S-1 1 l40038sv1.htm FORM S-1 sv1
Table of Contents

 
As filed with the Securities and Exchange Commission on July 1, 2010
Registration No. 333-      
 
 
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
 
 
 
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 
 
 
 
Bravo Brio Restaurant Group, Inc.
(Exact name of registrant as specified in its charter)
 
         
Ohio
  5812   34-1566328
(State or Other Jurisdiction
of Incorporation or Organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)
 
 
 
 
777 Goodale Boulevard, Suite 100
Columbus, Ohio 43212
(614) 326-7944
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
 
 
 
 
Saed Mohseni
President and Chief Executive Officer
777 Goodale Boulevard, Suite 100
Columbus, Ohio 43212
(614) 326-7944
(Name, address including zip code, and telephone number, including area code, of agent for service)
 
 
 
 
With copies to:
 
     
Carmen J. Romano, Esq.    Marc D. Jaffe, Esq.
James A. Lebovitz, Esq.    Ian D. Schuman, Esq.
Dechert LLP   Latham & Watkins LLP
Cira Centre   885 Third Avenue
2929 Arch Street   New York, New York 10022
Philadelphia, Pennsylvania 19104   (212) 906-1200
(215) 994-4000    
 
 
 
 
Approximate date of commencement of proposed sale to the public:  As soon as practicable after the effective date of this Registration Statement.
 
 
 
 
If any of the securities being registered on this Form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box:  o
 
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) 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.  o
 
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.  o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(d) 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.  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer o Accelerated filer o Non-accelerated filer þ Smaller reporting company o
(Do not check if a smaller reporting company)
 
 
 
 
CALCULATION OF REGISTRATION FEE
 
                     
      Proposed Maximum
    Amount of
Title of Each Class
    Aggregate
    Registration
of Securities to be Registered     Offering Price(1)(2)     Fee
Common Stock, par value $0.001 per share
    $ 172,500,000       $ 12,300.00  
                     
 
 
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
 
(2) Including shares of common stock which may be purchased by the underwriters to cover over-allotments, if any.
 
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 this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
 


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold until the registration statement is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any state where the offer or sale is not permitted.
 
SUBJECT TO COMPLETION DATED JULY 1, 2010
Preliminary Prospectus
 
           Shares
 
(BRAVO BRIO LOGO)
 
Bravo Brio Restaurant Group, Inc.
 
Common Stock
 
We are offering           shares of our common stock and the selling shareholders identified in this prospectus are offering           shares of our common stock. We will not receive any proceeds from the sale of shares by the selling shareholders. This is our initial public offering, and no public market currently exists for our common stock. We expect the initial public offering price to be between $      and $      per common share. We intend to apply to list our common stock for listing on the Nasdaq Global Market under the symbol “BBRG.”
 
Investing in our common stock involves a high degree of risk. Please read “Risk Factors” beginning on page 13.
 
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
 
 
                 
    PER SHARE   TOTAL
 
Public Offering Price
  $                $             
Underwriting Discounts and Commissions
  $       $    
Proceeds to Bravo Brio Restaurant Group, Inc. (Before Expenses)
  $       $    
Proceeds to Selling Shareholders (Before Expenses)
  $       $  
 
 
Delivery of the shares of common stock is expected to be made on or about          , 2010. The selling shareholders have granted the underwriters an option for a period of 30 days to purchase up to an additional      shares of our common stock to cover overallotments. If the underwriters exercise the option in full, the total underwriting discounts and commissions payable by the selling shareholders will be $      and the total proceeds to the selling shareholders, before expenses, will be $     .
 
Joint Book-Running Managers
 
         
Jefferies & Company
  Piper Jaffray   Wells Fargo Securities
 
 
 
 
Co-Managers
 
     KeyBanc Capital Markets Morgan Keegan & Company, Inc.     
 
Prospectus dated          , 2010


Table of Contents

(GRAPHIC)
BRAVO is a fun, white tablecloth restaurant offering classic Italian food in a Roman-ruin decor. BRAVO! is inspired by the traditional Italian ristorante where fresh, made-to-order food is prepared in our open Italian kitchens in full view of our Guests, creating the energy of live theater.

 


Table of Contents

(GRAPHIC)
“The posh décor and upscale vibe of BRAVO! lends itself to a very comfortable dining experience.” Metromix — Orlando

 


Table of Contents

(GRAPHIC)
“2010 Reader’s Poll Choice for BEST ITALIAN —1st Place — BRAVO! Cucina Italiana” Pittsburgh Magazine Little Rock, AR (1) Naples, FL (1) Orlando, FL (1) West Des Moines, IA (1) Chicago, IL (2) Indianapolis, IN (3) Leawood, KS (1) Louisville, KY (1) Baton Rouge, LA (1) New Orleans, LA (1) Detroit, MI (3) Lansing, MI (1) Kansas City, MO (1) St Louis, MO (1) Greensboro, NC (1) Charlotte, NC (1) Albuquerque, NM (1) Bu3alo, NY (1) West Nyack, NY (1) Akron, OH (1) Canton, OH (1) Cincinnati, OH (2) Cleveland, OH (2) Columbus, OH (2) Dayton, OH (1) Toledo, OH (1) Oklahoma City, OK (1) Allentown, PA (1) Pittsburgh, PA (5) Knoxville, TN (1) San Antonio, TX (1) Fredericksburg, VA (1) Virginia Beach, VA (1) Milwaukee, WI (2) BravoItalian.com

 


 

 
Table of Contents
         
    Page
 
    ii  
    ii  
    ii  
    1  
    12  
    28  
    30  
    32  
    33  
    34  
    35  
    37  
    41  
    56  
    70  
    78  
    89  
    91  
    94  
    98  
    99  
    101  
    108  
    110  
    110  
    110  
    F-1  
 EX-10.3
 EX-10.4
 EX-10.5
 EX-10.6
 EX-10.7
 EX-10.8
 EX-10.9
 EX-10.10
 EX-10.11
 EX-10.12
 EX-21.1
 EX-23.1
 
 
Until          , 2010 (25 days after the date of this prospectus), all dealers that buy, sell or trade the common shares, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
 
We have not authorized anyone to give any information or to make any representations other than those contained in this prospectus. Do not rely upon any information or representations made outside of this prospectus. This prospectus is not an offer to sell, and it is not soliciting an offer to buy, (1) any securities other than shares of our common stock or (2) shares of our common stock in any circumstances in which our offer or solicitation is unlawful. The information contained in this prospectus may change after the date of this prospectus. Do not assume after the date of this prospectus that the information contained in this prospectus is still correct.


i


Table of Contents

 
Basis of Presentation
 
We utilize a typical restaurant 52- or 53-week fiscal year ending on the Sunday closest to December 31. Fiscal years are identified in this prospectus according to the calendar year in which the fiscal years end. For example, references to “2009,” “fiscal 2009,” “fiscal year 2009” or similar references refer to the fiscal year ending December 27, 2009.
 
Industry and Market Data
 
This prospectus includes industry data that we derived from internal company records, publicly available information and industry publications and surveys. Industry publications and surveys generally state that the information contained therein has been obtained from sources believed to be reliable. Neither we, the selling shareholders nor the underwriters have independently verified any third-party industry data or guarantee the accuracy or completeness of such data. In addition, while we believe that the results and estimates from our internal research are reliable, such results and estimates have not been verified by any independent source. As a result, you should carefully consider the inherent risks and uncertainties associated with the industry and market data contained in this prospectus, including those discussed under the heading “Risk Factors.”
 
Trademarks and Trade Names
 
In this prospectus, we refer (without the ownership notation) to several registered and common law trademarks that we own, including BRAVO!®, BRAVO! Cucina Italiana®, Cucina BRAVO! Italiana®, BRAVO! Italian Kitchen®, Brio®, Brio Tuscan Grilletm and Bon Vie®. All brand names or other trademarks appearing in this prospectus are the property of their respective owners.


ii


Table of Contents

 
Prospectus Summary
 
The following summary highlights information contained elsewhere in this prospectus and is qualified in its entirety by the more detailed information and the consolidated financial statements and the related notes to those statements included elsewhere in this prospectus. Because it is a summary, it does not contain all of the information that you should consider before investing in our common stock. You should read this prospectus carefully, including the section entitled “Risk Factors” and the consolidated financial statements and the related notes to those statements included elsewhere in this prospectus.
 
As used in this prospectus, unless the context otherwise indicates, the references to “Holdings” refer to Bravo Development Holdings LLC, our majority shareholder before taking into account the reorganization transactions (as described herein), and the references to “our company,” “the Company,” “us,” “we” and “our” refer to Bravo Brio Restaurant Group, Inc. together with its subsidiaries.
 
Unless otherwise indicated or the context otherwise requires, financial and operating data in this prospectus reflects the consolidated business and operations of Bravo Brio Restaurant Group, Inc. and its wholly-owned subsidiaries. Except where otherwise indicated, “$” indicates U.S. dollars.
 
Our Business
 
We are the owner and operator of two fast growing and leading Italian restaurant brands, BRAVO! Cucina Italiana (“BRAVO!”) and BRIO Tuscan Grille (“BRIO”). We have positioned our brands as multifaceted culinary destinations that deliver the ambiance, design elements and food quality reminiscent of fine dining restaurants at a value typically offered by casual dining establishments, a combination that we call “Upscale Affordable.” Each of BRAVO! and BRIO provides its guests with affordable, high-quality cuisine prepared using fresh ingredients and authentic Italian cooking methods, combined with attentive service in an attractive, lively atmosphere. We strive to be the best Italian restaurant company in America and are focused on providing our guests an excellent dining experience through consistency of execution. We believe that both of our brands appeal to a broad base of consumers, especially to women whom we believe currently account for approximately 62% and 65% of our guest traffic at BRAVO! and BRIO, respectively.
 
While our brands share certain corporate support functions to maximize efficiencies across our company, each brand maintains its own identity, therefore allowing both brands to be located in common markets. We have demonstrated our growth and the viability of our brands in a wide variety of markets across the U.S., growing from 49 restaurants in 19 states at the end of 2005 to 83 restaurants in 27 states as of March 28, 2010. From 2005 to 2009, our revenues increased from $198.8 million to $311.7 million, and our Adjusted EBITDA increased from $13.4 million to $34.8 million, representing compound annual growth rates (CAGR) of 11.9% and 27.0%, respectively. During this period, our Adjusted EBITDA margins have increased from 6.7% to 11.2%. See Note 4 to “— Selected Historical Consolidated Financial and Operating Data” for a reconciliation of net income to EBITDA and to Adjusted EBITDA.
 
BRAVO! Cucina Italiana
 
BRAVO! Cucina Italiana is a full-service, Upscale Affordable Italian restaurant offering a broad menu of freshly-prepared classic Italian food served in a lively, high-energy environment with attentive service. The subtitle “Cucina Italiana,” meaning “Italian Kitchen,” is appropriate since all cooking is done in full view of our guests, creating the energy of live theater. As of March 28, 2010, we owned and operated 46 BRAVO! restaurants in 19 states.
 
BRAVO! offers a wide variety of pasta dishes, steaks, chicken, seafood and pizzas, emphasizing fresh, made-to-order, high-quality food that delivers an excellent value to guests. BRAVO! also offers creative seasonal specials, an extensive wine list, carry-out and catering. We believe that our high-quality offerings and generous portions, combined with our ambiance and friendly, attentive service, offer our guests an attractive price-value proposition. The average check for BRAVO! during the first quarter of 2010 was $19.37 per guest.
 
The breadth of menu offerings at BRAVO! helps generate significant guest traffic at both lunch and dinner. Lunch entrées range in price from $8 to $18, while appetizers, pizzas, flatbreads and entrée salads range from $6 to $14.


1


Table of Contents

During the first quarter of 2010, the average lunch check for BRAVO! was $14.81 per guest. Dinner entrées range in price from $12 to $29 and include a broad selection of fresh pastas, steaks, chicken and seafood. Dinner appetizers, pizzas, flatbreads and entrée salads range from $6 to $15. During the first quarter of 2010, the average dinner check for BRAVO! was $22.19 per guest. At BRAVO!, lunch and dinner represented 29.2% and 70.8% of revenues, respectively. Our average annual sales per comparable BRAVO! restaurant were $3.5 million in 2009.
 
BRAVO!’s architectural design incorporates interior features such as arched colonnades, broken columns, hand-crafted Italian reliefs, Arabescato marble and sizable wrought-iron chandeliers. We locate our BRAVO! restaurants in high-activity areas such as retail and lifestyle centers that are situated near commercial office space and high-density residential housing.
 
BRIO Tuscan Grille
 
BRIO Tuscan Grille is an Upscale Affordable Italian chophouse restaurant serving freshly-prepared, authentic northern Italian food in a Tuscan Villa atmosphere. BRIO means “lively” or “full of life” in Italian and draws its inspiration from the cherished Tuscan philosophy of “to eat well is to live well.” As of March 28, 2010, we owned and operated 37 BRIO restaurants in 17 states.
 
The cuisine at BRIO is prepared using fresh, high-quality ingredients, with an emphasis on steaks, chops, fresh seafood and made-to-order pastas. BRIO also offers creative seasonal specials, an extensive wine list, carry-out and banquet facilities at select locations. We believe that our passion for excellence in service and culinary expertise, along with our generous portions, contemporary dining elements and ambiance, offers our guests an attractive price-value proposition. The average check for BRIO during the first quarter of 2010 was $25.12 per guest.
 
BRIO offers lunch entrées that range in price from $10 to $18 and appetizers, sandwiches, flatbreads and entrée salads ranging from $8 to $15. During the first quarter of 2010, the average lunch check for BRIO was $17.90 per guest. Dinner entrées range in price from $14 to $30, while appetizers, sandwiches, flatbreads, bruschettas and entrée salads range from $8 to $15. During the first quarter of 2010, the average dinner check for BRIO was $30.52 per guest. At BRIO, lunch and dinner represented 30.5% and 69.5% of revenues, respectively. Our average annual sales per comparable BRIO restaurant were $4.8 million in 2009.
 
The design and architectural elements of BRIO restaurants are important to the guest experience. The goal is to bring the pleasures of the Tuscan country villa to our restaurant guests. The warm, inviting ambiance of BRIO incorporates interior features such as antique hardwood Cypress flooring, arched colonnades, hand-crafted Italian mosaics, hand-crafted walls covered in an antique Venetian plaster, Arabescato marble and sizable wrought-iron chandeliers. BRIO is typically located in high-traffic, high-visibility locations in affluent suburban and urban markets.
 
We also operate one Upscale Affordable American-French bistro restaurant in Columbus, Ohio under the brand “Bon Vie.” Our Bon Vie restaurant is included in the BRIO operating and financial data set forth in this prospectus.
 
Our Business Strengths
 
Our mission statement is to be the best Italian restaurant company in America by delivering the highest quality food and service to each guest...at each meal...each and every day. The following strengths help us achieve these objectives:
 
Two Differentiated yet Complementary Brands.  We have developed two premier Upscale Affordable Italian restaurant brands that are highly complementary and can be located in common markets. Both BRAVO! and BRIO have their own Corporate Executive Chef who develops recipes and menu items with differentiated flavor profiles and price points. Each brand features unique design elements and atmospheres that attract a diverse guest base as well as common guests who visit both BRAVO! and BRIO for different dining experiences. The differentiated qualities of our brands allow us to operate in significantly more locations than would be possible with one brand, including high-density residential areas, shopping malls, lifestyle centers and other high-traffic locations. Based on demographics, co-tenants and net investment requirements, we can choose between our two


2


Table of Contents

brands to determine which is optimal for a location and thereby generate highly attractive returns on our investment.
 
Our brands are designed to have broad guest appeal at two different price points. We focus on choosing the right brand for a specific site based on population density and demographics. Management targets markets with $65,000 minimum annual household income and a population density of 125,000 residents within a particular trade area for BRAVO! and $70,000 minimum annual household income and a population density of 150,000 residents within a particular trade area for BRIO. We have a business model that maintains quality and consistency on a national basis while also having the flexibility to cater to the specific characteristics of a particular market. We have a proven track record of successfully opening new restaurants in a number of diverse real estate locations, including both freestanding and in-line with other national retailers. In addition, we believe the flexibility of our restaurant design is a competitive advantage that allows us to open new restaurants in attractive markets without being limited to a standard prototype.
 
Our brands maintain several common qualities, including certain design elements such as chandeliers and marble and granite counter tops, that help reduce building and construction costs and create consistency for our guests. We share best practices in service, preparation and food quality across both brands. In addition, we share services such as real estate development, purchasing, human resources, marketing and advertising, information technology, finance and accounting, allowing us to maximize efficiencies across our company as we continue our growth.
 
Broad Appeal with Attractive Guest Base.  We provide an upscale, yet inviting, atmosphere attracting guests from a variety of age groups and economic backgrounds. We believe our brands offer the highest quality food, service and ambiance when compared to other national competitors in the multi-location Italian restaurant category. We provide our guests an Upscale Affordable dining experience at both lunch and dinner, which attracts guests from both the casual dining and fine dining segments. We locate our restaurants in high-traffic suburban and urban locations to attract primarily local patrons with limited reliance on business travelers. Our blend of location, menu offerings and ambiance is designed to appeal to women, a key decision-maker when deciding where to dine and shop. We believe that women currently account for approximately 62% and 65% of our guest traffic at BRAVO! and BRIO, respectively. This positioning helps make our restaurants attractive for developers and landlords. We have also cultivated a loyal guest base, with a majority of our guests dining with us at least once a month.
 
Superior Dining Experience and Value.  The strength of our value proposition lies in our ability to provide high-quality, freshly-prepared Italian cuisine in a lively restaurant atmosphere with highly attentive guest service at an attractive price point. We believe that the dining experiences we offer, coupled with an attractive price-value relationship, helps us create long-term, loyal and highly satisfied guests.
 
  •  The Food.  We offer made-to-order menu items prepared using traditional Italian culinary techniques with an emphasis on fresh ingredients and authentic recipes. Our food menu is complemented by a wine list that offers both familiar varieties as well as wines exclusive to our restaurants. An attention to detail, culinary expertise and focused execution reflects our chef-driven culture.
 
  •  The Service.  We are committed to delivering superior service to each guest, at each meal, each and every day. We place significant emphasis on maintaining high waitstaff-to-table ratios, thoroughly training all service personnel on the details of each menu item and staffing each restaurant with experienced management teams to ensure consistent and attentive guest service.
 
  •  The Experience.  Lively, high-energy environments blending dramatic design elements with a warm and inviting atmosphere create a memorable guest experience. Signature architectural and décor elements include the lively theatre of exhibition kitchens, high ceilings, white tablecloths, a centerpiece bar and relaxing patio areas. These elements, along with our superior service and value, help form a bond between our guests and our restaurants, encouraging guest loyalty and more frequent visits.
 
Nationally Recognized Restaurant Anchor.  Our differentiated brands, the attractive demographics of our guests and the high number of weekly guest visits to our restaurants have positioned us as a preferred tenant and the multi-location Italian restaurant company of choice for national and regional real estate developers. Landlords and developers seek out our concepts to be restaurant anchors for their developments as they are highly complementary to national retailers such as Apple, Williams Sonoma and J. Crew, having attracted on average between


3


Table of Contents

3,000-5,000 guests per restaurant each week in 2009. As a result of the importance of our brands to the retail centers in which we are located, we are often able to negotiate the prime location within a center and favorable real estate terms, which helps to drive strong returns on capital for our shareholders.
 
Compelling Unit Economics.  We have successfully opened and operated both of our brands in multiple geographic regions and achieved attractive rates of return on our invested capital, providing a strong foundation for expansion in both new and existing markets. Our ability to grow rapidly and efficiently in all market conditions is evidenced through our strong track record of new restaurant openings, including our 2009 openings which generated one of the best year-one returns on investment in our history. Under our current investment model, BRAVO! restaurant openings require a net cash investment of approximately $1.8 million and BRIO restaurant openings require a net cash investment of approximately $2.2 million. We target a cash-on-cash return beginning in the third operating year for both of our restaurants of between 30% and 40%.
 
Management Team with Proven Track Record.  We have assembled a tested and proven management team with significant experience operating public companies. Our management team is led by our CEO and President, Saed Mohseni, former CEO of McCormick & Schmick’s Seafood Restaurants, Inc., who joined the company in February 2007. Since Mr. Mohseni’s arrival, we have continued to open new restaurants despite the economic recession. These new restaurant openings have been a key driver of our growth in revenue and Adjusted EBITDA, which have increased 29.1% and 89.0%, respectively, between the years ended 2006 and 2009. In addition to new restaurant growth, we have also implemented a number of revenue and margin enhancing initiatives such as our wine by the glass offerings, wine flights, dessert trays and a new bar menu. These programs were strategically implemented to improve our guest experience and maintain our brand image, as opposed to the discounting programs initiated by many of our competitors. In addition, we have improved our labor efficiencies and food cost management, which helped to drive our margin increases and improved our restaurant-level profitability. These changes resulted in an increase in our restaurant-level operating margin from 16.0% in 2006 to 17.4% in 2009, a 140 basis point improvement. Restaurant-level operating margin represents our revenues less total restaurant operating costs, as a percentage of our revenues.
 
Our Growth Strategies
 
We believe our restaurants have significant growth potential due to our Upscale Affordable positioning, strong unit economics, proven track record of financial results and broad guest appeal. Our growth model is comprised of the following three primary drivers:
 
Pursue Disciplined Restaurant Growth.  We believe that there are significant opportunities to grow our brands on a nationwide basis in both existing and new markets where we believe we can generate attractive unit level economics. We are pursuing a disciplined growth strategy for both of our brands. We believe that each brand is at an early stage of its expansion.
 
We have built a scalable infrastructure and have successfully grown our restaurant base through a challenging market environment. Despite difficult economic conditions, we opened seven new restaurants in 2009. We continue to grow in 2010, having opened two new restaurants in each of the first and second quarters of 2010, with one additional restaurant planned to be opened later this year. We plan to open five to six new restaurants in 2011 and aim to open between 45 and 50 new restaurants over the next five years.
 
Grow Existing Restaurant Sales.  We will continue to pursue targeted local marketing efforts and evaluate operational initiatives designed to increase unit volumes without relying on the margin-eroding discounting programs adopted by many of our competitors.
 
Initiatives at BRAVO! include increasing online ordering, which generates a higher average per person check compared to our current carry-out business, expanding local restaurant marketing and promoting our patio business. Other initiatives include promoting our bar program through martini night and happy hour programs and expanding our feature cards to include appetizers and desserts.
 
At BRIO, we are promoting our bar programs, implementing wine flights and dessert trays, introducing a new bar menu and expanding the selection of wines by the glass. In addition, we believe there is an opportunity to expand


4


Table of Contents

our banquet and special events catering business. Our banquet and special events catering business typically generates a higher average per person check than our dining rooms and, as a result of reduced labor costs relative to revenue, allows us to achieve higher margins on those revenues.
 
We believe our existing restaurants will benefit from increasing brand awareness as we continue to enter new markets. In addition, we may selectively remodel existing units to include additional seating capacity to increase revenue.
 
Maintain Margins Throughout Our Growth.  We will continue to aggressively protect our margins using economies of scale, including marketing and purchasing synergies between our brands and leveraging our corporate infrastructure as we continue to open new restaurants. Additional margin enhancement opportunities include increasing labor efficiency through the use of scheduling tools, menu engineering and other operating cost reduction programs.
 
Our History
 
We were incorporated as an Ohio corporation under the name Belden Village Venture, Inc. in July 1987. Our name was changed to Bravo Cucina of Dayton, Inc. in September 1995, to Bravo Development, Inc. in December 1998 and to Bravo Brio Restaurant Group, Inc. in June 2010. We opened our first BRAVO! Cucina Italiana in 1992 in Columbus, Ohio. In 1999, we opened our first BRIO Tuscan Grille in Columbus, Ohio. In June 2006, we entered into a recapitalization transaction with Bravo Development Holdings LLC, an entity controlled by two private equity firms, Bruckmann, Rosser, Sherrill & Co. Management, L.P. and Castle Harlan, Inc. As a result of the recapitalization transaction, Bravo Development Holdings LLC, or Holdings, became our majority shareholder.
 
Reorganization Transactions
 
It is anticipated that Holdings will enter into an exchange agreement with us pursuant to which Holdings will exchange its shares of our Series A preferred stock and common stock for new shares of our common stock immediately prior to the consummation of this offering. Additionally, we and each of our other current shareholders will simultaneously enter into a similar exchange agreement pursuant to which each such shareholder will exchange all of their shares of our Series A preferred stock and common stock for new shares of our common stock immediately prior to the consummation of this offering. See “Reorganization Transactions” for more information.
 
Our Sponsors
 
Bruckmann, Rosser, Sherrill & Co. Management, L.P.
 
Bruckmann, Rosser, Sherrill & Co. Management, L.P., which we refer to as BRS, is a New York based private equity firm with previous investments and remaining committed capital totaling $1.4 billion. BRS partners with management teams to create financial and operational value over the long-term for the benefit of its investors, focusing on investments in middle market consumer goods and services businesses. Companies that possess existing or emerging strong market positions and are well-positioned for accelerated long-term growth are best positioned to benefit from the firm’s support and expertise. BRS and its principals have extensive experience in the restaurant industry, having completed 16 restaurant investments to date, including add-on acquisitions. Since 1996, BRS has purchased over 40 portfolio companies for aggregate consideration of over $6.4 billion.
 
Castle Harlan, Inc.
 
Castle Harlan was founded in 1987 by John K. Castle, former president and chief executive officer of Donaldson, Lufkin & Jenrette, an investment banking firm, and Leonard M. Harlan, founder and former chairman of The Harlan Company. Castle Harlan invests in controlling interests in the buyout and development of middle-market companies principally in North America and Europe. Its team of 20 investment professionals has completed 52 acquisitions since its inception with a total value in excess of $9.0 billion. Castle Harlan currently manages investment funds globally with equity commitments of $2.5 billion. Castle Harlan’s current and former


5


Table of Contents

investments in the restaurant industry include investments in McCormick & Schmick’s Seafood Restaurants, Inc., Charlie Brown’s, Inc., Caribbean Restaurants, LLC and Morton’s Restaurant Group, Inc.
 
Risk Factors
 
Before you invest in our shares, you should carefully consider all of the information in this prospectus, including matters set forth under the heading “Risk Factors.” Risks relating to our business include, among others, that our financial results depend significantly upon the success of our existing and new restaurants and our long-term success is highly dependent on our ability to successfully develop and expand our operations.
 
Company Information
 
Our principal executive office is located at 777 Goodale Boulevard, Suite 100, Columbus, Ohio 43212 and our telephone number is (614) 326-7944. Our website address is www.bbrg.com. Our website and the information contained therein or connected thereto shall not be deemed to be incorporated into this prospectus or the registration statement of which it forms a part.


6


Table of Contents

The Offering
 
Shares of common stock offered by us            shares.
 
 
Shares of common stock offered by the selling shareholders           shares, or          shares if the underwriters exercise their over-allotment option in full.
 
Over-allotment option The selling shareholders have granted the underwriters an option for a period of 30 days to purchase up to          additional shares of our common stock to cover overallotments.
 
Ownership after offering Upon completion of this offering, our executive officers, directors and affiliated entities will own approximately     % of our outstanding common stock, or     % if the underwriters exercise their over-allotment option in full, and will as a result have significant control over our affairs.
 
Common stock to be outstanding after this offering           shares.
 
Use of proceeds We estimate that we will receive net proceeds from the sale of shares of our common stock in this offering of $      million, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds of this offering, together with $      million in borrowings under our new senior credit facilities, to:
 
• repay all loans outstanding under our existing senior credit facilities, and any accrued and unpaid interest and related LIBOR breakage costs and other fees; and
 
• repay all of our outstanding 13.25% senior subordinated secured notes, and any accrued and unpaid interest.
 
As of March 28, 2010, approximately $85.8 million principal amount of loans were outstanding under our existing senior credit facilities and approximately $32.4 million aggregate principal amount of our 13.25% senior subordinated secured notes were outstanding.
 
Any remaining net proceeds will be used for general corporate purposes. Affiliates of Wells Fargo Securities, LLC and Jefferies & Company, Inc., underwriters in this offering, are parties to our existing senior credit facilities and will receive approximately $      million and $      million, respectively, of the proceeds used to repay the loans outstanding under our existing senior credit facilities.
 
We will not receive any of the proceeds from the sale of shares of common stock by the selling shareholders. See “Use of Proceeds,” “Principal and Selling Shareholders” and “Underwriting — Conflicts of Interest.”
 
Dividend policy We do not currently pay cash dividends on our stock and do not anticipate paying any dividends on our common stock in the foreseeable future. Any future determination relating to our dividend policy will be made at the discretion of our board of


7


Table of Contents

directors and will depend on then existing conditions, including our financial condition, results of operations, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant. In addition, we anticipate that our ability to declare and pay dividends will also be restricted by covenants in our new senior credit facilities. See “Description of Indebtedness — New Senior Credit Facilities” and “Risk Factors— Our substantial indebtedness may limit our ability to invest in the ongoing needs of our business.”
 
Proposed Nasdaq Global Market symbol BBRG.
 
Risk factors Investment in our common stock involves substantial risks. You should read this prospectus carefully, including the section entitled “Risk Factors” and the consolidated financial statements and the related notes to those statements included elsewhere in this prospectus before investing in our common stock.
 
Without giving effect to the reorganization transactions (as defined in “Reorganization Transactions”) expected to occur prior to the consummation of this offering, the number of shares of our common stock to be outstanding after this offering is based on 1,050,000 shares of common stock outstanding as of June 27, 2010 and excludes 257,875 shares of our common stock issuable upon exercise of outstanding options under the Bravo Development, Inc. Option Plan as of March 28, 2010 at a weighted average exercise price of $9.92 per share. See “Compensation Discussion and Analysis — Bravo Development, Inc. Option Plan.”
 
Unless otherwise noted, all information in this prospectus:
 
  •  assumes that the underwriters do not exercise their over-allotment option; and
 
  •  other than historical financial information, reflects (1) the exchange of one share of new common stock for each outstanding share of common stock, (2) the amendment and restatement of our articles of incorporation to give effect to a     -for-1 stock split of our outstanding common stock, and (3) the exchange of all shares of our issued and outstanding Series A preferred stock for          shares of common stock at an exchange ratio of 1:      immediately prior to the consummation of this offering, based upon an initial public offering price of $      per share, the midpoint of the price range set forth on the cover of this prospectus. See “Reorganization Transactions.”


8


Table of Contents

 
Summary Historical Consolidated Financial and Operating Data
 
The following table sets forth, for the periods and dates indicated, our summary historical consolidated financial and operating data. We have derived the statement of operations data for the fiscal years ended December 30, 2007, December 28, 2008 and December 27, 2009 and the balance sheet data as of December 28, 2008 and December 27, 2009 from our audited consolidated financial statements appearing elsewhere in this prospectus. We have derived the balance sheet data as of December 30, 2007 from our audited consolidated financial statements not included elsewhere in this prospectus. We have derived the statement of operations data for the thirteen weeks ended March 29, 2009 and March 28, 2010 and balance sheet data as of March 28, 2010 from our unaudited interim consolidated financial statements appearing elsewhere in this prospectus. We have derived the balance sheet data as of March 29, 2009 from our unaudited interim consolidated financial statements not included elsewhere in this prospectus. The summary financial data presented below represent portions of our financial statements and are not complete. You should read this information in conjunction with “Use of Proceeds,” “Capitalization,” “Selected Historical Consolidated Financial and Operating Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes to those statements included elsewhere in this prospectus.
 
