AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 3, 1996
REGISTRATION NO. 333-2906
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
FINE HOST CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5812 06-1156070
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
-------------------
3 GREENWICH OFFICE PARK
GREENWICH, CONNECTICUT 06831
(203) 629-4320
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
-------------------
RICHARD E. KERLEY
PRESIDENT
FINE HOST CORPORATION
3 GREENWICH OFFICE PARK
GREENWICH, CONNECTICUT 06831
(203) 629-4320
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-------------------
Copies to:
<TABLE>
<S> <C>
STEVEN J. GARTNER, ESQ. MARK G. BORDEN, ESQ.
WILLKIE FARR & GALLAGHER BRENT B. SILER, ESQ.
ONE CITICORP CENTER HALE AND DORR
153 EAST 53RD STREET 60 STATE STREET
NEW YORK, NEW YORK 10022 BOSTON, MASSACHUSETTS 02109
(212) 821-8000 (617) 526-6000
</TABLE>
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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 to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same
offering: / / _______________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / / _______________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
<TABLE><CAPTION>
CALCULATION OF REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to be Offering Price Aggregate Offering Amount of
Securities to be Registered Registered (1) Per Share(2) Price(2) Registration Fee
<S> <C> <C> <C> <C>
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Common Stock, $.01 par value 4,634,500 Shares $14.00 64,883,000 $22,374(3)
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(1) Includes 604,500 shares issuable upon exercise of the Underwriters' over-allotment option.
(2) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457.
(3) Fee in the amount of $22,754 was previously paid.
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</TABLE>
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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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
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<PAGE>
FINE HOST CORPORATION
Cross-reference sheet furnished pursuant to Item 501(b) of Regulation S-K
showing location in the Prospectus of information required by Items of Form S-1.
<TABLE><CAPTION>
FORM S-1 ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
------------------------------------------- -------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus..... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus.............................. Inside Front and Outside Back Cover Pages
of Prospectus
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............... Prospectus Summary; Risk Factors
4. Use of Proceeds............................ Use of Proceeds
5. Determination of Offering Price............ Outside Front Cover Page of Prospectus;
Underwriting
6. Dilution................................... Dilution
7. Selling Security Holders................... Principal and Selling Stockholders; Certain
Transactions
8. Plan of Distribution....................... Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to be
Registered................................. Description of Capital Stock
10. Interests of Named Experts and Counsel..... Legal Matters
11. Information with Respect to the Prospectus Summary; Risk Factors; Dividend
Registrant................................. Policy; Capitalization; Selected
Consolidated Financial Data; Unaudited Pro
Forma Consolidated Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management; Certain
Transactions; Principal and Selling
Stockholders; Description of Capital
Stock; Additional Information; Financial
Statements
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities........................... Not Applicable
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 3, 1996
4,030,000 SHARES
[LOGO]
FINE HOST CORPORATION
COMMON STOCK
Of the 4,030,000 shares of Common Stock being offered hereby, 2,890,218
shares are being sold by Fine Host Corporation and 1,139,782 shares are being
sold by the Selling Stockholders. See "Principal and Selling Stockholders." The
Company will not receive any of the proceeds from the sale of shares by the
Selling Stockholders.
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering price
will be between $12.00 and $14.00 per share. See "Underwriting" for a discussion
of factors to be considered in determining the initial public offering price.
The Common Stock has been approved for quotation on the Nasdaq National Market
under the symbol "FINE."
SEE "RISK FACTORS" COMMENCING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE><CAPTION>
Price Underwriting Proceeds to Proceeds to Selling
to Public Discount (1) Company (2) Stockholders
<S> <C> <C> <C> <C>
Per Share.................. $ $ $ $
Total (3).................. $ $ $ $
</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated at $1,050,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 604,500 additional shares of Common Stock solely to cover
over-allotments, if any. If the Underwriters exercise this option in full,
the Price to Public will total $ , the Underwriting Discount will
total $ and the Proceeds to Company will total $ . See
"Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the office of Montgomery Securities on or about , 1996.
-------------------
MONTGOMERY SECURITIES OPPENHEIMER & CO., INC.
, 1996
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
[LOGO]
[Graphics]
The Company intends to distribute to its stockholders annual reports
containing audited financial statements and quarterly reports containing
unaudited interim financial information for the first three quarters of each
fiscal year of the Company.
-------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and Consolidated Financial Statements, including the notes
thereto, appearing elsewhere in this Prospectus. Unless the context indicates or
requires otherwise, references in this Prospectus to the "Company" or "Fine
Host" are to Fine Host Corporation and its subsidiaries. Unless otherwise
indicated, all information in this Prospectus (a) assumes that the Underwriters'
over-allotment option is not exercised and (b) has been adjusted to give effect
to (i) a 7-for-1 stock split effected in the form of a stock dividend prior to
the closing of the offering made by this Prospectus (the "Offering"), (ii) the
automatic conversion upon the closing of the Offering of all outstanding shares
of Series A Convertible Preferred Stock into an aggregate of 939,197 shares of
Common Stock (the "Preferred Stock Conversion"), (iii) the exercise immediately
prior to the closing of the Offering of warrants to purchase 123,585 shares of
Common Stock which will be sold by certain Selling Stockholders in the Offering
(the "Warrant Exercise"), (iv) the repurchase by the Company upon the closing of
the Offering of warrants to purchase 593,453 shares of Common Stock and (v) the
amendment of the Company's Restated Certificate of Incorporation upon the
closing of the Offering.
THE COMPANY
Fine Host Corporation is a leading contract food service management company,
providing food and beverage concession and catering services at more than 190
facilities located in 32 states, primarily through multi-year contracts. Fine
Host targets four distinct markets within the contract food service industry:
the recreation and leisure market (arenas, stadiums, amphitheaters, civic
centers and other recreational facilities); the convention center market; the
education market (colleges, universities and public and private schools); and
the corporate dining market (corporate cafeterias, office complexes and
manufacturing plants). The Company is the exclusive provider of food and
beverage services at substantially all of the facilities it serves.
The Company estimates that the United States contract food service industry
had annual revenues of approximately $96 billion in 1995, of which approximately
$60 billion was in markets in which the Company presently competes. In this
industry, the facility owner, rather than the food service provider, is
primarily responsible for attracting patrons. As a result, the Company does not
incur the expense of marketing to the broader public and is able to focus on
operations, client satisfaction, account retention and new account development.
Fine Host was founded as a start-up Company in 1985 by experienced contract
food service industry executives and has grown to a business with net sales of
$95.5 million in fiscal 1995. Throughout its history, the Company has focused
its efforts exclusively on the contract food service industry, unlike most of
its national competitors. The Company achieved early success in the industry by
focusing on facilities generating $1 million to $4 million in annual food and
beverage sales. The Company believes that these "middle-market" facilities
generally provide greater profit margins and require less capital investment
than larger facilities. Middle-market facilities serviced by the Company include
the Albuquerque Convention Center in Albuquerque, New Mexico; the Bayside
Exposition Center in Dorchester, Massachusetts; the Pyramid Arena in Memphis,
Tennessee; and Xavier University in New Orleans, Louisiana. This middle-market
focus has been supplemented by several contracts at larger facilities such as
Joe Robbie Stadium (home of the Miami Dolphins and the Florida Marlins and the
site of two Super Bowls) and the Orange County Convention Center in Orlando,
Florida (one of the largest convention centers in the world). Servicing these
larger facilities gives the Company high visibility in the industry and
strengthens its credibility when bidding on new contracts or pursuing
acquisitions.
3
<PAGE>
Fine Host has developed and implemented various operating strategies and
systems, including labor and product cost management, quality control programs,
facility-design and customized menu design capabilities and extensive on-site
marketing support. The Company believes that these operating techniques have led
to significant increases in sales at many of the facilities it serves. The
Company's operating strategies and systems are implemented by localized
management teams that are given the freedom and authority to make operational
decisions. The Company emphasizes flexibility and responsiveness in consistently
providing high quality and client satisfaction while tightly controlling labor
and overhead costs at the local level. As the Company has grown, it has been
able to achieve economies of scale and develop a strong corporate image and
national reputation.
The Company has increased its net sales and profits by successfully bidding
on new targeted accounts, by renewing existing contracts and by making
acquisitions. The Company believes its ability to obtain new contracts is
enhanced by the experience of its management team, its geographic diversity and
market penetration, its recent expansion into the education and corporate dining
markets and its establishment of an international presence. The Company believes
that its strong operating performance and focus on client satisfaction have
enabled it to retain and renew contracts. Fine Host has retained the food and
beverage business at each of the 24 public convention centers at which it has
been awarded a contract without the loss of any such contract, and has renewed
each of the 12 convention center contracts that have come up for renewal. Since
1993, the Company has completed four acquisitions of companies in the contract
food service industry, which have accounted for a significant part of the
Company's growth. Fine Host believes there are other opportunities to expand its
business through acquisition, particularly in the education and corporate dining
markets, as well as in markets where the Company does not primarily operate,
such as hospitals, healthcare facilities and correctional facilities. The
Company believes that it can integrate acquired companies successfully without a
significant increase in general and administrative expenses. See "Risk
Factors--Risk of Inability to Operate or Integrate Acquired Businesses; Expenses
Associated with Acquisition Strategy" and "Business--Growth Opportunities."
The Company was incorporated in Delaware in November 1985 and its principal
executive offices are located at 3 Greenwich Office Park, Greenwich, Connecticut
06831. Its telephone number is (203) 629-4320.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............... 2,890,218 shares
Common Stock offered by the Selling
Stockholders...................................... 1,139,782 shares
Common Stock to be outstanding after the
Offering.......................................... 6,034,018 shares(1)
To repay outstanding indebtedness, to
repurchase outstanding warrants, for
potential acquisitions and for working
capital and general corporate purposes.
Use of Proceeds................................... See "Use of Proceeds."
Proposed Nasdaq National Market symbol............ FINE
</TABLE>
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(1) Includes 6,918 shares of Common Stock issuable to certain directors of the
Company upon the closing of the Offering (assuming an initial public
offering price of $13.00 per share). Does not include 143,444 shares of
Common Stock issuable upon the exercise of outstanding stock options,
133,756 shares of Common Stock issuable upon the exercise of outstanding
warrants and 276,750 shares of Common Stock subject to stock options to be
granted to employees of the Company upon the closing of the Offering. An
aggregate of 219,832 additional shares of Common Stock has been reserved for
future grants under the Company's stock plans. See "Management--Compensation
Pursuant to Plans" and "Description of Capital Stock--Warrants."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE><CAPTION>
THREE MONTHS ENDED
FISCAL YEARS (1) ------------------------------------
--------------------------------------------------------------- PRO FORMA
PRO FORMA MARCH 29 MARCH 27, MARCH 27,
1991 1992 1993 1994 1995 1995 (2)(3) 1995 1996 1996 (3)(4)
------- ------- ------- -------- -------- ----------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AND CONTRACT DATA)
STATEMENT OF INCOME
DATA:
Net sales.............. $35,471 $39,429 $61,212 $ 82,119 $ 95,462 $ 117,718 $ 23,429 $ 24,160 $ 28,201
Gross profit........... 3,176 4,031 5,396 8,286 9,886 11,639 2,134 2,530 2,819
Income from
operations............. 795 949 2,747 4,880 6,260 5,933 1,044 1,194 1,090
Net income............. $ 215 $ 340 $ 1,084 $ 1,866 $ 2,196 $ 1,414 $ 208 $ 259 $ 70
Net income (loss) per
share assuming full
dilution (5)........... $ 0.10 $ 0.17 $ 0.28 $ 0.49 $ 0.39 $ 0.15 $ 0.04 $ (0.22) $ (0.28)
Average number of
shares of Common Stock
outstanding assuming
full dilution.......... 2,048 2,048 3,087 3,287 3,330 3,356 3,158 3,510 3,523
Supplemental pro forma
net income (loss) per
share assuming full
dilution (6)........... $ 0.39 $ (0.12)
SELECTED OPERATING
DATA:
EBITDA (7)............. $ 1,932 $ 2,154 $ 4,631 $ 7,563 $ 10,416 $ 10,536 $ 2,004 $ 2,199 $ 2,247
Net cash provided by
(used in) operating
activities............. $ 1,099 $ 1,676 $ 3,765 $ 2,570 $ 2,971 $ (264) $ 1,630
Net cash used in
investing
activities............. $(2,371) $(2,295) $(7,669) $ (9,046) $ (8,124) $ (10) $ (6,725)
Net cash provided by
financing
activities............. $ 1,852 $ 463 $ 2,737 $ 7,632 $ 4,255 $ 525 $ 5,823
Total contracts (at end
of period) (8)........ 21 28 42 81 95 156 81 156 156
</TABLE>
<TABLE><CAPTION>
MARCH 27, 1996
----------------------------
ACTUAL AS ADJUSTED (9)
------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)........................................... $(6,595) $ (6,295)
Total assets........................................................ 73,757 74,057
Total debt.......................................................... 36,599 5,697
Stockholders' equity................................................ 10,971 44,635
</TABLE>
- ------------
(1) The Company's fiscal year ends on the last Wednesday of December. The 1992
fiscal year was a 53-week period.
(2) Gives effect to the following transactions and events as if they had
occurred as of the beginning of the fiscal year ended December 27, 1995: (i)
the acquisition of Northwest Food Service, Inc. ("Northwest"), acquired in
June 1995, and Sun West Services, Inc. ("Sun West"), acquired in March 1996;
(ii) the adjustment to reflect interest expense as if borrowings to purchase
Northwest and Sun West had taken place at the beginning of the fiscal year;
and (iii) the related tax effects of the foregoing.
(3) Subsequent to the acquisition of Northwest, the Company terminated certain
of Northwest's unprofitable food service contracts. The Company also
eliminated certain redundant operations through closings of offices and
termination of excess personnel in connection with the integration of
Northwest and is in the process of doing so with respect to Sun West. Pro
forma amounts do not give effect to these actions.
(4) Gives effect to the following transactions and events as if they had
occurred as of the beginning of the period ended March 27, 1996: (i) the
acquisition of Sun West; (ii) the adjustment to reflect interest expense as
if borrowings to purchase Sun West had taken place at the beginning of the
period; and (iii) the related tax effects of the foregoing.
(5) Net income (loss) per share assuming full dilution is calculated based upon
net income less accretion to the redemption value of warrants issued in
fiscal 1993. Accretion to redemption value of warrants was $230 ($0.07 per
share), $250 ($0.08 per share), $900 ($0.27 per share) and $900 ($0.27 per
share) for fiscal 1993, 1994, 1995 and pro forma 1995 and $72 ($0.02 per
share), $1,040 ($0.30 per share) and $1,040 ($0.30 per share) for the three
months ended March 29, 1995, March 27, 1996 and pro forma March 27, 1996,
respectively.
(6) Supplemental pro forma net income (loss) per share assuming full dilution is
calculated based upon (i) net income adjusted for the reduction in interest
expense resulting from the application of the net proceeds of the Offering
to reduce indebtedness of the Company and for the accretion to the
redemption value of warrants issued in fiscal 1993 and (ii) the average
number of shares of Common Stock outstanding assuming full dilution, as
adjusted to reflect the sale by the Company of a number of shares in the
Offering resulting in net proceeds sufficient to pay such indebtedness (at
an assumed initial public offering price of $13.00 per share). See "Use of
Proceeds."
(7) Represents earnings before interest expense, income tax expense and
depreciation and amortization ("EBITDA"). EBITDA is not a measurement in
accordance with generally accepted accounting principles ("GAAP") and should
not be considered an alternative to, or more meaningful than, income from
operations, net income or cash flows as defined by GAAP or as a measure of
the Company's profitability or liquidity. The Company has included
information concerning EBITDA herein because management believes EBITDA
provides useful information regarding the cash flow of the Company and its
ability to service debt.
(8) Represents total contracts other than contracts for one-time or special
events.
(9) Gives effect to the Preferred Stock Conversion, the Warrant Exercise, the
sale of 2,890,218 shares of Common Stock offered by the Company hereby at an
assumed initial public offering price of $13.00 per share and the
application of the estimated net proceeds therefrom. See "Use of Proceeds."
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, prospective
investors should carefully consider the following risk factors in evaluating an
investment in the Company and its business before purchasing any shares of
Common Stock offered hereby.
SIGNIFICANT VARIABILITY OF QUARTERLY RESULTS
The Company's revenues and operating results have varied, and are expected
to continue to vary, significantly from quarter to quarter as a result of
seasonal patterns, the unpredictability in the number, timing and type of new
contracts, the timing of contract expirations and special one-time events at
facilities served by the Company. The Company's business is seasonal in nature,
with many recreation and leisure facilities experiencing slack periods in March,
April and May and convention centers generally hosting a lower number of
conventions from May through September. Results of operations for any particular
quarter may not be indicative of results of operations for future periods. There
can be no assurance that future seasonal and quarterly fluctuations will not
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Quarterly Results of Operations."
RISK OF INABILITY TO OPERATE OR INTEGRATE ACQUIRED BUSINESSES; EXPENSES
ASSOCIATED WITH ACQUISITION STRATEGY
A significant portion of the Company's growth to date has been achieved
through acquisitions. The Company acquired Fanfare, Inc. ("Fanfare") in 1993,
Creative Food Management, Inc. ("Creative") in 1994, Northwest Food Service,
Inc. ("Northwest") in 1995 and Sun West Services, Inc. ("Sun West") on March 25,
1996. A key component of the Company's strategy is to continue to pursue
acquisitions. There can be no assurance, however, that the Company will be able
to identify, negotiate and consummate acquisitions or that acquired businesses
can be operated profitably or integrated successfully into the Company's
operations. In addition, acquisitions by the Company are subject to various
risks generally associated with the acquisition of businesses, including the
financial impact of expenses associated with the integration of acquired
businesses. There can be no assurance that the Company's historic or future
acquisitions will not have an adverse impact on the Company's business,
financial condition or results of operations. If suitable opportunities arise,
the Company anticipates that it would finance future acquisitions through
available cash, bank lines of credit or through additional debt or equity
financing. There can be no assurance that such debt or equity financing would be
available to the Company on acceptable terms when, and if, suitable strategic
opportunities arise. If the Company were to consummate one or more significant
acquisitions in which part or all of the consideration consisted of equity,
stockholders of the Company could suffer a significant dilution of their
interests in the Company. In addition, many of the acquisitions the Company is
likely to pursue, if accounted for as a purchase, would result in substantial
amortization charges to the Company. To the extent the Company expands
internationally, the Company will be subject to additional risks of doing
business abroad, including fluctuations in currency exchange rates, difficulties
in obtaining licenses and sourcing products and labor, and economic and
political uncertainties. See "Business--Growth Opportunities."
ADVERSE EFFECTS OF AN INABILITY TO RETAIN EXISTING CONTRACTS AND OBTAIN NEW
CONTRACTS
The Company's success will depend on its ability to retain and renew
existing client contracts and to obtain and successfully negotiate new client
contracts. Certain of the Company's corporate dining contracts, representing
approximately 3.6% of the Company's fiscal 1995 historical net sales, are
terminable after a short notice period. Excluding such contracts terminable on
short notice, contracts representing approximately 6.3% and 7.2% of the
Company's fiscal 1995 historical net sales are
6
<PAGE>
scheduled to expire in fiscal 1996 and fiscal 1997, respectively. There can be
no assurance that the Company will be able to retain and renew existing client
contracts or obtain new contracts or that such contracts will be profitable. The
Company's failure to retain and renew existing contracts or obtain new contracts
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Growth Opportunities."
ADVERSE EFFECTS OF AN INABILITY TO MANAGE GROWTH
Fine Host has experienced rapid growth and expansion, which has resulted in
an increase in the level of responsibility for existing management personnel.
Future growth and expansion could place a significant strain on its personnel
and resources. The Company seeks to manage its current and anticipated growth
through the recruitment of additional management personnel and the
implementation of internal systems and controls. The failure to manage growth
effectively could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business-- Growth
Opportunities."
DEPENDENCE ON CLIENTS; INVESTMENT IN CLIENT CONTRACTS AND ADVANCES TO CLIENTS
The Company depends on municipalities, corporations, educational
institutions and facility owners to attract and retain tenants and users of
their facilities and to operate their facilities on a sound financial and
business basis. The failure of these parties to attract and retain tenants and
users of their facilities could have a material adverse effect on the Company's
business, financial condition and results of operations. In connection with
certain contracts, the Company is required to make an investment in the client's
facilities or make advances to its clients. While these contracts typically
require the client to repay any advance and to reimburse the Company for any
unamortized invested capital in the event the contract terminates or expires,
there can be no assurance that the client will repay such advance or reimburse
the Company for any unamortized invested capital. See "Business--Contracts."
DEPENDENCE ON KEY PERSONNEL
The Company's future success depends to a significant extent on the efforts
and abilities of its executive officers. The loss of the services of certain of
these individuals could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company believes
that its future success also will depend significantly upon its ability to
attract, motivate and retain additional highly skilled managerial personnel.
Competition for such personnel is intense, and there can be no assurance that
the Company will be successful in attracting, assimilating and retaining the
personnel it requires to grow and operate profitably. See "Business-- Employees"
and "Management-- Executive Officers and Directors."
CONSTRAINTS AND EXPENSES ASSOCIATED WITH AN UNAVAILABILITY OF LABOR
From time to time, the Company must hire a large number of qualified,
temporary workers to provide food service at a particular event or events. The
Company may encounter difficulty in hiring sufficient numbers of qualified,
temporary workers to staff these events, which could result in lower sales at
these events, constraints to growth and significant expense or otherwise could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business--Growth Opportunities."
ADVERSE EFFECTS OF COMPETITION
The Company encounters significant competition in each area of the contract
food service market in which it operates. Certain of the Company's competitors
compete with the Company on both a national and international basis and have
significantly greater financial and other resources than the
7
<PAGE>
Company. Competition may result in price reductions, decreased gross margins and
loss of market
share. In addition, existing or potential clients may elect to "self operate"
their food service, eliminating the opportunity for the Company to compete for
the account. There can be no assurance that the Company will be able to compete
successfully in the future or that competition will not have a material adverse
effect on the Company's business, financial condition or results of operations.
See "Business-- Competition."
GOVERNMENT REGULATION
The Company's business is subject to various governmental regulations
incidental to its operations, such as environmental, employment and health and
safety regulations. The Company also holds liquor licenses at many facilities at
which it provides services, and is subject to the liquor license requirements of
the states in which it holds liquor licenses, including "dram-shop" statutes.
"Dram-shop" statutes 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. While the Company maintains
insurance for such liability, there can be no assurance that such insurance will
be adequate to cover any potential liability or that such insurance will
continue to be available on commercially acceptable terms. The loss of one or
more liquor licenses could have a material adverse effect on the Company's
business, financial condition or results of operations. There can be no
assurance that additional federal or state regulation would not limit the
activities of the Company in the future or significantly increase the cost of
regulatory compliance. See "Business--Government Regulation."
RISKS ASSOCIATED WITH GENERAL ECONOMIC CONDITIONS
Although most of the Company's contracts provide for minimum annual price
increases for products and services provided by the Company, the Company could
be adversely impacted during inflationary periods if the rate of contractual
increases are lower than the inflation rate. In addition, a significant
recession could cause users of, and persons attending events held at, facilities
at which the Company operates to cancel, reduce or postpone their use of the
facilities or cause patrons to reduce their spending on food and beverages while
at such facilities.
CONCENTRATION OF STOCK OWNERSHIP
Following the Offering, the officers and directors of the Company will
beneficially own approximately 26% of the outstanding shares of Common Stock
(approximately 24% of the outstanding shares of Common Stock if the
Underwriters' over-allotment option is exercised in full). See "Principal and
Selling Stockholders." Because of such share ownership, these stockholders,
acting in concert, may continue to be able to exercise significant influence
over the election of members of the Company's Board of Directors and other
corporate actions requiring stockholder approval.
SHARES ELIGIBLE FOR FUTURE SALE; POTENTIAL FOR ADVERSE EFFECT ON STOCK PRICE;
REGISTRATION RIGHTS
Sales of a substantial number of shares of Common Stock in the public market
or the prospect of such sales could adversely affect prevailing market prices
for the Common Stock. Of the 6,034,018 shares of Common Stock to be outstanding
after the Offering, the 4,030,000 shares of Common Stock to be sold in the
Offering will be freely tradable without restriction. Of the remaining 2,004,018
outstanding shares of Common Stock, at least 1,906,018 shares will be subject to
lock-up agreements under which the holders of such shares have agreed not to
sell or otherwise dispose of any of their shares for a period of 180 days after
the date of this Prospectus without the prior written consent of Montgomery
Securities. In its sole discretion and at any time without notice, Montgomery
Securities may release all or any portion of the shares subject to the lock-up
agreements. Of the shares not subject to the lock-up agreements, 98,000 will be
available for sale in the public markets immediately after the
8
<PAGE>
Offering. Upon the expiration of the lock-up agreements, an additional 1,635,200
shares of Common Stock will become eligible for sale in the public market,
subject to the provisions of Rules 144(k) and 144 under the Securities Act.
Promptly after the closing of the Offering, the Company intends to file a
registration statement under the Securities Act covering the sale of 619,000
shares of Common Stock reserved for issuance under the Company's existing stock
plans. Upon completion of the Offering, there will be outstanding options to
purchase a total of 420,194 shares of Common Stock. See
"Management--Compensation Pursuant to Plans." The Company has granted certain
stockholders registration rights with respect to approximately 1,309,756 shares
of Common Stock and has agreed to file a shelf registration statement after the
one-year anniversary of the closing of the Offering with respect to 238,000
shares of Common Stock. See "Description of Common Stock--Registration Rights."
The sale of such shares could have a material adverse effect on the Company's
ability to raise capital in the public markets. See "Shares Eligible for Future
Sale."
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BY-LAW PROVISIONS
Effective upon the closing of the Offering, the Company will amend its
Restated Certificate of Incorporation to provide for a classified Board of
Directors and to authorize the issuance of Preferred Stock without stockholder
approval and upon such terms as the Board of Directors may determine. These
provisions could have the effect of making it more difficult for a third party
to acquire, or of discouraging a third party from acquiring or making a proposal
to acquire, a majority of the outstanding stock of the Company and could
adversely affect the prevailing market price of the Common Stock. The rights of
the holders of Common Stock will be subject to, and may be adversely affected
by, the rights of holders of Preferred Stock that may be issued in the future.
The Company has no present plans to issue any shares of Preferred Stock. See
"Description of Capital Stock--Preferred Stock."
IMMEDIATE AND SUBSTANTIAL DILUTION TO NEW INVESTORS
Investors purchasing shares of Common Stock in the Offering will incur
substantial and immediate dilution in the pro forma net tangible book value of
the Common Stock from the initial public offering price and will incur
additional dilution upon the exercise of outstanding stock options. See
"Dilution."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock.
There can be no assurance that an active trading market for the Common Stock
will develop or be sustained following the Offering or that the market price of
the Common Stock will not decline below the initial public offering price. The
initial public offering price will be determined by negotiation between the
Company and the Representatives of the Underwriters based upon several factors
and may not be indicative of future market prices. The price at which the Common
Stock will trade will depend upon a number of factors, including, but not
limited to, the Company's historical and anticipated operating results and
general market and economic conditions, some of which factors are beyond the
Company's control. Factors such as quarterly fluctuations in the Company's
financial and operating results, announcements by the Company or others and
developments affecting the Company, its clients or the industry generally, could
also cause the market price of the Common Stock to fluctuate substantially. In
addition, the stock market has from time to time experienced extreme price and
volume fluctuations. These broad market fluctuations may adversely affect the
market price of the Common Stock. See "Underwriting."
9
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,890,218 shares of
Common Stock offered by it hereby, based upon an assumed initial public offering
price of $13.00 per share, are estimated to be approximately $33.9 million
(approximately $41.2 million if the Underwriters' over-allotment option is
exercised in full). The Company will not receive any proceeds from the sale of
shares of Common Stock by the Selling Stockholders.
The net proceeds of the Offering to be received by the Company (including
the net proceeds to be received by the Company upon the Warrant Exercise) will
be used to repay indebtedness of the Company of approximately $31.2 million at
May 1, 1996, to repurchase outstanding warrants for an aggregate purchase price
of approximately $3.0 million (assuming an initial public offering price of
$13.00 per share), for potential acquisitions and for working capital and
general corporate purposes. If the over-allotment option is exercised, up to
$1.6 million of net proceeds may be used to finance the proposed acquisition of
a contract food service provider operating primarily at educational facilities.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." The Company has no agreement,
understanding or arrangement to acquire or effect any material acquisition. Of
the Company's aggregate indebtedness to be repaid, approximately $24.1 million
is senior indebtedness bearing interest at the prime rate plus 1.25% to 1.50%
per annum, payable to the Company's senior bank lending group and maturing from
1997 to 2002, and $6.5 million consists of subordinated notes with interest at a
fixed rate of 12.79% per annum, maturing from 1998 to 2001 and required to be
prepaid upon the closing of the Offering.
Upon the closing of the Offering, holders of warrants to acquire 296,726.5
shares of Common Stock will be obligated to sell such warrants to the Company at
a price equal to the difference between the assumed initial public offering
price of $13.00 per share and the exercise price for such warrants ($4.93 with
respect to 280,003.5 shares and $.01 with respect to 16,723 shares), multiplied
by the number of shares of Common Stock issuable upon exercise of such warrants.
In addition, the Company will have the right, upon the closing of the Offering,
to repurchase warrants to acquire an additional 296,726.5 shares of Common Stock
on or before June 30, 1996 for an aggregate repurchase price of $500,000. The
Company will repurchase these warrants upon the closing of the Offering.
Pending application of the proceeds as described above, the Company intends
to invest such proceeds in government securities and other short-term
interest-bearing securities.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock and presently
does not intend to declare any cash dividends on the Common Stock in the
foreseeable future. It is the current policy of the Company's Board of Directors
to retain earnings to finance the operations and expansion of the Company's
business. In addition, certain of the Company's financing agreements restrict
the Company's ability to pay dividends to its stockholders and it is anticipated
that future financing agreements will have similar restrictions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
10
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
27, 1996 on an actual basis and as adjusted to give effect to the Preferred
Stock Conversion, the Warrant Exercise, the sale by the Company of the 2,890,218
shares of Common Stock offered by it hereby at an assumed initial public
offering price of $13.00 per share and the application of the estimated net
proceeds therefrom. See "Use of Proceeds." This table should be read in
conjunction with the consolidated financial statements of the Company and notes
thereto appearing elsewhere in this Prospectus.
<TABLE><CAPTION>
MARCH 27, 1996
----------------------------
ACTUAL AS ADJUSTED
------------ ------------
<S> <C> <C>
Short-term obligations:
Current portion of long-term debt................................ $ 4,003 $ --
Current portion of subordinated debt............................. 2,026 2,026
------------ ------------
Total........................................................ $ 6,029 $ 2,026
------------ ------------
------------ ------------
Long-term obligations:
Long-term debt................................................... $ 20,399 $ --
Subordinated debt................................................ 10,171 3,671
------------ ------------
Total........................................................ 30,570 3,671
Stock warrants..................................................... 2,420 --
Stockholders' equity:
Preferred Stock, $.01 par value, 1,000,000 shares authorized(1);
134,171 issued and outstanding actual, none issued and
outstanding as adjusted........................................ 1 --
Common Stock, $.01 par value, 25,000,000 shares authorized(1);
2,074,100 issued and outstanding actual and 6,034,018 issued
and outstanding as adjusted(2)................................. 21 60
Additional paid-in capital....................................... 9,302 42,928
Retained earnings................................................ 1,836 1,836
Receivables from stockholders for purchase of
Common Stock................................................... (189) (189)
------------ ------------
Total stockholders' equity................................... 10,971 44,635
------------ ------------
Total capitalization....................................... $ 43,961 $ 48,306
------------ ------------
------------ ------------
</TABLE>
- ------------
(1) Gives effect to an amendment to the Company's Restated Certificate of
Incorporation to be filed upon the closing of the Offering.
(2) Includes 6,918 shares of Common Stock issuable to certain directors of the
Company upon the closing of the Offering (assuming an initial public
offering price of $13.00 per share). Does not include 143,444 shares of
Common Stock issuable upon the exercise of outstanding stock options,
133,756 shares of Common Stock issuable upon the exercise of outstanding
warrants and 276,750 shares of Common Stock subject to stock options to be
granted to employees of the Company upon the closing of the Offering. An
aggregate of 219,832 additional shares of Common Stock has been reserved for
future grants under the Company's stock plans. See "Management--Compensation
Pursuant to Plans" and "Description of Capital Stock--Warrants."
11
<PAGE>
DILUTION
The pro forma net tangible book deficit of the Company at March 27, 1996 was
$(4,111,000) or approximately $(1.31) per share. Pro forma net tangible book
deficit per share represents the amount of total assets, excluding intangibles
(excess of cost over fair value of net assets acquired), less total liabilities,
divided by the number of shares of Common Stock outstanding as of March 27,
1996, on a pro forma basis after giving effect to the Preferred Stock Conversion
and the Warrant Exercise. After giving effect to the receipt of the net proceeds
from the sale of the 2,890,218 shares of Common Stock offered by the Company
hereby, assuming an initial public offering price of $13.00 per share and after
deducting the estimated underwriting discount and offering expenses to be paid
by the Company, the pro forma net tangible book value of the Company at March
27, 1996 would have been $27,133,000, or $4.50 per share. This represents an
immediate increase in net tangible book value of $5.81 per share of Common Stock
to existing stockholders and an immediate dilution of approximately $8.50 per
share to new investors purchasing shares in the Offering. The following table
illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............................ $13.00
Pro forma net tangible book deficit per share before the Offering........ $(1.31)
Increase per share attributable to new investors......................... 5.81
------
Pro forma net tangible book value per share after the Offering............. 4.50
------
Dilution per share to new investors........................................ $ 8.50
------
------
</TABLE>
The following table sets forth, on a pro forma basis as of March 27, 1996,
the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price per share paid by
existing stockholders and by the new investors purchasing shares of Common Stock
from the Company in the Offering (before deducting estimated underwriting
discount and offering expenses):
<TABLE><CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................. 3,143,800 52.1% $ 9,824,000 20.7% $ 3.12
New investors......................... 2,890,218 47.9 37,579,230 79.3 13.00
--------- ------- ----------- -------
Total............................... 6,034,018 100.0% $47,403,230 100.0%
--------- ------- ----------- -------
--------- ------- ----------- -------
</TABLE>
The foregoing tables assume no exercise of the Underwriters' over-allotment
option and exclude shares that were issuable upon exercise of options and
warrants outstanding at March 27, 1996, except for shares to be issued upon the
Warrant Exercise. As of March 27, 1996, there were options and warrants
outstanding to purchase an aggregate of 277,200 shares at a weighted average
exercise price of $3.20 per share. See "Management--Compensation Pursuant to
Plans" and "Description of Capital Stock--Warrants." To the extent that
outstanding options and warrants are exercised in the future, there will be
further dilution to new investors.
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of the Company as of
December 28, 1994 and December 27, 1995 and for each of the three years in the
period ended December 27, 1995 were derived from the consolidated financial
statements of the Company and the notes thereto, included elsewhere in this
Prospectus, which have been audited by Deloitte & Touche LLP, independent
auditors. The following selected consolidated financial data of the Company as
of March 29, 1995 and March 27, 1996 and for each of the three-month periods
then ended were derived from the unaudited consolidated financial statements of
the Company and the notes thereto, included elsewhere in this Prospectus. The
following selected consolidated financial data of the Company should be read in
conjunction with the consolidated financial statements of the Company and the
notes thereto, the pro forma consolidated financial data and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
<TABLE><CAPTION>
FISCAL YEARS (1) THREE MONTHS ENDED
------------------------------------------------------ -------------------------------
PRO FORMA
PRO FORMA MARCH 27,
1995 MARCH 29, MARCH 27, 1996
1991 1992 1993 1994 1995 (2)(3) 1995 1996 (3)(4)
------- ------- ------- ------- ------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AND CONTRACT DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales................... $35,471 $39,429 $61,212 $82,119 $95,462 $117,718 $23,429 $24,160 $28,201
Cost of sales............... 32,295 35,398 55,816 73,833 85,576 106,079 21,295 21,630 25,382
------- ------- ------- ------- ------- --------- --------- --------- ---------
Gross profit................ 3,176 4,031 5,396 8,286 9,886 11,639 2,134 2,530 2,819
General and administrative
expenses.................... 2,381 3,082 2,649 3,406 3,626 5,706 1,090 1,336 1,729
------- ------- ------- ------- ------- --------- --------- --------- ---------
Income from operations...... 795 949 2,747 4,880 6,260 5,933 1,044 1,194 1,090
Interest expense, net....... 442 393 834 1,629 2,479 3,172 696 767 902
------- ------- ------- ------- ------- --------- --------- --------- ---------
Income before tax provision
and extraordinary item..... 353 556 1,913 3,251 3,781 2,761 348 427 188
Tax provision............... 138 216 829 1,385 1,585 1,347 140 168 118
------- ------- ------- ------- ------- --------- --------- --------- ---------
Income before extraordinary
item........................ 215 340 1,084 1,866 2,196 1,414 208 259 70
Extraordinary item.......... -- -- 112 -- -- -- -- -- --
------- ------- ------- ------- ------- --------- --------- --------- ---------
Net income.................. 215 340 972 1,866 2,196 1,414 208 259 70
Accretion to redemption
value of warrants.......... -- -- (230) (250) (900) (900) (72) (1,040) (1,040)
------- ------- ------- ------- ------- --------- --------- --------- ---------
Net income available to
Common Stockholders........ $ 215 $ 340 $ 742 $ 1,616 $ 1,296 $ 514 $ 136 $ (781) $ (970)
------- ------- ------- ------- ------- --------- --------- --------- ---------
------- ------- ------- ------- ------- --------- --------- --------- ---------
Net income (loss) per share
assuming full dilution(5)... $ 0.10 $ 0.17 $ 0.24 $ 0.49 $ 0.39 $ 0.15 $ 0.04 $ (0.22) $ (0.28)
------- ------- ------- ------- ------- --------- --------- --------- ---------
------- ------- ------- ------- ------- --------- --------- --------- ---------
Average number of shares of
Common Stock outstanding
assuming full dilution...... 2,048 2,048 3,087 3,287 3,330 3,356 3,158 3,510 3,523
------- ------- ------- ------- ------- --------- --------- --------- ---------
------- ------- ------- ------- ------- --------- --------- --------- ---------
Supplemental pro forma net
income (loss) per share
assuming full dilution(6)... $ 0.39 $ (0.12)
--------- ---------
--------- ---------
</TABLE>
13
<PAGE>
<TABLE><CAPTION>
FISCAL YEARS (1) THREE MONTHS ENDED
------------------------------------------------------ -------------------------------
PRO FORMA
PRO FORMA MARCH 27,
1995 MARCH 29, MARCH 27, 1996
1991 1992 1993 1994 1995 (2)(3) 1995 1996 (3)(4)
------- ------- ------- ------- ------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AND CONTRACT DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
EBITDA(7)................... $ 1,932 $ 2,154 $ 4,631 $ 7,563 $10,416 $10,536 $ 2,004 $ 2,199 $ 2,247
Net cash provided by (used
in) operating activities... $ 1,099 $ 1,676 $ 3,765 $ 2,570 $ 2,971 $ (264) $ 1,630
Net cash used in investing
activities.................. $(2,371) $(2,295) $(7,669) $(9,046) $(8,124) $ (10) $(6,725)
Net cash provided by
financing activities....... $ 1,852 $ 463 $ 2,737 $ 7,632 $ 4,255 $ 525 $ 5,823
Total contracts (at end of
period)(8).................. 21 28 42 81 95 156 81 156 156
BALANCE SHEET DATA (AT END
OF PERIOD):
Working capital (deficit)... $ 1,772 $ 843 $ (33) $(4,056) $(4,499) $(5,005) $(3,119) $(6,595)
Total assets................ 17,868 19,938 29,174 53,153 60,581 70,473 52,137 73,757
Total debt.................. 10,296 10,759 13,358 25,518 28,931 34,583 26,153 36,599
Stockholders' equity........ 2,618 2,726 6,970 8,586 11,382 11,752 8,722 10,971
</TABLE>
- ------------
(1) The Company's fiscal year ends on the last Wednesday of December. The 1992
fiscal year was a 53-week period.
(2) The pro forma statement of income data give effect to the following
transactions and events as if they had occurred as of the beginning of the
fiscal year ended December 27, 1995: (i) the acquisition of Northwest,
acquired in June 1995, and Sun West, acquired in March 1996; (ii) the
adjustment to reflect interest expense as if borrowings to purchase
Northwest and Sun West had taken place at the beginning of the fiscal year;
and (iii) the related tax effects of the foregoing. The pro forma balance
sheet data give effect to the acquisition of Sun West as if it had occurred
on December 27, 1995 and the Preferred Stock Conversion.
(3) Subsequent to the acquisition of Northwest, the Company terminated certain
of Northwest's unprofitable food service contracts. The Company also
eliminated certain redundant operations through closings of offices and
termination of excess personnel in connection with the integration of
Northwest and is in the process of doing so with respect to Sun West. Pro
forma amounts do not give effect to these actions.
(4) Gives effect to the following transactions and events as if they had
occurred as of the beginning of the period ended March 27, 1996: (i) the
acquisition of Sun West; (ii) the adjustment to reflect interest expense as
if borrowings to purchase Sun West had taken place at the beginning of the
period; and (iii) the related tax effects of the foregoing.
(5) Net income (loss) per share assuming full dilution is calculated based upon
net income less accretion to the redemption value of warrants issued in
fiscal 1993. Accretion to redemption value of warrants was $230 ($0.07 per
share), $250 ($0.08 per share), $900 ($0.27 per share) and $900 ($0.27 per
share) for fiscal 1993, 1994, 1995 and pro forma 1995 and $72 ($0.02 per
share), $1,040 ($0.30 per share) and $1,040 ($0.30 per share) for the three
months ended March 29, 1995, March 27, 1996 and pro forma March 27, 1996,
respectively.
(6) Supplemental pro forma net income (loss) per share assuming full dilution is
calculated based upon (i) net income adjusted for the reduction in interest
expense resulting from the application of the net proceeds of the Offering
to reduce indebtedness of the Company and for the accretion to the
redemption value of warrants issued in fiscal 1993 and (ii) the average
number of shares of Common Stock outstanding assuming full dilution, as
adjusted to reflect the sale by the Company of a number of shares in the
Offering resulting in net proceeds sufficient to pay such indebtedness (at
an assumed initial public offering price of $13.00 per share). See "Use of
Proceeds."
(7) Represents earnings before interest expense, income tax expense and
depreciation and amortization. EBITDA is not a measurement in accordance
with GAAP and should not be considered an alternative to, or more meaningful
than, income from operations, net income or cash flows as defined by GAAP or
as a measure of the Company's profitability or liquidity. The Company has
included information concerning EBITDA herein because management believes
EBITDA provides useful information regarding the cash flow of the Company
and its ability to service debt.
(8) Represents total contracts other than contracts for one-time or special
events.
14
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial data should be read
in conjunction with the consolidated financial statements of the Company and the
notes thereto and other financial information set forth herein.
The pro forma consolidated statement of income for the fiscal year ended
December 27, 1995 gives effect to the following transactions and events as if
they occurred as of the beginning of the fiscal year: (i) the acquisition of
Northwest, acquired in June 1995, and Sun West, acquired in March 1996; (ii) the
adjustment to reflect interest expense as if borrowings to purchase Northwest
and Sun West had taken place at the beginning of the fiscal year; and (iii) the
related tax effects of the foregoing. The pro forma consolidated balance sheet
gives effect to the acquisition of Sun West as if it had occurred on December
27, 1995 and to the Preferred Stock Conversion.
The pro forma consolidated statement of income for the three months ended
March 27, 1996 gives effect to the following transactions and events as if they
had occurred as of the beginning of the period: (i) the acquisition of Sun West,
acquired March 25, 1996; (ii) the adjustment to reflect interest expense as if
borrowings to purchase Sun West had taken place at the beginning of the quarter;
and (iii) the related tax effects of the foregoing.
Management believes the assumptions used provide a reasonable basis on which
to present the pro forma consolidated financial data. The pro forma financial
data are provided for informational purposes only and should not be construed to
be indicative of the Company's results of operations or financial position had
the transactions and events described above been consummated on the dates
assumed and do not project the Company's results of operations or financial
position for any future date or period.
