stock. (6) Does not include options to purchase 35,000 shares of Common Stock. (7) Does not include options to purchase an aggregate of 215,000 shares of Common Stock and Selling Securityholders' Warrants to purchase 92,915 shares of Common Stock. 35 CERTAIN TRANSACTIONS Prior to January 1994, Ernest Cretella, father of Frank Cretella, President, Chief Executive Officer, a director and a principal stockholder of the Company, loaned the Company $100,000. In January 1994, Ernest Cretella borrowed $125,000 from a bank, which was then loaned to the Company, and secured the loan by mortgaging his personal residence. The Company repaid $50,000 of the outstanding indebtedness owed to Ernest Cretella and the Company agreed to make Ernest Cretella's mortgage payments to the bank. In September 1995, Ernest Cretella converted the additional $50,000 principal amount of indebtedness owed to him into 25,000 shares of Common Stock and 2,500 warrants. The Company remains obligated to make Ernest Cretella's mortgage payments. Upon consummation of this offering, the warrants will convert into Selling Stockholders' Warrants. In July 1996, Ernest Cretella, loaned the Company an additional $55,000. Such loan bears interest at the rate of 10% per annum, payable quarterly, and is due June 30, 1998. In March 1994, the Company entered into a lease agreement to sublease the space where Lundy's is located. Frank Cretella personally guaranteed the Company's obligations to pay rent during the time which it occupies the leased premises. During 1994, Frank Cretella loaned the Company $12,500. In September 1996, Mr. Cretella borrowed $65,000 from the Company. During the nine months June 29, 1997, Mr. Cretella repaid the $52,500 owed to the Company. During 1995 and 1996, the Company borrowed an aggregate of $840,000 from Fleet Bank, N.A. Such loans were collateralized by the Company's principal executive offices, which are owned by Mr. Cretella, the warehouse leased by the Company and owned by Leisure Time Services, Inc. ("Leisure Time"), a company owned by Jeanne Cretella, Vice President, director and a principal stockholder of the Company, and Mr. and Ms. Cretella's personal residence, and guaranteed by Mr. and Mrs. Cretella and Leisure Time. In June 1997, Mr. Cretella agreed to pay to Fleet $640,000 as payment for the amount owed by the Company (approximately $720,000 as of October 15, 1997). In August 1997, Mr. Cretella paid to Fleet $140,000 as part of the settlement. Mr. Cretella paid the balance of the principal owed to Fleet and the Company paid accrued interest of approximately $39,000 owed to Fleet in October 1997. As consideration for repaying the loan, the Company issued to Mr. Cretella a promissory note in the original principal amount of $720,405 which bears interest at the rate of 10% per annum. Interest is payable in monthly installments of $6,003, with the outstanding principal balance payable in November 2002 upon maturity of the note. Prior to his employment by the Company, from October 1996 through September 1997, Anthony Golio, Vice President of the Company, provided consulting services to the Company through The Pineapple Group, Inc., a restaurant consulting firm, wholly-owned by Mr. Golio, for which he was paid an aggregate of $88,000. Such consulting services included organizational and managerial training, labor and cost management, negotiating with vendors and creating and restructuring management programs. In June 1996, the Company borrowed $88,000 from Joseph De Giulio, father of Jeanne Cretella. The loan bears interest at the rate of 10% per annum. Interest is payable in monthly installments of $733 and the principal is due on June 22, 2001. As of September 1996, the Company had made advances and transferred equipment to Forest Avenue Corporation ("Forest") and deferred management fees due from Forest in the aggregate of $558,943. In September 1996, the assets of Forest were sold to an unrelated third party, and since the proceeds from the sale of such assets were insufficient to repay the amounts due to the Company, the Company deemed such amount to be uncollectible and wrote off such amount. Effective September 29, 1996, the Company acquired all of the outstanding capital stock of TAM and Shellbank (the "Acquisition"). Frank and Jeanne Cretella were officers, directors and sole stockholders of TAM and Shellbank prior to the Acquisition. In connection with the Acquisition, Mr. and Mrs. Cretella received 1,679,235 shares of Common Stock. Immediately prior to the Acquisition, Frank Cretella formed American Leisure Today, Inc., formerly MAT Operating Corp. ("American Leisure"), and, in connection with the Acquisition, the assets relating to TAM's food concession operations were transferred to American Leisure. 36 In October 1996, the Company entered into a 10-year operating agreement with American Leisure, a company wholly-owned by Frank Cretella, to manage the food concessions at the Central Park Zoo and the Staten Island Zoo in New York City for which the Company receives a management fee equal to 5% of gross sales. During the year ended September 28, 1997, the Company received $181,012 in fees from American Leisure, consisting of an initial fee of $125,000 relating to the formation of American Leisure and establishment of operations relating to the operating agreement and $56,012 of management fees. At September 28, 1997, American Leisure owed the Company $46,184, which has no specified repayment terms. In October 1996, the Company loaned to Leisure Time $153,863, pursuant to a note which is payable in monthly installments of $1,996.01, that bears interest at a rate of 9.56% per annum and expires on October 1, 2006. At September 28, 1997, Leisure Time owed the Company an additional $24,155, representing advances made during such fiscal year. The advances have no specified repayment terms. In October 1996, the Company entered into a lease agreement with Mr. Cretella, pursuant to which the Company leases its executive offices in Staten Island, New York. Annual rent under the lease is $37,500 per year, increasing by 1.5% each year commencing January 1, 1998. The lease expires on December 31, 2001. The Company believes that this lease is on commercially reasonable terms. In October 1996, the Company entered into a lease agreement with Leisure Time, pursuant to which the Company leases a warehouse in Bayonne, New Jersey. Annual rent under the lease is $30,000 per year, increasing by 1.5% each year commencing January 1, 1998. The lease expires on December 31, 2001. The Company believes that this lease is on commercially reasonable terms. From time to time the Company has entered into equipment financing leases which have been guaranteed by Mr. Cretella and/or Leisure Time. Any future transactions with affiliates will be on terms no less favorable to the Company than could be obtained from unaffiliated parties and will be approved by a majority of the independent and disinterested members of the Board of Directors, outside the presence of any interested directors and, to the extent deemed appropriate by the Board of Directors, the Company will obtain stockholder approval or fairness opinions in connection with any such transaction. 37 DESCRIPTION OF SECURITIES Capital Stock General The Company is authorized to issue 19,000,000 shares of Common Stock, par value $.0001 per share, and 1,000,000 shares of Preferred Stock, par value $.0001 per share. As of the date of this Prospectus, there are 2,500,000 shares of Common Stock outstanding, held by approximately 51 stockholders of record, and no shares of Preferred Stock outstanding. Common Stock The holders of Common Stock are entitled to one vote per share on all matters submitted to a vote of the stockholders. There is no cumulative vote with respect to the election of directors, with the result that the holders of 50% or more of the shares vote for the election of directors can elect all of the directors then up for election. The holders of Common Stock, subject to preferences that may be applicable to any Preferred Stock outstanding at the time, are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Board of Directors out of funds legally available therefor. In the event of liquidation or dissolution of the Company, the holders of Common Stock are entitled to receive all assets available for distribution to the stockholders, subject to any preferential rights of any Preferred Stock then outstanding. The holders of Common Stock have no preemptive or other subscription rights, and there are no conversion rights or redemption or sinking fund provisions with respect to the Common Stock. All outstanding shares of Common Stock are, and the shares of Common Stock offered hereby upon issuance and sale will be, fully paid and non-assessable. The rights, preferences and privileges of the holders of Common Stock are subject to, and may be adversely affected by, the right of the holders of any shares of Preferred Stock which the Company may designate in the future. Preferred Stock The Company is authorized to issue 1,000,000 shares of Preferred Stock from time to time in one or more series upon authorization by the Company's Board of Directors. The Board of Directors, without further approval of the stockholders, is authorized to fix the dividend rights and terms, conversion rights, voting rights, redemption rights and terms, liquidation preferences, and other rights, preferences, privileges and restrictions applicable to each series of Preferred Stock. The issuance of Preferred Stock, while providing flexibility in connection with possible acquisitions and other corporate purposes could, among other things, adversely affect the voting power of the holders of Common Stock and, under certain circumstances, make it more difficult for a third party to gain control of the Company, prevent or substantially delay a change of control, discourage bids for the Company's Common Stock at a premium or otherwise adversely affect the market price of the Common Stock. Redeemable Warrants Each Warrant offered hereby entitles the registered holder thereof (the "Warrant Holders") to purchase one share of Common Stock at a price of $6.00, subject to adjustment in certain circumstances, at any time commencing , 1999 (13 months following the date of this Prospectus) (or on such earlier date as to which the Underwriter consents) until 5:00 p.m., Eastern Time on , 2003. The Warrants will be separately transferable immediately upon issuance. The Warrants are redeemable by the Company at any time commencing , 1999 (13 months following the date of this Prospectus) upon notice of not less than 30 days, at a price of $.10 per Warrant, provided that the closing bid quotation of the Common Stock on all 20 trading days ending on the third trading day prior to the day on which the Company gives notice (the "Call Date") has been at least 150% (currently $9.00 subject to adjustment) of the then effective exercise price of the Warrants and the Company obtains the consent of the Underwriter to such redemption prior to the Call Date. The Warrant Holders shall have the right to exercise their Warrants until the close of business on the date fixed for redemption. The Warrants will be issued in registered form under a warrant agreement by and among the Company, Continental Stock Transfer & Trust Company, as warrant agent, and the Underwriter (the "Warrant Agreement"). The exercise price and number of shares of Common Stock or other securities issuable on exercise of the Warrants are subject to adjustment in 38 certain circumstances, including in the event of a stock dividend, recapitalization, reorganization, merger or consolidation of the Company. However, the Warrants are not subject to adjustment for issuances of Common Stock at prices below the exercise price of the Warrants. Reference is made to the Warrant Agreement (which has been filed as an exhibit to the Registration Statement of which this Prospectus is a part) for a complete description of the terms and conditions therein (the description herein contained being qualified in its entirety by reference thereto). The Warrants may be exercised upon surrender of the Warrant certificate during the exercise period at the offices of the warrant agent, with the exercise form on the reverse side of the Warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price (by certified check or bank draft payable to the Company) to the warrant agent for the number of Warrants being exercised. The Warrant Holders do not have the rights or privileges of holders of Common Stock. No Warrant will be exercisable unless at the time of exercise the Company has declared effective a current registration statement with the Commission covering the shares of Common Stock issuable upon exercise of such Warrant and such shares have been registered or qualified or deemed to be exempt from registration or qualification under the securities laws of the state of residence of the holder of such Warrant. The Company will use its best efforts to have all such shares so registered or qualified on or before the exercise date and to maintain a current prospectus relating thereto until the expiration of the Warrants, subject to the terms of the Warrant Agreement. While it is the Company's intention to do so, there can be no assurance that it will be able to do so. No fractional shares will be issued upon exercise of the Warrants. However, if a Warrant Holder exercises all Warrants then owned of record by him, the Company will pay to such Warrant Holder, in lieu of the issuance of any fractional share which is otherwise issuable, an amount in cash based on the market value of the Common Stock on the last trading day prior to the exercise date. Other Existing Warrants There are currently outstanding warrants to purchase an aggregate of 310,000 shares of Common Stock all of which are being converted into Selling Securityholders' Warrants. The Selling Securityholders' Warrants will be identical to the Warrants. There are other outstanding warrants to purchase (i) 3,000 shares at an exercise price of $.01 which are exercisable until October 23, 2002 and (ii) 200,000 shares at an exercise price of $5.00 per share which are exercisable commencing 90 days from the date of this Prospectus until October 31, 2002. The Company granted certain registration right to the holder of the warrants to purchase 200,000 shares of Common Stock. Delaware Anti-Takeover Law The Company is subject to certain anti-takeover provisions under Section 203 of the Delaware General Corporation Law. In general, under Section 203, a Delaware corporation may not engage in any business combination with any "interested stockholder" (a person that owns, directly or indirectly, 15% or more of the outstanding voting stock of a corporation or is an affiliate of a corporation and was the owner of 15% or more of the outstanding voting stock), for a period of three years following the date such stockholder became an interested stockholder, unless (i) prior to such date the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder, or (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, or (iii) on or subsequent to such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders by at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. The restrictions imposed by Section 203 will not apply to a corporation if the corporation's initial certificate of incorporation contains a provision expressly electing not to be governed by this section or the corporation by action of its stockholders holding a majority of outstanding stock adopts an amendment to its certificate of incorporation or by-laws expressly electing not to be governed by Section 203. The Company has not elected out of Section 203, and upon consummation of this offering and the listing of Common Stock on Nasdaq. Such provision could have the effect of discouraging, delaying or preventing a takeover of the Company, which could otherwise be in the best interest of the Company's stockholders, and have an adverse effect on the market price for the Company's Common Stock. 