                                         
 
    Year Ended(1)     Thirteen Weeks Ended  
    December 30,
    December 28,
    December 27,
    March 29,
    March 28,
 
    2007     2008     2009     2009     2010  
    (Dollars in thousands, except per share data)  
 
Statement of Operations Data:
                                       
Revenues
  $  265,374     $  300,783     $  311,709     $  73,593     $  81,844  
Cost of Sales
    75,340       84,618       82,609       19,721       21,357  
Labor
    89,663       102,323       106,330       26,096       28,096  
Operating
    41,567       47,690       48,917       12,505       12,753  
Occupancy
    16,054       18,736       19,636       5,061       5,525  
                                         
Total restaurant operating costs
    222,624       253,367       257,492       63,383       67,731  
General and administrative expenses
    16,768       15,042       17,123       4,583       4,423  
Restaurant pre-opening costs
    5,647       5,434       3,758       1,106       1,205  
Depreciation and amortization
    12,309       14,651       16,088       3,816       4,124  
Asset impairment charges
            8,506       6,436                  
Other expenses, net
    462       229       157       105       (25 )
                                         
Total costs and expenses
    35,186       43,862       43,562       9,610       9,727  
Income (loss) from operations
    7,564       3,554       10,655       600       4,386  
Net interest expense
    11,853       9,892       7,119       1,895       1,770  
                                         
Income (loss) from continuing operations before income taxes
    (4,289 )     (6,338 )     3,536       (1,295 )     2,616  
Income tax provision (benefit)
    (3,503 )     55,061       135       (2 )     100  
                                         
Net income (loss)
  $ (786 )   $ (61,399 )   $ 3,401     $ (1,293 )   $ 2,516  
Undeclared preferred dividend
    (8,920 )     (10,175 )     (11,599 )     (2,710 )     (3,089 )
                                         
Net income (loss) available to common shareholders
  $ (9,706 )   $ (71,574 )   $ (8,198 )   $ (4,003 )   $ (573 )
                                         
As Adjusted Per Share Data:(2)
                                       
Income (loss) from continuing operations
  $       $       $    
Weighted average common shares outstanding, basic and diluted
                       
                         
Other Financial Data:
                                       
Net cash provided from operating activities
  $ 31,291     $ 32,501     $ 33,782     $ 2,948     $ 6,108  
Net cash provided from (used for) investing activities
  $ (35,536 )   $ (43,088 )   $ (24,957 )   $ (6,399 )   $ (6,410 )
Net cash (used in) provided by financing activities
  $ 4,156     $ 10,529     $ (9,258 )   $ 3,230     $ 294  
Capital expenditures
  $ 28,782     $ 24,578     $ 14,121     $ 2,109     $ 2,332  
Adjusted EBITDA(3)
  $ 20,260     $ 27,218     $ 34,790     $ 4,917     $ 8,920  
Adjusted EBITDA margin
    7.6 %     9.0 %     11.2 %     6.7 %     10.9 %
Operating Data:
                                       
Total restaurants (at end of period)
    63       75       81       77       83  
Total comparable restaurants (at end of period)
    49       54       61       62       74  
Change in comparable restaurant sales
    0.6 %     (3.8 )%     (7.4 )%     (8.2 )%     0.2 %
BRAVO!:
                                       
Restaurants (at end of period)
    38       44       45       45       46  
Total comparable restaurants (at end of period)
    31       33       36       37       43  
Average sales per comparable restaurant
  $ 3,890     $ 3,715     $ 3,457     $ 836     $ 820  
Change in comparable restaurant sales
    0.9 %     (4.1 )%     (7.1 )%     (8.6 )%     (0.6 )%


9


Table of Contents

                                         
 
    Year Ended(1)     Thirteen Weeks Ended  
    December 30,
    December 28,
    December 27,
    March 29,
    March 28,
 
    2007     2008     2009     2009     2010  
    (Dollars in thousands, except per share data)  
 
BRIO:
                                       
Restaurants (at end of period)
    25       31       36       32       37  
Total comparable restaurants (at end of period)
    18       21       25       25       31  
Average sales per comparable restaurant
  $ 5,308     $ 5,401     $ 4,812     $ 1,196     $ 1,215  
Change in comparable restaurant sales
    0.2 %     (3.6 )%     (7.8 )%     (7.7 )%     1.0 %
Balance Sheet Data (at end of period):
                                       
Cash and cash equivalents
  $ 740     $ 682     $ 249     $ 461     $ 241  
Working capital (deficit)
  $ (33,110 )   $ (34,320 )   $ (36,156 )   $ (33,162 )   $ (33,781 )
Total assets
  $ 195,048     $ 157,764     $ 160,842     $ 159,055     $ 162,114  
Total debt
  $ 114,136     $ 125,950     $ 118,031     $ 129,509     $ 118,439  
Total stockholders’ equity (deficiency in assets)
  $ (14,692 )   $ (76,091 )   $ (72,690 )   $ (77,385 )   $ (70,174 )
 
                 
    Actual
    As Adjusted(2)
 
    As of
    As of
 
    March 28,
    March 28,
 
    2010     2010  
    (In thousands)  
 
Balance Sheet Data:
               
Cash and cash equivalents
  $ 241          
Working capital (deficit)
  $ (33,781 )        
Total assets
  $ 162,114          
Total debt
  $ 118,439          
Total stockholders’ equity (deficiency in assets)
  $ (70,174 )        
 
(1) We utilize a 52- or 53-week accounting period which ends on the Sunday closest to December 31. The fiscal years ended December 27, 2009, December 28, 2008 and December 30, 2007 each have 52 weeks.
 
(2) Gives effect to (i) the reorganization transactions expected to occur prior to the consummation of this offering, (ii) this offering and (iii) the application of the net proceeds of this offering and of borrowings under our new senior credit facilities as described under “Use of Proceeds.”
 
(3) Adjusted EBITDA represents earnings before interest, taxes, depreciation and amortization plus the sum of asset impairment charges and management fees and expenses. We are presenting Adjusted EBITDA, which is not required by U.S. generally accepted accounting principles, or GAAP, because it provides an additional measure to view our operations, when considered with both our GAAP results and the reconciliation to net income (loss) which we believe provides a more complete understanding of our business than could be obtained absent this disclosure. We use Adjusted EBITDA, together with financial measures prepared in accordance with GAAP, such as revenue and cash flows from operations, to assess our historical and prospective operating performance and to enhance our understanding of our core operating performance. Adjusted EBITDA is presented because: (i) we believe it is a useful measure for investors to assess the operating performance of our business without the effect of non-cash depreciation and amortization expenses and asset impairment charges; (ii) we believe that investors will find it useful in assessing our ability to service or incur indebtedness; and (iii) we use Adjusted EBITDA internally as a benchmark to evaluate our operating performance or compare our performance to that of our competitors. The use of Adjusted EBITDA as a performance measure permits a comparative assessment of our operating performance relative to our performance based on our GAAP results, while isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies. Companies within our industry exhibit significant variations with respect to capital structures and cost of capital (which affect interest expense and tax rates) and differences in book depreciation of facilities and equipment (which affect relative depreciation expense), including significant differences in the depreciable lives of similar assets among various companies. Our management believes that Adjusted EBITDA facilitates company-to-company comparisons within our industry by eliminating some of the foregoing variations.
 
Adjusted EBITDA is not a measurement determined in accordance with GAAP and should not be considered in isolation or as an alternative to net income, net cash provided by operating, investing or financing activities or other financial statement data presented as indicators of financial performance or liquidity, each as presented in accordance with GAAP. Adjusted EBITDA should not be considered as a measure of discretionary cash

10


Table of Contents

available to us to invest in the growth of our business. Adjusted EBITDA as presented may not be comparable to other similarly titled measures of other companies and our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual items.
 
Our management recognizes that Adjusted EBITDA has limitations as an analytical financial measure, including the following:
 
  •  Adjusted EBITDA does not reflect our capital expenditures or future requirements for capital expenditures;
 
  •  Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, associated with our indebtedness;
 
  •  Adjusted EBITDA does not reflect depreciation and amortization, which are non-cash charges, although the assets being depreciated and amortized will likely have to be replaced in the future, nor does Adjusted EBITDA reflect any cash requirements for such replacements; and
 
  •  Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs.
 
This prospectus also includes information concerning Adjusted EBITDA margin, which is defined as the ratio of Adjusted EBITDA to revenues. We present Adjusted EBITDA margin because it is used by management as a performance measurement to judge the level of Adjusted EBITDA generated from revenues and we believe its inclusion is appropriate to provide additional information to investors.
 
A reconciliation of Adjusted EBITDA and EBITDA to net income is provided below.
 
                                         
    Year Ended     Thirteen Weeks Ended  
    December 30,
    December 28,
    December 27,
    March 29,
    March 28,
 
    2007     2008     2009     2009     2010  
    (In thousands)  
Net income (loss)
  $ (786 )   $ (61,399 )   $ 3,401     $ (1,293 )   $ 2,516  
Income tax expense (benefit)
    (3,503 )     55,061       135       (2 )     100  
Interest expense
    11,853       9,892       7,119       1,895       1,770  
Depreciation and amortization
    12,309       14,651       16,088       3,816       4,124  
                                         
EBITDA
  $  19,873     $  18,205     $  26,743     $  4,416     $  8,510  
Asset impairment charges
          8,506       6,436              
Management fees and expenses
    387       507       1,611       501       410  
                                         
Adjusted EBITDA
  $ 20,260     $ 27,218     $ 34,790     $ 4,917     $ 8,920  
                                         
 


11


Table of Contents

 
Risk Factors
 
Investing in our common stock involves a high degree of risk. You should consider carefully the following risk factors and the other information in this prospectus, including our consolidated financial statements and related notes to those statements, before you decide to invest in our common stock. If any of the following risks actually occur, our business, financial condition and operating results could be adversely affected. As a result, the trading price of our common stock could decline and you could lose part or all of your investment.
 
Risks Relating to Our Business and Industry
 
Our financial results depend significantly upon the success of our existing and new restaurants.
 
Future growth in revenues and profits will depend on our ability to grow sales and efficiently manage costs in our existing and new restaurants. As of June 27, 2010, we operated 47 BRAVO! restaurants and 38 BRIO restaurants, of which three BRAVO! restaurants and four BRIO restaurants have opened within the preceding twelve months. The results achieved by these restaurants may not be indicative of longer-term performance or the potential market acceptance of restaurants in other locations.
 
In particular, the success of our restaurants revolves principally around guest traffic and average check per guest. Significant factors that might adversely impact our guest traffic levels and average guest check include, without limitation:
 
  •  declining economic conditions, including housing market downturns, rising unemployment rates, lower disposable income and consumer confidence and other events or factors that adversely affect consumer spending in the markets we serve;
 
  •  increased competition (both in the upscale casual dining segment and in other segments of the restaurant industry);
 
  •  changes in consumer preferences;
 
  •  guests’ budgeting constraints and choosing not to order certain high-margin items such as desserts and beverages (both alcoholic and non-alcoholic);
 
  •  guests’ failure to accept menu price increases that we may make to offset increases in key operating costs;
 
  •  our reputation and consumer perception of our concepts’ offerings in terms of quality, price, value and service; and
 
  •  guest experiences from dining in our restaurants.
 
Our restaurants are also susceptible to increases in certain key operating expenses that are either wholly or partially beyond our control, including, without limitation:
 
  •  food and other raw materials costs, many of which we do not or cannot effectively hedge;
 
  •  labor costs, including wage, workers’ compensation, health care and other benefits expenses;
 
  •  rent expenses and other costs under leases for our new and existing restaurants;
 
  •  energy, water and other utility costs;
 
  •  costs for insurance (including health, liability and workers’ compensation);
 
  •  information technology and other logistical costs; and
 
  •  expenses due to litigation against us.
 
The failure of our existing or new restaurants to perform as expected could have a significant negative impact on our financial condition and results of operations.
 
Our long-term success is highly dependent on our ability to successfully develop and expand our operations.
 
We intend to develop new restaurants in our existing markets, and selectively enter into new markets. Since the end of 2005, we have expanded from 30 BRAVO! restaurants and 19 BRIO restaurants to 47 and 38 BRAVO!


12


Table of Contents

and BRIO restaurants, respectively, as of June 27, 2010. We also expect to open one additional BRIO restaurant prior to the end of 2010. There can be no assurance that any new restaurant that we open will have similar operating results to those of existing restaurants. The number and timing of new restaurants actually opened during any given period, and their associated contribution to operating growth, may be negatively impacted by a number of factors including, without limitation:
 
  •  our inability to generate sufficient funds from operations or to obtain favorable financing to support our development;
 
  •  identification and availability of, and competition for, high quality locations that will continue to drive high levels of sales per unit;
 
  •  acceptable lease arrangements, including sufficient levels of tenant allowances and construction contributions;
 
  •  the financial viability of our landlords, including the availability of financing for our landlords;
 
  •  construction and development cost management;
 
  •  timely delivery of the leased premises to us from our landlords and punctual commencement of build-out construction activities;
 
  •  delays due to the highly customized nature of our restaurant concepts and the complex design, construction and pre-opening processes for each new location;
 
  •  obtaining all necessary governmental licenses and permits on a timely basis to construct and operate our restaurants;
 
  •  competition in new markets, including competition for restaurant sites;
 
  •  unforeseen engineering or environmental problems with the leased premises;
 
  •  adverse weather during the construction period;
 
  •  anticipated commercial, residential and infrastructure development near our new restaurants;
 
  •  recruitment of qualified managers, chefs and other key operating personnel; and
 
  •  other unanticipated increases in costs, any of which could give rise to delays or cost overruns.
 
We may not be able to open our planned new restaurants on a timely basis, if at all, and, if opened, these restaurants may not be operated profitably. We have experienced, and expect to continue to experience, delays in restaurant openings from time to time. Such actions may limit our growth opportunities. We cannot assure you that we will be able to successfully expand or acquire critical market presence for our brands in new geographical markets, as we may encounter well-established competitors with substantially greater financial resources. We may be unable to find attractive locations, acquire name recognition, successfully market our brands or attract new guests. Competitive circumstances and consumer characteristics in new market segments and new geographical markets may differ substantially from those in the market segments and geographical markets in which we have substantial experience. If we are unable to expand in existing markets or penetrate new markets, our ability to increase our revenues and profitability may be harmed.
 
Changes in economic conditions, including continuing effects from the recent recession, could materially affect our financial condition and results of operations.
 
We, together with the rest of the restaurant industry, depend upon consumer discretionary spending. The recent recession, coupled with high unemployment rates, reduced home values, increases in home foreclosures, investment losses, personal bankruptcies and reduced access to credit and reduced consumer confidence, has impacted consumers’ ability and willingness to spend discretionary dollars. Economic conditions may remain volatile and may continue to repress consumer confidence and discretionary spending for the near term. If the weak economy continues for a prolonged period of time or worsens, guest traffic could be adversely impacted if our guests choose to dine out less frequently or reduce the amount they spend on meals while dining out. We believe that if the current negative economic conditions persist for a long period of time or become more pervasive, consumers might make long- lasting changes to their discretionary spending behavior, including dining out less frequently on a


13


Table of Contents

permanent basis. Additionally, a decline in corporate travel and entertainment spending could result in a decrease in the traffic of business travelers at our restaurants. If restaurant sales decrease, our profitability could decline as we spread fixed costs across a lower level of sales. Reductions in staff levels, asset impairment charges and potential restaurant closures have resulted and could result from prolonged negative restaurant sales.
 
Damage to our reputation or lack of acceptance of our brands could negatively impact our business, financial condition and results of operations.
 
We believe we have built a strong reputation for the quality and breadth of our menu and our restaurants, and we must protect and grow the value of our BRAVO! and BRIO brands to continue to be successful in the future. Any incident that erodes consumer affinity for our brands could significantly reduce their respective values and damage our business. If guests perceive or experience a reduction in food quality, service or ambiance, or in any way believe we failed to deliver a consistently positive experience, our brand value could suffer and our business may be adversely affected.
 
A multi-location restaurant business such as ours can be adversely affected by negative publicity or news reports, whether or not accurate, regarding food quality issues, public health concerns, illness, safety, injury or government or industry findings concerning our restaurants, restaurants operated by other foodservice providers or others across the food industry supply chain. While we have taken steps to mitigate food quality, public health and other foodservice-related risks, these types of health concerns or negative publicity cannot be completely eliminated or mitigated and may materially harm our results of operations and result in damage to our brands. For example, in May 2006, a food virus outbreak in Michigan affected area restaurants, including one of our BRAVO! restaurants. As a result, this restaurant was closed for four days. While the effect of the outbreak was immaterial to our business, food quality issues or other public health concerns could have an adverse impact on our profitability.
 
In addition, our ability to successfully develop new restaurants in new markets may be adversely affected by a lack of awareness or acceptance of our brands in these new markets. To the extent that we are unable to foster name recognition and affinity for our brands in new markets, our new restaurants may not perform as expected and our growth may be significantly delayed or impaired.
 
Because many of our restaurants are concentrated in local or regional areas, we are susceptible to economic and other trends and developments, including adverse weather conditions, in these areas.
 
Our financial performance is highly dependent on restaurants located in Ohio, Florida, Michigan and Pennsylvania, which comprise approximately 45% of our total restaurants. As a result, adverse economic conditions in any of these areas could have a material adverse effect on our overall results of operations. In recent years, certain of these states have been more negatively impacted by the housing decline, high unemployment rates and the overall economic crisis than other geographic areas. In addition, given our geographic concentrations, negative publicity regarding any of our restaurants in these areas could have a material adverse effect on our business and operations, as could other regional occurrences such as local strikes, terrorist attacks, increases in energy prices, adverse weather conditions, hurricanes, droughts or other natural or man-made disasters.
 
In particular, adverse weather conditions can impact guest traffic at our restaurants, cause the temporary underutilization of outdoor patio seating, and, in more severe cases, cause temporary restaurant closures, sometimes for prolonged periods. Approximately 34% of our total restaurants are located in Ohio, Michigan and Pennsylvania, which are particularly susceptible to snowfall, and 13% of our total restaurants are located in Florida and Louisiana, which are particularly susceptible to hurricanes. Our business is subject to seasonal fluctuations, with restaurant sales typically higher during certain months, such as December. Adverse weather conditions during our most favorable months or periods may exacerbate the effect of adverse weather on guest traffic and may cause fluctuations in our operating results from quarter-to-quarter within a fiscal year. For example, the significant snowfall in the Northeast United States in February 2010 led to reduced guest traffic at several of our restaurants. In addition, outdoor patio seating is available at most of our restaurants and may be impacted by a number of weather-related factors. Our inability to fully utilize our restaurants’ seating capacity as planned may negatively impact our revenues and results of operations.


14


Table of Contents

The impact of negative economic factors, including the availability of credit, on our landlords and other retail center tenants could negatively affect our financial results.
 
Negative effects on our existing and potential landlords due to the inaccessibility of credit and other unfavorable economic factors may, in turn, adversely affect our business and results of operations. If our landlords are unable to obtain financing or remain in good standing under their existing financing arrangements, they may be unable to provide construction contributions or satisfy other lease covenants to us. Approximately 6% of our restaurants are in locations that are owned, managed or controlled by a landlord that has filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code in the last 12 months. This landlord may be able to reject our leases in the bankruptcy proceedings. As of June 27, 2010, none of our leases have been rejected, but we cannot assure you that any landlord that has filed, or may in the future file, for bankruptcy protection may not attempt to reject leases with us. In addition, if our landlords are unable to obtain sufficient credit to continue to properly manage their retail sites, we may experience a drop in the level of quality of such retail centers. Our development of new restaurants may also be adversely affected by the negative financial situations of developers and potential landlords. Many landlords have delayed or cancelled recent development projects (as well as renovations of existing projects) due to the instability in the credit markets and recent declines in consumer spending, which has reduced the number of high-quality locations available that we would consider for our new restaurants.
 
In addition, several other tenants at retail centers in which we are located or where we have executed leases have ceased operations or, in some cases, have deferred openings or failed to open after committing to do so. These failures may lead to reduced guest traffic at retail centers in which our restaurants are located and may contribute to lower guest traffic at our restaurants.
 
Changes in food availability and costs could adversely affect our operating results.
 
Our profitability and operating margins are dependent in part on our ability to anticipate and react to changes in food costs. We rely on local, regional and national suppliers to provide our produce, beef, poultry, seafood and other ingredients. Other than for a portion of our commodities, which are purchased locally by each restaurant, we rely on Gordon Food Service, or GFS, as the primary distributor of a majority of our ingredients. We have a non-exclusive contract with GFS on terms and conditions that we believe are consistent with those made available to similarly situated restaurant companies. Although we believe that alternative distribution sources are available, any increase in distribution prices or failure to perform by GFS could cause our food costs to increase. Additionally, we currently rely on sole suppliers for certain of our food products, including substantially all of our soups and the majority of our sauces. Failure to identify an alternate source of supply for these items may result in significant cost increases. Increases in distribution costs or sale prices could also cause our food costs to increase. In addition, any material interruptions in our supply chain, such as a material interruption of ingredient supply due to the failures of third-party suppliers, or interruptions in service by common carriers that ship goods within our distribution channels, may result in significant cost increases and reduce sales. Changes in the price or availability of certain food products could affect our ability to offer a broad menu and price offering to guests and could materially adversely affect our profitability and reputation.
 
The type, variety, quality and price of produce, beef, poultry and seafood are more volatile than other types of food and are subject to factors beyond our control, including weather, governmental regulation, availability and seasonality, each of which may affect our food costs or cause a disruption in our supply. For example, weather patterns in recent years have resulted in lower than normal levels of rainfall in key agricultural states such as California, impacting the price of water and the corresponding prices of food commodities grown in states facing drought conditions. Our food suppliers also may be affected by higher costs to produce and transport commodities used in our restaurants, higher minimum wage and benefit costs and other expenses that they pass through to their customers, which could result in higher costs for goods and services supplied to us. Although we are able to contract for the majority of the food commodities used in our restaurants for periods of up to one year, the pricing and availability of some of the commodities used in our operations cannot be locked in for periods of longer than one week or at all. Currently, we have pricing understandings of varying lengths with several key suppliers, including our suppliers of poultry, seafood, dairy products, soups and sauces, bakery items and certain meat products. We do not use financial instruments to hedge our risk to market fluctuations in the price of beef, seafood, produce and other food products at this time. We may not be able to anticipate and react to changing


15


Table of Contents

food costs through our purchasing practices and menu price adjustments in the future, and failure to do so could negatively impact our revenues and results of operations.
 
Increases in our labor costs, including as a result of changes in government regulation, could slow our growth or harm our business.
 
We are subject to a wide range of labor costs. Because our labor costs are, as a percentage of revenues, higher than other industries, we may be significantly harmed by labor cost increases.
 
We retain the financial responsibility for up to $250,000 of risks and associated liabilities with respect to workers’ compensation, general liability, employment practices and other insurable risks through our self insurance programs. Unfavorable fluctuations in market conditions, availability of such insurance or changes in state and/or federal regulations could significantly increase our self insurance costs and insurance premiums. In addition, we are subject to the risk of employment-related litigation at both the state and federal levels, including claims styled as class action lawsuits which are more costly to defend. Also, some employment related claims in the area of wage and hour disputes are not insurable risks.
 
Despite our efforts to control costs while still providing competitive health care benefits to our staff members, significant increases in health care costs continue to occur, and we can provide no assurance that our cost containment efforts in this area will be effective. Further, we are continuing to assess the impact of recently-adopted federal health care legislation on our health care benefit costs, and significant increases in such costs could adversely impact our operating results. There is no assurance that we will be able to pass through the costs of such legislation in a manner that will not adversely impact our operating results.
 
In addition, many of our restaurant personnel are hourly workers subject to various minimum wage requirements or changes to tip credits. Mandated increases in minimum wage levels and changes to the tip credit, which are the amounts an employer is permitted to assume an employee receives in tips when calculating the employee’s hourly wage for minimum wage compliance purposes, have recently been and continue to be proposed and implemented at both federal and state government levels. Minimum wage increases or changes to allowable tip credits may increase our labor costs or effective tax rate.
 
Additionally, potential changes in labor legislation, including the Employee Free Choice Act (EFCA), could result in portions of our workforce being subjected to greater organized labor influence. The EFCA could impact the nature of labor relations in the United States and how union elections and contract negotiations are conducted. The EFCA aims to facilitate unionization, and employers of unionized employees may face mandatory, binding arbitration of labor scheduling, costs and standards, which could increase the costs of doing business. Although we do not currently have any unionized employees, EFCA or similar labor legislation could have an adverse effect on our business and financial results by imposing requirements that could potentially increase costs and reduce our operating flexibility.
 
Labor shortages could increase our labor costs significantly or restrict our growth plans.
 
Our restaurants are highly dependent on qualified management and operating personnel, including regional management, general managers and executive chefs. Qualified individuals have historically been in short supply and an inability to attract and retain them would limit the success of our existing restaurants as well as our development of new restaurants. We can make no assurances that we will be able to attract and retain qualified individuals in the future. Additionally, the cost of attracting and retaining qualified individuals may be higher than we anticipate, and as a result, our profitability could decline.
 
Guest traffic at our restaurants could be significantly affected by competition in the restaurant industry in general and, in particular, within the dining segments of the restaurant industry in which we compete.
 
The restaurant industry is highly competitive with respect to food quality, ambiance, service, price and value and location, and a substantial number of restaurant operations compete with us for guest traffic. The main competitors for our brands are mid-priced, full service concepts in the multi-location upscale casual dining segment, including Maggiano’s, Cheesecake Factory, BJ’s Restaurants and P.F. Chang’s, as well as high quality,


16


Table of Contents

locally owned and operated Italian restaurants. Some of our competitors have significantly greater financial, marketing, personnel and other resources than we do, and many of our competitors are well established in markets in which we have existing restaurants or intend to locate new restaurants. Any inability to successfully compete with the other restaurants in our markets will place downward pressure on our guest traffic and may prevent us from increasing or sustaining our revenues and profitability. We may also need to evolve our concepts in order to compete with popular new restaurant formats or concepts that develop from time to time, and we cannot offer any assurance that we will be successful in doing so or that modifications to our concepts will not reduce our profitability. In addition, with improving product offerings at fast casual restaurants, quick-service restaurants and grocery stores and the influence of negative economic conditions and other factors, consumers may choose less expensive alternatives, which could also negatively affect guest traffic at our restaurants.
 
New information or attitudes regarding diet and health or adverse opinions about the health effects of consuming our menu offerings could result in adverse changes in regulations and consumer eating habits.
 
Government regulation and consumer eating habits may impact our business as a result of changes in attitudes regarding diet and health or new information regarding the health effects of consuming our menu offerings. These changes may result in the enactment of laws and regulations that impact the ingredients and nutritional content of our menu offerings, or laws and regulations requiring us to disclose the nutritional content of our food offerings. For example, a number of states, counties and cities have enacted menu labeling laws requiring multi-unit restaurant operators to disclose certain nutritional information available to guests, or have enacted legislation restricting the use of certain types of ingredients in restaurants. Furthermore, the federal Patient Protection and Affordable Care Act, or PPACA, which was enacted on March 23, 2010, establishes a uniform, federal requirement for certain restaurants to post nutritional information on their menus. Specifically, the law requires chain restaurants with 20 or more locations operating under the same trade name and offering substantially the same menus to publish the total number of calories of standard menu items on menus and menu boards, along with a succinct statement regarding the suggested daily caloric intake, to enable consumers to understand the number of calories in the menu item in the context of a total daily diet. The law also requires such restaurants to provide to consumers, upon request, a written summary of detailed nutritional information, including total calories and calories from fat, total fat, saturated fat, cholesterol, sodium, total carbohydrates, complex carbohydrates, sugars, dietary fiber, and total protein in each serving size or other unit of measure, for each standard menu item. The menu must include a prominent, clear and conspicuous statement about the availability of this information upon request. The United States Food and Drug Administration, or FDA, is also permitted to require additional nutrient disclosures, such as trans fat content. An unfavorable report on our menu ingredients, the size of our portions or the nutritional content of our menu items could negatively influence the demand for our offerings.
 
The federal nutrition labeling law under the PPACA became effective upon enactment, on March 23, 2010. However, the FDA, is required to issue proposed regulations by March 23, 2011 to establish the methods by which restaurants should measure the nutrient content of their standard menu items to arrive at the declared value, and the format and manner of the nutrient content disclosures required under the law. Thus, it is expected that the FDA will not enforce the requirements until these regulations are finalized. The new law specifically preempts conflicting state and local laws, and instead provides a single, national standard for nutrition labeling of restaurant menu items. In the meantime, we will be subject to a patchwork of state and local laws and regulations regarding nutritional content disclosure requirements. Many of these requirements are inconsistent or are interpreted differently from one jurisdiction to another.
 
Compliance with these laws and regulations, as well as others regarding the ingredients and nutritional content of our menu items, may be costly and time-consuming. Additionally, if consumer health regulations or consumer eating habits change significantly, we may be required to modify or discontinue certain menu items, and we may experience higher costs associated with the implementation of those changes. We cannot predict the impact of the new nutrition labeling requirements under the PPACA, once they are issued and implemented. Additionally, we cannot make any assurances regarding our ability to effectively respond to changes in consumer health perceptions or our ability to successfully implement the nutrient content disclosure requirements and to adapt our menu offerings to trends in eating habits.


17


Table of Contents

Our marketing programs may not be successful.
 
We expend significant resources in our marketing efforts, using a variety of media, including social media venues. We expect to continue to conduct brand awareness programs and guest initiatives to attract and retain guests. These initiatives may not be successful, resulting in expenses incurred without the benefit of higher revenues. Additionally, some of our competitors have greater financial resources, which enable them to purchase significantly more television and radio advertising than we are able to purchase. Should our competitors increase spending on advertising and promotions or our advertising funds decrease for any reason, or should our advertising and promotions be less effective than our competitors, there could be a material adverse effect on our results of operations and financial condition.
 
The impact of new restaurant openings could result in fluctuations in our financial performance.
 
Quarterly results have been, and in the future may continue to be, significantly impacted by the timing of new restaurant openings (often dictated by factors outside of our control), including associated pre-opening costs and operating inefficiencies, as well as changes in our geographic concentration due to the opening of new restaurants. We typically incur the most significant portion of pre-opening expenses associated with a given restaurant within the two months immediately preceding and the month of the opening of the restaurant. Our experience has been that labor and operating costs associated with a newly opened restaurant for the first several months of operation are materially greater than what can be expected after that time, both in aggregate dollars and as a percentage of revenues. Our new restaurants commonly take several months to reach planned operating levels due to inefficiencies typically associated with new restaurants, including the training of new personnel, lack of market awareness, inability to hire sufficient qualified staff and other factors. Accordingly, the volume and timing of new restaurant openings has had, and may continue to have, a meaningful impact on our profitability. Due to the foregoing factors, results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for a full fiscal year, and these fluctuations may cause our operating results to be below expectations of public market analysts and investors.
 
Opening new restaurants in existing markets may negatively effect sales at our existing restaurants.
 
The consumer target area of our restaurants varies by location, depending on a number of factors such as population density, local retail and business attractions, area demographics and geography. As a result, the opening of a new restaurant, whether using the same brand or a different brand, in or near markets in which we already have existing restaurants could adversely impact the sales of new or existing restaurants. We do not intend to open new restaurants that materially impact the existing sales of our existing restaurants. However, there can be no assurance that sales cannibalization between our restaurants will not occur or become more significant in the future as we continue to expand our operations.
 
Our business operations and future development could be significantly disrupted if we lose key members of our management team.
 