15
<PAGE>
PRO FORMA
CONSOLIDATED STATEMENT OF INCOME
FISCAL YEAR ENDED DECEMBER 27, 1995
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE><CAPTION>
PRO FORMA PRO
NORTHWEST SUN WEST ADJUSTMENTS FORMA
FINE HOST (NOTE 1) (NOTE 1) (NOTE 2) (NOTE 3)
----------- --------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Net sales............................. $95,462 $ 5,213 $ 17,043 $ $117,718
Cost of sales......................... 85,576 4,692 15,481 330(a) 106,079
----------- --------- -------- ----------- --------
Gross profit.......................... 9,886 521 1,562 (330) 11,639
General and administrative expenses... 3,626 419 1,661 5,706
----------- --------- -------- ----------- --------
Income (loss) from operations......... 6,260 102 (99) (330) 5,933
Interest expense, net................. 2,479 32 115 546(b) 3,172
----------- --------- -------- ----------- --------
Income (loss) before tax provision
(benefit)............................. 3,781 70 (214) (876) 2,761
Tax provision (benefit)............... 1,585 56 (58) (236)(c) 1,347
----------- --------- -------- ----------- --------
Net income (loss)..................... 2,196 14 (156) (640) 1,414
----------- --------- -------- ----------- --------
Accretion to redemption value of
warrants (Note 4)..................... (900) -- -- -- (900)
----------- --------- -------- ----------- --------
Net income available to Common
Stockholders.......................... $ 1,296 $ 14 (156) (640) 514
----------- --------- -------- ----------- --------
----------- --------- -------- ----------- --------
Net income per share assuming full
dilution (Note 5)..................... $ 0.39 $ 0.15
----------- --------
----------- --------
Average number of shares of Common
Stock outstanding assuming full
dilution (Note 5)................... 3,330 3,356
----------- --------
----------- --------
</TABLE>
See notes to unaudited pro forma consolidated financial data.
16
<PAGE>
PRO FORMA
CONSOLIDATED BALANCE SHEET
DECEMBER 27, 1995
(UNAUDITED)
(IN THOUSANDS)
<TABLE><CAPTION>
PRO FORMA
SUN WEST ADJUSTMENTS PRO
FINE HOST (NOTE 6) (NOTE 7) FORMA
--------- -------- ----------- -------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash................................................ $ 634 $ 343 $ $ 977
Accounts receivable................................. 7,548 2,285 9,833
Notes receivable.................................... 520 520
Inventories......................................... 2,099 229 2,328
Prepaid and other current assets.................... 1,893 152 2,045
--------- -------- ----------- -------
Total current assets............................ 12,694 3,009 15,703
Contract rights, net................................. 12,866 22 2,620(a) 15,508
Fixtures and equipment, net.......................... 15,829 203 16,032
Notes receivable..................................... 1,391 1,391
Excess of cost over fair value of net assets
acquired, net........................................ 13,406 4,038(a) 17,444
Other assets......................................... 4,395 4,395
--------- -------- ----------- -------
Total assets.................................... $60,581 $3,234 $ 6,658 $70,473
--------- -------- ----------- -------
--------- -------- ----------- -------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............... $12,467 $2,259 $ 500(a) $15,226
Current portion of long-term debt................... 2,981 2,981
Current portion of subordinated debt................ 1,745 756 2,501
--------- -------- ----------- -------
Total current liabilities....................... 17,193 3,015 500 20,708
Deferred income taxes................................ 6,421 13 1,098(a) 7,532
Long-term debt....................................... 15,326 2,880(a) 18,206
Subordinated debt.................................... 8,879 28 1,988(a) 10,895
--------- -------- ----------- -------
Total liabilities............................... 47,819 3,056 6,466 57,341
Stock warrants....................................... 1,380 1,380
Redeemable Class B Common Stock...................... -- 253 (253)(a) --
Stockholders' equity:
Convertible Preferred Stock......................... 1 (1)(b) --
Common Stock........................................ 20 10(b) 30
Additional paid-in capital.......................... 8,933 75 (75)(a) 9,294
370(a)
(9)(b)
Retained earnings................................... 2,617 (150) 150(a) 2,617
Receivables from stockholders for purchase of Common
Stock................................................ (189) (189)
--------- -------- ----------- -------
Total stockholders' equity...................... 11,382 (75) 445 11,752
--------- -------- ----------- -------
Total liabilities and stockholders'
equity............................................... $60,581 $3,234 $ 6,658 $70,473
--------- -------- ----------- -------
--------- -------- ----------- -------
</TABLE>
See notes to unaudited pro forma consolidated financial data.
17
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL DATA
FOR THE FISCAL YEAR ENDED DECEMBER 27, 1995
1. NORTHWEST FOOD SERVICES, INC. AND SUN WEST SERVICES, INC.
Represents the historical results of Northwest from the beginning of the
fiscal year through June 28, 1995, the date of its acquisition, and Sun West for
the entire fiscal year.
2. ADJUSTMENTS--PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(a) The amortization of excess of cost over fair value of net assets
acquired.
(b) The increase in interest expense related to the borrowings to finance
the acquisitions.
(c) The income tax impact of the foregoing adjustments.
3. ACTIONS SUBSEQUENT TO THE ACQUISITIONS
Subsequent to the acquisition of Northwest, the Company terminated certain
of Northwest's unprofitable food service contracts. The Company also eliminated
certain redundant operations by office closings and termination of excess
personnel in connection with the integration of Northwest and is in the process
of doing so with respect to Sun West.
4. ACCRETION TO REDEMPTION VALUE OF WARRANTS
Represents the accretion to carrying value of certain warrants to purchase
Common Stock of the Company at an exercise price of $4.93 per share. The holders
of these warrants have the right to require the Company to repurchase these
warrants for an amount based upon the fair market value of the underlying shares
at any time beginning April 1997 and earlier upon the occurrence of certain
events, including a qualified public offering. The warrant is accreted to the
highest estimated redemption price based on time remaining to April 1997.
5. NET INCOME PER SHARE
Pro forma net income per share for fiscal 1995 has been computed as if all
shares of Common Stock and Common Stock equivalents outstanding at December 27,
1995 and the shares of Common Stock issued as part of the Sun West acquisition
were outstanding effective at the beginning of the fiscal year presented. Net
income and pro forma net income per share assuming full dilution is calculated
based upon net income and pro forma net income less accretion to the redemption
value of warrants of $900,000 ($0.27 per share).
6. SUN WEST SERVICES, INC.
Represents the financial position of Sun West at December 31, 1995.
7. ADJUSTMENTS--PRO FORMA CONSOLIDATED BALANCE SHEET
(a) Purchase accounting adjustments relating to the acquisition of Sun West
and the long-term borrowings of $2.9 million, the issuance of subordinated debt
in the amount of $1.9 million to the sellers and the issuance of 25,900 shares
of Common Stock to the sellers, all in connection with the acquisition of Sun
West.
Sun West was acquired for a purchase price of approximately $5.2 million,
consisting of cash, five-year subordinated notes to the sellers with interest at
7% and 25,900 shares of Common Stock valued at $14.29 each. Costs and fees
related to the acquisition were approximately $500,000. Assets and liabilities
(as of December 27, 1995) acquired are summarized as follows (in thousands).
<TABLE>
<S> <C>
Current assets....................................................... $ 3,009
Contract rights, net................................................. 2,642
Fixtures and equipment, net.......................................... 203
Current liabilities.................................................. (3,015)
Deferred income taxes................................................ (1,111)
Subordinated debt.................................................... (28)
-------
Net assets acquired.................................................. $ 1,700
-------
-------
</TABLE>
The purchase price was allocated to the assets acquired and liabilities
assumed based on their fair value at the time of acquisition. The excess of the
purchase price over the fair value of the assets and liabilities acquired was
$4.0 million. Upon consummation of the acquisition, the Redeemable Class B
Common Stock of Sun West was cancelled.
(b) The Preferred Stock Conversion.
18
<PAGE>
PRO FORMA
CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 27, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO
PRO FORMA FORMA
SUN WEST ADJUSTMENTS (NOTE
FINE HOST (NOTE 1) (NOTE 2) 3)
--------- -------- ----------- -------
<S> <C> <C> <C> <C>
Net sales......................................... $24,160 $ 4,041 $28,201
Cost of sales..................................... 21,630 3,637 $ 115(a) 25,382
--------- -------- ----------- -------
Gross profit...................................... 2,530 404 (115) 2,819
General and administrative expenses............... 1,336 393 1,729
--------- -------- ----------- -------
Income from operations............................ 1,194 11 (115) 1,090
Interest expense, net............................. 767 17 118(b) 902
--------- -------- ----------- -------
Income (loss) before tax provision................ 427 (6) (233) 188
Tax provision..................................... 168 -- (50)(c) 118
--------- -------- ----------- -------
Net income (loss)................................. 259 (6) (183) 70
Accretion to redemption value of warrants (Note
4)................................................ (1,040) -- -- (1,040)
--------- -------- ----------- -------
Net loss available to Common Stockholders......... $ (781) $ (6) $(183) $ (970)
--------- -------- ----------- -------
--------- -------- ----------- -------
Net loss per share assuming full dilution (Note
5)................................................ $ (0.22) $ (0.28)
--------- -------
--------- -------
Average number of shares of Common
Stock outstanding assuming full
dilution (Note 5)............................... 3,510 3,523
--------- -------
--------- -------
</TABLE>
See notes to unaudited pro forma consolidated statement of income.
19
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 27, 1996
1. SUN WEST SERVICES, INC.
Represents the historical results of Sun West for the three months ended
March 25, 1996.
2. ADJUSTMENTS--PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(a) The amortization of excess of cost over fair value of net assets
acquired.
(b) The increase in interest expense related to the borrowings to finance
the acquisition.
(c) The income tax impact of the foregoing adjustments.
3. ACTIONS SUBSEQUENT TO THE ACQUISITION
The Company is in the process of eliminating certain redundant operations by
office closings and termination of excess personnel in connection with the
integration of Sun West.
4. ACCRETION TO REDEMPTION VALUE OF WARRANTS
Represents the accretion to carrying value of certain warrants to purchase
Common Stock of the Company at an exercise price of $4.93 per share. The holders
of these warrants have the right to require the Company to repurchase these
warrants for an amount based upon the fair market value of the underlying shares
at any time beginning April 1997 and earlier upon the occurrence of certain
events, including a qualified public offering. The warrant is accreted to the
highest estimated redemption price based on time remaining to April 1997.
5. NET LOSS PER SHARE
Pro forma net loss per share for the three months ended March 27, 1996 has
been computed as if all shares of Common Stock and Common Stock equivalents
outstanding at March 27, 1996 and the shares of Common Stock issued as part of
the Sun West acquisition were outstanding effective at the beginning of the
fiscal quarter presented. Net loss and pro forma net loss per share assuming
full dilution is calculated based upon net income and pro forma net income less
accretion to the redemption value of warrants of $1,040,000 ($0.30 per share).
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company was formed in 1985 and has grown to become a leading provider of
food and beverage concession and catering services to more than 190 facilities
in 32 states. The Company targets four distinct markets within the contract food
service industry: the recreation and leisure market ("Recreation and Leisure"),
serving arenas, stadiums, amphitheaters, civic centers and other recreational
facilities; the convention center market ("Convention Centers"); the educational
facilities market ("Education"), which the Company entered in 1994, serving
colleges, universities and public and private schools; and the corporate dining
market ("Corporate Dining"), which the Company entered in 1994, serving
corporate cafeterias, office complexes and manufacturing plants.
A significant portion of the Company's growth to date has been derived from
acquisitions. In 1993, the Company acquired Fanfare, which primarily serves
recreation and leisure facilities, for approximately $8.2 million in cash and
subordinated notes. In 1994, the Company acquired Creative, which serves the
education, corporate dining and recreation and leisure areas, for approximately
$7.0 million in subordinated notes and cash. In 1995, the Company acquired
Northwest, which serves the education and corporate dining areas, for
approximately $2.5 million in subordinated notes and cash. On March 25, 1996,
the Company acquired Sun West, which provides food and beverage concession and
catering services to more than 60 facilities located primarily in the
southwestern United States, including education facilities, as well as jails and
other institutions. The purchase price was approximately $5.2 million,
consisting of cash, five-year subordinated notes to the sellers and shares of
Common Stock. Subsequent to the acquisition of Northwest, the Company terminated
certain of Northwest's unprofitable food service contracts. The Company also
eliminated certain redundant operations through closings of offices and
termination of excess personnel in connection with the integration of
Northwest and is in the process of doing so with respect to Sun West.
The Company generally enters into one of three types of contracts for its
food services: profit and loss contracts ("P&Ls"), profit sharing contracts and
management fee contracts. Under P&L contracts, all food and beverage sales are
recorded in net sales. P&Ls require the Company to bear all the expenses of the
operation, including rent paid to the client (usually calculated as a fixed
percentage of various categories of sales). While Fine Host often benefits from
greater upside potential with a P&L contract, it is responsible for the costs of
running the food-service operation and consequently bears greater risk than with
a management fee or profit sharing contract. Under profit sharing contracts, the
Company receives a percentage of profits earned at the facility plus a fixed fee
or percentage of sales as an administrative fee. Under this type of contract,
all food and beverage sales generated at a location are recorded in net sales.
Management fee contracts provide for a fixed fee. Fine Host is also reimbursed
for all of its on-site expenses incurred in providing food and beverage services
under management fee contracts. Certain of the Company's management fee
contracts provide for an additional incentive fee based on a percentage of sales
over a base threshold level. In the case of a management fee contract, the
Company records only the fixed and incentive fee, if any, as net sales. Under
profit sharing and management fee contracts, Fine Host does not bear
responsibility for losses incurred, if any.
The length of contracts varies depending on the type of facility, type of
contract and financial investment. Contracts for Recreation and Leisure
facilities typically include the largest capital investment by the Company and
generally have a term of three to ten years. Contracts for Convention Centers
generally have a term of three to five years. Education contracts generally have
a term of one to five years. Corporate Dining contracts, which generally require
the smallest capital investment by the Company, typically have a shorter term
than those in the Recreation and Leisure, Convention Center and Education areas,
and generally contain a provision allowing either party to terminate for
convenience after a short notice period, typically ranging from 30 to 90 days.
Corporate Dining contracts representing approximately 3.6% of the Company's
fiscal 1995 historical net sales are terminable after a short notice period.
Excluding such contracts terminable on short notice, contracts representing
approximately 6.3% and 7.2% of the Company's fiscal 1995 historical net sales
are scheduled to expire in fiscal 1996 and fiscal 1997, respectively.
21
<PAGE>
Cost of sales for P&L and profit sharing contracts includes wages and
benefits for on-site employees, all on-site costs for food and beverages, rent
paid to clients, other operating expenses and depreciation and amortization of
both contract rights and excess of cost over fair value of net assets acquired.
Cost of sales for management fee contracts includes only the amortization of
invested capital.
General and administrative expenses include all costs associated with the
region managers, the accounting processing centers and the corporate office in
Greenwich, Connecticut. The corporate office includes senior management, sales
and marketing and administrative functions such as purchasing, legal, human
resources, management information systems and training.
This Prospectus contains forward-looking statements which involve risks and
uncertainties relating to future events. Prospective investors are cautioned
that the Company's actual events or results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
actual results to differ materially from those indicated by such forward-looking
statements include the matters set forth under the caption "Risk Factors."
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain financial
data as a percentage of the Company's net sales:
<TABLE>
<CAPTION>
FISCAL YEARS THREE MONTHS ENDED
----------------------- ----------------------
MARCH 29, MARCH 27,
1993 1994 1995 1995 1996
----- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales..................................... 91.2 89.9 89.6 90.9 89.5
----- ----- ----- --------- ---------
Gross profit...................................... 8.8 10.1 10.4 9.1 10.5
General and administrative expenses............... 4.3 4.1 3.8 4.7 5.5
----- ----- ----- --------- ---------
Income from operations............................ 4.5 6.0 6.6 4.4 5.0
Interest expense, net............................. 1.4 2.0 2.6 3.0 3.2
----- ----- ----- --------- ---------
Income before tax provision and extraordinary
item.............................................. 3.1 4.0 4.0 1.4 1.8
Tax provision..................................... 1.3 1.7 1.7 0.6 0.7
----- ----- ----- --------- ---------
Income before extraordinary item.................. 1.8% 2.3% 2.3% 0.8% 1.1%
----- ----- ----- --------- ---------
----- ----- ----- --------- ---------
</TABLE>
The following table sets forth net sales attributable to the Company's
principal operating markets, expressed in dollars (in thousands) and as a
percentage of total net sales:
<TABLE>
<CAPTION>
FISCAL YEARS THREE MONTHS ENDED
----------------------------------------------------- ----------------------------------
MARCH 29, MARCH 27,
1993 1994 1995 1995 1996
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Recreation and
Leisure............... $37,897 61.9% $45,773 55.7% $42,657 44.7% $ 9,561 40.8% $ 6,898 28.6%
Convention Centers.... 23,315 38.1 30,443 37.1 34,746 36.4 9,629 41.1 11,835 49.0
Education............. 2,715 3.3 8,902 9.3 1,853 7.9 3,068 12.6
Corporate Dining...... 3,188 3.9 9,157 9.6 2,386 10.2 2,359 9.8
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total................ $61,212 100.0% $82,119 100.0% $95,462 100.0% $23,429 100.0% $24,160 100.0%
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
</TABLE>
22
<PAGE>
The following table sets forth the net sales and gross profit attributable
to the Company's principal types of contracts (in thousands):
<TABLE>
<CAPTION>
FISCAL YEARS THREE MONTHS ENDED
------------------------------------------------- --------------------------------
MARCH 29, MARCH 27,
1993 1994 1995 1995 1996
--------------- --------------- --------------- --------------- ---------------
SUMMARY BY NET GROSS NET GROSS NET GROSS NET GROSS NET GROSS
CONTRACT TYPE SALES PROFIT SALES PROFIT SALES PROFIT SALES PROFIT SALES PROFIT
- ------------------------------- ------- ------ ------- ------ ------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
P&L............................ $18,069 $2,261 $40,197 $4,960 $53,312 $6,784 $12,663 $1,412 $15,562 $1,712
Profit sharing................. 42,284 2,273 39,694 2,023 39,354 2,030 9,981 504 7,854 428
Management fee................. 859 862 2,228 1,303 2,796 1,072 785 218 744 390
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
$61,212 $5,396 $82,119 $8,286 $95,462 $9,886 $23,429 $2,134 $24,160 $2,530
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
</TABLE>
THREE MONTHS ENDED MARCH 27, 1996 COMPARED TO THREE MONTHS ENDED MARCH 29, 1995
Net Sales The Company's net sales increased 3.1%, from $23.4 million for the
three months ended March 29, 1995 to $24.2 million for the three months ended
March 27, 1996. Net sales increased in all market areas, except Recreation and
Leisure. Recreation and Leisure net sales decreased 27.9%, primarily because one
of the Company's clients opted to self-operate its food service. Net sales from
Convention Centers increased 22.9% primarily as a result of increased sales from
existing contracts and the impact of new contracts signed in 1995. Net sales
from Education increased, primarily as a result of the impact of the acquisition
of Northwest and new accounts signed in 1995. Net sales from Corporate Dining
was unchanged.
Gross Profit. Gross profit as a percentage of net sales increased to 10.5%
for the three months ended March 27, 1996 from 9.1% for the three months ended
March 29, 1995. The increase was primarily attributable to the benefit of
continued economies of scale from national purchasing programs and effective
labor cost controls.
General and Administrative Expenses. General and administrative expenses
increased from $1.1 million (or 4.7% of net sales) for the three months ended
March 29, 1995 to $1.3 million (or 5.5% of net sales) for the three months ended
March 27, 1996. The increase was attributable primarily to the requirement for
additional clerical support for new accounts and acquisitions and the addition
of a training department.
Operating Income. Operating income increased 14.4%, from $1.0 million for
the three months ended March 29, 1995 to $1.2 million for the three months ended
March 27, 1996, primarily for the reasons mentioned above.
Interest Expense. Interest expense increased approximately $71,000 for the
three months ended March 27, 1996, due primarily to increased debt levels to
finance investments in new accounts and acquisitions.
FISCAL 1995 COMPARED TO FISCAL 1994
Net Sales. The Company's net sales increased 16.2%, from $82.1 million in
fiscal 1994 to $95.5 million in fiscal 1995. Net sales increased in fiscal 1995
in all market areas, except Recreation and Leisure. Recreation and Leisure net
sales decreased 6.8% in fiscal 1995 as compared to fiscal 1994, primarily from
the continued effects of the Major League Baseball lock-out as well as a decline
in attendance at Florida Marlins games, partially offset by the effects of new
contracts signed in 1994 and 1995. The Company's contract at Joe Robbie Stadium
in Miami, Florida, the home of the Miami Dolphins and the Florida Marlins,
accounted for $13.0 million of net sales in fiscal 1995, compared to $16.0
million in fiscal 1994. Net sales from Convention Centers increased 14.1% in
fiscal 1995 as compared to fiscal 1994 primarily as a result of increased sales
from existing contracts and the impact of
23
<PAGE>
new contracts signed in 1994 and in 1995. Net sales from Education and Corporate
Dining increased in fiscal 1995 as compared to fiscal 1994, primarily as a
result of the full year impact of the acquisition of Creative and the impact of
the acquisition of Northwest.
Gross Profit. Gross profit as a percentage of net sales increased to 10.4%
in fiscal 1995 from 10.1% in fiscal 1994 primarily attributable to the benefit
of continued economies of scale from national purchasing programs, effective
labor cost controls and an increase in management fee contracts.
General and Administrative Expenses. General and administrative expenses
increased from $3.4 million (or 4.1% of net sales) in fiscal 1994 to $3.6
million (or 3.8% of net sales) in fiscal 1995. The dollar increase was
attributable primarily to the increase in clerical support for new accounts and
acquisitions. The percentage decrease resulted from a proportionally greater
increase in net sales relative to general and administrative expenses.
Operating Income. Operating income increased 28.3%, from $4.9 million in
fiscal 1994 to $6.3 million in fiscal 1995, primarily for the reasons mentioned
above.
Interest Expense. Interest expense increased approximately $850,000, due
primarily to increased debt levels to finance investments in new accounts and
acquisitions as well as an increase in the prime rate and the reset of the
interest rate on its variable rate subordinated notes from 9.8% to 12.79%.
FISCAL 1994 COMPARED TO FISCAL 1993
Net Sales. The Company's net sales increased 34.2%, from $61.2 million in
fiscal 1993 to $82.1 million in fiscal 1994. Net sales increased in fiscal 1994
in all market areas. Recreation and Leisure net sales increased by 20.8% in
fiscal 1994 as compared to fiscal 1993 primarily due to the signing of new
contracts in 1994, the full-year effect of the acquisition of Fanfare and the
full-year impact of the signing of new contracts in 1993, partially offset by
the Major League Baseball lock-out beginning in late summer of 1994. The
Company's contract at Joe Robbie Stadium accounted for $16.0 million of net
sales in fiscal 1994, compared to $21.0 million in fiscal 1993. The decrease
resulted primarily from a decline in attendance at Florida Marlins games. Net
sales from Convention Centers increased by 30.6% in fiscal 1994 as compared to
fiscal 1993 as a result of new contracts signed in 1993 and 1994, an increase in
sales from existing contracts and the full-year impact of the Fanfare
acquisition. Net sales from Education and Corporate Dining increased in fiscal
1994, as a result of the Creative acquisition.
Gross Profit. Gross profit as a percentage of net sales increased to 10.1%
in 1994 from 8.8% in 1993 primarily as a result of the improvements in national
purchasing programs, labor cost efficiencies and the increase in management fee
contracts.
General and Administrative Expenses. General and administrative expenses
increased from $2.6 million (or 4.3% of total net sales) in fiscal 1993 to $3.4
million (or 4.1% of net sales) in fiscal 1994. The dollar increase was
attributable primarily to the addition of clerical personnel needed to support
the new contracts signed and the acquisitions of Fanfare and Creative in 1993
and 1994, respectively.
Operating Income. Operating income increased 77.6%, from $2.7 million in
fiscal 1993 to $4.9 million in fiscal 1994, due primarily to the reasons
mentioned above.
Interest Expense. Interest expense increased $795,000 in fiscal 1994 from
fiscal 1993 due primarily to higher borrowing levels for acquisitions and
investments in new accounts.
QUARTERLY RESULTS OF OPERATIONS
The Company's net sales and operating results vary significantly from
quarter to quarter as a result of seasonal patterns, the unpredictability in the
number, timing and type of new contracts, the timing of contract expirations and
special one-time events at facilities served by the Company. Results of
24
<PAGE>
operations for any particular quarter may not be indicative of results of
operations for future periods. There can be no assurance that future seasonal
and quarterly fluctuations will not have a material adverse effect on the
Company's business, financial condition and results of operations.
The following table sets forth unaudited selected consolidated income
statement data for the periods indicated, as well as such data expressed as a
percentage of net sales for the same periods. This information has been derived
from unaudited consolidated financial statements and, in the opinion of
management, includes all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such information.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------
1994 1995 1996
------------------------------------- ------------------------------------- -------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST
------- ------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................. $13,908 $17,854 $24,061 $26,296 $23,429 $20,090 $26,340 $25,603 $24,160
Cost of sales............. 12,486 16,507 21,686 23,154 21,295 18,422 23,002 22,857 21,630
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit.............. 1,422 1,347 2,375 3,142 2,134 1,668 3,338 2,746 2,530
General and administrative
expenses.................. 890 814 1,031 671 1,090 923 870 743 1,336
------- ------- ------- ------- ------- ------- ------- ------- -------
Income from operations.... 532 533 1,344 2,471 1,044 745 2,468 2,003 1,194
Interest expense, net..... 275 338 424 592 696 633 642 508 767
------- ------- ------- ------- ------- ------- ------- ------- -------
Income before tax
provision................. 257 195 920 1,879 348 112 1,826 1,495 427
Tax provision............. 94 70 355 866 140 38 781 626 168
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income................ $ 163 $ 125 $ 565 $ 1,013 $ 208 $ 74 $ 1,045 $ 869 $ 259
------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- -------
<CAPTION>
(AS A PERCENTAGE OF NET SALES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............. 89.8 92.5 90.1 88.1 90.9 91.7 87.3 89.3 89.5
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit.............. 10.2 7.5 9.9 11.9 9.1 8.3 12.7 10.7 10.5
General and administrative
expenses.................. 6.4 4.5 4.3 2.5 4.6 4.6 3.3 2.9 5.5
------- ------- ------- ------- ------- ------- ------- ------- -------
Income from operations.... 3.8 3.0 5.6 9.4 4.5 3.7 9.4 7.8 5.0
Interest expense, net..... 2.0 1.9 1.8 2.2 3.0 3.2 2.5 2.0 3.2
------- ------- ------- ------- ------- ------- ------- ------- -------
Income before tax
provision................. 1.8 1.1 3.8 7.2 1.5 0.5 6.9 5.8 1.8
Tax provision............. 0.7 0.4 1.5 3.3 0.6 0.2 3.0 2.4 0.7
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income................ 1.1% 0.7% 2.3% 3.9% 0.9% 0.3% 3.9% 3.4% 1.1%
------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its capital requirements from a combination of
operating cash flow and debt and equity financing. Net cash provided by
operating activities was $3.8 million, $2.6 million and $3.0 million in fiscal
1993, 1994 and 1995, respectively. The increase in net cash provided by
operating activities in fiscal 1995 was attributable primarily to the
improvement in the Company's net income. Cash flow from operating activities
improved from a use of funds of $264,000 for the three months ended March 29,
1995 to a source of funds of $1.6 million for the three months ended March 27,
1996. This resulted from an increase in trade payables and an improvement in
operating profits. EBITDA was $4.6 million, $7.6 million and $10.4 million in
fiscal 1993, 1994 and 1995, and $2.0 and $2.2 for the three months ended March
29, 1995 and March 27, 1996, respectively. EBITDA represents earnings before
interest expense, income tax expense and depreciation and amortization. EBITDA
is not a measurement in accordance with GAAP and should not be considered an
alternative to, or more meaningful than, income from operations, net income or
cash flows as defined by GAAP or as a measure of the Company's profitability or
liquidity. The Company has included information concerning EBITDA herein because
management believes EBITDA provides useful information regarding the cash flow
of the Company and its ability to service debt. EBITDA information should be
read in conjunction with the Consolidated Statements of Cash Flows of the
Company included in the consolidated financial statements of the Company
elsewhere in this Prospectus.
25
<PAGE>
Cash flows used in investing activities was $7.7 million, $9.0 million and
$8.1 million in fiscal 1993, 1994 and 1995, respectively. In 1993, $6.7 million
was used in connection with the Fanfare acquisition and in 1995, $3.5 million
was used to acquire Northwest. In fiscal 1993, 1994 and 1995, $1.0 million, $6.3
million and $3.3 million, respectively, was used for additions to fixtures and
equipment. In 1994, the Company made advances aggregating $2.3 million to two
clients in accordance with their food service contracts.
Cash flows used in investing activities was $10,000 and $6.8 million for the
three months ended March 29, 1995 and March 27, 1996, respectively. In fiscal
1996, $3.2 million was used in connection with the Sun West acquisition and $1.1
million was used for additions to fixtures and equipment.
In April 1993, the Company entered into a subordinated loan agreement, as
amended (the "Subordinated Loan Agreement"), pursuant to which the Company sold
$8.5 million of its variable rate subordinated notes, together with warrants to
purchase a maximum of 867,230 shares of a new class of non-voting common stock.
The proceeds of the issuance of the subordinated notes were used to repay
existing indebtedness. The notes are due April 30, 2001, with mandatory
principal payments of $2.1 million due on April 30 of each year commencing in
1998 and ending in 2001. As part of a senior debt refinancing in April 1995, a
$2.0 million prepayment was made in order of maturity and, therefore, the April
30, 1998 mandatory payment has been reduced to $125,000. On April 21, 1995 in
accordance with the terms of the Subordinated Loan Agreement, the rate of
interest was reset at 12.79% from 9.875% for the remainder of the term of the
notes.
In April 1993, the Company consummated the sale of (i) 86,942 shares of
Series A Convertible Preferred Stock to an investor and (ii) 15,650 shares of
Series A Convertible Preferred Stock to one of its directors (as nominee of a
partnership of which he is general partner), all at a price of $34.50 per share.
The net consideration received by the Company with respect to these sales was
$3,493,901, of which $2,953,976 was received in cash from the investor and the
balance, $539,925, was a reduction of a note payable owed by the Company to such
partnership. Upon the closing of the Offering, these shares will be converted
automatically into an aggregate of 718,144 shares of Common Stock.
In conjunction with the refinancing of its senior bank indebtedness on April
24, 1995, the Company sold 31,579 shares of Series A Convertible Preferred Stock
to Interlaken Investment Partners, L.P. at a price of $47.50 per share, and used
the proceeds thereof to reduce the amount of the Notes outstanding under the
Subordinated Loan Agreement. Upon the closing of the Offering, these shares will
be converted automatically into an aggregate of 221,053 shares of Common Stock.
The Company's bank agreement was amended on April 24, 1995 as part of a
refinancing ("Amended Bank Agreement") and provides for (i) a term loan in the
amount of $10.5 million (the "Term Loan"), (ii) a working capital revolving
credit line (the "Working Capital Line") for general obligations of the Company
expiring on March 31, 1997, in the maximum amount of $6.0 million, (iii) a line
of credit to provide for future expansion by the Company (the "Guidance Line")
in the maximum amount of $11.5 million, and (iv) requirements that the bank
issue up to $2.0 million in letters of credit ("Letters of Credit") on the
Company's behalf. The maximum borrowing under the Amended Bank Agreement was
$30.0 million as of December 27, 1995.
The Company's obligations under the Amended Bank Agreement are
collateralized both by a pledge of shares of Common Stock and Preferred Stock
owned by certain current and former officers and directors of the Company and an
affiliate, and the common stock of the Company's subsidiaries. The loan is also
collateralized by certain fixtures and equipment, notes receivable and other
assets, as well as the receipt, if any, of certain funds paid to the Company
with respect to the termination of client contracts prior to their expiration.
In March 1996, the Amended Bank Agreement was further amended to increase
maximum borrowings thereunder to $32.5 million by increasing the Working Capital
Line to $9.4 million and the
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<PAGE>
Guidance Line to $13.0 million and by resetting the Term Loan to $8.6 million
and the Letter of Credit facility to $1.5 million.
As of May 1, 1996, the Company has approximately $3.5 million of unused
committed credit availability under the Amended Bank Agreement. In connection
with the Offering, the Company expects to revise its credit facility to increase
its maximum borrowing available upon the closing of the Offering to $75.0
million.
Fine Host is often required to provide a capital commitment in its bid to
win a new facility contract. This commitment most often takes the form of an
investment in food service equipment and leasehold facilities, which upgrades
the facility itself and can increase the returns to both Fine Host and the
facility owner by generating increased sales. Occasionally, the Company makes
loans or advances to the client, the proceeds of which are generally used to
improve an existing facility or to complete a new facility. These loans are
sometimes collateralized by other assets in the facility. When the Company makes
an investment, loan or advance to a facility under either a profit sharing or
management fee contract, the amount of the commitment, together, in certain
cases, with interest, is repaid to the Company out of the revenues generated by
the food service operation in accordance with an amortization schedule set forth
in the contract. The Company's capital expenditures and other costs associated
with obtaining and retaining contracts totaled $3.0 million, $8.8 million and
$6.8 million in fiscal 1993, 1994 and 1995, and was $434,000 and $3.5 million
for the three months ended March 29, 1995 and March 27, 1996, respectively. The
Company expects these costs to be approximately $11.5 million in fiscal 1996 and
approximately $11.0 million in fiscal 1997. The Company expects to fund these
costs for fiscal 1996 and fiscal 1997 with its operating cash flow and debt
facilities. The Company believes that the proceeds of the Offering, internally
generated funds and amounts available under anticipated lines of credit will be
sufficient to satisfy the Company's capital requirements for at least the next
12 months.
At December 27, 1995, the Company's current liabilities exceeded its current
assets, resulting in a working capital deficit of $4.5 million. The Company
believes that negative working capital is typical of operators in the food
service business. The Working Capital Line provides funds for liquidity,
seasonal borrowing needs and other general corporate purposes.
On April 17, 1996, the Company entered into a non-binding letter of intent
to purchase all of the issued and outstanding stock of a contract food service
provider operating primarily at Education facilities. The estimated purchase
price is $3.4 million, comprised of $1.6 million payable in cash, $1.4 million
payable pursuant to the terms of a promissory note, payable in quarterly
installments over four years and bearing interest at 8 1/4% per annum, and
$400,000 payable pursuant to a two-year consulting agreement.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of. SFAS No. 121 establishes accounting
standards for recognizing the impairment of long-lived assets, certain
identifiable intangibles and for long-lived assets and certain identifiable
intangibles to be disposed of. SFAS No. 121 is effective for financial
statements for fiscal years beginning after December 15, 1995. The adoption of
SFAS No. 121 is not expected to materially affect the financial position or
results of operations of the Company.
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<PAGE>
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123 encourages all entities to adopt a fair value based
method of accounting for stock-based compensation plans in which compensation
cost is measured at the date the award is granted based on the value of the
award and is recognized over the employee service period. However, SFAS No. 123
allows an entity to continue to use the intrinsic value based method prescribed
by Accounting Principles Board Opinion ("APB") No. 25, with pro forma
disclosures of net income and earnings per share as if the fair value based
method has been applied. SFAS No. 123 is effective for financial statements for
fiscal years beginning after December 15, 1995. The Company currently plans to
continue to apply the method prescribed by APB No. 25.
INFLATION
The Company believes that inflation has not had a material effect on its
results of operations.
SEASONALITY
The Company's business is seasonal in nature. Many Recreation and Leisure
facilities experience slack periods in March, April and May due to fewer
sporting events in these months, and Convention Centers generally host fewer
conventions from May through September. Among other things, the Company adjusts
its labor scheduling and staffing to compensate for these fluctuations.
28
<PAGE>
BUSINESS
GENERAL
Fine Host Corporation is a leading contract food service management company,
providing food and beverage concession and catering services at more than 190
facilities located in 32 states, primarily through multi-year contracts. Fine
Host targets four distinct markets within the contract food service industry:
the recreation and leisure market (arenas, stadiums, amphitheaters, civic
centers and other recreational facilities); the convention center market; the
education market (colleges, universities and public and private schools); and
the corporate dining market (corporate cafeterias, office complexes and
manufacturing plants). The Company is the exclusive provider of food and
beverage services at substantially all of the facilities it serves.
INDUSTRY OVERVIEW
The Company estimates that the United States contract food service industry
had annual revenues of approximately $96 billion in 1995, of which approximately
$60 billion was in markets in which the Company presently competes. The
remaining $36 billion consisted of sales primarily to hospitals and health care
facilities, correctional facilities, military facilities, child-care facilities
and transportation facilities such as airports, train stations and bus depots.
In the contract food service industry, the facility owner, rather than the food
service provider, is primarily responsible for attracting patrons. All of the
markets in which the Company operates are highly fragmented. The contract food
service industry has been experiencing consolidation in recent years.
BUSINESS STRATEGY
The Company's objective is to become the leading contract food service
management company serving middle-market locations. The Company's business
strategy is comprised of the following key elements:
Exclusive Focus on Contract Food Service. Unlike most of its national
competitors, the Company focuses exclusively on the contract food service
industry. Management believes that its focus has allowed it to develop superior
operating techniques, hire and retain high quality unit, regional and senior
managers and maintain a greater awareness of and responsiveness to changing
market conditions.
Middle-Market Focus. The Company focuses on obtaining new contracts
principally at facilities generating $1 million to $4 million in annual food and
beverage sales. The Company believes that these "middle-market" facilities
generally provide greater profit margins and require less capital investment
than larger facilities. On a selective basis, the Company will attempt to obtain
additional larger accounts which give the Company high visibility in the
industry and strengthen its credibility when bidding on new contracts or
pursuing acquisitions.
Superior Operating Techniques. Fine Host has developed and implemented
various operating strategies and systems including (i) labor cost management
techniques that include forecasting labor costs on an event-by-event basis and
moving full-time employees between nearby facilities in response to changes in
demand, (ii) product cost management programs to reduce costs by establishing
national agreements with food manufacturers, distributors and equipment
manufacturers, (iii) quality control programs to ensure client satisfaction,
(iv) a facility design capability that maximizes point-of-sale contacts and uses
portable sales locations to increase sales, (v) customized menu design that
entails working closely with facility management to determine food and beverage
selection and pricing that meets client needs and (vi) extensive on-site
marketing and support, including an on-site salesperson at certain locations to
oversee food and beverage functions and to help sell unutilized space. The
Company believes that its operating techniques have led to significant increases
in sales and profits at many of the facilities it serves.
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<PAGE>
Empowered Local Management. Fine Host's decentralized management approach
assigns operating responsibility to the Company's general manager at each
facility. The Company's general managers and region managers, each of whom is
compensated in significant part through a bonus program tied closely to the
financial performance of the facilities, are given the freedom and authority to
make operational decisions. At convention centers and certain recreation and
leisure facilities, the Company typically employs an on-site salesperson who is
available to the convention or event manager to oversee the operation of food
and beverage functions and to help sell unutilized space.
Responsiveness to Clients. Consistent with the Company's client-oriented
approach, the Company is flexible in structuring the key terms of contracts in
order to satisfy client objectives. Senior management seeks to establish and
maintain close working relationships with clients, which the Company believes
enhance its ability to renew contracts. Monthly visits by region managers serve
to enhance the client relationship.
Account Diversity. The Company provides food service management at more than
190 facilities, including recreation and leisure facilities, convention centers,
educational facilities and corporate dining facilities of varying sizes. These
facilities are located domestically in 32 states and internationally in Bangkok,
Thailand. The Company believes this diversity, in terms of both type of facility
and geographic region, enhances the Company's ability to withstand localized
economic pressures and downturns associated with a particular market.
Cost Controls and Economies of Scale. The Company focuses on controlling
labor and overhead costs and capitalizing on economies of scale. As the number
of facilities served by the Company has increased, the Company has reduced labor
costs by transferring employees between nearby facilities during off-peak
periods. The Company centralizes various functions, including legal, finance,
contract administration, human resources, training, regulatory compliance,
marketing, purchasing and accounting services, in order to control overhead
costs. The Company's size has allowed it to procure national purchasing and
distribution arrangements with vendors that include national pricing available
to all Fine Host locations.
GROWTH OPPORTUNITIES
The Company believes that substantial opportunities for continued growth
exist through the addition of new contracts, the renewal of existing contracts
and acquisitions.
Obtaining New Contracts. The Company believes that the expertise and
experience of its management team enable it to identify new contract
opportunities and negotiate and implement facility contracts in a disciplined
manner. The Company believes that its ability to obtain new contracts is
enhanced by the following factors:
. Industry Growth. The Company believes that opportunities to obtain new
contracts will come from both the growing number of newly constructed and
expanded facilities, especially stadiums, arenas, amphitheaters and
convention centers, and the large number of existing facilities in each of
the Company's principal operating markets which are expected to put their
food service contracts out for bid in the near term.
. Increased Market Penetration. The Company's presence at a significant
facility within a city or region often results in additional business from
other facilities in the area because (i) other facilities may select the
Company based on the reputation the Company has gained in the area and (ii)
other accounts which were not economically viable for the Company to manage
on a stand-alone basis may now be managed by the Company's local management
team. By leveraging its established market presence, the Company is able to
bid more competitively for local business.
. Expanded Presence in Education and Corporate Dining. The Company's
recent entry through acquisition into the education and corporate dining
markets provides the Company with
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<PAGE>
operating experience which the Company believes will facilitate further
penetration into these highly fragmented markets.
. International Expansion. In 1994, the Company established a joint
venture with a Thai facilities management company to jointly market their
services throughout Asia, and obtained the food service contract for the
Queen Sirikit National Convention Center in Bangkok, Thailand. The Company
believes that the rapid growth of the Asian economy, including the increased
construction of recreation and leisure facilities and convention centers,
provides the Company with further opportunities for expansion on an
international basis due to the lack of both food service technology and
sophistication within the Asian contract food service industry.
Renewal of Contracts. The Company believes that its strong operating
performance and focus on client satisfaction have enabled it to achieve a
favorable contract renewal rate. Fine Host's sales and marketing staff maintains
on-going relationships with facility owners and typically seeks renewal of
existing contracts months in advance of the scheduled termination date. The
Company's senior management handles principal aspects of contract negotiations,
enabling the Company to be responsive in negotiations. Fine Host has retained
the food and beverage business at each of the 24 public convention centers at
which it has been awarded a contract without the loss of any such contract, and
has renewed each of the 12 convention center contracts that have come up for
renewal. The Company believes that its ability to renew convention center
contracts is particularly significant because public authorities choosing the
food service provider put great emphasis on the level of quality and service
offered. These aspects are viewed as critical factors in the decision-making
process of convention organizers and meeting planners when making site
selections.
Acquisitions. The Company believes there are significant opportunities to
expand its business through the acquisition of companies in the contract food
service industry, particularly in the education and corporate dining markets, as
well as in markets where the Company does not primarily operate, such as
hospitals and healthcare facilities and correctional facilities. Senior
management of the Company has been primarily responsible for identifying,
pursuing and negotiating potential acquisition opportunities and integrating
acquired operations. The Company believes that it can integrate such companies
into the Company's management structure and diversified operations successfully
without a significant increase in general and administrative expense. There can
be no assurance, however, that the Company's acquisition strategy can be
implemented successfully. See "Risk Factors--Risk of Inability to Operate or
Integrate Acquired Businesses; Expenses Associated with Acquisition Strategy."
SERVICES AND OPERATIONS
The Company provides a wide array of food services, ranging from concession
food and beverages, such as hot dogs, sandwiches, soda and beer, to
sophisticated catering and fine dining in a formal setting. At its convention
center locations, the Company routinely serves banquets attended by thousands of
persons.
The Company is the exclusive provider of food and beverages at substantially
all of the facilities it serves and is responsible for hiring, training and
supervising food service personnel and ordering, receiving, preparing and
serving all items of food and beverage sold. At facilities serviced by the
Company, the client attracts patrons on an event-specific basis at recreation
and leisure facilities and convention centers and on a continuing basis at
education and corporate dining facilities. As a result, the Company does not
incur the expense of marketing to the broader public, and is able to focus on
operations, client satisfaction, account retention and new account development.