39 Transfer Agent and Warrant Agent The transfer agent for the Common Stock and the warrant agent for the Warrants is Continental Stock Transfer & Trust Company, Two Broadway, New York, New York 10004. Reports to Stockholders The Company intends to file a registration statement with the Securities and Exchange Commission to register its Common Stock and Warrants under the provisions of Section 12(g) of the Exchange Act prior to the date of this Prospectus and has agreed with the Underwriter that it will use its best efforts to continue to maintain such registration. Such registration will require the Company to comply with periodic reporting, proxy solicitation and certain other requirements of the Exchange Act. SHARES ELIGIBLE FOR FUTURE SALE Upon the consummation of this offering, the Company will have 3,500,000 shares of Common Stock outstanding (assuming no exercise of the Warrants). All 1,000,000 of the Shares being offered hereby will be immediately tradable without restriction or further registration under the Securities Act. The remaining 2,500,000 shares of Common Stock outstanding are deemed to be "restricted securities," as that term is defined under Rule 144 promulgated under the Securities Act, in that such shares were acquired by the stockholders of the Company in transactions not involving a public offering, and, as such, may only be sold pursuant to a registration statement under the Securities Act, in compliance with the exemption provisions of Rule 144, or pursuant to another exemption under the Securities Act. All of the restricted shares will become eligible for sale under Rule 144, subject to the volume limitations prescribed by the Rule, 90 days following the date of this Prospectus. In general, under Rule 144 as currently in effect, subject to the satisfaction of certain other conditions, a person, including an affiliate of the Company (or persons whose shares are aggregated with an affiliate), who has owned restricted shares of Common Stock beneficially for at least one year is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of 1% of the total number of outstanding shares of the same class or, if the common stock is quoted on Nasdaq, the average weekly trading volume during the four calendar weeks preceding the sale. A person who has not been an affiliate of the Company for at least three months immediately preceding the sale and who has beneficially owned shares of Common Stock for at least two years is entitled to sell such shares under Rule 144 without regard to any of the limitations described above. The holders of 227,730 shares of Common Stock and the holders of the 310,000 Selling Securityholders' Warrants and 3,000 other outstanding warrants have agreed not to sell, assign, transfer, pledge, hypothecate or otherwise dispose of any of such securities for a period of, at the earliest, 15 months from the date of this Prospectus without the Underwriter's prior written consent. The holders of 241,592 shares of Common Stock and the holders of 200,000 outstanding warrants have agreed not to sell, assign, transfer, pledge, hypothecate or otherwise dispose of any of such shares for a period of 18 months from the date of this Prospectus without the Underwriter's prior written consent. The holders of 1,979,673 shares of Common Stock (including the officers and directors of the Company) have agreed not to sell, assign, transfer, pledge, hypothecate or otherwise dispose of any of such shares for a period of 24 months from the date of this Prospectus without the Underwriter's prior written consent. The Underwriter has not entered into any agreements to waive any of the foregoing lock up agreements. The Company granted to Kayne Anderson certain registration rights with respect to 200,000 shares of Common Stock issuable upon exercise of the KA Warrants. However, all holders of securities of the Company, including Kayne Anderson agreed not to exercise any registration rights for a period of 18 months from the date of this Prospectus, without the prior written consent of the Underwriter. Prior to this offering, there has been no market for the Common Stock or Warrants and no prediction can be made as to the effect, if any, that public sales of shares of Common Stock or the availability of such shares for sale will have on the market prices of the Common Stock and the Warrants prevailing from time to time. Nevertheless, the possibility that substantial amounts of Common Stock may be sold in the public market may adversely affect prevailing market prices for the Common Stock and the Warrants and could impair the Company's ability in the future to raise additional capital through the sale of its equity securities. 40 UNDERWRITING Paragon Capital Corporation (the "Underwriter") has agreed, subject to the terms and conditions contained in the Underwriting Agreement, to purchase the 1,000,000 Shares and 500,000 Warrants offered hereby from the Company. The Underwriter is committed to purchase and pay for all of the Shares and Warrants offered hereby if any of such securities are purchased. The Shares and Warrants are being offered by the Underwriter, subject to prior sale, when, as and if delivered to and accepted by the Underwriter and subject to approval of certain legal matters by counsel and to certain other conditions. The Underwriter has advised the Company that it proposes to offer the Shares and Warrants to the public at the public offering prices set forth on the cover page of this Prospectus. The Underwriter may allow to certain dealers who are members of the National Association of Securities Dealers, Inc. (the "NASD") concessions, not in excess of $ per Share and $ per Warrant, of which not in excess of $ per Share and $ per Warrant may be reallowed to other dealers who are members of the NASD. The Company has granted to the Underwriter an option, exercisable for 45 days from the date of this Prospectus, to purchase up to 150,000 additional shares of Common Stock and/or 75,000 additional Warrants at the public offering prices set forth on the cover page of this Prospectus, less the underwriting discounts and commissions. The Underwriter may exercise this option in whole or, from time to time, in part, solely for the purpose of covering over-allotments, if any, made in connection with the sale of the Shares and/or Warrants offered hereby. The Company has agreed to pay the Underwriter a nonaccountable expense allowance of 3% of the gross proceeds of this offering, of which $50,000 has been paid as of the date of this Prospectus. The Company has also agreed to pay all expenses in connection with qualifying the Shares and Warrants offered hereby for sale under the laws of such states as the Underwriter may designate, including expenses of counsel retained for such purpose by the Underwriter. The Company has agreed to sell to the Underwriter and its designees for an aggregate of $105, warrants (the "Underwriter's Warrants") to purchase up to 100,000 shares of Common Stock at an exercise price of $6.00 per share (120% of the public offering price per share) and up to 50,000 Warrants (each exercisable to purchase one share of Common Stock at a price of $7.25 per share) at an exercise price of $.12 per Warrant (120% of the public offering price per Warrant). The Underwriter's Warrants may not be sold, transferred, assigned or hypothecated for one year from the date of this Prospectus, except to the officers and partners of the Underwriter and members of the selling group and are exercisable at any time and from time to time, in whole or in part, during the four-year period commencing one-year from the date of this Prospectus (the "Warrant Exercise Term"). During the Warrant Exercise Term, the holders of the Underwriter's Warrants are given, at nominal cost, the opportunity to profit from a rise in the market price of the Common Stock. To the extent that the Underwriter's Warrants are exercised, dilution to the interests of the Company's stockholders will occur. Further, the terms upon which the Company will be able to obtain additional equity capital may be adversely affected since the holders of the Underwriter's Warrants can be expected to exercise them at a time when the Company would, in all likelihood, be able to obtain any needed capital on terms more favorable to the Company than those provided in the Underwriter's Warrants. Any profit realized by the Underwriter on the sale of the Underwriter's Warrants, the underlying shares of Common Stock or the underlying warrants, or the shares of Common Stock issuable upon exercise of such underlying warrants may be deemed additional underwriting compensation. The Company has agreed, at the request of the holders of a majority of the Underwriter's Warrants, at the Company's expense, to register the Underwriter's Warrants, the shares of Common Stock and warrants underlying the Underwriter's Warrants, and the shares of Common Stock issuable upon exercise of the underlying warrants under the Securities Act on one occasion during the Warrant Exercise Term and to include the Underwriter's Warrants and all such underlying securities in any appropriate registration statement which is filed by the Company during the seven years following the date of this Prospectus. The Company has also agreed, for a period of three years from the date of this Prospectus, if so requested by the Underwriter, to nominate and use its best efforts to elect a designee of the Underwriter as a director of the Company, or, at the Underwriter's option, as a non-voting advisor to the Company's Board of Directors. The Company's officers, directors and stockholders have agreed to vote their shares of Common Stock in favor of such designee. The Underwriter has not yet exercised its right to designate such a person. 41 In addition, the Company has agreed to enter into a consulting agreement to retain the Underwriter as a financial consultant for a period of two years from the consummation of this offering at an annual fee of $30,000, the entire $60,000 payable in full, in advance. The consulting agreement will not require the consultant to devote a specific amount of time to the performance of its duties thereunder. In the event that the Underwriter originates a financing or a merger, acquisition, joint venture or other transaction to which the Company is a party, the Underwriter will be entitled to receive a finder's fee in consideration for origination of such transaction. There are no existing plans, proposals, amendments, understandings or agreements relating to any such transactions for which the Underwriter would be entitled to compensation. The Company has agreed, in connection with the exercise of the Warrants pursuant to solicitation (commencing 13 months from the date of this Prospectus), to pay to the Underwriter a fee of 5% of the exercise price for each Warrant exercised; provided, however, that the Underwriter will not be entitled to receive such compensation in Warrant exercise transactions in which (i) the market price of Common Stock at the time of exercise is lower than the exercise price of the Warrants; (ii) the Warrants are held in any discretionary account; (iii) disclosure of compensation arrangements is not made, in addition to the disclosure provided in this Prospectus, in documents provided to holders of Warrants at the time of exercise; (iv) the holder of the Warrants has not confirmed in writing that the Underwriter solicited such exercise; or (v) the solicitation of exercise of the Warrants was in violation of Regulation M promulgated under the Exchange Act. Regulation M may prohibit the Underwriter from engaging in any market making activities with regard to the Company's securities for the period from nine business days (or such other applicable period as Regulation M may provide) prior to any solicitation by the Underwriter of the exercise of Warrants until the later of the termination of such solicitation activity or the termination (by waiver or otherwise) of any right that the Underwriter may have to receive a fee for the exercise of Warrants following such solicitation. As a result, the Underwriter may be unable to continue to provide a market for the Company's securities during certain periods while the Warrants are exercisable. The holders of 227,730 shares of Common Stock and the holders of the 310,000 Selling Securityholders' Warrants and 3,000 other warrants have agreed not to sell, assign, transfer, pledge, hypothecate or otherwise dispose of any of such securities for a period of 15 months from the date of this Prospectus, without the Underwriter's prior written consent. The holders of 241,592 shares of Common Stock and the holders of 200,000 outstanding warrants have agreed not to sell, assign, transfer, pledge, hypothecate or otherwise dispose of any of such securities for a period of 18 months, without the prior written consent of the Underwriter. The holders of 1,979,673 shares of Common Stock (including the officers and directors of the Company), have agreed not to sell, assign, transfer, pledge, hypothecate or otherwise dispose of any of such securities of the Company for a period of 24 months from the date of this Prospectus, without the prior written consent of the Underwriter. The Underwriter has not entered into any agreements to waive any of the foregoing lockup agreements. The Underwriter has advised the Company that it does not expect sales made to discretionary accounts to exceed 1% of the securities offered hereby. The Company has agreed to indemnify the Underwriter against certain civil liabilities, including liabilities under the Securities Act. Prior to this offering, there has been no public trading market for the Common Stock or Warrants. Consequently, the initial public offering price of the Common Stock and Warrants and the exercise price of the Warrants have been determined by negotiations between the Company and the Underwriter. Among the factors considered in determining these prices were the Company's financial condition and prospects, market prices of similar securities of comparable publicly-traded companies and the general condition of the securities market. In order to facilitate the offering, the Underwriter may engage in transactions that stabilize, maintain or otherwise affect the prices of the Common Stock and Warrants. Specifically, the Underwriter may over-allot in connection with the offering, creating a short position in the Common Stock and/or Warrants for its own account. In addition, to cover over-allotments or to stabilize the price of the Common Stock and Warrants, the Underwriter may bid for, and purchase, shares of Common Stock and Warrants in the open market. The Underwriter may also reclaim selling concessions allowed to a dealer for distributing the Common Stock and Warrants in the offering, if the Underwriter repurchases previously distributed Common Stock and Warrants in transactions to 42 cover short positions, in stabilization transactions or otherwise. Any of these activities may stabilize or maintain the market price of the Common stock and Warrants above independent market levels. The Underwriter is not required to engage in these activities, and may end any of these activities at any time. SELLING SECURITYHOLDERS AND PLAN OF DISTRIBUTION The Company has agreed to register the public offering of the Selling Securityholders' Warrants and Selling Securityholders' Shares under the Securities Act concurrently with this offering and to pay all expenses in connection therewith. An aggregate of 310,000 Selling Securityholders' Warrants and/or Selling Securityholders' Shares may be offered and sold pursuant to this Prospectus by the Selling Securityholders. None of the Selling Securityholders' Warrants nor Selling Securityholders' Shares may be sold by the Selling Securityholders prior to, at the earliest, 15 months after the date of this Prospectus, without the prior written consent of the Underwriter. None of the Selling Securityholders has ever held any position or office with the Company or had any other material relationship with the company. The Company will not receive any of the proceeds from the sale of the Selling Securityholders' Warrants and/or Selling Securityholders' Shares by the Selling Securityholders. The following table sets forth certain information with respect to the Selling Securityholders:
Beneficial Warrants Beneficial Ownership of Being Ownership of Warrants Registered Warrants After Selling Securityholder Prior to Sale For Sale Sale (1) - ------------------------------------- --------------- ------------ ---------------- Carmella Agostino ................... 2,433 2,433 0 Gina Ali ............................ 138 138 0 Gregory and Andrew Birch ............ 276 276 0 Ernest and Madeline Cretella(3) ..... 1,379 1,379 0 Jeanne Cretella(4) .................. 4,724 4,724 0 Salvatore Cumella ................... 132 132 0 Rosita Curiale ...................... 2,757 2,757 0 Carina DeGiulio(5) .................. 6,893 6,893 0 Natalie DeGiulio(6) ................. 6,893 6,893 0 Richard DelNunzio ................... 138 138 0 Thomas DiChiara ..................... 1,379 1,379 0 Gary Duval .......................... 689 689 0 Eric Emanuel ........................ 55,141 55,141 0 John Flangan ........................ 2,206 2,206 0 Larry Frisman ....................... 12,164 12,164 0 Anselmo Gabrielle ................... 689 689 0 Paul Gilberto ....................... 276 276 0 Joseph Golio(8) ..................... 1,379 1,379 0 Linda Gullota ....................... 276 276 0 Teresa Ildebrando ................... 1,216 1,216 0 George Kaloidis ..................... 1,378 1,378 0 James Kaloidis ...................... 1,378 1,378 0 Kayne, Anderson Offshore Limited..... 5,514 5,514 0 James Kriel ......................... 1,379 1,379 0 Donald and Ruth Lentnek ............. 827 827 0 Marci Lentnek ....................... 276 276 0 Ambrose MagIiocco ................... 19,462 19,462 0 David and Bryna Malitzky ............ 138 138 0 Ann Maresca ......................... 138 138 0 Mark Family Limited Partnership ..... 6,082 6,082 0 Ronald Mattia ....................... 1,654 1,654 0 Marvin Menaged ...................... 24,327 24,327 0 Rose Natale ......................... 2,433 2,433 0 Offense Group Associates, L.P. ...... 38,599 38,599 0 Opportunity Associates, L.P. ........ 11,028 11,028 0 George Pantelidis ................... 1,378 1,378 0 Thomas and Margaret Powazinik ....... 276 276 0 Dhanonjoy Saha ...................... 276 276 0 Peter Salvatore(9)(10) .............. 85,145 85,145 0
Percentage Beneficial Common Beneficial Beneficial Ownership Stock Ownership Ownership of Common Being of Common After Sale Stock Prior Registered Stock After (Common Selling Securityholder to Sale (2) For Sale Sale Stock) - ------------------------------------- --------------- ------------ --------------- ----------- Carmella Agostino ................... 7,299 2,433 4,866 * Gina Ali ............................ 1,517 138 1,379 * Gregory and Andrew Birch ............ 3,033 276 2,757 * Ernest and Madeline Cretella(3) ..... 15,164 1,379 13,785 * Jeanne Cretella(4) .................. 1,683,959 4,724 1,679,235 48.0% Salvatore Cumella ................... 1,455 132 1,323 * Rosita Curiale ...................... 30,328 2,757 27,571 * Carina DeGiulio(5) .................. 20,678 6,893 13,785 * Natalie DeGiulio(6) ................. 20,678 6,893 13,785 * Richard DelNunzio ................... 1,517 138 1,379 * Thomas DiChiara ..................... 15,164 1,379 13,785 * Gary Duval .......................... 7,582 689 6,893 * Eric Emanuel ........................ 69,169(7) 55,141 14,028(7) * John Flangan ........................ 24,262 2,206 22,056 * Larry Frisman ....................... 36,491 12,164 24,327 * Anselmo Gabrielle ................... 7,582 689 6,893 * Paul Gilberto ....................... 3,033 276 2,757 * Joseph Golio(8) ..................... 15,164 1,379 13,785 * Linda Gullota ....................... 3,033 276 2,757 * Teresa Ildebrando ................... 3,649 1,216 2,433 * George Kaloidis ..................... 6,892 1,378 5,514 * James Kaloidis ...................... 6,892 1,378 5,514 * Kayne, Anderson Offshore Limited..... 16,542 5,514 11,028 * James Kriel ......................... 15,164 1,379 13,785 * Donald and Ruth Lentnek ............. 9,098 827 8,271 * Marci Lentnek ....................... 3,033 276 2,757 * Ambrose MagIiocco ................... 58,386 19,462 38,924 1.1% David and Bryna Malitzky ............ 1,517 138 1,379 * Ann Maresca ......................... 1,517 138 1,379 * Mark Family Limited Partnership ..... 18,246 6,082 12,164 * Ronald Mattia ....................... 18,196 1,654 16,542 * Marvin Menaged ...................... 72,981 24,327 48,654 1.4 Rose Natale ......................... 7,299 2,433 4,866 * Offense Group Associates, L.P. ...... 115,797 38,599 77,198 2.2% Opportunity Associates, L.P. ........ 33,084 11,028 22,056 * George Pantelidis ................... 6,892 1,378 5,514 * Thomas and Margaret Powazinik ....... 3,033 276 2,757 * Dhanonjoy Saha ...................... 3,033 276 2,757 * Peter Salvatore(9)(10) .............. 255,434 85,145 170,289 4.9%
43
Beneficial Warrants Beneficial Ownership of Being Ownership of Warrants Registered Warrants After Selling Securityholder Prior to Sale For Sale Sale (1) - ------------------------------------ --------------- ------------ ---------------- Peter and Gail Salvatore Foundation, Inc.(9) ........................... 3,047 3,047 0 Mary Tozzi ......................... 2,433 2,433 0 Simeon Vougouklis .................. 1,378 1,378 0 Klaus and Lisa Whitney ............. 276 276 0
Percentage Beneficial Common Beneficial Beneficial Ownership Stock Ownership Ownership of Common Being of Common After Sale Stock Prior Registered Stock After (Common Selling Securityholder to Sale (2) For Sale Sale (2) Stock) - ------------------------------------ ------------- ------------ ------------- ----------- Peter and Gail Salvatore Foundation, Inc.(9) ........................... 9,129 3,047 6,082 * Mary Tozzi ......................... 7,299 2,433 4,866 * Simeon Vougouklis .................. 6,892 1,378 5,514 * Klaus and Lisa Whitney ............. 3,033 276 2,757 *
- ------------ *Less than 1% (1) Assumes all of the Selling Securityholders' Warrants and Selling Securityholders' Shares are sold by the Selling Securityholders. (2) Includes the shares of Common Stock underlying the Selling Securityholders' Warrants. (3) Parents of Frank Cretella, President, Chief Executive Officer and a director of the Company. (4) Vice President and a director of the Company. (5) Sister of Jeanne Cretella, Vice President and a director of the Company. (6) Mother of Jeanne Cretella, Vice President and a director of the Company. (7) Includes 3,000 shares of Common Stock issuable upon exercise of currently exercisable outstanding warrants. (8) Brother of Anthony Golio, Vice President of the Company. (9) Mr. Salvatore has agreed to serve as director of the Company upon the consummation of this offering. (10) Includes 48,653 shares of Common Stock and 24,327 Selling Securityholders Warrants held by IRA-FBO Peter Salvatore. Does not include the 6,093 shares of Common Stock and 3,047 Selling Securityholders Warrants held by Peter and Gail Salvatore Foundation, Inc. The Selling Securityholders' Warrants and Selling Securityholders' Shares may be offered and sold from time to time as market conditions permit in the over-the-counter market, or otherwise, at prices and terms then prevailing or at prices related to the then-current market price, or in negotiated transactions. The Selling Securityholders' Warrants and Selling Securityholders' Shares may be sold by one or more of the following methods, without limitation: (i) a block trade in which a broker or dealer so engaged will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; (ii) purchases by a broker or dealer as principal and resale by such broker or dealer for its account pursuant to this Prospectus; (iii) ordinary brokerage transactions and transactions in which broker solicits purchases; and (iv) transactions between sellers and purchasers without a broker/dealer. In effecting sales, brokers or dealers engaged by the Selling Securityholders may arrange for other brokers or dealers to participate. Such brokers or dealers may receive commissions or discounts from selling Securityholders in amounts to be negotiated. Such brokers and dealers and any other participating brokers and dealers may be deemed to be "underwriters" within the meaning of the Securities Act, in connection with such sales. LEGAL MATTERS The legality of the securities offered by this Prospectus will be passed upon for the Company by Tenzer Greenblatt LLP, New York, New York. Akerman, Senterfitt and Eidson, P.A., Miami, Florida, has acted as counsel to the Underwriter in connection with this offering. Tenzer Greenblatt LLP has represented and continues to represent the Underwriter in other matters. EXPERTS The financial statements of the Company included in this Prospectus have been audited by BDO Seidman, LLP and Maltese, Potter & LaMarca LLP, independent public accountants to the extent and for the periods set forth in their respective reports appearing herein and have been included herein in reliance upon the reports of said firms given upon their authority as experts in accounting and auditing. 44 CHANGE IN INDEPENDENT AUDITORS In September 1997, the Company's Board of Directors retained BDO Seidman, LLP as its independent public accountants and replaced the Company's former auditors, Maltese, Potter & LaMarca LLP, as its independent public accountants. During the period Maltese, Potter & LaMarca LLP was retained, there were no disagreements with the former auditors on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure with respect to the Company's financial statements for the fiscal year ended September 29, 1996 or up through the time of replacement which, if not resolved to the former auditors' satisfaction, would have caused them to make reference to the subject matter of the disagreement in connection with their report. For the past fiscal year, no accountant's report prepared by the former auditors contained an adverse opinion or disclaimer of opinion or was qualified or modified as to uncertainty, audit scope or accounting principles. Prior to retaining BDO Seidman, LLP, the Company had not consulted with BDO Seidman, LLP regarding accounting practices. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form SB-2 (the "Registration Statement") under the Securities Act with respect to the securities offered by this Prospectus. This Prospectus, filed as a part of such Registration Statement, does not contain all of the information set forth in, or annexed as exhibits to, the Registration Statement, certain parts of which are omitted in accordance with the rules and regulation of the Commission. For further information with respect to the Company and this offering, reference is made to the Registration Statement, including the exhibits filed therewith, which may be inspected without charge at the Office of the Commission, 450 Fifth Street, N.W., Washington D.C. 20549; and at the following regional offices: Midwest Regional Office, Northwestern Atrium Center, 500 West Madison, Suite 1400, Chicago, Illinois 60661-2511, and the Northeast Regional Office, 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of the Registration Statement may be obtained from the Commission at its principal office upon payment of prescribed fees. Statements contained in this Prospectus as to the contents of any contract or other document are not necessarily complete and, where the contract or other document has been filed as an exhibit to the Registration Statement, each statement is qualified in all respects by reference to the applicable document filed with the Commission. The Commission maintains an Internet web site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the Commission. The address of that site is http://www.sec.gov. Upon consummation of this offering, the Company will become subject to the reporting requirements of the Securities Exchange Act of 1934 and in accordance therewith will file reports, proxy statements and other information with the Commission. The Company intends to furnish to its stockholders with annual reports containing audited financial statements and such other reports as the Company deems appropriate or as may be required by law. 45 TAM RESTAURANTS, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page(s) ------------ Reports of Independent Certified Public Accountants .................. F-2 to F-3 Financial Statements Consolidated Balance Sheets ......................................... F-4 Consolidated Statements of Operations ............................... F-5 Consolidated Statements of Changes in Stockholders' Equity (Deficit) F-6 Consolidated Statements of Cash Flows ............................... F-7 Notes to Consolidated Financial Statements .......................... F-8 to F-18
F-1 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of TAM Restaurants, Inc. and Subsidiaries Staten Island, New York We have audited the accompanying consolidated balance sheet of TAM Restaurants, Inc. and Subsidiaries as of September 28, 1997, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of TAM Restaurants, Inc. and Subsidiaries as of September 28, 1997, and the results of their operations and their cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/ BDO SEIDMAN, LLP BDO SEIDMAN, LLP New York, New York December 18, 1997 F-2 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of TAM Restaurants, Inc. and Subsidiaries Staten Island, New York We have audited the accompanying consolidated balance sheet of TAM Restaurants, Inc. and Subsidiaries as of September 29, 1996, and the related consolidated statements of operations, changes in stockholders' equity (deficit), and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of TAM Restaurants, Inc. and Subsidiaries as of September 29, 1996, and the results of their operations and their cash flows for the year then ended, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note N to the financial statements, the Company's significant operating losses and negative working capital raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Maltese, Potter & LaMarca LLP Maltese, Potter & LaMarca LLP Staten Island, New York July 31, 1997, except for the first paragraph of Note Q which is as of December 18, 1997 F-3 TAM RESTAURANTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
September 29, September 28, 1996 1997 --------------- -------------- Current Assets Cash ......................................................... $ 66,616 $ 281,625 Accounts receivable (net of allowance for doubtful accounts of $15,546 and $-) ............................................ 235,948 287,368 Inventory .................................................... 207,978 204,706 Prepaid and other expenses ................................... 270,216 366,066 Loan receivable-officer ...................................... 53,602 46,459 ----------- ----------- Total Current Assets ....................................... 834,360 1,186,224 Property and Equipment-Net .................................... 3,451,596 4,290,978 Due from Affiliates ........................................... 177,438 215,284 Deferred Stock Offering Costs ................................. -- 128,322 Other Assets .................................................. 56,175 119,219 ----------- ----------- TOTAL ASSETS .................................................. $ 4,519,569 $ 5,940,027 =========== ===========
LIABILITIES Current Liabilities Revolving credit line payable ................................ $ 130,000 $ -- Current portion of long-term debt ............................ 283,938 438,970 Current portion of capitalized lease obligations ............. 81,081 79,245 Loans payable -- related parties ............................. -- 56,680 Accounts payable ............................................. 1,073,995 522,824 Contract deposits payable .................................... 238,329 263,309 Accrued expenses ............................................. 996,804 2,376,205 --------- --------- Total Current Liabilities .................................. 2,804,147 3,737,233 --------- --------- Long-term Liabilities Deferred rent expense ........................................ 148,084 224,536 Deferred expenses ............................................ 237,250 -- Deferred income .............................................. 43,000 7,819 Loans payable-related parties ................................ 236,000 926,550 Long-term debt-net of current portion ........................ 937,924 582,393 Capitalized lease obligations-net of current portion ......... 249,040 135,592 --------- --------- Total Long-term Liabilities ................................ 1,851,298 1,876,890 --------- --------- TOTAL LIABILITIES ............................................. 4,655,445 5,614,123 --------- --------- Commitments and Contingencies .................................