The success of our business continues to depend to a significant degree upon the continued contributions of our senior officers and key employees, both individually and as a group. Our future performance will be substantially dependent in particular on our ability to retain and motivate Saed Mohseni, our President and Chief Executive Officer, and certain of our other senior executive officers. We currently have an employment agreement in place with Mr. Mohseni. The loss of the services of our CEO, senior officers or other key employees could have a material adverse effect on our business and plans for future development. We have no reason to believe that we will lose the services of any of these individuals in the foreseeable future; however, we currently have no effective replacement for any of these individuals due to their experience, reputation in the industry and special role in our operations. We also do not maintain any key man life insurance policies for any of our employees.
 
Our growth may strain our infrastructure and resources, which could slow our development of new restaurants and adversely affect our ability to manage our existing restaurants.
 
We opened two BRAVO! and five BRIO restaurants in 2009, and in 2008 we opened seven BRAVO! and six BRIO restaurants. We have opened two BRAVO! and two BRIO restaurants during 2010 and expect to open one


18


Table of Contents

additional BRIO restaurant before fiscal year end. Our recent and future growth may strain our restaurant management systems and resources, financial controls and information systems. Those demands on our infrastructure and resources may also adversely affect our ability to manage our existing restaurants. If we fail to continue to improve our infrastructure or to manage other factors necessary for us to meet our expansion objectives, our operating results could be materially and adversely affected. Likewise, if sales decline, we may be unable to reduce our infrastructure quickly enough to prevent sales deleveraging, which would adversely affect our profitability.
 
Changes in, or any failure to comply with, applicable laws or regulations may adversely affect our business and our growth strategy.
 
Our operations are subject to regulation by federal agencies and to licensing and regulation by state and local health, sanitation, building, zoning, safety, fire and other departments. The regulations cover matters relating to building construction (including environmental impact), zoning requirements, employment, nutritional information disclosure and the preparation and sale of food and alcoholic beverages. The impact of compliance with the laws and regulations of certain states, including states in which we are not currently located but may open restaurants in the future, may be more costly than compliance in other states.
 
Various state and local health, sanitation, fire and safety codes govern our existing restaurants. In addition, the development of additional restaurants will be subject to compliance with applicable construction, zoning, land use and environmental regulations. Difficulties in obtaining or renewing, or failures to obtain or renew, the required licenses or approvals on a cost-effective and timely basis could delay or prevent the development and openings of new restaurants, or could disrupt the operations of existing restaurants. As is the case with any operator of real property, we are subject to a variety of federal, state and local governmental regulations relating to the use, storage, discharge, emission and disposal of hazardous materials. Failure to comply with environmental laws could result in the imposition of severe penalties or restrictions on operations by governmental agencies or courts of law, which could adversely affect operations. We are unaware of any significant hazards on properties we operate or have operated, the remediation of which would result in material liability. We do not have separate environmental liability insurance nor do we maintain a reserve to cover such events. In the event of the determination of contamination on such properties, the Company, as operator, could be held liable for severe penalties and costs of remediation.
 
Our relationships with employees are governed by various federal and state labor laws and regulations, including minimum wage requirements, breaks, overtime pay, fringe benefits, safety, working conditions, unemployment tax rates, workers’ compensation rates and citizenship or work authorization requirements. We are also subject to the regulations of the U.S. Citizenship and Immigration Services and U.S. Customs and Immigration Enforcement. Our failure to comply with federal and state labor laws and regulations, or our staff members failure to meet federal citizenship or residency requirements, could result in a disruption in our work force, sanctions or fines against us and adverse publicity. We may be unable to increase our prices in order to pass increased labor costs on to our guests, in which case our margins would be negatively affected. Significant government-imposed increases in minimum wages, paid or unpaid leaves of absence, sick leave, and mandated health benefits, or increased tax reporting, assessment or payment requirements related to our staff members who receive gratuities, could be detrimental to the profitability of our restaurants operations. In addition, while we carry employment practices insurance covering a variety of labor-related liability claims, a settlement or judgment against us that is uninsured or in excess of our coverage limitations could have a material adverse effect on our results of operations, liquidity, financial position or business.
 
Our business is subject to extensive state and local government regulation relating to alcoholic beverage control, public health and food safety and labeling. For example, alcoholic beverage control regulations require each of our restaurants to obtain licenses and permits to sell alcoholic beverages on the premises, and each restaurant must obtain a food service license from local health authorities. In fiscal 2009, approximately 16.4% of our gross revenues at BRAVO! and 22.5% of our gross revenues at BRIO were attributable to the sale of alcoholic beverages. Typically, licenses must be renewed annually and may be revoked or suspended for cause at any time. The failure of a restaurant to obtain or retain its licenses, permits or other approvals, or any suspension of such licenses, permits or other approvals, would adversely affect that restaurant’s operations and profitability and could adversely


19


Table of Contents

affect our ability to obtain these licenses elsewhere. We may also be subject to “dram shop” statutes in certain states, 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. Even though we are covered by general liability insurance, a settlement or judgment against us under a “dram shop” statute in excess of liability coverage could adversely affect our financial condition and results of operations.
 
Recent legislation enacted in March 2010 will require chain restaurants with 20 or more locations in the United States to comply with federal nutritional disclosure requirements, making applicable to restaurants certain nutrition labeling requirements from which restaurants have historically been exempt. Additionally, the United States Congress is currently considering food safety legislation that is expected to greatly expand the FDA’s authority over food safety. If this legislation is enacted, we cannot assure you that it will not impact our industry. The costs associated with such compliance may increase over time, and while our ability to adapt to consumer preferences is a strength of our concepts, the effect of such labeling requirements on consumer choices, if any, is unclear at this time.
 
In addition, our facilities must comply with the applicable requirements of the Americans with Disabilities Act of 1990 (“ADA”) and related federal and state statutes that prohibit discrimination on the basis of disability in public accommodations and employment. Although our restaurants are designed to be accessible to the disabled, we could be required to make modifications to our restaurants to provide service to, or make reasonable accommodations for, disabled persons.
 
Restaurant companies have been the target of class-actions and other litigation alleging, among other things, violations of federal and state law.
 
We are subject to a variety of lawsuits, administrative proceedings and claims that arise in the ordinary course of our business. In recent years, a number of restaurant companies have been subject to claims by guests, employees and others regarding issues such as food safety, personal injury and premises liability, employment-related claims, harassment, discrimination, disability and other operational issues common to the foodservice industry. A number of these lawsuits have resulted in the payment of substantial damages by the defendants. Similar lawsuits have been instituted against us from time to time, including a 2004 class action lawsuit initiated by servers at a BRIO location in Newport, Kentucky. In this lawsuit, certain of our servers alleged that they were required to remit back to the restaurant a percentage of their tips in violation of Kentucky law. While we settled this lawsuit for an immaterial amount and no other such lawsuits have had a material impact historically, an adverse judgment or settlement that is not insured or is in excess of insurance coverage could have an adverse impact on our profitability and could cause variability in our results compared to expectations. We are self-insured, or carry insurance programs with specific retention levels, for a significant portion of our risks and associated liabilities with respect to workers’ compensation, general liability, employer’s liability, health benefits and other insurable risks. Regardless of whether any claims against us are valid or whether we are ultimately determined to be liable, we could also be adversely affected by negative publicity, litigation costs resulting from the defense of these claims and the diversion of time and resources from our operations.
 
Our insurance policies may not provide adequate levels of coverage against all claims, and fluctuating insurance requirements and costs could negatively impact our profitability.
 
We believe our insurance coverage is customary for businesses of our size and type. However, there are types of losses we may incur that cannot be insured against or that we believe are not commercially reasonable to insure. These losses, if they occur, could have a material and adverse effect on our business and results of operations. In addition, the cost of workers’ compensation insurance, general liability insurance and directors and officers’ liability insurance fluctuates based on our historical trends, market conditions and availability. Additionally, health insurance costs in general have risen significantly over the past few years and are expected to continue to increase in 2010. These increases, as well as recently-enacted federal legislation requiring employers to provide specified levels of health insurance to all employees, could have a negative impact on our profitability, and there can be no assurance that we will be able to successfully offset the effect of such increases with plan modifications and cost control measures, additional operating efficiencies or the pass-through of such increased costs to our guests.


20


Table of Contents

Our substantial indebtedness may limit our ability to invest in the ongoing needs of our business.
 
We have a substantial amount of indebtedness. On an as adjusted basis giving effect to this offering and the use of the offering proceeds, as well as entry into our new senior credit facilities, as of March 28, 2010 we had approximately $      million of total indebtedness. In particular, we expect to have approximately $     and $      of outstanding indebtedness under our new term loan facility and new revolving credit facility, respectively, and $      million of revolving loan availability under our new revolving credit facility. For the year ended December 27, 2009 and the thirteen week period ended March 28, 2010, our principal repayments/(borrowings) on indebtedness (including net repayments/(borrowings) under our existing revolving credit facility) were $9.3 million and $(0.3) million, respectively, and cash interest expenses for such periods were $7.0 million and $1.4 million, respectively.
 
Our indebtedness could have important consequences to you. For example, it:
 
  •  requires us to utilize a substantial portion of our cash flow from operations to payments on our indebtedness, reducing the availability of our cash flow to fund working capital, capital expenditures, development activity and other general corporate purposes;
 
  •  increases our vulnerability to adverse general economic or industry conditions;
 
  •  limits our flexibility in planning for, or reacting to, changes in our business or the industries in which we operate;
 
  •  makes us more vulnerable to increases in interest rates, as borrowings under our new senior credit facilities are expected to be at variable rates;
 
  •  limits our ability to obtain additional financing in the future for working capital or other purposes; and
 
  •  places us at a competitive disadvantage compared to our competitors that have less indebtedness.
 
Although our new senior credit facilities will contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the indebtedness incurred in compliance with these restrictions could be substantial. Also, these restrictions do not prevent us from incurring obligations that do not constitute indebtedness.
 
Our new senior credit facilities to be put in place with the consummation of this offering are expected to require us to maintain certain interest expense coverage ratios and leverage ratios which become more restrictive over time. While we have never defaulted on compliance with any financial covenants under the terms of our indebtedness, our ability to comply with these ratios in the future may be affected by events beyond our control, and an inability to comply with the required financial ratios could result in a default under our new senior credit facilities. In the event of any default, the lenders under our new senior credit facilities could elect to terminate lending commitments and declare all borrowings outstanding, together with accrued and unpaid interest and other fees, to be immediately due and payable.
 
See “Description of Indebtedness,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Capital Resources.”
 
We may be unable to obtain debt or other financing on favorable terms or at all.
 
There are inherent risks in our ability to borrow. Our lenders, including the lenders participating in our new senior credit facilities, may have suffered losses related to their lending and other financial relationships, especially because of the general weakening of the national economy, increased financial instability of many borrowers and the declining value of their assets. As a result, lenders may become insolvent or tighten their lending standards, which could make it more difficult for us to borrow under our new senior credit facilities, refinance our existing indebtedness or to obtain other financing on favorable terms or at all. Our access to funds under our new senior credit facilities is dependent upon the ability of our lenders to meet their funding commitments. Our financial condition and results of operations would be adversely affected if we were unable to draw funds under our new senior credit facilities because of a lender default or to obtain other cost-effective financing.


21


Table of Contents

Longer term disruptions in the capital and credit markets as a result of uncertainty, changing or increased regulation, reduced alternatives or failures of significant financial institutions could adversely affect our access to liquidity needed for our business. Any disruption could require us to take measures to conserve cash until the markets stabilize or until alternative credit arrangements or other funding for our business can be arranged. Such measures could include deferring capital expenditures (including the opening of new restaurants) and reducing or eliminating other discretionary uses of cash.
 
We may be required to record additional asset impairment charges in the future.
 
In accordance with accounting guidance as it relates to the impairment of long-lived assets, we review long-lived assets, such as property and equipment and intangibles, subject to amortization, for impairment when events or circumstances indicate the carrying value of the assets may not be recoverable. In determining the recoverability of the asset value, an analysis is performed at the individual restaurant level and primarily includes an assessment of historical cash flows and other relevant factors and circumstances. Negative restaurant-level cash flow over the previous 12-month period is considered a potential impairment indicator. In such situations, we evaluate future cash flow projections in conjunction with qualitative factors and future operating plans. Based on this analysis, if we believe that the carrying amount of the assets are not recoverable, an impairment charge is recognized based upon the amount by which the assets carrying value exceeds fair value as measured by undiscounted future cash flows expected to be generated by these assets. We recognized asset impairment charges of approximately $6.4 million and $8.5 million in fiscal 2009 and 2008, respectively, related to three and five restaurants, respectively.
 
The estimates of fair value used in these analyses requires the use of estimates and assumptions regarding future cash flows and operating outcomes, which are based upon a significant degree of management’s judgment. If actual results differ from our estimates or assumptions, additional impairment charges may be required in the future. Changes in the economic environment, real estate markets, capital spending, and overall operating performance could impact these estimates and result in future impairment charges. There can be no assurance that future impairment tests will not result in additional charges to earnings.
 
Security breaches of confidential guest information in connection with our electronic processing of credit and debit card transactions may adversely affect our business.
 
The majority of our restaurant sales are by credit or debit cards. Other restaurants and retailers have experienced security breaches in which credit and debit card information of their customers has been stolen. We may in the future become subject to lawsuits or other proceedings for purportedly fraudulent transactions arising out of the actual or alleged theft of our guests’ credit or debit card information. Any such claim or proceeding, or any adverse publicity resulting from these allegations, may have a material adverse effect on us and our restaurants.
 
We may not be able to adequately protect our intellectual property, which, in turn, could harm the value of our brands and adversely affect our business.
 
Our ability to implement our business plan successfully depends in part on our ability to further build brand recognition using our trademarks, service marks and other proprietary intellectual property, including our names and logos and the unique ambiance of our restaurants. We have registered or applied to register a number of our trademarks. We cannot assure you that our trademark applications will be approved. Third parties may also oppose our trademark applications, or otherwise challenge our use of the trademarks. In the event that our trademarks are successfully challenged, we could be forced to rebrand our goods and services, which could result in loss of brand recognition, and could require us to devote resources to advertising and marketing new brands.
 
If our efforts to register, maintain and protect our intellectual property are inadequate, or if any third party misappropriates, dilutes or infringes on our intellectual property, the value of our brands may be harmed, which could have a material adverse effect on our business and might prevent our brands from achieving or maintaining market acceptance. We may also face the risk of claims that we have infringed third parties’ intellectual property rights. If third parties claim that we infringe upon their intellectual property rights, our operating profits could be adversely affected. Any claims of intellectual property infringement, even those without merit, could be expensive


22


Table of Contents

and time consuming to defend, require us to rebrand our services, if feasible, divert management’s attention and resources or require us to enter into royalty or licensing agreements in order to obtain the right to use a third party’s intellectual property.
 
Any royalty or licensing agreements, if required, may not be available to us on acceptable terms or at all. A successful claim of infringement against us could result in our being required to pay significant damages, enter into costly license or royalty agreements, or stop the sale of certain products or services, any of which could have a negative impact on our operating profits and harm our future prospects.
 
Information technology system failures or breaches of our network security could interrupt our operations and adversely affect our business.
 
We rely on our computer systems and network infrastructure across our operations, including point-of-sale processing at our restaurants. Our operations depend upon our ability to protect our computer equipment and systems against damage from physical theft, fire, power loss, telecommunications failure or other catastrophic events, as well as from internal and external security breaches, viruses, worms and other disruptive problems. Any damage or failure of our computer systems or network infrastructure that causes an interruption in our operations could have a material adverse effect on our business and subject us to litigation or actions by regulatory authorities. Although we employ both internal resources and external consultants to conduct auditing and testing for weaknesses in our systems, controls, firewalls and encryption and intend to maintain and upgrade our security technology and operational procedures to prevent such damage, breaches or other disruptive problems, there can be no assurance that these security measures will be successful.
 
A major natural or man-made disaster at our corporate facility could have a material adverse effect on our business.
 
Most of our corporate systems, processes and corporate support for our restaurant operations are centralized at one Ohio location, with the exception of back-up data tapes that are sent off-site on a weekly basis. We are currently implementing a new disaster recovery plan, including the establishment of a datacenter/co-location facility. If we are unable to fully develop a new disaster recovery plan, we may experience failures or delays in recovery of data, delayed reporting and compliance, inability to perform necessary corporate functions and other breakdowns in normal operating procedures that could have a material adverse effect on our business and create exposure to administrative and other legal claims against us.
 
We will incur increased costs and obligations as a result of being a public company.
 
As a privately held company, we have not been responsible for certain corporate governance and financial reporting practices and policies required of a publicly traded company. Following this offering, we will be a publicly traded company and will incur significant legal, accounting and other expenses that we were not required to incur in the recent past. In addition, the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), as well as rules implemented by the U.S. Securities and Exchange Commission (the “SEC”) and the Nasdaq Global Market, require changes in corporate governance practices of public companies. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time consuming and costly. Furthermore, the need to establish the corporate infrastructure demanded of a public company may divert management’s attention from implementing our growth strategy, which could prevent us from improving our business, results of operations and financial condition. We have made, and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to meet our reporting obligations as a publicly traded company. However, the measures we take may not be sufficient to satisfy our obligations as a publicly traded company.
 
Section 404 of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our internal control over financial reporting, starting with the second annual report that we file with the SEC after the consummation of this offering, and will likely require in the same report a report by our independent registered public accounting firm on the effectiveness of our internal control over financial reporting. In connection with the implementation of the necessary procedures and practices related to internal control over financial reporting, we


23


Table of Contents

may identify deficiencies that we may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. We will be unable to issue securities in the public markets through the use of a shelf registration statement if we are not in compliance with Section 404. In addition, failure to achieve and maintain an effective internal control environment could have a material adverse effect on our business and stock price.
 
Federal, state and local tax rules may adversely impact our results of operations and financial position.
 
We are subject to federal, state and local taxes in the U.S. Although we believe our tax estimates are reasonable, if the Internal Revenue Service (“IRS”) or other taxing authority disagrees with the positions we have taken on our tax returns, we could face additional tax liability, including interest and penalties. If material, payment of such additional amounts upon final adjudication of any disputes could have a material impact on our results of operations and financial position. In addition, complying with new tax rules, laws or regulations could impact our financial condition, and increases to federal or state statutory tax rates and other changes in tax laws, rules or regulations may increase our effective tax rate. Any increase in our effective tax rate could have a material impact on our financial results.
 
Risks Relating to this Offering
 
The price of our common stock may be volatile and you could lose all or part of your investment.
 
Volatility in the market price of our common stock may prevent you from being able to sell your shares at or above the price you paid for your shares. The market price of our common stock could fluctuate significantly for various reasons, which include:
 
  •  our quarterly or annual earnings or those of other companies in our industry;
 
  •  changes in laws or regulations, or new interpretations or applications of laws and regulations, that are applicable to our business;
 
  •  the public’s reaction to our press releases, our other public announcements and our filings with the SEC;
 
  •  changes in accounting standards, policies, guidance, interpretations or principles;
 
  •  additions or departures of our senior management personnel;
 
  •  sales of common stock by our directors and executive officers;
 
  •  sales or distributions of common stock by our sponsors;
 
  •  adverse market reaction to any indebtedness we may incur or securities we may issue in the future;
 
  •  actions by shareholders;
 
  •  the level and quality of research analyst coverage for our common stock, changes in financial estimates or investment recommendations by securities analysts following our business or failure to meet such estimates;
 
  •  the financial disclosure we may provide to the public, any changes in such disclosure or our failure to meet such disclosure;
 
  •  various market factors or perceived market factors, including rumors, whether or not correct, involving us, our suppliers or our competitors;
 
  •  introductions of new offerings or new pricing policies by us or by our competitors;
 
  •  acquisitions or strategic alliances by us or our competitors;
 
  •  short sales, hedging and other derivative transactions in the shares of our common stock;
 
  •  the operating and stock price performance of other companies that investors may deem comparable to us; and
 
  •  other events or factors, including changes in general conditions in the United States and global economies or financial markets (including those resulting from Acts of God, war, incidents of terrorism or responses to such events).


24


Table of Contents

 
In addition, in recent years, the stock market has experienced extreme price and volume fluctuations. This volatility has had a significant impact on the market price of securities issued by many companies, including companies in our industry. The price of our common stock could fluctuate based upon factors that have little or nothing to do with our company, and these fluctuations could materially reduce our stock price.
 
In the past, following periods of market volatility in the price of a company’s securities, security holders have often instituted class action litigation. If the market value of our common stock experiences adverse fluctuations and we become involved in this type of litigation, regardless of the outcome, we could incur substantial legal costs and our management’s attention could be diverted from the operation of our business, causing our business to suffer.
 
There is no existing market for our common stock and we do not know if one will develop to provide you with adequate liquidity.
 
Prior to this offering, there has not been a public market for our common stock. An active market for our common stock may not develop following the completion of this offering, or if it does develop, may not be maintained. If an active trading market does not develop, you may have difficulty selling any of our common stock that you buy. The initial public offering price for the shares of our common stock will be determined by negotiations between us, the selling shareholders and the representatives of the underwriters and may not be indicative of prices that will prevail in the open market following this offering. Consequently, you may not be able to sell shares of our common stock at prices equal to or greater than the price paid by you in this offering.
 
Future sales of our common stock, including shares purchased in this offering, in the public market could lower our stock price.
 
Sales of substantial amounts of our common stock in the public market following this offering by our existing shareholders, upon the exercise of outstanding stock options or by persons who acquire shares in this offering may adversely affect the market price of our common stock. Such sales could also create public perception of difficulties or problems with our business. These sales might also make it more difficult for us to sell securities in the future at a time and price that we deem appropriate.
 
Upon the completion of this offering, we will have outstanding           shares of common stock, of which:
 
  •             shares are shares that we and the selling shareholders are selling in this offering and, unless purchased by affiliates, may be resold in the public market immediately after this offering; and
 
  •             shares will be “restricted securities,” as defined in Rule 144 under the Securities Act, and eligible for sale in the public market pursuant to the provisions of Rule 144, of which          shares are subject to lock-up agreements and will become available for resale in the public market beginning 180 days after the date of this prospectus.
 
With limited exceptions, as described under the caption “Underwriting,” these lock-up agreements prohibit a shareholder from selling, contracting to sell or otherwise disposing of any common stock or securities that are convertible or exchangeable for common stock or entering into any arrangement that transfers the economic consequences of ownership of our common stock for at least 180 days from the date of this prospectus, although the lead underwriters may, in their sole discretion and at any time without notice, release all or any portion of the securities subject to these lock-up agreements. The lead underwriters have advised us that they have no present intent or arrangement to release any shares subject to a lock-up and will consider the release of any lock-up on a case-by-case basis. Upon a request to release any shares subject to a lock-up, the lead underwriters would consider the particular circumstances surrounding the request including, but not limited to, the length of time before the lock-up expires, the number of shares requested to be released, reasons for the request, the possible impact on the market for our common stock and whether the holder of our shares requesting the release is an officer, director or other affiliate of ours. As a result of these lock-up agreements, notwithstanding earlier eligibility for sale under the provisions of Rule 144, none of these shares may be sold until at least 180 days after the date of this prospectus.
 
As restrictions on resale end, our stock price could drop significantly if the holders of these restricted shares sell them or are perceived by the market as intending to sell them. These sales might also make it more difficult for us to sell securities in the future at a time and at a price that we deem appropriate.


25


Table of Contents

You will suffer immediate and substantial dilution.
 
The initial public offering price per share is substantially higher than the pro forma net tangible book value per share immediately after this offering. As a result, you will pay a price per share that substantially exceeds the book value of our assets after subtracting our liabilities. Assuming an offering price of $      per share, you will incur immediate and substantial dilution in the amount of $      per share. If outstanding options to purchase our common stock are exercised, you will experience additional dilution. Any future equity issuances will result in even further dilution to holders of our common stock.
 
If securities analysts or industry analysts downgrade our stock, publish negative research or reports, or do not publish reports about our business, our stock price and trading volume could decline.
 
The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us, our business and our industry. If one or more analysts adversely change their recommendation regarding our stock or our competitors’ stock, our stock price would likely decline. If one or more analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.
 
Certain provisions of Ohio law and our articles of incorporation and regulations that will be in effect after this offering may deter takeover attempts, which may limit the opportunity of our shareholders to sell their shares at a favorable price, and may make it more difficult for our shareholders to remove our board of directors and management.
 
Provisions in our articles of incorporation and regulations, as they will be in effect upon the closing of this offering, may have the effect of delaying or preventing a change of control or changes in our management. These provisions include the following:
 
  •  advance notice requirements for shareholders proposals and nominations;
 
  •  availability of “blank check” preferred stock;
 
  •  establish a classified board of directors so that not all members of our board of directors are elected at one time;
 
  •  the right of the board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or due to the resignation or departure of an existing board member;
 
  •  the prohibition of cumulative voting in the election of directors, which would otherwise allow less than a majority of shareholders to elect director candidates; and
 
  •  limitations on the removal of directors.
 
In addition, because we are incorporated in Ohio, we are governed by the provisions of Section 1704 of the Ohio Revised Code. These provisions may prohibit large shareholders, particularly those owning 10% or more of our outstanding voting stock, from merging or combining with us. These provisions in our articles of incorporation and regulations and under Ohio law could discourage potential takeover attempts, could reduce the price that investors are willing to pay for shares of our common stock in the future and could potentially result in the market price being lower than they would without these provisions.
 
Although no shares of preferred stock will be outstanding upon the completion of this offering and although we have no present plans to issue any preferred stock, our articles of incorporation authorize the board of directors to issue up to          shares of preferred stock. The preferred stock may be issued in one or more series, the terms of which will be determined at the time of issuance by our board of directors without further action by the shareholders. These terms may include voting rights, including the right to vote as a series on particular matters, preferences as to dividends and liquidation, conversion rights, redemption rights and sinking fund provisions. The issuance of any preferred stock could diminish the rights of holders of our common stock and, therefore, could reduce the value of our common stock. In addition, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell assets to, a third party. The ability of our board of directors to issue preferred stock and the foregoing anti-takeover provisions may prevent or frustrate attempts by a


26


Table of Contents

third party to acquire control of our company, even if some of our shareholders consider such change of control to be beneficial. See “Description of Capital Stock.”
 
Since we do not expect to pay any dividends for the foreseeable future, investors in this offering may be forced to sell their stock in order to realize a return on their investment.
 
We have not declared or paid any dividends on our common stock. We do not anticipate that we will pay any dividends to holders of our common stock for the foreseeable future. Any payment of cash dividends will be at the discretion of our board of directors and will depend on our financial condition, capital requirements, legal requirements, earnings and other factors. We anticipate that our ability to pay dividends will be restricted by the terms of our new senior credit facilities and might be restricted by the terms of any indebtedness that we incur in the future. Consequently, you should not rely on dividends in order to receive a return on your investment. See “Dividend Policy.”
 
The concentration of our capital stock ownership with insiders upon the completion of this offering will likely limit an investor’s ability to influence corporate matters.
 
Upon completion of this offering, our executive officers, directors and affiliated entities controlled by us or these individuals will together beneficially own or control approximately     % of our outstanding common stock, or     % if the underwriters exercise their over-allotment option in full. As a result, certain shareholders will have substantial influence and control over management and matters that require approval by our shareholders, including amendments to our articles of incorporation and regulations and approval of significant corporate transactions, including mergers and sales of substantially all of our assets. It is possible that the interests of these shareholders may in some circumstances conflict with our interests and the interests of our other shareholders, including you.
 
Our reported financial results may be adversely affected by changes in accounting principles applicable to us.
 
Generally accepted accounting principles in the U.S. are subject to interpretation by the Financial Accounting Standards Board, or FASB, the American Institute of Certified Public Accountants, the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change. In addition, the SEC has announced a multi-year plan that could ultimately lead to the use of International Financial Reporting Standards by U.S. issuers in their SEC filings. Any such change could have a significant effect on our reported financial results.
 
Our ability to raise capital in the future may be limited.
 
Our business and operations may consume resources faster than we anticipate. In the future, we may need to raise additional funds through the issuance of new equity securities, debt or a combination of both. Additional financing may not be available on favorable terms, or at all. If adequate funds are not available on acceptable terms, we may be unable to fund our capital requirements. If we issue new debt securities, the debt holders would have rights senior to common shareholders to make claims on our assets, and the terms of any debt could restrict our operations, including our ability to pay dividends on our common stock. If we issue additional equity securities, existing shareholders will experience dilution, and the new equity securities could have rights senior to those of our common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our shareholders bear the risk of our future securities offerings reducing the market price of our common stock and diluting their interest.


27


Table of Contents

 
Reorganization Transactions
 
The diagram below illustrates our ownership structure prior to the reorganization transactions described below. The ownership percentages presented in the charts below exclude all outstanding options.
 
Structure Prior to IPO Reorganization
 
(FLOW CHART)
 
It is anticipated that our majority shareholder, Bravo Development Holdings LLC, or Holdings, will enter into an exchange agreement with us pursuant to which Holdings will exchange its shares of our Series A preferred stock and common stock for new shares of our common stock immediately prior to the consummation of this offering. Additionally, we and each of our other current shareholders will simultaneously enter into a similar exchange agreement pursuant to which each such shareholder will exchange all of their shares of our Series A preferred stock and common stock for new shares of our common stock immediately prior to the consummation of this offering.
 
The aggregate number of shares of our new common stock issued by us in exchange for the shares of our Series A preferred stock and our outstanding common stock, or the new common shares, will equal           shares. The number of new common shares will not be affected by the initial public offering price of shares of our common stock in this offering, although the allocation of such shares to the holders of our Series A preferred stock and to the holders of our outstanding common stock will be based upon the initial public offering price in this offering. Under the terms of the exchange of our Series A preferred stock, each share of Series A preferred stock will be exchanged for           new common shares, which have an aggregate fair value, based upon an initial public offering price of          , the midpoint of the price range set forth on the cover of this prospectus, equal to the liquidation preference for each share of Series A preferred stock. The “liquidation preference,” as defined in our amended and restated articles of incorporation, for each share of Series A preferred stock equals $1,000 plus all accumulated but unpaid dividends that have accrued on such share. The holders of our outstanding common stock will receive      new common shares (based upon an exchange ratio of one to one and after giving effect to a           -for-1 stock split of our outstanding common stock) equal to the aggregate number of new common shares issued less the new common shares issued to the holders of Series A preferred stock. Based upon an initial public offering price of $      per share, the midpoint of the price range set forth on the cover of this prospectus, holders of our Series A preferred stock will receive an aggregate of approximately           new common shares, representing a beneficial ownership interest of     % of our company. A $1.00 increase (decrease) in the assumed initial public offering price of $      per share, the midpoint of the price range set forth on the cover of this prospectus, would increase (decrease) the beneficial ownership of our new common shares held by holders of our Series A preferred stock by          %. Any such increase (decrease) in the assumed initial public offering price,


28


Table of Contents

however, will not affect the number of new common shares outstanding after giving effect to this offering and the reorganization transactions.
 
After determining the allocation of the new common shares as described above, prior to the consummation of this offering, we will (i) exchange one share of our new common stock for each outstanding share of our common stock, (ii) following this exchange, amend and restate our articles of incorporation to give effect to a          -for-1 stock split of our outstanding common stock and (iii) the shares of Series A preferred stock will be exchanged for the new common shares as described above. Following these transactions and immediately prior to the consummation of this offering, Holdings will in turn distribute the new common shares it received as part of the transactions detailed above to its members on a pro rata basis in accordance with such members’ ownership interest in the common units of Holdings. Holdings will then be dissolved. The reorganization transactions will have no effect on our total stockholders’ equity.
 