Fine Host has developed and implemented various operating strategies and
systems to quickly and efficiently provide food and beverages to a large number
of people in a short period of time and in a cost-effective manner, including:
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<PAGE>
Labor Cost Management. The Company focuses on tight management of on-site
costs, particularly with respect to labor. The Company requires its general
managers to forecast labor requirements on an event-by-event basis and has the
ability to tailor labor costs to specific events and venues. For example,
managers reduce labor during individual events when operationally desirable,
such as after half time of a football game. In addition, as the number of
locations managed by the Company has grown, the Company has been able to achieve
labor savings by moving full-time employees between nearby facilities during
off-peak periods at one or more of the facilities.
Product Cost Management. The Company focuses on reducing total product
costs, including distribution costs and raw product costs. The Company has
implemented a program to control its distribution costs of grocery products
pursuant to national distribution contracts, while at the same time it has
negotiated agreements with the manufacturers of many of the principal products
needed at its facility locations. As the Company has grown, it has been able to
achieve economies of scale, including national pricing from manufacturers, food
distributors and food equipment manufacturers. The Company also manages its
product costs by carefully monitoring the size of food and beverage portions
against predetermined standards.
Quality Control. The Company has instituted a quality control program to
ensure client satisfaction and monitor quality levels at each of its locations.
The Company requires its region managers to visit each of the locations for
which he or she is responsible at least once monthly. The region manager is
required to submit to senior management a written summary of each visit,
including a report on the level of quality and service being maintained at each
location, as well as the client's view of Fine Host's performance. In addition,
the Company surveys meeting planners, convention organizers, fans and students
using its food and beverage services, enabling the Company to track levels of
satisfaction and to respond rapidly as problems arise.
Facility Design Capability. The Company has expertise in designing appealing
and efficient food service facilities, including food courts, kitchens and
permanent and portable concession stands. The Company believes that its design
of concession stands and use of systems and equipment such as portable
concession stands have enabled it to increase sales and improve client
satisfaction at many facilities.
Customized Menu Design. Fine Host works closely with each facility's
management to customize concession and catering menus and prices and to create
catering brochures that meet the needs of prospective users of the facility and
accommodate the tastes of the region in which the facility is located. Menus and
prices are further refined and upgraded during meetings between Fine Host
on-site management and facility patrons in accordance with the patron's
individual desires.
On-Site Marketing and Support. At convention centers and certain recreation
and leisure facilities, the Company's on-site salesperson is available to the
convention or event manager to oversee the operation of food and beverage
functions. This commissioned salesperson also assists the convention center in
selling unutilized space for events requiring food service, such as meetings,
luncheons and weddings. This cooperative effort can result in incremental income
for both Fine Host and its client.
Training and Recruiting. The Company has established a training program for
its facility general managers and their staffs to establish a consistent level
of quality at its facilities. The Company's training programs enable it to train
a large number of temporary employees in a short period of time. The Company has
developed and implemented numerous training programs, including an alcohol
awareness program which requires that all servers of alcohol products receive
special training, as well as a "train the trainer" program, which develops a
management employee at each location capable of conducting the Company's on-site
training programs.
Accounting Systems and Controls. The Company's management information system
is based on open hardware platforms that allow the Company to choose from a wide
variety of software, system utilities and development tools. The Company's time
management, inventory management (such as
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beverage yield analysis and food cost analysis) and retail point-of-sale control
systems provide data for posting directly to the Company's general ledger and to
other accounting subsystems. The automated general ledger system provides
management reports on a timely basis which compare current and prior operating
results and measure actual performance against predetermined operating budgets.
The results are reported to and reviewed by regional and corporate management.
Such reporting includes weekly and monthly forecasts of revenues and expenses
and detailed performance reports.
CLIENTS
The Company provides contract food services principally to recreation and
leisure facilities, convention centers, education facilities and corporate
dining accounts. As of May 1, 1996, the Company provided contract food service
management at 197 locations, including 75 recreation and leisure facilities, 24
convention centers, 53 education facilities and 22 corporate dining locations,
as well as 23 other types of facilities.
Recreation and Leisure Facilities. The Company offers food and beverage
concession and catering services to arenas, stadiums, amphitheaters, civic
centers and other recreational facilities. These facilities typically select a
food service provider on the basis of its ability to generate increased volume
from concession sales while maintaining high quality and attendee satisfaction.
The Company employs its facility design capability and other operating
techniques to serve its recreation and leisure venues and to increase total
sales and profitability. The Company believes that, as a result of the growing
popularity of minor league sports, significant opportunities exist at stadiums
and arenas at which minor league baseball and hockey teams play. As of May 1,
1996, the Company provided services to facilities hosting eight minor league
baseball teams and seven minor league hockey teams. The Company further believes
that more major college athletic programs will seek to outsource food and
beverage concession operations at on-campus stadiums and arenas. Recreation and
leisure facilities served by the Company presently include Joe Robbie Stadium in
Miami, Florida (home of the Miami Dolphins and Florida Marlins), Sun Devil
Stadium in Tempe, Arizona (home of the Arizona Cardinals) and the Great Woods
Center for the Performing Arts in Mansfield, Massachusetts. The Company also
provides concession services to recreation and leisure facilities at colleges
and universities including Arizona State University, Northwestern University and
the University of Minnesota.
Convention Centers. Food service offered in convention centers consists
primarily of large scale catering and banquet functions held in the facility's
ballroom and banquet halls, catering and concession services to functions held
in meeting rooms, and concession services offered to convention and trade show
attendees. The Company's convention center operations focus on providing
consistent high quality and client satisfaction in all food service areas,
particularly with respect to catering and banquet services. The Company believes
that its ability to renew convention center contracts is particularly
significant because public authorities choosing the food service provider put
great emphasis on the level of quality and service offered. These aspects are
viewed as critical factors in the decision-making process of convention
organizers and meeting planners when making site selections. The Company also
encourages convention organizers to choose other convention centers serviced by
Fine Host for subsequent events. The Company believes it is well positioned to
gain incremental sales at existing convention centers which are expanding their
banquet and ballroom capacities, and to obtain additional contracts at newly
constructed convention centers. Major convention center clients include the
Albuquerque Convention Center in Albuquerque, New Mexico; the Austin Convention
Center in Austin, Texas; the Bayside Exposition Center in Dorchester,
Massachusetts; the Orange County Convention Center in Orlando, Florida; the
Oregon Convention Center in Portland, Oregon; and the Wisconsin Center in
Milwaukee, Wisconsin.
Education. The Company provides food and beverage concession and catering
services to college, university and secondary and public school dining halls,
student cafeterias, food courts, snack bars and clubs. College student dining
habits have changed dramatically in recent years, with students tending to eat
smaller meals throughout the day and evening, often paying with debit cards in
lieu of cash or
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traditional board plans. In response to these changes, the Company now offers
increased quality and choices among food and beverage items at educational
facilities, including recognized brand name foods served in education facilities
by the Company's employees. The Company has contractual arrangements with Subway
Corporation, Pizza Hut, Inc. and Taco Bell Corp. to offer their products at
various dining locations at educational institutions. The Company presently
provides dining services to students at colleges and universities including
Morris Brown College in Atlanta, Georgia; Mt. Hood Community College in Gresham,
Oregon; Wayne State University in Detroit, Michigan; and Xavier University in
New Orleans, Louisiana.
Corporate Dining. Fine Host provides food and beverage services to corporate
dining rooms and cafeterias, office complexes and manufacturing plants.
Corporate dining facilities are increasingly offering upscale, quality food and
beverage items and are often subsidized by employers seeking to shorten employee
meal breaks and increase productivity. The Company seeks to capitalize on this
trend by providing high quality food and beverage service at its corporate
client dining locations. The Company serves a diversified mix of large corporate
clients, focusing on more upscale office dining. Clients include facilities of
Chrysler Corporation, General Motors Corporation, Ore-Ida Foods, Inc. and
Whirlpool Corporation.
The following table represents the Company's clients by market and location,
indicating in parentheses those clients for whom Fine Host serves multiple
facilities:
<TABLE>
RECREATION AND LEISURE
<S> <C>
Allen County War Memorial Complex Montage Mountain (Moosic, PA)
(Fort Wayne, IN)(3)
Montlure Camping Council (Greer, AZ)
Arizona State University Athletic Facilities
(Tempe, AZ)(6) Northwestern University Athletic Facilities
(Evanston, IL)(3)
Baltimore Memorial Stadium (Baltimore, MD)
Onondaga County--War Memorial, Mulroy Civic Center
Battle Creek Complex (Battle Creek, MI)(3)
(Syracuse, NY)(2)
Bell County Expo Center (Belton, TX)
Oregon Coast Aquarium (Newport, OR)
Boy Scouts of America (Cimmeron, NM )
Orpheum Theater (Boston, MA)
B.S.A. Camp Lawton (Mt. Lemmon, AZ)
Palace Theater (Louisville, KY)
Camp Elliott Barker (Eagle Nest, NM)
Palmer Auditorium (Austin, TX)(2)
Camp Of The Tall Pines (Cloudcroft, NM)
Plainfield Greyhound Park (Plainfield, CT)
Camp Shaver (Jemez Springs, NM)
Port of Seattle (Seattle, WA)
Charleston Civic Center Complex
(Charleston, WV)(3) Portland Center for the Performing Arts (Portland, OR)
Cimmarroncita Ranch Camp for Girls (Ute Park, NM) Portland Civic Stadium & Expo Center
City of Palms Park (Fort Myers, FL) (Portland, OR)(2)
Concord Pavilion (Concord, CA) Pyramid Arena (Memphis, TN)
Coral Sky Amphitheater (West Palm Beach, FL) Rancho Del Chaparral Girl Scout Camp (Cuba, NM)
Dutchess County Stadium Rice University Athletic Facilities
(Wappingers Falls, NY) (Houston, TX)(2)
Ft. Worth/Tarrant County Convention Center Sioux City Convention Center Complex
(Fort Worth, TX) (Sioux City, IA)(3)
Great Woods Center for the Performing Arts South Commons Complex (Columbus, GA)(3)
(Mansfield, MA)
Springfield Civic Center & Symphony Hall
Joe Robbie Stadium (Miami, FL) (Springfield, MA)(2)
King Richard's Faire (Carver, MA)
Tulsa Convention Center Complex
Lackawanna Coal Mine Tour (Scranton, PA) (Tulsa, OK)
Lackawanna County Stadium (Scranton, PA) Twin City Queen (Monroe, LA)
Les Bois Racetrack (Boise, ID)
University of Minnesota Athletic Facilities
Louisiana Purchase Gardens and Zoo (Monroe, LA) (Minneapolis, MN) (3)
Lucas County Recreational Center Facilities Western Idaho Fairgrounds
(Maumee, OH)(4) (includes Expo Building) (Boise, ID)(2)
</TABLE>
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CONVENTION CENTERS
<TABLE>
<S> <C>
Albuquerque Convention Center Lansing Center (Lansing, MI)
(Albuquerque, NM) Lawrence Convention Center (Pittsburgh, PA)
Allen County War Memorial Coliseum M.C. Benton Jr. Convention & Civic Center
(Fort Wayne, IN) (Winston-Salem, NC)
Arlington Convention Center (Arlington, TX) Monroe Civic Center (Monroe, LA)
Austin Convention Center (Austin, TX) Onondaga County--ON Center (Syracuse, NY)
Bayside Exposition Center (Dorchester, MA) Orange County Convention/Civic Center (Orlando, FL)
Charleston Civic Center (Charleston, WV) Oregon Convention Center (Portland, OR)
Columbus Georgia Convention and Trade Center Queen Sirikit National Convention Center
(Columbus, GA) (Bangkok, Thailand)
Dayton Convention Center (Dayton, OH) Sioux City Convention Center (Sioux City, IA)
Des Moines Convention Center (Des Moines, IA) Tulsa Convention Center (Tulsa, OK)
El Paso Convention Center & Performing Arts Center Virginia Beach Pavilion (Virginia Beach, VA)
(El Paso, TX) Wisconsin Center (Milwaukee, WI)
Ft. Worth/Tarrant County Convention Center World Trade Center Boston (Boston, MA)
(Fort Worth, TX)
EDUCATION
<CAPTION>
COLLEGES PUBLIC AND PRIVATE SCHOOLS
<S> <C>
Albertson College (Caldwell, ID) Archuleta School District #50
(Pagosa Springs, CO)
Brevard Community College (Melbourne, FL)(2)
Boysville of Michigan (Clinton, MI)
College of the Siskiyous (Weed, CA)
Blue Ridge School District (Lakeside, AZ)
College of Southern Idaho (Twin Falls, ID)
Buckeye Union High School (Buckeye, AZ)
DeKalb College (Clarkston, GA)
Casa Grande Union High School
Evergreen State College (Olympia, WA) (Casa Grande, AZ)
Huston-Tillotson College (Austin, TX) Cedar Unified School District
(Keams Canyon, AZ)
Lassen College (Susanville, CA)
Eunice Public School (Eunice, NM)
Northwest College (Powell, WY)
Ganado Public School (Ganado, AZ)
Morris Brown College (Atlanta, GA)
Hayden-Winkelman Schools (Winkelman, AZ)
Mt. Hood Community College (Gresham, OR)
Ignacio Public Schools (Ignacio, CO)
Navajo Community College (Shiprock, NM)
Kayenta Unified School District (Kayenta, AZ)
Navajo Community College (Tsaile, AZ)
Marana Public Schools (Marana, AZ)
Philander Smith College (Little Rock, AR)
McNary Schools (McNary, AZ)
Pierce College (Tacoma, WA)
Miami School District (Miami, AZ)
San Juan College (Farmington, NM)
Navajo Preparatory School (Farmington, NM)
Siena Heights College (Adrian, MI)
Pinon Unified School District (Pinon, AZ)
Southwestern Indian Polytechnic Institute
(Albuquerque, NM) Pojoaque Valley Schools (Santa Fe, NM)
Tacoma Community College (Tacoma, WA) Red Mesa School District (Teec Nos Pos, AZ)
Treasure Valley Community College (Ontario, OR) St. Francis High School (Toledo, OH)
Wayne State University (Detroit, MI) St. John's High School (Toledo, OH)
Wenatchee Valley College (Wenatchee, WA) St. Michael's Catholic School (St. Michaels, AZ)
Westminster College (Salt Lake City, UT) St. Michael's High School (Santa Fe, NM)
Xavier University (New Orleans, LA) San Carlos Unified School District
(San Carlos, AZ)
Sanders Unified School District (Sanders, AZ)
Sherman Indian High School (Riverside, CA)
Snowflake School District (Snowflake, AZ)
Wellton Public School (Wellton, AZ)
Window Rock Unified School Dstrict
(Fort Defiance, AZ)
<CAPTION>
CORPORATE DINING
<S> <C>
Allied Signal, Inc.(Perrysburg, OH) Holnam, Inc. (Dundee, MI)
Blue Cross of Washington (Mountlake Terrace, WA) J.R. Simplot Company, Inc. (Caldwell, ID)
Carl D. Perkins Rehabilitation Center (Thelma, KY) King County Medical Examiners Office (Seattle, WA)
Chrysler Corporation Toledo Plant KIRO, Inc. (Seattle, WA)
(Perrysburg, OH) Lane, Powell, Spears, Lubersky (Seattle, WA)
Dana Corp. (Toledo, OH) Libbey-Owens-Ford Co., Inc. (Toledo, OH)(2)
Dana Tech Center (Ottawa Lake, MI) Ore-Ida Foods, Inc. (Boise, ID)
Data I/O Corporation (Redmond, WA) Pierce County Medical Center (Tacoma, WA)
Ford Motor Company, Inc. (Maumee, OH) Trinova Corporation (Maumee, OH)
Frank Russell Co. (Tacoma, WA) Univar Corporation (Kirkland, WA)
General Motors Corporation (Defiance, OH) Whirlpool Corporation (Clyde, OH)
Greenwich Office Park (Greenwich, CT)
</TABLE>
35
<PAGE>
OTHER
<TABLE>
<S> <C>
Apache County Jail (St. Johns, AZ) LaPaz County Jail (Parker, AZ)
Chaves County Detention Center (Roswell, NM) Navajo County Jail (Holbrook, AZ)
Colfax County Jail (Raton, NM) New Mexico Youth Diagnostic and Development Center
Curry County Jail (Clovis, NM) (Albuquerque, NM)
Devereux-Santa Barbara (Goleta, CA) Otero County Detention Center (Alamogordo, NM)
Devereux-Scottsdale (Scottsdale, AZ) Pinal County Jail (Florence, AZ)
Dona Ana County Jail (Las Cruces, NM) Quay County Detention Center (Tucumcari, NM)
Gila County Jail (Globe, AZ) Sandoval County Detention (Bernalillo, NM)
Golden Plains Community Hospital (Borger, TX) Santa Cruz County Jail (Nogales, AZ)
Graham County Jail (Safford, AZ) Sequoyah Treatment Center (Albuquerque, NM)
Gray County Jail (Pampa, TX) Springer Boys' School (Springer, NM)
Holy Cross Hospital (Taos, NM) Winslow City Jail (Winslow, AZ)
</TABLE>
CONTRACTS
The Company generally enters into one of three types of contracts: profit
and loss contracts, profit sharing contracts and management fee contracts.
Profit and Loss Contracts ("P&Ls"). Under P&Ls, the Company receives all the
revenues and bears all the expenses of the operation. These expenses include
rent paid to the client, typically calculated as a fixed percentage of various
categories of sales. While Fine Host often benefits from greater upside
potential with a P&L contract, it is responsible for all costs of running the
food service operation and consequently bears greater risk than with a
management fee or profit sharing contract. As of May 1, 1996, the Company had 93
P&L contracts.
Profit Sharing Contracts. Under profit sharing contracts, the Company
receives a percentage of profits earned at the facility plus a fixed fee or
percentage of sales as an administrative fee. Under this type of contract, Fine
Host does not bear responsibility for losses incurred, if any. As of May 1,
1996, the Company had 13 profit sharing contracts.
Management Fee Contracts. Revenues derived under management fee contracts
are based upon a fixed fee. Fine Host is reimbursed for all its on-site expenses
incurred in providing food and beverage services under management fee contracts.
A number of the Company's management fee contracts provide for an additional
incentive fee based on a percentage of sales over a base threshold level. The
benefit of this type of contract is that risks associated with food and beverage
operations at the facility are generally not borne by Fine Host. As of May 1,
1996, the Company had 55 management fee contracts.
Fine Host often provides a capital commitment in its bid to win a new
facility contract. This commitment most frequently takes the form of an
investment in food service equipment and leasehold facilities, which upgrade the
facility itself and can increase the returns to both Fine Host and the facility
owner by generating increased sales. Occasionally, the Company makes loans or
advances to the client, the proceeds of which are generally used to improve an
existing facility or to complete a new facility. These loans are sometimes
collateralized by other assets in the facility. When the Company makes an
investment, loan or advance to a facility under either a management fee or
profit sharing contract, the amount of the commitment, together, in certain
cases, with interest, is repaid to the Company out of the revenues generated by
the food service operation in accordance with an amortization schedule set forth
in the contract. P&L contracts do not require the repayment of invested capital
to the Company during the contract term. All of the Company's contracts require
the client to reimburse the Company for any unamortized invested capital in the
event of the expiration or termination of the contract for any reason, and Fine
Host keeps title to the subject assets until such payment is made. Invested
capital is usually amortized over a period of time equal to or greater than the
term of the contract. The Company believes that its willingness to make
selective investments can provide it with a competitive advantage in bidding for
new contracts. There can be no assurance, however, that any such investments
will enhance returns and not result in losses for the Company. See "Risk
Factors--Dependence on Clients; Investment in Client Contracts and Advances to
Clients."
36
<PAGE>
The length of contracts varies depending on the type of facility, type of
contract and financial investment. Contracts for recreation and leisure
facilities typically include the largest capital investment by the Company and
generally have a term of three to ten years. Contracts for convention centers
generally have a term of three to five years. Education contracts generally have
a term of one to five years. Corporate dining accounts, which generally require
the smallest capital investment by the Company, typically have a shorter term
than those in the recreation and leisure, convention center and education areas,
and generally contain a provision allowing either party to terminate for
convenience after a short notice period, typically ranging from 30 to 90 days.
Corporate dining contracts representing approximately 3.6% of the Company's
fiscal 1995 historical net sales are terminable after a short notice period.
Excluding such contracts terminable on short notice, contracts representing
approximately 6.3% and 7.2% of the Company's fiscal 1995 historical net sales
are scheduled to expire in fiscal 1996 and fiscal 1997, respectively.
Certain municipalities and governmental authorities require that a certain
percentage of food service contract bids be from minority-owned and/or
women-owned businesses ("MBEs" and "WBEs," respectively). The Company has
entered into joint ventures with four MBEs/WBEs to operate facilities in
Orlando, Florida; Portland, Oregon; Fort Worth, Texas; and Milwaukee, Wisconsin.
It is likely that the Company will be required to partner with additional
MBEs/WBEs in the future as a precondition to winning certain municipal and
governmental authority facility food service contracts.
SALES AND MARKETING
The Company selectively bids for both privately owned facility contracts and
contracts awarded by governmental and quasi-governmental agencies. The privately
negotiated transactions are usually competitive in nature, with a privately
owned facility owner or operator soliciting proposals from Fine Host and several
of its competitors. These bids often require a Fine Host team to formulate a
rapid response and make a proposal encompassing, among other things, a capital
investment and other financial terms. In certain cases, a private facility owner
may choose to negotiate with the Company exclusively for a period of time. The
Company believes that its flexibility with clients has helped it in these
instances. See "--Business Strategy." Governmental contracts are usually awarded
pursuant to a request-for-proposal process. Bidding in publicly controlled
venues often requires more than a year of effort by a Fine Host team, focusing
on building meaningful relationships in the local community in which the venue
is located and raising the profile of the Fine Host name with the decision
makers within that community. During this bidding period, the Company expends
substantial time, effort and funds preparing a contract proposal and negotiating
the contract. See "Risk Factors--Adverse Effects of an Inability to Retain
Existing Contracts and Obtain New Contracts." The Company's sales and marketing
team consists of three senior sales executives and four sales and marketing
professionals. The entire team is involved at various stages in formulating
sales proposals and operating plans and negotiating new contracts.
Members of the Company's sales and marketing team maintain a high degree of
visibility in various industry trade associations. Virtually all of the
Company's clients and potential clients in facilities operated by governmental
and quasi-governmental authorities are members of these trade groups. The
Company regularly exhibits at industry trade shows held for and by groups
comprised of recreation and leisure facility owners, convention center managers
and representatives of colleges and universities. Fine Host also advertises on a
regular basis in magazines and periodicals that focus on the public facilities
industry.
COMPETITION
The Company encounters significant competition in each area of contract food
service market in which it operates. Food service companies compete for clients
on the basis of quality and service standards, innovative approaches to food
service facilities design, maximization of sales and price
37
<PAGE>
(including the making of loans, advances and investments in client facilities
and equipment). Competition may result in price reductions, decreased gross
margins and loss of market share. Certain of the Company's competitors compete
with the Company on both a national and international basis and have
significantly greater financial and other resources than the Company. In
addition, existing or potential clients may elect to "self operate" their food
service, eliminating the opportunity for the Company to compete for the account.
There can be no assurance that the Company will be able to compete successfully
in the future or that competition will not have a material adverse effect on the
Company's business, financial condition or results of operations.
EMPLOYEES
As of May 1, 1996, the Company had 396 full-time salaried employees,
including 238 in operations, 135 in administration and 23 in sales. During April
1996, approximately 8,700 employees were part-time or hired on an event-by-event
basis. The number of part-time employees can vary significantly from time to
time. The Company believes that its future success will depend in large part
upon the continued service of its senior management personnel and upon the
Company's continuing ability to attract and retain highly qualified managerial
personnel. Competition for highly qualified personnel is intense and there can
be no assurance that the Company will be able to retain its key managerial
personnel or that it will be able to attract and retain additional managerial
personnel in the future. Approximately 10% of the Company's total employees
(including full and part-time) are covered by collective bargaining agreements.
The Company has not experienced any work stoppage and considers its relations
with its employees to be satisfactory. The Company has hired and expects to
continue to need to hire a large number of qualified, temporary workers at
particular events. See "Risk Factors--Adverse Effects of an Inability to Manage
Growth" and "--Constraints and Expenses Associated with an Unavailability of
Labor."
GOVERNMENT REGULATION
The Company's business is subject to various governmental regulations
incidental to its operations, such as environmental, employment and health and
safety regulations. Since it serves alcoholic beverages at many convention
centers and recreation and leisure facilities, the Company also holds liquor
licenses incidental to its contract food service business and is subject to the
liquor license requirements of the states in which it holds a liquor license. As
of May 1, 1996, the Company and its affiliates held liquor licenses in 21
states. While the application procedures and requirements for a liquor license
vary by state, the Company has received an alcoholic beverage license with
respect to each of the approximately 30 applications it has submitted, and has
never had an alcoholic beverage license revoked or suspended.
Typically, liquor licenses must be renewed annually and may be revoked or
suspended for cause at any time. Alcoholic beverage control regulations relate
to numerous aspects of the Company's operations, including minimum age of
patrons and employees, hours of operation, advertising, wholesale purchasing,
inventory control and handling, and storage and dispensing of alcoholic
beverages. The Company has not encountered any material problems relating to
alcoholic beverage licenses to date. The failure to receive or retain a liquor
license in a particular location could adversely affect the Company's ability to
obtain such a license elsewhere.
The Company is subject to "dram-shop" statutes in the states in which
facilities are located. These statutes generally provide a person injured by an
intoxicated person the right to recover damages from an establishment which
wrongfully served alcoholic beverages to the intoxicated individual. The Company
carries liquor liability coverage as part of its existing comprehensive general
liability insurance which it believes is adequate. While the Company maintains
such insurance, there can be no assurance that such insurance will be adequate
to cover any potential liability or that such insurance
38
<PAGE>
will continue to be available on commercially acceptable terms. See "Risk
Factors--Government Regulation."
The cost of the Company's compliance with governmental regulations has not
been material. However, there can be no assurance that additional federal or
state legislation, or changes in regulatory implementation, would not limit the
activities of the Company in the future or significantly increase the cost of
regulatory compliance. See "Risk Factors--Government Regulation."
PROPERTIES
The Company leases its corporate headquarters in Greenwich, Connecticut
pursuant to a lease expiring in June 2004. The Company also maintains accounting
processing centers in Toledo, Ohio, Boise, Idaho and Tempe, Arizona. The Company
leases the space for each of these facilities. The Company believes that the
properties which are currently under lease are adequate to serve the Company's
business operations for the foreseeable future. The Company believes that if it
were unable to renew the lease on any of these facilities, other suitable
facilities would be available to meet the Company's needs.
LITIGATION
In January 1996, the Company was served with a complaint naming it as one of
five defendants in a lawsuit brought by multiple plaintiffs in the New York
Supreme Court alleging damages arising out of the Woodstock II Festival held in
August 1994 in Saugerties, New York. The promoter of the festival is also a
defendant. The plaintiffs were hired by the Company (which had a concession
agreement with the promoters of the festival) as subcontractors of food,
beverage and/or merchandise. In their complaint, which seeks approximately $5.9
million, the plaintiffs allege damages arising primarily from the failure to
provide adequate security and prevent festival attendees from bringing food and
beverages in to the festival. The Company has made claim for indemnification
under applicable provisions of the concession agreement, which has been rejected
by the promoter. On April 4, 1996, the other defendants named in the suit
answered the complaint and asserted cross-claims for contribution and
indemnification against the Company.
The Company has also sued a former client in the Jefferson Circuit Court of
the Commonwealth of Kentucky for certain amounts owed by the former client under
the food service contract between the parties, and the former client has filed a
counterclaim against the Company seeking unspecified damages for the Company's
alleged tortious interference with a prospective contractual relationship with
another food service provider.
The Company is involved in certain other legal proceedings incidental to the
normal conduct of its business. The Company does not believe that any
liabilities relating to any of the legal proceedings to which it is a party are
likely to be, individually or in the aggregate, material to its consolidated
financial position or results of operations.
39
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- --- -------------------------------------------
<S> <C> <C>
Richard E. Kerley(1)....................... 54 President, Chief Executive Officer and
Director
Randy B. Spector........................... 44 Executive Vice President--Administration
Randall K. Ziegler......................... 54 Executive Vice President--International
Division and Director
Nelson A. Barber........................... 40 Senior Vice President and Chief Financial
Officer
Robert Barney.............................. 56 Senior Vice President--Education and
Corporate Dining
Ronald C. Holliday......................... 50 Senior Vice President--Sales
William R. Berkley(1)(2)................... 50 Chairman of the Board of Directors
Ronald E. Blaylock(3)...................... 36 Director Nominee
Andrew M. Bursky(2)........................ 39 Director
Catherine B. James......................... 43 Director
Jack H. Nusbaum(3)......................... 55 Director Nominee
Joshua A. Polan(1)(2)...................... 47 Director
</TABLE>
- ------------
(1) Member of Executive Committee.
(2) Member of Compensation Committee.
(3) To be appointed director upon the closing of the Offering.
RICHARD E. KERLEY has been the President and Chief Executive Officer of Fine
Host since 1991. He previously served as Chief Financial Officer of the Company
from 1990 to 1991. He has been a director of the Company since 1994. Mr. Kerley
has 21 years of experience in the food services industry. Prior to joining the
Company in 1990, Mr. Kerley held a series of senior management positions at
Ogden Corporation, a contract food service provider, including head of business
development, logistic support and accounting.
RANDY B. SPECTOR has been Executive Vice President--Administration of the
Company since 1993. From 1990 to 1993, Mr. Spector was Senior Vice
President--Law and Corporate Affairs of the Company. From 1987 to 1990, Mr.
Spector served as Vice President and General Counsel of the Company. Before
joining Fine Host in 1987, Mr. Spector spent five years as Vice President and
General Counsel of Dellwood Foods, Inc., a processor and distributor of milk and
dairy products in the New York City metropolitan area.
RANDALL K. ZIEGLER has been Executive Vice President--International Division
of the Company since 1995. He previously served as President of the Company's
Food Services Division from 1990 to 1995. From 1985 to 1990, Mr. Ziegler served
as Vice President--Sales of the Company. Mr. Ziegler has been a director of the
Company since 1994. Prior to joining the Company in 1985, he held a number of
senior management positions at Service America Corporation, a contract food
service provider, including head of new business development.
NELSON A. BARBER has been Senior Vice President and Chief Financial Officer
of the Company since 1995. He previously served as Treasurer of the Company from
1993 to 1995. From 1989 to 1993, Mr. Barber was Chief Financial Officer and
Treasurer of GEV Corporation (now known as Pioneer Companies, Inc.) and from
1987 to 1989 he was Director of Corporate and International Accounting at
Combustion Engineering Inc., a diversified industrial services company.
40
<PAGE>
ROBERT BARNEY has been Senior Vice President--Education and Corporate Dining
of the Company since 1995. Prior to joining Fine Host in 1995, Mr. Barney
founded Northwest Food Services, Inc. in 1976, and served as its President and
Chief Executive Officer until its sale to Fine Host in 1995.
RONALD C. HOLLIDAY has been Senior Vice President--Sales since 1993. From
1991 to 1993, Mr. Holliday worked for ARA Leisure Services Corporation, a
contract food service provider as Vice President of Sales. Mr. Holliday has held
several senior management positions at Spectacor Management Group, a facilities
management company, and Ogden Leisure Services Corporation, a contract food
service provider. In each case, he was responsible for new business development.
Mr. Holliday is a former professional football player who played for the San
Diego Chargers, Buffalo Bills and Kansas City Chiefs.
WILLIAM R. BERKLEY has been Chairman of the Board of the Company since 1994
and a director of the Company since 1985. He also serves as Chairman of the
Board of several companies which he controls or founded. These include W.R.
Berkley Corporation, a property and casualty insurance holding company,
Interlaken Capital, Inc. ("Interlaken Capital"), a private investment and
consulting firm, and Pioneer Companies, Inc. ("PCI"), a publicly traded company
engaged in the manufacture and marketing of chlorine and caustic soda and
related products. Mr. Berkley is also a director of Strategic Distribution, Inc.
("Strategic Distribution"), a publicly traded industrial service and
distribution business. Mr. Berkley is Vice-Chairman of the Board of Trustees of
the University of Connecticut, a director of Georgetown University, a trustee of
New York University and a member of the Board of Overseers of the New York
University Stern School of Business.
RONALD E. BLAYLOCK will become a director of the Company upon the closing of
the Offering. Mr. Blaylock has been President and Chief Executive Officer of
Blaylock & Partners, L.P., an investment banking firm, since he founded the firm
in September 1993. Prior to September 1993, Mr. Blaylock was a founding partner
and Executive Vice President of Utendahl Capital Partners, a minority-owned
broker dealer, where he specialized in taxable fixed-income securities, from
1991 to 1993. Prior to such time, Mr. Blaylock was a First Vice President at
PaineWebber Incorporated from 1988 to 1991 and a Vice President at Citibank
Capital Markets from 1982 to 1988. Mr. Blaylock is a director of Georgetown
University, where he was a member of an NCAA Final Four basketball team, and
also serves as a director of Harbourton Mortgage Corp. and Covenant House.
ANDREW M. BURSKY has been a director of the Company since 1986. He
previously served as Secretary and Treasurer of the Company from 1985 to 1990.
Mr. Bursky has been a Managing Director of Interlaken Capital since May 1980.
Mr. Bursky is a director of PCI and has been Chairman of the Board of Strategic
Distribution since July 1988.
CATHERINE B. JAMES has been a director of the Company since 1994. She has
served as Chief Financial Officer of Strategic Distribution since February 1996,
as Executive Vice President of Strategic Distribution since January 1989 and as
Secretary and Treasurer of Strategic Distribution since December 1989. She has
served as a member of the Board of Directors of Strategic Distribution since
1990. She was Chief Financial Officer of Strategic Distribution from January
1989 until September 1993. Ms. James has been a Managing Director of Interlaken
Capital since January 1990. From 1982 through 1988, she was employed by Morgan
Stanley & Co. Incorporated, serving as a Managing Director in the corporate
finance area during the last two years of her tenure.
JACK H. NUSBAUM will become a director of the Company upon the closing of
the Offering. Mr. Nusbaum is the Chairman of the New York law firm of Willkie
Farr & Gallagher, where he has been a partner for more than the past twenty-five
years. He is also a director of PCI, W.R. Berkley Corporation, Prime Hospitality
Corp. and The Topps Company, Inc. Mr. Nusbaum is also a trustee of Prep for
Prep, the Joseph Collins Foundation and the Robert Steel Foundation.
JOSHUA A. POLAN has been a director of the Company since 1994. Mr. Polan has
served as an executive officer of Interlaken Capital since June 1988, currently
serving as a Managing Director. He
41
<PAGE>
has served as a member of the Board of Directors of Strategic Distribution since
1988. For more than five years prior to June 1988, Mr. Polan was a partner in
the accounting firm of Touche Ross & Co.
Mr. Bursky, Ms. James and Mr. Polan are executive officers of Idle Wild
Farm, Inc., a privately owned company that was formerly engaged in the
manufacture of frozen foods which, in October 1993, filed a chapter 11 petition
for reorganization under federal bankruptcy laws. Mr. Bursky is an executive
officer of Blue Lustre Products, Inc., a privately owned company which is
engaged in the sale and leasing of carpet cleaning equipment and other carpet
cleaning products which, in October 1995, filed a chapter 11 petition for
reorganization under federal bankruptcy laws.
Effective upon the closing of the Offering, the Board of Directors will be
divided into three classes. One class of directors will be elected each year at
the annual meeting of stockholders for terms of office expiring after three
years. Messrs. Nusbaum and Polan will serve in the class whose terms expire in
1997; Mr. Blaylock, Mr. Bursky and Ms. James will serve in the class whose terms
expire in 1998; and Messrs. Kerley, Ziegler and Berkley will serve in the class
whose terms expire in 1999. Each director serves until the expiration of his
term and thereafter until his successor is duly elected and qualified. The
classified Board of Directors could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from acquiring or
making a proposal to acquire, a majority of the outstanding stock of the
Company. Executive officers of the Company are elected annually by the Board of
Directors and serve at their discretion or until their successors are duly
elected and qualified. There are no family relationships among any of the
executive officers and directors of the Company.
The Board of Directors has established a Compensation Committee (the
"Compensation Committee"), which provides recommendations concerning salaries
and incentive compensation for employees of, and consultants to, the Company and
administers the 1994 Stock Option Plan and the 401(k) Plan. The Board of
Directors will also establish an Audit Committee, which will review the results
and scope of the annual audit of the Company's financial statements conducted by
the Company's independent accountants, the scope of other services provided by
the Company's independent accountants, proposed changes in the Company's
financial and accounting standards and principles, and the Company's policies
and procedures with respect to its internal accounting, auditing and financial
controls and will make recommendations to the Board of Directors on the
engagement of the independent accountants, as well as other matters which may
come before the Audit Committee or at the direction of the Board of Directors.
The independent directors are expected to comprise a majority of the members of
the Audit Committee.
DIRECTORS' ANNUAL COMPENSATION
During the fiscal year ended December 27, 1995, members of the Board of
Directors received no directors' fees. The Company is obligated to reimburse its
Board members for all reasonable expenses incurred in connection with their
attendance at directors' meetings. No director made any claim for reimbursement
in fiscal 1995. Following the Offering, members of the Board of Directors who
are not officers or employees of the Company will receive $2,500 per meeting and
participate in the 1996 Non-Employee Director Stock Plan. See "--Compensation
Pursuant to Plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is currently composed of Messrs. Berkley, Bursky
and Polan. Mr. Berkley is Chairman of the Board of the Company. Mr. Bursky
served as an executive officer of the Company from 1985 to 1990. Following the
Offering, Messrs. Berkley, Bursky and Polan will receive compensation for their
service as directors as set forth under "--Directors' Annual Compensation." Mr.
Berkley, Chairman of the Board of the Company, is also Chairman of the Board and
a member of the Compensation Committee of PCI and a director of Strategic
Distribution. Mr. Bursky, an executive officer of Strategic Distribution, serves
on the Compensation Committee of the Company. See "Certain
42
<PAGE>
Transactions" for a description of certain transactions between the Company and
certain other entities, of which Messrs. Berkley, Bursky and Polan are officers,
directors or partners.
EXECUTIVE COMPENSATION
The following table sets forth information regarding the compensation of the
Company's Chief Executive Officer and the four other most highly compensated
executive officers (the "Executive Officer Group") for the fiscal year ended
December 27, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
(1)
-------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION (2)
- -------------------------------------------------------- -------- -------- ----------------
<S> <C> <C> <C>
Richard E. Kerley....................................... $185,000 $125,000 $1,440
President and CEO
Randall K. Ziegler...................................... 180,000 52,500 1,440
Executive Vice President
Randy B. Spector........................................ 155,000 62,500 510
Executive Vice President
Douglas M. Stabler...................................... 155,000 50,000 870
Executive Vice President
Ronald C. Holliday...................................... 80,000 126,115 383
Senior Vice President
</TABLE>
- ------------
(1) Other annual compensation in the form of perquisites and other personal
benefits has been omitted because the aggregate amount of such perquisites
and other personal benefits was less than $50,000 and constituted less than
10% of the executive's total annual salary and bonus.
(2) Represents premiums of excess group life insurance provided by the Company.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning the number and value
of unexercised stock options held at year end by each member of the Executive
Officer Group. No stock options were granted to or exercised by members of the
Executive Officer Group during the fiscal year ended December 27, 1995.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR END FISCAL YEAR END (1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Richard E. Kerley........... 7,583 15,167 $49,831 $99,169
Randall K. Ziegler.......... 2,916 5,834 19,162 33,338
Randy B. Spector............ 5,250 10,500 34,500 69,000
Douglas M. Stabler.......... 5,250 10,500 34,500 69,000
Ronald C. Holliday.......... 2,916 5,834 19,162 38,338
</TABLE>
- ------------
(1) There was no public trading market for the Common Stock on December 27,
1995. Accordingly, solely for purposes of this table, these values have been
calculated on the basis of an assumed initial public offering price of
$13.00, less the aggregate exercise price of the options.
Upon the closing of the Offering, the Company intends to grant stock options
to officers and certain employees of the Company pursuant to the 1994 Stock
Option Plan, including stock options covering 54,000 shares for Mr. Kerley,
15,000 shares for Mr. Ziegler, 22,000 shares for Mr. Spector and 14,500 shares
for Mr. Holliday. These options will have an exercise price equal to the initial
public offering price per share set forth on the cover of this Prospectus. See
"--Compensation Pursuant to Plans."
43
<PAGE>
COMPENSATION PURSUANT TO PLANS
1994 Stock Option Plan: The Company's Amended and Restated 1994 Stock
Option Plan (the "1994 Stock Plan") is open to participation by directors,
officers and key employees of the Company and its subsidiaries, except
members of the Compensation Committee. The number of shares of Common Stock
reserved for issuance under the 1994 Stock Plan is 569,000 shares. Either
incentive stock options or options that do not qualify as incentive stock
options may be granted under the 1994 Stock Plan. The 1994 Stock Plan
expires in November 2004.
The 1994 Stock Plan is administered by the Compensation Committee, which
determines, in its discretion, those persons to be granted options and the
number of options to be received, the times when recipients of options
("Optionees") may exercise the options, the expiration dates of the options and
whether the options will be incentive stock options. The Compensation Committee
may determine the option price of the stock options; provided that (i) the
option price of an incentive stock option may not be less than the fair market
value of the Common Stock on the date of grant and (ii) the option price of an
option which is not an incentive stock option shall not be less than 85% of the
fair market value. Unless an option agreement provides otherwise, in the event
of a change in control (as defined in the 1994 Stock Plan) the outstanding
options shall immediately become exercisable. As of May 1, 1996, options to
purchase an aggregate of 115,500 shares of Common Stock have been granted under
the 1994 Stock Plan.
Upon the closing of the Offering, the Company intends to grant stock options
representing an aggregate of 276,750 shares of Common Stock to officers and key
employees of the Company at an exercise price equal to the initial public
offering price per share set forth on the cover of this Prospectus.
1996 Non-Employee Director Stock Plan: The 1996 Non-Employee Director Stock
Plan (the "Directors Plan") authorizes the grant of an aggregate of 50,000
shares of Common Stock. Common Stock is granted pursuant to the Directors Plan
only to members of the Board of Directors who are not officers or employees of
the Company ("Non-Employee Directors"). The Directors Plan is administered by
the Compensation Committee. As of the closing of the Offering, six members of
the Board of Directors will be eligible for participation in the Directors Plan,
including Mr. Berkley.
Upon consummation of the Offering, each Non-Employee Director will be
automatically granted a number of shares of Common Stock equal to $15,000
divided by the initial public offering price per share in the Offering (1,153
shares assuming an initial public offering price of $13.00 per share).
Thereafter, for the remainder of the term of the Directors Plan and provided he
or she remains a director of the Company, on the date of each of the Company's
annual meeting of Stockholders, each Non-Employee Director will be automatically
granted, without further action by the Board of Directors, a number of shares of
Common Stock equal to $15,000 divided by the Fair Market Value (as defined in
the Director's Plan) of one share of Common Stock on the date of grant.
Common Stock granted under the Directors Plan will be restricted and
nontransferable for the period of one year from the date of grant. In the event
that a Non-Employee Director ceases to be a member of the Board of Directors,
other than because of his or her death or Disability (as defined in the
Directors Plan), all shares of Common Stock granted to him or her pursuant to
the Directors Plan whose restrictions have not lapsed shall be forfeited back
to the Company. Upon a Non-Employee Director's death or Disability all
restrictions on shares of Common Stock granted to him pursuant to the Directors
Plan shall lapse and all such shares shall become freely transferable. In the
event of a Change in Control (as defined in the Directors Plan), all
restrictions with respect to shares of Common Stock previously granted pursuant
to the Directors Plan will immediately lapse and all such shares will become
immediately transferable.
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<PAGE>
CERTAIN TRANSACTIONS
ADVISORY AGREEMENT WITH INTERLAKEN CAPITAL
The Company has paid Interlaken Capital, Inc. ("Interlaken Capital"), a
private investment and consulting firm affiliated with Interlaken Investment
Partners, L.P. ("Interlaken Partners"), a stockholder of the Company, an
advisory fee of $150,000 during each of the last three fiscal years, for certain
administrative services provided by Interlaken Capital to the Company. The
Company will pay Interlaken Capital this annual advisory fee after the Offering
pursuant to an advisory services agreement terminable by either party with
respect to the next succeeding calendar year upon two months' notice. Mr.