STOCKHOLDERS' EQUITY (DEFICIT) Stockholders' Equity (Deficit) Preferred stock; $.0001 par value; 1,000,000 shares authorized, 0 shares issued and outstanding .................................... $ -- $ -- Common stock; $.0001 par value; 19,000,000 shares authorized; 2,444,859 and 2,500,000 shares issued and outstanding as of September 29, 1996 and September 28, 1997, respectively, ......... 244 250 Additional paid-in capital ......................................... 2,907,802 3,107,796 Accumulated deficit ................................................ (3,043,922) (2,782,142) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY (DEFICIT) ................................ (135,876) 325,904 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......................... $ 4,519,569 $ 5,940,027 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-4 TAM RESTAURANTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended Year Ended September 29, 1996 September 28, 1997 -------------------- ------------------- Sales ........................................................ $ 11,829,088 $ 14,025,468 Cost of Sales ................................................ 7,871,440 8,075,412 ------------- ------------- Gross Profit ................................................ 3,957,648 5,950,056 Operating and Administrative Expenses ........................ 5,660,870 4,934,025 ------------- ------------- Income (loss) from Operations ................................ (1,703,222) 1,016,031 ------------- ------------- Other Expense Write-off of advance to affiliate ........................... 558,943 -- Interest expense ............................................ 363,994 341,295 Barter expense .............................................. 304,135 412,956 Other Expense ............................................... 39,109 -- ------------- ------------- Total Other Expense ....................................... 1,266,181 754,251 ------------- ------------- Income (loss) from Continuing Operations Before Income Tax Benefit ................................................. (2,969,403) 261,780 Income Tax Benefit ........................................... 98,588 -- ------------- ------------- Income (loss) from Continuing Operations ..................... (2,870,815) 261,780 Income from Discontinued Operations (Net of Income Taxes of $20,093)............................................ 30,142 -- ------------- ------------- Net Income (loss) ........................................... $ (2,840,673) $ 261,780 ============= ============= Income (loss) per common share: Income (loss) from continuing operations .................... (1.33) $ .10 Income from discontinued operations ......................... .01 -- -------------- ------------- Net Income (loss) Per Common Share ........................... $ (1.32) $ .10 ============== ============= Weighted average number of common shares outstanding ......... 2,160,676 2,526,957 ============== =============
The accompanying notes are an integral part of these consolidated financial statements. F-5 TAM RESTAURANTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
Additional Common Stock ---------------------- Paid-In Accumulated Shares Amount Capital Deficit ----------- -------- ------------- ---------------- Balances at October 1, 1995 ..................... 1,679,236 $168 $ 187,988 $ (203,249) Issuance of Common Stock ........................ 510,084 51 1,925,592 -- Issuance of Common Stock for Settlement ......... 22,056 2 79,998 -- Common Stock Issued for Services ................ 173,881 17 472,833 -- Transfer of Assets in Connection with Reorganization ................................. -- -- (1,710) -- Stock Issued for Debt ........................... 59,602 6 234,994 -- Warrants Issued for Debt ........................ -- -- 8,107 -- Net Loss for the Year ........................... -- -- -- (2,840,673) --------- ---- ---------- ------------ Balances at September 29, 1996 .................. 2,444,859 244 2,907,802 (3,043,922) Issuance of Common Stock ........................ 55,141 6 199,994 -- Net Income for the Year ......................... -- -- -- 261,780 --------- ---- ---------- ------------ Balances at September 28, 1997 .................. 2,500,000 $250 $3,107,796 $ (2,782,142) ========= ==== ========== ============
The accompanying notes are an integral part of these consolidated financial statements. F-6 TAM RESTAURANTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended Year Ended September 29, 1996 September 28, 1997 -------------------- ------------------- Cash Flows from Operating Activities Net income (loss) ............................................. $ (2,840,673) $ 261,780 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization expense ...................... 359,969 334,896 Deferred rent expense ...................................... 148,083 76,452 Deferred expenses .......................................... 237,250 -- Deferred income ............................................ (7,184) (35,181) Special compensation expense ............................... 561,114 -- Write-off of advance to affiliate .......................... 559,123 -- (Increase) decrease in: Accounts receivable ........................................ 6,928 (51,420) Inventory .................................................. (77,238) 3,272 Prepaid and other expenses ................................. (125,343) (95,850) Other assets ............................................... (26,874) (65,619) Increase (decrease) in: Accounts payable ........................................... 418,920 (551,171) Contract deposits payable .................................. 62,476 24,980 Accrued expenses ........................................... 380,629 1,142,151 ------------- ------------ Net Cash provided by (used in) Operating Activities ............ (342,820) 1,044,290 ------------- ------------ Cash Flows from Investing Activities Acquisition of property and equipment ......................... (2,458,971) (1,117,856) ------------- ------------ Net Cash used in Investing Activities .......................... (2,458,971) (1,117,856) ------------- ------------ Cash Flows from Financing Activities Net repayments of officer's loans ............................. 60,545 7,143 Loans receivable .............................................. 33,403 32,393 Repayment of revolving credit line ............................ -- (130,000) Proceeds from long-term debt .................................. 1,215,470 905,158 Principal payments on long-term debt and capitalized lease obligations ................................................. (203,840) (527,558) Advances from affiliates and others ........................... 1,142 (70,239) Deferred stock offering costs ................................. -- (128,322) Proceeds from capital stock issue ............................. 1,613,933 200,000 ------------- ------------ Net Cash provided by Financing Activities ...................... 2,720,653 288,575 ------------- ------------ Net Increase (Decrease) in Cash ................................ (81,138) 215,009 Cash, Beginning of year ........................................ 147,754 66,616 ------------- ------------ Cash, End of year .............................................. $ 66,616 $ 281,625 ============= ============
The accompanying notes are an integral part of these consolidated financial statements. F-7 TAM RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note A -- Summary of Significant Accounting Policies Nature of business TAM Restaurants, Inc. ("The Company") was incorporated under the laws of the State of Delaware in July 1996 under the name TAM Restaurant Holding Corp. and changed its name to TAM Restaurants, Inc. Effective September 29, 1996, the Company acquired all of the outstanding capital stock of TAM Restaurant Group, Inc., Bay Landing Restaurant Corp. and Shellbank Restaurant Corp. The Company operates Lundy Bros. Restaurant, a high-volume, casual, upscale seafood restaurant located in Brooklyn, New York, and The Boathouse in Central Park, a multi-use facility which features an upscale restaurant and catering pavilion, located on the lake in New York City's Central Park. The Company is also constructing American Park at the Battery, which has been designed as a high-volume premium-quality restaurant to be located at the water's edge in Battery Park. In addition, the Company's restaurants offer high-quality professional, on-premises and off-premises catering services. Corporate restructuring Effective September 29, 1996, the Companies completed a corporate restructuring, whereby the concession business previously operated by TAM Restaurant Group, Inc. was spun-off to a new corporation, American Leisure Today, Inc. ("American Leisure "). These concessions included the Central Park Zoo, the Staten Island Zoo, and the Wollman Ice Rink at Central Park. American Leisure is owned by a principal stockholder who, prior to the reorganization, was a principal stockholder of TAM Restaurant Group, Inc. In addition, the stockholders of TAM Restaurant Group, Inc., Bay Landing Restaurant Corp. and Shellbank Restaurant Corp. transferred all of the stock owned by them in return for stock in the Company. This transaction has been treated in a manner similar to a pooling of interests. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Accounting period The Company reports on a 52/53 week year ending on the last Sunday in September. The Company reports its information using a 4-4-5 week quarter which ends on the last Sunday of the month. Revenue recognition Revenue is recognized at the point of sale. Inventory Inventory is stated at the lower of cost, first-in, first-out, or market. Inventory consists of items used in operations and items held for resale. Property and equipment Property and equipment are carried at cost. Depreciation of equipment, furniture and fixtures and amortization of leasehold improvements are provided using the straight-line and double-declining balance methods for financial reporting purposes at rates based on the following estimated useful lives: Years ------------------------ Transportation equipment .......... 5 Furniture and fixtures ............ 5-7 Equipment ......................... 5-10 Leasehold improvements ............ Remaining life of lease F-8 TAM RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Note A -- Summary of Significant Accounting Policies -- (Continued) Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. Trademarks The name Lundy Bros. (registered July 9, 1996) and the logo F.W.I.L. (registered December 17, 1996) are registered with the United States Patent and Technical Office. Each registration will remain in force for 10 years, subject to the filing of a Declaration of Continuing Use between the fifth and sixth anniversaries of the registration date. Included in other assets at September 29, 1996 and September 28, 1997 is $23,179 and $20,602 of net trademark costs, respectively. Barter advances The Company has entered into various barter agreements, which it uses as a source of financing. Under the agreements, the Company is advanced cash in exchange to provide food and beverage to the barter companies. For every dollar advanced, the Company must return $1.60 to $2.00 in food and beverage sales. Contract deposits payable Contract deposits payable are deposits received for future catering events. Revenue is recognized when these events occur. Income taxes The Company accounts for its income taxes using the Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No.109, "Accounting for Income Taxes" ("SFAS No. 109"), which requires the establishment of a deferred tax asset or liability for the recognition of future deductible or taxable amounts and operating loss carryforwards. Deferred tax expense or benefit is recognized as a result of the changes in the assets and liabilities during the year. Valuation allowances are established when necessary to reduce deferred tax assets to amounts expected to be realized. Deferred stock offering costs Costs incurred in connection with the Company's proposed public offering of common stock will be charged to capital in the period that the offering was completed, or charged to operations if the offering is not successful. Rent expense The Company amortizes its rental space at Lundy's using the straight-line method over the life of the lease. Advertising expenses Advertising expenses are charged to earnings when incurred. Concentration of credit risk The Company extends credit based on an evaluation of the customer's financial condition, generally without requiring collateral. Exposure to losses on receivables is principally dependent on each customer's financial condition. The Company monitors its exposure for credit losses and maintains allowances for anticipated losses. No individual customer is considered to be significant. Net income (loss) per share Net income (loss) per share of common stock is computed based on the weighted average number of shares of common stock and common stock equivalents (in 1997) outstanding during the period. Common stock and warrants issued within twelve months of the initial public offering filing for consideration below the proposed public offering price have been included as if they had been outstanding for all periods presented. (See Note Q). F-9 TAM RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Note A -- Summary of Significant Accounting Policies -- (Continued) Disclosure of fair value of financial instruments The carrying amount of financial instruments including cash, accounts receivable, accounts payable, accrued expenses and short-term debt approximated fair value as of September 28, 1997 because of the relatively short maturity of these instruments. The carrying value of long-term debt approximates the fair value for similar debt issues based on quoted market prices or current rates offered to the Company for debt of the same maturities. Due to the unspecified payment terms, it was not practicable to estimate the fair value of amounts due from affiliates and due from an officer. Loans due to and due from affiliates approximate fair value because the repayment terms are subject to management's discretion. Stock based compensation In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 123 encourages entities to adopt the fair value method in place of the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"), for all arrangements under which employees receive shares of stock or other equity instruments of the employer or the employer incurs liabilities to employees in amounts based on the price of its stock. In fiscal 1997 the Company adopted the intrinsic value method as permitted by SFAS No. 123 and will account for such transactions in accordance with APB No. 25 and, as required by SFAS No. 123, will provide pro forma information regarding net income as if compensation costs for the Company's stock system plan had been determined in accordance with the fair value method presented by SFAS No. 123. The adoption of the standard did not have a material effect on the consolidated financial statements. Long-lived assets In fiscal 1997, the Company adopted SFAS No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No. 121 requires, among other things, an impairment loss on assets to be held and gains or losses from assets that are expected to be disposed of to be included as a component of income from continuing operations before taxes on income. The Company's implementation of this standard did not have a material effect on the consolidated financial statements. Recent accounting standards The FASB has issued SFAS No. 128, "Earnings Per Share." SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997. SFAS No. 128 simplifies the computation of earnings per share by replacing the presentation of primary earnings per share with a presentation of basic earnings per share, as defined. The statement requires dual presentation of basic and diluted earnings per share by entities with complex capital structures. Basic earnings per share includes no dilution and is computed by dividing income available to common stockholders by the weighted average number of shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could share in the earnings of an entity similar to fully diluted earnings per share. SFAS No. 128 is not expected to have a significant impact on the Company's financial statements. In June 1997, SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," were issued. SFAS No. 130 addresses standards for reporting and display of comprehensive income and its components and SFAS No. 131 requires disclosure of reportable operating segments. Both statements are effective for the Company's 1999 fiscal year. The Company will be reviewing these pronouncements to determine their applicability, if any. F-10 TAM RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Note B -- Inventory Inventory consisted of:
September 29, September 28, 1996 1997 --------------- -------------- Food and beverage ........................... $ 63,480 $ 48,146 Liquor ...................................... 61,645 60,171 Paper ....................................... 4,353 5,114 Retail merchandise .......................... -- 9,780 Small wares, utensils, and supplies ......... 78,500 81,495 --------- --------- $ 207,978 $ 204,706 ========= =========
Note C -- Prepaid and Other Expenses Prepaid and other expenses consisted of: September 29, September 28, 1996 1997 --------------- -------------- Refundable rent deposit ......... $ 50,000 $ 23,850 Income taxes receivable ......... 108,723 108,723 Prepaid expenses ................ 60,028 233,493 Other receivables ............... 51,465 -- --------- --------- $ 270,216 $ 366,066 ========= ========= Note D -- Property and Equipment Property and equipment consisted of:
September 29, September 28, 1996 1997 --------------- -------------- Transportation equipment and trailers .................. $ 158,406 $ 260,111 Furniture and fixtures ................................. 229,075 294,194 Equipment .............................................. 1,308,098 1,221,825 Leasehold improvements ................................. 3,146,291 3,183,590 Assets acquired under capital leases ................... 355,974 355,974 Computer software ...................................... 35,469 35,469 Construction-in-progress ............................... -- 1,051,279 ----------- ----------- 5,233,313 6,402,442 Less accumulated depreciation and amortization ......... 1,781,717 2,111,464 ----------- ----------- $ 3,451,596 $ 4,290,978 =========== ===========
Depreciation and amortization expense totaled $359,969 and $332,321 for the years ended 1996 and 1997, respectively. Construction-in-progress relates to the construction of a new restaurant scheduled to open in March 1998 with an estimated cost of $1,700,000. Note E -- Other Assets Included in other assets are treasury bonds, which were purchased on February 15, 1985 at a cost of $9,704, with a face value of $10,000. The bonds are held in escrow by Chase Bank in lieu of a security deposit for the Boathouse concession. F-11 TAM RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Note F -- Accrued Expenses Accrued expenses consisted of:
September 29, September 28, 1996 1997 --------------- -------------- Sales tax payable ................................... $ 477,140 $ 409,291 Accrued rent expense and related taxes .............. 353,498 329,095 Barter advances ..................................... -- 683,961 Accrued payroll, payroll taxes and benefits ......... 148,651 457,625 Accrued consulting fees ............................. -- 237,250 Accrued other expenses .............................. 17,515 258,983 --------- ----------- $ 996,804 $ 2,376,205 ========= ===========
Note G -- Borrowings The Company's loans outstanding consisted of:
September 29, September 28, 1996 1997 --------------- -------------- Installment loan payable to Fleet Bank in 59 monthly installments of $1,108, plus interest at a rate of 9.56% with a balloon payment of $67,609 due in July 1999. The loan was collateralized by property owned by an affiliated company. (a) .................................... $ 105,290 $ -- Installment loan payable to Fleet Bank in 83 monthly installments of $2,372, plus interest of 9.76% with a balloon payment of $230,124 due in 2001. The loan was collateralized by the Company's offices. (a) .................................................................... 362,956 -- Mortgage loan payable to Fleet Bank, bearing interest at the bank's prime rate, plus 2%, which expired in 1996. Monthly installments of interest only are due on this mortgage. The loan was secured by col- lateral mortgage held by two principal stockholders. (a) ............... 150,000 -- Loan to related party. (b) .............................................. 121,332 119,825 Installment loan payable in 18 equal monthly installments of $2,952 to Central Laundry Services Corp., including interest at a rate of 6% beginning January 10, 1996. The loan was collateralized by a secu- rity interest in equipment with a net book value of $21,868............. 25,728 -- Installment loan payable in 60 monthly payments of $3,187 to Brook- lyn Union Gas Company, including interest at a rate of 10% begin- ning December 1, 1995. The loan is collateralized by equipment with a net book value of $127,500....................................... 129,887 103,540 Unsecured loan payable to a private investor bearing interest at 21%..... 40,000 -- Unsecured loans from private investors bearing interest at rates from 8% to 15% per annum, maturing at various times through 2002 ............ 286,669 791,800 Unsecured loan payable from Chief Executive Officer bearing interest of 10%, due in 2002 .................................................... -- 720,405 Unsecured loan payable from related parties, bearing interest of 10% to 15%, due June 1998 .................................................. 236,000 143,000 Installment loan payable in 12 monthly payments of $8,792 to Central Laundry Services Corp., including interest at a rate of 10% begin- ning September 5, 1997 ................................................. -- 100,000 Other ................................................................... -- 26,023 ----------- ----------- 1,457,862 2,004,593 Less portion due within one year ........................................ 283,938 495,650 ----------- ----------- Long-term debt .......................................................... $ 1,173,924 $ 1,508,943 =========== ===========
F-12 TAM RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Note G -- Borrowings -- (Continued) Maturities of long-term debt at September 28, 1997 are as follows: 1998 ......................... $ 495,650 1999 ......................... 497,341 2000 ......................... 51,644 2001 ......................... 23,229 2002 ......................... 98,269 Thereafter ................... 838,460 ----------- $ 2,004,593 =========== (a) The Company had a credit line with Fleet Bank, bearing interest at the bank's prime rate plus 2%, which expired in December 1996. The loan was collateralized by a security interest in all Company assets. (See Note Q.) (b) This loan is secured by the personal residence of a shareholder. The Company has agreed to make the mortgage payments to the bank. The mortgage bears interest at 7.25% and is payable in 360 monthly installments of $853, including interest and is due in 2024. Note H -- Capital Lease Obligations The Company leases equipment and various leasehold improvements under capital leases. The assets acquired under capital leases have a cost of $355,974 and $355,974 and accumulated amortization of $51,168 and $89,618 as of September 1996 and 1997, respectively. Amortization of the leased assets is included in depreciation expense. The following is a schedule, by year, of future minimum lease payments under capitalized leases, together with the present value of the net minimum lease payments at September 28, 1997. Payments for the year ending: September, 1998 .................................... $ 115,557 September, 1999 .................................... 100,231 September, 2000 .................................... 59,395 September, 2001 .................................... 2,362 --------- Total minimum lease payments ........................ 277,545 Less amount representing interest ................... (62,708) --------- Present value of net minimum lease payments ......... 214,837 Less current portion ................................ (79,245) --------- Long-term lease obligation .......................... $ 135,592 ========= Note I -- Commitments and Contingencies The Company has entered into various lease and licensing agreements, which expire through 2016. Certain of the Company's license and lease agreements require the payment of rent based on a percentage of gross receipts. Future minimum rental payments are as follows: Year Ending September - -------------------------------- 1998 ......................... $ 512,704 1999 ......................... 525,586 2000 ......................... 511,573 2001 ......................... 453,219 2002 ......................... 408,042 Thereafter ................... 6,050,881 ----------- $ 8,462,005 =========== F-13 TAM RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Note I -- Commitments and Contingencies -- (Continued) Rent expense, real estate taxes and common area charges for the years ended September 29, 1996 and September 28, 1997 totaled $944,828 and $1,428,079, respectively. TAM Restaurant Group, Inc. has a license agreement with the Central Park Zoo. American Leisure has assumed the operation of the concession granted by such license agreement as a result of a restructuring (See Note A also). However, TAM Restaurant Group, Inc. is still responsible as a primary concessionaire until October 1998 when the license expires. The license requires payment of 39% of total sales as a licensing fee. Sales for the year ended September 28, 1997 relating to this license amounted to $920,248. TAM Restaurant Group, Inc. is currently being audited by New York State for sales and use taxes for the period December 1, 1989 to June 28, 1993. The Company has accrued $50,000 for additional taxes that may be due, exclusive of interest and penalties, if any. As of December 1997, this audit has not been completed. Note J -- Related Party Transactions In April 1988, Perfect Parties, the catering division of TAM Restaurant Group, Inc., was transferred to Forest Avenue Corporation, which is owned by stockholders of the Company. Forest Avenue Corporation utilized equipment of the Company at no charge. Forest Avenue Corporation also received management services from the Company. On September 3, 1996, the assets of Forest Avenue Corporation were sold to an unrelated third party. As a result, the Company wrote off $558,943 representing monies advanced, as well as unpaid management fees and equipment notes to Forest Avenue Corporation, which are uncollectible. In March 1994, Leisure Time Services, Inc., which is owned by a stockholder of the Company, was formed to purchase, repair and store equipment and supplies for the Company, as well as to assist the Company in the performance of special catering events. Rent paid by the Company for the years ended 1996 and 1997 for utilization of a warehouse was $28,300 and $30,000, respectively. All the income and expenses for other operations of Leisure Time Services, Inc. are absorbed by the Company and reflected in the accompanying financial statements. In late 1994, the Company obtained long-term financing from Fleet Bank (see Note G). The borrowings are collateralized by a warehouse located in New Jersey and owned by Leisure Time Services, Inc. In order to provide the bank with the proper title, some of the funds borrowed were used to pay off the mortgages and other related costs on the collateralized property. As of September 29, 1996 and September 28, 1997, included in the accompanying consolidated balance sheets under the caption "due from affiliates" is $177,438 and $145,045, respectively, which was used to secure the title on the New Jersey warehouse. This loan is being repaid in equal monthly installments of $1,996, including interest at 9.6% through December 2006. Additionally, included in due from affiliates is $24,155 of additional amounts due from Leisure Time Services, Inc. with no specific repayment term. In obtaining long-term financing from Fleet Bank, the Company's headquarters located in Staten Island, NY (owned by the Company's stockholder) were used to collateralize the debt and to provide the bank with proper title. In October 1996, the Company entered into a lease for its corporate offices with its principal stockholders. Additionally, the Company occasionally advanced monies to officers of the Company. No terms of repayment or interest rates have been determined on these advances. As of September 29, 1996 and September 28, 1997, the balance in this account was $53,602 and $46,459, respectively. The Company is indebted to relatives of the principal stockholder in the amounts of $236,000 and $55,000 as of September 29, 1996 and September 28, 1997, respectively. The notes are unsecured and bare interest from 10% to 15% per annum. For the years ended 1996 and 1997, the Company has reduced operating expenses by $71,670 and $181,012, respectively, representing management fee income from American Leisure. At September 28, 1997, included in due from affiliates is $46,184 due from American Leisure with no specific repayment term (See Note M). F-14 TAM RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note K -- Capital Stock and Warrants During fiscal 1996, the Company issued 173,881 shares and granted 55,141 warrants with an original exercise price of $5.44 per share and 3,000 warrants with an original exercise price of $.01 per share for services received. In addition, the Company issued 4,724 warrants with an original exercise price of $4.53 per share to an officer of the Company for prior compensation. Additionally, during fiscal 1996, the Company sold units consisting of .5514 shares of common stock and .05514 warrants for $2.00 per unit and .5514 share of common stock and .11028 warrants for $2.27 per unit. The warrants had an original exercise price of $4.53 per share. The Company sold 925,050 units. In fiscal 1996, $235,000 of debt was converted into .59602 common shares and .21529 warrants exercised at $4.53. For the year ended September 29, 1996, the Company issued 22,056 shares of common stock and .5514 warrants as part of a settlement, resulting in a non-recurring charge of $80,000. At September 28, 1997, there was an aggregate of 313,000 warrants outstanding, 254,859 with an exercise price of $4.53 per share, 55,141 with an exercise price of $5.44 per share and 3,000 with an exercise price of $.01 per share. These warrants expire through 2001. The Board of Directors is authorized to fix the rights, preferences, privileges and restrictions of any series of preferred stock, including the dividend rights, original issue price, conversion rights, voting rights, terms of redemption, liquidation preferences and sinking fund terms thereof, and the number of shares constituting any such series and the designation thereof and to increase or decrease the number of shares subsequent to the issuance of shares of such series (but not below the number of shares of such series then outstanding). Note L -- Income Taxes Income tax benefit has been calculated as follows: Year Ended Year Ended September 29, September 28, 1996 1997 --------------- -------------- Federal taxes ................. $ 49,390 $ -- State and local taxes ......... 49,198 -- -------- ----- $ 98,588 $ -- ======== ===== The Company's deferred tax assets, deferred tax liabilities and deferred tax asset valuation allowance are as follows:
September 29, September 28, 1996 1997 --------------- -------------- Deferred rent expense .............................. $ 50,593 $ 106,000 Deferred expenses .................................. 80,665 112,000 Net operating loss carryforward .................... 808,779 679,000 Depreciation ....................................... 19,386 8,000 Vacation pay and officers' payroll accrual ......... 13,017 17,000 Other .............................................. -- 2,000 ---------- ---------- Total deferred tax assets .......................... 972,440 924,000 Less valuation allowance ........................... (972,440) (924,000) ---------- ---------- Total deferred tax liabilities ..................... -- -- ---------- ---------- Net deferred tax asset ............................. $ -- $ -- ========== ==========
F-15 TAM RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Note L -- Income Taxes -- (Continued) The tax benefit from a net operating loss carryback resulted in an income tax receivable of $108,723 at September 29, 1996 and September 28, 1997. For tax purposes, the Company has approximately $1,438,000 of net operating loss carryforwards as of September 28, 1997, which expire through 2011. The difference between the amount of income tax expense that would result from applying the federal statutory rate of 34% to pre-tax income and the provision for federal income taxes is as follows:
Year Ended Year Ended September 29, September 28, 1996 1997 --------------- -------------- Income tax (benefit) at statutory rate .................................... $ (1,009,597) $ 89,005 Reduction in valuation allowance relating to tax benefit due to net operating loss limitation ................................................ 911,009 -- Reduction of valuation allowance due to utilization of net operating loss . -- (89,005) ------------ --------- Net Tax (Benefit) ......................................................... $ (98,588) $ -- ============ =========