In this prospectus, we collectively refer to the transactions described above as the “reorganization transactions.” Upon the consummation of this offering and the reorganization transactions, there will be no shares of Series A preferred stock outstanding.
 
As a result of the reorganization transactions and immediately following the consummation of this offering, BRS and its affiliates will beneficially own approximately     % of our common stock, Castle Harlan and its affiliates will beneficially own approximately     % of our common stock and our executive officers, directors and principal shareholders will collectively beneficially own approximately     % of our common stock. A $1.00 increase (decrease) in the assumed initial public offering price of $      per share, the midpoint of the price range set forth on the cover of this prospectus, would increase (decrease) the beneficial ownership of our common stock by BRS and its affiliates by     %, Castle Harlan and its affiliates by     % and our executive officers, directors and principal shareholders by     %. The diagram below illustrates our ownership structure following the reorganization transactions and the sale of common stock by us and the selling shareholders in this offering.
 
Structure Following IPO Reorganization
 
(FLOW CHART)


29


Table of Contents

 
Cautionary Statement Regarding Forward-Looking Statements
 
This prospectus contains forward-looking statements. These statements relate to future events or our future financial performance. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should” or “will” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors, including those discussed under “Risk Factors.” The following factors, among others, could cause our actual results and performance to differ materially from the results and performance projected in, or implied by, the forward-looking statements:
 
  •  the success of our existing and new restaurants;
 
  •  our ability to successfully develop and expand our operations;
 
  •  changes in economic conditions, including continuing effects from the recent recession;
 
  •  damage to our reputation or lack of acceptance of our brands;
 
  •  economic and other trends and developments, including adverse weather conditions, in those local or regional areas in which our restaurants are concentrated;
 
  •  the impact of economic factors, including the availability of credit, on our landlords and other retail center tenants;
 
  •  changes in availability or cost of our principal food products;
 
  •  increases in our labor costs, including as a result of changes in government regulation;
 
  •  labor shortages or increased labor costs;
 
  •  increasing competition in the restaurant industry in general as well as in the dining segments of the restaurant industry in which we compete;
 
  •  changes in attitudes or negative publicity regarding food safety and health concerns;
 
  •  the success of our marketing programs;
 
  •  potential fluctuations in our quarterly operating results due to new restaurant openings and other factors;
 
  •  the effect on existing restaurants of opening new restaurants in the same markets;
 
  •  the loss of key members of our management team;
 
  •  strain on our infrastructure and resources caused by our growth;
 
  •  the impact of federal, state or local government regulations relating to building construction and the opening of new restaurants, our existing restaurants, our employees, the sale of alcoholic beverages and the sale or preparation of food;
 
  •  the impact of litigation;
 
  •  our inability to obtain adequate levels of insurance coverage;
 
  •  the impact of our substantial indebtedness;
 
  •  future asset impairment charges;
 
  •  security breaches of confidential guest information;
 
  •  inadequate protection of our intellectual property;
 
  •  our ability to raise capital in the future;
 
  •  the failure or breach of our information technology systems;
 
  •  a major natural or man-made disaster at our corporate facility;
 
  •  increased costs and obligations as a result of being a public company;
 
  •  the impact of federal, state and local tax rules;


30


Table of Contents

 
  •  concentration of ownership among our existing executives, directors and principal shareholders may prevent new investors from influencing significant corporate decisions; and
 
  •  other factors discussed under the headings “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.”
 
Although we believe that the expectations reflected in the forward-looking statements are reasonable based on our current knowledge of our business and operations, we cannot guarantee future results, levels of activity, performance or achievements. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this prospectus. We assume no obligation to provide revisions to any forward-looking statements should circumstances change.


31


Table of Contents

 
Use of Proceeds
 
We estimate that the net proceeds to us from this offering will be approximately $      million, assuming an initial public offering price of $      per share, which is the midpoint of the range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each $1.00 increase or decrease in the assumed initial public offering price of $      per share would increase or decrease, as applicable, the net proceeds to us by approximately $      , assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
 
The selling shareholders will receive $      million in proceeds from their sale of          shares of common stock in this offering, or approximately $      million if the underwriters exercise in full their option to purchase additional shares of common stock to cover over-allotments. We will not receive any proceeds from the sale of shares by the selling shareholders. See “Reorganization Transactions,” “Principal and Selling Shareholders” and “Underwriting.”
 
In connection with this offering, we intend to enter into new senior credit facilities, consisting of a $      million term loan facility and a $      million revolving credit facility. We intend to use the net proceeds of this offering, together with $      million of borrowings under our new senior credit facilities, as follows:
 
  •  To repay all our loans outstanding under our existing senior credit facilities, and any accrued and unpaid interest and related LIBOR breakage costs and other fees. As of March 28, 2010, approximately $85.8 million principal amount of loans were outstanding under our existing senior credit facilities. The weighted-average interest rate for the year ended December 27, 2009 of our indebtedness under our existing senior credit facilities was 3.47%. Our existing senior credit facilities can be prepaid without premium or penalty, other than any related LIBOR breakage costs and other fees. Affiliates of Wells Fargo Securities, LLC will receive more than 5% of the proceeds from this offering (after taking into account underwriters’ discounts and commissions and offering expenses payable by us) as lenders under our existing senior credit facilities. An affiliate of Jefferies & Company, Inc. is also a lender under our existing senior credit facilities, although it will receive less than 5% of the proceeds from this offering (after taking into account underwriters’ discounts and commissions and offering expenses payable by us).
 
  •  To repay all of our 13.25% senior subordinated secured notes, and any accrued and unpaid interest. As of March 28, 2010, approximately $32.4 million aggregate principal amount of our 13.25% senior subordinated secured notes were outstanding. Our 13.25% senior subordinated secured notes can be prepaid without premium or penalty.
 
Any remaining net proceeds will be used for general corporate purposes.


32


Table of Contents

 
Dividend Policy
 
We do not currently pay cash dividends on our common stock and do not anticipate paying any dividends on our common stock in the foreseeable future. We currently intend to retain any future earnings to fund the operation, development and expansion of our business. Any future determinations relating to our dividend policies will be made at the discretion of our board of directors and will depend on existing conditions, including our financial condition, results of operations, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant. In addition, we anticipate that our ability to declare and pay dividends will be restricted by covenants in our new senior credit facilities.


33


Table of Contents

 
Capitalization
 
The following table sets forth our capitalization as of March 28, 2010:
 
  •  on an actual basis; and
 
  •  on an as adjusted basis to give effect to (1) the sale of shares of common stock in this offering at an assumed initial public offering price of $      per share, which is the midpoint of the range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated fees and expenses payable by us, (2) the reorganization transactions and (3) the application of the net proceeds of this offering and borrowings under our new senior credit facilities as described under “Use of Proceeds,” as if the events had occurred on March 28, 2010.
 
You should read this information in conjunction with “Reorganization Transactions,” “Use of Proceeds,” “Selected Historical Consolidated Financial and Operating Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Description of Indebtedness” and our consolidated financial statements and related notes included elsewhere in this prospectus.
 
                 
 
    As of March 28, 2010  
(In thousands)   Actual     As Adjusted  
 
Cash and cash equivalents
  $ 241     $        
                 
Debt:
               
Existing revolving credit facility(1)
  $ 6,200     $  
Existing term loan facility(2)
    79,613        
13.25% senior subordinated secured notes(3)
    32,384        
New revolving credit facility
           
New term loan facility
           
Other debt
    242        
                 
Total debt
      118,439        
Series A preferred stock(4)
    97,539        
Total stockholders’ equity (deficiency in assets)
    (70,174 )      
                 
Total capitalization(5)
  $ 145,804     $  
                 
 
(1) The existing revolving credit facility is a part of our existing senior credit facilities and provides for borrowings of up to $30.0 million, of which $20.0 million was available as of March 28, 2010 for working capital and general corporate purposes (after giving effect to $3.8 million of outstanding letters of credit at March 28, 2010).
 
(2) We borrowed $82.5 million in term loans under our existing senior credit facilities. Between June 29, 2006 and March 28, 2010, we repaid approximately $2.9 million of our outstanding term loans.
 
(3) Reflects the balance sheet liability of our 13.25% senior subordinated secured notes calculated in accordance with GAAP. From November 2006 through January 2010, the Company elected to capitalize accrued but unpaid interest on the senior subordinated secured notes as permitted under the related note purchase agreement. Total unpaid interest capitalized into the balance of the senior subordinated secured notes since the issuance of the senior subordinated secured notes amounted to approximately $6.7 million.
 
(4) Reflects the current liquidation preference for our Series A preferred stock, including undeclared preferred dividends of $38.0 million as of March 28, 2010.
 
(5) A $1.00 increase (decrease) in the assumed initial public offering price of $     per share, which is the midpoint of the range set forth on the cover page of this prospectus, would increase (decrease) each of total stockholders’ equity (deficiency in assets) and total capitalization by $      million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.


34


Table of Contents

 
Dilution
 
Purchasers of shares of common stock in this offering will experience immediate and substantial dilution in the net tangible book value of the common stock from the initial public offering price. Net tangible book value per share represents the amount of our total tangible assets less our total liabilities, divided by the number of shares of our common stock outstanding. Dilution in net tangible book value per share represents the difference between the amount per share that you pay in this offering and the net tangible book value per share immediately after this offering. Our net tangible book value (deficit) as of March 28, 2010 was approximately $(70.2) million, or $      per share.
 
After giving effect to (i) the sale of           shares of our common stock in this offering at an assumed initial public offering price of $      per share, which is the midpoint of the range set forth on the cover page of this prospectus, (ii) the reorganization transactions and (iii) the deduction of estimated underwriting discounts and commissions and estimated fees and expenses payable by us, our pro forma net tangible book value at March 28, 2010 would have been approximately $      million, or $      per share. This represents an immediate increase in net tangible book value of $      per share to existing shareholders and an immediate and substantial dilution of $      per share to new investors. This calculation does not give effect to our use of proceeds from this offering or any borrowings under our new senior credit facilities. The following table illustrates this per share dilution:
 
                 
 
          Per Share  
Assumed initial public offering price per share (the midpoint of the range set forth on the cover page of this prospectus)
          $             
Actual net tangible book value per share as of March 28, 2010
  $                
Increase per share attributable to new investors
  $            
Pro forma net tangible book value per share after this offering
          $    
                 
Dilution per share to new investors
          $    
                 
 
Sales of           shares of common stock by the selling shareholders in this offering will reduce the number of shares of common stock held by existing shareholders to          , or approximately     % of the total shares of common stock outstanding after this offering, and will increase the number of shares held by new investors to          , or approximately     % of the total shares of common stock outstanding after this offering.
 
If the underwriters exercise in full their over-allotment option to purchase additional shares of our common stock in this offering at the assumed initial public offering price of $      per share, which is the midpoint of the range set forth on the cover page of this prospectus, the number of shares of common stock held by existing shareholders will be reduced to           , or     % of the aggregate number of shares of common stock outstanding after this offering, the number of shares of common stock held by new investors will be increased to           , or     % of the aggregate number of shares of common stock outstanding after this offering, the increase per share attributable to new investors would be $      , the pro forma net tangible book value per share after this offering would be $     , and the dilution per share to new investors would be $     .
 
A $1.00 increase (decrease) in the assumed initial public offering price of $      per share, which is the midpoint of the range set forth on the cover page of this prospectus, would increase (decrease) our pro forma net tangible book value by $      million, the pro forma net tangible book value per share after this offering by $      per share, and the dilution per share to new investors by $      per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.
 
The following table summarizes, on the pro forma basis described above as of March 28, 2010, after giving effect to the reorganization transactions, the total number of shares of common stock purchased from us and the selling shareholders and the total consideration and the average price per share paid by existing shareholders and by investors participating in this offering. The calculation below is based on the assumed initial public offering price


35


Table of Contents

of $      per share, which is the midpoint of the range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated fees and expenses payable by us.
 
                                         
 
    Shares Purchased     Total Consideration     Average Price
 
    Number     Percentage     Amount     Percentage     per Share  
Existing shareholders
                      %   $                   %   $        
New investors
            %             %        
                                         
Total
            100 %   $         100 %   $  
                                         
 
Each $1.00 increase (decrease) in the assumed offering price of $      per share, which is the midpoint of the range set forth on the cover page of this prospectus, would increase (decrease) total consideration paid by new investors and total consideration paid by all shareholders by $      million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and before deducting the underwriting discounts and commissions and estimated offering expenses payable by us.
 
The pro forma dilution information above is for illustration purposes only. Our net tangible book value following the completion of this offering is subject to adjustment based on the actual initial public offering price of our shares and other terms of this offering determined at pricing. The number of shares of our common stock outstanding after this offering as shown above is based on the number of shares outstanding as of March 28, 2010. As of March 28, 2010, without giving effect to the     -for-1 stock split of our outstanding common stock expected to occur prior to the consummation of this offering, there were options outstanding to purchase 257,875 shares of our common stock, with exercise prices of either $5.00 or $10.00 per share and a weighted average exercise price of $9.92 per share. The tables and calculations above assume that those options have not been exercised. To the extent outstanding options are exercised, you would experience further dilution if the exercise price is less than our net tangible book value per share. In addition, if we grant options, warrants, or other convertible securities or rights to purchase our common stock in the future with exercise prices below the initial public offering price, new investors will incur additional dilution upon exercise of such securities or rights.


36


Table of Contents

 
Selected Historical Consolidated Financial and Operating Data
 
You should read the following selected historical consolidated financial and operating data in conjunction with our consolidated financial statements and the related notes to those statements included elsewhere in this prospectus. You should also read “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All of these materials are contained elsewhere in this prospectus. The selected historical consolidated financial data as of December 28, 2008 and December 27, 2009 and for the three years in the period ended December 27, 2009 have been derived from consolidated financial statements audited by Deloitte & Touche LLP, an independent registered public accounting firm, included elsewhere in this prospectus. The selected historical consolidated financial data as of December 25, 2005, December 31, 2006 and December 30, 2007 and for the two years in the period ended December 31, 2006 have been derived from our audited consolidated financial statements not included elsewhere in this prospectus. We derived the historical financial data for the thirteen weeks ended March 28, 2010 from our unaudited interim consolidated financial statements, which are included elsewhere in this prospectus. We have derived the balance sheet data as of March 29, 2009 from our unaudited interim consolidated financial statements not included elsewhere in this prospectus.
 
Basic and diluted net income (loss) per share and basic and diluted weighted average shares outstanding for the years ended December 31, 2006, December 30, 2007, December 28, 2008 and December 27, 2009 and for the thirteen weeks ended March 29, 2009 and March 28, 2010 are presented on a historical basis.
 
                                                         
 
    Year Ended(1)     Thirteen Weeks Ended  
    December 25,
    December 31,
    December 30,
    December 28,
    December 27,
    March 29,
    March 28,
 
    2005     2006     2007     2008     2009     2009     2010  
    (Dollars in thousands, except per share data)  
 
Statement of Operations Data:
                                                       
Revenues
  $  198,787     $  241,369     $  265,374     $  300,783     $  311,709     $  73,593     $  81,844  
Cost of sales
    59,050       70,632       75,340       84,618       82,609       19,721       21,357  
Labor
    66,565       81,054       89,663       102,323       106,330       26,096       28,096  
Operating
    31,710       36,966       41,567       47,690       48,917       12,505       12,753  
Occupancy
    10,491       14,072       16,054       18,736       19,636       5,061       5,525  
                                                         
Total restaurant operating costs
    167,816       202,724       222,624       253,367       257,492       63,383       67,731  
General and administrative expenses
    13,098       15,401       16,768       15,042       17,123       4,583       4,423  
Restaurant pre-opening costs
    4,072       4,658       5,647       5,434       3,758       1,106       1,205  
Depreciation and amortization
    7,179       9,414       12,309       14,651       16,088       3,816       4,124  
Asset impairment charges
    475       3,266               8,506       6,436                  
Other expenses — net
    428       359       462       229       157       105       (25 )
                                                         
Total costs and expenses
    25,252       33,098       35,186       43,862       43,562       9,610       9,727  
Income from operations
    5,719       5,547       7,564       3,554       10,655       600       4,386  
Net interest expense
    258       5,643       11,853       9,892       7,119       1,895       1,770  
                                                         
Income (loss) from continuing operations before income taxes
    5,461       (96 )     (4,289 )     (6,338 )     3,536       (1,295 )     2,616  
Income tax provision (benefit)(2)
    39       613       (3,503 )     55,061       135       (2 )     100  
                                                         
Net income (loss)
  $ 5,422     $ (709 )   $ (786 )   $ (61,399 )   $ 3,401     $ (1,293 )   $ 2,516  
Undeclared preferred dividend
          (4,257 )     (8,920 )     (10,175 )     (11,599 )     (2,710 )     (3,089 )
                                                         
Net income (loss) available to common shareholders
  $ 5,422     $ (4,966 )   $ (9,706 )   $ (71,574 )   $ (8,198 )   $ (4,003 )   $ (573 )
                                                         
Per Share Data:(2)(3)
                                                       
Income (loss) from continuing operations
    NM       NM     $ (9.24 )   $ (68.17 )   $ (7.81 )   $ (3.81 )   $ (0.55 )
Weighted average common shares outstanding — basic and diluted
    NM       NM       1,050       1,050       1,050       1,050       1,050  


37


Table of Contents

                                                         
 
    Year Ended(1)     Thirteen Weeks Ended  
    December 25,
    December 31,
    December 30,
    December 28,
    December 27,
    March 29,
    March 28,
 
    2005     2006     2007     2008     2009     2009     2010  
    (Dollars in thousands, except per share data)  
 
Other Financial Data:
                                                       
Net cash provided from operating activities
  $ 23,015     $ 23,397     $ 31,291     $ 32,501     $ 33,782     $ 2,948     $ 6,108  
Net cash used for investing activities
  $ (27,976 )   $ (27,077 )   $ (35,536 )   $ (43,088 )   $ (24,957 )   $ (6,399 )   $ (6,410 )
Net cash (used in) provided by financing activities
  $ 4,931     $ 3,855     $ 4,156     $ 10,529     $ (9,258 )   $ 3,230     $ 294  
Capital expenditures
  $ 21,477     $ 21,079     $ 28,782     $ 24,578     $ 14,121     $ 2,109     $ 2,332  
Adjusted EBITDA(4)
  $ 13,373     $ 18,407     $ 20,260     $ 27,218     $ 34,790     $ 4,917     $ 8,920  
Adjusted EBITDA margin
    6.7 %     7.6 %     7.6 %     9.0 %     11.2 %     6.7 %     10.9 %
Operating Data:
                                                       
Total restaurants (at end of period)
    49       57       63       75       81       77       83  
Total comparable restaurants (at end of period)
    35       44       49       54       61       62       74  
Change in comparable restaurant sales
    1.1 %     (0.1 )%     0.6 %     (3.8 )%     (7.4 )%     (8.2 )%     0.2 %
BRAVO!:
                                                       
Restaurants (at end of period)
    30       34       38       44       45       45       46  
Total comparable restaurants (at end of period)
    21       28       31       33       36       37       43  
Average sales per comparable restaurant
  $ 4,002     $ 3,919     $ 3,890     $ 3,715     $ 3,457     $ 836     $ 820  
Change in comparable restaurant sales
    0.2 %     (0.1 )%     0.9 %     (4.1 )%     (7.1 )%     (8.6 )%     (0.6 )%
BRIO:
                                                       
Restaurants (at end of period)
    19       23       25       31       36       32       37  
Total comparable restaurants (at end of period)
    14       16       18       21       25       25       31  
Average sales per comparable restaurant
  $ 5,320     $ 5,479     $ 5,308     $ 5,401     $ 4,812     $ 1,196     $ 1,215  
Change in comparable restaurant sales
    2.1 %     (0.1 )%     0.2 %     (3.6 )%     (7.8 )%     (7.7 )%     1.0 %
Balance Sheet Data (at end of period):
                                                       
Cash and cash equivalents
  $ 654     $ 829     $ 740     $ 682     $ 249     $ 461     $ 241  
Working capital (deficit)
  $ (30,518 )   $ (18,334 )   $ (33,110 )   $ (34,320 )   $ (36,156 )   $ (33,162 )   $ (33,781 )
Total assets
  $ 95,992     $ 180,132     $ 195,048     $ 157,764     $ 160,842     $ 159,055     $ 162,114  
Total debt
  $ 9,607     $ 112,056     $ 114,136     $ 125,950     $ 118,031     $ 129,509     $ 118,439  
Total stockholders’ equity (deficiency in assets)
  $ 22,814     $ (13,906 )   $ (14,692 )   $ (76,091 )   $ (72,690 )   $ (77,385 )   $ (70,174 )
 
(1) We utilize a 52- or 53-week accounting period which ends on the Sunday closest to December 31. The fiscal years ended December 27, 2009, December 28, 2008, December 30, 2007 and December 25, 2005, each have 52 weeks, while the fiscal year ended December 31, 2006 had 53 weeks. Average sales per comparable restaurant have been adjusted to reflect 52 weeks.
 
(2) The Company was structured as a Subchapter S corporation for the year ended December 25, 2005 and was changed to a C corporation effective June 29, 2006 as part of the 2006 recapitalization. As a result, corporate income taxes and per share data for 2005 and 2006 is not meaningful and therefore not shown in the table above. If the Company had been a C corporation during 2005 and the pre-recapitalization period of 2006, the income tax expense would have been $1.9 million and $0.5 million, respectively, higher than the amounts presented in the table above.
 
(3) Does not give effect to the reorganization transactions expected to occur prior to the consummation of this offering. See “Reorganization Transactions.”
 
(4) Adjusted EBITDA represents earnings before interest, taxes, depreciation and amortization plus the sum of asset impairment charges and management fees and expenses. We are presenting Adjusted EBITDA, which is

38


Table of Contents

not required by U.S. generally accepted accounting principles, or GAAP, because it provides an additional measure to view our operations, when considered with both our GAAP results and the reconciliation to net income (loss) which we believe provides a more complete understanding of our business than could be obtained absent this disclosure. We use Adjusted EBITDA, together with financial measures prepared in accordance with GAAP, such as revenue and cash flows from operations, to assess our historical and prospective operating performance and to enhance our understanding of our core operating performance. Adjusted EBITDA is presented because: (i) we believe it is a useful measure for investors to assess the operating performance of our business without the effect of non-cash depreciation and amortization expenses and asset impairment charges; (ii) we believe that investors will find it useful in assessing our ability to service or incur indebtedness; and (iii) we use Adjusted EBITDA internally as a benchmark to evaluate our operating performance or compare our performance to that of our competitors. The use of Adjusted EBITDA as a performance measure permits a comparative assessment of our operating performance relative to our performance based on our GAAP results, while isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies. Companies within our industry exhibit significant variations with respect to capital structures and cost of capital (which affect interest expense and tax rates) and differences in book depreciation of facilities and equipment (which affect relative depreciation expense), including significant differences in the depreciable lives of similar assets among various companies. Our management believes that Adjusted EBITDA facilitates company-to-company comparisons within our industry by eliminating some of the foregoing variations.
 
Adjusted EBITDA is not a measurement determined in accordance with GAAP and should not be considered in isolation or as an alternative to net income, net cash provided by operating, investing or financing activities or other financial statement data presented as indicators of financial performance or liquidity, each as presented in accordance with GAAP. Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. Adjusted EBITDA as presented may not be comparable to other similarly titled measures of other companies and our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual items.
 
Our management recognizes that Adjusted EBITDA has limitations as an analytical financial measure, including the following:
 
  •  Adjusted EBITDA does not reflect our capital expenditures or future requirements for capital expenditures;
 
  •  Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, associated with our indebtedness;
 
  •  Adjusted EBITDA does not reflect depreciation and amortization, which are non-cash charges, although the assets being depreciated and amortized will likely have to be replaced in the future, nor does Adjusted EBITDA reflect any cash requirements for such replacements; and
 
  •  Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs.
 
This prospectus also includes information concerning Adjusted EBITDA margin, which is defined as the ratio of Adjusted EBITDA to revenues. We present Adjusted EBITDA margin because it is used by management as a performance measurement to judge the level of Adjusted EBITDA generated from revenues and we believe its inclusion is appropriate to provide additional information to investors.


39


Table of Contents

A reconciliation of Adjusted EBITDA and EBITDA to net income is provided below.
 
                                                         
    Year Ended     Thirteen Weeks Ended  
    December 25,
    December 31,
    December 30,
    December 28,
    December 27,
    March 29,
    March 28,
 
    2005     2006     2007     2008     2009     2009     2010  
                      (In thousands)                    
 
Net income (loss)
  $ 5,422     $ (709 )   $ (786 )   $ (61,399 )   $ 3,401     $ (1,293 )   $ 2,516  
Income tax expense (benefit)
    39       613       (3,503 )     55,061       135       (2 )     100  
Interest expense
    258       5,643       11,853       9,892       7,119       1,895       1,770  
Depreciation and amortization
    7,179       9,414       12,309       14,651       16,088       3,816       4,124  
                                                         
EBITDA
  $ 12,898     $ 14,961     $ 19,873     $ 18,205     $ 26,743     $ 4,416     $ 8,510  
Asset impairment charges
    475       3,266             8,506       6,436              
Management fees and expenses
          180       387       507       1,611       501       410  
                                                         
Adjusted EBITDA
  $ 13,373     $ 18,407     $ 20,260     $ 27,218     $ 34,790     $ 4,917     $ 8,920  
                                                         


40


Table of Contents

 
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
 
The following discussion should be read in conjunction with “Selected Historical Consolidated Financial and Operating Data” and our consolidated financial statements and the related notes to those statements included elsewhere in this prospectus. The following discussion contains, in addition to historical information, forward-looking statements that include risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under the heading “Risk Factors” and elsewhere in this prospectus.
 
Overview
 
We are the owner and operator of two fast growing and leading Italian restaurant brands, BRAVO! Cucina Italiana (“BRAVO!”) and BRIO Tuscan Grille (“BRIO”). We have positioned our brands as multifaceted culinary destinations that deliver the ambiance, design elements and food quality reminiscent of fine dining restaurants at a value typically offered by casual dining establishments, a combination that we call “Upscale Affordable.” Each of BRAVO! and BRIO provides its guests with affordable, high-quality cuisine prepared using fresh ingredients and authentic Italian cooking methods, combined with attentive service in an attractive, lively atmosphere. We strive to be the best Italian restaurant company in America and are focused on providing our guests an excellent dining experience through consistency of execution. We believe that both of our brands appeal to a broad base of consumers, especially to women whom we believe currently account for approximately 62% and 65% of our guest traffic at BRAVO! and BRIO, respectively.
 
Our Growth Strategies and Outlook
 
We believe our restaurants have significant growth potential due to our Upscale Affordable positioning, strong unit economics, proven track record of financial results and broad guest appeal. Our growth model is comprised of the following three primary drivers:
 
  •  Pursue Disciplined Restaurant Growth.  We believe that there are significant opportunities to grow our brands on a nationwide basis in both existing and new markets where we believe we can generate attractive unit level economics. We are pursuing a disciplined growth strategy for both of our brands. We believe that each brand is at an early stage of its expansion.
 
  •  Grow Existing Restaurant Sales.  We will continue to pursue targeted local marketing efforts and evaluate operational initiatives designed to increase unit volumes without relying on discounting programs.
 
  •  Maintain Margins Throughout Our Growth.  We will continue to aggressively protect our margins using economies of scale, including marketing and purchasing synergies between our brands and leveraging our corporate infrastructure as we continue to open new restaurants.
 
We opened two new restaurants in the first quarter of 2010 and two in the second quarter of 2010, with one additional restaurant to be opened later this year. We plan to open five to six new restaurants in 2011 and aim to open between 45 and 50 new restaurants over the next five years. Based on our current real estate development plans, we believe our combined, expected cash flows from operations, available borrowings under our new senior credit facilities and expected landlord construction contributions should be sufficient to finance our planned capital expenditures and other operating activities for the next twelve months. In 2009, our capital expenditure outlays equaled approximately $14.1 million, and we currently estimate 2010 capital expenditure outlays to range between $10 million and $12 million, net of agreed upon landlord construction contributions and excluding approximately $1.4 million to $2.0 million of pre-opening costs for new restaurants that are not capitalized.
 
Performance Indicators
 
We use the following key performance indicators in evaluating the performance of our restaurants:
 
  •  Comparable Restaurants and Comparable Restaurant Sales.  We consider a restaurant to be comparable after it has been opened for the entire previous fiscal year. Changes in comparable restaurant sales reflect changes


41


Table of Contents

  in sales for the comparable group of restaurants over a specified period of time. Changes in comparable sales reflect changes in guest count trends as well as changes in average check.
 
  •  Average Check.  Average check is calculated by dividing revenues by guest counts for a given time period. Average check reflects menu price influences as well as changes in menu mix. Management uses this indicator to analyze trends in guests preferences, effectiveness of menu changes and price increases and per guest expenditures.
 
  •  Average Unit Volume.  Average unit volume consists of the average sales of our restaurants over a certain period of time. This measure is calculated by dividing total restaurant sales within a period by the relevant period. This indicator assists management in measuring changes in guest traffic, pricing and development of our brands.
 
  •  Operating Margin.  Operating margin represents income from operations before interest and taxes as a percentage of our revenues. By monitoring and controlling our operating margins, we can gauge the overall profitability of our company.
 
Key Financial Definitions
 
Revenues.  Revenues primarily consist of food and beverage sales, net of any discounts, such as management meals, employee meals and coupons, associated with each sale. Revenues in a given period are directly influenced by the number of operating weeks in such period and comparable restaurant sales growth.
 
Cost of Sales.  Cost of sales consist primarily of food and beverage related costs. The components of cost of sales are variable in nature, change with sales volume and are subject to increases or decreases based on fluctuations in commodity costs. Our cost of sales depends in part on the success of controls we have in place to manage our food and beverage costs.
 
Labor Costs.  Labor costs include restaurant management salaries, front and back of house hourly wages and restaurant-level manager bonus expense, employee benefits and payroll taxes.
 
Operating Costs.  Operating costs consist primarily of restaurant-related operating expenses, such as supplies, utilities, repairs and maintenance, credit card fees, marketing costs, training, recruiting, travel and general liability insurance costs.
 
Occupancy Costs.  Occupancy costs include rent charges, both fixed and variable, as well as common area maintenance costs, property insurance and taxes, the amortization of tenant allowances and the adjustment to straight-line rent.
 
General and Administrative.  General and administrative costs include costs associated with corporate and administrative functions that support our operations, including management and staff compensation and benefits, travel, legal and professional fees, corporate office rent and other related corporate costs.
 
Restaurant Pre-opening Costs.  Restaurant pre-opening expenses consist of costs incurred prior to opening a restaurant, including executive chef and manager salaries, relocation costs, recruiting expenses, employee payroll and related training costs for new employees, including rehearsal of service activities. Pre-opening costs also include an accrual for straight-line rent recorded during the period between date of possession and the restaurant opening date for our leased restaurant locations.
 
Impairment.  We review long-lived assets, such as property and equipment and intangibles, for impairment when events or circumstances indicate the carrying value of the assets may not be recoverable. In determining the recoverability of the asset value, an analysis is performed at the individual restaurant level and primarily includes an assessment of historical cash flows and other relevant factors and circumstances. Factors considered include, but are not limited to, significant underperformance relative to expected historical or projected future operating results, significant changes in the use of assets, changes in our overall business strategy and significant negative industry or economic trends. See “— Significant Accounting Policies— Impairment of Long-Lived Assets” for further detail.
 