Berkley, a director of the Company, is the sole owner and President of
Interlaken Capital, and each of Mr. Bursky, Ms. James and Mr. Polan, each a
director of the Company, is a managing director of Interlaken Capital. Messrs.
Berkley and Bursky are also directors of Interlaken Capital. Each of Mr.
Berkley, Mr. Bursky, Ms. James and Mr. Polan, directors of the Company, are
limited partners of Interlaken Management Partners, L.P., the general partner of
Interlaken Partners.
EMPLOYEE NOTES AND REGISTRATION
In 1987 and 1991, Messrs. Kerley, Spector and Ziegler, executive officers of
the Company, purchased Common Stock from the Company in exchange for promissory
notes payable to the Company in the original principal amounts of $86,545,
$76,030 and $34,618 and having outstanding principal amounts of $81,995, $74,208
and $32,796 as of May 1, 1996, respectively. These notes bear interest at the
rate of 10% per annum and mature on June 30, 1996. In addition, in 1985, Messrs.
Stabler and Ziegler purchased Common Stock with funds borrowed from Interlaken
Capital Partners Limited Partnership ("ICPLP"), of which Messrs. Berkley and
Bursky are general partners, evidenced by notes each in the original principal
amount and having an outstanding principal amount as of May 1, 1996 of $16,779.
Upon the closing of the Offering, pursuant to the terms of the employee notes to
the Company and ICPLP, interest on the notes (aggregating $38,947 for Mr.
Kerley, $35,248 for Mr. Spector, $23,548 for Mr. Ziegler and $7,970 for Mr.
Stabler) will be forgiven and interest will thereafter cease to accrue. In
addition, the employee notes will be amended to extend their maturity for three
years. The Company has agreed to file a shelf registration statement after the
one-year anniversary of the closing of the Offering relating to an aggregate of
238,000 shares of Common Stock held by Messrs. Kerley, Spector, Stabler and
Ziegler, which would entitle them to sell such shares within the volume
limitations of Rule 144 under the Securities Act. See "Description of Capital
Stock-- Registration Rights." The Company believes these arrangements assist it
in retaining qualified management personnel.
BANK OF AMERICA AND ING ARRANGEMENTS
In April 1993, the Company entered into a subordinated loan agreement with
Continental Bank, N.A. (now known as Bank of America Illinois ("BAI")) pursuant
to which the Company sold $8.5 million of its variable rate subordinated notes
and issued warrants to acquire 733,467 shares of non-voting common stock at an
exercise price of $4.93 per share and warrants to acquire 133,763 shares of
non-voting common stock at an exercise price of $.01 per share. The notes are
due April 30, 2001 with mandatory principal payments of $2,125,000 due on April
30 of each year commencing in 1998 and ending in 2001. In connection with the
amendment to the Company's credit agreement in April 1995, a $2.0 million
prepayment of principal was made, reducing the 1998 mandatory prepayment to
$125,000. On April 21, 1995, the rate of interest was reset at 12.79% for the
remainder of the term of the notes. BAI agreed in April 1995 to reduce the
number of shares of Common Stock represented by certain of the warrants. In
addition, the terms of certain of the warrants provided for a reduction in the
number of shares issuable upon exercise thereof in the event the Company
satisfied certain financial conditions. As of March 29, 1996, an aggregate of
593,453 of the warrants remain outstanding.
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On March 22, 1996, in connection with the transfer by BAI of the $6.5
million variable rate subordinated notes to ING Capital Corp. ("ING"), BAI
transferred to ING one-half of its warrants to acquire shares of non-voting
common stock at an exercise price of $4.93 per share and one-half of its
warrants to acquire shares of non-voting common stock at an exercise price of
$.01 per share. All warrants held by BAI and ING will be repurchased by the
Company upon the closing of the Offering. See "Use of Proceeds" and "Description
of Capital Stock--Warrants."
FANFARE FINANCING
In connection with the financing of the acquisition of Fanfare in 1993, the
Company issued to The Berkley Family Limited Partnership (the "Partnership")
15,650 shares of Series A Convertible Preferred Stock, a warrant to acquire
21,294 shares of Common Stock at an exercise price of $4.93 per share and a
warrant to acquire 81,613 shares of Common Stock at an exercise price of $0.01
per share. In addition, the Company issued to GRD Corporation ("GRD") 86,942
shares of Series A Convertible Preferred Stock, a warrant to acquire 118,307
shares of Common Stock at an exercise price of $4.93 per share and a warrant to
acquire 453,432 shares of Common Stock at an exercise price of $0.01 per share
(collectively, the "Fanfare Financing"). Upon the closing of the Offering, the
shares of Series A Convertible Preferred Stock held by the Partnership and GRD
will be converted into 109,550 and 608,594 shares of Common Stock, respectively.
The consideration for the issuance and sale of such securities to the
Partnership consisted of the reduction of $539,925 in principal amount of a
promissory note made by the Company and payable to the Partnership, and the
consideration for the issuance and sale of such securities to GRD was
$2,999,499. In connection with the Fanfare Financing, the Company granted the
Partnership and GRD certain registration rights relating to the shares of Common
Stock owned by them. See "Description of Capital Stock--Registration Rights."
The terms of the warrants acquired by the Partnership and GRD provided for a
reduction in the number of shares issuable upon exercise thereof in the event
the Company satisfied certain financial conditions. As of March 29, 1996, the
Partnership's warrant to acquire 21,294 shares of Common Stock had been reduced
to 18,851 shares, the Partnership's warrant to acquire 81,613 shares of Common
Stock had been reduced to 20,398 shares, GRD's warrant to acquire 118,307 shares
of Common Stock had been reduced to 104,734 shares and GRD's warrant to acquire
453,432 shares of Common Stock had been reduced to 113,358 shares. See
"Description of Capital Stock--Warrants."
INTERLAKEN PARTNERS INVESTMENT
In April 1995, Interlaken Partners purchased 31,579 shares of Series A
Convertible Preferred Stock from the Company for a price of $47.50 per share.
Upon the closing of the Offering, the shares of Series A Convertible Preferred
Stock held by Interlaken Partners will be converted into 221,053 shares of
Common Stock. In connection with the April 1995 financing, the Company granted
Interlaken Partners certain registration rights relating to the shares acquired
by it. See "Description of Capital Stock--Registration Rights."
SHAREHOLDERS AGREEMENT
Ms. James and Messrs. Berkley, Bursky, Kerley, Polan, Spector and Ziegler,
Joseph A. Scarmuzzi and certain other stockholders of the Company are parties to
a Shareholders Agreement, dated as of November 14, 1985, as amended, with the
Company providing for, among other things, restrictions on transfer of shares of
Common Stock, repurchase rights and preemptive rights. The Shareholders
Agreement will be terminated upon the closing of the Offering.
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<PAGE>
OTHER
The Company has retained the law firm of Willkie Farr & Gallagher as its
counsel with respect to certain matters, including the Offering, and anticipates
it will continue to do so in the future. Mr. Nusbaum, who will become a director
of the Company upon the closing of the Offering, is the Chairman of Willkie Farr
& Gallagher. See "Legal Matters."
Fine Host is a participating employer in the Interlaken Capital Retirement
401(k) Savings Plan.
The Company believes that all transactions between the Company and its
officers, directors and principal stockholders or affiliates thereof, in light
of the circumstances of the transactions, have been and will in the future be on
terms no less favorable to the Company than could be obtained from unaffiliated
third parties. Such transactions will in the future be subject to the approval
of a majority of the disinterested directors of the Company.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with regard to the
beneficial ownership of the Common Stock as of May 1, 1996 and as adjusted to
reflect the sale of the shares of Common Stock offered hereby, by (i) each
person known by the Company to own beneficially more than 5% of the outstanding
shares of Common Stock, (ii) each director of the Company and each member of the
Executive Officer Group, (iii) all directors and officers of the Company as a
group and (iv) each Selling Stockholder. Except as otherwise noted, the named
beneficial owner has sole voting and investment power.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING (1) AFTER THE OFFERING (1)
NAME AND ADDRESS ------------------------------- SHARES -----------------------------
OF BENEFICIAL OWNER SHARES PERCENTAGE OFFERED SHARES PERCENTAGE
- ------------------------------- ----------- ---------- ------- --------- ----------
<S> <C> <C> <C> <C> <C>
William R. Berkley............. 1,525,454 (2) 50.3% 349,454(3) 1,177,153(4) 19.5%
165 Mason Street
Greenwich, CT 06830
GRD Corporation ............... 713,328 (5) 22.9 713,328(6) -- --
c/o General Re Corporation
695 East Main Street
Stamford, CT 06901
Bank of America Illinois....... 296,726.5(7) 9.0 -- -- --
231 South LaSalle Street
Chicago, IL 60697
ING Capital Corporation........ 296,726.5(8) 9.0 -- -- --
c/o Internationale Nederlanden
(U.S.) Capital Corporation
135 East 57th Street
New York, NY 10022
Interlaken Investment Partners, 221,053 7.3 221,053 -- --
L.P. ..........................
165 Mason Street
Greenwich, CT 06830
Joseph A. Scarmuzzi............ 179,200 5.9 -- 179,200 3.0
1500 Fern Court #307
Vero Beach, FL 32963
The Berkley Family Limited
Partnership.................... 128,401 (9) 4.2 128,401(10) -- *
Edgar W. Blanch, Jr............ 21,000 * 21,000 -- --
The McLeland Living Trust...... 21,000 * 21,000 -- --
John L. Read................... 28,000 * 14,000 14,000 *
Klara Silverstein.............. 21,000 * 21,000 -- --
Richard E. Kerley.............. 77,583 (11) 2.6 -- 77,583 1.3
Randall K. Ziegler............. 72,916 (12) 2.4 -- 72,916 1.2
Randy B. Spector............... 61,250 (13) 2.0 -- 61,250 1.0
Douglas M. Stabler............. 47,250 (14) 1.6 -- 47,250 *
Ronald C. Holliday............. 2,916 (15) * -- 2,916 *
Ronald E. Blaylock............. -- -- -- 1,153(16) *
Andrew M. Bursky............... 70,000 2.3 -- 71,153(4) 1.2
Catherine B. James............. 42,000 1.4 -- 43,153(4) *
Jack H. Nusbaum................ -- -- -- 1,153(16) *
Joshua A. Polan................ 42,000 1.4 -- 43,153(4) *
All directors and executive
officers as a group (13
persons)....................... 1,919,331 (2)(17) 62.4% 349,454 1,576,795(18) 25.9%
</TABLE>
- ------------
* Less than 1%.
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(1) Under the rules of the Securities and Exchange Commission, shares are
deemed to be "beneficially owned" by a person if such person directly or
indirectly has or shares (i) the power to vote or dispose of such shares,
whether or not such person has any pecuniary interest in such shares, or
(ii) the right to acquire the power to vote or dispose of such shares
within 60 days, including any right to acquire through the exercise of any
option, warrant or right.
(2) Includes 221,053 shares of Common Stock beneficially owned by Interlaken
Investment Partners, L.P. and 128,401 shares of Common Stock beneficially
owned by The Berkley Family Limited Partnership. Mr. Berkley is the sole
owner of a company that indirectly controls Interlaken Investment Partners,
L.P. and is a general partner of The Berkley Family Limited Partnership; as
such, he may be deemed to be the beneficial owner of shares of Common Stock
beneficially owned by such entities.
(3) Represents 221,053 shares of Common Stock to be sold by Interlaken
Investment Partners, L.P., and 128,401 shares of Common Stock to be sold by
The Berkley Family Limited Partnership.
(4) Includes 1,153 shares of Common Stock to be issued upon the closing of the
Offering pursuant to the Directors Plan.
(5) Includes 104,734 shares of Common Stock to be issued upon exercise of
warrants at the closing of the Offering. GRD Corporation is a wholly owned
subsidiary of General Re Corporation.
(6) Includes 104,734 shares of Common Stock to be issued upon exercise of
warrants at the closing of the Offering.
(7) Consists of 296,727 shares of Common Stock issuable upon exercise of
warrants, such warrants to be repurchased by the Company upon the closing
of the Offering for a purchase price derived from the initial public
offering price per share in the Offering. See "Use of Proceeds."
(8) Consists of 296,727 shares of Common Stock issuable upon exercise of
warrants, such warrants to be repurchased by the Company upon the closing
of the Offering for a purchase price of $500,000. ING Capital Corporation
is an indirect wholly owned subsidiary of ING Bank N.V. See "Use of
Proceeds."
(9) Includes 18,851 shares of Common Stock issuable upon exercise of warrants.
(10) Includes 18,851 shares of Common Stock to be issued upon exercise of
warrants at the closing of the Offering.
(11) Includes 7,583 shares of Common Stock issuable upon exercise of stock
options.
(12) Includes 2,916 shares of Common Stock issuable upon exercise of stock
options.
(13) Includes 5,250 shares of Common Stock issuable upon exercise of stock
options.
(14) Includes 5,250 shares of Common Stock issuable upon exercise of stock
options.
(15) Consists of 2,916 shares of Common Stock issuable upon exercise of stock
options.
(16) Consists of 1,153 shares of Common Stock to be issued upon the closing of
the Offering pursuant to the Directors Plan.
(17) Includes 62,728 shares of Common Stock issuable upon exercise of stock
options or warrants beneficially owned by directors and executive officers
of the Company.
(18) Includes 6,918 shares of Common Stock to be issued upon the closing of the
Offering pursuant to the Directors Plan.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company currently consists of 1,000,000
shares of Common Stock, par value $.01 per share, 250,000 shares of Non-Voting
Common Stock, par value $.01 per share and 250,000 shares of Series A
Convertible Preferred Stock, par value $.01 per share. As of May 1, 1996, there
were 2,074,100 shares of Common Stock outstanding held of record by 27 persons
and 134,171 shares of Series A Convertible Preferred Stock outstanding held of
record by three persons. Each share of Series A Convertible Preferred Stock will
be converted automatically upon the closing of the Offering into seven shares of
Common Stock. No shares of Non-Voting Common Stock have been issued.
Effective upon the closing of the Offering and after giving effect to the
amendment to the Company's Restated Certificate of Incorporation (the "Restated
Certificate"), the authorized capital stock of the Company will consist of
25,000,000 shares of Common Stock and 1,000,000 shares of Preferred Stock, par
value $.01 per share. Upon the closing of the Offering, there will be 6,034,018
shares of Common Stock and no shares of Preferred Stock outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share in all matters to
be voted on by the stockholders of the Company and do not have cumulative voting
rights. Subject to preferences that may be applicable to any Preferred Stock
outstanding at the time, holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor. See "Dividend Policy." In the
event of a liquidation, dissolution or winding up of the Company, holders of
Common Stock are entitled to share ratably in all assets remaining after payment
of the Company's liabilities and the liquidation preference, if any, of any
outstanding Preferred Stock. All of the outstanding shares of Common Stock are,
and the shares offered by the Company in the Offering will be, when issued and
paid for, fully paid and non-assessable. Holders of Common Stock have no
preemptive, subscription, redemption or conversion rights. The rights,
preferences and privileges of holders of Common Stock are subject to, and may be
adversely affected by, the rights of the holders of shares of any series of
Preferred Stock which the Company may designate and issue in the future.
PREFERRED STOCK
Effective upon the closing of the Offering and after giving effect to the
amendment to the Restated Certificate, the Board of Directors will have the
authority, without any further vote or action by the stockholders, to provide
for the issuance of up to 1,000,000 shares of Preferred Stock from time to time
in one or more series with such designations, rights, preferences and
limitations as the Board of Directors may determine, including the consideration
received therefor. The Board also will have the authority to determine the
number of shares comprising each series, dividend rates, redemption provisions,
liquidation preferences, sinking fund provisions, conversion rights and voting
rights without approval by the holders of Common Stock. Although it is not
possible to state the effect that any issuance of Preferred Stock might have on
the rights of holders of Common Stock, the issuance of Preferred Stock may have
one or more of the following effects: (i) to restrict Common Stock dividends if
Preferred Stock dividends have not been paid, (ii) to dilute the voting power
and equity interest of holders of Common Stock to the extent that any series of
Preferred Stock has voting rights or is convertible into Common Stock or (iii)
to prevent current holders of Common Stock from participating in the Company's
assets upon liquidation until any liquidation preferences granted to holders of
Preferred Stock are satisfied. In addition, the issuance of Preferred Stock may,
under certain circumstances, have the effect of discouraging a change in control
of the Company by, for example, granting
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<PAGE>
voting rights to holders of Preferred Stock that require approval by the
separate vote of the holders of Preferred Stock for any amendment to the
Restated Certificate or any reorganization, consolidation, merger or other
similar transaction involving the Company. As a result, the issuance of such
Preferred Stock may discourage bids for the Common Stock at a premium over the
market price therefor, and could have a materially adverse effect on the market
value of the Common Stock. See "Risk Factors-- Anti-Takeover Effect of Certain
Charter and By-Law Provisions."
WARRANTS
The Company currently has warrants outstanding to acquire an aggregate of
850,794 shares of Common Stock, 683,592 of which are exercisable at a price of
$4.93 per share (the "$4.93 Warrants") and 167,202 of which are exercisable at a
price of $.01 per share (the "$.01 Warrants" and, together with the $4.93
Warrants, the "Warrants"). The holders of the Warrants are entitled to receive
an adjustment in the number of shares as to which the Warrant relates and the
exercise price upon the occurrence of certain events, including the issuance by
the Company of equity securities at a price below the then existing exercise
price or the "appraised value" of such securities (as defined in the Warrants).
Upon the closing of the Offering, holders of Warrants to acquire an
aggregate of 296,726.5 shares of Common Stock (280,003.5 at $4.93 per share and
16,723 at $.01 per share) are obligated to sell these Warrants to the Company at
a price equal to the difference between the initial public offering price as set
forth on the cover of this Prospectus and the exercise price of the respective
Warrant, multiplied by the number of shares of Common Stock purchasable under
the respective Warrant (approximately $2.5 million assuming an initial public
offering price of $13.00 per share). In addition, the Company will have the
right, upon the closing of the Offering, to repurchase Warrants to acquire an
aggregate of 296,726.5 additional shares of Common Stock (280,003.5 at $4.93 per
share and 16,723 at $.01 per share) on or before June 30, 1996 for an aggregate
repurchase price of $500,000. The Company will repurchase these Warrants upon
the closing of the Offering. See "Use of Proceeds." Holders of $4.93 Warrants to
acquire an aggregate of 123,585 shares of Common Stock have indicated to the
Company that they intend to exercise their Warrants immediately prior to the
Offering and to sell such shares in the Offering.
Accordingly, following the closing of the Offering, the Company will have
outstanding Warrants to purchase an aggregate of 133,756 shares of Common Stock
at a purchase price of $.01 per share. In the event the Company's consolidated
net income before income taxes (subject to certain adjustments set forth in the
$.01 Warrants) is equal to or greater than $5.9 million for the fiscal year
ending December 25, 1996, the $.01 Warrants will be canceled and of no further
force or effect. The $.01 Warrants may not be exercised before April 15, 1997.
REGISTRATION RIGHTS
In connection with the issuance and sale of the Warrants and the Series A
Convertible Preferred Stock, the Company entered into two registration rights
agreements (the "Registration Rights Agreements") with Continental Bank N.A.
(whose shares were subsequently acquired by BAI), GRD and William R. Berkley,
and Interlaken Partners (collectively, the "Holders"). Following the Offering,
the Holders will be entitled, with respect to 1,309,756 shares, to demand up to
three registrations, the expenses of which will be borne by the Company. In
addition, the Holders have incidental or "piggyback" registration rights with
respect to certain registrations of equity securities by the Company. The
registration rights are not available if the shares of Common Stock then held by
the Holder can be sold in any 90-day period pursuant to Rule 144 under the
Securities Act (without giving effect to the provisions of Rule 144(k)).
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<PAGE>
As part of one of the Registration Rights Agreements, each of Continental
Bank N.A. and GRD also agreed to provide the Company and certain stockholders
with a right of first offer in the event such Holder decides to sell any Warrant
or shares of Common Stock issuable upon exercise of the Warrants.
The Company has agreed to file a shelf registration statement after the
one-year anniversary of the closing of the Offering relating to an aggregate of
238,000 shares of Common Stock, held by certain employees of the Company, which
would entitle them to sell such shares within the volume limitations of Rule 144
under the Securities Act.
LIMITATIONS ON DIRECTORS' LIABILITY
The Restated Certificate and By-laws, which will go into effect upon the
closing of the Offering, limit the liability of directors to the maximum extent
permitted by Delaware law. Delaware law provides that directors of a corporation
will not be personally liable for monetary damages for breach of their fiduciary
duties as directors, including gross negligence, except liability for (i) breach
of the directors' duty of loyalty, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law, (iii)
the unlawful payment of a dividend or unlawful stock purchase or redemption and
(iv) any transaction from which the director derives an improper personal
benefit. Delaware law does not permit a corporation to eliminate a director's
duty of care, and this provision of the Company's Restated Certificate has no
effect on the availability of equitable remedies, such as injunction or
rescission, based upon a director's breach of the duty of care.
These provisions will not limit liability under state or federal securities
laws. The Company believes that these provisions will assist the Company in
attracting and retaining qualified individuals to serve as directors.
CLASSIFIED BOARD OF DIRECTORS; PREFERRED STOCK
Effective upon the closing of the Offering, the Company will amend its
Restated Certificate of Incorporation to create a classified Board of Directors
and to authorize the issuance of Preferred Stock without stockholder approval
and upon such terms as the Board of Directors may determine. These amendments
could have the effect of making it more difficult for a third party to acquire,
or of discouraging a third party from acquiring or making a proposal to acquire,
a majority of the outstanding stock of the Company. The rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights of
holders of Preferred Stock that may be issued in the future. The Company has no
present plans to issue any shares of Preferred Stock. See "Description of
Capital Stock--Preferred Stock" and "Risk Factors--Anti-Takeover Effect of
Certain Charter and By-Law Provisions."
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Under Section 203, certain "business
combinations" between a Delaware corporation whose stock generally is publicly
traded or held of record by more than 2,000 stockholders and an "interested
stockholder" are prohibited for a three-year period following the date that such
a stockholder became an interested stockholder, unless (i) the corporation has
elected in its original certificate of incorporation not to be governed by
Section 203 (the Company did not make such an election), (ii) the business
combination was approved by the Board of Directors of the corporation before the
other party to the business combination became an interested stockholder, (iii)
upon consummation of the transaction that made it an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the commencement of the transaction (excluding voting stock owned
by directors who are also officers or held in employee benefit plans in which
the employees do not have a confidential right to tender or vote stock held by
the plan) or (iv) the business combination
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<PAGE>
was approved by the Board of Directors of the corporation and ratified by
two-thirds of the voting stock which the interested stockholder did not own. The
three-year prohibition also does not apply to certain business combinations
proposed by an interested stockholder following the announcement or notification
of certain extraordinary transactions involving the corporation and a person who
had not been an interested stockholder during the previous three years or who
became an interested stockholder with the approval of the majority of the
corporation's directors. The term "business combination" is defined generally to
include mergers or consolidations between a Delaware corporation and an
"interested stockholder," transactions with an "interested stockholder"
involving the assets or stock of the corporation or its majority-owned
subsidiaries and transactions which increase an interested stockholder's
percentage ownership of stock. The term "interested stockholder" is defined
generally as a stockholder who, together with affiliates and associates, owns
(or, within three years prior, did own) 15% or more of a Delaware corporation's
voting stock. Section 203 could prohibit or delay a merger, takeover or other
change in control of the Company and therefore could discourage attempts to
acquire the Company.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar of the Common Stock is Continental Stock
Transfer and Trust Company.
INCLUSION IN THE NASDAQ NATIONAL MARKET
The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "FINE."
53
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of the Offering, the Company will have outstanding
6,034,018 shares of Common Stock, assuming no exercise of the Underwriters'
over-allotment option. Of such outstanding shares, the 4,030,000 shares sold in
the Offering will be freely tradeable in the United States without restriction
under the Securities Act, except that shares purchased by an "affiliate" of the
Company, within the meaning of the rules and regulations adopted under the
Securities Act, may be subject to resale restrictions. The remaining outstanding
shares are "restricted securities," as that term is defined under such rules and
regulations, and may not be sold unless they are registered under the Securities
Act or they are sold in accordance with Rule 144 under the Securities Act or
some other exemption from such registration requirement. As those restrictions
under the Securities Act lapse, such shares may be sold to the public pursuant
to Rule 144.
Approximately 403,200 of the outstanding shares of Common Stock are
restricted securities (of which 305,200 shares are subject to the lock-up
agreements described below) which will be eligible for sale in the public market
as of the date of this Prospectus in reliance on Rule 144(k) under the
Securities Act. Beginning 90 days after the date of this Prospectus, an
additional 1,330,000 of these shares (all of which are subject to lock-up
agreements) will become eligible for sale subject to the provisions of Rule 144.
The Company and certain of its executive officers, directors and stockholders
have agreed that, for a period of 180 days after the date of this Prospectus
(the "lock-up period"), they will not dispose of any shares of Common Stock or
securities convertible or exchangeable into or exercisable for any shares of
Common Stock without the prior written consent of Montgomery Securities. See
"Underwriting." Upon the expiration of the lock-up period (or earlier with the
consent of Montgomery Securities), 1,635,200 restricted shares will become
eligible for sale subject to the provisions of Rules 144 and 144(k).
In general, under Rule 144, beginning 90 days after the date of this
Prospectus, subject to certain conditions with respect to the manner of sale,
the availability of current public information concerning the Company and other
matters, each of the existing stockholders who has beneficially owned shares of
Common Stock for at least two years will be entitled to sell within any three
month period that number of such shares which does not exceed the greater of 1%
of the total number of then outstanding shares of Common Stock (approximately
60,340 shares immediately after the Offering) or the average weekly trading
volume of shares of Common Stock during the four calendar weeks preceding the
date on which notice of the proposed sale is sent to the Securities and Exchange
Commission (the "Commission"). Moreover, each of the existing stockholders who
is not deemed to be an affiliate of the Company at the time of the proposed sale
and who has beneficially owned his or her shares of Common Stock for at least
three years will be entitled to sell such shares under Rule 144(k) without
regard to such volume limitations.
The Commission has proposed certain amendments to Rule 144 that would reduce
by one year the holding periods required for shares subject to Rule 144 to
become eligible for resale in the public market. This proposal, if adopted,
would increase the number of shares of Common Stock eligible for immediate
resale following expiration of the lock-up agreements described above. No
assurance can be given concerning whether or when the proposal will be adopted
by the Commission.
The Company intends to file as soon as practicable after the closing of the
Offering a registration statement on Form S-8 under the Securities Act to
register approximately 569,000 and 50,000 shares of Common Stock reserved for
issuance under the 1994 Stock Plan and the Directors Plan, respectively,
including, in some cases, shares for which an exemption under Rule 144 would
also be available, thus permitting the resale of shares issued under the 1994
Stock Plan and the Directors Plan by non-affiliates in the public market without
restriction under the Securities Act. Such registration statement is expected to
become effective immediately upon filing, whereupon shares registered thereunder
will become eligible for sale in the public market, subject to vesting and, in
certain cases, subject to the lock-
54
<PAGE>
up agreements described above. At the date of this Prospectus, options to
purchase an aggregate of 115,500 shares of Common Stock are outstanding under
the 1994 Stock Plan. Upon the closing of the Offering, options to purchase an
additional 276,750 shares of Common Stock will be granted to employees of the
Company and 6,918 shares of Common Stock will be granted to certain directors of
the Company (assuming an initial public offering price of $13.00 per share). See
"Management-- Compensation Pursuant to Plans."
The holders of approximately 1,176,000 shares and warrants to purchase
133,756 shares are entitled to certain registration rights with respect to their
shares. The Company has agreed to file a shelf registration statement after the
one-year anniversary of the closing of the Offering relating to an aggregate of
238,000 shares of Common Stock. See "Description of Capital Stock--Registration
Rights."
Prior to the Offering, there has been no public market for the Common Stock.
No assurance can be given that such a market will develop or, if it develops,
will be sustained after the Offering or that the purchasers of the shares of
Common Stock will be able to resell such shares of Common Stock at a price
higher than the initial public offering or otherwise. If such a market develops,
no prediction can be made as to the effect, if any, that future sales of shares
of Common Stock, or the availability of shares of Common Stock for future sale,
to the public will have on the market price of the Common Stock prevailing from
time to time. Sales of substantial amounts of presently outstanding or
subsequently issued stock, or the perception that such sales could occur, could
adversely affect prevailing market prices for the Common Stock and could impair
the Company's ability to raise capital in the future through an offering of its
additional shares of Common Stock that may be offered for sale or sold to the
public in the future.
55
<PAGE>
UNDERWRITING
The Underwriters named below, represented by Montgomery Securities and
Oppenheimer & Co., Inc. (the "Representatives") have severally agreed, subject
to the terms and conditions set forth in the underwriting agreement (the
"Underwriting Agreement"), to purchase from the Company and the Selling
Stockholders the number of shares of Common Stock indicated below opposite their
respective names at the initial public offering price less the underwriting
discount set forth on the cover page of this Prospectus. The Underwriting
Agreement provides that the obligations of the Underwriters are subject to
certain conditions precedent and that the Underwriters are committed to purchase
all of such shares if they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ---------------------------------------------------------------- ---------
<S> <C>
Montgomery Securities...........................................
Oppenheimer & Co., Inc..........................................
---------
Total....................................................... 4,030,000
---------
---------
</TABLE>
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters propose initially to offer the Common Stock to the public
on the terms set forth on the cover page of this Prospectus. The Underwriters
may allow to selected dealers a concession of not more than $ per share;
and the Underwriters may allow, and such dealers may reallow, a concession of
not more than $ per share to certain other dealers. After the initial
public offering, the offering price and other selling terms may be changed by
the Representatives. The Common Stock is offered subject to receipt and
acceptance by the Underwriters, and to certain other conditions, including the
right to reject orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 604,500 additional shares of Common Stock to cover over-allotments, if any,
at the same price per share as the initial shares to be purchased by the
Underwriters. To the extent that the Underwriters exercise this option, the
Underwriters will be committed, subject to certain conditions, to purchase such
additional shares in approximately the same proportion as set forth in the above
table. The Underwriters may purchase such shares only to cover over-allotments
made in connection with the Offering.
The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the Underwriters against certain liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments the Underwriters may be required to make in respect thereof.
Stockholders of the Company who will hold an aggregate of at least 1,906,018
shares of Common Stock following the completion of this Offering (plus 90,543
shares of Common Stock issuable upon the exercise of stock options that will
have vested within 180 days from the date of this Prospectus), including all of
the directors and executive officers of the Company, have agreed that they will
not, without the prior written consent of Montgomery Securities, directly or
indirectly, offer, sell, contract to sell, make any short sale, pledge,
establish an open "put equivalent position" within the meaning of Rule 16a-1(h)
under the Exchange Act, or otherwise dispose of any shares of Common Stock,
options to acquire new shares of Common Stock or any securities convertible or
exchangeable for shares of Common Stock, or publicly announce the intention to
do any of the foregoing, for a period of 180 days after the date of this
Prospectus. In addition, the Company has agreed in the Underwriting Agreement
that, without the prior written consent of Montgomery Securities, it will not
issue, offer, sell, or grant
56
<PAGE>
shares of Common Stock or options to purchase such shares (other than options or
shares granted or issued pursuant to the Company's 1994 Stock Plan and the
Directors Plan) or otherwise dispose of the Company's equity securities, or any
other securities convertible into or exchangeable for the Company's Common Stock
or other equity securities for a period of 180 days after the date of this
Prospectus.
The Representatives have informed the Company that the Underwriters do not
expect to make sales of Common Stock offered by this Prospectus to accounts over
which they exercise discretionary authority in excess of 5% of the Offering.
Prior to the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price will be determined by
negotiations among the Company, the Selling Stockholders and the
Representatives. Among the factors to be considered in such negotiations will be
the history of, and the prospects for, the Company and the industry in which it
competes, an assessment of the Company's management, the Company's past and
present operations, its past and present earnings and the trend of such
earnings, the prospects for future earnings of the Company, the present state of
the Company's development, the general condition of the securities markets at
the time of the Offering and the market prices of publicly traded common stocks
of comparable companies in such periods.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Willkie Farr & Gallagher, New York, New York. Jack H. Nusbaum, who
upon the closing of the Offering will become a director of the Company and will
beneficially own 1,153 shares of Common Stock (assuming an initial public
offering price of $13.00 per share), is the Chairman of Willkie Farr &
Gallagher. Certain legal matters relating to the Offering will be passed upon
for the Underwriters by Hale and Dorr, Boston, Massachusetts.
EXPERTS
The financial statements as of December 28, 1994 and December 27, 1995 and
for each of the three years in the period ended December 27, 1995 of Fine Host
included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and have been
so included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
The financial statements as of December 31, 1994 and 1995 and for each of
the three years in the period ended December 31, 1995 of Sun West included in
this Prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein, and have been so included
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
The financial statements as of December 31, 1993 and for the year ended
December 31, 1993 of Creative included in this Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein, and have been so included in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
57
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission under the
Securities Act a Registration Statement on Form S-1 with respect to the Common
Stock offered hereby. This Prospectus does not contain all of the information
set forth in the Registration Statement in accordance with the rules and
regulations of the Commission. For further information pertaining to the Company
and the Common Stock offered hereby, reference is made to the Registration
Statement, including the exhibits thereto and the financial statements, notes
and schedules filed as a part thereof. Statements contained in this Prospectus
as to the contents of any contract or other document are not necessarily
complete and, in each instance, reference is made to the copy of such contract
or document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. The Registration
Statement may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549
and at the Commission's Regional Offices in New York (Seven World Trade Center,
New York, New York 10007) and Chicago (Suite 1400, Citicorp Center, 500 West
Madison Street, Chicago, Illinois 60611). Copies of such material can be
obtained from the public reference section of the Commission at prescribed rates
by writing to the Public Reference Section of the Commission at 450 Fifth
Street, N.W. Washington, D.C. 20549.
58
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE COMPANY
Independent Auditors' Report....................................................... F-2
Consolidated Balance Sheets as of December 28, 1994 and December 27, 1995.......... F-3
Consolidated Statements of Income for the fiscal years ended December 29, 1993,
December 28, 1994 and December 27, 1995.............................................. F-4
Consolidated Statements of Stockholders' Equity for the fiscal years ended December
29, 1993, December 28, 1994 and December 27, 1995................................ F-5
Consolidated Statements of Cash Flows for the fiscal years ended December 29, 1993,
December 28, 1994 and December 27, 1995.............................................. F-6
Notes to Consolidated Financial Statements......................................... F-7
Consolidated Balance Sheets as of December 27, 1995 and March 27, 1996
(unaudited).......................................................................... F-22
Unaudited Consolidated Statements of Income for the three months ended March 29,
1995 and March 27, 1996.............................................................. F-23
Unaudited Consolidated Statements of Stockholders' Equity for the three months
ended March 29, 1995 and March 27, 1996.......................................... F-24
Unaudited Consolidated Statements of Cash Flows for the three months ended March
29, 1995 and March 27, 1996...................................................... F-25
Notes to Unaudited Consolidated Financial Statements............................... F-26
SUN WEST SERVICES, INC.
Independent Auditors' Report....................................................... F-30
Balance Sheets as of December 31, 1994 and 1995.................................... F-31
Statements of Operations for the fiscal years ended
December 31, 1993, 1994 and 1995................................................. F-32
Statements of Stockholders' Equity (Capital Deficiency) for the fiscal years ended
December 31, 1993, 1994 and 1995..................................................... F-33
Statements of Cash Flows for the fiscal years ended December 31, 1993, 1994 and
1995................................................................................. F-34
Notes to Financial Statements...................................................... F-35
Balance Sheets as of December 31, 1995 and March 25, 1996 (unaudited).............. F-41
Unaudited Statements of Operations for the three months ended March 31, 1995 and
March 25, 1996....................................................................... F-42
Unaudited Statements of Cash Flows for the three months ended
March 31, 1995 and March 25, 1996................................................ F-43
Notes to Unaudited Financial Statements............................................ F-44
CREATIVE FOOD MANAGEMENT, INC.
Independent Auditors' Report....................................................... F-46
Consolidated Balance Sheet as of December 31, 1993................................. F-47
Statement of Operations for the fiscal year ended December 31, 1993................ F-48
Statement of Cash Flows for the fiscal year ended December 31, 1993................ F-49
Notes to Financial Statements...................................................... F-50
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
FINE HOST CORPORATION
We have audited the accompanying consolidated balance sheets of Fine Host
Corporation and subsidiaries (the "Company") as of December 28, 1994 and
December 27, 1995, and the consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended December
27, 1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well a evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Fine Host Corporation and
subsidiaries as of December 28, 1994 and December 27, 1995 and the results of
their operations and their cash flows for each of the three years in the period
ended December 27, 1995 in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
New York, New York
May 24, 1996
F-2
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 28, 1994 DECEMBER 27, 1995
----------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash..................................................... $ 1,532 $ 634
Accounts receivable...................................... 6,750 7,548
Notes receivable......................................... 1,964 520
Inventories.............................................. 2,218 2,099
Prepaid expenses and other current assets................ 2,121 1,893
-------- --------
Total current assets................................. 14,585 12,694
Contract rights, net....................................... 9,715 12,866
Fixtures and equipment, net................................ 13,372 15,829
Notes receivable........................................... 2,059 1,391
Excess of cost over fair value of net assets acquired,
net........................................................ 10,455 13,406
Other assets............................................... 2,967 4,395
-------- --------
Total assets......................................... $53,153 $60,581
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.................... $13,565 $12,467
Current portion of long-term debt........................ 3,738 2,981
Current portion of subordinated debt..................... 1,338 1,745
-------- --------
Total current liabilities............................ 18,641 17,193
Deferred income taxes...................................... 5,004 6,421
Long-term debt............................................. 8,289 15,326
Subordinated debt.......................................... 12,153 8,879
-------- --------
Total liabilities.................................... 44,087 47,819
Commitments and contingencies
Stock warrants............................................. 480 1,380
Stockholders' equity:
Convertible Preferred Stock, $.01 par value, 250,000
shares authorized, 102,592 and 134,171 issued and
outstanding at December 28, 1994 and December 27, 1995,
respectively............................................... 1 1
Common Stock, $.01 par value, 7,000,000 shares
authorized, 2,048,200 issued and outstanding........... 20 20
Additional paid-in capital............................... 7,433 8,933
Retained earnings........................................ 1,321 2,617
Receivables from stockholders for purchase of Common
Stock...................................................... (189) (189)
-------- --------
Total stockholders' equity........................... 8,586 11,382
-------- --------
Total liabilities and stockholders' equity......... $53,153 $60,581
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
--------------------------------------------
DECEMBER 29, DECEMBER 28, DECEMBER 27,
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net sales.............................................. $ 61,212 $ 82,119 $ 95,462
Cost of sales.......................................... 55,816 73,833 85,576
------------ ------------ ------------
Gross profit........................................... 5,396 8,286 9,886
General and administrative expenses.................... 2,649 3,406 3,626
------------ ------------ ------------
Income from operations................................. 2,747 4,880 6,260
Interest expense, net.................................. 834 1,629 2,479
------------ ------------ ------------
Income before tax provision and extraordinary item..... 1,913 3,251 3,781
Tax provision.......................................... 829 1,385 1,585
------------ ------------ ------------
Income before extraordinary item....................... 1,084 1,866 2,196
Extraordinary item (net of related tax benefit of
$74)................................................... 112 -- --
------------ ------------ ------------
Net income............................................. 972 1,866 2,196
Accretion to redemption value of warrants (Note 2)..... (230) (250) (900)
------------ ------------ ------------
Net income available to Common Stockholders............ $ 742 $ 1,616 $ 1,296
------------ ------------ ------------
------------ ------------ ------------
Earnings per share of Common Stock:
Income before extraordinary item..................... $ 0.28 $ 0.50 $ 0.39
Extraordinary item................................... (0.04) -- --
------------ ------------ ------------
Net income........................................... $ 0.24 $ 0.50 $ 0.39
------------ ------------ ------------
------------ ------------ ------------
Average number of shares of Common Stock outstanding... 3,087 3,230 3,307
------------ ------------ ------------
------------ ------------ ------------
Earnings per share assuming full dilution:
Income before extraordinary item..................... $ 0.28 $ 0.49 $ 0.39
Extraordinary item................................... (0.04) -- --
------------ ------------ ------------
Net income........................................... $ 0.24 $ 0.49 $ 0.39
------------ ------------ ------------
------------ ------------ ------------
Average number of shares of Common Stock outstanding
assuming full dilution................................. 3,087 3,287 3,330
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
RECEIVABLES
FROM
CONVERTIBLE STOCKHOLDERS
PREFERRED STOCK COMMON STOCK ADDITIONAL RETAINED FOR PURCHASE
---------------- ------------------ PAID-IN EARNINGS OF COMMON
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) STOCK
------- ------ --------- ------ ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 30, 1992............. $ 2,048,200 $ 20 $3,940 $ (1,037) $ (197)
Shares issued......................... 102,592 1 3,493
Stock warrant accretion............... (230)
Payments by stockholders.............. 8
Net income............................ 972
------- ------ --------- -- ---------- -------- -----
Balance, December 29, 1993............. 102,592 1 2,048,200 20 7,433 (295) (189)
Stock warrant accretion............... (250)
Net income............................ 1,866
------- ------ --------- -- ---------- -------- -----
Balance, December 28, 1994............. 102,592 1 2,048,200 20 7,433 1,321 (189)
Stock warrant accretion............... (900)
Shares issued......................... 31,579 1,500
Net income............................ 2,196
------- ------ --------- ---- ---------- -------- -----
Balance, December 27, 1995............. 134,171 $ 1 2,048,200 $ 20 $8,933 $ 2,617 $ (189)
------- ------ --------- ---- ---------- -------- -----
------- ------ --------- ---- ---------- -------- -----
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balance, December 30, 1992............. $ 2,726
Shares issued......................... 3,494
Stock warrant accretion............... (230)
Payments by stockholders.............. 8
Net income............................ 972
-------------
Balance, December 29, 1993............. 6,970
Stock warrant accretion............... (250)
Net income............................ 1,866
-------------
Balance, December 28, 1994............. 8,586
Stock warrant accretion............... (900)
Shares issued......................... 1,500
Net income............................ 2,196
-------------
Balance, December 27, 1995............. $11,382
-------------
-------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
------------------------------------------
DECEMBER 29, DECEMBER 28, DECEMBER 27,
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 972 $ 1,866 $ 2,196
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 1,609 2,379 3,804
Deferred income tax provision........................... 738 1,359 1,536
Changes in operating assets and liabilities:
Accounts receivable................................... (279) (2,238) (372)
Inventories........................................... (164) (367) 306
Prepaid expenses and other current assets............. (301) (1,001) (473)
Accounts payable and accrued expenses................. 1,313 2,100 (2,627)
Increase in other assets.................................. (123) (1,528) (1,399)
------------ ------------ ------------
Net cash provided by operating activities............... 3,765 2,570 2,971
------------ ------------ ------------
Cash flows from investing activities:
Increase in contract rights............................... (2,039) (234) (3,446)
Purchases of fixtures and equipment....................... (974) (6,303) (3,329)
Disposal of fixed assets.................................. 349 -- --
Acquisition of business, net of cash acquired............. (6,662) (777) (3,478)
Collection of notes receivable............................ 1,657 548 2,129
Issuance of notes receivable.............................. -- (2,280) --
------------ ------------ ------------
Net cash used in investing activities................... (7,669) (9,046) (8,124)
------------ ------------ ------------
Cash flows from financing activities:
Issuance of convertible preferred stock................... 2,954 -- 1,500
Borrowings under long-term debt agreement................. 1,017 10,739 8,580
Issuance of subordinated debt............................. 8,500 -- --
Payment of long-term debt................................. (9,742) (1,529) (2,300)
Payment of subordinated debt.............................. -- (1,578) (3,525)
Collection of subscriptions receivable.................... 8 -- --
------------ ------------ ------------
Net cash provided by financing activities............... 2,737 7,632 4,255
------------ ------------ ------------
(Decrease) increase in cash............................... (1,167) 1,156 (898)
Cash, beginning of year................................... 1,543 376 1,532
------------ ------------ ------------
Cash, end of year......................................... $ 376 $ 1,532 $ 634
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. DESCRIPTION OF BUSINESS
Fine Host Corporation and its subsidiaries (the "Company") is a provider of
contract food service management to recreation and leisure facilities, which
include civic centers, arenas, stadiums and amphitheaters, convention centers,
education facilities and corporate dining facilities primarily in the United
States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation--The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany transactions and accounts have been eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Inventories--Inventories are stated at the lower of cost, determined on a
first-in, first-out (FIFO) basis, or market.