Note M -- Discontinued Operations As a result of a corporate restructuring (see Note A also), the concession business previously operated by TAM Restaurant Group, Inc. was spun off to a new corporation. The following is a summary of the financial information of the concessions as of September 29, 1996: Assets ..................... $ 90,239 Liabilities ................ (88,529) ------------ Difference ......................... $ 1,710 ============ Sales ...................... $ 1,433,409 Purchases .................. 309,289 ------------ Gross Profit ....................... 1,124,120 Operating Expenses ......... (1,073,885) ------------ Operating Income ........... 50,235 Income Taxes ............... (20,093) ------------ Net Income ................. $ 30,142 ============ The operations at Wollman Rink terminated in February 1996. The operations at the Central Park Zoo and Staten Island Zoo are still being operated by American Leisure. Operating expenses included above reflect a 5% (of sales) management fee charged to each location from the Company. As a result of the transfer of assets and liabilities, additional paid-in capital of the Company was reduced by $1,710. Note N -- Going Concern As shown in the accompanying financial statements, the Company incurred a net loss of $2,840,673 during the year ended September 29, 1996 and, as of that date, the Company's current liabilities exceeded its current assets by $1,969,787. These factors raised doubt as to the Company's ability to continue as a going concern. The ability of the Company to continue as a going concern was dependent upon the success of an initial public offering, the ability of the Company to obtain debt financing from a bank or private lenders, or raising additional capital through a private placement offering. The financial statements did not include any adjustments that might be necessary should the Company be unable to continue as a going concern. These doubts did not apply to the 1997 Financial Statements. F-16 TAM RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Note O -- Pending Litigation TAM Restaurant Group, Inc. and Bay Landing Restaurant Corp. have been named as defendants and/or co-defendants in four separate personal injury lawsuits arising in the ordinary course of business. These cases are in the preliminary stages and, as such, the ultimate outcome of the litigation cannot presently be determined. In the opinion of management, all such matters are adequately covered by insurance or, if not so covered, are entirely without merit or are such kind or involve such amounts that an unfavorable disposition would not have a material adverse effect on the consolidated financial position or operations of the Company. Accordingly, no provision for any liability that may result upon adjudication has been made in the accompanying financial statements by the Company. Note P -- Cash Flow Disclosure Cash paid for interest is as follows: Year Ended Year Ended September 29, 1996 September 28, 1997 -------------------- ------------------- Interest ......... $ 312,366 $ 302,372 Non-cash transactions included the following: Effective September 29, 1996, the Company exchanged debt in the amount of $235,000 to 59,602 shares of Common Stock and Warrants to purchase 21,530 shares of Common Stock. For the year ended September 28, 1997, the Company purchased equipment of $36,023 for cash of $10,000 and debt of $26,023. Additionally, the Company entered into a capitalized lease obligation of $27,824. Note Q -- Subsequent Events In December 1997, the Company effected a 1-for-1.8135268 reverse stock split. All shares and per share data in the consolidated financial statements have been adjusted to give retroactive effect to the reverse stock split. In addition, effective as of the date of the initial public offering, the Company will enter into three-year employment agreements with the Chief Executive Officer and a Vice President, which are contractually renewable and provide for an annual base compensation of $175,000 and $75,000, respectively, and such bonuses as the Board of Directors may from time to time determine. Also, effective as of the date of the initial public offering, the Company will initiate a stock option plan (the "Option Plan") pursuant to which 525,000 shares of common stock have been reserved for issuance upon the exercise of options designated as either (i) options intended to constitute incentive stock options ("ISOs") under the Internal Revenue Code of 1986, as amended (the "Code") or (ii) non-qualified options. ISOs may be granted under the Option Plan to officers and employees of the Company. Non-qualified options may be granted to consultants, directors (whether or not they are employees), employees or officers of the Company. During 1995 and 1996, the Company borrowed an aggregate of $840,000 from Fleet Bank. Such loans were collateralized by the Company's principal executive offices, which are owned by Mr. Cretella, the warehouse leased by the Company and owned by Leisure Time Services, Inc., a company owned by Jeanne Cretella, Vice President, Director and a principal stockholder of the Company, and Mr. and Mrs. Cretella's personal residence. In June 1997, Mr. Cretella agreed to settle the amounts owed to Fleet Bank of $720,405 for $640,000 plus accrued interest through the date of payment. In August 1997, Mr. Cretella paid to Fleet Bank $140,000 as part of the settlement, and the balance was paid in October, 1997. As consideration for entering into the settlement, the Company has issued to Mr. Cretella a promissory note in the principal amount of $720,405, which bears interest at a rate of 10% per annum. Interest is payable in monthly installments of $6,003, with the principal payable in November, 2002. The consolidated financial statements reflect the effects of this refinancing. F-17 TAM RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Note Q -- Subsequent Events -- (Continued) In October, 1997, the Company obtained $1,000,000 in a secured loan from an outside investment firm. The loan bears interest at 10% per annum, payable quarterly and matures nineteen months after the funding date (May 31, 1999), if the Company's initial public offering becomes effective prior to April 15, 1998; otherwise, the interest rate increases to 15% per annum and the Company would be required to pay 50% of the operating profits, as defined, from American Park on a monthly basis until the loan is fully repaid. The loan is guaranteed by a principal stockholder of the Company and the guarantee is secured by a pledge of 200,000 shares of common stock held by such stockholder. Additionally, as partial consideration for the loan, the Company granted 200,000 warrants at an exercise price of $5.00 per share expiring in October 2002. The warrants are exercisable 90 days after an initial public offering. The issuance of these warrants will give rise to an original issue discount which has been valued at $482,000, based on the Black-Scholes option pricing model, and will be amortized beginning on the date the warrants are exercisable and ending on the due date of the loan. F-18 ================================================================================ No dealer, salesperson or other person has been authorized to give any information or to make any representations not contained in this Prospectus, and, if given or made, such information or representation must not be relied upon as having been authorized by the Company or the Underwriter. This Prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any security other than the securities offered by this Prospectus, or an offer to sell or a solicitation of an offer to buy any securities by anyone in any jurisdiction in which such offer or solicitation is not authorized or is unlawful. The delivery of this Prospectus shall not, under any circumstances, create any implication that the information contained herein is correct as of any time subsequent to the date hereof. ------------------- TABLE OF CONTENTS Page --------- Prospectus Summary. ....................... 3 Risk Factors. ............................. 8 Use of Proceeds. .......................... 17 Dilution .................................. 18 Dividend Policy. .......................... 19 Capitalization ............................ 19 Selected Financial Data ................... 20 Management's Discussion and Analysis of Financial Condition and Results of Operations. ............................ 21 Business. ................................. 24 Management. ............................... 32 Principal Stockholders. ................... 35 Certain Transactions. ..................... 36 Description of Securities ................. 38 Shares Eligible for Future Sale ........... 40 Underwriting. ............................. 41 Selling Securityholders and Plan of Distribution. .......................... 43 Legal Matters ............................. 44 Experts ................................... 44 Changes in Independent Auditors. .......... 45 Additional Information. ................... 45 Index to Financial Statements ............. F-1 --------------- Until , 1998, (25 days after the date of this Prospectus), all dealers effecting transactions in the shares of Common Stock or Warrants offered hereby, whether or not participating in this distribution may be required to deliver a Prospectus. This is in addition to the obligation of dealers to deliver a Prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. ================================================================================ ================================================================================ TAM Restaurants, Inc. [GRAPHIC OMITTED] 1,000,000 Shares of Common Stock and Redeemable Warrants to Purchase 500,000 Shares of Common Stock ----------------------------------- PROSPECTUS ----------------------------------- [GRAPHIC OMITTED] [GRAPHIC OMITTED] , 1998 ================================================================================ PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 24. Indemnification of Directors and Officers. Section 145 of the General Corporation Law of the State of Delaware provides for the indemnification of officers and directors under certain circumstances against expenses incurred in successfully defending against a claim and authorizes Delaware corporations to indemnify their officers and directors under certain circumstances against expenses and liabilities incurred in legal proceedings involving such persons because of their being or having been an officer or director. Section 102(b) of the Delaware General Corporation Law permits a corporation, by so providing in is certificate of incorporation, to eliminate or limit director's liability to the corporation and its stockholders for monetary damages arising out of certain alleged breaches of their fiduciary duty. Section 102(b)(7) provides that no such limitation of liability may affect a director's liability with respect to any of the following: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not made in good faith or which involve intentional misconduct of knowing violations of law; (iii) liability for dividends paid or stock repurchased or redeemed in violation of the Delaware General Corporation law; or (iv) any transaction from which the director derived an improper personal benefit. Section 102(b)(7) does not authorize any limitation on the ability of the corporation or its stockholders to obtain injunction relief, specific performance or other equitable relief against directors. Article Eighth of the Registrant's Certificate of Incorporation and the Registrant's By-laws provide that all persons who the Registrant is empowered to indemnify pursuant to the provisions of Section 145 of the General Corporation Law of the State of Delaware (or any similar provision or provisions of applicable law at the time in effect), shall be indemnified by the Registrant to the full extent permitted thereby. The foregoing right of indemnification shall not be deemed to be exclusive of any other rights to which those seeking indemnification may be entitled under any by-law, agreement, vote of stockholders or disinterested directors, or otherwise. Article Ninth of the Registrant's Certificate of Incorporation provides that no director of the Registrant shall be personally liable to the Registrant or its stockholders for any monetary damages for breaches of fiduciary duty of loyalty to the Registrant or its stockholders' (ii) for acts or omission not in good faith or which involve intentional misconduct or knowing-violation of law; (iii) under Section 174 of the General Corporation Law of the State of Delaware; or (iv) for any transaction from which the director derived an improper personal benefit. Insofar as indemnification for liabilities under the Securities Act of 1933, as amended (the "Securities Act") may be permitted to directors, officers or persons controlling the Registrant pursuant to the foregoing provisions, the Registrant has been informed that in the opinion of the Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. Reference is made to the Underwriting Agreement, the proposed form of which is filed as Exhibit 1.1, pursuant to which the Underwriter agree to indemnify the directors and certain officers of the Registrant and certain other persons against certain civil liabilities. II-1 Item 25. Other Expenses of Issuance and Distribution. The estimated expenses payable by the Registrant in connection with the issuance and distribution of the securities being registered (other than underwriting discounts and commissions and the Underwriter's nonaccountable expense allowance) are as follows: Securities and Exchange Commission registration fee ........... $ 3,378.33 NASD filing fee ............................................... 1,614.85 Nasdaq listing fee ............................................ 10,000.00 Underwriter's consulting fee .................................. 60,000.00 Printing and engraving expenses ............................... 75,000.00 Legal fees and expenses ....................................... 175,000.00 Accounting fees and expenses .................................. 100,000.00 Blue sky fees and expenses (including legal fees) ............. 30,000.00 Transfer agent, warrant agent and registrar fees and expenses . 3,000.00 Miscellaneous ................................................. 35,506.82 ------------ Total .............................................................. $ 493,500.00 ============
- ------------ * To be filed by amendment. Item 26. Recent Sales of Unregistered Securities Since October 1995, the Registrant has issued securities without registration under the Securities Act in the following transactions (in each case giving retroactive effect to the subsequent stock splits): 1. From October 1995 to September 1996, the Registrant issued an aggregate of 510,084 shares of Common Stock and warrants to purchase 181,600 shares of Common Stock to 31 investors for aggregate proceeds of $1,980,000. 2. In July 1996, the Registrant issued an aggregate of 173,881 shares of Common Stock and warrants to purchase 3,000 shares of Common Stock to 7 persons and entities as consideration for services, valued at $480,957 in the aggregate, rendered to the Registrant. 3. In September 1996, the Registrant issued 22,056 shares of Common Stock and warrants to purchase 5,514 shares of Common Stock to four persons as settlement of a dispute, valued at $80,000. 4. In February 1997, the Registrant issued 55,141 shares of Common Stock and warrants to purchase 27,571 shares of Common Stock to one investor for $200,000. 5. During 1997, the Registrant issued 59,602 shares of Common Stock and warrants to purchase 21,530 shares of Common Stock to three persons upon the conversion of $235,000 of indebtedness. 6. In October 1997, the Registrant issued warrants to purchase 4,724 shares of Common stock to an officer and director as compensation. 7. In October 1997, the Registrant issued warrants to purchase 200,000 shares of Common Stock to three entities as partial consideration for making loans to the Registrant. The Company valued the warrants at $482,000. The sales and issuances of the Common Stock and warrants described above were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(2) thereof as transactions not involving a public offering. The purchasers in such private offerings represented they had such knowledge and experience in financial and business matters, at all relevant times they were capable of evaluating the merits and risks involved in the investment in the securities and their intention to acquire the securities for investment only and not with a view to the distribution thereof. Appropriate legends were affixed to the stock certificates issued in such transactions. All purchasers had adequate access, through their employment or other relationships, to sufficient information about the Registrant to make an informed investment decision. II-2 Item 27. Exhibits.