Net interest expense.  Net interest expense consists primarily of interest on our outstanding indebtedness, net of payments and mark-to-market adjustments on an interest rate swap agreement that expired in 2009.


42


Table of Contents

Results of Operations
 
The following table presents the combined consolidated statement of operations for the years ended December 30, 2007, December 28, 2008 and December 27, 2009, and the thirteen weeks ended March 29, 2009 and March 28, 2010, as well as, for the periods indicated, selected operating data as a percentage of revenues.
 
                                                                                 
 
    Year Ended     Thirteen Weeks Ended  
    December 30,
    % of
    December 28,
    % of
    December 27,
    % of
    March 29,
    % of
    March 28,
    % of
 
    2007     Revenue     2008     Revenue     2009     Revenue     2009     Revenue     2010     Revenue  
    (Dollars in thousands, unless percentage)  
REVENUES
  $ 265,374             $ 300,783             $ 311,709             $ 73,593             $ 81,844          
RESTAURANT OPERATING COSTS:
                                                                               
Cost of sales
    75,340       28.4 %     84,618       28.1 %     82,609       26.5 %     19,721       26.8 %     21,357       26.1 %
Labor
    89,663       33.8 %     102,323       34.0 %     106,330       34.1 %     26,096       35.5 %     28,096       34.3 %
Operating
    41,567       15.7 %     47,690       15.9 %     48,917       15.7 %     12,505       17.0 %     12,753       15.6 %
Occupancy
    16,054       6.0 %     18,736       6.2 %     19,636       6.3 %     5,061       6.9 %     5,525       6.8 %
                                                                                 
Total restaurant operating costs
     222,624        83.9 %      253,367        84.2 %      257,492        82.6 %      63,383        86.1 %      67,731        82.8 %
                                                                                 
COSTS AND EXPENSES
                                                                               
General and administrative expenses
    16,768       6.3 %     15,042       5.0 %     17,123       5.5 %     4,583       6.2 %     4,423       5.4 %
Restaurant pre-opening costs
    5,647       2.1 %     5,434       1.8 %     3,758       1.2 %     1,106       1.5 %     1,205       1.5 %
Depreciation and amortization
    12,309       4.6 %     14,651       4.9 %     16,088       5.2 %     3,816       5.2 %     4,124       5.0 %
Asset impairment charges
                8,506       2.8 %     6,436       2.1 %                        
Other (income) expenses — net
    462       0.2 %     229       0.1 %     157       0.1 %     105       0.1 %     (25 )     0.0 %
                                                                                 
Total costs and expenses
    35,186       13.3 %     43,862       14.6 %     43,562       14.0 %     9,610       13.1 %     9,727       11.9 %
                                                                                 
INCOME FROM OPERATIONS
    7,564       2.9 %     3,554       1.2 %     10,655       3.4 %     600       0.8 %     4,386       5.4 %
NET INTEREST EXPENSE
    11,853       4.5 %     9,892       3.3 %     7,119       2.3 %     1,895       2.6 %     1,770       2.2 %
                                                                                 
INCOME (LOSS) BEFORE INCOME TAXES
    (4,289 )     (1.6 )%     (6,338 )     (2.1 )%     3,536       1.1 %     (1,295 )     (1.8 )%     2,616       3.2 %
INCOME TAX EXPENSE (BENEFIT)
    (3,503 )     (1.3 )%     55,061       18.3 %     135       0.0 %     (2 )     0.0 %     100       0.1 %
                                                                                 
NET INCOME (LOSS)
  $ (786 )     (0.3 )%   $ (61,399 )     (20.4 )%   $ 3,401       1.1 %   $ (1,293 )     (1.8 )%   $ 2,516       3.1 %
                                                                                 
 
Quarter Ended March 28, 2010 Compared to Quarter Ended March 29, 2009
 
Revenues.  Revenues increased $8.2 million, or 11.2%, to $81.8 million in the first quarter of 2010, from $73.6 million in the first quarter of 2009. The increase of $8.2 million was primarily due to an additional 77 operating weeks provided by two new restaurants opened in 2010 and seven new restaurants opened in 2009. A 0.2% increase in comparable restaurant sales and a $0.70 increase in average check were partially offset by a 3.0% decline in guest counts. At March 28, 2010, our comparable restaurants base consisted of 74 restaurants, compared to 62 at March 29, 2009.
 
Cost of Sales.  Cost of sales increased $1.7 million, or 8.3%, to $21.4 million in the first quarter of 2010, from $19.7 million in the first quarter of 2009. As a percent of revenues, cost of sales declined to 26.1% in the first quarter of 2010, from 26.8% in the first quarter of 2009. The improvement in gross margin was a result of lower commodity costs, improvements in food cost from menu management and operating efficiencies, which accounted for the majority of the decrease on a percent of revenues basis.


43


Table of Contents

Labor Costs.  Labor costs increased $2.0 million, or 7.7%, to $28.1 million in the first quarter of 2010, from $26.1 million in the same period in 2009. As a percent of revenues, labor costs decreased to 34.3% in the first quarter of 2010, from 35.5% in the first quarter of 2009, primarily as a result of lower management salaries due to a decrease in average management headcount per unit, improved hourly labor efficiency and modestly lower worker’s compensation costs due to better than forecasted claim experience.
 
Operating Costs.  Operating costs increased $0.3 million, or 2.0%, to $12.8 million in the first quarter of 2010, from $12.5 million in the first quarter of 2009. As a percent of revenues, operating costs decreased to 15.6% in the first quarter of 2010, compared to 17.0% in the first quarter of 2009. Lower restaurant supplies and utility costs were the main drivers of the decrease for the quarter.
 
Occupancy Costs.  Occupancy costs increased $0.4 million, or 9.2%, to $5.5 million in the first quarter of 2010, from $5.1 million in the first quarter of 2009. As a percentage of revenues, occupancy costs decreased to 6.8% in the first quarter of 2010, from 6.9% in the first quarter of 2009. The modest change was a result of leverage from positive comparable restaurant sales.
 
General and Administrative.  As a percent of revenues, general and administrative expenses decreased to 5.4% in the first quarter of 2010, from 6.2% in the first quarter of 2009. The change was primarily attributable to a decrease in professional fees and travel costs.
 
Restaurant Pre-opening Costs.  Pre-opening costs increased by $0.1 million, or 9.0%, to $1.2 million in the first quarter of 2010, from $1.1 million in the first quarter of 2009 due to the timing of restaurant openings during the first and second quarters of 2010. Two restaurants were opened during each of the quarters ended March 28, 2010 and March 29, 2009.
 
Depreciation and Amortization.  As a percent of revenues, depreciation and amortization expenses decreased to 5.0% in the first quarter of 2010 from 5.2% in the first quarter of 2009. The change was primarily the result of leverage from positive comparable restaurant sales and was partially attributable to the impact resulting from restaurants considered impaired in 2009.
 
Net Interest Expense.  Net interest expense decreased $0.1 million, or 6.6%, to $1.8 million in the first quarter of 2010, from $1.9 million in the first quarter of 2009. The decrease was due to lower overall average interest rates during the first quarter of 2010.
 
Income Taxes.  Income tax expense increased $0.1 million in the first quarter of 2010 from $0.0 million in the first quarter of 2009. The increase is due mainly to a modest increase in current taxable income at the state level in the first quarter of 2010 as compared to the first quarter of 2009.
 
Year Ended December 27, 2009 Compared to Year Ended December 28, 2008
 
Revenues.  Revenues increased $10.9 million, or 3.6%, to $311.7 million in fiscal 2009, from $300.8 million in fiscal 2008. The increase of $10.9 million was primarily due to an additional 494 operating weeks provided by seven new restaurants opened in 2009. This increase was partially offset by a 7.4% decrease in sales from our comparable restaurants. Lower comparable restaurant sales were due to a 8.3% decline in guest counts, partially offset by a $0.20 increase in average check during fiscal 2009. At December 27, 2009, our comparable restaurants base consisted of 61 restaurants, compared to 54 at December 28, 2008.
 
Cost of Sales.  Cost of sales decreased $2.0 million, or 2.4%, to $82.6 million in fiscal 2009, from $84.6 million in 2008. As a percent of revenues, cost of sales declined to 26.5% in 2009, from 28.1% in 2008. The improvement in gross margin was a result of lower commodity costs, improvements in food cost from menu management and operating efficiencies, which accounted for the majority of the decrease on a percent of revenues basis.
 
Labor Costs.  Labor costs increased $4.0 million, or 3.9%, to $106.3 million in the year ended December 27, 2009, from $102.3 million in fiscal 2008. As a percent of revenues, labor costs increased slightly to 34.1% in 2009, from 34.0% in 2008. This increase was primarily a result of lower management salaries due to a decrease in average management headcount per unit, more than offset by a loss of sales leverage from lower comparable sales.


44


Table of Contents

Operating Costs.  Operating costs increased $1.2 million, or 2.6%, to $48.9 million in 2009, from $47.7 million in 2008. As a percent of revenues, operating costs decreased to 15.7% in 2009, compared to 15.9% in 2008. Lower restaurant supplies and utility costs were partially offset by higher repair and maintenance expense and advertising costs as well as the decrease in sales leverage from lower comparable restaurant sales.
 
Occupancy Costs.  Occupancy costs increased $0.9 million, or 4.8%, to $19.6 million in fiscal 2009, from $18.7 million in fiscal 2008. As a percentage of revenues, occupancy costs increased to 6.3% in 2009, from 6.2% in 2008. The recognition of deferred lease incentives of $1.2 million associated with the assignment of a lease related to the sale of a restaurant was largely offset by the impact of decreased leverage from lower comparable restaurant sales.
 
General and Administrative.  As a percent of revenues, general and administrative expenses increased to 5.5% in 2009, from 5.0% in 2008. The change was primarily attributable to an increase in management fees paid to our private equity sponsors.
 
Restaurant Pre-opening Costs.  Pre-opening costs decreased by $1.6 million, or 30.8%, to $3.8 million in 2009, from $5.4 million in 2008. The decrease in pre-opening costs was due to the impact of opening seven new restaurants in 2009 compared to thirteen new restaurants opened in 2008.
 
Depreciation and Amortization.  As a percent of revenues, depreciation and amortization expenses increased to 5.2% in 2009 from 4.9% in 2008. The increase was partially offset by the $1.1 million decrease in depreciation and amortization expense associated with restaurants considered impaired in 2008.
 
Impairment.  We review long-lived assets, such as property and equipment and intangibles, subject to amortization, for impairment when events or circumstances indicate the carrying value of the assets may not be recoverable. Factors considered include, but are not limited to, significant underperformance relative to expected historical or projected future operating results, significant changes in the use of assets, changes in our overall business strategy and significant negative industry or economic trends. Based upon our analysis, we incurred a non-cash impairment charge of $6.4 million in 2009 compared to $8.5 million in 2008. The $2.1 million decrease in impairment on property and equipment was related to the impairment of three restaurants in 2009 compared to five restaurants in 2008. This charge was expected to reduce depreciation and amortization expense for fiscal 2010 by $0.7 million.
 
Net Interest Expense.  Net interest expense decreased $2.8 million, or 28%, to $7.1 million in 2009, from $9.9 million in 2008. The decrease was due to lower average interest rates during fiscal 2009. We had a three-year interest rate swap agreement which expired during fiscal 2009. Changes in the market value of the interest rate swap are recorded as an adjustment to interest expense. Such adjustments reduced interest expense by $0.8 million in fiscal 2009.
 
Income Taxes.  Income taxes decreased $55.0 million to $0.1 million in 2009, from $55.1 million in 2008. In 2008, we provided a valuation allowance of $59.4 million against the total net deferred tax asset. Net deferred tax assets consists primarily of temporary differences and net operating loss and credit carry-forwards. The valuation allowance was established as management believed that it is more likely than not that these deferred tax assets would not be realized. The tax benefits relating to any reversal of the valuation allowance will be recognized as a reduction of income tax expense.
 
Year Ended December 28, 2008 Compared to Year Ended December 30, 2007
 
Revenues.  Revenues increased $35.4 million, or 13.3%, to $300.8 million in 2008 from $265.4 million in 2007. The increase of $35.4 million was primarily due to an additional 509 operating weeks provided by 13 new restaurants opened in 2008. This increase was partially offset by a 3.8% decrease in sales from our comparable restaurants. Lower comparable restaurant sales were due to a 5.2% decline in guest counts, partially offset by a $0.28 increase in average check during fiscal 2008. At December 28, 2008, our comparable restaurants base consisted of 54 restaurants, compared to 49 at December 30, 2007.
 
Cost of Sales.  Cost of sales increased $9.3 million, or 12.3%, to $84.6 million in fiscal 2008, from $75.3 million in fiscal 2007. As a percent of revenues, cost of sales declined to 28.1% in 2008 compared to 28.4% in 2007. The


45


Table of Contents

improvement in gross margin was a result of lower commodity costs, improvements in food cost from menu management and operating efficiencies, which accounted for the majority of the decrease on a percent of revenues basis.
 
Labor Costs.  Labor costs increased $12.6 million, or 14.1%, to $102.3 million in 2008, from $89.7 million in fiscal 2007. As a percent of revenues, labor costs increased slightly to 34.0% in 2008 from 33.8% in 2007, principally from a slight increase in hourly labor costs and miscellaneous fringe benefits.
 
Operating Costs.  Operating costs increased $6.1 million, or 14.7%, to $47.7 million in fiscal 2008, from $41.6 million in fiscal 2007. As a percent of revenues, operating costs increased to 15.9% in 2008 compared to 15.7% in 2007. Lower restaurant insurance costs were offset by higher utility and advertising costs as well as the decrease in sales leverage from lower comparable restaurant sales.
 
Occupancy Costs.  Occupancy costs increased $2.6 million, or 16.7%, to $18.7 million in the year ended December 28, 2008, from $16.1 million in fiscal 2007. As a percentage of revenues, occupancy costs increased to 6.2% in 2008 from 6.0% in 2007. The change was primarily the result of the decrease in sales leverage from lower comparable restaurant sales.
 
General and Administrative.  As a percent of revenues, general and administrative expenses decreased to 5.0% in 2008 from 6.3% in 2007. The change was primarily attributable to costs associated with a decrease in labor related costs such as reductions in bonus payments and appreciation rights as well as a decrease in professional fees, training and travel.
 
Restaurant Pre-opening Costs.  Pre-opening costs decreased by $0.2 million, or 3.8%, to $5.4 million in 2008 from $5.6 million in 2007. The decrease in pre-opening costs was due to the timing of openings throughout the respective periods.
 
Depreciation and Amortization.  As a percent of revenues, depreciation and amortization expenses increased to 4.9% in 2008 from 4.6% in 2007. The change was primarily the result of the decrease in sales leverage from lower comparable restaurant sales.
 
Impairment.  Based upon our analysis, we incurred a non-cash impairment charge of $8.5 million in 2008 compared to $0.0 in 2007. The $8.5 million increase in impairment on property and equipment was related to the impairment of five restaurants in 2008 compared to no restaurants in 2007.
 
Net Interest Expense.  Interest expense decreased $2.0 million, or 16.5%, to $9.9 million in 2008 from $11.9 million in 2007. The decrease was due to lower average interest rates during fiscal 2008. We had a three year interest rate swap agreement in place. Changes in the market value of the interest rate swap are recorded as an adjustment to interest expense. Such adjustments increased interest expenses by $0.1 million in fiscal 2008.
 
Income Taxes.  Income taxes increased $58.6 million to $55.1 million in 2008 from a $3.5 million benefit in 2007. In 2008, we provided a valuation allowance of $59.4 million against total net deferred tax assets. Net deferred tax assets consists primarily of temporary differences and net operating loss and credit carry-forwards. The valuation allowance was established as management believed that it was more likely than not that these deferred tax assets would not be realized. The tax benefits relating to any reversal of the valuation allowance will be recognized as a reduction of income tax expense.
 
Liquidity
 
Our principal sources of cash have been net cash provided by operating activities and borrowings under our existing senior credit facilities. As of March 28, 2010, we had approximately $0.2 million in cash and cash equivalents and approximately $20.0 million of availability under our existing senior credit facilities (after giving effect to $3.8 million of outstanding letters of credit at March 28, 2010). Our need for capital resources is driven by our restaurant expansion plans, on-going maintenance of our restaurants and investment in our corporate and information technology infrastructures. Based on our current real estate development plans, we believe our combined expected cash flows from operations, available borrowings under our new senior credit facilities and


46


Table of Contents

expected landlord construction contributions will be sufficient to finance our planned capital expenditures and other operating activities for the next twelve months.
 
Consistent with many other restaurant and retail chain store operations, we use operating lease arrangements for the majority of our restaurant locations. We believe that these operating lease arrangements provide appropriate leverage of our capital structure in a financially efficient manner. Currently, operating lease obligations are not reflected as indebtedness on our consolidated balance sheet. The use of operating lease arrangements will impact our capacity to borrow money under our new senior credit facilities. However, we expect that restaurant real estate operating leases will be expressly excluded from the restrictions under our new senior credit facilities related to the incurrence of funded indebtedness.
 
Our liquidity may be adversely affected by a number of factors, including a decrease in guest traffic or average check per guest due to changes in economic conditions, as described elsewhere in this prospectus under the heading “Risk Factors.”
 
Quarter Ended March 29, 2009 and March 28, 2010
 
The following table summarizes the statement of cash flows for the thirteen weeks ended March 29, 2009 and March 28, 2010:
 
                 
 
    Thirteen Weeks Ended,  
    March 29,
    March 28,
 
    2009     2010  
    (In thousands)  
 
Cash flows provided by operating activities
  $   2,948     $   6,108  
Cash flows used in investing activities
    (6,399 )     (6,410 )
Cash flows provided by financing activities
    3,230       294  
                 
Net decrease in cash and cash equivalents
    (221 )     (8 )
Cash and cash equivalents at beginning of period
    682       249  
                 
Cash and cash equivalents at end of period
  $ 461     $ 241  
                 
 
Operating Activities.  Net cash provided by operating activities was $6.1 million for the first quarter of 2010, compared to $2.9 million for the first quarter of 2009. The increase in net cash provided by operating activities in the first quarter of 2010 compared to the same period 2009 was primarily due to an increase in our revenues less total restaurant operating costs of $3.9 million from the prior year, which was partially offset by an increase of $0.7 million in prepaid expenses and notes receivable in the first quarter of 2010.
 
Investing Activities.  Net cash used in investing activities was $6.4 million for both the first quarter of 2010 and the first quarter of 2009. We used cash primarily to purchase property and equipment related to our restaurant expansion plans. During the first quarter of 2010, we opened two restaurants and had two under construction, while in the first quarter of 2009 we opened two restaurants and had four under construction.
 
Financing Activities.  Net cash provided by financing activities was $0.3 million for the first quarter of 2010, compared to $3.2 million for the first quarter of 2009. Net cash provided by financing activities in 2010 was primarily the result of borrowings, net of payments, of $0.7 million under our existing senior revolving credit facility.
 
As of March 28, 2010, we had no financing transactions, arrangements or other relationships with any unconsolidated entities or related parties. Additionally, we had no financing arrangements involving synthetic leases or trading activities involving commodity contracts.


47


Table of Contents

Year Ended December 27, 2009, Year Ended December 28, 2008 and Year Ended December 30, 2007
 
The following table summarizes the statement of cash flows for the years ended December 27, 2009, December 28, 2008 and December 30, 2007:
 
                         
 
    Fiscal Year  
    2007     2008     2009  
    (In thousands)  
 
Cash flows provided by operating activities
  $ 31,291     $ 32,501     $ 33,782  
Cash flows used in investing activities
      (35,536 )       (43,088 )       (24,957 )
Cash flows provided by (used in) financing activities
    4,156       10,529       (9,258 )
                         
Net increase (decrease) in cash and cash equivalents
    (89 )     (58 )     (433 )
                         
Cash and cash equivalents at beginning of period
    829       740       682  
                         
Cash and cash equivalents at end of period
  $ 740     $ 682     $ 249  
                         
 
Operating Activities.  Net cash provided by operating activities was $33.8 million in 2009, compared to $32.5 million in 2008 and $31.3 million in 2007. The increase in net cash provided by operating activities in 2009 compared to 2008 was primarily due to an increase in net income from the prior year, excluding non-cash impairment charges. The increase in net cash provided by operating activities in 2008 compared to 2007 was primarily due to the change in net income (loss) excluding non-cash impairment charges and changes in working capital.
 
Investing Activities.  Net cash used in investing activities was $25.0 million in 2009, $43.1 million in 2008 and $35.5 million in 2007. We used cash primarily to purchase property and equipment related to our restaurant expansion plans. The fluctuations in net cash used in investing activities for the periods presented is directly related to the number of new restaurants opened during each period. In fiscal 2009, we opened seven new restaurants and, in fiscal years 2008 and 2007, opened thirteen and six restaurants, respectively.
 
Financing Activities.  Net cash used in financing activities was $9.3 million in 2009, net cash provided by financing activities was $10.5 million in 2008 and $4.2 million in 2007. Net cash used in financing activities in 2009 was primarily the result of payments, net of borrowings, of $8.2 million under our existing senior revolving credit facility. Net cash provided by financing activities in 2008 was primarily the result of borrowings, net of payments, of $11.6 million under our existing senior revolving credit facility. Net cash provided by financing activities in 2007 was primarily the result of borrowings, net of payments, of $2.2 million under our existing senior revolving credit facility.
 
Capital Resources
 
Future Capital Requirements.  Our capital requirements are primarily dependent upon the pace of our real estate development program and resulting new restaurants. Our real estate development program is dependent upon many factors, including economic conditions, real estate markets, site locations and nature of lease agreements. Our capital expenditure outlays are also dependent on costs for maintenance and capacity addition in our existing restaurants as well as information technology and other general corporate capital expenditures.
 
We anticipate that each new BRAVO! restaurant will, on average, require a total cash investment of $1.5 million to $2.0 million (net of estimated tenant incentives). We expect that each new BRIO restaurant will require an estimated cash investment of $2.0 million to $2.5 million (net of estimated tenant incentives). We expect to spend approximately $350,000 to $400,000 per restaurant for cash pre-opening costs. The projected cash investment per restaurant is based on historical averages.
 
We currently estimate 2010 capital expenditure outlays to range between $10.0 million and $12.0 million, net of agreed upon landlord construction contributions and excluding approximately $1.4 million to $2.0 million of pre-opening costs for new restaurants that are not capitalized. These capital expenditure projections are primarily


48


Table of Contents

related to $8.0 million for the opening of new restaurants and $3.0 million for capacity addition expenditures and improvements to our existing restaurants and general corporate capital expenditures. Based on our current real estate development plans, we believe our combined expected cash flows from operations, available borrowings under our new senior credit facilities and expected landlord construction contributions will be sufficient to finance our planned capital expenditures and other operating activities in fiscal 2010.
 
We currently estimate 2011 capital expenditure outlays to range between $16.0 million and $17.5 million, net of agreed upon landlord construction contributions and excluding approximately $2.1 million to $2.7 million of pre-opening costs for new restaurants that are not capitalized. These capital expenditure projections are primarily related to $12.5 million for the opening of new restaurants and $4.0 million for capacity addition expenditures and improvements to our existing restaurants and general corporate capital expenditures. Based on our current real estate development plans, we believe our combined expected cash flows from operations, available borrowings under our new senior credit facilities and expected landlord construction contributions will be sufficient to finance our planned capital expenditures and other operating activities in fiscal 2011.
 
Current Resources.  Our operations have not required significant working capital and, like many restaurant companies, we have been able to operate with negative working capital. Restaurant sales are primarily paid for in cash or by credit card, and restaurant operations do not require significant inventories or receivables. In addition, we receive trade credit for the purchase of food, beverage and supplies, therefore reducing the need for incremental working capital to support growth. We had net working capital of $(33.8) million at March 28, 2010, compared to net working capital of $(36.2) million at December 27, 2009.
 
In connection with this offering, we plan to enter into new senior credit facilities. We expect that the new senior credit facilities will provide for (i) a $      million term loan facility, maturing in          , and (ii) a revolving credit facility under which we may borrow up to $      million (including a sublimit cap of up to $      million for letters of credit and up to $      million for swing-line loans), maturing in          . We expect that our new senior credit facilities will contain customary affirmative and negative covenants and require us to meet certain financial ratios. We anticipate that the new senior credit facilities will be secured by substantially all of our assets. “See Risk Factors — Our substantial indebtedness may limit our ability to invest in the ongoing needs of our business” and “Description of Indebtedness.”
 
In connection with our 2006 recapitalization, we entered into our existing $112.5 million senior credit facilities with a syndicate of lenders. The existing senior credit facilities provide for (i) an $82.5 million term loan facility and (ii) a revolving credit facility under which we may borrow up to $30.0 million (including a sublimit cap of up to $7.0 million for letters of credit and up to $5.0 million for swing-line loans). Borrowings under the term loan facility and the revolving credit facility bear interest at a rate per annum based on the prime rate, plus a margin of up to 2%, or the London Interbank Offered Rate (LIBOR), plus a margin up to 3%, with margins determined by certain financial ratios. In addition to the interest on our borrowings, we must pay an annual commitment fee of 0.5% on the unused portion of the revolving credit facility. The weighted-average interest rate on the borrowings at March 28, 2010 and December 27, 2009 was 3.31% and 3.47%, respectively.
 
Our existing senior credit facilities require us to maintain certain financial ratios, including a consolidated total leverage ratio, a consolidated senior leverage ratio, consolidated fixed-charge coverage ratio and consolidated capital expenditures limitations (each as defined under our existing senior credit facilities). We have maintained compliance with our financial covenants for each reporting period since we entered into our existing senior credit facilities.
 
In connection with our 2006 recapitalization, we also issued $27.5 million of our 13.25% senior subordinated secured notes. Interest is payable monthly at an annual interest rate of 13.25%, with the principal due on December 29, 2012. Pursuant to the note purchase agreement, we were entitled to elect monthly during the first year to accrue interest at the rate of 14.25% per annum with no payments. Commencing in the second year of the note purchase agreement through the maturity date, we have the option to accrue interest at an annual rate of 13.25%, consisting of cash interest equal to 9% and paid-in-kind interest of 4.25%. Interest accrued but unpaid during the term of the notes is capitalized into the principal balance.


49


Table of Contents

We expect to use net proceeds from this offering, together with borrowings under our new senior credit facilities, to repay all loans outstanding under our existing senior credit facilities, and any accrued and unpaid interest and related LIBOR breakage costs and other fees. As of March 28, 2010, approximately $85.8 million principal amount of loans were outstanding under our existing senior credit facilities. Our existing senior credit facilities can be prepaid without premium or penalty other than any related LIBOR breakage costs and other fees. We also expect to use net proceeds from this offering, together with borrowings under our new senior credit facilities, to repay all of our 13.25% senior subordinated secured notes, and any accrued and unpaid interest. As of March 28, 2010, approximately $32.4 million aggregate principal amount of our 13.25% senior subordinated secured notes were outstanding. Our 13.25% senior subordinated secured notes can be prepaid without premium or penalty.
 
On an as adjusted basis giving effect to this offering and the use of proceeds therefrom, as of March 28, 2010, we had $      million of revolving loan availability under our new senior credit facilities (after giving effect to $      million of outstanding letters of credit) based upon an assumed public offering price of $      per share, the midpoint of the range set forth on the cover page of this prospectus. A $1.00 increase (decrease) in the assumed initial public offering price of $      per share, the midpoint of the price range set forth on the cover of this prospectus, would increase (decrease) the revolving loan availability under our new senior credit facilities (after giving effect to $      million of outstanding letters of credit) by     %.
 
As of March 28, 2010 and December 27, 2009, we also had approximately $0.2 million and $0.4 million, respectively, of mortgage notes outstanding, which were secured by mortgages on individual real estate assets. The weighted average interest rate on the mortgage notes was 4.52% for the thirteen weeks ended March 28, 2010 and 4.61% for the year ended December 27, 2009. The indebtedness underlying the mortgage notes was paid in full in May 2010.
 
In August 2006, we entered into a three-year interest swap agreement fixing the interest rate on $27.0 million principal amount of our term loan. Under this swap agreement, we settled with our counterparty quarterly for the difference between 5.24% and the 90-day LIBOR then in effect. This swap agreement terminated in August 2009. We had no derivative instruments outstanding as of December 27, 2009 or March 28, 2010.
 
As of March 28, 2010, we had no financing transactions, arrangements or other relationships with any unconsolidated entities or related parties. Additionally, we had no financing arrangements involving synthetic leases or trading activities involving commodity contracts.
 
As part of our on-going business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities referred to as structured finance or variable interest entities (“VIEs”), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of March 28, 2010, we are not involved in any VIE transactions and do not otherwise have any off-balance sheet arrangements.
 
In the longer term, we will explore other options to raise capital, including but not limited to, renegotiating our senior credit facilities, public or private equity or other debt financing. We cannot assure you that such capital will be available on favorable terms, if at all.
 
We currently have separate management agreements with our private equity sponsors, Bruckmann, Rosser, Sherrill & Co., Inc. and Castle Harlan, Inc. We expect that the management agreements will be terminated as of the closing of this offering in exchange for a payment estimated to be $525,000 for each sponsor. This amount is subject to adjustment based on the level of EBITDA, as defined in each management agreement, for the twelve months preceding the closing of this offering.
 
Significant Accounting Policies
 
Pre-opening Costs.  Restaurant pre-opening costs consist primarily of wages and salaries, recruiting, training, travel and lodging and meals. Pre-opening costs includes an accrual for straight-line rent recorded during the period between date of possession and the restaurant opening date for the Company’s leased restaurant locations. We expense such costs as incurred.


50


Table of Contents

Property and Equipment.  Property and equipment are recorded at cost. Equipment consists primarily of restaurant equipment, furniture, fixtures and small wares. Depreciation is calculated using the straight-line method over the estimated useful life of the related asset. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term, including option periods, which are reasonably assured of renewal or the estimated useful life of the asset. Estimated useful lives of assets are as follows: buildings — 15 to 39 years; leasehold improvements — 10 to 20 years; and equipment and fixtures — 3 to 10 years.
 
Leases.  We record the minimum lease payments for our operating leases on a straight-line basis over the lease term, including option periods which are reasonably assured of renewal. The lease term commences on the date that the lessee obtains control of the property, which is normally when the property is ready for tenant improvements. Contingent rent expense is recognized as incurred and is usually based on either a percentage of restaurant sales or as a percentage of restaurant sales in excess of a defined amount.
 
Leasehold improvements financed by the landlord through tenant improvement allowances are capitalized as leasehold improvements with the tenant improvement allowances recorded as deferred lease incentives. Deferred lease incentives are amortized on a straight-line basis over the lesser of the life of the asset or the lease term, including option periods which are reasonably assured of renewal (same term that is used for related leasehold improvements) and are recorded as a reduction of occupancy expense.
 
Impairment of Long-Lived Assets.  We review long-lived assets, such as property and equipment and intangibles, subject to amortization, for impairment when events or circumstances indicate the carrying value of the assets may not be recoverable. In determining the recoverability of the asset value, an analysis is performed at the individual restaurant level and primarily includes an assessment of historical cash flows and other relevant factors and circumstances. Negative restaurant-level cash flow over the previous 12-month period is considered a potential impairment indicator. In such situations, we evaluate future cash flow projections in conjunction with qualitative factors and future operating plans. Based on this analysis, if we believe that the carrying amount of the assets are not recoverable, an impairment charge is recognized based upon the amount by which the assets carrying value exceeds fair value as measured by undiscounted future cash flows expected to be generated by these assets.
 