Contract Rights--Certain directly attributable costs, primarily direct
payments to clients to acquire contracts and costs of licenses and permits,
incurred by the Company in obtaining contracts with clients are recorded as
contract rights and are amortized over the contract life of each such contract
without consideration of future renewals. The costs of licenses and permits are
amortized over the shorter of the related contract life or the term of the
license/permit. Contract rights are being amortized over a range of 3 to 20
years. Licenses and permits are being amortized over a range of 3 to 10 years.
The value of contract rights acquired through acquisitions has been determined
through independent valuation based on projected discounted cash flows and is
being amortized over the projected lives as determined through the valuation
process. Accumulated amortization was $2,237 and $3,949 at December 28, 1994 and
December 27, 1995, respectively. The carrying value of the asset would be
reduced if it is probable that management's best estimate of future cash flows
from related operations, on an undiscounted basis, will be less than the
carrying amount of the asset over the remaining amortization period. Any such
impairment loss would be measured as the amount by which the carrying value of
the asset exceeds the fair value determined as the present value of estimated
expected future cash flow.
Fixtures and Equipment--Acquisitions of fixtures and equipment are recorded
at cost and are depreciated using the straight line method over the shorter of
estimated useful lives of the assets or the term of the customer concession and
catering contract. Fixtures and equipment is periodically reviewed to determine
recoverability by comparing the carrying value to expected future cash flows.
Excess of Cost Over Fair Value of Net Assets Acquired--The excess of cost
over fair value of net assets acquired is amortized using the straight line
method over periods generally ranging from 20 to 30 years. Accumulated
amortization was $512 and $848 at December 28, 1994 and December 27, 1995,
respectively. The carrying value of the net asset would be reduced if it is
probable that management's best estimate of future cash flows from related
operations, on an undiscounted basis, will be less than the carrying amount of
the asset over the remaining amortization period. Any such impairment loss would
be measured as the amount by which the carrying value of the asset exceeds the
fair value determined as the present value of estimated expected future cash
flow.
F-7
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Revenue Recognition and Cost of Sales--Sales from food and beverage
concession and catering contract food services are recognized as the services
are provided.
The Company generally enters into one of three types of contracts for its
food services: profit and loss contracts ("P&Ls"), profit sharing contracts and
management fee contracts. Under P&L contracts, all food and beverage sales are
recorded in net sales. P&Ls require the Company to bear all the expenses of the
operation, including rent paid to the client (usually calculated as a fixed
percentage of various categories of sales). Under the profit sharing contracts,
the Company receives a percentage of profits earned at the facility after the
payment of all expenses of the operation plus a fixed fee or percentage of sales
as an administrative fee. Under this type of contract, the fixed and
administrative fees and all food and beverage sales generated at a location are
recorded in net sales. Management fee contracts provide for a fixed fee. Fine
Host is also reimbursed for all of its on-site expenses incurred in providing
food and beverage services under management fee contracts. Certain of the
Company's management fee contracts provide for an additional incentive fee based
on a percentage of sales over a base threshold level. In the case of a
management fee contract, the Company records only the fixed and incentive fee,
if any, as net sales.
Cost of sales is composed of the following:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-----------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Wages and benefits............................................. $14,011 $20,079 $27,024
Food and beverages............................................. 13,733 18,463 24,670
Rent paid to clients........................................... 21,270 25,345 22,035
Other operating expenses....................................... 5,193 7,567 8,259
Depreciation and amortization.................................. 1,609 2,379 3,588
------- ------- -------
$55,816 $73,833 $85,576
------- ------- -------
------- ------- -------
</TABLE>
P&L and profit sharing contracts include all on-site costs for the above
items. Management fee contracts include only the amortization of invested
capital.
Income Taxes--Deferred tax assets or liabilities (shown net) are recognized
for the estimated future tax effects attributable to temporary differences,
principally depreciation, amortization of contract rights and operating loss
carryforwards. A temporary difference is the difference between the tax basis of
an asset or liability and its reported amount in the financial statements.
Earnings Per Share--Earnings per share of Common Stock is computed based on
the weighted average number of common equivalent shares outstanding during each
year. The Series A Convertible Preferred Stock has been considered to be the
equivalent of Common Stock from the time of its issuance in 1993. The number of
shares issuable on conversion of Preferred Stock was added to the number of
shares of Common Stock. The number of shares of Common Stock was also increased
by the number of shares issuable on the exercise of options and warrants when
the fair value of the Common Stock exceeds the exercise price of the options and
warrants. Fair value was estimated through analysis of transactions in the
Company's stock involving third parties. This increase in the number of shares
of Common Stock was reduced by the number shares of Common Stock which are
assumed to have been purchased with the proceeds from the exercise of the
warrants. These purchases were assumed to have been made at the average fair
value of the Common Stock during the year. Earnings per share assuming full
dilution gives effect to the assumed exercise of all dilutive stock options and
the assumed conversion of dilutive convertible securities (warrants) as of the
beginning of the respective year except when their
F-8
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
effect is antidilutive; outstanding shares were increased as described above for
the option and warrant conversions except that the purchases of Common Stock are
assumed to have been made at the year-end fair value if it was higher than the
average fair value. In calculating earnings per share, net income has been
reduced for the accretion to the redemption value of warrants by $230, $250 and
$900 in fiscal 1993, 1994 and 1995, respectively (see Note 11).
Fiscal Year--The Company's fiscal year ends on the last Wednesday in
December.
Reclassification--Prior year balances have been restated to conform to the
current presentation.
3. ACQUISITIONS
On March 25, 1996, the Company acquired 100% of the outstanding stock of Sun
West Services, Inc. ("Sun West"). Sun West provides contract food and beverage
services primarily in the education market as well as to other institutional
clients. The purchase price was approximately $5,200 consisting of cash,
five-year subordinated notes to the sellers with interest at 7% and 25,900
shares of Common Stock.
In July 1995, the Company acquired 100% of the outstanding stock of
Northwest Food Service, Inc. ("Northwest"). Northwest provides contract food and
beverage services, primarily in the education and corporate dining markets. The
purchase price was approximately $2,500 consisting of subordinated notes to the
seller and cash.
In September 1994, the Company acquired 100% of the outstanding stock of VGE
Acquisition Corporation ("VGE") and its wholly owned subsidiary, Creative Food
Management, Inc. (collectively, "Creative"). Creative provides contract food and
beverage services, primarily in the education, corporate dining and recreation
and leisure markets. The purchase price, reduced in the third quarter of 1995
for certain post-acquisition adjustments, was approximately $7,000 consisting
primarily of subordinated notes to the sellers (see Note 9) and cash. Following
the acquisition, VGE and Creative were merged, with Creative as the surviving
entity.
In April 1993, the Company acquired 100% of the stock of Fanfare, Inc. and
Global Fanfare, Inc. (collectively, "Fanfare"). Fanfare provides contract food
and beverage services, primarily in the recreation and leisure market. The
purchase price was approximately $8,200 in cash and subordinated notes to the
sellers.
In connection with the Fanfare acquisition, the Company executed a stock
option agreement with one of the principal shareholders of Fanfare which allows
the option holder to purchase a maximum of 27,944 shares of Common Stock at
$4.93 per share.
The aforementioned acquisitions have been accounted for under the purchase
method of accounting and, accordingly, the accompanying consolidated financial
statements reflect the fair values of the assets acquired and liabilities
assumed or incurred as of the effective date of the acquisitions. The results of
operations of the acquired companies are included in the accompanying
consolidated financial statements since their respective dates of acquisition.
The following table summarizes pro forma information as follows: (i) with
respect to the income statement data for fiscal 1994, as if the acquisitions of
Northwest and Creative had been completed as
F-9
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
3. ACQUISITIONS--(CONTINUED)
of the beginning of the fiscal year and (ii) with respect to the income
statement data for fiscal 1995, as if the acquisition of Northwest had been
completed as of the beginning of the fiscal year:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
----------------------------
DECEMBER 28, DECEMBER 27,
1994 1995
------------ ------------
<S> <C> <C>
SUMMARY STATEMENT OF INCOME DATA:
Net sales......................................... $105,841 $100,675
Income from operations............................ $ 5,173 $ 6,362
Net income........................................ $ 1,537 $ 2,210
Net income per share assuming full dilution....... $ 0.39 $ 0.39
</TABLE>
4. INVENTORIES
The components of inventories are as follows:
<TABLE><CAPTION>
DECEMBER 28, DECEMBER 27,
1994 1995
------------ ------------
<S> <C> <C>
Food and liquor................................... $1,465 $1,333
Beverage.......................................... 498 447
Other............................................. 255 319
------------ ------------
Total..................................... $2,218 $2,099
------------ ------------
------------ ------------
</TABLE>
5. NOTES RECEIVABLE
From time to time, the Company advances funds to its clients to assist them
in funding construction and for working capital needs. Substantially all of
these advances are collateralized by assets and/or are subject to immediate and
full repayment under the terms of related concession agreements. Included among
the advances the Company has outstanding are the following:
. A non-interest bearing advance made in 1990 in the amount of $708 that was
discounted at 8.5%. The advance is being repaid in 120 equal monthly
installments. The amount outstanding was $264, of which $214 was
classified as long-term at December 27, 1995. The Company retains title to
the assets purchased by the client with the proceeds of the advance until
the advance is repaid in full.
. Advances made in early 1994 to a client in the aggregate amount of $1,280
with interest at 1.5% over the prime rate. Principal is due and payable in
four equal annual installments with interest due quarterly commencing
March 31, 1994. The amount outstanding at December 27, 1995 was $960, of
which $640 was classified as long-term.
. A non-interest bearing advance made in the second quarter of 1994 in the
aggregate amount of $1,000. In conjunction with a contract modification
during the third quarter of 1995, the note was modified to require
repayments over the remaining four years of the food service contract. The
balance at December 27, 1995 was $680, $530 of which was classified as
long-term.
The estimated fair value approximated the carrying amount of notes
receivable at December 28, 1994 and December 27, 1995. Considerable judgment was
required in interpreting market data to develop the estimates of fair value. In
addition, the use of different market assumptions and/or estimation
methodologies may have had a material effect on the estimated fair value
amounts. Accordingly, the estimated fair value of notes receivable as of
December 28, 1994 and December 27,
F-10
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
5. NOTES RECEIVABLE--(CONTINUED)
1995 is not necessarily indicative of the amounts that the Company could realize
in a current market exchange.
Interest earned during fiscal 1993, 1994 and 1995 was $274, $304 and $352,
respectively.
6. FIXTURES AND EQUIPMENT
Fixtures and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27,
1994 1995
------------ ------------
<S> <C> <C>
Furniture and fixtures............................ $ 14,155 $ 16,309
Office equipment.................................. 1,445 1,811
Leasehold improvements............................ 709 1,114
Smallwares........................................ 1,757 2,306
------------ ------------
18,066 21,540
Less: accumulated depreciation.................... 4,694 5,711
------------ ------------
Fixtures and equipment, net....................... $ 13,372 $ 15,829
------------ ------------
------------ ------------
</TABLE>
The Company invests in fixtures and equipment at various locations. Upon
termination of a concession agreement, the client is generally required to
purchase the assets from the Company for an amount equal to their net book
value.
All fixtures and equipment are depreciated over their useful lives ranging
from 3 to 20 years, except smallwares which are depreciated over periods ranging
from 3 to 5 years.
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consists of the following:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27,
1994 1995
------------ ------------
<S> <C> <C>
Accounts payable.................................. $ 3,941 $ 5,197
Accrued wages and benefits........................ 1,299 1,607
Accrued rent to clients........................... 4,484 2,576
Accrued other..................................... 3,841 3,087
------------ ------------
Total....................................... $ 13,565 $ 12,467
------------ ------------
------------ ------------
</TABLE>
8. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27,
1994 1995
------------ ------------
<S> <C> <C>
Term Loan......................................... $ 906 $ 9,100
Working Capital Line.............................. 1,700 6,000
Guidance Line..................................... 9,325 3,207
Notes payable..................................... 96 --
------------ ------------
12,027 18,307
Less: current portion............................. 3,738 2,981
------------ ------------
Total....................................... $ 8,289 $ 15,326
------------ ------------
------------ ------------
</TABLE>
F-11
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
8. LONG-TERM DEBT--(CONTINUED)
The Company's bank agreement was amended on April 24, 1995 as part of a
refinancing (the "Amended Bank Agreement") and provides for (i) a term loan in
the amount of $10,500 (the "Term Loan") which is repayable in 60 equal monthly
installments commencing May 1, 1995, (ii) a working capital revolving credit
line (the "Working Capital Line") for general obligations of the Company
expiring on March 31, 1997, in the maximum amount of $6,000, (iii) a line of
credit to provide for future expansion by the Company (the "Guidance Line") in
the maximum amount of $11,500, and (iv) requirements that the bank issue up to
$2,000 in letters of credit ("Letters of Credit") on the Company's behalf. The
maximum borrowing under the Amended Bank Agreement was $30,000 as of December
27, 1995.
As part of a new food service contract requiring the Company to invest
$2,000 on or before January 1, 1996, a temporary Letter of Credit was required
from the Company. The Letter of Credit was provided by the Company on August 2,
1995. The Guidance Line was used to provide this Letter of Credit. On December
29, 1995, the Company invested the $2,000 by borrowing under the Guidance Line
and canceled the Letter of Credit.
In March 1996, the Amended Bank Agreement was further amended to increase
the maximum borrowing under the Amended Bank Agreement to $32,500 by increasing
the Working Capital Line to $9,425 and the Guidance Line to $13,000, and
resetting the Term Loan to $8,575 and the Letter of Credit facility to $1,500.
The Amended Bank Agreement contains various financial and other
restrictions, including, but not limited to, restrictions on indebtedness,
capital expenditures and commitments. Additional obligations require maintenance
of certain financial ratios, including the ratio of total debt to operating cash
flow, operating cash flow to cash interest expense, and minimum net worth and
operating cash flow. The Amended Bank Agreement also contains prohibitions on
both the payment of dividends and changes in control of the Company.
The Company's obligations under the Amended Bank Agreement are
collateralized both by a pledge of shares of Common Stock owned by officers and
directors of the Company and an affiliate, and the common stock of the Company's
subsidiaries. The loan is also collateralized by certain fixtures and equipment,
notes receivable and other assets, as well as the receipt, if any, of certain
funds paid to the Company with respect to the termination of client contracts
prior to their expiration.
On December 27, 1995, the prime rate was 8.5%. Interest payable on the Term
Loan, Working Capital Line and Guidance Line is the prime rate plus 1.5%, 1.25%
and 1.5%, respectively.
Long-term debt at December 27, 1995 is payable as follows:
<TABLE>
<CAPTION>
YEAR ENDING AMOUNT
----------- -------
<S> <C>
December 25, 1996........................................ $ 2,981
December 31, 1997........................................ 8,981
December 30, 1998........................................ 2,785
December 29, 1999........................................ 2,569
December 27, 2000........................................ 991
-------
Total.............................................. $18,307
-------
-------
</TABLE>
Interest paid on long-term debt was $447, $639 and $1,645 for fiscal 1993,
1994 and 1995, respectively.
F-12
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
9. SUBORDINATED DEBT
Subordinated debt consists of the following:
(a) In July 1995, as part of the purchase price of Northwest (see Note 3),
the Company issued a $1,350 note to the seller with a 6% interest rate payable
in six equal annual installments. The note was discounted to present value using
a market rate of 12.5% and had a balance at December 27, 1995 of $1,166, of
which $937 was classified as long-term.
(b) In September 1994, as part of the acquisition of Creative (see Note 3),
the Company issued to the stockholders of Creative the following: (1)
subordinated promissory notes ("Promissory Notes") with a face value of $2,552
payable in four installments beginning in September 1995; (2) convertible
subordinated promissory notes ("Convertible Notes") with a face value of $855,
convertible into common stock of the Company at a price of $7.86 per share; and
(3) a four year term note in the amount of $593 payable in annual monthly
installments and bearing interest at the prime rate plus 1%.
The Promissory Notes and the Convertible Notes were canceled in November
1995 in accordance with negotiations between the Company and the sellers of
Creative as a direct result of the breach of seller representations and
warranties and the subsequent renegotiation of the purchase price, and two
new non-interest bearing Subordinated Term Notes ("Creative Term Notes")
were issued in their place. The first of the Creative Term Notes is in the
principal amount of $756 payable in equal monthly installments over 36 months,
and the second Creative Term Note is in the principal amount of $1,440 payable
in equal monthly installments over 48 months. The Creative Term Notes have been
discounted to their present value using a market rate of 10%. The balance at
December 27, 1995 was $1,877 of which $1,413 was classified as long term.
In addition, as part of the Creative acquisition, the Company assumed the
following Creative obligations: (1) a third party promissory note which was
settled in October 1995 as part of an agreement between Creative and the lender;
and (2) a four year term note with interest at the prime rate plus 1.5%. The
balance at December 27, 1995 was $87.
(c) In connection with the acquisition of Fanfare in 1993 (see Note 3), the
Company issued to the sellers of Fanfare subordinated notes with a face value of
$2,250, payable in three equal annual installments beginning in April 1994. The
notes payable are non-interest bearing and were discounted to present value at
7.5%. At December 27, 1995, the outstanding balance of the notes was $732.
(d) In April 1993, the Company entered into a subordinated loan agreement,
as amended (the "Subordinated Loan Agreement"), pursuant to which the Company
sold $8,500 of its variable rate subordinated notes (the "Notes"), together with
detachable warrants to purchase a maximum of 867,230 shares of a new class of
Non-Voting Common Stock. The proceeds of the issuance of the subordinated notes
were used to repay existing indebtedness. The notes are due April 30, 2001, with
mandatory principal payments of $2,125 due on April 30 of each year commencing
in 1998 and ending in 2001. As part of the refinancing discussed in Note 7, a
$2,000 prepayment was made in order of maturity and, therefore, the April 30,
1998 mandatory payment has been reduced to $125. On April 21, 1995, in
accordance with the Subordinated Loan Agreement, the rate of interest was reset
at 12.79% from 9.875% for the remainder of the term of the notes.
In conjunction with the refinancing of its senior bank indebtedness on April
24, 1995, the Company sold 31,579 shares of Series A Convertible Preferred Stock
(convertible into 221,046 shares of Common Stock) (see Note 10) to an investment
partnership (the general partner of which is controlled by one of the Company's
directors) at a price of $47.50 per share ($6.79 per share of Common Stock), and
used the proceeds thereof to reduce the amount of the Notes outstanding under
the Subordinated Loan Agreement.
F-13
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
9. SUBORDINATED DEBT--(CONTINUED)
On April 24, 1995, as part of the refinancing discussed above, the
Subordinated Loan Agreement was amended to allow for an increase in available
borrowing under the Amended Bank Agreement up to $32,500, without prior approval
by the subordinated note holder. The Subordinated Loan Agreement, as amended,
contains various financial and other restrictions including provisions similar
to those contained in the Amended Bank Agreement.
The estimated fair value approximated the carrying amount of subordinated
debt at December 28, 1994 and December 27, 1995. Considerable judgment was
required in interpreting market data to develop the estimates of fair value. In
addition, the use of different market assumptions and/or estimation
methodologies may have had a material effect on the estimated fair value
amounts. Accordingly, the estimated fair value of subordinated debt as of
December 27, 1995 and December 28, 1994 is not necessarily indicative of the
amounts that the Company could realize in a current market exchange.
Subordinated debt at December 27, 1995 is payable as follows:
<TABLE>
<CAPTION>
YEAR ENDING AMOUNT
----------- -------
<S> <C>
December 25, 1996........................................ $ 1,745
December 31, 1997........................................ 954
December 30, 1998........................................ 865
December 29, 1999........................................ 2,711
December 27, 2000........................................ 2,375
Thereafter............................................... 2,125
-------
10,775
Less: discount on subordinated note...................... 151
-------
Total.............................................. $10,624
-------
-------
</TABLE>
Interest paid on subordinated debt was $661, $1,253 and $1,427 for fiscal
1993, 1994 and 1995, respectively.
10. STOCKHOLDERS' EQUITY
Common Stock--Holders of Common Stock are entitled to one vote per share in
all matters to be voted on by the stockholders of the Company. Subject to
preferences that may be applicable to any Preferred Stock outstanding at the
time, holders of Common Stock are entitled to receive ratably such dividends, if
any, as may be declared from time to time by the Board of Directors out of funds
legally available therefor.
Preferred Stock--Holders of the Series A Convertible Preferred Stock are
entitled to receive, when and as declared, out of the net profits of the
Company, dividends in an amount per share equal to the aggregate per share
amount of all cash dividends declared on the Common Stock multiplied by the
number of shares of Common Stock into which a share of Series A Convertible
Preferred Stock is convertible on the date on which such dividend is to be paid
in full. All dividends declared upon Series A Convertible Preferred Stock shall
be declared pro rata per share. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company, the holders of the shares
of Series A Convertible Preferred Stock then outstanding shall be entitled to
share ratably with holders of the shares of Common Stock in any distribution of
the assets and funds of the Company. Each share of Series A Convertible
Preferred Stock is convertible into seven shares of Common Stock, subject to
certain adjustments.
Three officers of the Company have purchased in 1987 and 1991 an aggregate
of 154,000 shares of Common Stock for cash and notes at prices ranging from
$0.32 to $1.40 per share. The subject notes have an aggregate outstanding
balance of $189 and are due on June 30, 1999.
F-14
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
11. STOCK OPTIONS AND WARRANTS
Stock Options--The 1994 Stock Option Plan authorizes the grant to key
employees of options to purchase shares of Common Stock. The maximum number of
shares which may be subject to options under this plan is 175,000. Options are
granted at no less than the fair market value at the time of grant for a period
not in excess of ten years. In addition, included in the table are 27,944
options issued in connection with the Fanfare acquisition in 1993 (see Note 3).
Combined information with respect to stock options is as follows:
<TABLE>
<CAPTION>
SHARES
-------
<S> <C>
Balance, December 29, 1993....................................... 27,944
Granted........................................................ 105,000
-------
Balance, December 28, 1994....................................... 132,944
Granted........................................................ 10,500
-------
Balance, December 27, 1995
($4.93--$7.14 per share)....................................... 143,444
-------
-------
Currently exercisable, December 27, 1995......................... 46,597
-------
-------
</TABLE>
At December 27, 1995, there were 59,500 shares available for grant.
Warrants--Warrants issued and outstanding to purchase, at specified prices,
shares of Common Stock at December 27, 1995 consist of the following:
<TABLE>
<CAPTION>
EXERCISE PRICE
--------------------
$4.93 $.01
-------- --------
<S> <C> <C>
(a) Holders of Subordinated Notes: 733,467 133,763
Less redemptions................................ (173,460) (66,878)
-------- --------
560,007 66,885
-------- --------
(b) Holders of Series A Convertible Preferred Stock:
Investor........................................ 118,307 453,432
Director........................................ 21,294 81,613
-------- --------
139,601 535,045
-------- --------
Less redemptions................................ (16,016) (267,526)
-------- --------
123,585 267,519
-------- --------
Warrants issued and outstanding................... 683,592 334,404
-------- --------
-------- --------
</TABLE>
(a) Holders of Subordinated Notes
Pursuant to the issuance and sale of the Notes (see Note 9), the purchaser
received warrants to purchase 733,467 and 133,763 shares of Non-Voting Common
Stock at exercise prices of $4.93 a share (the "$4.93 Warrants") and $.01 a
share (the "$.01 Warrants"), respectively. The warrants were valued at $230. The
warrants are exercisable from the date of issue through the periods ended April
29, 2001 and April 29, 2003, respectively. The Company may earn back portions of
the respective warrants if
F-15
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
11. STOCK OPTIONS AND WARRANTS--(CONTINUED)
certain performance targets are achieved. Both the number of shares and exercise
price are subject to adjustment under various antidilution provisions.
During a specified repurchase period, the Company is obligated (the "Put
Repurchase"), subject to certain conditions, to repurchase all or a designated
portion of the issuable warrant shares within 120 days after notification of a
put option exercise. The Put Repurchase period begins on the earlier of (i)
April 29, 1997, (ii) the prepayment of 50% of the original principal amount of
the Notes issued under the Subordinated Loan Agreement, or (iii) a Change of
Control, as defined, of the Company. The Put Repurchase price is based upon the
greater of the Appraised Value (as defined in the warrant agreement) of the
Common Stock, and the result obtained by dividing a multiple of the Company's
adjusted earnings, as defined, by the number of fully diluted shares of Common
Stock. The Put Repurchase is being accreted to its highest estimated redemption
price based on the time remaining to April 29, 1997, the earliest redemption
date of the Put Repurchase.
The warrant allows the Company, at its option, to repurchase (the "Call
Repurchase") any or all of the issuable warrant shares beginning April 29, 1998.
The Call Repurchase price to be paid by the Company is based upon the greater of
(i) 110% of the Appraised Value (as defined) of the Common Stock, (ii) the
result obtained by dividing a multiple of the Company's earnings, as defined, by
the number of fully diluted shares of Common Stock, or (iii) $10.12 per share.
Upon achieving specified levels of earnings in each of fiscal 1993 and 1994,
the Company had the right to earn back, in respect of each such year, the
portion of the $4.93 Warrants issued to the purchaser of the Notes representing
the right to acquire 1% of the fully diluted Common Stock. The Company achieved
the required earnings level specified for those fiscal years. Accordingly, in
each of May 1994 and June 1995, respectively, the Company canceled $4.93
Warrants to acquire the equivalent of 1% of the fully diluted Common Stock, or
approximately 43,365 shares (in each year). As a result of the refinancing
discussed in Notes 8 and 9, the Company redeemed an additional amount of the
$4.93 Warrants equal to 2% of the fully diluted Common Stock, or 86,730 shares.
Upon achieving specified levels of earnings in each of fiscal 1993, 1994,
1995 and 1996, the Company has the right to earn back the total of the $.01
Warrant issued (133,763) to the Note holder. Since the Company achieved the
required earnings level specified for fiscal 1993 and 1994, the Company, in each
of fiscal 1994 and 1995, respectively, earned back and canceled 33,439 of the
$.01 Warrants held by the purchaser of the Notes.
The total of these $4.93 Warrants and $.01 Warrants redeemed in fiscal 1994
and 1995 was 173,460 and 66,878, respectively (or 240,338).
Warrants Assigned Subsequent to December 27, 1995
In March 1996, the holder of the Notes sold the Notes to a non-affiliate of
the Company. The purchaser also acquired 280,003.5 $4.93 Warrants and 16,723
$.01 Warrants. In connection with this transaction, the purchaser granted the
Company an option to purchase all of the warrants for $500 in the event that the
Notes are fully redeemed before June 30, 1996, for $750 in the event the Notes
are fully redeemed between July 1 and August 15, 1996, for $1,000 in the event
the Notes are fully redeemed between August 16 and September 30, 1996 and for
$1,500 in the event the Notes are fully redeemed between October 1 and December
31, 1996.
F-16
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
11. STOCK OPTIONS AND WARRANTS--(CONTINUED)
In the event the Company increases its bank borrowings in excess of $32,500,
the option price will increase by $200 for each additional $2,500 of borrowings,
subject to a maximum increase in the option price of $600.
(b) Holders of Series A Convertible Preferred Stock
In connection with the sale in fiscal 1993 by the Company of the Series A
Convertible Preferred Stock to an investor and one of its directors (described
in Note 9), each purchaser received warrants to purchase Common Stock. The
investor received 118,307 of the $4.93 Warrants and 453,432 of the $.01
Warrants. The director received 21,294 of the $4.93 Warrants and 81,613 of the
$.01 Warrants. Both the number of shares and exercise price are subject to
adjustment under various antidilution provisions.
The $4.93 Warrants issued by the Company to the investor and the director
(139,601 in total) are subject to cancellation to the extent that the Company
earns back $4.93 Warrants issued to the purchaser of its Notes (see above).
Since the Company has achieved the earnings level specified for fiscal 1993 and
1994 required under the Notes, 8,253 of these $4.93 Warrants, the maximum
allowed during the 1993 reduction period, were canceled in June 1994, and an
additional 7,763, the maximum allowed during the 1994 reduction period, were
canceled in June 1995.
Upon achieving specified levels of earnings in fiscal 1993, 1994, 1995 and
1996, the Company has the right to earn back the total of the $.01 Warrants
(535,045 in the aggregate) issued to the holders of the Series A Convertible
Preferred Stock. Since the Company achieved the required earnings level
specified for each of fiscal 1993 and 1994, the Company in each of April 1994
and March 1995, respectively, canceled 133,763 of these warrants, representing
113,358 warrants for the investor and 20,405 for the director.
The total of these $4.93 Warrants and $.01 Warrants redeemed in fiscal 1994
and 1995 from the investor was 240,289 and from the director was 43,253,
respectively.
Warrants Redeemed Subsequent to December 27, 1995
The Company has achieved the specified earnings in fiscal 1995 as required
under the $.01 Warrants. As a result, in fiscal 1996, the Company will redeem
and cancel 33,440.75 of the $.01 Warrants held by the Note holder, 113,358 held
by the investor and 20,403.25 held by the director (167,202 in total). As of
March 29, 1996, after the above redemption, there were 167,202 $.01 Warrants and
683,592 $4.93 Warrants outstanding.
12. COMMITMENTS AND CONTINGENCIES
The Company operates principally at its clients' premises pursuant to
written contracts ("Client Contracts"). The length of Client Contracts generally
ranges from one to ten years with options to renew for periods of one to ten
years. Certain of these Client Contracts provide for base rent and contingent
rent. Aggregate rent expense under these agreements for fiscal 1993, 1994 and
1995 was $21,270, $25,345 and $22,035, respectively.
F-17
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
12. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Future minimum commitments as of December 27, 1995 for all noncancelable
operating leases and Client Contracts are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- ------
<S> <C>
1996..................................................... $ 3,098
1997..................................................... 2,921
1998..................................................... 1,807
1999..................................................... 791
2000..................................................... 666
Thereafter............................................... 1,198
-------
Total.............................................. $10,481
-------
-------
</TABLE>
Pursuant to its contracts with various clients, the Company is committed to
spend approximately $4,987 for equipment and capital improvements as of December
27, 1995. At December 27, 1995, the Company was contingently liable for the
following: (1) a standby Letter of Credit for $1,000, the principal amount of
which is reduced annually pursuant to its terms, (2) a $1,000 Letter of Credit
which collateralized the Company's ability to have written on its behalf an
aggregate of $4,000 in performance bonds, (3) performance bonds in the aggregate
amount of $2,600, and (4) an additional $2,000 Letter of Credit which was
converted to a loan under the Guidance Line (see Note 8) in January 1996.
The Company has entered into purchasing agreements with various national and
regional suppliers pursuant to which the Company agreed to purchase its
requirements of products (as defined in the agreements). If the Company exceeds
the agreed-upon purchasing levels, additional rebates and promotional allowances
may be payable by the suppliers. If the Company fails to meet agreed-upon
purchasing levels during the term of the agreements, the suppliers may elect to
extend the term of the agreements by one year, or a longer period, if necessary,
to reach agreed-upon purchasing levels.
13. INCOME TAXES
The income tax provision consists of the following:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
--------------------------------------------
DECEMBER 29, DECEMBER 28, DECEMBER 27,
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal.............................................. $-- $-- $--
State and local...................................... 17 26 49
----- ------------ ------------
Total current.................................... 17 26 49
----- ------------ ------------
Deferred:
Federal.............................................. 588 1,123 1,471
State and local...................................... 150 236 65
----- ------------ ------------
Total deferred................................... 738 1,359 1,536
----- ------------ ------------
Total.......................................... $755 $1,385 $1,585
----- ------------ ------------
----- ------------ ------------
</TABLE>
F-18
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
13. INCOME TAXES--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are presented below:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27,
1994 1995
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................ $ 600 $1,100
------------ ------------
Total deferred tax assets................... 600 1,100
Deferred tax liabilities:
Tax in excess of book depreciation.............. 1,000 1,500
Excess tax deduction attributable to contract
rights............................................ 2,780 3,194
Other........................................... 624 627
------------ ------------
Total deferred tax liabilities.............. 4,404 5,321
------------ ------------
Total..................................... $5,004 $6,421
------------ ------------
------------ ------------
</TABLE>
The Company's effective income tax rate differed from the Federal statutory
rate as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
----------------------------------------------
DECEMBER 29, DECEMBER 28, DECEMBER 27,
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Federal statutory rate........... 34.0% 34.0% 34.0%
Excess of cost over net assets
acquired......................... 2.5 4.8 4.2
State & local taxes net of
Federal tax benefits........... 7.2 4.2 4.2
Other, net....................... (0.4) (0.4) (0.5)
--- --- ---
Effective income tax rate........ 43.3% 42.6% 41.9%
--- --- ---
--- --- ---
</TABLE>
At December 27, 1995, the Company had, for Federal income tax reporting, an
estimated net operating loss carryforward of approximately $2,900 that will
begin to expire in 2008. Certain costs of acquisitions were charged to excess of
cost over fair market value of assets acquired, which are deductible for tax
purposes. At December 27, 1995, the net estimated tax effect of these costs
($679 for financial statement reporting) was recorded as a reduction of excess
of cost over fair market value of assets acquired.
Income taxes paid in fiscal 1993, 1994 and 1995 were $16, $26 and $49,
respectively.
14. LITIGATION
In January 1993, the Company received a letter from a client terminating its
agreement with the Company. In the letter, the client offered to resolve the
situation by paying the Company an amount which the Company rejected as
inadequate. The concession agreement stated that in the event the agreement was
terminated for any reason, the Company was entitled to immediate repayment of
amounts loaned to the client under the terms of certain promissory notes, as
well as both amounts invested by the Company for equipment and for services
rendered by the Company to the client. The Company sued to compel repayment of
these amounts, and the Court granted the Company's motion for
F-19
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
14. LITIGATION--(CONTINUED)
summary judgment for the principal amount of the promissory notes plus accrued
interest and costs, and in August 1995, the Company received the sum of $1,180
in satisfaction thereof. The Company is seeking an additional judgment with
respect to the other amounts owed it under the terms of the concession
agreement, and the client has brought a counterclaim alleging that the Company
interfered with a prospective contractual relationship between the client and
another food service provider.
In January 1996, the Company was served with a complaint naming it as one of
five defendants in a lawsuit brought by multiple plaintiffs alleging damages
arising out of the Woodstock II Festival held in August 1994 in Saugerties, New
York. The promoter of the Festival is also a defendant. Plaintiffs were hired by
the Company (which had a concession agreement with the promoters of Woodstock
II) as subcontractors of food, beverage and/or merchandise. In their complaint,
which seeks approximately $5,900, plaintiffs allege damages arising primarily
from the failure to (i) provide adequate security; and (ii) prevent Festival
attendees from bringing food and beverages in to the Festival. The Company's
concession agreement with the promoter made the promoter solely responsible for
providing security and preventing food and beverage from being brought onto the
premises, and the Company has made claim for indemnification under applicable
provisions of the concession agreement, which has been rejected by the promoter.
On April 4, 1996, the other defendants named in the suit answered the complaint
and asserted cross-claims for contribution and indemnification against the
Company. The Company believes that its ultimate liability, if any, will not be
material.
15. RELATED PARTY TRANSACTION
For each of fiscal 1993, 1994 and 1995, the Company incurred $150 in
advisory fees with a company whose sole owner is the Chairman of the Board of
the Company.
16. MAJOR CLIENT
During fiscal 1993, 1994 and 1995, one client represented 35.9%, 19.5% and
13.7% of net sales, respectively.
F-20
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
17. QUARTERLY RESULTS (UNAUDITED)
The following summary shows the quarterly results of operations of the
Company for fiscal 1994 and 1995.
<TABLE>
<CAPTION>
FISCAL QUARTERS
----------------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
<S> <C> <C> <C> <C>
1994:
Net sales............................................. $13,908 $17,854 $24,061 $26,296
Gross profit.......................................... 1,422 1,347 2,375 3,142
Net income............................................ $ 163 $ 125 $ 565 $ 1,013
Net income per share(a)............................... $ 0.05 $ 0.03 $ 0.12 $ 0.30
Net income per share assuming full dilution(a)........ $ 0.04 $ 0.03 $ 0.12 $ 0.30
1995:
Net sales............................................. $23,429 $20,090 $26,340 $25,603
Gross profit.......................................... 2,134 1,668 3,338 2,746
Net income............................................ $ 208 $ 74 $ 1,045 $ 869
Net income per share(a)............................... $ 0.05 $ 0.01 $ 0.26 $ 0.07
Net income per share assuming full dilution(a)........ $ 0.04 $ 0.01 $ 0.26 $ 0.07
</TABLE>
- ------------
(a) Each period calculated separately.
18. SUBSEQUENT EVENTS
On March 29, 1996, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission for the sale
by the Company of 2,890,218 shares of Common Stock to the public. In connection
therewith, the Company's Board of Directors has declared a 7-for-1 stock split
in the form of a stock dividend to be effected prior to the offering. Current
and prior year information has been restated to reflect this stock split. If the
offering is consummated, all of the currently outstanding Series A Convertible
Preferred Stock will convert automatically into 939,197 shares of Common Stock
as discussed in Note 10.
The Company plans to issue 2,890,218 shares at an assumed price of $13.00
per share, generating net proceeds of approximately $33,900, after deducting the
estimated underwriting discount and offering expenses to be paid by the Company.
The net proceeds will be used to repay obligations under the Amended Bank
Agreement and the subordinated notes as well as the amount required to
repurchase certain warrants (see Note 11). Any remaining funds will be used for
general corporate purposes.
F-21
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 27, 1995 MARCH 27, 1996
----------------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash....................................................... $ 634 $ 1,362
Accounts receivable........................................ 7,548 9,557
Notes receivable........................................... 520 470
Inventories................................................ 2,099 2,515
Prepaid expenses and other current assets.................. 1,893 1,652
-------- --------------
Total current assets................................... 12,694 15,556
Contract rights, net......................................... 12,866 17,558
Fixtures and equipment, net.................................. 15,829 16,377
Notes receivable............................................. 1,391 1,421
Excess of cost over fair value of net assets acquired, net... 13,406 17,502
Other assets................................................. 4,395 5,343
-------- --------------
Total assets........................................... $60,581 $ 73,757
-------- --------------
-------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses...................... $12,467 $ 16,122
Current portion of long-term debt.......................... 2,981 4,003
Current portion of subordinated debt....................... 1,745 2,026
-------- --------------
Total current liabilities.............................. 17,193 22,151
Deferred income taxes........................................ 6,421 7,645
Long-term debt............................................... 15,326 20,399
Subordinated debt............................................ 8,879 10,171
-------- --------------
Total liabilities...................................... 47,819 60,366
Commitments and contingencies
Stock warrants............................................... 1,380 2,420
Stockholders' equity:
Convertible Preferred Stock, $.01 par value, 250,000 shares
authorized, 134,171 and 134,171 issued and outstanding at
December 27, 1995 and March 27, 1996, respectively........... 1 1
Common Stock, $.01 par value, 7,000,000 shares authorized,
2,048,200 and 2,074,100 issued and outstanding at
December 27, 1995 and March 27, 1996, respectively........... 20 21
Additional paid-in capital................................. 8,933 9,302
Retained earnings.......................................... 2,617 1,836
Receivables from stockholders for purchase of Common
Stock........................................................ (189) (189)
-------- --------------
Total stockholders' equity............................. 11,382 10,971
-------- --------------
Total liabilities and stockholders' equity........... $60,581 $ 73,757
-------- --------------
-------- --------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-22
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
MARCH 29, MARCH 27,
1995 1996
--------- ---------
<S> <C> <C>
Net sales............................................................... $23,429 $24,160
Cost of sales........................................................... 21,295 21,630
--------- ---------
Gross profit............................................................ 2,134 2,530
General and administrative expenses..................................... 1,090 1,336
--------- ---------
Income from operations.................................................. 1,044 1,194
Interest expense, net................................................... 696 767
--------- ---------
Income before tax provision............................................. 348 427
Tax provision........................................................... 140 168
--------- ---------
Net income.............................................................. 208 259
Accretion to redemption value of warrants............................... (72) (1,040)
--------- ---------
Net income (loss) available to Common Stockholders...................... $ 136 $ (781)
--------- ---------
--------- ---------
Earnings (loss) per share of Common Stock............................... $ 0.04 $ (0.23)
--------- ---------
--------- ---------
Average number of shares of Common Stock outstanding.................... 3,139 3,408
--------- ---------
--------- ---------
Earnings (loss) per share assuming full dilution........................ $ 0.04 $ (0.22)
--------- ---------
--------- ---------
Average number of shares of Common Stock outstanding assuming full
dilution................................................................ 3,158 3,510
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-23
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
RECEIVABLES
FROM
CONVERTIBLE STOCKHOLDERS
PREFERRED STOCK COMMON STOCK ADDITIONAL RETAINED FOR
---------------- ------------------ PAID-IN EARNINGS PURCHASE OF
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) COMMON STOCK
------- ------ --------- ------ ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 24, 1994............. 102,592 $1 2,048,200 $ 20 $7,433 $ 1,321 $ (189)
Stock warrant accretion............... (72)
Net income............................ 208
------- -- --------- ---- ---------- -------- -----
Balance, March 29, 1995................ 102,592 $1 2,048,200 $ 20 $7,433 $ 1,457 $ (189)
------- -- --------- ---- ---------- -------- -----
------- -- --------- ---- ---------- -------- -----
Balance, December 27, 1995............. 134,171 $1 2,048,200 $ 20 $8,933 $ 2,617 $ (189)
Stock warrant accretion............... (1,040)
Shares issued......................... 25,900 1 369
Net income............................ 259
------- -- --------- ---- ---------- -------- -----
Balance, March 27, 1996................ 134,171 $1 2,074,100 $ 21 $9,302 $ 1,836 $ (189)
------- -- --------- ---- ---------- -------- -----
------- -- --------- ---- ---------- -------- -----
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balance, December 24, 1994............. $ 8,586
Stock warrant accretion............... (72)
Net income............................ 208
-------------
Balance, March 29, 1995................ $ 8,722
-------------
-------------
Balance, December 27, 1995............. $11,382
Stock warrant accretion............... (1,040)
Shares issued......................... 370
Net income............................ 259
-------------
Balance, March 27, 1996................ $10,971
-------------
-------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-24
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------
MARCH 29, MARCH 27,
1995 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................................ $ 208 $ 259
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation and amortization........................................... 916 957
Deferred income tax provision........................................... 137 167
Changes in operating assets and liabilities:
Accounts receivable................................................... 666 26
Inventories........................................................... 58 (195)
Prepaid expenses and other current assets............................. (496) 578
Accounts payable and accrued expenses................................. (692) 833
Increase in other assets.................................................. (1,061) (995)
--------- ---------
Net cash (used in) provided by operating activities..................... (264) 1,630
--------- ---------
Cash flows from investing activities:
Increase in contract rights............................................... -- (2,462)
Purchases of fixtures and equipment....................................... (434) (1,067)
Acquisition of business, net of cash acquired............................. -- (3,215)
Collection of notes receivable............................................ 424 19
--------- ---------
Net cash used in investing activities................................... (10) (6,725)
--------- ---------
Cash flows provided by financing activities:
Borrowings under long-term debt agreement................................. 1,415 6,909
Payment of long-term debt................................................. (827) (814)
Payment of subordinated debt.............................................. (63) (272)
--------- ---------
Net cash provided by financing activities............................... 525 5,823
--------- ---------
Increase in cash.......................................................... 251 728
Cash, beginning of period................................................. 1,532 634
--------- ---------
Cash, end of period....................................................... $ 1,783 $ 1,362
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-25
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 29, 1995 AND MARCH 27, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation--The unaudited consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany transactions and accounts have been eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. The unaudited financial statements include all
adjustments, all of which are of a normal recurring nature, which, in the
opinion of management, are necessary for a fair presentation of the results of
operations for the three months ended March 29, 1995 and March 27, 1996. The
accompanying unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements of the Company and notes
thereto included elsewhere in this prospectus for the fiscal year ended December
27, 1995.