Exhibit Number Description - ----------------- -------------------------------------------------------------------------------------------------- *1.1 Form of Underwriting Agreement. 3.1 Certificate of Incorporation, as amended, of the Registrant. 3.2 Bylaws, as amended, of the Registrant. *4.1 Form of Registrant's Common Stock Certificate. *4.2 Form of Underwriter's Warrant Agreement, including Form of Warrant Certificate. *4.3 Form of Public Warrant Agreement among the Registrant, Paragon Capital Corporation, as Underwriter and Continental Stock Transfer & Trust Company, as Warrant Agent. *4.4 Form of Registrant's Public Warrant Certificate. *5.1 Opinion of Tenzer Greenblatt LLP. *10.1 License Agreement between TAM Restaurant Group, Inc. (formerly TAM Concessions, Inc.) and City of New York Department of Parks and Recreation, dated February 8, 1995, as modified. *10.2 License Agreement between Shellbank Restaurant Corp. and City of New York Parks and Recreation dated December 14, 1994. *10.3 Lease by and between Lundy's Management Corp. and Bay Landing Restaurant Corp. dated July 24, 1994, as amended. *10.4 Lease by and between Mr. Frank Cretella and the Registrant dated October 1, 1996. *10.5 Lease by and between Leasing Time Services and the Registrant dated October 1, 1996. *10.6 Management Agreement by and between the Registrant and American Leisure Today, Inc., formerly MAT Operating Corp., dated October 1, 1996. *10.7 Loan Agreement by and between the Registrant and each of ARBCO Associates, L.P. and Kayne, Anderson Non-Traditional Investments, L.P. dated as of October 31, 1997. *10.8 Form of Employment Agreement between Registrant and Frank Cretella. *10.9 Form of Employment Agreement between Registrant and Jeanne Cretella. *10.10 1997 Stock Option Plan. *10.11 Promissory Note of the Registrant dated October 15, 1997 issued to Frank Cretella. 23.1.1 Consent of BDO Seidman, LLP, Independent Certified Public Accountants. 23.1.2 Consent of Maltese, Potter & LaMarca, LLP, Independent Certified Public Accountants. *23.2 Consent of Tenzer Greenblatt LLP (contained in such firm's opinion filed as Exhibit 5.1). *23.3 Consent of Peter J. Salvatore. *23.4 Consent of Barry E. Krantz. *23.5 Consent of Lorenzo T. Vanore. *24.1 A power of attorney relating to the signing of amendments hereto is incorporated in the signature pages of this Registration Statement. *27.1 Financial Data Schedule.
- ------------ * Previously filed. Item 28. Undertakings. The undersigned Registrant hereby undertakes to: (1) file, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to: (i) include any prospectus required by section 10(a)(3) of the Securities Act; (ii) reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information set forth in the Registration Statement; (iii) include any additional or changed material information on the plan of distribution; (2) for determining liability under the Securities Act, treat each such post-effective amendment as a new registration of the securities offered, and the offering of such securities at that time to be initial bona fide offering; and (3) file a post-effective amendment to remove from registration any of the securities that remain unsold at the termination of the offering. II-3 Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes (1) to provide to the underwriters at the closing specified in the standby under writing agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser; (2) that for the purpose of determining any liability under the Securities Act, treat the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act as part of this Registration Statement as of the time the Securities and Exchange Commission declares it effective; and (3) that for the purpose of determining any liability under the Securities Act, treat each post-effective amendment that contains a form of Prospectus as a new Registration Statement for the securities offered in the Registration Statement therein, and treat the offering of the securities at that time as the initial bona fide offering of those securities. The undersigned Registrant hereby undertakes to (i) file a supplement to the Prospectus included in this Registration Statement in accordance with Rule 424(c) under the Securities Act in the event that the Underwriter enters into transactions with, or waives the lock-up agreements entered into by, any of the Selling Securityholders which currently beneficially own 5% or more of the Common Stock but less than 10% of the Common Stock; and (ii) file a post-effective amendment to this Registration Statement in the event that the Underwriter enters into transactions with, or waives the lock-up agreements entered into by, any of the Selling Securityholders which currently beneficially own 10% or more of the Common Stock. II-4 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and authorized this Registration Statement to be signed on its behalf by the undersigned, in the city of New York, State of New York on February 5, 1998. TAM RESTAURANTS, INC. By: /s/ Frank Cretella -------------------------- President and Chief Executive Officer In accordance with the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates stated.
Signatures Title(s) Date - ------------------------------------- ------------------------------------ ----------------- /s/ Frank Cretella President, Chief Executive Officer February 5, 1998 ---------------------- and Director (Principal Financial Frank Cretella Officer) * - ----------------------- Vice President and Director Jeanne Cretella * - ----------------------- Chairman of the Board Kenneth L. Harris /s/ Frank Cretella February 5, 1998 - ----------------------- Attorney-in Fact
* By Attorney-in-Fact II-5 EXHIBIT INDEX
Exhibit Number Description *1.1 Form of Underwriting Agreement. 3.1 Certificate of Incorporation, as amended, of the Registrant. 3.2 Bylaws, as amended, of the Registrant. *4.1 Form of Registrant's Common Stock Certificate. *4.2 Form of Underwriter's Warrant Agreement, including Form of Warrant Certificate. *4.3 Form of Public Warrant Agreement among the Registrant, Paragon Capital Corporation, as Underwriter and Continental Stock Transfer & Trust Company, as Warrant Agent. *4.4 Form of Registrant's Public Warrant Certificate. *5.1 Opinion of Tenzer Greenblatt LLP. *10.1 License Agreement between TAM Restaurant Group, Inc. (formerly TAM Concessions, Inc.) and City of New York Department of Parks and Recreation, dated February 8, 1995, as modified. *10.2 License Agreement between Shellbank Restaurant Corp. and City of New York Parks and Recreation dated December 14, 1994. *10.3 Lease by and between Lundy's Management Corp. and Bay Landing Restaurant Corp. dated July 24, 1994, as amended. *10.4 Lease by and between Mr. Frank Cretella and the Registrant dated October 1, 1996. *10.5 Lease by and between Leasing Time Services and the Registrant dated October 1, 1996. *10.6 Management Agreement by and between the Registrant and American Leisure Today, Inc., formerly MAT Operating Corp., dated October 1, 1996. *10.7 Loan Agreement by and between the Registrant and each of ARBCO Associates, L.P. and Kayne, Ander- son Non-Traditional Investments, L.P. dated as of October 31, 1997. *10.8 Form of Employment Agreement between Registrant and Frank Cretella. *10.9 Form of Employment Agreement between Registrant and Jeanne Cretella. *10.10 1997 Stock Option Plan. *10.11 Promissory Note of the Registrant dated October 15, 1997 issued to Frank Cretella. 23.1.1 Consent of BDO Seidman, LLP, Independent Certified Public Accountants. 23.1.2 Consent of Maltese, Potter & LaMarca, LLP, Independent Certified Public Accountants. *23.2 Consent of Tenzer Greenblatt LLP (contained in such firm's opinion filed as Exhibit 5.1). *23.3 Consent of Peter J. Salvatore. *23.4 Consent of Barry E. Krantz. *23.5 Consent of Lorenzo T. Vanore. *24.1 A power of attorney relating to the signing of amendments hereto is incorporated in the signature pages of this Registration Statement. *27.1 Financial Data Schedule.
- ------------ * Previously filed. EX-3 2 EXHIBIT 3.1 CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF TAM RESTAURANTS, INC. ---------------------------------------- Adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware ----------------------------------------- The undersigned, being the President of TAM RESTAURANTS, INC. (the "Corporation"), a corporation existing under the laws of the State of Delaware, does hereby certify as follows: FIRST: That the Certificate of Incorporation of the Corporation has been amended as follows by striking out the whole of Article FOURTH thereof as it now exists and inserting in lieu and instead thereof a new Article FOURTH, reading as follows: "FOURTH: The total number of shares of capital stock which the Corporation shall have authority to issue is Twenty Million (20,000,000) shares, of which Nineteen Million (19,000,000) shares shall be Common Stock, par value $.0001 per share, and One Million (1,000,000) shares shall be Preferred Stock, par value $.0001 per share. The presently issued and outstanding shares of Common Stock, $.001 par value, shall be combined in the ratio of 1 new share of Common Stock, $.0001 par value, for each 1.8135268 shares Common Stock, $.0001 par value, presently issued and outstanding. The Preferred Stock may be issued from time to time in one or more series. The Board of Directors of the Corporation is hereby expressly authorized to provide, by resolution or resolutions duly adopted by it prior to issuance, for the creation of each such series and to fix the designation and the powers, preferences, rights, qualifications, limitations and restrictions relating to the shares of each such series. The authority of the Board of Directors with respect to each series of Preferred Stock shall include, but not be limited to, determining the following: (a) the designation of such series, the number of shares to constitute such series and the stated value if different from the par value thereof; (b) whether the shares of such series shall have voting rights, in addition to any voting rights provided by law, and, if so, the terms of such voting rights, which may be general or limited; (c) the dividends, if any, payable on such series, whether any such dividends shall be cumulative, and, if so, from what dates, the conditions and dates upon which such dividends shall be payable, and the preference or relation which such dividends shall bear to the dividends payable on any shares of stock of any other class or any other series of Preferred Stock; (d) whether the shares of such series shall be subject to redemption by the Corporation, and, if so, the times, prices and other conditions of such redemption; (e) the amount or amounts payable upon shares of such series upon, and the rights of the holders of such series in, the voluntary or involuntary liquidation, dissolution or winding up, or upon any distribution of the assets, of the Corporation; (f) whether the shares of such series shall be subject to the operation of a retirement or sinking fund and, if so, the extent to and manner in which any such retirement or sinking fund shall be applied to the purchase or redemption of the shares of such series for retirement or other corporate purposes and the terms and provisions relating to the operation thereof; (g) whether the shares of such series shall be convertible into, or exchangeable for, shares of stock of any other class or any other series of Preferred Stock or any other securities and, if so, the price or prices or the rate or rates of conversion or exchange and the method, if any, of adjusting the same, and any other terms and conditions of conversion or exchange; -2- (h) the limitations and restrictions, if any, to be effective while any shares of such series are outstanding upon the payment of dividends or the making of other distributions on, and upon the purchase, redemption or other acquisition by the Corporation of, the Common Stock or shares of stock of any other class or any other series of Preferred Stock; (i) the conditions or restrictions, if any, upon the creation of indebtedness of the Corporation or upon the issue of any additional stock, including additional shares of such series or of any other series of Preferred Stock or of any other class; and (j) any other powers, preferences and relative, participating, optional and other special rights, and any qualifications, limitations and restrictions, thereof. The powers, preferences and relative, participating, optional and other special rights of each series of Preferred Stock, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding. All shares of any one series of Preferred Stock shall be identical in all respects with all other shares of such series, except that shares of any one series issued at different times may differ as to the dates from which dividends thereof shall be cumulative." SECOND: That such amendment has been duly adopted in accordance with the provisions of Sections 228 and 242 of the General Corporation Law of the State of Delaware. Prompt written notice of the adoption of the amendment has been given to those stockholders who have not consented in writing thereto. IN WITNESS WHEREOF, I have signed this Certificate this 16th day of January 1998. TAM RESTAURANTS, INC. By: /s/ Frank Cretella ------------------------------- Name: Frank Cretella Title: President -3- EX-3 3 EXHIBIT 3.2 TAM RESTAURANTS, INC. BY-LAWS ARTICLE I OFFICES 1. The location of the registered office of the Corporation in the State of Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle, and the name of its registered agent at such address is The Prentice-Hall Corporation System, Inc. 2. The Corporation shall in addition to its registered office in the State of Delaware establish and maintain an office or offices at such place or places as the Board of Directors may from time to time find necessary or desirable. ARTICLE II CORPORATE SEAL The corporate seal of the Corporation shall have inscribed thereon the name of the Corporation and may be in such form as the Board of Directors may determine. Such seal may be used by causing it or a facsimile thereof to be impressed, affixed or otherwise reproduced. ARTICLE III MEETINGS OF STOCKHOLDERS 1. All meetings of the stockholders shall be held at the registered office of the Corporation in the State of Delaware or at such other place as shall be determined from time to time by the Board of Directors. 2. The annual meeting of stockholders shall be held on such day and at such time as may be determined from time to time by resolution of the Board of Directors, when they shall elect by plurality vote, a Board of Directors to hold office until the annual meeting of stockholders held next after their election and their successors are respectively elected and qualified or until their earlier resignation or removal. Any other proper business may be transacted at the annual meeting. 3. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business, except as otherwise expressly provided by statute, by the Certificate of Incorporation or by these By-laws. If, however, such majority shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting (except as otherwise provided by statute). At such adjourned meeting at which the requisite amount of voting stock shall be represented any business may be transacted which might have been transacted at the meeting as originally notified. 4. At all meetings of the stockholders each stockholder having the right to vote shall be entitled to vote in person, or by proxy appointed by an instrument in writing subscribed by such stockholder and bearing a date not more than three years prior to said meeting, unless such instrument provides for a longer period. -2- 5. At each meeting of the stockholders each stockholder shall have one vote for each share of capital stock having voting power, registered in his name on the books of the Corporation at the record date fixed in accordance with these By-law, or otherwise determined, with respect to such meeting. Except as otherwise expressly provided by statute, by the Certificate of Incorporation or by these By-laws, all matters coming before any meeting of the stockholders shall be decided by the vote of a majority of the number of shares of stock present in person or represented by proxy at such meeting and entitled to vote thereat, a quorum being present. 6. Notice of each meeting of the stockholders shall be mailed to each stockholder entitled to vote thereat not less than 10 nor more than 60 days before the date of the meeting. Such notice shall state the place, date and hour of the meeting and, in the case of a special meeting, the purposes for which the meeting is called. 7. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the President or by the Board of Directors, and shall be called by the Secretary at the request in writing of stockholders owning at least ten percent (10%) of the amount of the entire capital stock of the Corporation issued and outstanding and entitled to vote. Such request by stockholders shall state the purpose or purposes of the proposed meeting. -3- 8. Business transacted at each special meeting shall be confined to the purpose or purposes stated in the notice of such meeting. 