We recognized asset impairment charges of approximately $6.4 million and $8.5 million in fiscal 2009 and 2008, respectively, related to leasehold improvements, fixtures and equipment for the impacted sites. No impairment charge was recorded in fiscal 2007.
 
Our impairment assessment process requires the use of estimates and assumptions regarding future cash flows and operating outcomes, which are based upon a significant degree of management’s judgment. We continue to assess the performance of restaurants and monitor the need for future impairment. Changes in the economic environment, real estate markets, capital spending and overall operating performance could impact these estimates and result in future impairment charges. There can be no assurance that future impairment tests will not result in additional charges to earnings.
 
Self-Insurance Reserves.  We maintain various policies, including workers’ compensation and general liability. As outlined in these policies, we are responsible for losses up to certain limits. We record a liability for the estimated exposure for aggregate losses below those limits. This liability is based on estimates of the ultimate costs to be incurred to settle known claims and claims not reported as of the balance sheet date. The estimated liability is not discounted and is based on a number of assumptions, including actuarial assumptions, historical trends and economic conditions.
 
Income Taxes.  Income tax provisions consist of federal and state taxes currently due, plus deferred taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Recognition of deferred tax assets is limited to amounts considered by management to be more likely than not of realization in future periods. Future taxable income, adjustments in temporary difference, available carry back periods and changes in tax laws could affect these estimates.


51


Table of Contents

We recognize a tax position in the financial statements when it is more likely than not that the position will be sustained upon examination by tax authorities that have full knowledge of all relevant information.
 
Stock-Based Compensation.  Subsequent to our 2006 recapitalization, we adopted the 2006 Bravo Development, Inc. Option Plan (the “2006 Plan”). Under the 2006 Plan, we are authorized to issue up to, without giving effect to the          -for-1 stock split of our outstanding common stock expected to occur prior to the consummation of this offering, 262,500 shares of our common stock. The options expire 10 years after the date of grant and vest ratably over a four year period.
 
The options, to the extent vested, become exercisable based upon our private equity sponsors achieving certain performance targets. As the likelihood of achieving these performance targets is not probable, no compensation expense has been reflected in our financial statements subsequent to the adoption of the 2006 Plan.
 
In the event we undergo a public offering in which we and any participating selling shareholders receive aggregate net proceeds of at least $50.0 million or the majority of our stock or assets are sold in a transaction approved by Holdings, the options held by current employees are subject to accelerated vesting in the discretion of our board of directors upon the achievement of certain net proceeds and internal rate of return thresholds.
 
Additionally, to the extent the sponsors sell their securities in connection with an approved sale or public offering, any vested options only become exercisable in the amounts set forth below in the event that (i) net proceeds equal or are in excess of the multiple (set forth in the table below) of the sponsors’ initial investment and (ii) the sponsors achieve an internal rate of return equal to or in excess of the target set forth in the table below (unless the board of directors exercises its discretion under the 2006 Plan to permit further exercisability upon such an event):
 
                 
Percentage of Option Exercisable
  Net Proceeds Multiple   IRR Target
 
25%
    2       10 %
50%
    2       20 %
75%
    2       30 %
100%
    3       40 %
 
For purposes of determining the exercisable portion of an option, “net proceeds” generally means the amount received by the sponsors less their selling or transaction expenses and includes the majority of the fees they receive pursuant to the management agreement between each sponsor and us. “Internal rate of return” means the rate of return the sponsors receive on their investment in our company from such net proceeds as a result of a public offering or approved sale and the net proceeds therefrom.
 
The board of directors has determined, in its discretion, that in the event the public offering price of this offering results in the achievement of an “internal rate of return” to our private equity sponsors of at least 30% upon the consummation of this offering, (i) each outstanding option award shall be deemed to have vested in a percentage equal to the greater of 75% or the percentage of the option award already vested as of that date, (ii) each outstanding option award shall be deemed 75% exercisable; and (iii) for each additional percentage point of “internal rate of return” achieved by our private equity sponsors above 30%, an additional 2.5% of each outstanding option award shall be deemed vested and exercisable, up to an aggregate of the stated number of shares of common stock subject to the option award upon achievement of an “internal rate of return” by our private equity sponsors of 40%.


52


Table of Contents

Commitments and Contingencies
 
The following table summarizes contractual obligations at December 27, 2009 on an actual basis.
 
                                         
 
    Payments Due by Year  
Contractual Obligations
  Total     2010     2011-2012     2013-2014     After 2014  
                (In thousands)        
 
Existing senior secured term loan(1)
  $ 79,818     $ 825     $ 78,993     $     $  
Existing senior secured revolving credit facility(1)
    5,550             5,550              
13.25% Senior subordinated secured notes(1)
    32,270             32,270              
Mortgage notes(2)
    393       214       179              
                                         
Total debt
    118,031       1,039       116,992              
                                         
Interest(3)
    504       504                    
Operating leases
    268,142       18,398       38,121       38,992       172,631  
Standby letters of credit(4)
    3,650       3,650                    
Construction purchase obligations
    944       944                    
                                         
Total contractual cash obligations
  $ 391,271     $ 24,535     $ 155,113     $ 38,992     $ 172,631  
                                         
 
(1) In connection with this offering, we intend to enter into new senior credit facilities, consisting of a $           million term loan facility and a $           million revolving credit facility. We intend to use the net proceeds of this offering, together with $           million of borrowings under our new senior credit facilities, to repay all our loans outstanding under our existing senior credit facilities, and any accrued and unpaid interest and related LIBOR breakage costs and other fees, and all of our 13.25% senior subordinated secured notes, and any accrued and unpaid interest. See “Description of Indebtedness.”
 
(2) The indebtedness underlying the mortgage notes was paid in full in May 2010.
 
(3) The interest obligation was calculated using the average interest rate at December 27, 2009 of 3.47% for our existing senior secured credit facilities, the stated interest rate for the 13.25% senior subordinated secured notes and the average interest rate at December 27, 2009 of 4.61% for the mortgage notes.
 
(4) In connection with this offering, we intend to replace our existing standby letters of credit with standby letters of credit under our new senior credit facilities.
 
Inflation
 
Our profitability is dependent, among other things, on our ability to anticipate and react to changes in the costs of key operating resources, including food and other raw materials, labor, energy and other supplies and services. Substantial increases in costs and expenses could impact our operating results to the extent that such increases cannot be passed along to our restaurant guests. The impact of inflation on food, labor, energy and occupancy costs can significantly affect the profitability of our restaurant operations.
 
Many of our restaurant staff members are paid hourly rates related to the federal minimum wage. In fiscal 2007, Congress enacted an increase in the federal minimum wage implemented in two phases, beginning in fiscal 2007 and concluding in fiscal 2008. In addition, numerous state and local governments increased the minimum wage within their jurisdictions, with further state minimum wage increases going into effect in fiscal 2009. Certain operating costs, such as taxes, insurance and other outside services continue to increase with the general level of inflation or higher and may also be subject to other cost and supply fluctuations outside of our control.


53


Table of Contents

While we have been able to partially offset inflation and other changes in the costs of key operating resources by gradually increasing prices for our menu items, coupled with more efficient purchasing practices, productivity improvements and greater economies of scale, there can be no assurance that we will be able to continue to do so in the future. From time to time, competitive conditions could limit our menu pricing flexibility. In addition, macroeconomic conditions could make additional menu price increases imprudent. There can be no assurance that all future cost increases can be offset by increased menu prices or that increased menu prices will be fully absorbed by our restaurant guests without any resulting changes in their visit frequencies or purchasing patterns. Substantially all of the leases for our restaurants provide for contingent rent obligations based on a percentage of revenues. As a result, rent expense will absorb a proportionate share of any menu price increases in our restaurants. There can be no assurance that we will continue to generate increases in comparable restaurant sales in amounts sufficient to offset inflationary or other cost pressures.
 
Segment Reporting
 
We operate upscale affordable dining restaurants under two brands that have similar economic characteristics, nature of products and services, class of customer and distribution methods. Therefore, we report our results of operations as one reporting segment in accordance with applicable accounting guidance.
 
Recent Accounting Pronouncements
 
The Financial Accounting Standards Board (“FASB”) updated Accounting Standards Codification (“ASC”) Topic 810, Consolidation, with amendments to improve financial reporting by enterprises involved with variable interest entities (formerly FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R)). These amendments require an enterprise to perform an analysis to determine whether the enterprise’s variable interest(s) give it a controlling financial interest in a variable interest entity. This guidance was effective for the annual reporting period beginning after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. We adopted this guidance and it had no material effect on our consolidated financial statements.
 
The FASB also updated ASC Topic 855, Subsequent Events, to establish general standards of accounting for and disclosing of events that occur after the balance sheet date but before financial statements are issued or are available to be issued (formerly FASB Statement No. 165, Subsequent Events). This guidance was effective for interim and annual financial periods ending after June 15, 2009. Adoption of this guidance did not have a material effect on our consolidated financial statements. Our management has performed an evaluation of subsequent events through July 1, 2010, which is the date the consolidated financial statements were issued. There were no subsequent events noted as of the filing date of the registration statement of which this prospectus is a part.
 
Quantitative and Qualitative Disclosures about Market Risk
 
Interest Rate Risk
 
We are subject to interest rate risk in connection with our long term indebtedness. Our principal interest rate exposure relates to the loans outstanding under our new senior credit facilities, which we anticipate will be payable at variable rates. Assuming entry into our new senior credit facilities and the incurrence of approximately $      million of borrowings thereunder, each eighth point change in interest rates on the variable rate portion of indebtedness under our new senior credit facilities would result in a $      million annual change in our interest expense.


54


Table of Contents

Commodity Price Risk
 
We are exposed to market price fluctuation in beef, seafood, produce and other food product prices. Given the historical volatility of beef, seafood, produce and other food product prices, these fluctuations can materially impact our food and beverage costs. While we have taken steps to qualify multiple suppliers and enter into agreements for some of the commodities used in our restaurant operations, there can be no assurance that future supplies and costs for such commodities will not fluctuate due to weather and other market conditions outside of our control. We are currently unable to contract for some of our commodities such as fresh seafood and certain produce for periods longer than one week. Consequently, such commodities can be subject to unforeseen supply and cost fluctuations. Dairy costs can also fluctuate due to government regulation. Because we typically set our menu prices in advance of our food product prices, we cannot immediately take into account changing costs of food items. To the extent that we are unable to pass the increased costs on to our guests through price increases, our results of operations would be adversely affected. We do not use financial instruments to hedge our risk to market price fluctuations in beef, seafood, produce and other food product prices at this time.


55


Table of Contents

 
Business
 
Our Business
 
We are the owner and operator of two fast growing and leading Italian restaurant brands, BRAVO! Cucina Italiana (“BRAVO!”) and BRIO Tuscan Grille (“BRIO”). We have positioned our brands as multifaceted culinary destinations that deliver the ambiance, design elements and food quality reminiscent of fine dining restaurants at a value typically offered by casual dining establishments, a combination that we call “Upscale Affordable.” Each of BRAVO! and BRIO provides its guests with affordable, high-quality cuisine prepared using fresh ingredients and authentic Italian cooking methods, combined with attentive service in an attractive, lively atmosphere. We strive to be the best Italian restaurant company in America and are focused on providing our guests an excellent dining experience through consistency of execution. We believe that both of our brands appeal to a broad base of consumers, especially to women whom we believe currently account for approximately 62% and 65% of our guest traffic at BRAVO! and BRIO, respectively.
 
While our brands share certain corporate support functions to maximize efficiencies across our company, each brand maintains its own identity, therefore allowing both brands to be located in common markets. We have demonstrated our growth and the viability of our brands in a wide variety of markets across the U.S., growing from 49 restaurants in 19 states at the end of 2005 to 83 restaurants in 27 states as of March 28, 2010. From 2005 to 2009, our revenues increased from $198.8 million to $311.7 million, and our Adjusted EBITDA increased from $13.4 million to $34.8 million, representing compound annual growth rates (CAGR) of 11.9% and 27.0%, respectively. During this period, our Adjusted EBITDA margins have increased from 6.7% to 11.2%. See Note 4 to “Selected Historical Consolidated Financial and Operating Data” for a reconciliation of net income to EBITDA and to Adjusted EBITDA.
 
BRAVO! Cucina Italiana
 
BRAVO! Cucina Italiana is a full-service, Upscale Affordable Italian restaurant offering a broad menu of freshly-prepared classic Italian food served in a lively, high-energy environment with attentive service. The subtitle “Cucina Italiana,” meaning “Italian Kitchen,” is appropriate since all cooking is done in full view of our guests, creating the energy of live theater. As of March 28, 2010, we owned and operated 46 BRAVO! restaurants in 19 states.
 
BRAVO! offers a wide variety of pasta dishes, steaks, chicken, seafood and pizzas, emphasizing fresh, made-to-order, high-quality food that delivers an excellent value to guests. BRAVO! also offers creative seasonal specials, an extensive wine list, carry-out and catering. We believe that our high-quality offerings and generous portions, combined with our ambiance and friendly, attentive service, offer our guests an attractive price-value proposition. The average check for BRAVO! during the first quarter of 2010 was $19.37 per guest.
 
The breadth of menu offerings at BRAVO! helps generate significant guest traffic at both lunch and dinner. Lunch entrées range in price from $8 to $18, while appetizers, pizzas, flatbreads and entrée salads range from $6 to $14. During the first quarter of 2010, the average lunch check for BRAVO! was $14.81 per guest. Dinner entrées range in price from $12 to $29 and include a broad selection of fresh pastas, steaks, chicken and seafood. Dinner appetizers, pizzas, flatbreads and entrée salads range from $6 to $15. During the first quarter of 2010, the average dinner check for BRAVO! was $22.19 per guest. At BRAVO!, lunch and dinner represented 29.2% and 70.8% of revenues, respectively. Our average annual sales per comparable BRAVO! restaurant were $3.5 million in 2009.
 
BRAVO!’s architectural design incorporates interior features such as arched colonnades, broken columns, hand-crafted Italian reliefs, Arabescato marble and sizable wrought-iron chandeliers. We locate our BRAVO! restaurants in high-activity areas such as retail and lifestyle centers that are situated near commercial office space and high-density residential housing.
 
BRIO Tuscan Grille
 
BRIO Tuscan Grille is an Upscale Affordable Italian chophouse restaurant serving freshly-prepared, authentic northern Italian food in a Tuscan Villa atmosphere. BRIO means “lively” or “full of life” in Italian and draws its


56


Table of Contents

inspiration from the cherished Tuscan philosophy of “to eat well is to live well.” As of March 28, 2010, we owned and operated 37 BRIO restaurants in 17 states.
 
The cuisine at BRIO is prepared using fresh, high-quality ingredients, with an emphasis on steaks, chops, fresh seafood and made-to-order pastas. BRIO also offers creative seasonal specials, an extensive wine list, carry-out and banquet facilities at select locations. We believe that our passion for excellence in service and culinary expertise, along with our generous portions, contemporary dining elements and ambiance, offers our guests an attractive price-value proposition. The average check for BRIO during the first quarter of 2010 was $25.12 per guest.
 
BRIO offers lunch entrées that range in price from $10 to $18 and appetizers, sandwiches, flatbreads and entrée salads ranging from $8 to $15. During the first quarter of 2010, the average lunch check for BRIO was $17.90 per guest. Dinner entrées range in price from $14 to $30, while appetizers, sandwiches, flatbreads, bruschettas and entrée salads range from $8 to $15. During the first quarter of 2010, the average dinner check for BRIO was $30.52 per guest. At BRIO, lunch and dinner represented 30.5% and 69.5% of revenues, respectively. Our average annual revenues per comparable BRIO restaurant were $4.8 million in 2009.
 
The design and architectural elements of BRIO restaurants are important to the guest experience. The goal is to bring the pleasures of the Tuscan country villa to our restaurant guests. The warm, inviting ambiance of BRIO incorporates interior features such as antique hardwood Cypress flooring, arched colonnades, hand-crafted Italian mosaics, hand-crafted walls covered in an antique Venetian plaster, Arabescato marble and sizable wrought-iron chandeliers. BRIO is typically located in high-traffic, high-visibility locations in affluent suburban and urban markets.
 
We also operate one Upscale Affordable American-French bistro restaurant in Columbus, Ohio under the brand “Bon Vie.” Our Bon Vie restaurant is included in the BRIO operating and financial data set forth in this prospectus.
 
Our Business Strengths
 
Our mission statement is to be the best Italian restaurant company in America by delivering the highest quality food and service to each guest...at each meal...each and every day. The following strengths help us achieve these objectives:
 
Two Differentiated yet Complementary Brands.  We have developed two premier Upscale Affordable Italian restaurant brands that are highly complementary and can be located in common markets. Both BRAVO! and BRIO have their own Corporate Executive Chef who develops recipes and menu items with differentiated flavor profiles and price points. Each brand features unique design elements and atmospheres that attract a diverse guest base as well as common guests who visit both BRAVO! and BRIO for different dining experiences. The differentiated qualities of our brands allow us to operate in significantly more locations than would be possible with one brand, including high-density residential areas, shopping malls, lifestyle centers and other high-traffic locations. Based on demographics, co-tenants and net investment requirements, we can choose between our two brands to determine which is optimal for a location and thereby generate highly attractive returns on our investment.
 
Our brands are designed to have broad guest appeal at two different price points. We focus on choosing the right brand for a specific site based on population density and demographics. Management targets markets with $65,000 minimum annual household income and a population density of 125,000 residents within a particular trade area for BRAVO! and $70,000 minimum annual household income and a population density of 150,000 residents within a particular trade area for BRIO. We have a business model that maintains quality and consistency on a national basis while also having the flexibility to cater to the specific characteristics of a particular market. We have a proven track record of successfully opening new restaurants in a number of diverse real estate locations, including both freestanding and in-line with other national retailers. In addition, we believe the flexibility of our restaurant design is a competitive advantage that allows us to open new restaurants in attractive markets without being limited to a standard prototype.
 
Our brands maintain several common qualities, including certain design elements such as chandeliers and marble and granite counter tops, that help reduce building and construction costs and create consistency for our guests.


57


Table of Contents

We share best practices in service, preparation and food quality across both brands. In addition, we share services such as real estate development, purchasing, human resources, marketing and advertising, information technology, finance and accounting, allowing us to maximize efficiencies across our company as we continue our growth.
 
Broad Appeal with Attractive Guest Base.  We provide an upscale, yet inviting, atmosphere attracting guests from a variety of age groups and economic backgrounds. We believe our brands offer the highest quality food, service and ambiance when compared to other national competitors in the multi-location Italian restaurant category. We provide our guests an Upscale Affordable dining experience at both lunch and dinner, which attracts guests from both the casual dining and fine dining segments. We locate our restaurants in high-traffic suburban and urban locations to attract primarily local patrons with limited reliance on business travelers. Our blend of location, menu offerings and ambiance is designed to appeal to women, a key decision-maker when deciding where to dine and shop. We believe that women currently account for approximately 62% and 65% of our guest traffic at BRAVO! and BRIO, respectively. This positioning helps make our restaurants attractive for developers and landlords. We have also cultivated a loyal guest base, with a majority of our guests dining with us at least once a month.
 
Superior Dining Experience and Value.  The strength of our value proposition lies in our ability to provide high-quality, freshly-prepared Italian cuisine in a lively restaurant atmosphere with highly attentive guest service at an attractive price point. We believe that the dining experiences we offer, coupled with an attractive price-value relationship, helps us create long-term, loyal and highly satisfied guests.
 
  •  The Food.  We offer made-to-order menu items prepared using traditional Italian culinary techniques with an emphasis on fresh ingredients and authentic recipes. Our food menu is complemented by a wine list that offers both familiar varieties as well as wines exclusive to our restaurants. An attention to detail, culinary expertise and focused execution reflects our chef-driven culture. Each brand’s menu has its own distinctive flavor profile, with BRAVO! favoring the more classic Italian cuisine that includes a variety of pasta dishes and pizzas and BRIO favoring a broader selection of premium steaks, chops, seafood, flatbreads, bruschettas and pastas. All of our new menu items are developed by our Corporate Executive Chefs through a six month ideation process designed to meet our high standards of quality and exceed our guests’ expectations.
 
  •  The Service.  We are committed to delivering superior service to each guest, at each meal, each and every day. We place significant emphasis on maintaining high waitstaff-to-table ratios, thoroughly training all service personnel on the details of each menu item and staffing each restaurant with experienced management teams to ensure consistent and attentive guest service. An attention to detail, culinary expertise and focused execution underscores our chef-driven culture. Only trained, experienced chefs and culinary staff are hired and allowed to operate in the kitchen. Best-in-class service standards are designed to ensure satisfied guests and attract both new and repeat guest traffic.
 
  •  The Experience.  Lively, high-energy environments blending dramatic design elements with a warm and inviting atmosphere create a memorable guest experience. Signature architectural and décor elements include the lively theatre of exhibition kitchens, high ceilings, white tablecloths, a centerpiece bar and relaxing patio areas. In addition, the majority of our restaurants include attractive outdoor patios with full bar and dining areas at the front of our restaurants that create an exciting and inviting atmosphere for our guests. These elements, along with our superior service and value, help form a bond between our guests and our restaurants, encouraging guest loyalty and more frequent visits.
 
Nationally Recognized Restaurant Anchor.  Our differentiated brands, the attractive demographics of our guests and the high number of weekly guest visits to our restaurants have positioned us as a preferred tenant and the multi-location Italian restaurant company of choice for national and regional real estate developers. Landlords and developers seek out our concepts to be restaurant anchors for their developments as they are highly complementary to national retailers such as Apple, Williams Sonoma and J. Crew, having attracted on average between 3,000-5,000 guests per restaurant each week in 2009. As a result of the importance of our brands to the retail centers in which we are located, we are often able to negotiate the prime location within a center and favorable real estate terms, which helps to drive strong returns on capital for our shareholders.
 
Compelling Unit Economics.  We have successfully opened and operated both of our brands in multiple geographic regions and achieved attractive rates of return on our invested capital, providing a strong foundation for expansion in both new and existing markets. Our ability to grow rapidly and efficiently in all market conditions is evidenced


58


Table of Contents

through our strong track record of new restaurant openings, including our 2009 openings which generated one of the best year-one returns on investment in our history. Under our current investment model, BRAVO! restaurant openings require a net cash investment of approximately $1.8 million and BRIO restaurant openings require a net cash investment of approximately $2.2 million. We target a cash-on-cash return beginning in the third operating year for both of our restaurants of between 30% and 40%.
 
Management Team with Proven Track Record.  We have assembled a tested and proven management team with significant experience operating public companies. Our management team is led by our CEO and President, Saed Mohseni, former CEO of McCormick & Schmick’s Seafood Restaurants, Inc., who joined the company in February 2007. Since Mr. Mohseni’s arrival, we have continued to open new restaurants despite the economic recession. These new restaurant openings have been a key driver of our growth in revenue and Adjusted EBITDA, which have increased 29.1% and 89.0%, respectively, between the years ended 2006 and 2009. In addition to new restaurant growth, we have also implemented a number of revenue and margin enhancing initiatives such as our wine by the glass offerings, wine flights, dessert trays and a new bar menu. These programs were strategically implemented to improve our guest experience and maintain our brand image, as opposed to the discounting programs initiated by many of our competitors. In addition, we have improved our labor efficiencies and food cost management, which helped to drive our margin increases and improved our restaurant-level profitability. These changes resulted in an increase in our restaurant-level operating margin from 16.0% in 2006 to 17.4% in 2009, a 140 basis point improvement. Restaurant-level operating margin represents our revenues less total restaurant operating costs, as a percentage of our revenues.
 
Our Growth Strategies
 
We believe our restaurants have significant growth potential due to our Upscale Affordable positioning, strong unit economics, proven track record of financial results and broad guest appeal. Our growth model is comprised of the following three primary drivers:
 
Pursue Disciplined Restaurant Growth.  We believe that there are significant opportunities to grow our brands on a nationwide basis in both existing and new markets where we believe we can generate attractive unit level economics. We are pursuing a disciplined growth strategy for both of our brands. We believe that each brand is at an early stage of its expansion.
 
We have built a scalable infrastructure and have successfully grown our restaurant base through a challenging market environment. Despite difficult economic conditions, we opened seven new restaurants in 2009. We continue to grow in 2010, having opened two new restaurants in each of the first and second quarters of 2010, with one additional restaurant planned to be opened later this year. We plan to open five to six new restaurants in 2011 and aim to open between 45 and 50 new restaurants over the next five years.
 
Grow Existing Restaurant Sales.  We will continue to pursue targeted local marketing efforts and evaluate operational initiatives designed to increase unit volumes without relying on the margin-eroding discounting programs adopted by many of our competitors.
 
Initiatives at BRAVO! include increasing online ordering, which generates a higher average per person check compared to our current carry-out business, expanding local restaurant marketing and promoting our patio business. Other initiatives include promoting our bar program through martini night and happy hour programs and expanding our feature cards to include appetizers and desserts.
 
At BRIO, we are promoting our bar programs, implementing wine flights and dessert trays introducing a new bar menu and expanding the selection of wines by the glass. In addition, we believe there is an opportunity to expand our banquet and special events catering business. Our banquet and special events catering business typically generates a higher average per person check than our dining rooms and, as a result of reduced labor costs relative to revenue, allows us to achieve higher margins on those revenues.
 
We believe our existing restaurants will benefit from increasing brand awareness as we continue to enter new markets. In addition, we may selectively remodel existing units to include additional seating capacity to increase revenue.


59


Table of Contents

Maintain Margins Throughout Our Growth.  We will continue to aggressively protect our margins using economies of scale, including marketing and purchasing synergies between our brands and leveraging our corporate infrastructure as we continue to open new restaurants. Additional margin enhancement opportunities include increasing labor efficiency through the use of scheduling tools, menu engineering and other operating cost reduction programs.
 
Real Estate
 
As of June 27, 2010, we leased 81 and owned four restaurant sites, of which 75 are located adjacent to or in lifestyle centers and/or shopping malls and ten are free-standing units strategically positioned in high-traffic areas. On average, our restaurants range in size from 6,000 to 9,000 square feet. Since the end of 2005, we have opened 40 new locations and converted, relocated or closed 4 locations. We consider our ability to locate and secure attractive real estate locations for new restaurants a key differentiator and long-term success factor. The majority of our leases provide for minimum annual rentals and contain percentage-of-sales rent provisions against which the minimum rent is applied. A significant percentage of our leases also provide for periodic escalation of minimum annual rent based upon increases in the Consumer Price Index. Typically, our leases are ten or 15 years in length with two, five-year extension options.
 
Site Selection Process
 
Part of our growth strategy is to develop a nationwide system of restaurants. We have developed a disciplined site acquisition and qualification process incorporating management’s experience as well as extensive data collection, analysis and interpretation. We are actively developing BRAVO! and BRIO restaurants in both new and existing markets, and we will continue to expand in major metropolitan areas throughout the U.S. Management closely analyzes traffic patterns, demographic characteristics, population density, level of affluence and consumer attitudes or preferences. In addition, management carefully evaluates the current or expected co-retail and restaurant tenants in order to accurately assess the attractiveness of the identified area.
 
BRAVO! and BRIO are highly sought after by the owners and developers of upscale shopping centers and mixed use projects. We are therefore typically made aware of new developments and opportunities very early on in their selection process. In addition to our real estate personnel and broker network actively seeking locations, we do site screening on projects that are brought to our attention in the planning phases. Additionally, BRAVO! and BRIO are among a short list of multi-location restaurants that are specifically named as co-tenants by highly-respected national retailers.
 
Design
 
BRAVO! and BRIO restaurants integrate critical design elements of each brand while making each restaurant unique. Consideration is taken with each design to incorporate the center’s architecture and other regional design elements while still maintaining certain critical features that help identify our brands. Our interiors, while timeless and inviting, incorporate current trends that give our restaurants a sophisticated yet classic feel. This flexibility of design allows us to build one and two story restaurants and to place restaurants in a variety of locales, including ground up locations, in-line locations and conversions of office, retail and restaurant space.
 
The flexibility of our concepts has enabled us to open restaurants in a wide variety of locations, including high-density residential areas, shopping malls, lifestyle centers and other high-traffic locations. On average, it takes us approximately 12 to 18 months from identification of the specific site to opening the doors for business. In order to maintain consistency of food, guest service and atmosphere at our restaurants, we have set processes and timelines to follow for all restaurant openings to ensure they stay on schedule.
 
The identification of new sites along with their development and construction are the responsibilities of the Company’s Real Estate Development Group. Several project managers are responsible for building the restaurants, and several staff members deal with purchasing, project management, budgeting, scheduling and other administrative functions. Senior management reviews the comprehensive studies provided by the Real Estate Development Group to determine which regions to pursue prior to any new restaurant development.


60


Table of Contents

 
New Restaurant Development
 
We have successfully opened 40 new locations and converted, relocated or closed 4 locations since the end of 2005. Management believes it is well-positioned to continue its trend of disciplined unit expansion through its new restaurant pipeline. We maintain a commitment to strengthening our core markets while also pursuing attractive locations in a wide variety of new markets. We aim to open between 45 and 50 new restaurants over the next five years. New restaurants will typically range in size from 7,000 to 9,000 square feet and are expected to generate a first year average unit volume of approximately $3.5 million and $4.8 million for BRAVO! and BRIO, respectively.
 
Restaurant Operations
 
We currently have 14 district managers that report directly to one of our two Senior Vice Presidents of Operations for our brands, who in turn each report to our Chief Executive Officer. Each restaurant district manager supervises the operations of five to eight restaurants in their respective geographic areas, and is in frequent contact with each location. The staffing at our restaurants typically consists of a general manager, two to four assistant managers, an executive chef and one to three sous chefs. In addition, our restaurants typically employ 60 to 200 hourly employees. Our operational philosophy is as follows:
 
  •  Offer High-Quality Italian Food and Wines.  We seek to differentiate ourself from other multi-location restaurants by offering affordable, high-quality cuisine prepared using fresh ingredients and authentic Italian cooking methods. To ensure that the menu is consistently prepared to our high standards, we have developed a comprehensive ten week management training program. As part of their skill preparation, all of our executive chefs perform a cooking demonstration. This enables our Corporate Executive Chefs to evaluate a candidate’s skill set. All executive chefs are required to complete ten weeks of kitchen training, including mastering all stations, ordering, receiving and inventory control. Due to our high average unit volumes, the executive chefs are trained throughout the ten weeks to ensure that their food is consistently prepared on a timely basis. In addition, all executive chefs are trained on product and labor management programs to achieve maximum efficiencies. Both of these tools reinforce our commitment to training our employees to run their business from a profit and loss perspective, as well as the culinary side.
 
  •  Deliver Superior Guest Service.  Significant time and resources are spent in the development and implementation of our training programs, resulting in a comprehensive service system for both hourly service people and management. We offer guests prompt, friendly and efficient service, keeping waitstaff-to-table ratios high, and staffing each restaurant with experienced “on the floor” management teams to ensure consistent and attentive guest service. We employ food runners to ensure prompt delivery of fresh dishes at the appropriate temperature, thus allowing the waitstaff to focus on overall guest satisfaction. All service personnel are thoroughly trained in the specific flavors of each dish. Using a thorough understanding of our menu, the servers assist guests in selecting menu items complementing individual preferences.
 
  •  Leverage Our Partnership Management Philosophy.  A key element to our current expansion and success has been the development of our partnership management philosophy, which is based on the premise that active and ongoing economic participation (via a bonus plan) by each restaurant’s general manager, executive chef, assistant managers and sous chefs is essential to long-term success. The purpose of this structure is to attract and retain an experienced management team, incentivize the team to execute our strategy and objectives and provide stability to the operating management team. This program is offered to all restaurant management. This provides our management team with the financial incentive to develop people, build lifelong guests and operate their restaurants in accordance with our standards.
 