Earnings (Loss) Per Share--Earnings (loss) per share of Common Stock is
computed based on the weighted average number of common and common equivalent
shares outstanding during each year. Earnings (loss) per share assuming full
dilution gives effect to the assumed exercise of all dilutive stock options and
the assumed conversion of dilutive convertible securities (warrants) except when
their effect is antidilutive. In calculating earnings (loss) per share, net
income has been reduced for the accretion to the redemption value of warrants by
$72 and $1,040 for the three months ended March 29, 1995 and March 27, 1996,
respectively.
2. ACQUISITIONS
On March 25, 1996, the Company acquired 100% of the outstanding stock of Sun
West Services, Inc. ("Sun West"). Sun West provides contract food and beverage
services primarily in the education market as well as to other institutional
clients. The purchase price was approximately $5,200 consisting of cash,
five-year subordinated notes to the sellers with interest at 7% and 25,900
shares of Common Stock.
In July 1995, the Company acquired 100% of the outstanding stock of
Northwest Food Service, Inc. ("Northwest"). Northwest provides contract food and
beverage services, primarily in the education and corporate dining markets. The
purchase price was approximately $2,500 consisting of subordinated notes to the
seller and cash.
The aforementioned acquisitions have been accounted for under the purchase
method of accounting and, accordingly, the accompanying unaudited consolidated
financial statements reflect the fair values of the assets acquired and
liabilities assumed or incurred as of the effective date of the acquisitions.
The results of operations of the acquired companies are included in the
accompanying unaudited consolidated financial statements since their respective
dates of acquisition.
The following table summarizes pro forma information as follows: (i) with
respect to the income statement data for the three months ended March 29, 1995,
as if the acquisitions of Sun West and
F-26
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 29, 1995 AND MARCH 27, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
2. ACQUISITIONS--(CONTINUED)
Northwest had been completed as of the beginning of such period; and (ii) with
respect to the income statement data for the three months ended March 27, 1996,
as if the acquisition of Sun West had been completed as of the beginning of such
period:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
MARCH 29, MARCH 27,
1995 1996
--------- ---------
<S> <C> <C>
SUMMARY STATEMENT OF INCOME DATA:
Net sales........................................ $30,614 $28,201
Income from operations........................... 858 435
Net income....................................... 150 115
Net income (loss) per share assuming full
dilution......................................... 0.04 (0.29)
</TABLE>
3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consists of the following:
<TABLE>
<CAPTION>
DEC. 27, MARCH 27,
1995 1996
-------- ---------
<S> <C> <C>
Accounts payable....................................... $ 5,197 $ 6,129
Accrued wages and benefits............................. 1,607 2,904
Accrued rent to clients................................ 2,576 3,163
Accrued other.......................................... 3,087 3,926
-------- ---------
Total............................................ $ 12,467 $16,122
-------- ---------
-------- ---------
</TABLE>
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DEC. 27, MARCH 27,
1995 1996
-------- ---------
<S> <C> <C>
Term Loan.............................................. $ 9,100 $ 8,575
Working Capital Line................................... 6,000 7,214
Guidance Line.......................................... 3,207 8,613
Notes payable.......................................... -- --
-------- ---------
18,307 24,402
Less: current portion.................................. 2,981 4,003
-------- ---------
Total............................................ $ 15,326 $20,399
-------- ---------
-------- ---------
</TABLE>
The Company's bank agreement was amended on April 24, 1995 as part of a
refinancing (the "Amended Bank Agreement") and provides for (i) a term loan in
the amount of $10,500 (the "Term Loan") which is repayable in 60 equal monthly
installments commencing May 1, 1995, (ii) a working capital revolving credit
line (the "Working Capital Line") for general obligations of the Company
F-27
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 29, 1995 AND MARCH 27, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
4. LONG-TERM DEBT--(CONTINUED)
expiring on March 31, 1997, in the maximum amount of $6,000, (iii) a line of
credit to provide for future expansion by the Company (the "Guidance Line") in
the maximum amount of $11,500, and (iv) requirements that the bank issue up to
$2,000 in letters of credit ("Letters of Credit") on the Company's behalf. The
maximum borrowing under the Amended Bank Agreement was $30,000 as of March 27,
1996.
In March 1996, the Amended Bank Agreement was further amended to increase
the maximum borrowing under the Amended Bank Agreement to $32,500 by increasing
the Working Capital Line to $9,425 and the Guidance Line to $13,000, and
resetting the Term Loan to $8,575 and the Letter of Credit facility to $1,500.
In connection with the Offering, the Company has received a commitment from
certain lenders to revise its credit facility to increase its maximum borrowing
available upon the closing of the Offering to $75.0 million.
On March 27, 1996, the prime rate was 8.25%. Interest payable on the Term
Loan, Working Capital Line and Guidance Line is the prime rate plus 1.5%, 1.25%
and 1.5%, respectively.
5. SUBORDINATED DEBT
In March 1996, as part of the acquisition of Sun West (see Note 3), the
Company issued to the stockholders of Sun West the following: (1) a subordinated
promissory note with a face value of $1,350 with a 7% interest rate payable in
four annual installments beginning in 1998; and (2) a subordinated promissory
note with a face value of $638 with a 7% interest rate payable in three annual
installments beginning in 1997. The notes were discounted to present value using
a market rate of 10%. The respective balances at March 27, 1996 were $1,199 and
$590, of which $1,199 and $318 were classified as long term.
In July 1995, as part of the purchase price of Northwest (see Note 3), the
Company issued a $1,350 note to the seller with a 6% interest rate payable in
six equal annual installments. The note was discounted to present value using a
market rate of 12.5% and had a balance at March 27, 1996 of $1,176, of which
$947 was classified as long-term.
6. STOCKHOLDERS' EQUITY
On March 29, 1996, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission for the sale
by the Company of 2,890,218 shares of Common Stock to the public. In connection
therewith, the Company's Board of Directors has declared a 7-for-1 stock split
in the form of a stock dividend to be effected prior to the offering. Current
and prior year information has been restated to reflect this stock split. If the
offering is consummated, all of the currently outstanding Series A Convertible
Preferred Stock will convert automatically into 939,197 shares of Common Stock.
The Company plans to issue 2,890,218 shares at an assumed price of $13.00
per share, generating net proceeds of approximately $33,900, after deducting the
estimated underwriting discount and offering expenses to be paid by the Company.
The net proceeds will be used to repay obligations under
F-28
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 29, 1995 AND MARCH 27, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
6. STOCKHOLDERS' EQUITY--(CONTINUED)
the Amended Bank Agreement and the subordinated notes as well as the amount
required to repurchase certain warrants. Any remaining funds will be used for
general corporate purposes.
7. INCOME TAXES
The income tax provision consists of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
MARCH 29, MARCH 27,
1995 1996
--------- ---------
<S> <C> <C>
Current:
Federal............................................................... $-- $--
State and local....................................................... 3 1
--------- ---------
Total current..................................................... 3 1
--------- ---------
Deferred:
Federal............................................................... 113 124
State and local....................................................... 24 43
--------- ---------
Total deferred.................................................... 137 167
--------- ---------
Total........................................................... $ 140 $ 168
--------- ---------
--------- ---------
</TABLE>
At March 27, 1996, the Company had, for Federal income tax reporting, an
estimated net operating loss carryforward of approximately $2,900 that will
begin to expire in 2008. Certain costs of acquisitions were charged to excess of
cost over fair market value of assets acquired, which are deductible for tax
purposes. At March 27, 1996, the net estimated tax effect of these costs ($679
for financial statement reporting) was recorded as a reduction of excess of cost
over fair market value of assets acquired.
8. MAJOR CLIENT
During the three months ended March 29, 1995 and March 27, 1996, one client
represented 10.45% and 14.96% of net sales, respectively.
9. SUBSEQUENT EVENTS
On April 17, 1996, the Company signed a letter of intent to acquire all the
outstanding common stock of a food service provider with estimated annual
revenue of $8,000 in the education market, primarily servicing school districts
in the northeastern United States. The estimated purchase price is $3,400.
F-29
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Sun West Services, Inc.
Phoenix, Arizona
We have audited the accompanying balance sheets of Sun West Services, Inc.
as of December 31, 1994 and 1995, and the related statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Sun West Services, Inc. at December 31, 1994
and 1995, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Phoenix, Arizona
March 15, 1996 (March 25, 1996 as to the last paragraphs of Notes 3 and 9)
F-30
<PAGE>
SUN WEST SERVICES, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1994 1995
------ ------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................ $ 169 $ 343
Accounts receivable, net................................................. 2,367 2,285
Inventories.............................................................. 238 229
Prepaid expenses and other current assets................................ 102 69
Deferred income taxes.................................................... 39 83
------ ------
Total current assets................................................. 2,915 3,009
Property and equipment, net................................................ 225 203
Contract rights, net....................................................... 59 22
------ ------
Total assets......................................................... $3,199 $3,234
------ ------
------ ------
LIABILITIES AND STOCKHOLDERS' EQUITY
(CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable......................................................... $1,723 $1,893
Accrued expenses......................................................... 270 366
Income taxes payable..................................................... 37 --
Line of credit........................................................... 676 708
Current portion of long-term debt and capital lease obligations.......... 41 48
------ ------
Total current liabilities............................................ 2,747 3,015
------ ------
Long-term debt and capital lease obligations, net of current portion....... 62 28
Deferred income taxes...................................................... 20 13
------ ------
Total liabilities.................................................... 2,829 3,056
------ ------
Commitments and contingencies (Notes 5 and 7)
Redeemable Class B Common Stock, $.01 par value, 200,000 shares
authorized; 7,216 and 6,327 issued and outstanding at December 31, 1994
and 1995, respectively................................................... 289 253
------ ------
Stockholders' equity (capital deficiency):
Class A Common Stock, $.01 par value, 1,000,000 shares authorized;
25,000 shares issued and outstanding,.................................. -- --
Additional paid-in capital............................................... 75 75
Retained earnings (deficit).............................................. 6 (150)
------ ------
Total stockholders' equity (capital deficiency)...................... 81 (75)
------ ------
Total liabilities and stockholders' equity (capital
deficiency)................................................................ $3,199 $3,234
------ ------
------ ------
</TABLE>
See accompanying notes to financial statements.
F-31
<PAGE>
SUN WEST SERVICES, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Net sales................................................... $12,696 $16,241 $17,043
Cost of sales............................................... 11,197 14,493 15,481
------- ------- -------
Gross profit................................................ 1,499 1,748 1,562
General and administrative expenses......................... 1,296 1,486 1,661
------- ------- -------
Income (loss) from operations............................... 203 262 (99)
Interest expense............................................ 84 89 115
------- ------- -------
Income (loss) before tax provision (benefit)................ 119 173 (214)
Tax provision (benefit)..................................... 44 60 (58)
------- ------- -------
Net income (loss)........................................... $ 75 $ 113 $ (156)
------- ------- -------
------- ------- -------
</TABLE>
See accompanying notes to financial statements.
F-32
<PAGE>
SUN WEST SERVICES, INC.
STATEMENTS OF STOCKHOLDERS EQUITY (CAPITAL DEFICIENCY)
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CLASS A
COMMON STOCK ADDITIONAL RETAINED
--------------------- PAID-IN EARNINGS
SHARES PAR VALUE CAPITAL (DEFICIT) TOTAL
-------- --------- ---------- --------- -----
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1993..................... 25,000 $ -- $ 75 $(182) $(107)
Net income................................. 75 75
-------- --------- --- --------- -----
Balance, December 31, 1993................... 25,000 -- 75 (107) (32)
Net income................................. 113 113
-------- --------- --- --------- -----
Balance, December 31, 1994................... 25,000 -- 75 6 81
Net loss................................... (156) (156)
-------- --------- --- --------- -----
Balance, December 31, 1995................... 25,000 $ -- $ 75 $(150) $ (75)
-------- --------- --- --------- -----
-------- --------- --- --------- -----
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE>
SUN WEST SERVICES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1993 1994 1995
----- ---- -----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................... $ 75 $113 $(156)
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization..................................... 43 77 117
Deferred income tax provision..................................... 11 16 (58)
Changes in operating assets and liabilities:
Accounts receivable............................................... (466) (476) 82
Inventories....................................................... (20) (87) 9
Prepaid expenses and other current assets......................... (30) 17 33
Accounts payable.................................................. 256 679 171
Accrued expenses and other current liabilities.................... 116 72 66
----- ---- -----
Net cash (used in) provided by operating activities............. (15) 411 264
----- ---- -----
Cash flows from investing activities:
Increase in contract rights......................................... -- (81) --
Purchases of property and equipment................................. (103) (43) (37)
----- ---- -----
Net cash used in operating activities........................... (103) (124) (37)
----- ---- -----
Cash flows from financing activities:
Net borrowings (repayments) on line of credit....................... 232 (165) 28
Issuance of long-term debt.......................................... -- 111 --
Payments of long-term debt and capital lease obligations............ (5) (36) (46)
Redemption of Class B Common Stock.................................. (30) (33) (35)
----- ---- -----
Net cash provided by (used in) financing activities............. 197 (123) (53)
----- ---- -----
Increase in cash and cash equivalents................................. 79 164 174
Cash and cash equivalents, beginning of year.......................... (74) 5 169
----- ---- -----
Cash and cash equivalents, end of year................................ $ 5 $169 $ 343
----- ---- -----
----- ---- -----
</TABLE>
See accompanying notes to financial statements.
F-34
<PAGE>
SUN WEST SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business--Sun West Services, Inc. (the "Company") was incorporated in the
State of New Mexico on August 28, 1981 to engage in providing contract food
service management. The Company currently operates approximately 70 food service
operations in the southwestern United States.
Significant Accounting Policies--A summary of significant accounting
policies follows:
a. Cash and cash equivalents for the purposes of the balance sheet and
statement of cash flows include cash on hand, cash in banks and money market
accounts.
b. Inventories are stated at the lower of cost determined on a first-in,
first-out (FIFO) basis, or market and include food, beverages and food
preparation supplies.
c. Concentrations of Credit Risk--Accounts receivable are due from a
limited number of customers that are both public and private entities. These
customers are all located in the southwestern United States. The Company had
an allowance for doubtful accounts of $19 at December 31, 1995.
d. Property and equipment are recorded at cost and are depreciated using
the straight line method based over the estimated useful lives of the
related assets, which is primarily 5 years. Expenditures for maintenance and
repairs are charged to expense as incurred.
e. Contract Rights--Certain directly attributable costs incurred by the
Company in obtaining contracts with clients are recorded as contract rights
on the Company's balance sheet. Such costs are being amortized over the
contract life. Accumulated amortization was $22 and $58 at December 31, 1994
and 1995, respectively. These costs are periodically reviewed for
recoverability.
f. Income Taxes--Deferred income tax assets and liabilities are
recognized for the effects of temporary differences between the financial
statement carrying amounts and the income tax basis of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. For income tax purposes, the Company
utilizes a fiscal year of June 30.
g. Financial Instruments--The carrying values of cash and cash
equivalents, accounts receivable, accounts payable and accrued expenses
approximate fair values due to the short-term maturities of these
instruments. Variable rate long-term debt instruments are estimated to
approximate fair values.
h. Sales revenues from food and beverage concession and catering
contract food services are recognized as the services are provided. The
Company generally enters into one of two types of contracts, profit and loss
contracts or profit sharing contracts:
1) Profit and Loss Contracts ("P&L")--Under P&Ls, the Company
receives all the revenues and bears all the expenses of the operation.
While the Company often benefits from greater upside potential with a P&L
contract, it is responsible for the costs of running the food service
operation and consequently bears greater risk than with a profit sharing
contract. For the year ended December 31, 1995, approximately 49% of the
Company's net sales were associated with P&L contracts.
F-35
<PAGE>
SUN WEST SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
2) Profit Sharing Contracts--Under profit sharing contracts, the
Company receives a per meal charge plus a fixed monthly fee as an
administrative fee. In addition, the Company is reimbursed for all
on-site expenses incurred in the course of providing food and beverage
services such as food and supply costs and employee wages. Under this
type of contract, the Company does not bear responsibility for losses
incurred, if any, other than for certain guaranteed returns under some of
these contracts (see Note 6). For the year ended December 31, 1995,
approximately 51% of the Company's net sales were associated with profit
sharing contracts.
Net sales is comprised of the following for the years ended December 31:
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Profit and loss contract revenues............. $ 5,152 $ 7,051 $ 8,106
Profit sharing contract revenues:
Per meal and fixed fees..................... 805 927 808
Reimbursed food and supply costs............ 3,922 4,997 4,984
Reimbursed employee wages and benefits...... 2,817 3,266 3,145
------- ------- -------
Total................................... $12,696 $16,241 $17,043
------- ------- -------
------- ------- -------
</TABLE>
i. Use of Estimates--The preparation of financial statements in
conformity with generally accepted accounting principles necessarily
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
j. New Accounting Pronouncements--In March 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of. SFAS No. 121 is required
to be adopted in the first quarter of 1996. The Company has not completed
the process of evaluating the impact that will result from adopting this
Statement. However, management does not believe the adoption will have a
significant impact on the Company's financial position and results of
operations.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Leasehold improvements....................................... $ 76 $ 76
Furniture, fixtures and equipment............................ 280 368
---- ----
356 444
Less: accumulated depreciation and amortization.............. 131 241
---- ----
Property and equipment, net.................................. $225 $203
---- ----
---- ----
</TABLE>
F-36
<PAGE>
SUN WEST SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
2. PROPERTY AND EQUIPMENT--(CONTINUED)
Assets acquired under capital leases totaled $19 and $22 during the years
ended December 31, 1994 and 1995, respectively.
3. REVOLVING LINE OF CREDIT
The Company has an $850 revolving bank line of credit. The outstanding
balance of the line at December 31, 1994 and 1995 was $676 and $708,
respectively. Outstanding amounts bear interest at prime (8.5% at December 31,
1995) plus 2%, are collateralized by substantially all assets of the Company,
and are guaranteed by the Company's stockholders. The line of credit expires in
September 1996 and requires the Company to maintain certain covenants, which the
Company was not in compliance with at December 31, 1995.
On March 25, 1996, in connection with the sale of all the outstanding stock
of the Company as described in Note 9, the line of credit was repaid.
4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations at December 31 consists of the
following:
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Note payable to bank, interest at prime (8.5% at December 31,
1995) plus 2%, payable in monthly installments of $2.2 plus
interest, due February 1997, collateralized by all equipment,
guaranteed by the Company's stockholders....................... $56 $29
Obligations under capital leases for a copy machine, a
telephone system and various automobiles at interest rates
ranging from 6.35% to 19.264%, maturing from December 1996
through May 2000............................................. 16 26
Note payable to finance company, interest at 8.173%, payable in
monthly installments of $0.5 including interest, due March
1998, collateralized by an automobile........................ 16 11
Note payable to finance company, interest at 9.75%, payable in
monthly installments of $0.3 including interest, due November
1999, collateralized by an automobile.......................... 11 10
Note payable to finance company, interest at 6.9%, payable in
monthly installments of $0.5 including interest, due August
1995, collateralized by an automobile........................ 4 --
---- ----
103 76
Less: current portion.......................................... 41 48
---- ----
Total.................................................... $62 $28
---- ----
---- ----
</TABLE>
F-37
<PAGE>
SUN WEST SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS--(CONTINUED)
Maturities at December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996................................................................. $48
1997................................................................. 16
1998................................................................. 8
1999................................................................. 3
---
Total.......................................................... $75
---
---
</TABLE>
Interest paid on the Company's line of credit and other debt was $84, $89
and $116 for the years ended December 31, 1993, 1994 and 1995, respectively.
5. INCOME TAXES
The income tax provision (benefit) for the years ended December 31 is
comprised of the following:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Current:
Federal................................................ $25 $33 $--
State.................................................. 9 11 --
---- ---- ----
Total current...................................... 34 44 --
---- ---- ----
Deferred:
Federal................................................ 8 12 (44)
State.................................................. 2 4 (14)
---- ---- ----
Total deferred..................................... 10 16 (58)
---- ---- ----
Total............................................ $44 $60 $(58)
---- ---- ----
---- ---- ----
</TABLE>
A reconciliation of the difference between the income tax provision
(benefit) and income taxes at the statutory United States Federal income tax
rate for the years ended December 31 is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Income tax provision (benefit) at statutory United
States Federal income tax rate....................... $ 41 $ 59 $(73)
Increase (decrease) attributed to graduated tax
rates.................................................. (10) (14) 17
Increase (decrease) attributed to state taxes, net..... 7 10 (9)
Other.................................................. 6 5 7
---- ---- ----
Income tax provision (benefit)......................... $ 44 $ 60 $(58)
---- ---- ----
---- ---- ----
</TABLE>
Income taxes paid were $19, $21 and $24 for the years ended December 31,
1993, 1994 and 1995, respectively.
F-38
<PAGE>
SUN WEST SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
5. INCOME TAXES--(CONTINUED)
Deferred income taxes are provided to reflect temporary differences in the
basis of net assets for income tax and financial reporting purposes. The
tax-effected temporary differences and net operating loss carryforwards which
comprise deferred taxes at December 31 are as follows:
<TABLE>
<CAPTION>
1994 1995
---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS LIABILITIES TOTAL ASSETS LIABILITIES TOTAL
------ ----------- ----- ------ ----------- -----
Allowance for doubtful accounts...................... $ 16 $-- $16 $ 6 $-- $ 6
Non-deductible contract guarantee accrual............ -- -- -- 19 -- 19
Accrued employee vacation............................ 22 22 20 20
Net operating loss................................... -- -- -- 38 -- 38
------ ----- ------ -----
Total current...................................... 38 -- 38 83 -- 83
------ ----- ------ -----
Accelerated tax depreciation......................... -- (20) (20) -- (13) (13)
------ ----- ----- ------ ----- -----
Total non-current.................................. -- (20) (20) -- (13) (13)
------ ----- ----- ------ ----- -----
Total.......................................... $ 38 $ (20) $18 $ 83 $ (13) $ 70
------ ----- ----- ------ ----- -----
------ ----- ----- ------ ----- -----
</TABLE>
The Company believes that realization of the net deferred tax asset is more
likely than not, and therefore no valuation allowance is necessary.
6. COMMITMENTS AND CONTINGENCIES
The Company leases certain equipment and automobiles under operating leases
expiring on various dates through 1997. The following is a schedule, by year, of
future minimum noncancelable operating lease payments due as of December 31,
1995:
<TABLE>
<S> <C>
1996................................................................. $12
1997................................................................. --
---
Total............................................................ $12
---
---
</TABLE>
Rent expense for the above leases was $1, $7 and $17 for the years ended
December 31, 1993, 1994 and 1995, respectively.
The Company rents land and building space for its corporate office on a
month-to-month basis for $6 per month from an Arizona limited liability
corporation whose owners are both directors and stockholders of the Company.
Rent expense for this facility for the years ended December 31, 1993, 1994 and
1995 was $0, $40 and $76, respectively.
The Company has contracts with customers under which the Company guarantees
that the customer will earn a specified minimum return. Payments by the Company
under such guarantees were approximately $0, $0 and $153 for the years ended
December 31, 1993, 1994 and 1995, respectively. Management estimates that it is
probable that the Company will incur losses aggregating approximately $65
related to three such guarantees, all of which expire by December 31, 1996,
during the year ending December 31, 1996; therefore, such amount has also been
accrued as of December 31, 1995.
Five former employees of the Company have filed charges of employment
discrimination with the Equal Employment Opportunity Commission pertaining to
their termination of employment. While the
F-39
<PAGE>
SUN WEST SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
6. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Company is unable to predict the outcome of these uncertainties, it is
management's opinion that the ultimate outcome will not have a material adverse
effect on the financial position, results of operations or cash flows of the
Company.
7. RELATED PARTY TRANSACTIONS
Legal fees of approximately $4, $9 and $20 were paid to a related party who
is both a director and stockholder of the Company for the years ended December
31, 1993, 1994 and 1995, respectively.
As discussed in Note 6, the Company leases its corporate office space from a
related party.
8. REDEEMABLE CLASS B COMMON STOCK
The Company's redeemable Class B Common Stock was sold to a relative of an
officer and stockholder of the Company in 1992 for $375 with the provision that
one-half of such shares would be redeemed ratably over a five-year period at an
aggregate price of $188 plus interest at 9.5%, with a balloon payment after five
years for the remaining shares in 1996.
9. SUBSEQUENT EVENTS
Effective January 1, 1996, the Company adopted a defined contribution 401(k)
and profit sharing plan covering all employees who have 1,000 hours of service.
Employees may elect to contribute up to 15% of their annual gross compensation.
The Company shall contribute 10% of the amount contributed by employees, on the
first 5% of the employee's contribution.
On February 5, 1996, the Company signed a letter of intent, subject to
certain closing conditions, with Fine Host Corporation whereby Fine Host
Corporation was to purchase all of the Company's outstanding Class A and Class B
Common Stock for $5,238, subject to certain adjustments set forth in the stock
purchase agreement.
On March 25, 1996, the transaction described in the preceding paragraph was
consummated.
F-40
<PAGE>
SUN WEST SERVICES, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 25,
1995 1996
------------ ---------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 343 $ 114
Accounts receivable, net........................................... 2,285 1,948
Inventories........................................................ 229 343
Prepaid expenses and other current assets.......................... 69 34
Deferred income taxes.............................................. 83 79
------------ ---------
Total current assets........................................... 3,009 2,518
Property and equipment, net.......................................... 203 213
Contract rights, net................................................. 22 21
------------ ---------
Total assets................................................... $3,234 $ 2,752
------------ ---------
------------ ---------
LIABILITIES AND CAPITAL DEFICIENCY
Current liabilities:
Accounts payable................................................... $1,893 $ 1,782
Accrued expenses................................................... 366 596
Line of credit..................................................... 708 140
Current portion of long-term debt and capital lease obligations.... 48 42
------------ ---------
Total current liabilities...................................... 3,015 2,560
------------ ---------
Long-term debt and capital lease obligations, net of current
portion.............................................................. 28 21
Deferred income taxes................................................ 13 9
------------ ---------
Total liabilities.............................................. 3,056 2,590
------------ ---------
Commitments and contingencies (Note 4)
Redeemable Class B Common Stock, $.01 par value, 200,000 shares
authorized; 6,327 and 6,092 issued and outstanding at December 31,
1995 and March 25, 1996, respectively................................ 253 243
------------ ---------
Capital deficiency:
Class A Common Stock, $.01 par value, 1,000,000 shares authorized;
25,000 shares issued and outstanding,............................ -- --
Additional paid-in capital......................................... 75 75
Deficit............................................................ (150) (156)
------------ ---------
Total capital deficiency....................................... (75) (81)
------------ ---------
Total liabilities and capital deficiency................... $3,234 2,752
------------ ---------
------------ ---------
</TABLE>
See accompanying notes to unaudited financial statements.
F-41
<PAGE>
SUN WEST SERVICES, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
MARCH 31, MARCH 25,
1995 1996
--------- ---------
<S> <C> <C>
(UNAUDITED)
Net sales........................................................... $ 4,620 $ 4,041
Cost of sales....................................................... 4,373 3,637
--------- ---------
Gross profit........................................................ 247 404
General and administrative expenses................................. 389 393
--------- ---------
Income (loss) from operations....................................... (142) 11
Interest expense.................................................... 23 17
--------- ---------
Loss before tax benefit............................................. (165) (6)
Tax benefit......................................................... 53 --
--------- ---------
Net loss............................................................ $ (112) $ (6)
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to unaudited financial statements.
F-42
<PAGE>
SUN WEST SERVICES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
MARCH 31, MARCH 25,
1995 1996
--------- ---------
<S> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net loss.............................................................. $(112) $ (6)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization....................................... 49 37
Deferred income tax provision....................................... (53)
Changes in operating assets and liabilities:
Accounts receivable................................................. (189) 337
Inventories......................................................... 15 (114)
Prepaid expenses and other current assets........................... 81 35
Accounts payable.................................................... 97 (111)
Accrued expenses and other current liabilities...................... (26) 230
--------- ---------
Net cash (used in) provided by operating activities............... (138) 408
--------- ---------
Cash flows from investing activities:
Increase in contract rights........................................... -- (7)
Purchases of property and equipment................................... (28) (42)
Proceeds from sale of property and equipment.......................... -- 3
--------- ---------
Net cash used in investing activities............................. (28) (46)
--------- ---------
Cash flows from financing activities:
Net borrowings (repayments) on line of credit......................... 147 (568)
Payments of long-term debt and capital lease obligations.............. (15) (13)
Redemption of Class B Common Stock.................................... (8) (10)
--------- ---------
Net cash provided by (used in) financing activities............... 124 (591)
--------- ---------
Decrease in cash and cash equivalents................................... (42) (229)
Cash and cash equivalents, beginning of period.......................... 168 343
--------- ---------
Cash and cash equivalents, end of period................................ $ 126 $ 114
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to unaudited financial statements.
F-43
<PAGE>
SUN WEST SERVICES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND MARCH 25, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. The financial statements include all adjustments of a
normal recurring nature which, in the opinion of management, are necessary for a
fair presentation of the results of operations for the three months ended March
31, 1995 and March 25, 1996. The accompanying unaudited financial statements
should be read in conjunction with the financial statements and notes thereto
included elsewhere in this prospectus for the fiscal year ended December 31,
1995.
2. SALE OF SUN WEST SERVICES, INC.
On March 25, 1996, Fine Host Corporation ("Fine Host") acquired 100% of the
outstanding Class A and Class B Common Stock of Sun West Services, Inc. The
selling price was approximately $5,200 consisting of cash, five-year
subordinated notes to the sellers with interest at 7% and 25,900 shares of Fine
Host Common Stock.
3. INCOME TAXES
A reconciliation of the difference between the income tax benefit and income
taxes at the statutory United States Federal income tax rate is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------
MARCH 31, 1995 MARCH 25, 1996
-------------- --------------
<S> <C> <C>
Income tax benefit at statutory United States Federal income
tax rate..................................................... (56) $ (3)
Decrease attributed to graduated tax rates..................... 13 1
Increase attributed to state taxes, net........................ (9) --
Other.......................................................... (1) 2
----- -----
Income tax benefit............................................. $(53) $ --
----- -----
----- -----
</TABLE>
Income taxes paid were $4 for the three months ended March 25, 1996.
F-44
<PAGE>
SUN WEST SERVICES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND MARCH 25, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
3. INCOME TAXES--(CONTINUED)
Deferred income taxes are provided to reflect temporary differences in the
basis of net assets for income tax and financial reporting purposes. The
tax-effected temporary differences and net operating loss carryforwards which
comprise deferred taxes at March 25, 1996 are as follows:
<TABLE>
<CAPTION>
ASSETS LIABILITIES TOTAL
------ ----------- -----
<S> <C> <C> <C>
Allowance for doubtful accounts...................................... $ 6 $-- $ 6
Non-deductible contract guarantee accrual............................ 23 -- 23
Accrued employee vacation............................................ 32 32
Net operating loss................................................... 18 -- 18
------ -----
Total current...................................................... 79 -- 79
------ -----
Accelerated tax depreciation......................................... -- (9) (9)
------ ----- -----
Total non-current.................................................. -- (9) (9)
------ ----- -----
Total.......................................................... $ 79 $ (9) $70
------ ----- -----
------ ----- -----
</TABLE>
The Company believes that realization of the net deferred tax asset is more
likely than not, and therefore no valuation allowance is necessary.
4. COMMITMENTS AND CONTINGENCIES
The Company leases certain equipment and automobiles under operating leases
expiring on various dates through 1998. The following is a schedule, by year, of
future minimum noncancelable operating lease payments due as of March 25, 1996:
<TABLE>
<S> <C>
1997.................................................................. $ 6
1998.................................................................. 1
---
Total............................................................. $ 7
---
---
</TABLE>
Rent expense for the above leases was $4 for the three months ended March
25, 1996.
The Company rents land and building space for its corporate office on a
month-to-month basis for $6 per month from an Arizona limited liability
corporation whose owners are both directors and stockholders of the Company.
Rent expense for this facility for the three months ended March 25, 1996 was
$19.
The Company has contracts with customers under which the Company guarantees
that the customer will earn a specified minimum return. Payments by the Company
under such guarantees were approximately $29 and $21 for the three months ended
March 31, 1995 and March 25, 1996, respectively. Management estimates that it is
probable that the Company will incur losses aggregating approximately $76
related to three such guarantees, all of which expire by December 31, 1996,
during the remainder of the year ending December 31, 1996; therefore, such
amount has also been accrued as of March 25, 1996.
Four former employees of the Company have filed charges of employment
discrimination with the Equal Employment Opportunity Commission pertaining to
their termination of employment. One of the claimants has exercised her right to
litigate and has filed a complaint in district court in Arizona. While the
Company is unable to predict the outcome of these uncertainties, it is
management's opinion that the ultimate outcome will not have a material adverse
effect on the financial position, results of operations or cash flows of the
Company.
F-45
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Creative Food Management, Inc.
Toledo, Ohio
We have audited the accompanying consolidated financial statements of
Creative Food Management, Inc. (the "Company") as of December 31, 1993, and the
related consolidated statements of operations and of cash flows for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements presents fairly, in
all material respects, the financial position of the Company as of December 31,
1993 and the results of its operations and its cash flows for the year then
ended, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
July 29, 1994
F-46
<PAGE>
CREATIVE FOOD MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
1993
------------
<S> <C>
ASSETS
Current assets:
Cash......................................................................... $ 176
Accounts receivable.......................................................... 718
Inventories.................................................................. 500
Prepaid expenses and other current assets.................................... 22
------------
Total current assets..................................................... 1,416
Fixtures and equipment, net.................................................... 3,562
Assets held for sale........................................................... 327
Deferred costs................................................................. 224
Other assets................................................................. 673
Total assets............................................................. $ 6,202
------------
------------
LIABILITIES AND STOCKHOLDERS' CAPITAL DEFICIENCY
Current liabilities:
Accounts payable............................................................. $ 3,298
Accrued expenses and other current liabilities............................... 1,385
Current portion of long-term debt............................................ 182
Note payable................................................................. 1,807
------------
Total current liabilities................................................ 6,672
Long-term debt................................................................. 421
Commitments
Stockholders' capital deficiency:
Common stock, no par value, 100 shares authorized, 80 shares issued and
outstanding.................................................................... 300
Deficit...................................................................... (1,191)
------------
Total stockholders' capital deficiency................................... (891)
------------
Total liabilities and stockholders' capital deficiency............... $ 6,202
------------
------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-47
<PAGE>
CREATIVE FOOD MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1993
------------
<S> <C>
Net sales...................................................................... $ 21,468
Cost of sales.................................................................. 20,374
------------
Gross profit................................................................... 1,094
General and administrative expenses............................................ 1,731
------------
Loss from operations........................................................... (637)
Interest expense............................................................... 217
------------
Net loss....................................................................... $ (854)
------------
------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-48
<PAGE>
CREATIVE FOOD MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1993
------------
<S> <C>
Cash flows from operating activities:
Net loss..................................................................... $ (854)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization.............................................. 561
Changes in operating assets and liabilities:
Accounts receivable........................................................ 958
Inventories................................................................ 128
Prepaid expenses and other current assets.................................. (64)
Accounts payable........................................................... (74)
Accrued expenses and other current liabilities............................. (199)
------------
Net cash provided by operating activities.................................... 456
Cash flows from investing activities:
Purchase of property and equipment........................................... (1,304)
Cash proceeds from sale of business units.................................... 1,730
Net cash provided by investing activities.................................... 426
Cash flows from financing activities:
Borrowings under notes payable............................................... 1,756
Repayment of notes payable................................................... (2,715)
------------
Net cash used in financing activities........................................ (959)
------------
Decrease in cash............................................................... (77)
Cash, beginning of year........................................................ 253
------------
Cash, end of year.............................................................. $ 176
------------
------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-49
<PAGE>
CREATIVE FOOD MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Business--Creative Food Management, Inc. (formerly VGE Acquisition Corp.)
(the Company) was formed on July 13, 1992 for the purpose of acquiring the
businesses of Canteen Service Co. of Toledo (Canteen), Satellite Refreshment
Services, Inc. (Satellite), Fresh Express Commissary (Fresh), and Creative Food
Management, Inc. (Creative) from V/Gladieux Enterprises, Inc. This transaction
was completed on August 23, 1992 through the acquisition of the assets and
liabilities of Canteen, Satellite and Fresh, and the purchase of the stock of
Creative, and was accounted for using the purchase method of accounting.
Also on August 23, 1992, the Company sold substantially all of the operating
assets and the rights under existing contracts of the corrections division of
Creative, which provided food services for various correctional facilities
across the United States, for $3,042.
Effective March 5, 1993, the Company sold all of the operating equipment and
contract rights of Fresh, a wholesaler of vended food products, for $230.
Effective June 18, 1993, the Company sold all of the assets of Satellite
Vending, a division of Satellite, which operated vending machines at various
industrial locations, for $1,400.
Effective June 18, 1993 and December 10, 1993, the Company sold portions of
the assets of Canteen, an operator of vending machines, for a total of $561.
The results of operations of Creative, Fresh, Satellite and Canteen were
accrued in the opening balance sheet of the Company and therefore are excluded
from results of operations for the year ended December 31, 1993.
The Company and its subsidiary continue to operate various types of food
service businesses, principally vending, cafeterias and concessions. Operations
serve industrial locations in Ohio and Michigan, and universities and sports
complexes throughout the eastern United States.
Basis of Presentation--The accompanying consolidated financial statements
have been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business.
As shown in the consolidated balance sheet, the Company has a deficit of $1,191,
and the Company's current liabilities exceed its current assets by $5,256. In
addition, the Company is in violation of certain restrictive covenants of its
loan agreement (see Note 6).
The Company's continuation as a going concern is dependent upon its ability
to generate sufficient cash flow to meet its obligations on a timely basis, to
comply with the terms and covenants of its financing agreement, to obtain
additional financing or refinancing as may be required and ultimately to achieve
profitable operations. Management has disposed of several business segments
determined to be unprofitable. These sales have generated cash to reduce debt
associated with the original acquisition of the businesses. On July 29, 1994,
the Company signed a stock purchase agreement, subject to certain closing
conditions, with Fine Host Corporation ("Fine Host") (see Note 10) whereby Fine
Host will purchase all of the Company's outstanding stock.
Principles of Consolidation -- The accompanying consolidated financial
statements include the accounts of Creative Food Management, Inc. and its
wholly-owned subsidiary. All material intercompany balances and transactions
have been eliminated.
F-50
<PAGE>
CREATIVE FOOD MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Inventories -- Inventories are stated at the lower of cost, first-in,
first-out method, or market.
Property and Equipment -- Property and equipment recorded at cost.
Depreciation is computed on the straight-line method based on the estimated
useful lives of the related assets, which range from 7-10 years. Expenditures
for maintenance and repairs are charged to expense as incurred.
Deferred Costs -- Deferred costs represent organizational costs and
financing fees which are being amortized over five years and the life of the
related line of credit, respectively.
Self-Insurance Programs -- The Company is self-insured for health care
claims for eligible employees. Self-insured claims are accrued based upon the
aggregate of the liability for reported claims subject to certain stop-loss
provisions on a per claim basis and an estimated liability for claims incurred
but not reported.
Income Taxes -- The Company calculates its provision for income taxes in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Certain items, such as depreciation and various accruals, are
recognized for tax purposes in years other than the years in which they are
reported in the financial statements. Deferred income taxes are reflected in the
financial statements for those temporary differences.
Pledges and Commitments -- The Company pledges financial support and commits
to capital improvements at certain universities where it provides food service.
The pledges are expensed and the improvements are capitalized.
2. ASSETS HELD FOR SALE
Assets held for sale consist of property and equipment which was sold in
April 1994 in connection with the sale of an insignificant portion of the
Company's business.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<S> <C>
Leasehold improvements............................................ $ 564
Furniture and equipment........................................... 2,379
Construction in progress.......................................... 1,001
------
3,944
Less accumulated depreciation..................................... 382
------
Net property and equipment........................................ $3,562
------
------
</TABLE>
The Company invests in fixtures and equipment at various locations. Upon
termination of a contract, the client is generally required to purchase the
assets from the Company at an amount equal to their undepreciated value.
F-51
<PAGE>
CREATIVE FOOD MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
4. DEFERRED COSTS AND OTHER ASSETS
Deferred costs consist of the following:
<TABLE>
<S> <C>
Organization costs.................................................. $240
Financing costs..................................................... 50
----
290
Less accumulated amortization....................................... 66
----
Total............................................................. $224
----
----
</TABLE>
Other assets consist of the following:
<TABLE>
<S> <C>
Contracts, net accumulated amortization of $202..................... $556
Non-compete agreements, net of accumulated amortization of $78...... 42
Other............................................................... 75
----
Total............................................................. $673
----
----
</TABLE>
In connection with the acquisition of the business in 1992, the Company
acquired the rights to the contract agreements held by the former owner to
provide food services at various locations. The value assigned to those
agreements was based on the estimated cash flows to be generated under the
contracts, and is being amortized over five years.
In addition, the Company paid $250 to the former owner for a three year
non-compete agreement, which is being amortized over the life of the agreement.
A portion of the non-compete agreement was allocated to the business segments
sold, and were written off in connection with those sales.
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<S> <C>
Note issued to the seller, subordinated to the line of credit,
bearing interest at 1% over the prime rate of the First National
Bank of Chicago (7% at December 31, 1993). Monthly payments of
principal and interest through September 1997..................... $ 460
Installments notes secured by related equipment; payable monthly
through 1995. The net book value of the equipment is approximately
equal to the amount of the debt..................................... 143
-----
603
Less current portion................................................ 182
-----
Total long-term debt.............................................. $ 421
-----
-----
</TABLE>
Annual maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1994................................................................ $ 182
1995................................................................ $ 162
1996................................................................ $ 154
1997................................................................ $ 105
</TABLE>
F-52
<PAGE>
CREATIVE FOOD MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
6. NOTE PAYABLE
The Company has a line of credit agreement with a bank which expires August
1994 that provides for borrowings of up to $2,500 based on qualified accounts
receivable and property and equipment. Interest is payable monthly based on the
outstanding balance at 2% over the bank's prime rate (8% at December 31, 1993).
Borrowings under this agreement were $1,807 at December 31, 1993. The line of
credit is secured by accounts receivable, inventory and property and equipment
of the Company. The line of credit is also personally guaranteed by the
Company's shareholders and the outstanding stock of the Company has been pledged
as additional collateral for the note.
The credit agreement requires, among other things, minimum working capital
and current ratios, minimum tangible net worth and other restrictive covenants.
At December 31, 1993, the Company was in violation of these debt covenants which
is an event of default that could accelerate the repayment of the note. As of
July 29, 1994, the bank has not demanded repayment of the note and is
negotiating the refinancing of the note payable with the purchaser noted in Note
9.
7. INCOME TAXES
Deferred income taxes consist of the following:
<TABLE>
<S> <C>
Deferred asset:
Vacation accrual................................................. $ 51
Severance agreement.............................................. 34
Accrued pledged.................................................. 32
Bad debt allowance............................................... 21
Inventory reserve................................................ 21
Other............................................................ 72
Net operating loss (expires beginning 2007)...................... 291
-----
522
Valuation allowance.............................................. (405)
-----
117
Deferred liability:
Book basis of property in excess of tax basis.................... (117)
-----
Net deferred taxes................................................. $ 0
-----
-----
</TABLE>
During 1993, the valuation allowance increased approximately $290.
8. COMMITMENTS
The Company leases certain equipment, automobiles, office space and other
facilities under various operating leases expiring on various dates through
1997. The rental payments on these leases are based
F-53
<PAGE>
CREATIVE FOOD MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
8. COMMITMENTS--(CONTINUED)
on a minimum rental with certain leases providing for additional rentals based
upon a percentage of sales or income as specified in the lease agreements.
The following is a schedule, by year, of non-cancelable operating lease
payments due as of December 31, 1993:
<TABLE>
<S> <C>
1994.............................................................. $102
1995.............................................................. 44
1996.............................................................. 19
1997.............................................................. 4
----
Total............................................................. $169
----
----
</TABLE>
Rental expense was $200 for the year ended December 31, 1993.