9. The order of business at each meeting of stockholders shall be determined by the presiding officer. ARTICLE IV DIRECTORS 1. The business and affairs of the Corporation shall be managed under the direction of a Board of Directors, which may exercise all such powers and authority for and on behalf of the Corporation as shall be permitted by law, the Certificate of Incorporation or these By-laws. Each of the directors shall hold office until the next annual meeting of stockholders and until his successor has been elected and qualified or until his earlier resignation or removal. 2. The Board is empowered to appoint a Chairman of the Board of Directors. The Chairman shall act as chairman of all meetings of the Board of Directors and at all special and annual meetings of stockholders, and shall have control over the agenda of such meetings, all in accordance with the provisions of these By-laws and the Certificate of Incorporation. The Chairman shall perform such other duties as may from time to time be assigned to him by the Board. 3. The Board of Directors may hold their meetings within or outside of the State of Delaware, at such place or places as it may from time to time determine. -4- 4. The number of directors comprising the Board of Directors shall be such number as may be from time to time fixed by resolution of the Board of Directors. In case of any increase, the Board shall have power to elect each additional director to hold office until the next annual meeting of stockholders and until his successor is elected and qualified or his earlier resignation or removal. Any decrease in the number of directors shall take effect at the time of such action by the Board only to the extent that vacancies then exist; to the extent that such decrease exceeds the number of such vacancies, the decrease shall not become effective, except as further vacancies may thereafter occur, until the time of and in connection with the election of directors at the next succeeding annual meeting of the stockholders. 5. If the office of any director becomes vacant, by reason of death, resignation, disqualification or otherwise, a majority of the directors then in office, although less than a quorum, may fill the vacancy by electing a successor who shall hold office until the next annual meeting of stockholders and until his successor is elected and qualified or his earlier resignation or removal. 6. Any director may resign at any time by giving written notice of his resignation to the Board of Directors. Any such resignation shall take effect upon receipt thereof by the Board, or at such later date as may be specified therein. Any such notice to the Board shall be addressed to it in care of the Secretary. -5- 7. Except where the Certificate of Incorporation contains provisions authorizing cumulative voting or the election of one or more directors by class or their election by holders of bonds, or requires all action by stockholders to be by a greater vote, any director or the entire Board of Directors may be removed, (a) either for or without cause, at any time, by vote of the stockholders holding a majority of the outstanding stock of the corporation entitled to vote, present in person or by proxy, at any special meeting of the stockholders or by written consent of all of the stockholders entitled to vote, or (b) for cause, by action of the Board of Directors at any regular or special meeting of the Board of Directors. A vacancy or vacancies occurring from such removal may be filled at the special meeting of stockholders or at a regular or special meeting of the Board of Directors. ARTICLE V COMMITTEES OF DIRECTORS 1. By resolutions adopted by a majority of the whole Board of Directors, the Board may designate an Executive Committee and one or more other committees, each such committee to consist of one or more directors of the Corporation. The Executive Committee shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation (except as otherwise expressly limited by statute), including the power and authority to declare dividends and to authorize the issuance of stock, and may authorize the seal of the corporation to be affixed to all papers which may require it. Each such committee shall have such of the powers and authority of the -6- Board as may be provided from time to time in resolutions adopted by a majority of the whole Board. 2. The requirements with respect to the manner in which the Executive Committee and each such other committee shall hold meetings and take actions shall be set forth in the resolutions of the Board of Directors designating the Executive Committee or such other committee. ARTICLE VI COMPENSATION OF DIRECTORS The directors shall receive such compensation for their services as may be authorized by resolution of the Board of Directors, which compensation may include an annual fee and a fixed sum for expense of attendance at regular or special meetings of the Board or any committee thereof. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. ARTICLE VII MEETINGS OF DIRECTORS; ACTION WITHOUT A MEETING 1. Regular meetings of the Board of Directors may be held without notice at such time and place, either within or without the State of Delaware, as may be determined from time to time by resolution of the Board. 2. Special meetings of the Board of Directors shall be held whenever called by the President of the Corporation or the Board of Directors on at least 24 hours' notice to each director. Except as may be otherwise specifically provided by statute, by the Certificate of Incorporation or by these By-laws, the purpose or -7- purposes of any such special meeting need not be stated in such notice, although the time and place of the meeting shall be stated. 3. At all meetings of the Board of Directors, the presence in person of a majority of the members of the Board of Directors shall be necessary and sufficient to constitute a quorum for the transaction of business, and, except as otherwise provided by statute, by the Certificate of Incorporation or by these By-laws, if a quorum shall be present the act of a majority of the directors present shall be the act of the Board. 4. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all the members of the Board or such committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the Board of committee. Any director may participate in a meeting of the Board, or any committee designated by the Board, by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this sentence shall constitute presence in person at such meeting. ARTICLE VIII OFFICERS 1. The officers of the Corporation shall be chosen by the Board of Directors and shall be a Chief Executive Officer, a President, one or more Vice Presidents, a Secretary, a Chief Financial Officer and a Treasurer. The Board may also choose one or more Assistant Secretaries and Assistant Treasurers, and such -8- other officers as it shall deem necessary. Any number of offices may be held by the same person. 2. The salaries of all officers of the Corporation shall be fixed by the Board of Directors, or in such manner as the Board may prescribe. 3. The officers of the Corporation shall hold office until their successors are elected and qualified, or until their earlier resignation or removal. Any officer may be at any time removed from office by the Board of Directors, with or without cause. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors. 4. Any officer may resign at any time by giving written notice of his resignation to the Board of Directors. Any such resignation shall take effect upon receipt thereof by the Board or at such later date as may be specified therein. Any such notice to the Board shall be addressed to it in care of the Secretary. ARTICLE IX CHIEF EXECUTIVE OFFICER The Chief Executive Officer shall have general supervision and direction of the business and affairs of the Corporation, subject, however, to the direction and control of the Board. The Chief Executive Officer may sign and execute in the name of the Corporation deeds, mortgages, bond, contracts or other instruments. He shall perform all duties incident to the office of the Chief Executive Officer and shall, when requested, counsel with and advise the other officers of the Corporation and shall perform such other duties as the Board may from time to time determine. -9- ARTICLE X PRESIDENT The President shall be the chief operating officer of the Corporation. Subject to the supervision and direction of the Board of Directors, he shall be responsible for managing the day to day affairs of the Corporation. He shall have supervision and direction of all of the several officers, agents and employees of the Corporation, subject, however, to the direction and control of the Board. The President may sign and execute in the name of the Corporation deeds, mortgages, bond, contracts or other instruments. He shall perform all duties incident to the office of the President and shall, when requested, counsel with and advise the other officers of the Corporation and shall perform such other duties as the Board may from time to time determine. ARTICLE XI VICE PRESIDENTS The Vice Presidents shall have such powers and duties as may be delegated to them by the Chief Executive Officer or by the President. ARTICLE XII SECRETARY AND ASSISTANT SECRETARY 1. The Secretary shall attend all meetings of the Board of Directors and of the stockholders, and shall record the minutes of all proceedings in a book to be kept for that purpose. He shall perform like duties for the committees of the Board when required. 2. The Secretary shall give, or cause to be given, notice of meetings of the stockholders, of the Board of Directors -10- and of the committees of the Board. He shall keep in safe custody the seal of the Corporation, and when authorized by the President, an Executive Vice President or a Vice President, shall affix the same to any instrument requiring it, and when so affixed it shall be attested by his signature or by the signature of an Assistant Secretary. He shall have such other powers and duties as may be delegated to him by the Chief Executive Officer or by the President. 3. The Assistant Secretary shall, in case of the absence of the Secretary, perform the duties and exercise the powers of the Secretary, and shall have such other powers and duties as may be delegated to them by the Chief Executive Officer or by the President. ARTICLE XIII CHIEF FINANCIAL OFFICER 1. The Chief Financial Officer shall have the custody of the corporate funds and securities, and shall deposit or cause to be deposited under his direction all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors or pursuant to authority granted by it. He shall render to the President and the Board whenever they may require it an account of all his transactions as Chief Financial Officer and of the financial condition of the Corporation. He shall have such other powers and duties as may be delegated to him by the Chief Executive Officer or by the President. -11- ARTICLE XIV TREASURER AND ASSISTANT TREASURER 1. The Treasurer shall assist the Chief Financial Officer in discharging his responsibilities and shall have such other powers and duties as may be delegated to him by the Chief Executive Officer, the President or the Chief Financial Officer. 2. The Assistant Treasurer shall, in case of the absence of the Treasurer, perform the duties and exercise the powers of the Treasurer, and shall have such other powers and duties as may be delegated to him by the Chief Executive Officer, the President or the Chief Financial Officer. ARTICLE XV The share register, accounting books and records and minutes of proceedings of the stockholders, the Board and committees of the Board shall be open to inspection and copying by any shareholder or holder of a voting trust certificate at any time during usual business hours, upon written demand on the corporation, for a purpose reasonably related to such holder's interest as a stockholder or holder of voting trust certificate. Inspection and copying may be made in person, by agent, or by attorney. Stockholders shall also have the right to inspect the original or certified copy of these By-Laws, as amended to date, kept at the corporation's principal executive office, at all reasonable times during business hours. ARTICLE XVI CERTIFICATES OF STOCK The certificates of stock of the Corporation shall be -12- numbered and shall be entered in the books of the Corporation as they are issued. They shall exhibit the holder's name and number of shares and shall be signed by the President or an Executive Vice President or Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary. ARTICLE XVII CHECKS All checks, drafts and other orders for the payment of money and all promissory notes and other evidences of indebtedness of the Corporation shall be signed by such officer or officers or such other person as may be designated by the Board of Directors or pursuant to authority granted by it. ARTICLE XVIII FISCAL YEAR The fiscal year of the Corporation shall be as determined from time to time by resolution duly adopted by the Board of Directors. ARTICLE XIX NOTICES AND WAIVERS 1. Whenever by statute, by the Certificate of Incorporation or by these By-laws it is provided that notice shall be given to any director or stockholder, such provision shall not be construed to require personal notice, but such notice may be given in writing, by mail, by depositing the same in the United States mail, postage prepaid, directed to such stockholder or director at his address as it appears on the records of the Corporation, and such notice shall be deemed to be given at the time when the same -13- shall be thus deposited. Notice of regular or special meetings of the Board of Directors may also be given to any director by telephone or by telex, telegraph or cable, and in the latter event the notice shall be deemed to be given at the time such notice, addressed to such director at the address hereinabove provided, is transmitted by telex (with confirmed answerback), or delivered to and accepted by an authorized telegraph or cable office. 2. Whenever by statute, by the Certificate of Incorporation or by these By-laws a notice is required to be given, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of any stockholder or director at any meeting thereof shall constitute a waiver of notice of such meeting by such stockholder or director, as the case may be, except as otherwise provided by statute. ARTICLE XX INDEMNIFICATION All persons who the Corporation is empowered to indemnify pursuant to the provisions of Section 145 of the General Corporation Law of the State of Delaware (or any similar provision or provisions of applicable law at the time in effect) shall be indemnified by the Corporation to the full extent permitted thereby. The foregoing right of indemnification shall not be deemed to be exclusive of any other such rights to which those seeking indemnification from the Corporation may be entitled, including, but not limited to, any rights of indemnification to which they may be entitled pursuant to any agreement, insurance -14- policy, other by-law or charter provision, vote of stockholders or directors, or otherwise. No repeal or amendment of this Article shall adversely affect any rights of any person pursuant to this Article which existed at the time of such repeal or amendment with respect to acts or omissions occurring prior to such repeal or amendment. ARTICLE XXI ALTERATION OF BY-LAWS The By-laws of the Corporation may be altered, amended or repealed, and new By-laws may be adopted, by the stockholders or by the Board of Directors. -15- EX-23.1.1 4 EXHIBIT 23.1.1 EXHIBIT 23.1.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS TAM Restaurants, Inc. and Subsidiaries Staten Island, New York We hereby consent to the use in the Prospectus constituting a part of this Registration Statement of our report dated December 18, 1997, relating to the consolidated financial statements of TAM Restaurants, Inc. and Subsidiaries, which is contained in that Prospectus. We also consent to the reference to us under the captions "Expert" and "Change in Independent Auditors" in the Prospectus. BDO Seidman, LLP /s/ BDO Seidman, LLP - ----------------------- New York, NY February 5, 1998 EX-23.1.2 5 EXHIBIT 23.1.2 EXHIBIT 23.1.2 Maltese, Potter & LaMarca LLP LOGO Certified Public Accountants CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS TAM Restaurants, Inc. and Subsidiaries We hereby consent to the incorporation by reference of the Prospectus constituting a part of this Registration Statement on Form SB-2 (No. 333-39937) of our report dated July 31, 1997 relating to the consolidated financial statements of TAM Restaurants, Inc. and Subsidiaries which is contained in that Prospectus. Our report contains an explanatory paragraph regarding uncertainties as to the Company's ability to continue as a going concern. We also consent to the reference to us under the caption "Selected Financial Data" and "Experts" in the Prospectus. /s/ Maltese, Potter & LaMarca LLP - --------------------------------- MALTESE, POTTER & LA MARCA LLP New York, New York February 4, 1998 -----END PRIVACY-ENHANCED MESSAGE-----