Sourcing and Supply
 
To ensure the highest quality menu ingredients, raw materials and other supplies, we continually research and evaluate products. We contract with Distribution Market Advantage, or DMA, a cooperative of multiple food distributors located throughout the nation, and US Foodservice for the broadline distribution of most of our food products. We utilize a primary distributor, GFS, for the majority of our food distribution under the DMA agreement. We negotiate pricing and volume terms directly with certain of our key suppliers through DMA and


61


Table of Contents

US Foodservice. Currently, we have pricing understandings with several key suppliers, including our suppliers of poultry, certain seafood products, dairy products, soups and sauces, bakery items and certain meat products. Our restaurants place orders directly with GFS or US Foodservice and maintain regular distribution schedules.
 
In addition to our broadline distribution arrangements, we utilize direct distribution for several products, including a majority of our meat deliveries, produce and non-alcoholic beverages. Our purchasing contracts are generally negotiated annually and cover substantially all of our requirements for a specific product. Our contracts typically provide either for fixed or variable pricing based on an agreed upon cost-plus formula and require that our suppliers deliver directly to our distributors. We are currently under a fixed-price contract through March 2011 with our direct meat distributor that covers a large portion of our meat requirements and a mixed fixed-price and market-based contract with our poultry supplier that covers substantially all of our poultry requirements through December 2010. Produce is supplied to our restaurants by a cooperative of local suppliers. We are currently under a mixed fixed price and market-based contract with our national produce management companies that continues through October 2010. We are currently under contract with our principal non-alcoholic beverage provider through the later of 2013 or when certain minimum purchasing thresholds are satisfied. Our ability to arrange national distribution of alcoholic beverages is restricted by state law; however, where possible, we negotiate directly with spirit companies and/or national distributors. We also contract with a third party provider to source, maintain and remove our cooking shortening and oil systems.
 
We have a procurement strategy for all of our product categories that includes contingency plans for key products, ingredients and supplies. These plans include selecting suppliers that maintain alternate production facilities capable of satisfying our requirements, or in certain instances, the approval of secondary suppliers or alternative products. We believe our procurement strategy will allow us to obtain sufficient product quantities from other sources at competitive prices.
 
Food Safety
 
Providing a safe and clean dining experience for our guests is essential to our mission statement. We have taken steps to mitigate food quality and safety risks, including designing and implementing a training program for our chefs, hourly service people and managers focusing on food safety and quality assurance. In addition, we include food safety standards and proceeds in every recipe for our cooks. We also consider food safety and quality assurance when selecting our suppliers. Our suppliers are inspected by federal, state and local regulators or other reputable, qualified inspection services, which helps ensure their compliance will all federal food safety and quality guidelines.
 
Marketing and Advertising
 
Our restaurants have generated broad appeal due to their high-quality food, service and ambiance. The target audience for BRAVO! and BRIO is college-educated professionals, ages 35-65, and their families that dine out frequently for social or special occasions. Our marketing strategy is designed to promote and build brand awareness while retaining local neighborhood relationships by focusing on driving comparable restaurant sales growth by increasing frequency of visits by our current guests as well as attracting new guests. Our marketing strategy also focuses on generating brand awareness at new store openings.
 
Local Restaurant Marketing
 
A significant portion of our marketing budget is spent on point-of-sale materials to communicate and promote key brand initiatives to our guests while they are dining in our restaurants. We believe that our initiatives, such as seasonal menu changes, holiday promotions, bar promotions, private party and banquet offerings, contribute to repeat guest visits for multiple occasions and drive brand awareness and loyalty.
 
A key aspect of our local store marketing strategy is developing community relationships with local schools, churches, hotels, chambers of commerce and residents. We place advertisements with junior high and high school athletic programs, school newspapers and special event programs as well as weekly bulletins for churches. We believe courting and catering to local hotel concierges or hosting annual receptions drives traveler recommendations


62


Table of Contents

for BRAVO! and BRIO. Participating in off-site food and charity fairs and events allows us to make contact with local families. Hosting chamber of commerce meetings and mixers, advertising in newsletters and sending out e-blasts have also been successful in reaching the business community. Our restaurant managers are closely involved in developing and implementing the majority of the local store marketing programs.
 
Advertising
 
We spend a limited amount of our marketing budget on various advertising outlets, including print, radio, direct mail and outdoor, to build brand awareness. These advertisements are designed to emphasize the quality and consistency of BRAVO! and BRIO’s food and service and the superior guest experience we offer in a warm and inviting atmosphere. Direct mail is primarily used for new store openings but has also been employed to promote special holiday offers and events.
 
New Restaurant Openings
 
We use the openings of new restaurants as opportunities to reach out to various media outlets as well as the local community. Local public relations firms are retained to assist BRAVO! and BRIO with obtaining appearances on radio and television cooking shows, establishing relationships with local charities and gaining coverage in local newspapers and magazines. We employ a variety of marketing techniques to promote new openings along with press releases, direct mail, e-marketing and other local restaurant marketing activities, which include concierge parties, training lunches and dinners with local residents, media, community leaders and businesses. In addition, we typically partner with a local charity and host an event in connection with our grand openings.
 
E-Marketing & Social Media
 
We have increased our use of e-marketing tools, which enables us to reach a significant number of people in a timely and targeted fashion at a fraction of the cost of traditional media. We believe that BRAVO! and BRIO guests are frequent Internet users and will explore e-applications to make dining decisions or to share dining experiences. We have set up Facebook and Twitter pages and developed mobile applications for BRAVO! and BRIO, along with advertising on weather.com, citysearch.com, yelp.com and urbanspoon.com. We anticipate allocating an increasing amount of marketing budget toward this rapidly growing area.
 
Training and Employee Programs
 
We conduct comprehensive training programs for our management, hourly employees and corporate personnel. Our training department provides a series of formulated training modules that are used throughout our company, including leadership training, team building, food safety certification, alcohol safety programs, guest service philosophy training, sexual harassment training and others. All training materials are kept up-to-date and stored on our corporate “PASTAnet” internal web site for individual restaurants to access as needed. E-learning is utilized for several management training modules as trainees progress through our ten week management training program. Once management training is completed in the respective restaurants, all management trainees are brought to our corporate offices for three days of classroom certification and testing.
 
Team member selection has been developed to include pre-employment assessment at all levels, from hourly through multi-restaurant management candidates. These selection reports help to bring objectivity to the selection process. Customized standards have been created for the company that utilize our strongest performers as the behavioral model for future new hires.
 
Our training process in connection with opening new restaurants has been refined over the course of our experience. Regional trainers oversee and conduct both service and kitchen training and are on site through the first two weeks of opening. The regional trainers lend support and introduce our standards and culture to the new team. We believe that hiring the best available team members and committing to their training helps keep retention high during the restaurant opening process.


63


Table of Contents

Several development programs have been instrumental to our long term success. The “Rising Star” program was created as part of our Bravo Brio Restaurant Group University (BBRGU) to develop aspiring hourly team members into assistant managers and chefs. The key element of the Rising Star program is to provide upward mobility within the organization, utilizing existing labor hours in the restaurants for focused training for the most promising employees. Many of our general managers and executive chefs have gained their positions through internal promotions as a result of this program. Once an employee is identified as a potential leader through observation and assessment, a customized development program is designed that incorporates mentoring, coaching and training. Business classes for additional restaurant management skill and leadership traits are also offered through BBRGU at our corporate office.
 
Management Information Systems
 
Restaurant level financial and accounting controls are handled through a sophisticated point-of-sale (“POS”) cash register system and computer network in each restaurant that communicates with our corporate headquarters. The POS system is also used to authorize and transmit credit card sales transactions. All of our restaurants use MICROS RES 3700 software with state-of-the-art equipment. Our restaurant communications are comprised of cable, DSL, Fractional T1 and T1 lines. Our restaurants use MICROS back-office applications to manage the business and control costs. The applications that are part of the back-office tools are Product Management, Financial Management and Labor Management. These systems integrate with the MICROS RES 3700 software. Product Management helps drive food and beverage costs down by identifying kitchen or bar inefficiencies and, through the menu engineering capabilities, it aides in enhancing profitability. Labor Management provides the ability to schedule labor and manage labor costs, including time clock governance that does not allow an employee to “clock in” more than a designated amount of time before a scheduled shift.
 
In 2008, we implemented the Lawson 9.0 software platform as our ERP system. Its core subsystems include GL, AP, construction accounting, Payroll and Human Resources. The data pulled from the restaurants is integrated into the Lawson system and a data warehouse. This data provides visibility to allow us to better analyze the business. In 2009, we focused on re-designing our guest facing websites to provide a distinct brand image on each website, as well as allowing us to elevate our message to our guests. As part of the redesign, we included search engine optimization into the websites (www.bbrg.com, www.bravoitalian.com, www.brioitalian.com, www.bon-vie.com). We are currently focusing on providing Online Ordering for BRAVO! via our website. Also in 2009, we implemented an internal website called PASTAnet. This intranet site utilizing Microsoft Sharepoint provides us with the ability to collaborate, communicate, train and share information between the restaurants and our corporate office.
 
Government Regulation
 
We are subject to numerous federal, state and local laws affecting our business. Each of our restaurants is subject to licensing and regulation by a number of government authorities, which may include alcoholic beverage control, nutritional information disclosure, health, sanitation, environmental, zoning and public safety agencies in the state or municipality in which the restaurant is located.
 
During 2009, approximately 19.5% of our restaurant sales were attributable to alcoholic beverages. Alcoholic beverage control regulations require each of our restaurants to apply to a state authority and, in certain locations, county and municipal authorities, for licenses and permits to sell alcoholic beverages on the premises. Typically, licenses must be renewed annually and may be subject to penalties, temporary suspension or revocation for cause at any time. Alcoholic beverage control regulations impact many aspects of the daily operations of our restaurants, including the minimum ages of patrons and staff members consuming or serving these beverages, respectively; staff member alcoholic beverage training and certification requirements; hours of operation; advertising; wholesale purchasing and inventory control of these beverages; the seating of minors and the servicing of food within our bar areas; special menus and events, such as happy hours; and the storage and dispensing of alcoholic beverages. State and local authorities in many jurisdictions routinely monitor compliance with alcoholic beverage laws.


64


Table of Contents

We are subject to dram shop statutes in most of the states in which we operate, 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.
 
Various federal and state labor laws govern our operations and our relationships with our staff members, including such matters as minimum wages, breaks, overtime, fringe benefits, safety, working conditions and citizenship or work authorization requirements. We are also subject to the regulations of the U.S. Citizenship and Immigration Services and U.S. Customs and Immigration Enforcement. In addition, some states in which we operate have adopted immigration employment laws which impose additional conditions on employers. Even if we operate our restaurants in strict compliance with the laws, rules and regulations of these federal and state agencies, some of our staff members may not meet federal citizenship or residency requirements or lack appropriate work authorizations, which could lead to a disruption in our work force. Significant government-imposed increases in minimum wages, paid or unpaid leaves of absence, sick leave, and mandated health benefits, or increased tax reporting, assessment or payment requirements related to our staff members who receive gratuities, could be detrimental to the profitability of our restaurants operations. Further, we are continuing to assess the impact of recently-adopted federal health care legislation on our health care benefit costs. The imposition of any requirement that we provide health insurance benefits to staff members that are more extensive than the health insurance benefits we currently provide, or the imposition of additional employer paid employment taxes on income earned by our employees, could have an adverse effect on our results of operations and financial position. Our suppliers also may be affected by higher minimum wage and benefit standards, which could result in higher costs for goods and services supplied to us. In addition, while we carry employment practices insurance covering a variety of labor-related liability claims, a settlement or judgment against us that is uninsured or in excess of our coverage limitations could have a material adverse effect on our results of operations, liquidity, financial position or business.
 
Recent federal legislation enacted in March 2010 will require chain restaurants with 20 or more locations in the United States to comply with federal nutritional disclosure requirements. A number of states, counties and cities have also enacted menu labeling laws requiring multi-unit restaurant operators to disclose certain nutritional information available to guests, or have enacted legislation restricting the use of certain types of ingredients in restaurants. Although the federal legislation is intended to preempt conflicting state or local laws on nutrition labeling, until we are required to comply with the federal law we will be subject to a patchwork of state and local laws and regulations regarding nutritional content disclosure requirements. Many of these requirements are inconsistent or are interpreted differently from one jurisdiction to another. While our ability to adapt to consumer preferences is a strength of our concepts, the effect of such labeling requirements on consumer choices, if any, is unclear at this time.
 
There is also a potential for increased regulation of food in the United States. For example, the United States Congress is currently considering food safety legislation that is expected to greatly expand the FDA’s authority over food safety. If this legislation is enacted, we cannot assure you that it will not impact our industry. Additional requirements may also be imposed by state and local authorities. Additionally, our suppliers may initiate or otherwise be subject to food recalls that may impact the availability of certain products, result in adverse publicity or require us to take other actions that could be costly for us or otherwise harm our business.
 
We are subject to a variety of federal and state environmental regulations concerning the handling, storage and disposal of hazardous materials, such as cleaning solvents, and the operation of restaurants in environmentally sensitive locations may impact aspects of our operations. During fiscal 2009, there were no material capital expenditures for environmental control facilities, and no such expenditures are anticipated.
 
Our facilities must comply with the applicable requirements of the Americans with Disabilities Act of 1990 (“ADA”) and related federal and state statutes. The ADA prohibits discrimination on the basis of disability with respect to public accommodations and employment. Under the ADA and related federal and state laws, we must make access to our new or significantly remodeled restaurants readily accessible to disabled persons. We must also make reasonable accommodations for the employment of disabled persons.
 
We have a significant number of hourly restaurant staff members who receive income from gratuities. We have elected to voluntarily participate in a Tip Reporting Alternative Commitment (“TRAC”) agreement with the IRS. By complying with the educational and other requirements of the TRAC agreement, we reduce the likelihood of


65


Table of Contents

potential employer-only FICA tax assessments for unreported or underreported tips. However, we rely on our staff members to accurately disclose the full amount of their tip income and our reporting on the disclosures provided to us by such tipped employees.
 
Intellectual Property
 
We currently own six separate registrations in connection with restaurant service from the United States Patent and Trademark Office for the following trademarks: BRAVO!®, BRAVO! Cucina Italiana®, Cucina BRAVO! Italiana®, BRAVO! Italian Kitchen®, Brio®, Brio Tuscan Grilletm and Bon Vie®. Our registrations confer a federally recognized exclusive right for us to use these trademarks throughout the United States, and we can prevent the adoption of confusingly similar trademarks by other restaurants that do not possess superior common law rights in particular markets. An important part of our intellectual property strategy is the monitoring and enforcement of our rights in markets in which our restaurants currently exist or markets which we intend to enter in the future. We also monitor trademark registers to oppose the registration of confusingly similar trademarks or to limit the expansion of existing trademarks with superior common law rights.
 
We enforce our rights through a number of methods, including the issuance of cease-and-desist letters or making infringement claims in federal court. If our efforts to protect our intellectual property are inadequate, or if any third party misappropriates or infringes on our intellectual property, the value of our brands may be harmed, which could have a material adverse effect on our business and might prevent our brands from achieving or maintaining market acceptance.
 
Restaurant Industry Overview
 
According to the National Restaurant Association (the “NRA”), U.S. restaurant industry sales in 2009 were $566 billion and projected to grow 2.5% to $580 billion in 2010, representing approximately 3.9% of the U.S. gross domestic product. According to the NRA, the U.S. restaurant industry has grown at a compound annual growth rate of 6.7% since 1970. Technomic, Inc., a national consulting market research firm, reported that the U.S. full-service Italian segment had $15 billion of sales in 2009 and the top 100 restaurants within this segment have had a compounded annual growth rate of 11.8% since 1989.
 
The NRA projects that 49% of total U.S. food expenditures will be spent at restaurants in 2010, up from 25% in 1955. Real disposable personal income, a key indicator of restaurant industry sales, is projected to increase 1.5% in 2010, following an increase of 1.3% in 2009. We believe that the increase in purchases of “food-away-from-home” is attributable to demographic, economic and lifestyle trends, including the following factors:
 
  •  the rise in the number of women in the market place;
 
  •  increase in average household income;
 
  •  an aging U.S. population; and
 
  •  an increased willingness by consumers to pay for the convenience of meals prepared outside of their homes.
 
The restaurant industry is comprised of multiple segments, including casual dining. The casual dining segment can be further sub-divided into representative casual and upscale casual dining. The upscale casual dining segment is differentiated by freshly prepared and innovative food, flavorful recipes with creative presentations and decor. Upscale casual dining is positioned differently than representative casual dining, with standards that are much closer to fine dining. Technomic, Inc., predicts that the most successful operators will be those which can target customers for diverse occasions and needs, as well as cater for new daypart and menu opportunities to reflect changing attitudes and behaviors.
 
Competition
 
The restaurant business is intensely competitive with respect to food quality, price-value relationships, ambiance, service and location, and is affected by many factors, including changes in consumer tastes and discretionary spending patterns, macroeconomic conditions, demographic trends, weather conditions, the cost and availability of raw materials, labor and energy and government regulations. Any change in these or other related factors could


66


Table of Contents

adversely affect our restaurant operations. The main competitors for our brands are mid-priced, full service concepts in the multi-location, upscale casual dining segment including Maggiano’s, Cheesecake Factory, BJ’s Restaurants and P.F. Chang’s, as well as high quality, locally owned and operated Italian restaurants.
 
There are a number of well-established competitors with substantially greater financial, marketing, personnel and other resources than ours. In addition, many of our competitors are well established in the markets where our operations are, or in which they may be, located. While we believe that our restaurants are distinctive in design and operating concept, other companies may develop restaurants that operate with similar concepts. In addition, with improving product offerings at fast casual restaurants, quick-service restaurants and grocery stores, consumers may choose to trade down to these alternatives, which could also negatively affect our financial results.
 
Employees
 
As of June 27, 2010, we had approximately 8,000 employees of whom approximately 80 were corporate management and staff personnel, approximately 500 were restaurant managers or trainees, and approximately 7,400 were employees in non-management restaurant positions. None of our employees are unionized or covered by a collective bargaining agreement. We believe that we have good relations with our employees.


67


Table of Contents

Properties
 
The following table sets forth our restaurant locations as of June 27, 2010.
 
         
 
    Number of
 
Location
  Restaurants  
 
Alabama
    1  
Arkansas
    1  
Arizona
    2  
Connecticut
    1  
Colorado
    2  
Florida
    9  
Georgia
    2  
Illinois
    3  
Indiana
    3  
Iowa
    1  
Kansas
    1  
Kentucky
    2  
Louisiana
    2  
Michigan
    6  
Missouri
    4  
Maryland
    1  
Nevada
    1  
New Jersey
    1  
New Mexico
    1  
New York
    2  
North Carolina
    4  
Ohio
    16  
Oklahoma
    1  
Pennsylvania
    6  
Tennessee
    1  
Texas
    5  
Virginia
    4  
Wisconsin
    2  
         
Total
    85  
 
In addition to the restaurant locations set forth above, we also have one restaurant currently in development in Delaware that we expect to open in the fourth quarter of 2010.
 
We own four properties, two in Ohio and one in each of Indiana and Pennsylvania, and operate restaurants on each of these sites. We lease the remaining land and buildings used in our restaurant operations under various long-term operating lease agreements. The initial lease terms range from ten to 20 years and currently expire between 2011 and 2027. The leases include renewal options for two to 20 additional years. The majority of our leases provide for base (fixed) rent, plus additional rent based on gross sales (as defined in each lease agreement) in excess of a stipulated amount, multiplied by a stated percentage. We are also generally obligated to pay certain real estate taxes, insurances, common area maintenance charges and various other expenses related to the properties. The term of one lease relating to the restaurant locations set forth above is set to expire in 2011 but may be


68


Table of Contents

renewed at our option for an additional five year term expiring in 2015. Our main office is also leased and is located at 777 Goodale Boulevard, Suite 100, Columbus, Ohio 43212.
 
Legal Proceedings
 
Occasionally we are a party to various legal actions arising in the ordinary course of our business including claims resulting from “slip and fall” accidents, employment related claims and claims from guests or employees alleging illness, injury or other food quality, health or operational concerns. None of these types of litigation, most of which are covered by insurance, has had a material effect on us, and as of the date of this prospectus, we are not a party to any material pending legal proceedings and are not aware of any claims that could have a materially adverse effect on our financial position, results of operations, or cash flows.


69


Table of Contents

 
Management
 
Executive Officers and Directors
 
The following table sets forth certain information with respect to our executive officers and directors as of June 27, 2010.
 
             
Name
 
Age
 
Position
Alton F. Doody, III
    51     Founder, Director and Chairman
Saed Mohseni
    48     Director, President and Chief Executive Officer
James J. O’Connor
    48     Chief Financial Officer, Treasurer and Secretary
Brian O’Malley
    42     Senior Vice President of Operations, BRIO
Michael Moser
    54     Senior Vice President of Operations, BRAVO!
Ronald F. Dee
    45     Senior Vice President, Development
Allen J. Bernstein
    64     Director
Michael J. Hislop
    55     Director
David B. Pittaway
    58     Director
Harold O. Rosser II
    61     Director
 
The board of directors believes that each of the directors set forth above has the necessary qualifications to be a member of the board of directors. Each of the directors has exhibited during his prior service as a director the ability to operate cohesively with the other members of the board of directors. Moreover, the board of directors believes that each director brings a strong background and skill set to the board of directors, giving the board of directors as a whole competence and experience in diverse areas, including corporate governance and board service, finance, management and restaurant industry experience.
 
Set forth below is a brief description of the business experience of each of our directors and executive officers, as well as certain specific experiences, qualifications and skills that led to the board of directors’ conclusion that each of the directors set forth below is qualified to serve as a director:
 
Alton F. (“Rick”) Doody, III has been Chairman of the board of directors of the Company since its inception in 1987. Mr. Doody was our Chief Executive Officer from 1992 until February 2007 and our President from June 2006 until September 2009. Mr. Doody also founded Lindey’s German Village, and was responsible for all facets of its management. Mr. Doody received a Bachelor of Sciences degree in Economics from Ohio Wesleyan University and has completed all the necessary coursework for a Master’s Degree from Cornell University in Restaurant/Hotel Management. Mr. Doody is a member of the Young President’s Organization and the International Council of Shopping Center Owners and is a Board Member for the Cleveland Restaurant Association. Mr. Doody’s qualifications to serve on our board of directors include his knowledge of our company and the restaurant industry and his years of leadership at our company.
 
Saed Mohseni joined the Company as Chief Executive Officer in February 2007 and assumed the additional role of President in September 2009. Mr. Mohseni has also served as a director of the Company since June 2006. Prior to joining us, Mr. Mohseni was the Chief Executive Officer (January 2000-February 2007) and a director (2004-2007) of McCormick & Schmick’s Seafood Restaurants, Inc. Mr. Mohseni joined McCormick & Schmick’s in 1986 as a General Manager. During his time at McCormick & Schmick’s, he also held the positions of Senior Manager (1988-1993), Vice President of Operations-California (1993-1997), and Senior Vice President of Operations (1997-1999). Mr. Mohseni attended Portland State University and Oregon State University. Mr. Mohseni’s qualifications to serve on our board of directors include his knowledge of our company and the restaurant industry and his years of leadership at our company.
 
James J. O’Connor joined the Company as Chief Financial Officer, Treasurer and Secretary in February 2007. For the six years prior to joining us, Mr. O’Connor held various senior level financial positions, including Chief Financial Officer of the Wendy’s Brand, at Wendy’s International, Inc. From 1999 to 2000, Mr. O’Connor served as Senior Manager of Financial Reporting for Tween Brands. Mr. O’Connor previously served as a Senior Manager


70


Table of Contents

for PricewaterhouseCoopers LLP from 1985 until 1998. Mr. O’Connor is a CPA and earned a Bachelor of Sciences degree in Accounting and Finance from the Ohio State University.
 
Brian O’Malley has served as Senior Vice President of Operations, BRIO, since 2006. Mr. O’Malley joined the Company in 1996 as the General Manager of BRAVO! Dayton. Mr. O’Malley was promoted to District Partner in 1999, Director of Operations in 2000 and to Vice President of Operations in 2004. Prior to joining us, Mr. O’Malley was employed with Sante Fe Steakhouse, where he held positions as a General Manager, Director of Training and Regional Manager. Mr. O’Malley earned a Bachelor of Sciences degree in Speech Communications and Hospitality Management from the University of Wisconsin-Stout.
 
Michael Moser has served as Senior Vice President of Operations, BRAVO!, since 2006. Mr. Moser is a classically trained chef who has over thirty years of experience in the restaurant industry. Mr. Moser joined the Company as a Vice President of Operations in August of 2004. Prior to joining us, Mr. Moser served as the Chief Operating Officer of the Texas Land and Cattle Steak House, a privately held 24 unit restaurant company. From 1996 to 2001, Mr. Moser was Chief Operating Officer of Romano’s Macaroni Grill. Prior to becoming Chief Operating Officer, Mr. Moser served as Director of Operations and founding Concept Chef for creator Phillip Romano. Mr. Moser attended Wayne State University.
 
Ronald F. Dee has served as our Senior Vice President of Development since May 2007. For the year prior to assuming his current position, Mr. Dee served as our Director of Real Estate. Mr. Dee joined the Company in July of 2003. Prior to joining us, Mr. Dee was Vice President, Development with Darden Restaurants overseeing all Red Lobster brand development. Mr. Dee has over twenty years of real estate development experience in the restaurant/hospitality industry having also held senior management positions with Marriott International and Taco Bell Corp. Mr. Dee is an active member of the International Counsel of Shopping Center Owners. Mr. Dee attended the State University of New York at Buffalo.
 
Allen J. Bernstein has been a director of the Company since June 2006. Mr. Bernstein is the President of Endeavor Restaurant Group, Inc. He founded and served as Chairman and Chief Executive Officer of Morton’s Restaurant Group, Inc. from 1989 through 2005. He currently serves on the boards of directors of a number of public and privately held companies, including The Cheesecake Factory Incorporated, Caribbean Restaurants, LLC and as non-executive Chairman of the board of directors of Perkins & Marie Callender’s, Inc. Previously, Mr. Bernstein served as a director on the boards of Charlie Brown’s Steakhouse, McCormick & Schmick’s Seafood Restaurants, Inc. and Dave & Busters, Inc. He also serves on the board of trustees of the American Film Institute. Mr. Bernstein brings over 20 years of restaurant industry experience to the board of directors, and among other skills and qualifications, his significant knowledge and understanding of the industry, specifically the Upscale Affordable segment. Additionally, Mr. Bernstein brings the knowledge and skills that come from significant experience in the restaurant industry, including at the senior executive and board level of a number of other publicly traded companies. Mr. Bernstein earned a Bachelor of Business Administration degree in Marketing from the University of Miami.
 
Michael J. Hislop has been a director of the Company since August 2006. Mr. Hislop has served as the President and Chief Executive Officer of Il Fornaio since 1998. From April 1991 to May 1995, Mr. Hislop served as Chairman and Chief Executive Officer of Chevy’s Mexican Restaurants which, under his direction, grew from 17 locations to 63 locations nationwide. From 1982 to 1991, Mr. Hislop was employed by El Torito Mexican Restaurants, Inc., serving first as Regional Operator, then as Executive Vice President of Operations and for the last three years as Chief Operating Officer. From 1979 to 1982, Mr. Hislop was employed by T.G.I. Fridays Restaurants, Inc. as a Regional Manager. Mr. Hislop brings to the board of directors the knowledge, qualifications and leadership skills that come from 30 years of experience in the restaurant industry, including significant experience at the senior executive and board level in both casual dining and Italian segments. Mr. Hislop earned a Bachelor of Sciences degree in Hotel and Restaurant Management from the University of Massachusetts.
 
David B. Pittaway has been a director of the Company since June 2006. Mr. Pittaway is Senior Managing Director, Senior Vice President and Secretary of Castle Harlan, Inc., a private equity firm. He has been with Castle Harlan since 1987. Mr. Pittaway also has been Vice President and Secretary of Branford Castle, Inc., an investment company, since October, 1986. From 1987 to 1998, Mr. Pittaway was Vice President, Chief Financial Officer and a director of Branford Chain, Inc., a marine wholesale company, where he is now a director and Vice Chairman.


71


Table of Contents

Previously, Mr. Pittaway was Vice President of Strategic Planning and Assistant to the President of Donaldson, Lufkin & Jenrette, Inc., an investment banking firm. Mr. Pittaway is also a member of the boards of directors of The Cheesecake Factory Incorporated, Morton’s Restaurant Group, Inc., McCormick & Schmick’s Seafood Restaurants, Inc., Perkins & Marie Callender’s Inc., Caribbean Restaurants, LLC and the Dystrophic Epidermolysis Bullosa Research Association of America. In addition, he is a director and co-founder of the Armed Forces Reserve Family Assistance Fund. Mr. Pittaway possesses in-depth knowledge and experience in finance and strategic planning based on his more than 20 years of experience as an investment banker and manager of Castle Harlan’s investing activities. Mr. Pittaway brings significant restaurant industry experience to the board of directors, and among other skills and qualifications, his significant knowledge and understanding of the industry, and his experience serving as a director of a number of publicly traded companies in the restaurant industry. Mr. Pittaway received a Bachelor of Arts degree from the University of Kansas, a JD from Harvard Law School and a MBA from Harvard Business School.
 
Harold O. Rosser II has served as a member of our board of directors since June 2006. Mr. Rosser is a Managing Director and founder of Bruckmann, Rosser, Sherrill and Co., Management, L.P., a New York-based private equity firm where he has worked since 1995. From 1987 through 1995 Mr. Rosser was an officer at Citicorp Venture Capital. Prior to joining CVC, he spent 12 years with Citicorp/Citibank in various management and corporate finance positions. Mr. Rosser currently serves on the Board of Directors of Ruth’s Hospitality Group, Inc., Il Fornaio (America) Corporation, Logan’s Roadhouse, Inc. and Wilson Farms, Inc. Mr. Rosser is also a member of the Boards of Trustees of the Culinary Institute of America and Wake Forest University. Mr. Rosser formerly served as a director of several private and public companies and through BRS has invested in more than 16 restaurant companies since 1989. As a result of these and other professional experiences, Mr. Rosser possesses in-depth knowledge and experience in the restaurant industry, corporate finance; strategic planning and leadership of complex organizations; and board practices of private and public companies and other entities that strengthen the board’s collective qualifications, skills and experience. Mr. Rosser earned his B.S. from Clarkson University and attended Management Development Programs at Carnegie-Mellon University and the Stanford University Business School.
 
Director Independence
 
Our board of directors currently consists of 6 directors. Our board of directors has undertaken a review of the independence of our directors and considered whether any director has a material relationship with us that could compromise his ability to exercise independent judgment in carrying out his responsibilities. We believe that           of our directors currently meet these independence standards.
 
Board Committees
 
Our board of directors will establish various committees to assist it with its responsibilities. Those committees are described below.
 
Audit Committee
 
The current audit committee members are Harold O. Rosser, II and David B. Pittaway. Upon the date our common stock is listed on the Nasdaq Global Market, the committee members will be          . The composition of the audit committee will satisfy the independence and financial literacy requirements of the Nasdaq Global Market and the SEC. The independence standards require that the audit committee have at least one independent director on the date of listing, a majority of independent directors within 90 days after the date our registration statement is declared effective and fully independent audit committee within one year after that date. The financial literacy standards require that each member of our audit committee be able to read and understand fundamental financial statements. In addition, at least one member of our audit committee must qualify as a financial expert, as defined by Item 407(d)(5) of Regulation S-K promulgated by the SEC, and have financial sophistication in accordance with Nasdaq Global Market rules. Our board of directors has determined that           qualifies as an audit committee financial expert.