The Company pledges financial support and commits to providing capital
improvements at certain universities where it provides food service. As of
December 31, 1993, accrued expenses includes $93 for pledges made prior to
August 2, 1992 to certain universities. There are no outstanding commitments for
capital improvements as of December 31, 1993.
In connection with the acquisition of the Company, the Company is obligated
under an employment agreement of a former employee to pay $4 per month through
January 1996, which is included in accrued expenses as of December 31, 1993.
9. RETIREMENT PLAN
The Company has a defined contribution plan (401k plan) covering
substantially all employees of the Canteen division. Employees may elect to
contribute a percentage of compensation during the plan year. Employer
contributions are based upon a specified percentage of the Company's profits.
There were no employer contributions during 1993.
10. SUBSEQUENT EVENTS
On July 29, 1994, the Company signed a stock purchase agreement, subject to
certain closing conditions with Fine Host whereby Fine Host will purchase all of
the Company's outstanding stock for $4,500, subject to certain adjustments as
defined in the stock purchase agreement.
F-54
<PAGE>
======================================== ======================================
- ---------------------------------------- --------------------------------------
No dealer, salesman or other person is
authorized to give any information or
to make any representation in connection
with this offering not contained in this
4,030,000 SHARES
Prospectus, and any information or
representation not contained herein must
not be relied upon as having been
authorized by the Company or the
Underwriters. This Prospectus does not
constitute an offer to sell or a
solicitation of an offer to buy any
securities other than the shares of [LOGO]
Common Stock to which it relates, or
an offer to, or solicitation of, any
person in any jurisdiction where such
offer or solicitation would be unlawful.
Neither the delivery of this Prospectus
nor any sale made hereunder shall, under
any circumstances, create an implication
that there has been no change in the
affairs of the Company or that
information contained herein is correct
as of any time subsequent to the date
hereof. FINE HOST CORPORATION
---------------------
TABLE OF CONTENTS
---------------------
Page
----
Prospectus Summary.............. 3 COMMON STOCK
Risk Factors.................... 6
Use of Proceeds................. 10
Dividend Policy................. 10
Capitalization.................. 11
Dilution........................ 12
Selected Consolidated
Financial Data.................. 13 ----------------
Unaudited Pro Forma
Consolidated Financial Data.... 15 PROSPECTUS
Management's Discussion
and Analysis of Financial ----------------
Condition and Results
of Operations.................. 21
Business........................ 29
Management...................... 40
Certain Transactions............ 45
Principal and Selling
Stockholders................... 48
Description of Capital Stock.... 50
Shares Eligible for Future Sale. 54 MONTGOMERY SECURITIES
Underwriting.................... 56
Legal Matters................... 57 OPPENHEIMER & CO., INC.
Experts......................... 57
Additional Information.......... 58
Index to Financial Statements... F-1
----------------------------
Until , 1996 (25 days after
the date of this Prospectus), all dealers
effecting transactions in the Common
Stock, whether or not participating
in this distribution, may be required to
deliver a Prospectus. , 1996
This is in addition to the obligation of
dealers to deliver a Prospectus when
acting as underwriters and with respect
to their unsold allotments or
subscriptions.
- ----------------------------------------- -------------------------------------
========================================= =====================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered which will be paid
solely by the Company. All the amounts shown are estimates, except the SEC
registration fee, the NASD filing fee and the NASDAQ National Market listing
fee:
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
SEC registration fee........................................... $ 22,754
NASD filing fee................................................ 7,099
NASDAQ listing fee............................................. 32,584
Transfer agent and registrar fees and expenses................. 15,000
Printing and engraving expenses................................ 125,000
Legal fees and expenses........................................ 550,000
Accounting fees and expenses................................... 250,000
Blue Sky fees and expenses..................................... 15,000
Miscellaneous expenses......................................... 32,563
----------
Total...................................................... $1,050,000
----------
----------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Restated Certificate of Incorporation (the "Restated
Certificate") provides that the Company shall indemnify each person who is or
was a director, officer or employee of the Company to the fullest extent
permitted under Section 145 of the Delaware General Corporation Law. Section 145
of the Delaware General Corporation Law empowers a Delaware corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of such corporation) by reason of the fact that such person is or was
a director, officer, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. A corporation may indemnify such person
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. A corporation may, in
advance of the final disposition of any civil, criminal, administrative or
investigative action, suit or proceeding, pay the expenses (including attorneys'
fees) incurred by any officer or director in defending such action, provided
that the director or officer undertakes to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
corporation.
A Delaware corporation may indemnify officers and directors in an action by
or in the right of the corporation to procure a judgment in its favor under the
same conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation.
Where an officer or director is successful on the merits or otherwise in the
defense of any action referred to above, the corporation must indemnify him
against the expenses (including attorneys' fees) which he actually and
reasonably incurred in connection therewith. The indemnification provided is not
deemed to be exclusive of any other rights to which an officer or director may
be entitled under any corporation's bylaw, agreement, vote or otherwise.
II-1
<PAGE>
The Restated Certificate provides that a director of the Company will not be
personally liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the Company or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, which concerns unlawful payments of dividends, stock purchases
or redemption, or (iv) for any transaction from which the director derived an
improper personal benefit.
While the Restated Certificate provides directors with protection from
awards for monetary damages for breaches of their duty of care, it does not
eliminate such duty. Accordingly, the Restated Certificate will have no effect
on the availability of equitable remedies such as an injunction or rescission
based on a director's breach of his or her duty of care. The provisions of the
Restated Certificate described above apply to an officer of the Company only if
he or she is a director of the Company and is acting in his or her capacity as
director, and do not apply to officers of the Company who are not directors.
Reference is made to Section 11 of the Underwriting Agreement (Exhibit 1)
which provides for indemnification of the Company, its directors, officers and
controlling persons.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Company has issued the following securities within the past three years
(as adjusted to reflect a 7-for-1 stock split):
On April 29, 1993, the Company issued a warrant to Continental Bank N.A. to
purchase up to 454,657 of Non-Voting Common Stock, par value $0.01 per share, at
an exercise price of $4.93 per share.
On April 29, 1993, the Company issued a warrant to Continental Bank N.A. to
purchase up to 190,792 of Non-Voting Common Stock, par value $0.01 per share, at
an exercise price of $4.93 per share.
On April 29, 1993, the Company issued a warrant to Continental Bank N.A. to
purchase up to 117,712 of Non-Voting Common Stock, par value $0.01 per share, at
an exercise price of $0.01 per share.
Each of the issuances described in the previous three paragraphs was made in
connection with the purchase by Continental Bank N.A. of $8,500,000 principal
amount of variable rate subordinated notes of the Company.
On April 29, 1993, the Company issued 86,942 shares of Series A Convertible
Preferred Stock, par value $0.01 per share, to GRD Corporation, together with
the warrants described in the following two paragraphs, for $2,999,499.
On April 29, 1993, the Company issued a warrant to GRD Corporation to
purchase up to 118,307 shares of Common Stock, par value $0.01 per share, at an
exercise price of $4.93 per share.
On April 29, 1993, the Company issued a warrant to GRD Corporation to
purchase up to 453,432 shares of Common Stock, par value $0.01 per share, at an
exercise price of $0.01 per share.
On April 29, 1993, the Company issued 15,650 shares of Series A Convertible
Preferred Stock, par value $0.01 per share, to The Berkley Family Limited
Partnership, together with the warrants described in the following two
paragraphs, in consideration for the cancellation of $539,925 in principal
amount of a certain Promissory Note, dated March 2, 1992, made by the Company
and payable to the order of The Berkley Family Limited Partnership.
II-2
<PAGE>
On April 29, 1993, the Company issued a warrant to William R. Berkley to
purchase up to 81,613 shares of Common Stock, par value $0.01 per share, at an
exercise price of $0.01 per share.
On April 29, 1993, the Company issued a warrant to William R. Berkley to
purchase up to 21,294 shares of Common Stock, par value $0.01 per share, an
exercise price of $4.93 per share.
On April 29, 1993, the Company issued options to Gerald Moses to purchase up
to 27,944 shares of Common Stock, par value $.01 per share, at an exercise price
of $4.93 per share in connection with the acquisition of Fanfare by the Company.
On April 29, 1993, the Company issued a subordinated promissory note, due
April 29, 1996, to Gerald Moses, in the aggregate principal amount of
$1,125,000, in connection with the acquisition of Fanfare.
On September 9, 1994, the Company issued a subordinated promissory note, due
September 9, 1998, to James E. Kern, in the aggregate principal amount of
$1,450,000, in connection with the acquisition of Creative.
On September 9, 1994, the Company issued a subordinated promissory note, due
September 9, 1998, to John F. Kusner, in the aggregate principal amount of
$1,005,000, in connection with the acquisition of Creative.
On September 9, 1994, the Company issued a subordinated promissory note, due
September 9, 1998, to John C. Hjalmarson, in the aggregate principal amount of
$97,000, in connection with the acquisition of Creative.
On September 9, 1994, the Company issued a convertible subordinated
promissory note, due September 9, 2000, to James E. Kern, in the aggregate
principal amount of $655,000, in connection with the acquisition of Creative.
On September 9, 1994, the Company issued a convertible subordinated
promissory note, due September 9, 2000, to John F. Kusner, in the aggregate
principal amount of $200,000, in connection with the acquisition of Creative.
On November 1, 1994, the Company issued options to purchase up to 105,000
shares of Common Stock, par value $.01 per share, to various employees of the
Company in consideration of services rendered.
On April 24, 1995, the Company issued 31,579 shares of Series A Convertible
Preferred Stock, par value $0.01 per share, to Interlaken Investment Partners,
L.P., for a cash purchase price of $47.50 per share.
On September 28, 1995, the Company issued options to Robert Barney to
purchase up to 7,000 shares of Common Stock, par value $.01 per share, at an
exercise price of $7.14 per share in consideration of services rendered.
On September 28, 1995, the Company issued options to William Mahone, Martin
O'Connell and Charles Martin to purchase up to 1,169 shares, 1,169 shares and
1,162 shares, respectively, of Common Stock, par value $.01 per share, at an
exercise price of $7.14 per share in consideration of services rendered.
On June 30, 1995, the Company issued a subordinated promissory note, due
June 30, 2001, to Robert F. Barney, for the aggregate principal amount of
$1,350,000, in connection with the acquisition of Northwest.
II-3
<PAGE>
On March 25, 1996, the Company issued 17,500 shares of Common Stock, par
value $.01 per share, to William C. Smitherman and Joann McBride Smitherman
jointly, at a value of $14.29 per share, in connection with the acquisition of
Sun West.
On March 25, 1996, the Company issued 8,400 shares of Common Stock, par
value $.01 per share, to James E. McBride, at a value of $14.29 per share, in
connection with the acquisition of Sun West.
On March 25, 1996, the Company issued a note, due April 25, 2000, to William
C. Smitherman and Joann M. Smitherman, in the aggregate principal amount of
$1,350,000, in connection with the acquisition of Sun West.
On March 25, 1996, the Company issued a note, due April 25, 1999, to Edward
G. Enos, in the aggregate principal amount of $637,500, in connection with the
acquisition of Sun West.
The above transactions were private transactions not involving a public
offering and were exempt from the registration provisions of the Securities Act,
pursuant to Section 4(2) thereof. The sale of securities was without the use of
an underwriter, and the certificates evidencing the shares bear a restrictive
legend permitting the transfer thereof only upon registration of the shares or
an exemption under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<C> <S>
1 Form of Underwriting Agreement
*2 Stock Purchase Agreement, dated as of March 25, 1996, by and among the Company,
William C. Smitherman, Jo Ann McBride Smitherman, James E. McBride and Edward G.
Enos.
*3.1 Restated Certificate of Incorporation
*3.2 Form of Restated Certificate of Incorporation
*3.3 By-Laws
*3.4 Form of Restated By-Laws
*4 Specimen of Registrant's Common Stock certificate
*5 Opinion of Willkie Farr & Gallagher as to the legality of the Common Stock
*10.1 Subscription Agreement, dated as of April 29, 1993, by and among the Company, GRD
Corporation, The Berkley Family Limited Partnership and William R. Berkley.
*10.2 Registration Rights Agreement, dated as of April 29, 1993, by and among the
Company, Continental Bank N.A., GRD Corporation and William R. Berkley.
*10.3 Warrant, dated April 29, 1993, issued to GRD Corporation, to purchase up to
118,307 shares of Common Stock, par value $0.01 per share, at a price of $4.93
per share.
*10.4 Warrant, dated April 29, 1993, issued to GRD Corporation, to purchase up to
453,432 shares of Common Stock, par value $0.01 per share, at a price of $0.01
per share.
*10.5 Warrant, dated April 29, 1993, issued to William R. Berkley, to purchase up to
21,294 shares of Common Stock, par value $0.01 per share, at a price of $4.93 per
share.
*10.6 Warrant, dated April 29, 1993, issued to William R. Berkley, to purchase up to
81,613 shares of Common Stock, par value $0.01 per share, at a price of $0.01 per
share.
*10.7 Note Purchase Agreement, dated as of April 29, 1993, between the Company and
Continental Bank N.A.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<C> <S>
*10.8 Amendment No. 1 to the Note Purchase Agreement, dated as of June 7, 1994, between
the Company and Bank of America Illinois, formerly known as Continental Bank N.A.
*10.9 Amendment No. 2 to the Note Purchase Agreement, dated as of April 24, 1995,
between the Company and Bank of America Illinois, formerly known as Continental
Bank N.A.
*10.10 Combined Warrant, dated as of April 24, 1995, issued to Bank of America Illinois,
formerly known as Continental Bank N.A., to purchase up to 113,113 shares of
Non-Voting Common Stock, par value $0.01 per share, at a price of $4.93 per
share.
*10.11 Combined Warrant, dated as of April 24, 1995, issued to Bank of America Illinois,
formerly known as Continental Bank N.A., to purchase up to 379,694 shares of
Non-Voting Common Stock, par value $0.01 per share, at a price of $4.93 per
share.
*10.12 Warrant, dated as of April 29, 1993, issued to Bank of America Illinois, formerly
known as Continental Bank N.A., to purchase up to 117,712 shares of Non-Voting
Common Stock, par value $0.01 per share, at a price of $0.01 per share.
*10.13 Second Amended and Restated Loan Agreement, dated as of April 24, 1995, as
amended, among the Company, as borrower, its Subsidiaries and USTrust, The Daiwa
Bank Limited, NBD Bank and State Street Bank and Trust Company.
*10.14 Subscription Agreement, dated as of April 24, 1995, by and among the Company and
Interlaken Investment Partners, L.P.
*10.15 Registration Rights Agreement, dated as of April 24, 1995, between the Company
and Interlaken Investment Partners, L.P.
*10.16 Advisory Services Agreement, dated as of March 25, 1996, between the Company and
Interlaken Capital, Inc.
*10.17 Form of 1994 Stock Option Plan, as amended
*10.18 Form of 1996 Non-Employee Director Stock Option Plan
*10.19 Employment Agreement, dated as of June 30, 1995, by and among the Company,
Northwest Food Service, Inc. and Robert F. Barney.
*10.20 Lease, dated as of January 31, 1994, as amended, between the Company and Fawn
Associates Limited Partnership, in regard to 3 Greenwich Office Park, Greenwich,
Connecticut.
*10.21 Commercial Lease Agreement, dated as of January 1, 1991, as amended, between
Robert F. Barney and Northwest Food Service, Inc., in regard to certain parcel of
real property located in Boise, Idaho.
*10.22 Business Property Lease, dated as of October 27, 1995, between Telegraph Ind.
Plaza Ltd. and Creative Food Management, Inc., in regard to 6061 Telegraph Road,
Toledo, Ohio.
*10.23 Lease, dated March 22, 1996, between 19 West Alameda, LLC and Sun West Services,
Inc., in regard to Suite 101, 19 West Alameda Drive, Tempe, Arizona.
10.24 Form of Promissory Note from Richard E. Kerley to the Company.
10.25 Form of Promissory Note from Randy B. Spector to the Company.
10.26 Form of Promissory Note from Douglas M. Stabler to Interlaken Capital Partners
Limited Partnership.
10.27 Form of Promissory Notes from Randall K. Ziegler to the Company and Interlaken
Capital Partners Limited Partnership.
10.28 Form of Registration Rights Agreement by and among the Company and Messrs.
Kerley, Spector, Ziegler and Stabler.
11 Computations of Per Share Earnings
*21 Subsidiaries
*23.1 Consent of Willkie Farr & Gallagher (included in their opinion filed as Exhibit
5.1)
23.2 Consents of Deloitte & Touche LLP
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<C> <S>
*24 Power of Attorney
27 Financial Data Schedule
*99.1 Consent of Ronald E. Blaylock to being named as a director.
*99.2 Consent of Jack H. Nusbaum to being named as a director.
</TABLE>
- ------------
* Previously filed.
(b) Financial Statement Schedules
None.
ITEM 17. UNDERTAKINGS
(1) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
(2) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to its Restated Certificate, Bylaws, the Underwriting
Agreement or otherwise, the Registrant has been advised that, in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(3) The Registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in New York, New York on
May 29, 1996.
FINE HOST CORPORATION
By: /s/ RICHARD E. KERLEY
..................................
Name: Richard E. Kerley
Title: President and Chief
Executive Officer
II-7
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------ ------------------------------------ ---------------
<S> <C> <C>
* President and Chief Executive May 29, 1996
.................................... Officer and Director (Principal
Richard E. Kerley Executive Officer)
/s/ NELSON A. BARBER Senior Vice President and Chief May 29, 1996
.................................... Financial Officer (Principal
Nelson A. Barber Financial and Accounting Officer)
* Executive Vice President and May 29, 1996
.................................... Director
Randall K. Ziegler
* Chairman of the Board of Directors May 29, 1996
....................................
William R. Berkley
* Director May 29, 1996
....................................
Andrew M. Bursky
* Director May 29, 1996
....................................
Catherine B. James
* Director May 29, 1996
....................................
Joshua A. Polan
* By:
/s/ NELSON A. BARBER
....................................
Nelson A. Barber
Attorney-in-Fact
</TABLE>
II-8
<PAGE>
APPENDIX A
This Registration Statement contains spaces for the following graphic and
image materials:
(1) The front cover will be folded. The inside front cover contains a
map of the United States showing the locations of the Company's facilities.
(2) The fold-out portion of the front cover contains 7 photographs of
Company employees and facilities.
(3) The inside back cover contains 10 logos of certain education and
corporate dining clients served by the Company.
A-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ---------------------------------------------------------------------- --------
<C> <S> <C>
1 Form of Underwriting Agreement
*2 Stock Purchase Agreement, dated as of March 25, 1996, by and among the
Company, William C. Smitherman, Jo Ann McBride Smitherman, James E.
McBride and Edward G. Enos.
*3.1 Restated Certificate of Incorporation
*3.2 Form of Restated Certificate of Incorporation
*3.3 By-Laws
*3.4 Form of Restated By-Laws
*4 Specimen of Registrant's Common Stock certificate
*5 Opinion of Willkie Farr & Gallagher as to the legality of the Common
Stock
*10.1 Subscription Agreement, dated as of April 29, 1993, by and among the
Company, GRD Corporation, The Berkley Family Limited Partnership and
William R. Berkley.
*10.2 Registration Rights Agreement, dated as of April 29, 1993, by and
among the Company, Continental Bank N.A., GRD Corporation and William
R. Berkley.
*10.3 Warrant, dated April 29, 1993, issued to GRD Corporation, to purchase
up to 118,307 shares of Common Stock, par value $0.01 per share, at a
price of $4.93 per share.
*10.4 Warrant, dated April 29, 1993, issued to GRD Corporation, to purchase
up to 453,432 shares of Common Stock, par value $0.01 per share, at a
price of $0.01 per share.
*10.5 Warrant, dated April 29, 1993, issued to William R. Berkley, to
purchase up to 21,294 shares of Common Stock, par value $0.01 per
share, at a price of $4.93 per share.
*10.6 Warrant, dated April 29, 1993, issued to William R. Berkley, to
purchase up to 81,613 shares of Common Stock, par value $0.01 per
share, at a price of $0.01 per share.
*10.7 Note Purchase Agreement, dated as of April 29, 1993, between the
Company and Continental Bank N.A.
*10.8 Amendment No. 1 to the Note Purchase Agreement, dated as of June 7,
1994, between the Company and Bank of America Illinois, formerly known
as Continental Bank N.A.
*10.9 Amendment No. 2 to the Note Purchase Agreement, dated as of April 24,
1995, between the Company and Bank of America Illinois, formerly known
as Continental Bank N.A.
*10.10 Combined Warrant, dated as of April 24, 1995, issued to Bank of
America Illinois, formerly known as Continental Bank N.A., to purchase
up to 113,113 shares of Non-Voting Common Stock, par value $0.01 per
share, at a price of $4.93 per share.
*10.11 Combined Warrant, dated as of April 24, 1995, issued to Bank of
America Illinois, formerly known as Continental Bank N.A., to purchase
up to 379,694 shares of Non-Voting Common Stock, par value $0.01 per
share, at a price of $4.93 per share.
*10.12 Warrant, dated as of April 29, 1993, issued to Bank of America
Illinois, formerly known as Continental Bank N.A., to purchase up to
117,712 shares of Non-Voting Common Stock, par value $0.01 per share,
at a price of $0.01 per share.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ---------------------------------------------------------------------- --------
<C> <S> <C>
*10.13 Second Amended and Restated Loan Agreement, dated as of April 24,
1995, as amended, among the Company, as borrower, its Subsidiaries and
USTrust, The Daiwa Bank Limited, NBD Bank and State Street Bank and
Trust Company.
*10.14 Subscription Agreement, dated as of April 24, 1995, by and among the
Company and Interlaken Investment Partners, L.P.
*10.15 Registration Rights Agreement, dated as of April 24, 1995, between the
Company and Interlaken Investment Partners, L.P.
*10.16 Advisory Services Agreement, dated as of March 25, 1996, between the
Company and Interlaken Capital, Inc.
*10.17 Form of 1994 Stock Option Plan, as amended
*10.18 Form of 1996 Non-Employee Director Stock Option Plan
*10.19 Employment Agreement, dated as of June 30, 1995, by and among the
Company, Northwest Food Service, Inc. and Robert F. Barney.
*10.20 Lease, dated as of January 31, 1994, as amended, between the Company
and Fawn Associates Limited Partnership, in regard to 3 Greenwich
Office Park, Greenwich, Connecticut.
*10.21 Commercial Lease Agreement, dated as of January 1, 1991, as amended,
between Robert F. Barney and Northwest Food Service, Inc., in regard
to certain parcel of real property located in Boise, Idaho.
*10.22 Business Property Lease, dated as of October 27, 1995, between
Telegraph Ind. Plaza Ltd. and Creative Food Management, Inc., in
regard to 6061 Telegraph Road, Toledo, Ohio.
*10.23 Lease, dated March 22, 1996, between 19 West Alameda, LLC and Sun West
Services, Inc., in regard to Suite 101, 19 West Alameda Drive, Tempe,
Arizona.
10.24 Form of Promissory Note from Richard E. Kerley to the Company.
10.25 Form of Promissory Note from Randy B. Spector to the Company.
10.26 Form of Promissory Note from Douglas M. Stabler to Interlaken Capital
Partners Limited Partnership.
10.27 Form of Promissory Notes from Randall K. Ziegler to the Company and
Interlaken Capital Partners Limited Partnership.
10.28 Form of Registration Rights Agreement by and among the Company and
Messrs. Kerley, Spector, Ziegler and Stabler.
11 Computations of Per Share Earnings
*21 Subsidiaries
*23.1 Consent of Willkie Farr & Gallagher (included in their opinion filed
as Exhibit 5.1)
23.2 Consents of Deloitte & Touche LLP
*24 Power of Attorney
27 Financial Data Schedule
*99.1 Consent of Ronald E. Blaylock to being named as a director.
*99.2 Consent of Jack H. Nusbaum to being named as a director.
</TABLE>
- ------------
* Previously filed.
4,030,000 Shares
FINE HOST CORPORATION
Common Stock
UNDERWRITING AGREEMENT
----------------------
__________, 1996
MONTGOMERY SECURITIES
OPPENHEIMER & CO., INC.
As Representatives of the several Underwriters
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
SECTION 1. Introductory. Fine Host Corporation, a Delaware
------------
corporation (the "Company"), proposes to issue and sell 2,890,218 shares of its
authorized but unissued Common Stock (the "Common Stock") and certain
stockholders of the Company named in Schedule B annexed hereto (the "Selling
Stockholders") propose to sell an aggregate of 1,139,782 shares of the Company's
issued and outstanding Common Stock to the several underwriters named in
Schedule A annexed hereto (the "Underwriters"), for whom you are acting as
Representatives. Said aggregate of 4,030,000 shares are herein called the "Firm
Common Shares." In addition, the Company proposes to grant to the Underwriters
an option to purchase up to 604,500 additional shares of Common Stock (the
"Optional Common Shares"), as provided in Section 5 hereof. The Firm Common
Shares and, to the extent such option is exercised, the Optional Common Shares
are hereinafter collectively referred to as the "Common Shares."
You have advised the Company and the Selling Stockholders that the
Underwriters propose to make a public offering of their respective portions of
the Common Shares on the effective date of the registration statement
hereinafter referred to, or as soon thereafter as in your judgment is advisable.
<PAGE>
The Company and each of the Selling Stockholders hereby confirm their
respective agreements with respect to the purchase of the Common Shares by the
Underwriters as follows:
SECTION 2. Representations and Warranties of the Company. The
---------------------------------------------
Company represents and warrants to the several Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-2906)
with respect to the Common Shares has been prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as
amended (the "Act"), and the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder, and has been filed with the Commission. The
Company has prepared and has filed or proposes to file prior to the
effective date of such registration statement an amendment or
amendments to such registration statement, which amendment or
amendments have been or will be similarly prepared. There have been
delivered to you two signed copies of such registration statement and
amendments, together with two copies of each exhibit filed therewith.
Conformed copies of such registration statement and amendments (but
without exhibits) and of the related preliminary prospectus have been
delivered to you in such reasonable quantities as you have requested
for each of the Underwriters. The Company will next file with the
Commission one of the following: (i) prior to effectiveness of such
registration statement, a further amendment thereto, including the
form of final prospectus, (ii) a final prospectus in accordance with
Rules 430A and 424(b) of the Rules and Regulations or (iii) a term
sheet (the "Term Sheet") as described in and in accordance with Rules
434 and 424(b) of the Rules and Regulations. As filed, the final
prospectus, if one is used, or the Term Sheet and Preliminary
Prospectus, if a final prospectus is not used, shall include all Rule
430A Information and, except to the extent that you shall agree in
writing to a modification, shall be in all substantive respects in the
form furnished to you prior to the date and time that this Agreement
was executed and delivered by the parties hereto, or, to the extent
not completed at such date and time, shall contain only such specific
additional information and other changes (beyond that contained in the
latest Preliminary Prospectus) as the Company shall have previously
advised you in writing would be included or made therein.
The term "Registration Statement" as used in this Agreement shall
mean such registration statement at the time such registration
statement becomes effective and, in the event any post-effective
amendment thereto becomes effective prior to the First Closing Date
(as hereinafter defined),
2
<PAGE>
shall also mean such registration statement as so amended; provided,
--------
however, that such term shall also include (i) all Rule 430A
-------
Information deemed to be included in such registration statement at
the time such registration statement becomes effective as provided by
Rule 430A of the Rules and Regulations and (ii) any registration
statement filed pursuant to 462(b) of the Rules and Regulations
relating to the Common Shares. The term "Preliminary Prospectus"
shall mean any preliminary prospectus referred to in the preceding
paragraph and any preliminary prospectus included in the Registration
Statement at the time it becomes effective that omits Rule 430A
Information. The term "Prospectus" as used in this Agreement shall
mean (i) the prospectus relating to the Common Shares in the form in
which it is first filed with the Commission pursuant to Rule 424(b) of
the Rules and Regulations, or (ii) if a Term Sheet is not used and no
filing pursuant to Rule 424(b) of the Rules and Regulations is
required, the form of final prospectus included in the Registration
Statement at the time such registration statement becomes effective or
(iii) if a Term Sheet is used, the Term Sheet in the form in which it
is first filed with the Commission pursuant to Rule 424(b) of the
Rules and Regulations, together with the Preliminary Prospectus
included in the Registration Statement at the time it becomes
effective. The term "Rule 430A Information" means information with
respect to the Common Shares and the offering thereof permitted to be
omitted from the Registration Statement when it becomes effective
pursuant to Rule 430A of the Rules and Regulations.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus, and each Preliminary
Prospectus has conformed in all material respects to the requirements
of the Act and the Rules and Regulations and, as of its date, has not
included any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; and
at the time the Registration Statement becomes effective, the
Registration Statement will contain all material statements and
information required to be included therein by the Act and the Rules
and Regulations, will conform in all material respects to the
requirements of the Act and the Rules and Regulations, and will not
include any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and the Prospectus, as amended and
supplemented, as applicable, at the time the Registration Statement
becomes effective, and at the First Closing Date hereinafter
mentioned, will not include any untrue statement of a material fact or
omit to state a material fact necessary in order to make the
statements therein, in the light of the
3
<PAGE>
circumstances under which they were made, not misleading; provided,
--------
however, no representation or warranty contained in this subsection
-------
2(b) shall be applicable to information contained in or omitted from
any Preliminary Prospectus, the Registration Statement, the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by or on
behalf of any Underwriter, directly or through the Representatives,
specifically for use in the preparation thereof.
(c) The Company does not own or control, directly or indirectly,
any corporation, association or other entity other than (i) the
subsidiaries listed in Exhibit 21 to the Registration Statement (the
"Significant Subsidiaries") and (ii) Fine Host International
Corporation, Fine Host of Vermont, Inc., Global Fanfare, Inc., Tarrant
County Concessions, L.L.C., Fine Host/R&N/A Cup Above Joint Venture,
Fine Host/S. Brooks and Associates Joint Venture, Fine Host
International Corporation and F&B International Company Joint Venture
and Five-Star Marketing, Inc. (collectively, the "Excluded
Subsidiaries" and, together with the Significant Subsidiaries, the
Company's "subsidiaries"). The Excluded Subsidiaries, considered in
the aggregate as a single subsidiary, would not constitute a
significant subsidiary within the meaning of Rule 1-02(v) of
Regulation S-X under the Act. The Company and each of its
subsidiaries have been duly incorporated and are validly existing as
corporations in good standing under the laws of their respective
jurisdictions of incorporation, with full power and authority
(corporate and other) to own and lease their properties and conduct
their respective businesses as described in the Prospectus; the
Company owns all of the outstanding capital stock of its Significant
Subsidiaries, and owns the stock or other interest held by it directly
or indirectly in the Excluded Subsidiaries, free and clear of all
claims, liens, charges and encumbrances; the Company and each of its
subsidiaries are in possession of and operating in compliance with all
authorizations, licenses, permits, consents, certificates and orders
material to the conduct of their respective businesses, all of which
are valid and in full force and effect except where the failure to
possess or be operating in compliance with such authorizations,
licenses, permits, consents, certificates or orders would not have a
material adverse effect on the Company and its subsidiaries taken as a
whole; the Company and each of its subsidiaries are duly qualified to
do business and in good standing as foreign corporations in each
jurisdiction in which the ownership or leasing of properties or the
conduct of their respective businesses requires such qualification,
except for jurisdictions in which the failure to so qualify would not
have a material adverse effect upon the Company and its subsidiaries
taken as a whole; and, to the knowledge of the
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Company, no proceeding has been instituted in any such jurisdiction,
revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, such power and authority or qualification.
(d) The Company has an authorized and outstanding capital stock
as set forth under the heading "Capitalization" in the Prospectus; the
issued and outstanding shares of Common Stock and Series A Convertible
Preferred Stock ("Preferred Stock") have been, and the shares of
Common Stock to be issued upon conversion of the Preferred Stock and
the exercise of certain warrants, as contemplated by the Prospectus,
will be, duly authorized and validly issued, are (except for an
aggregate of 154,000 shares of Common Stock issued to Richard E.
Kerley, Randy B. Spector and Randall Ziegler in consideration for
promissory notes as described in the Prospectus) and will be fully
paid and nonassessable, have been and will be issued in compliance
with all federal and state securities laws, were not and will not be
issued in violation of any preemptive rights or other rights to
subscribe for or purchase securities or, except for such rights that
will expire or be terminated on the First Closing Date, subject to any
such rights, and conform in all material respects to the description
thereof contained in the Prospectus. All issued and outstanding
shares of capital stock of each Significant Subsidiary, and all shares
of capital stock held by the Company directly or indirectly in any
Excluded Subsidiary, have been duly authorized and validly issued and
are fully paid and nonassessable. Except as disclosed in or
contemplated by the Prospectus and the financial statements of the
Company, and the related notes thereto, included in the Prospectus,
neither the Company nor any subsidiary has outstanding any options to
purchase, or any preemptive rights or other rights to subscribe for or
to purchase, any securities or obligations convertible into, or any
contracts or commitments to issue or sell, shares of its capital stock
or any such options, rights, convertible securities or obligations
(other than preemptive or other such rights which have been waived in
connection with the transactions contemplated by this Agreement and
will expire or be terminated on the First Closing Date). The
description of the Company's stock option, stock bonus and other stock
plans or arrangements, and the options or other rights granted and
exercised thereunder, set forth in the Prospectus accurately and
fairly presents the information required to be shown with respect to
such plans, arrangements, options and rights.
(e) The Common Shares to be sold by the Company have been duly
authorized and, when issued, delivered and paid for in the manner set
forth in this Agreement, will be duly authorized, validly issued,
fully paid and nonassessable, and
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will conform in all material respects to the description thereof
contained in the Prospectus. No preemptive rights or other rights to
subscribe for or purchase any security of the Company exist with
respect to the issuance and sale of the Common Shares by the Company
pursuant to this Agreement (other than those which have been waived).
No stockholder of the Company has any right which has not been waived
to require the Company to register the sale of any shares owned by
such stockholder under the Act in the public offering contemplated by
this Agreement. No further approval or authority of the stockholders
or the Board of Directors of the Company will be required for the
transfer and sale of the Common Shares to be sold by the Selling
Stockholders or the issuance and sale of the Common Shares to be sold
by the Company as contemplated herein.
(f) The Company has full legal right, power and authority to
enter into this Agreement and perform the transactions contemplated
hereby. This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding
obligation of the Company enforceable in accordance with its terms
except (x) as enforceability may be limited by general equitable
principles, bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors' rights generally, (y) as availability
of equitable remedies may be limited by equitable principles of
general applicability and (z) with respect to those provisions
relating to indemnities or contributions for liabilities under the
Act. The making and performance of this Agreement by the Company and
the consummation of the transactions herein contemplated will not
violate any provisions of the certificate of incorporation or bylaws,
or other organizational documents, of the Company or any of its
subsidiaries, and will not conflict with, result in the breach or
violation of, or constitute, either by itself or upon notice or the
passage of time or both, a default under any agreement, mortgage, deed
of trust, lease, franchise, license, indenture, permit or other
instrument to which the Company or any of its subsidiaries is a party
or by which the Company or any of its subsidiaries or any of its
respective properties may be bound or affected, any statute or any
authorization, judgment, decree, order, rule or regulation of any
court or any regulatory body, administrative agency or other
governmental body applicable to the Company or any of its subsidiaries
or any of their respective properties except for such conflicts,
breaches or violations or defaults which would not have a material
adverse effect on the Company and its subsidiaries taken as a whole.
No consent, approval, authorization or other order of any court,
regulatory body, administrative agency or other governmental body is
required for the execution and delivery of this Agreement or the
consummation of the transactions
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contemplated by this Agreement, except for compliance with the Act,
the Blue Sky laws applicable to the public offering of the Common
Shares by the several Underwriters and the clearance of such offering
with the National Association of Securities Dealers, Inc. (the
"NASD").
(g) Deloitte & Touche LLP, who have expressed their opinion with
respect to the financial statements and schedules filed with the
Commission as a part of the Registration Statement and included in the
Prospectus and in the Registration Statement, are independent
accountants as required by the Act and the Rules and Regulations.
(h) The financial statements and schedules of the Company and of
Sun West Services, Inc. ("Sun West"), and the related notes thereto,
included in the Registration Statement and the Prospectus present
fairly the financial position of the Company and Sun West as of the
respective dates of such financial statements and schedules, and the
results of operations and changes in financial position of the Company
and Sun West for the respective periods covered thereby. Such
statements, schedules and related notes have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis as certified by the independent accountants named in
subsection 2(g). No other financial statements or schedules are
required to be included in the Registration Statement. The selected
financial data set forth in the Prospectus under the captions
"Capitalization" and "Selected Consolidated Financial Data" fairly
present the information set forth therein on the basis stated in the
Registration Statement. The pro forma financial statements and the
related notes thereto included in the Registration Statement and the
Prospectus present fairly the information shown therein, have been
prepared in accordance with the Rules and Regulations and have been
properly compiled on the bases described therein, and the assumptions
used in the preparation thereof are reasonable and the adjustments
used therein are appropriate to give effect to the transactions and
circumstances referred to therein.
(i) Except as disclosed in the Prospectus, and except as to
defaults which individually or in the aggregate would not be material
to the Company and its subsidiaries taken as a whole, neither the
Company nor any of its subsidiaries is in violation or default of any
provision of its certificate of incorporation or bylaws, or other
organizational documents, or is in breach of or default with respect
to any provision of any agreement, judgment, decree, order, mortgage,
deed of trust, lease, franchise, license, indenture, permit or other
instrument to which it is a party or by which it or any of its
properties are bound; and there does not exist any state of facts
which constitutes an event
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<PAGE>
of default on the part of the Company or any such subsidiary as
defined in such documents or which, with notice or lapse of time or
both, would constitute such an event of default, which event of
default would have a material adverse effect on the Company and its
subsidiaries taken as a whole.
(j) There are no contracts or other documents required to be
described in the Registration Statement or to be filed as exhibits to
the Registration Statement by the Act or by the Rules and Regulations
which have not been described or filed as required. The contracts so
described in or filed as an exhibit to the Registration Statement are
in full force and effect on the date hereof; and neither the Company
nor any of its subsidiaries, nor to the best of the Company's
knowledge, any other party is in breach of or default under any of
such contracts.
(k) Except as disclosed in the Prospectus, there are no legal or
governmental actions, suits or proceedings pending or, to the best of
the Company's knowledge, threatened to which the Company or any of its
subsidiaries is or may be a party or of which property owned or leased
by the Company or any of its subsidiaries is or may be the subject, or
related to environmental or discrimination matters, which actions,
suits or proceedings might, individually or in the aggregate, prevent
or adversely affect the Company's ability to consummate the
transactions contemplated by this Agreement or result in a material
adverse change in the condition (financial or otherwise), properties,
business, results of operations or prospects of the Company and its
subsidiaries taken as a whole; and no labor disturbance by the
employees of the Company or any of its subsidiaries exists or, to the
Company's knowledge, is imminent which might be expected to materially
adversely affect such condition, properties, business, results of
operations or prospects. Neither the Company nor any of its
subsidiaries is a party or subject to the provisions of any material
injunction, judgment, decree or order of any court, regulatory body,
administrative agency or other governmental body.
(l) The Company or the applicable subsidiary has good and
marketable title to all the properties and assets reflected as owned
in the financial statements hereinabove described (or elsewhere in the
Prospectus), subject to no lien, mortgage, pledge, charge or
encumbrance of any kind except (i) those, if any, reflected in such
financial statements (or elsewhere in the Prospectus), or (ii) those
which are not material in amount and do not materially adversely
affect the use made and proposed to be made of such property by the
Company and its subsidiaries. The Company or the applicable
subsidiary holds its leased properties under valid and binding leases,
with such exceptions as are not
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<PAGE>
materially significant in relation to the business of the Company.
Except as disclosed in the Prospectus, the Company owns or leases all
such properties as are necessary to its operations as now conducted.
(m) Since the respective dates as of which information is given
in the Registration Statement and Prospectus, and except as described
in or specifically contemplated by the Prospectus: (i) the Company
and its subsidiaries have not incurred any material liabilities or
obligations, indirect, direct or contingent, or entered into any
material agreement or other transaction which is not in the ordinary
course of business or which could result in a material reduction in
the future earnings of the Company and its subsidiaries; (ii) the
Company and its subsidiaries have not sustained any material loss or
interference with their respective businesses or properties from fire,
flood, windstorm, accident or other calamity, whether or not covered
by insurance; (iii) the Company has not paid or declared any dividends
or other distributions with respect to its capital stock and the
Company and its subsidiaries are not in default in the payment of
principal or interest on any outstanding debt obligations; (iv) there
has not been any change in the capital stock (other than upon the sale
of the Common Shares hereunder) or indebtedness material to the
Company and its subsidiaries (other than in the ordinary course of
business); and (v) there has not been any material adverse change in
the condition (financial or otherwise), business, properties, results
of operations or prospects of the Company and its subsidiaries taken
as a whole.
(n) Except as disclosed in or specifically contemplated by the
Prospectus, the Company and its subsidiaries have sufficient
trademarks, trade names, patent rights, mask works, copyrights,
licenses, approvals and governmental authorizations to conduct their
businesses as now conducted; except for "Fine Host" and the Company's
pear symbol, the expiration of any trademarks, trade names, patent
rights, mask works, copyrights, licenses, approvals or governmental
authorizations would not have a material adverse effect on the
condition (financial or otherwise), business, results of operations or
prospects of the Company and its subsidiaries taken as a whole; and
the Company has no knowledge of any material infringement by it or its
subsidiaries of trademark, trade name rights, patent rights, mask
works, copyrights, licenses, trade secret or other similar rights of
others, and the Company has no knowledge of any claim being made
against the Company or its subsidiaries regarding trademark, trade
name, patent, mask work, copyright, license, trade secret or other
infringement which could have a material adverse effect on the
condition (financial or otherwise), business, results
9
<PAGE>
of operations or prospects of the Company and its subsidiaries taken
as a whole.
(o) The Company has not been advised, and has no reason to
believe, that either it or any of its subsidiaries is not conducting
business in compliance with all applicable laws, rules and
regulations of the jurisdictions in which it is conducting business,
including, without limitation, all applicable local, state and federal
environmental laws and regulations; except where failure to be so in
compliance would not materially adversely affect the condition
(financial or otherwise), business, results of operations or prospects
of the Company and its subsidiaries taken as a whole.
(p) The Company and its subsidiaries have filed all federal,
state and foreign income and franchise tax returns required to be
filed and have paid all taxes shown as due thereon other than those
being contested in good faith and as to which adequate reserves have
been established; and the Company has no knowledge of any tax
deficiency which has been or might be asserted or threatened against
the Company or its subsidiaries which could materially and adversely
affect the business, operations or properties of the Company and its
subsidiaries taken as a whole.
(q) The Company is not an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
(r) The Company has not distributed and will not distribute
prior to the First Closing Date any offering material in connection
with the offering and sale of the Common Shares other than the
Preliminary Prospectus dated May __, 1996, the Prospectus, the
Registration Statement and the other materials permitted by the Act.
(s) Each of the Company and its subsidiaries maintains insurance
of the types and in amounts which the Company believes to be adequate
for its business, including, but not limited to, insurance covering
real and personal property owned or leased by the Company and its
subsidiaries against theft, damage, destruction, acts of vandalism and
all other risks customarily insured against, all of which insurance is
in full force and effect except where the failure to maintain such
insurance would not have a material adverse effect on the Company and
its subsidiaries taken as a whole.
(t) Neither the Company nor any of its subsidiaries has at any
time during the last five years (i) made any unlawful contribution to
any candidate for foreign office, or failed to disclose fully any
contribution in violation of law, or
10
<PAGE>
(ii) made any payment to any federal or state governmental officer or
official, or other person charged with similar public or quasi-public
duties, other than payments required or permitted by the laws of the
United States of any jurisdiction thereof.
(u) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might be reasonably
expected to cause or result in stabilization or manipulation of the
price of the Common Stock to facilitate the sale or resale of the
Common Shares.
(v) The Company (i) has filed a registration statement pursuant
to Section 12(g) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), to register the Common Stock thereunder, and
(ii) has filed an application to list the Common Stock on the Nasdaq
National Market and has received notification that such listing has
been approved, subject to notice of issuance and sale of the Common
Shares.
(w) The Common Stock has been approved for quotation on the
Nasdaq National Market.