72


Table of Contents

The primary function of the audit committee is to assist the board of directors in the oversight of the integrity of our financial statements, our compliance with legal and regulatory requirements, our independent registered public accountants’ qualifications and independence and the performance of our internal audit function and independent registered public accountants. The audit committee also prepares an audit committee report required by the SEC to be included in our proxy statements.
 
The audit committee fulfills its oversight responsibilities by reviewing the following: (1) the financial reports and other financial information provided by us to our shareholders and others; (2) our systems of internal controls regarding finance, accounting, legal and regulatory compliance and business conduct established by management and the board; and (3) our auditing, accounting and financial processes generally. The audit committee’s primary duties and responsibilities are to:
 
  •  serve as an independent and objective party to monitor our financial reporting process and internal control systems;
 
  •  review and appraise the audit efforts of our independent registered public accountants and exercise ultimate authority over the relationship between us and our independent registered public accountants; and
 
  •  provide an open avenue of communication among the independent registered public accountants, financial and senior management and the board of directors.
 
To fulfill these duties responsibilities, the audit committee will:
 
Documents/Reports Review
 
  •  discuss with management and the independent registered public accountants our annual and interim financial statements, earnings press releases, earnings guidance and any reports or other financial information submitted to the shareholders, the SEC, analysts, rating agencies and others, including any certification, report, opinion or review rendered by the independent registered public accountants;
 
  •  review the regular internal reports to management prepared by the internal auditors and management’s response;
 
  •  discuss with management and the independent registered public accountants the Quarterly Reports on Form 10-Q, the Annual Reports on Form 10-K, including our disclosures under “Management’s Discussion and Analysis of Financial Conditions and Results of Operations,” and any related public disclosure prior to its filing;
 
Independent Registered Public Accountants
 
  •  have sole authority for the appointment, compensation, retention, oversight, termination and replacement of our independent registered public accountants (subject, if applicable, to shareholder ratification) and the independent registered public accountants will report directly to the audit committee;
 
  •  pre-approve all auditing services and all non-audit services to be provided by the independent registered public accountants;
 
  •  review the performance of the independent registered public accountants with both management and the independent registered public accountants;
 
  •  periodically meet with the independent registered public accountants separately and privately to hear their views on the adequacy of our internal controls, any special audit steps adopted in light of material control deficiencies and the qualitative aspects of our financial reporting, including the quality and consistency of both accounting policies and the underlying judgments, or any other matters raised by them;
 
  •  obtain and review a report from the independent registered public accountants at least annually regarding (1) the independent registered public accountants’ internal quality-control procedures, (2) any material issues raised by the most recent quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities within the preceding five years respecting one or more independent audits carried out by the firm, (3) any steps taken to deal with any such issues, and


73


Table of Contents

  (4) all relationships between the independent registered public accountants and their related entities and us and our related entities;
 
Financial Reporting Processes
 
  •  review with financial management and the independent registered public accountants the quality and consistency, not just the acceptability, of the judgments and appropriateness of the accounting principles and financial disclosure practices used by us, including an analysis of the effects of any alternative GAAP methods on the financial statements;
 
  •  approve any significant changes to our auditing and accounting principles and practices after considering the advice of the independent registered public accountants and management;
 
  •  focus on the reasonableness of control processes for identifying and managing key business, financial and regulatory reporting risks;
 
  •  discuss with management our major financial risk exposures and the steps management has taken to monitor and control such exposures, including our risk assessment and risk management policies;
 
  •  periodically meet with appropriate representatives of management and the internal auditors separately and privately to consider any matters raised by each of them, including any audit problems or difficulties and management’s response;
 
  •  periodically review the effect of regulatory and accounting initiatives, as well as any off-balance sheet structures, on our financial statements;
 
Process Improvement
 
  •  following the completion of the annual audit, review separately with management and the independent registered public accountants any difficulties encountered during the course of the audit, including any restrictions on the scope of work or access to required information;
 
  •  periodically review any processes and policies for communicating with investors and analysts;
 
  •  review and resolve any disagreement between management and the independent registered public accountants in connection with the annual audit or the preparation of the financial statements;
 
  •  review with the independent registered public accountants and management the extent to which changes or improvements in financial or accounting practices, as approved by the audit committee, have been implemented;
 
Business Conduct and Legal Compliance
 
  •  review our code of conduct and review management’s processes for communicating and enforcing this code of conduct;
 
  •  review management’s monitoring of our compliance with our code of conduct and ensure that management has the proper review system in place to ensure that our financial statements, reports, and other financial information disseminated to governmental organizations and the public satisfy legal requirements;
 
  •  review, with our counsel, any legal matter that could have a significant impact on our financial statements and any legal compliance matters;
 
  •  review and approve all related-party transactions;
 
Other Responsibilities
 
  •  establish and periodically review procedures for (1) the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or auditing matters and (2) the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters;


74


Table of Contents

 
  •  review and reassess the audit committee’s charter at least annually and submit any recommended changes to the board of directors for its consideration;
 
  •  provide the report required by Item 306 of Regulation S-K promulgated by the SEC for inclusion in our annual proxy statement;
 
  •  report periodically, as deemed necessary or desirable by the audit committee, but at least annually, to the full board of directors regarding the audit committee’s actions and recommendations, if any;
 
  •  establish policies for our hiring of employees or former employees of the independent registered public accountants who were engaged on our account;
 
  •  perform any other activities consistent with the audit committee’s charter, our regulations and governing law, as the audit committee or the board of directors deems necessary or appropriate; and
 
  •  annually evaluate the audit committee’s performance and report the results of such evaluation to the board of directors.
 
The audit committee will hold regular meetings at least four times each year. The audit committee will report the significant results of its activities to the board of directors at each regularly scheduled meeting of the board of directors.
 
In connection with this offering, our board of directors intends to adopt a charter for the audit committee that complies with current federal and Nasdaq Global Market rules relating to corporate governance matters. Deloitte & Touche LLP is presently our independent registered accounting firm.
 
Nominating and Corporate Governance Committee
 
Upon the listing of our common stock on the Nasdaq Global Market, our board of directors will designate a nominating and corporate governance committee that will consist of at least three directors. The committee members will be          . The composition of the nominating and corporate governance committee will satisfy the independence requirements of the Nasdaq Global Market that it have at least one independent director on the listing date, a majority of independent directors within 90 days after that date and full compliance within one year after that date. The nominating and corporate governance committee will:
 
  •  identify individuals qualified to serve as our directors;
 
  •  nominate qualified individuals for election to our board of directors at annual meetings of shareholders;
 
  •  establish a policy for considering shareholder nominees for election to our board of directors; and
 
  •  recommend to our board the directors to serve on each of our board committees.
 
To fulfill these responsibilities, the nominating and governance committee will:
 
  •  review periodically the composition of our board;
 
  •  identify and recommend director candidates for our board;
 
  •  recommend nominees for election as directors to our board;
 
  •  recommend the composition of the committees of the board to our board;
 
  •  review periodically our code of conduct and obtain confirmation from management that the policies included in the code of conduct are understood and implemented;
 
  •  evaluate periodically the adequacy of our conflicts of interest policy;
 
  •  review related party transactions;
 
  •  consider with management public policy issues that may affect us;
 
  •  review periodically our committee structure and operations and the working relationship between each committee and the board; and
 
  •  consider, discuss and recommend ways to improve our board’s effectiveness.


75


Table of Contents

 
In connection with this offering, our board of directors intends to adopt a charter for the nominating and corporate governance committee that complies with current federal and Nasdaq Global Market rules relating to corporate governance matters.
 
Compensation Committee
 
The current compensation committee members are Messrs. Rosser, Pittaway and Bernstein. Upon the listing of our common stock on the Nasdaq Global Market, the committee members will be          . The composition of the compensation committee will satisfy the independence requirements of the Nasdaq Global Market. These requirements require that we have at least one independent director on the listing date, a majority of independent directors within 90 days after that date and full compliance within one year after that date. The primary responsibility of the compensation committee is to develop and oversee the implementation of our philosophy with respect to the compensation of our executive officers and directors. In that regard, the compensation committee will:
 
  •  have the sole authority to retain and terminate any compensation consultant used to assist us, the board of directors or the compensation committee in the evaluation of the compensation of our executive officers and directors;
 
  •  to the extent necessary or appropriate to carry-out its responsibilities, have the authority to retain special legal, accounting, actuarial or other advisors;
 
  •  annually review and approve corporate goals and objectives to serve as the basis for the compensation of our executive officers, evaluate the performance of our executive officers in light of such goals and objectives and determine and approve the compensation level of our executive officers based on such evaluation;
 
  •  interpret, implement, administer, review and approve all aspects of remuneration to our executive officers and other key officers, including their participation in incentive-compensation plans and equity-based compensation plans;
 
  •  review and approve all employment agreements, consulting agreements, severance arrangements and change in control agreements for our executive officers;
 
  •  develop, approve, administer and recommend to the board of directors and our shareholders for their approval (to the extent such approval is required by any applicable law, regulation or Nasdaq Global Market rules) all of our stock ownership, stock option and other equity-based compensation plans and all related policies and programs;
 
  •  make individual determinations and grant any shares, stock options, or other equity-based awards under all equity-based compensation plans, and exercise such other power and authority as may be required or permitted under such plans, other than with respect to non-employee directors, which determinations are subject to the approval of our board of directors;
 
  •  have the authority to form and delegate authority to subcommittees;
 
  •  report regularly, but not less frequently than annually, to our board of directors;
 
  •  annually review and reassess the adequacy of its charter and recommend any proposed changes to our board of directors for its approval; and
 
  •  annually review its own performance, and report the results of such review to our board of directors.
 
The compensation committee has the same authority with regard to all aspects of director compensation as it has been granted with regard to executive compensation, except that any ultimate decision regarding the compensation of any director is subject to the approval of our board of directors. The compensation committee will hold regular meetings at least two times each year.
 
In connection with this offering, our board of directors intends to adopt a charter for the compensation committee that complies with current federal and Nasdaq Global Market rules relating to corporate governance matters.


76


Table of Contents

Compensation Committee Interlocks and Insider Participation
 
None of the members of the compensation committee who will continue to serve on the compensation committee after our common stock has been listed on the Nasdaq Global Market currently or has been at any time one of our officers or employees. None of our executive officers currently serves, or has served during the last completed fiscal year, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or compensation committee. None of our executive officers was a director of another entity where one of that entity’s executive officers served on our compensation committee, and none of our executive officers served on the compensation committee or the entire board of directors of another entity where one of that entity’s executive officers served as a director on our board of directors.
 
Risk Oversight
 
We face a number of risks, including market price risks in beef, seafood, produce and other food product prices, liquidity risk, reputational risk, operational risk and risks from adverse fluctuations in interest rates and inflation and/or deflation. Management is responsible for the day-to-day management of risks faced by our company, while the board of directors currently has responsibility for the oversight of risk management. In its risk oversight role, the board of directors seeks to ensure that the risk management processes designed and implemented by management are adequate. The board of directors also reviews with management our strategic objectives which may be affected by identified risks, our plans for monitoring and controlling risk, the effectiveness of such plans, appropriate risk tolerance and our disclosure of risk. Following the consummation of this offering, our audit committee will be responsible for periodically reviewing with management, internal audit and independent auditors the adequacy and effectiveness of our policies for assessing and managing risk. The other committees of the board of directors will also monitor certain risks related to their respective committee responsibilities. All committees will report to the full board as appropriate, including when a matter rises to the level of a material or enterprise level risk.
 
Code of Ethics
 
In connection with the consummation of this offering, we plan to adopt an amended written code of business conduct and ethics, to be known as our code of conduct, which will apply to our chief executive officer, our chief financial officer, our chief accounting officer and all persons providing similar functions. Our code of conduct will be available on our Internet website, www.bbrg.com. Our code of conduct may also be obtained by contacting investor relations at (614) 326-7944. Any amendments to our code of conduct or waivers from the provisions of the code for our chief executive officer, our chief financial officer and our chief accounting officer will be disclosed on our Internet website promptly following the date of such amendment or waiver. The inclusion of our web address in this prospectus does not include or incorporate by reference the information on our web site into this prospectus.


77


Table of Contents

 
Compensation Discussion and Analysis
 
Introduction
 
This Compensation Discussion and Analysis (“CD&A”) provides an overview of our executive compensation program, together with a description of the material factors underlying the decisions that resulted in the compensation provided to our Chief Executive Officer, Chief Financial Officer and the other executive officers who were the highest paid during the fiscal year ended December 27, 2009 (collectively, the “named executive officers”), as presented in the tables which follow this CD&A. This CD&A contains statements regarding our performance targets and goals. These targets and goals are disclosed in the limited context of our compensation program and should not be understood to be statements of management’s expectations or estimates of financial results or other guidance. We specifically caution investors not to apply these statements to other contexts.
 
Objective of Compensation Policy
 
The objective of the Company’s compensation policy is to provide a total compensation package to each named executive officer that will enable us to:
 
  •  attract, motivate and retain outstanding individual named executive officers;
 
  •  reward named executive officers for attaining desired levels of profit and shareholder value; and
 
  •  align the financial interests of each named executive officer with the interests of our shareholders to encourage each named executive officer to contribute to our long-term performance and success.
 
Overall, our compensation program is designed to reward individual and Company performance. As discussed further below a significant portion of named executive officer compensation is comprised of a combination of annual cash bonuses, which reward annual Company and executive performance, and equity compensation, which rewards long-term Company and executive performance. We believe that by weighting total compensation in favor of the bonus and long-term incentive components of our total compensation program, we appropriately reward individual achievement while at the same time providing incentives to promote Company performance. We also believe that salary levels should be reflective of individual performance and therefore factor this into the adjustment of base salary levels each year.
 
Process for Setting Total Compensation
 
Generally, our overall compensation package for named executive officers is administered and determined by our Compensation Committee, comprised of three current non-employee directors. To the extent required following the consummation of our initial public offering, the members of our Compensation Committee may change in order to ensure compliance with stock exchange requirements and securities laws and regulations.
 
The Company sets annual base salaries, cash bonuses, and equity-based awards for each named executive officer at levels it believes are appropriate considering each named executive officer’s annual review, the awards and compensation paid to the named executive officer in past years, and progress toward or attainment of previously set personal and corporate goals and objectives, including attainment of financial performance goals and such other factors as the Compensation Committee deems appropriate and in our best interests and the best interests of our shareholders. These goals and objectives are discussed more fully below under the headings “Annual Bonus Compensation” and “Equity Compensation.”
 
The Compensation Committee may also, from time to time, consider recommendations from the Chief Executive Officer regarding total compensation for named executive officers, however no such recommendations were made for fiscal year 2009. The Compensation Committee does not rely on predetermined formulas or a limited set of criteria when it evaluates the performance of the Chief Executive Officer and our other named executive officers. The Committee may accord different weight at different times to different factors for each named executive officer.


78


Table of Contents

Elements of Compensation
 
Our compensation program for named executive officers consists of the following elements of compensation, each described in greater depth below:
 
  •  Base salaries.
 
  •  Annual cash bonuses.
 
  •  Equity-based incentive compensation.
 
  •  Severance and change-in-control benefits.
 
  •  Perquisites.
 
  •  General benefits.
 
The Company provides few personal benefits to named executive officers, and what personal benefits are provided are generally considered related to each named executive officer’s performance of his duties with the Company. The Company may also enter into employment agreements with named executive officers to provide severance benefits as a recruitment and retention mechanism. Currently, the Company is a party to an employment agreement with Mr. Mohseni, entered into at the time of his hire in 2007, which provides for severance benefits as described more fully under the heading “Potential Payments upon Termination or Change in Control,” below. Finally, named executive officers participate in the Company’s health and benefit plans, and are entitled to vacation and paid time off based on the Company’s general vacation policies.
 
Employment Agreement
 
The Company does not have any general policies regarding the use of employment agreements, but may, from time to time, enter into such a written agreement to reflect the terms and conditions of employment of a particular named executive officer, whether at the time of hire or thereafter. For example, the Company entered into an employment agreement with Mr. Mohseni at the time of his hire in order to attract Mr. Mohseni to transition from his role as a non-employee board member to a full time chief executive officer. The Company viewed such a negotiated arrangement as a meaningful recruitment and retention mechanism for Mr. Mohseni. In addition, the Company is currently negotiating, and expects to enter into, a written employment agreement with Mr. O’Connor in order to continue to retain Mr. O’Connor as a member of the Company’s senior management team.
 
Base Salary
 
We pay base salaries because salaries are essential to recruiting and retaining qualified employees. Base salaries also create a performance incentive in the form of potential salary increases. Except with respect to Mr. Mohseni, whose base salary is set pursuant to his employment agreement, base salaries are initially set by the Compensation Committee. These salary levels are set based on the named executive officer’s experience and performance with previous employers and negotiations with individual named executive officers. Thereafter, the Compensation Committee may increase base salaries each year based on its subjective assessment of the Company’s and the individual executive officer’s performance and his or her experience, length of service and changes in responsibilities. Included in this subjective determination is Compensation Committee’s evaluation of the development and execution of strategic plans, the exercise of leadership, and involvement in industry groups. The weight given such factors by the Compensation Committee may vary from one named executive officer to another.
 
Mr. Mohseni’s employment agreement provides him with an annual base salary of $518,000. Mr. Mohseni’s base salary has not been modified since his hire in 2007. The Company determined, at the time of Mr. Mohseni’s hire, that a commitment to pay base salary to him at this level was necessary to recruit him to join the Company.
 
Mr. O’Connor’s base salary for 2009 was $206,000, Mr. Doody’s base salary for 2009 was $100,000, each of Mr. O’Malley and Mr. Moser had base salaries in 2009 of $185,000 and Mr. Dee’s base salary was $165,000 in 2009. Mr. Doody’s base salary for 2009 was decreased from $225,000 in 2008 to $100,000 in connection with his transition from President of the Company to Chairman of the Board.


79


Table of Contents

In lieu of providing small cost-of-living base salary increases for 2010 for the named executive officers other than Mr. Mohseni, the Compensation Committee elected to pay the amount of such cost-of-living increases to the named executive officers in the form of a lump sum discretionary bonus in 2009. Such bonuses are reported in the “Bonus” column of the Summary Compensation Table, below.
 
Annual Bonus Compensation
 
In line with our strategy of rewarding performance, a significant part of the Company’s executive compensation philosophy is the payment of cash bonuses to named executive officers based on an annual evaluation of individual and Company performance, considering several factors as discussed below. Except with respect to Mr. Mohseni, whose target bonus is set at 30% of his base salary pursuant to his employment agreement, the Compensation Committee establishes target bonuses (the amount each named executive officer may receive if performance goals and objectives are met) for each named executive officer at the beginning of the fiscal year. The target bonuses are set at levels the Compensation Committee believes will provide a meaningful incentive to named executive officers to contribute to the Company’s financial performance.
 
In 2009, the board of directors determined that each named executive officer’s bonus would be determined based primarily on the achievement of Company earnings before interest, taxes, depreciation and amortization plus the sum of asset impairment charges, pre-opening costs, management and board of director fees and expenses as well as certain non-cash adjustments, as defined in the credit agreement governing our existing senior credit facilities (Company EBITDA). For 2009, the Compensation Committee determined to pay bonuses at the target levels if Company EBITDA met or exceeded $30.4 million.
 
We use Company EBITDA, together with financial measures prepared in accordance with GAAP, such as revenue and cash flows from operations, to assess our historical and prospective operating performance and to enhance our understanding of our core operating performance. Additionally, we use Company EBITDA to measure our compliance with various financial covenants pursuant to our credit agreement. We also use Company EBITDA internally to evaluate the performance of our personnel and also as a benchmark to evaluate our operating performance or compare our performance to that of our competitors. The use of Company EBITDA as a performance measure permits a comparative assessment of our operating performance relative to our performance based on our GAAP results, while isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies.
 
Target and actual bonuses for 2009 paid to each of the named executive officers are shown in the table below. The actual bonus amounts are also included in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table, below.
 
Annual Cash Bonuses
 
                 
 
    Target
       
    Award
    Actual Award
 
Name
  ($)     ($)  
Saed Mohseni
    155,400       62,160  
James J. O’Connor
    75,000       30,000  
Brian O’Malley
    70,000       28,000  
Michael Moser
    70,000       28,000  
Ronald F. Dee
    35,000       14,000  
Alton F. Doody, III
    100,000       40,000  
 
Although the Company exceeded its designated EBITDA target for 2009 by approximately $8.4 million, the Company exercised its discretion to pay bonuses at below 100% of target in recognition of the challenges of the macroeconomic environment, the need to maintain adequate cash reserves and to avoid large cash outlays that may not reflect the Company’s long-term incentive goals.


80


Table of Contents

In addition, as noted above, in lieu of small cost-of-living base salary increases in 2010 for the named executive officers other than Mr. Mohseni, the Compensation Committee elected to pay the amount of such cost-of-living increases to the named executive officers in the form of a lump sum discretionary bonus in late 2009. The amount of such discretionary bonuses paid to the named executive officers is as follows: $9,270 for Mr. O’Connor, $9,250 for Mr. O’Malley, $6,475 for Mr. Moser, $4,950 for Mr. Dee and $0 for Mr. Doody.
 
Equity Compensation
 
We pay equity-based compensation to our named executive officers because it provides a vital link between the long-term results achieved for our shareholders and the rewards provided to named executive officers, thereby ensuring that such officers have a continuing stake in our long-term success. Equity-based compensation is paid in the form of stock options.
 
The Company adopted the 2006 Plan in order to provide an incentive to employees selected by the board of directors for participation.
 
In 2009, the Company decided to make grants of options under the 2006 Plan to the majority of the Company’s existing optionholders because it believed that the Company had performed well during a challenging economic environment and that the granting of such options should provide its employees holding options an opportunity to share in the Company’s success provided they continue to contribute to such success. The Company determined that each of the named executive officers, other than Mr. Mohseni and Mr. Doody, would receive a small grant of options under the 2006 Plan. The Company determined that no additional grant of options should be made for Mr. Mohseni and Mr. Doody because it believed each of them had sufficient equity holdings to align their interests with those of our other shareholders.
 
Options held by each of the named executive officers (and certain of the Company’s other salaried employees) ordinarily vest over a period of four years, subject to the applicable named executive officer remaining employed through each vesting date. However, in the event the Company undergoes a public offering in which the Company and any participating selling shareholders receive aggregate net proceeds of at least $50.0 million or the majority of the Company’s stock or assets are sold in a transaction approved by Holdings, the options held by the named executive officers while employed are subject to accelerated vesting in the discretion of the board of directors upon the achievement of certain net proceeds and internal rate of return thresholds.
 
However, as a retention method and in order to ensure each named executive officer’s interests are aligned with those of the sponsors, the named executive officers do not have the right to exercise their vested options unless and until the sponsors attain designated returns on their investment, measured based on the sponsors’ net proceeds and internal rate of return. Accordingly, to the extent the sponsors sell their securities in connection with an approved sale or public offering, any vested options only become exercisable in the amounts set forth below in the event that (i) net proceeds equal or are in excess of the multiple (set forth in the table below) of the sponsors’ initial investment and (ii) the sponsors achieve an internal rate of return equal to or in excess of the target set forth in the table below (unless the board of directors exercises its discretion under the plan to permit further exercisability upon such an event):
 
                 
 
Percentage of Option Exercisable
  Net Proceeds Multiple     IRR Target  
 
25%
    2       10 %
50%
    2       20 %
75%
    2       30 %
100%
    3       40 %
 
For purposes of determining the exercisable portion of a named executive officer’s option, “net proceeds” generally means the amount received by the sponsors, including the majority of the fees they received pursuant to the management agreements between each sponsor and the Company, less their selling or transaction expresses. “Internal rate of return” means the rate of return the sponsors receive on their investment in the Company from such net proceeds as a result of a public offering or approved sale and the net proceeds therefrom.


81


Table of Contents

The board of directors has determined, in its discretion, that in the event the public offering price of this offering results in the achievement of an “internal rate of return” to our private equity sponsors of at least 30% upon the consummation of this offering, (i) each outstanding option award shall be deemed to have vested in a percentage equal to the greater of 75% or the percentage of the option award already vested as of that date, (ii) each outstanding option award shall be deemed 75% exercisable; and (iii) for each additional percentage point of “internal rate of return” achieved by our private equity sponsors above 30%, an additional 2.5% of each outstanding option award shall be deemed vested and exercisable, up to an aggregate of the stated number of shares of common stock subject to the option award upon achievement of an “internal rate of return” by our private equity sponsors of 40%.
 
For purposes of this section, the Company has assumed that its board of directors will approve full vesting and exercisability of the outstanding stock options, as permitted under the 2006 Plan. Accordingly, as reported below under the heading “Potential Payments upon Termination or Change in Control,” the amount each named executive officer would be entitled to receive with respect to his options, assumes that full vesting occurred on the last day of our fiscal year, December 27, 2009, with the value computed based on our expected offering price.
 
Because our offering price may fluctuate, the table below provides an overview of the potential values that could be received by our named executive officers with respect to their options based on a range of share prices and assuming full vesting and exercisability:
 
                         
 
Name
  Price 1     Price 2     Price 3  
Saed Mohseni
                       
James J. O’Connor
                       
Brian O’Malley
                       
Michael Moser
                       
Ronald F. Dee
                       
Alton F. Doody, III
                       
 
Severance and Transaction-Based Benefits
 
Except with respect to Mr. Mohseni, the Company does not have any agreements, plans or programs for the payment of severance to any named executive officers. As a recruitment incentive for Mr. Mohseni, in negotiating his employment agreement in 2007, the Company agreed to pay two years of severance to Mr. Mohseni in the event of his termination of employment in limited circumstances. The Company believed this level of severance benefit provided Mr. Mohseni with the assurance of security if his employment is terminated for reasons beyond his control or the material terms of his employment are changed by the Company without his consent.
 
In addition, pursuant to Mr. Mohseni’s employment agreement upon an approved sale or other transaction in which the sponsors sell 50% or more of their Company securities while Mr. Mohseni is employed by the Company, Mr. Mohseni is entitled to a payment to the extent the amount he has then received or is entitled to receive with respect to his options does not exceed $3.0 million. Such payment is generally calculated as the lesser of (a) $3.0 million over the amounts Mr. Mohseni receives or is entitled to receive with respect to his options or (b) the excess of the net proceeds received by the sponsors over the amount necessary for them to receive a 5% internal rate of return.
 
Finally, as described above, outstanding options for the named executive officers may accelerate vesting upon the occurrence of an approved sale or public offering. The amount each named executive would be entitled to receive in such event is reported below under the heading “Potential Payments upon Termination or Change in Control.”
 
Perquisites
 
In 2009, we provided certain personal-benefit perquisites to named executive officers as summarized below. The aggregate incremental cost to the Company of the perquisites received by each of the named executive officers in


82


Table of Contents

2009 did not exceed $10,000 and accordingly, such benefits are not included in the Summary Compensation Table below.
 
Car Allowance.  The Company provided car allowances of $4,800 for Messrs. O’Malley and Moser and $4,200 for Mr. Doody in 2009. The Company views car allowances as a meaningful benefit to our named executive officers who are required to travel by car in the performance of their duties for the Company.
 
Complimentary Dining.  The Company provides the named executive officers with complimentary dining privileges at any of our restaurants. The Company views complimentary dining privileges as a meaningful benefit to our named executive officers as it is important for named executive officers to experience our product in order to better perform their duties for the Company.
 
General Benefits
 
The following are standard benefits offered to all eligible Company employees, including named executive officers.
 
Retirement Benefits.  The Company maintains a tax-qualified 401(k) savings plan. However, our named executive officers do not participate in our 401(k) savings plan.
 
Medical, Dental, Life Insurance and Disability Coverage.  Active employee benefits such as medical, dental, life insurance and disability coverage are available to all eligible employees, including our named executive officers.
 
Other Paid Time-Off Benefits.  We also provide vacation and other paid holidays to all employees, including the named executive officers, which our Compensation Committee has determined to be appropriate for a Company of our size and in our industry.
 
Tax and Accounting Considerations
 
U.S. federal income tax generally limits the tax deductibility of compensation we pay to our Chief Executive Officer and certain other highly compensated executive officers to $1.0 million in the year the compensation becomes taxable to the executive officers. There is an exception to the limit on deductibility for performance-based compensation that meets certain requirements. Although deductibility of compensation is preferred, tax deductibility is not a primary objective of our compensation programs. Rather, we seek to maintain flexibility in how we compensate our executive officers so as to meet a broader set of corporate and strategic goals and the needs of shareholders, and as such, we may be limited in our ability to deduct amounts of compensation from time to time. Accounting rules require us to expense the cost of our stock option grants. Because of option expensing and the impact of dilution on our shareholders, we pay close attention to, among other factors, the type of equity awards we grant and the number and value of the shares underlying such awards.


83


Table of Contents

Summary Compensation Table
 
                                                                 
 
                                  Non-Equity
             
                      Stock
    Option
    Incentive Plan
    All Other
    Total
 
          Salary
    Bonus
    Awards
    Awards
    Compensation
    Compensation
    Compensation
 
Name & Principal Position
  Year     ($)     ($)(1)     ($)     ($)(2)     ($)     ($)(3)     ($)  
Saed Mohseni
    2009       518,000                         62,160             580,160  
President, Chief Executive Officer and Director
                                                               
James J. O’Connor
    2009       206,000       9,270             2,526       30,000             247,796  
Chief Financial Officer, Treasurer and Secretary
                                                               
Brian O’Malley
    2009       185,000       9,250             2,526       28,000             224,776  
Senior Vice President of Operations, BRIO
                                                               
Michael Moser
    2009       185,000       6,475             2,526       28,000             222,001  
Senior Vice President of Operations, BRAVO!
                                                               
Ronald F. Dee
    2009       165,000       4,950             1,684       14,000             185,634  
Senior Vice President — Development
                                                               
Alton F. Doody, III(4)
    2009       186,500                         40,000             226,500  
Chairman, Board of Directors
                                                               
 
(1) The amounts reported in this column represent discretionary bonuses paid to certain named executive officers in 2009 in lieu of cost-of-living increases in base salaries for 2010.
 
(2) Amounts in this column represent the grant date fair value, calculated pursuant to ASC 718, of stock options granted in 2009. See Note 11 to our audited consolidated financial statements for a discussion of the calculation of grant date fair value.
 
(3) Certain personal benefits provided to certain of our named executive officers, including car allowances and complimentary dining, are not required to be disclosed in the table because the amount of such benefits do not exceed the applicable disclosure thresholds. See “— Perquisites.”
 
(4) Pursuant to SEC regulations, Mr. Doody is included in the Summary Compensation Table because he served as an executive officer of the Company during 2009 and his total compensation exceed that of one of the other named executive officers.
 
Grants of Plan-Based Awards Table
 
                                                                         
                                Exercise
  Grant Date
        Estimated Future Payouts Under
              or Base
  Fair Value
        Non-Equity Incentive Plan
  Estimated Future Payouts Under
  Price of
  of Stock and
        Awards(1)   Equity Incentive Plan Awards(2)(3)   Option
  Option
    Grant
  Threshold
  Target
  Maximum
  Threshold
  Target
  Maximum
  Awards
  Awards
Name
  Date   ($)   ($)   ($)   (#)   (#)   (#)   ($/SH)(3)   ($)