SECTION 3. Representations, Warranties and Covenants of the Selling
--------------------------------------------------------
Stockholders.
- ------------
(a) Each of the Selling Stockholders severally represents and
warrants to, and agrees with, the several Underwriters that:
(i) Such Selling Stockholder has, and on the
First Closing Date hereinafter mentioned will have, good and
marketable title to the Common Shares proposed to be sold by
such Selling Stockholder hereunder on such Closing Date and
full right, power and authority to enter into this Agreement
and to sell, assign, transfer and deliver such Common Shares
hereunder, free and clear of all voting trust arrangements,
liens, encumbrances, equities, security interests,
restrictions and claims whatsoever; and upon delivery of and
payment for such Common Shares hereunder in the manner set
forth in this Agreement, the Underwriters will acquire good
and marketable title thereto, free and clear of all liens,
encumbrances, equities, claims, restrictions, security
interests, voting trusts or other defects of title
whatsoever.
(ii) Such Selling Stockholder has executed and
delivered an Irrevocable Power of Attorney and has executed
and delivered or caused to be executed and delivered on his
behalf a Custody Agreement (hereinafter collectively
referred to as the "Stockholders
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<PAGE>
Agreement") and in connection herewith such Selling
Stockholder further represents, warrants and agrees that
such Selling Stockholder has deposited in custody, under the
Stockholders Agreement, with the agent named therein (the
"Agent") as custodian, certificates in negotiable form for
the Common Shares to be sold hereunder by such Selling
Stockholder (or certificates for shares of Series A
Convertible Preferred Stock ("Preferred Stock") and/or
warrants to purchase Common Stock, collectively convertible
into or exercisable for a number of shares of Common Stock
at least equal to the number of Common Shares to be sold
hereunder by such Selling Stockholder), for the purpose of
further delivery pursuant to this Agreement. Such Selling
Stockholder agrees that the Common Shares to be sold by such
Selling Stockholder (or the shares of Preferred Stock and/or
warrants, as the case may be) on deposit with the Agent are
subject to the interests of the Company and the
Underwriters, that the arrangements made for such custody
are to that extent irrevocable, and that the obligations of
such Selling Stockholder hereunder shall not be terminated,
except as provided in this Agreement or in the Stockholders
Agreement, by any act of such Selling Stockholder, by
operation of law, by the death or incapacity of such Selling
Stockholder or by the occurrence of any other event. If the
Selling Stockholder should die or become incapacitated, or
if any other event should occur, before the delivery of the
Common Shares hereunder, the documents evidencing Common
Shares then on deposit with the Agent shall be delivered by
the Agent in accordance with the terms and conditions of
this Agreement as if such death, incapacity or other event
had not occurred, regardless of whether or not the Agent
shall have received notice thereof.
(iii) This Agreement and the Stockholders Agreement
have been duly authorized, executed and delivered by such
Selling Stockholder and each constitutes the valid and
binding obligation and agreement of such Selling
Stockholder, enforceable against such Selling Stockholder in
accordance with its terms except (x) as enforceability may
be limited by general equitable principles, bankruptcy,
insolvency, reorganization, moratorium or other laws
affecting creditors' rights generally, (y) as availability
of equitable remedies may be limited by equitable principles
of general applicability and (z) with respect to those
provisions relating to indemnities or contributions for
liabilities under the Act.
(iv) The performance of this Agreement and the
Stockholders Agreement and the consummation of the
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<PAGE>
transactions contemplated hereby and by the Stockholders
Agreement will not result in a breach or violation by such
Selling Stockholder of any of the terms or provisions of, or
constitute a default by such Selling Stockholder under, any
indenture, mortgage, deed of trust, trust (constructive or
other), loan agreement, lease, franchise, license or other
agreement or instrument to which such Selling Stockholder is
a party or by which such Selling Stockholder or any of its
properties is bound, any statute, or any judgment, decree,
order, rule or regulation of any court or governmental
agency or body applicable to such Selling Stockholder or any
of its properties except for such breaches or violations or
defaults which would not have a material adverse effect on
the ability of such Selling Stockholder to consummate the
transactions contemplated by this Agreement and deliver good
and marketable title to the Common Shares to be sold by such
Selling Stockholder hereunder. No consent, approval,
authorization or other order of any court, regulatory body,
administrative agency or other governmental body is required
for the execution and delivery by such Selling Stockholder
of this Agreement and the Stockholders Agreement or the
consummation by such Selling Stockholder of the transactions
contemplated by this Agreement and the Stockholders
Agreement, except such consents, approvals, authorizations
or orders (x) as have been obtained, (y) as may be required
under state securities or Blue Sky laws or foreign
securities laws in connection with the purchase and
distribution of the Shares by the Underwriters, and (z) as
may be required by the NASD.
(v) Such Selling Stockholder has not taken and
will not take, directly or indirectly, any action designed
to or which has constituted or which might reasonably be
expected to cause or result in stabilization or manipulation
of the price of any security of the Company to facilitate
the sale or resale of the Common Shares.
(vi) The information pertaining to such Selling
Stockholder under the captions "Principal and Selling
Stockholders" and, if applicable, "Certain Transactions"
included in the Prospectus is complete and accurate in all
material respects.
(b) Interlaken Investment Partners, L.P. and The Berkley
Family Limited Partnership (collectively, the "Principal Selling
Stockholders") each severally represents and warrants to the several
Underwriters that it is not aware that any of the representations and
warranties of the Company
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<PAGE>
set forth in Section 2 above is untrue or inaccurate in any material
respect.
(c) Each of the Selling Stockholders agrees with the Company and
the Underwriters that he or it will not, without the prior written
consent either of Montgomery Securities or of each of the
Representatives (which consent may be withheld in its or their sole
discretion), directly or indirectly, sell, offer, contract or grant
any option to sell (including without limitation any short sale),
pledge, transfer, establish an open "put equivalent position" within
the meaning of Rule 16a-1(h) under the Exchange Act or otherwise
dispose of any shares of Common Stock, options or warrants to acquire
shares of Common Stock, or securities exchangeable or exercisable for
or convertible into shares of Common Stock currently or hereafter
owned either of record or beneficially (as defined in Rule 13d-3 under
the Exchange Act) by such Selling Stockholder, or publicly announce
his or its intention to do any of the foregoing, for a period
continuing through the date 180 days after the first date any of the
Common Shares are released by you for sale to the public. Each
Selling Stockholder also agrees and consents to the entry of stop
transfer instructions with the Company's transfer agent and registrar
against the transfer of shares of Common Stock or securities
convertible into or exchangeable or exercisable for Common Stock held
by him or it except in compliance with the foregoing restrictions.
SECTION 4. Representations and Warranties of the Underwriters. The
--------------------------------------------------
Representatives, on behalf of the several Underwriters, represent and warrant to
the Company and to the Selling Stockholders that the information set forth
(i) in the last paragraph on the cover page of the Prospectus, (ii) in the
stabilization legend on the inside front cover page of the Prospectus and
(iii) in the first, second and sixth paragraphs under the caption "Underwriting"
in the Prospectus (including the list of Underwriters set forth in tabular form
in the first paragraph) was furnished to the Company by and on behalf of the
Underwriters for use in connection with the preparation of the Registration
Statement and the Prospectus and is correct in all material respects. The
Representatives represent and warrant that they have been authorized by each of
the other Underwriters as the Representatives to enter into this Agreement on
its behalf and to act for it in the manner herein provided.
SECTION 5. Purchase, Sale and Delivery of Common Shares. On the
--------------------------------------------
basis of the representations, warranties and agreements herein contained, but
subject to the terms and conditions herein set forth, (i) the Company agrees to
issue and sell to the Underwriters 2,890,218 of the Firm Common Shares, and
(ii) the Selling Stockholders agree, severally and not jointly, to sell to the
Underwriters in the respective amounts set forth in Schedule B
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<PAGE>
hereto, an aggregate of 1,139,782 of the Firm Common Shares. The Underwriters
agree, severally and not jointly, to purchase from the Company and the Selling
Stockholders, respectively, the number of Firm Common Shares described below.
The purchase price per share to be paid by the several Underwriters to the
Company and to the Selling Stockholders, respectively, shall be $_____ per
share.
The obligation of each Underwriter to the Company shall be to purchase
from the Company that number of full shares which (as nearly as practicable, as
determined by you) bears to 2,890,218 the same proportion as the number of
shares set forth opposite the name of such Underwriter in Schedule A hereto
bears to the total number of Firm Common Shares. The obligation of each
Underwriter to the Selling Stockholders shall be to purchase from the Selling
Stockholders that number of full shares which (as nearly as practicable, as
determined by you) bears to 1,139,782 the same proportion as the number of
shares set forth opposite the name of such Underwriter in Schedule A hereto
bears to the total number of Firm Common Shares.
Delivery of certificates for the Firm Common Shares to be purchased by
the Underwriters and payment therefor shall be made at the offices of Montgomery
Securities, 600 Montgomery Street, San Francisco, California (or such other
place as may be agreed upon by the Company and the Representatives) at such time
and date, not later than the third (or, if the Firm Common Shares are priced, as
contemplated by Rule 15c6-1(c) under the Exchange Act, after 4:30 P.M.
Washington, D.C. time, the fourth) full business day following the first date
that any of the Common Shares are released by you for sale to the public, as you
shall designate by at least 48 hours prior notice to the Company (or at such
other time and date, not later than one week after such third or fourth, as the
case may be, full business day as may be agreed upon by the Company and the
Representatives) (the "First Closing Date"); provided, however, that if the
-------- -------
Prospectus is at any time prior to the First Closing Date recirculated to the
public, the First Closing Date shall occur upon the later of the fifth full
business day following the first date that any of the Common Shares are released
by you for sale to the public or the date that is 48 hours after the date that
the Prospectus has been so recirculated.
Delivery of certificates for the Firm Common Shares shall be made by
or on behalf of the Company and the Selling Stockholders to you, for the
respective accounts of the Underwriters with respect to the Firm Common Shares
to be sold by the Company and by the Selling Stockholders against payment by
you, for the accounts of the several Underwriters, of the purchase price
therefor by wire transfer or other same-day funds to the order of the Company
and of the Agent in proportion to the number of Firm Common Shares to be sold by
the Company and the Selling Stockholders, respectively. The certificates for
the Firm Common Shares shall be registered in such names and denominations as
you shall have
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<PAGE>
requested at least two full business days prior to the First Closing Date, and
shall be made available for checking and packaging on the business day preceding
the First Closing Date at a location in New York, New York, as may be designated
by you. Time shall be of the essence, and delivery at the time and place
specified in this Agreement is a further condition to the obligations of the
Underwriters.
In addition, on the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company hereby grants an option to the several Underwriters to
purchase, severally and not jointly, up to an aggregate of 604,500 Optional
Common Shares at the purchase price per share to be paid for the Firm Common
Shares, for use solely in covering any over-allotments made by you for the
account of the Underwriters in the sale and distribution of the Firm Common
Shares. The option granted hereunder may be exercised at any time (but not more
than once) within 30 days after the first date that any of the Common Shares are
released by you for sale to the public, upon notice by you to the Company
setting forth the aggregate number of Optional Common Shares as to which the
Underwriters are exercising the option, the names and denominations in which the
certificates for such shares are to be registered and the time and place at
which such certificates will be delivered. Such time of delivery (which may not
be earlier than the First Closing Date), being herein referred to as the "Second
Closing Date," shall be determined by you, but if at any time other than the
First Closing Date shall not be earlier than three nor later than five full
business days after delivery of such notice of exercise. The number of Optional
Common Shares to be purchased by each Underwriter shall be determined by
multiplying the number of Optional Common Shares to be sold by the Company
pursuant to such notice of exercise by a fraction, the numerator of which is the
number of Firm Common Shares to be purchased by such Underwriter as set forth
opposite its name in Schedule A and the denominator of which is the total number
of Firm Common Shares (subject to such adjustments to eliminate any fractional
share purchases as you in your discretion may make). Certificates for the
Optional Common Shares will be made available for checking and packaging on the
business day preceding the Second Closing Date at a location in New York,
New York, as may be designated by you. The manner of payment for and delivery
of the Optional Common Shares shall be the same as for the Firm Common Shares
purchased from the Company as specified in the two preceding paragraphs. At any
time before lapse of the option, you may cancel such option by giving written
notice of such cancellation to the Company. If the option is cancelled or
expires unexercised in whole or in part, the Company will deregister under the
Act the number of Option Shares as to which the option has not been exercised.
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<PAGE>
You have advised the Company and the Selling Stockholders that each
Underwriter has authorized you to accept delivery of its Common Shares, to make
payment and to receipt therefor. You, individually and not as the
Representatives of the Underwriters, may (but shall not be obligated to) make
payment for any Common Shares to be purchased by any Underwriter whose funds
shall not have been received by you by the First Closing Date or the Second
Closing Date, as the case may be, for the account of such Underwriter, but any
such payment shall not relieve such Underwriter from any of its obligations
under this Agreement.
Subject to the terms and conditions hereof, the Underwriters propose
to make a public offering of their respective portions of the Common Shares as
soon after the effective date of the Registration Statement as in the judgment
of the Representatives is advisable and at the public offering price set forth
on the cover page of and on the terms set forth in the final prospectus, if one
is used, or on the first page of the Term Sheet, if one is used.
SECTION 6. Covenants of the Company. The Company covenants and
------------------------
agrees that:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at
the time and date that this Agreement is executed and delivered by the
parties hereto, to become effective. If the Registration Statement
has become or becomes effective pursuant to Rule 430A of the Rules and
Regulations, or the filing of the Prospectus is otherwise required
under Rule 424(b) of the Rules and Regulations, the Company will file
the Prospectus, properly completed, pursuant to the applicable
paragraph of Rule 424(b) of the Rules and Regulations within the time
period prescribed and will provide evidence satisfactory to you of
such timely filing. The Company will promptly advise you in writing
(i) of the receipt of any comments of the Commission, (ii) of any
request of the Commission for amendment of or supplement to the
Registration Statement (either before or after it becomes effective),
any Preliminary Prospectus or the Prospectus or for additional
information, (iii) when the Registration Statement shall have become
effective and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the
institution of any proceedings for that purpose. If the Commission
shall enter any such stop order at any time, the Company will use its
best efforts to obtain the lifting of such order at the earliest
possible moment. The Company will not file any amendment or
supplement to the Registration Statement (either before or after it
becomes effective), any Preliminary Prospectus or the Prospectus of
which you have not been furnished with a copy a reasonable time prior
to
17
<PAGE>
such filing or to which you reasonably object (except to the extent
any amendment or supplement to which you object is necessary in the
opinion of counsel to the Company to make the statements in the
Registration Statement, Preliminary Prospectus or Prospectus not
misleading) or which is not in compliance in all material respects
with the Act and the Rules and Regulations.
(b) The Company will prepare and file with the Commission,
promptly upon your request, any amendments or supplements to the
Registration Statement or the Prospectus which in your judgment may be
necessary or advisable to enable the several Underwriters to continue
the distribution of the Common Shares and will use its best efforts to
cause the same to become effective as promptly as possible (except to
the extent any amendment or supplement would in the opinion of counsel
to the Company make the statements in the Registration Statement or
Prospectus misleading). The Company will fully and completely comply
with the provisions of Rule 430A of the Rules and Regulations with
respect to information omitted from the Registration Statement in
reliance upon such Rule.
(c) If at any time within the nine-month period referred to in
Section 10(a)(3) of the Act during which a prospectus relating to the
Common Shares is required to be delivered under the Act any event
occurs, as a result of which the Prospectus, including any amendments
or supplements, would include an untrue statement of a material fact,
or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances then existing, not misleading, or if it is necessary at
any time to amend the Prospectus, including any amendments or
supplements, to comply with the Act or the Rules and Regulations, the
Company will promptly advise you thereof and will promptly prepare and
file with the Commission, at its own expense, an amendment or
supplement which will correct such statement or omission or an
amendment or supplement which will effect such compliance and will use
its best efforts to cause the same to become effective as soon as
possible; and, in case any Underwriter is required to deliver a
prospectus after such nine-month period, the Company upon request, but
at the expense of such Underwriter, will promptly prepare such
amendment or amendments to the Registration Statement and such
Prospectus or Prospectuses as may be necessary to permit compliance
with the requirements of Section 10(a)(3) of the Act.
(d) As soon as practicable, but not later than 45 days after the
end of the first quarter ending after one year following the
"effective date of the Registration Statement" (as defined in Rule
158(c) of the Rules and Regulations), the
18
<PAGE>
Company will make generally available to its security holders an
earnings statement (which need not be audited) covering a period of 12
consecutive months beginning after the effective date of the
Registration Statement which will satisfy the provisions of the last
paragraph of Section 11(a) of the Act.
(e) During such period as a prospectus is required by law to be
delivered in connection with sales by an Underwriter or dealer, the
Company, at its expense, but only for the nine-month period referred
to in Section 10(a)(3) of the Act, will furnish to you and the Selling
Stockholders or mail to your order copies of the Registration
Statement, the Prospectus and all amendments and supplements to any
such documents in each case as soon as available and in such
quantities as you and the Selling Stockholders may reasonably request,
for the purposes contemplated by the Act.
(f) The Company shall cooperate with you and your counsel in
order to qualify or register the Common Shares for sale under (or
obtain exemptions from the application of) the Blue Sky laws of such
jurisdictions as you designate and Canadian securities laws, will
comply with such laws and will continue such qualifications,
registrations and exemptions in effect so long as reasonably required
for the distribution of the Common Shares. The Company shall not be
required to qualify as a foreign corporation or to file a general
consent to service of process in any such jurisdiction where it is not
presently qualified or where it would be subject to taxation as a
foreign corporation. The Company will advise you promptly of the
suspension of the qualification or registration of (or any such
exemption relating to) the Common Shares for offering, sale or trading
in any jurisdiction or any initiation or threat received by the
Company of any proceeding for any such purpose, and in the event of
the issuance of any order suspending such qualification, registration
or exemption, the Company, with your cooperation, will use its best
efforts to obtain the withdrawal thereof.
(g) During the period of five years hereafter, the Company will
furnish to the Representatives and, upon request of the
Representatives, to each of the other Underwriters: (i) as soon as
practicable after the end of each fiscal year, copies of the Annual
Report of the Company containing the balance sheet of the Company as
of the close of such fiscal year and statements of income,
stockholders' equity and cash flows for the year then ended and the
opinion thereon of the Company's independent public accountants;
(ii) as soon as practicable after the filing thereof, copies of each
proxy statement, Annual Report on Form 10-K, Quarterly Report on Form
10-Q, Report on Form 8-K or other report filed by the Company with the
Commission, the NASD or any securities
19
<PAGE>
exchange; and (iii) as soon as available, copies of any report or
communication of the Company mailed generally to holders of its Common
Stock.
(h) During the period of 180 days after the first date that any
of the Common Shares are released by you for sale to the public,
without the prior written consent either of Montgomery Securities or
of each of the Representatives (which consent may be withheld at the
sole discretion of Montgomery Securities or the Representatives, as
the case may be), the Company will not offer, sell, grant options to
purchase or otherwise dispose of any of the Company's equity
securities or any other securities convertible into or exchangeable
with its Common Stock or other equity security; provided, however,
-------- -------
that the Company may (i) issue shares of Common Stock upon the
exercise of stock options and warrants outstanding on the date hereof
and described in the Prospectus (it being agreed that the Company
shall not accelerate the exercisability of any such options or
warrants) and (ii) grant options and issue shares of Common Stock in
accordance with its 1994 Stock Option Plan and 1996 Non-Employee
Director Stock Plan as described in the Prospectus.
(i) The Company will apply the net proceeds of the sale of the
Common Shares sold by it substantially in accordance with its
statements under the caption "Use of Proceeds" in the Prospectus.
(j) The Company will use its best efforts to qualify or register
its Common Stock for sale in non-issuer transactions under (or obtain
exemptions from the application of) the Blue Sky laws of the State of
California (and thereby permit market making transactions and
secondary trading in the Company's Common Stock in California), will
comply with such Blue Sky laws and will continue such qualifications,
registrations and exemptions in effect for a period of five years
after the date hereof.
You, on behalf of the Underwriters, may, in your sole discretion,
waive in writing the performance by the Company of any one or more of the
foregoing covenants or extend the time for their performance.
SECTION 7. Payment of Expenses. Whether or not the transactions
-------------------
contemplated hereunder are consummated or this Agreement becomes effective or is
terminated, the Company and, unless otherwise paid by the Company, the Selling
Stockholders agree to pay in such proportions as they may agree upon among
themselves all costs, fees and expenses incurred in connection with the
performance of their obligations hereunder and in connection with the
transactions contemplated hereby, including
20
<PAGE>
without limiting the generality of the foregoing, (i) all expenses incident to
the issuance and delivery of the Common Shares (including all printing and
engraving costs), (ii) all fees and expenses of the registrar and transfer agent
of the Common Stock, (iii) all necessary issue, transfer and other stamp taxes
in connection with the issuance and sale of the Common Shares to the
Underwriters, (iv) all fees and expenses of the Company's counsel and the
Company's independent accountants, (v) all costs and expenses incurred in
connection with the preparation, printing, filing, shipping and distribution of
the Registration Statement, each Preliminary Prospectus and the Prospectus
(including all exhibits and financial statements) and all amendments and
supplements provided for herein, this Agreement, the Agreement Among
Underwriters, the Selected Dealers Agreement, the Underwriters' Questionnaire,
the Underwriters' Power of Attorney and the Blue Sky memorandum, (vi) all filing
fees, attorneys' fees and expenses incurred by the Company or the Underwriters
in connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Common Shares for offer
and sale under the Blue Sky laws and Canadian securities laws, (vii) the filing
fee of the National Association of Securities Dealers, Inc., and (viii) all
other fees, costs and expenses referred to in Item 13 of the Registration
Statement. The Underwriters may deem the Company to be the primary obligor with
respect to all costs, fees and expenses to be paid by the Company and by the
Selling Stockholders. Except as provided in this Section 7, Section 9 and
Section 11 hereof, the Underwriters shall pay all of their own expenses,
including the fees and disbursements of their counsel (excluding those relating
to qualification, registration or exemption under the Blue Sky laws and Canadian
securities laws and the Blue Sky memorandum referred to above). This Section 7
shall not affect any agreements relating to the payment of expenses between the
Company and the Selling Stockholders.
The Selling Stockholders will pay (directly or by reimbursement) all
fees and expenses incident to the performance of their obligations under this
Agreement which are not otherwise specifically provided for herein, including
but not limited to (i) any fees and expenses of counsel for such Selling
Stockholders to the extent the Company is not contractually obligated to pay
such fees and expenses; (ii) any fees and expenses of the Agent; and (iii) all
expenses and taxes incident to the sale and delivery of the Common Shares to be
sold by such Selling Stockholders to the Underwriters hereunder.
SECTION 8. Conditions of the Obligations of the Underwriters. The
-------------------------------------------------
obligations of the several Underwriters to purchase and pay for the Firm Common
Shares on the First Closing Date and the Optional Common Shares on the Second
Closing Date shall be subject to the accuracy of the representations and
warranties on the part of the Company and the Selling Stockholders
21
<PAGE>
herein set forth as of the date hereof and as of the First Closing Date or the
Second Closing Date, as the case may be, to the accuracy of the statements of
Company officers and the Selling Stockholders made pursuant to the provisions
hereof, to the performance by the Company and the Selling Stockholders of their
respective obligations hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective not
later than 5:00 P.M. (or, in the case of a registration statement
filed pursuant to Rule 462(b) of the Rules and Regulations relating to
the Common Shares, not later than 10:00 P.M.), Washington, D.C. Time,
on the date of this Agreement, or at such later time as shall have
been consented to by you; if the filing of the Prospectus, or any
supplement thereto, is required pursuant to Rule 424(b) of the Rules
and Regulations, the Prospectus shall have been filed in the manner
and within the time period required by Rule 424(b) of the Rules and
Regulations; and prior to such Closing Date, no stop order suspending
the effectiveness of the Registration Statement shall have been issued
and no proceedings for that purpose shall have been instituted or
shall be pending or, to the knowledge of the Company, the Selling
Stockholders or you, shall be contemplated by the Commission; and any
request of the Commission for inclusion of additional information in
the Registration Statement, or otherwise, shall have been complied
with to your satisfaction.
(b) You shall be satisfied that since the respective dates as of
which information is given in the Registration Statement and
Prospectus, (i) except as set forth or contemplated by the
Registration Statement or the Prospectus, there shall not have been
any change in the capital stock of the Company or any of its
subsidiaries, other than pursuant to the exercise of outstanding
options and warrants disclosed in the Prospectus, or any material
change in the indebtedness (other than in the ordinary course of
business) of the Company or any of its subsidiaries, (ii) except as
set forth or contemplated by the Registration Statement or the
Prospectus, no material agreement or other transaction shall have been
entered into by the Company or any of its subsidiaries, which is not
in the ordinary course of business or which could result in a material
reduction in the future earnings of the Company and its subsidiaries,
(iii) no loss or damage (whether or not insured) to the property of
the Company or any of its subsidiaries shall have been sustained which
materially and adversely affects the condition (financial or
otherwise), business, results of operations or prospects of the
Company and its subsidiaries taken as a whole, (iv) no legal or
governmental action, suit or proceeding affecting the Company, any of
its subsidiaries or
22
<PAGE>
any Selling Stockholder which is material to the Company and its
subsidiaries taken as a whole or which affects or may affect the
ability of the Company or any Selling Stockholder to consummate the
transactions contemplated by this Agreement shall have been instituted
or threatened and (v) there shall not have been any material change
in the condition (financial or otherwise), business, management,
results of operations or prospects of the Company and its subsidiaries
taken as a whole which makes it impracticable or inadvisable in the
judgment of the Representatives to proceed with the public offering or
purchase the Common Shares as contemplated hereby.
(c) There shall have been furnished to you, as Representatives
of the Underwriters, on each Closing Date, in form and substance
satisfactory to you, except as otherwise expressly provided below:
(i) An opinion of Willkie Farr & Gallagher,
counsel for the Company and the Selling Stockholders other
than GRD Corp. ("GRD"), addressed to the Underwriters and
dated the First Closing Date, or the Second Closing Date (in
the latter case with respect to the Company only), as the
case may be, to the effect that:
(1) Each of the Company and its Significant
Subsidiaries has been duly incorporated and is validly
existing as a corporation in good standing under the
laws of its jurisdiction of incorporation, is duly
qualified to do business as a foreign corporation and
is in good standing in all other jurisdictions where
the ownership or leasing of properties or the conduct
of its business requires such qualification, except
where the failure to so qualify (considering all such
cases in the aggregate) would not have a material
adverse effect on the Company and its subsidiaries
taken as a whole, and has full corporate power and
authority to own its properties and conduct its
business as described in the Registration Statement;
(2) The authorized, issued and outstanding
capital stock of the Company is as set forth under the
caption "Capitalization" in the Prospectus; all
necessary and proper corporate proceedings have been
taken in order to authorize validly such authorized
Common Stock; all outstanding shares of Common Stock,
including those issued on the First Closing Date upon
conversion of the Preferred Stock and the exercise of
certain warrants, as
23
<PAGE>
contemplated by the Prospectus, have been duly and
validly issued, are (except for an aggregate of
154,000 shares of Common Stock issued to Richard E.
Kerley, Randy B. Spector and Randall Ziegler in
consideration for promissory notes as described in the
Prospectus) fully paid and nonassessable, have been
issued pursuant to an exemption from the registration
requirements of the Act, were not issued in violation
of any statutory preemptive rights or, to the best of
such counsel's knowledge, other rights to subscribe for
or purchase any securities and conform in all material
respects to the description thereof contained in the
Prospectus;
(3) All of the issued and outstanding shares of
the Company's Significant Subsidiaries have been duly
and validly authorized and issued, are fully paid and
nonassessable and are owned beneficially by the Company
free and clear, to the best of such counsel's
knowledge, of any liens, encumbrances or security
interests, except as disclosed in the Registration
Statement;
(4) The certificates evidencing the Common Shares
to be delivered hereunder are in due and proper form
under Delaware law, and when duly countersigned by the
Company's transfer agent and registrar, and delivered
to you or upon your order against payment of the agreed
consideration therefor in accordance with the
provisions of this Agreement, the Common Shares
represented thereby will be duly authorized and validly
issued, fully paid and nonassessable, will not have
been issued in violation of any statutory preemptive
rights or, to the best of such counsel's knowledge,
other rights to subscribe for or purchase securities
and will conform in all material respects to the
description thereof contained in the Prospectus;
(5) Except as disclosed in or specifically
contemplated by the Prospectus, to the best of such
counsel's knowledge, there are no outstanding options,
warrants or other rights calling for the issuance of,
no agreements to issue, and no reservation of shares
for future issuance of, any shares of capital stock of
the Company or any security convertible into or
exchangeable for capital stock of the Company;
(6)(a) To the best of such counsel's knowledge,
based solely upon a telephone
24
<PAGE>
conversation with a member of the staff of the
Commission, the Registration Statement has become
effective under the Act, and, to the best of such
counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement or
preventing the use of the Prospectus has been issued
and, to the best of such counsel's knowledge, no
proceedings for that purpose have been instituted or
are pending or contemplated by the Commission; any
required filing of the Prospectus and any supplement
thereto pursuant to Rule 424(b) of the Rules and
Regulations has been made in the manner and within the
time period required by such Rule 424(b);
(b) The Registration Statement, the Prospectus
and each amendment or supplement thereto (except for
the financial statements and schedules included therein
as to which such counsel need express no opinion)
appear on their face to have been appropriately
responsive in all material respects with the
requirements of the Act and the Rules and Regulations.
(c) To the best of such counsel's knowledge,
there are no leases, contracts, agreements or documents
of a character required to be disclosed in the
Registration Statement or Prospectus or to be filed as
exhibits to the Registration Statement which are not
disclosed or filed, as required;
(d) To the best of such counsel's knowledge,
there are no legal or governmental actions, suits or
proceedings pending or threatened against the Company
which are required to be described in the Prospectus
which are not described as required;
(7) The Company has full right, power and
authority to enter into this Agreement and to sell and
deliver the Common Shares to be sold by it to the
several Underwriters; this Agreement has been duly and
validly authorized by all necessary corporate action by
the Company and has been duly and validly executed and
delivered by and on behalf of the Company; and no
approval, authorization, order, consent, registration,
filing, qualification, license or permit of or with any
court, regulatory, administrative or other governmental
body is required for the execution and delivery of this
Agreement by the Company or the consummation of the
transactions contemplated by this Agreement, except
such as have been obtained
25
<PAGE>
and are in full force and effect under the Act and such
as may be required under applicable Blue Sky laws and
Canadian securities laws in connection with the
purchase and distribution of the Common Shares by the
Underwriters and the clearance of such offering with
the NASD (as to which such counsel need express no
opinion);
(8) The execution and performance of this
Agreement by the Company and the consummation of the
transactions herein contemplated will not conflict
with, result in the breach of, or constitute, either by
itself or upon notice or the passage of time or both, a
default under, any agreement filed as an exhibit to the
Registration Statement, or violate any of the
provisions of the certificate of incorporation or
bylaws, or other organizational documents, of the
Company or any of its Significant Subsidiaries or, so
far as is known to such counsel, violate any statute,
judgment, decree, order, rule or regulation of any
court or governmental body having jurisdiction over the
Company or any of its Significant Subsidiaries or any
of its or their property;
(9) To the best of such counsel's knowledge, no
holders of securities of the Company have rights which
have not been waived to the registration of shares of
Common Stock or other securities, because of the filing
of the Registration Statement by the Company or the
offering contemplated hereby;
(10) This Agreement and the Stockholders Agreement
have been duly authorized, executed and delivered by or
on behalf of each of the Selling Stockholders; the
Agent has been duly and validly authorized to act as
the custodian of the Common Shares to be sold by each
such Selling Stockholder; and the performance of this
Agreement and the Stockholders Agreement and the
consummation of the transactions herein contemplated by
the Selling Stockholders will not result in a breach
of, or constitute a default under, any indenture,
mortgage, deed of trust, trust (constructive or other),
loan agreement, lease, franchise, license or other
agreement or instrument known to such counsel to which
any of the Selling Stockholders is a party or by which
any of the Selling Stockholders or any of their
properties may be bound, or violate any statute,
judgment, decree, order, rule or regulation known to
such counsel of any court or governmental body having
jurisdiction over any of
26
<PAGE>
the Selling Stockholders or any of their properties
except for such breaches, defaults or violations which
would not have a material adverse effect on the
consummation of the transactions contemplated by this
Agreement or the ability of such Selling Stockholder
to deliver good and marketable title to the Shares to
be sold by it hereunder; and, to the best of such
counsel's knowledge, no approval, authorization, order
or consent of any court, regulatory body,
administrative agency or other governmental body is
required for the execution and delivery of this
Agreement or the Stockholders Agreement or the
consummation by the Selling Stockholders of the
transactions contemplated by this Agreement, except
such as have been obtained and are in full force and
effect under the Act and such as may be required under
the rules of the NASD and applicable Blue Sky laws;
(11) To the best of such counsel's knowledge, each
Selling Stockholder has full right, power and authority
to enter into this Agreement and the Stockholders
Agreement and to sell, transfer and deliver the Common
Shares to be sold on such Closing Date by such Selling
Stockholder hereunder and good and marketable title to
such Common Shares so sold, free and clear of all
adverse claims has been transferred to the Underwriters
(whom counsel may assume to be bona fide purchasers
without notice of any adverse claim) who have purchased
such Common Shares hereunder;
(12) The Stockholders Agreement is a valid and
binding agreement of each of the Selling Stockholders
in accordance with its terms, except (i) as
enforceability may be limited by general equitable
principles, bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights
generally, (ii) as availability of equitable remedies
may be limited by equitable principles of general
applicability and (iii) except with respect to those
provisions relating to indemnities or contributions for
liabilities under the Act, as to which no opinion need
be expressed; and
(13) No transfer taxes are required to be paid in
connection with the sale and delivery of the Common
Shares to the Underwriters hereunder;
it being understood that (x) references to the Selling
Stockholders in paragraphs (10), (11) and (12) of such
27
<PAGE>
opinion shall not include GRD, which will deliver a separate
opinion of counsel pursuant to Section 8(c)(ii) below, and (y)
any of the matters in paragraphs (1), (3) and (8) of such
opinion, insofar as they relate to any Significant Subsidiary not
incorporated in Delaware, may be the subject of one or more
separate opinions of local counsel to the Company reasonably
accepted to the Underwriter, in which case the opinion of Willkie
Farr and Gallagher need not address such matters.
In rendering such opinion, such counsel may rely as to
matters of local law, on opinions of local counsel, and as to
matters of fact, on certificates of the Selling Stockholders and
of officers of the Company and of governmental officials, in
which case their opinion is to state that they are so doing and
that the Underwriters are justified in relying on such opinions
or certificates and copies of said opinions or certificates are
to be attached to the opinion. Such counsel shall also include a
statement to the effect that no facts have come to such
counsel's attention that would lead such counsel to believe that,
at its effective date, the Registration Statement contained any
untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make
the statements therein not misleading, or that the Prospectus, as
amended or supplemented, if applicable, as of its date or at the
applicable Closing Date, included or includes an untrue statement
of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
(ii) An opinion of counsel to GRD, which counsel shall be
reasonably acceptable to the Representatives, addressed to the
Underwriters and dated the First Closing Date as to the matters
set forth in paragraph (10) through (12) of Section 8(c)(i) on
behalf of GRD as a Selling Stockholder.
(iii) Such opinion or opinions of Hale and Dorr, counsel for
the Underwriters dated the First Closing Date or the Second
Closing Date, as the case may be, with respect to the
incorporation of the Company, the sufficiency of all corporate
proceedings and other legal matters relating to this Agreement,
the validity of the Common Shares, the Registration Statement and
the Prospectus and other related matters as you may reasonably
require, and the Company and the Selling Stockholders shall have
furnished to such counsel such documents and shall have exhibited
to them such papers
28
<PAGE>
and records as they may reasonably request for the purpose of
enabling them to pass upon such matters. In connection with such
opinions, such counsel may rely on representations or
certificates of officers of the Company and governmental
officials.
(iv) A certificate of the Company executed by the Chairman
of the Board or President and the chief financial or accounting
officer of the Company, dated the First Closing Date or the
Second Closing Date, as the case may be, to the effect that:
(1) The representations and warranties of the
Company set forth in Section 2 of this Agreement are
true and correct as of the date of this Agreement and
as of the First Closing Date or the Second Closing
Date, as the case may be, and the Company has complied
with all the agreements and satisfied all the
conditions on its part to be performed or satisfied on
or prior to such Closing Date;
(2) The Commission has not issued any order
preventing or suspending the use of the Prospectus or
any Preliminary Prospectus filed as a part of the
Registration Statement or any amendment thereto; no
stop order suspending the effectiveness of the
Registration Statement has been issued; and to the best
of the knowledge of the respective signers, no
proceedings for that purpose have been substituted or
are pending or contemplated under the Act;
(3) Each of the respective signers of the
certificate has carefully examined the Registration
Statement and the Prospectus; in his opinion and to the
best of his knowledge, the Registration Statement and
the Prospectus and any amendments or supplements
thereto contain all statements required to be stated
therein regarding the Company and its subsidiaries; and
neither the Registration Statement nor the Prospectus
nor any amendment or supplement thereto includes any
untrue statement of a material fact or omits to state
any material fact required to be stated therein or
necessary to make the statements therein, in light of
the circumstances under which they were made, not
misleading;
(4) Since the initial date on which the
Registration Statement was filed, no agreement, written
or oral, transaction or event has occurred
29
<PAGE>
which should have been set forth in an amendment to the
Registration Statement or in a supplement to or
amendment of any prospectus which has not been
disclosed in such a supplement or amendment;
(5) Since the respective dates as of which
information is given in the Registration Statement and
the Prospectus, and except as disclosed in or
contemplated by the Prospectus, there has not been any
material adverse change or a development involving a
material adverse change in the condition (financial or
otherwise), business, properties, results of
operations, management or prospects of the Company and
its subsidiaries taken as a whole; and no legal or
governmental action, suit or proceeding is pending or
threatened against the Company or any of its
subsidiaries which is material to the Company and its
subsidiaries taken as whole, whether or not arising
from transactions in the ordinary course of business,
or which may adversely affect the Company's ability to
consummate the transactions contemplated by this
Agreement; since such dates and except as so disclosed,
neither the Company nor any of its subsidiaries has
entered into any agreement or other transaction which
is not in the ordinary course of business or which
could result in a material reduction in the future
earnings of the Company or incurred any material
liability or obligation, direct, contingent or
indirect, made any change in its capital stock, made
any material change in its short-term debt or funded
debt or repurchased or otherwise acquired any of the
Company's capital stock; and, except as so disclosed,
the Company has not declared or paid any dividend, or
made any other distribution, upon its outstanding
capital stock payable to stockholders of record on a
date prior to the First Closing Date or Second Closing
Date; and
(6) Since the respective dates as of which
information is given in the Registration Statement and
the Prospectus and except as disclosed in or
contemplated by the Prospectus, the Company and its
subsidiaries have not sustained a material loss or
damage by strike, fire, flood, windstorm, accident or
other calamity (whether or not insured).
(v) On the First Closing Date, a certificate, dated
such Closing Date and addressed to you, signed by or on behalf of each
of the Selling Stockholders to the effect that the representations and
warranties of such
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Selling Stockholder in this Agreement are true and correct, as if made
at and as of the First Closing Date, and such Selling Stockholder has
complied with all the agreements and satisfied all the conditions on
his part to be performed or satisfied prior to the First Closing
Date.
(vi) On the date this Agreement is executed and also on
the First Closing Date and the Second Closing Date, a letter addressed
to you, as Representatives of the Underwriters, from Deloitte & Touche
LLP, independent accountants, the first one to be dated the date of
this Agreement, the second one to be dated the First Closing Date and
the third one (in the event of a Second Closing) to be dated the
Second Closing Date, in form and substance satisfactory to you.
(vii) On or before the First Closing Date, letters from
each of the Selling Stockholders, each director and officer of the
Company, each stockholder and warrantholder of the Company, and the
holders of certain options to purchase a number of shares of Common
Stock as described in the Prospectus under the caption "Underwriting",
in the form previously provided by you, confirming that for a period
of 180 days after the first date that any of the Common Shares are
released by you for sale to the public, such person will not directly
or indirectly sell or offer to sell or otherwise dispose of any shares
of Common Stock or any right to acquire such shares without the prior
written consent either of Montgomery Securities or of each of the
Representatives, which consent may be withheld at the sole discretion
of Montgomery Securities or each of the Representatives, as the case
may be.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are reasonably satisfactory
to you and to Hale and Dorr, counsel for the Underwriters. The Company shall
furnish you with such manually signed or conformed copies of such opinions,
certificates, letters and documents as you reasonably request. Any certificate
signed by any officer of the Company and delivered to the Representatives or to
counsel for the Underwriters shall be deemed to be a representation and warranty
by the Company to the Underwriters as to the statements made therein.
If any condition to the Underwriters' obligations hereunder to be
satisfied prior to or at the First Closing Date is not so satisfied, this
Agreement at your election will terminate upon notification by you as
Representatives to the Company and the Selling Stockholders without liability on
the part of any Underwriter, the Company or the Selling Stockholders except for
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the expenses to be paid or reimbursed by the Company and by the Selling
Stockholders pursuant to Sections 7 and 9 hereof and except to the extent
provided in Section 11 hereof.
SECTION 9. Reimbursement of Underwriters' Expenses. Notwithstanding
---------------------------------------
any other provisions hereof, if this Agreement shall be terminated by you
pursuant to Section 8, or if the sale to the Underwriters of the Common Shares
at the First Closing is not consummated because of any refusal, inability or
failure on the part of the Company or the Selling Stockholders to perform any
agreement herein or to comply with any provision hereof, the Company agrees to
reimburse you and the other Underwriters upon demand for all out-of-pocket
expenses that shall have been reasonably incurred by you and them in connection
with the proposed purchase and the sale of the Common Shares, including but not
limited to reasonable fees and disbursements of counsel, printing expenses,
travel expenses, postage, telegraph charges and telephone charges relating
directly to the offering contemplated by the Prospectus. Any such termination
shall be without liability of any party to any other party except that the
provisions of this Section, Section 7 and Section 11 shall at all times be
effective and shall apply.
SECTION 10. Effectiveness of Registration Statement. You, the
---------------------------------------
Company and the Selling Stockholders will use your, its and their best efforts
to cause the Registration Statement to become effective, to prevent the issuance
of any stop order suspending the effectiveness of the Registration Statement
and, if such stop order be issued, to obtain as soon as possible the lifting
thereof.
SECTION 11. Indemnification. (a)(i) The Company and each of the
---------------
Principal Selling Stockholders, jointly and severally, agree to indemnify and
hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of the Act against any losses, claims, damages,
liabilities or expenses, joint or several, to which such Underwriter or such
controlling person may become subject, under the Act, the Exchange Act or other
federal or state statutory law or regulation, or at common law or otherwise
(including in settlement of any litigation, if such settlement is effected with
the written consent of the Company), insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof as contemplated below)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state in any of them a
material fact required to be stated therein or necessary to make the statements
in any of them not misleading, or arise out of or are based in whole or in part
on any inaccuracy in the representations and warranties of the Company or the
Principal
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Selling Stockholders contained herein or any failure of the Company or the
Principal Selling Stockholders to perform their respective obligations hereunder
or under law; and will reimburse each Underwriter and each such controlling
person for any legal and other expenses as such expenses are reasonably
incurred by such Underwriter or such controlling person in connection with
investigating, defending, settling, compromising or paying any such loss, claim,
damage, liability, expense or action; provided, however, that neither the
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Company nor the Principal Selling Stockholders will be liable in any such case
to the extent that any such loss, claim, damage, liability or expense arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto (x) in
reliance upon and in conformity with the information furnished to the Company by
and on behalf of the Underwriters pursuant to Section 4 hereof or (y) in
reliance upon and in conformity with information furnished to the Company by a
Principal Selling Stockholder with respect to such Principal Selling Stockholder
(except that the Principal Selling Stockholder furnishing such information shall
not be so relieved of liability); provided further that the foregoing indemnity
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agreement with respect to any Preliminary Prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any such loss, claim,
damage, liability or expenses purchased Shares, or any person controlling such
Underwriter, if a copy of the Prospectus (as then amended or supplemented) was
not sent or given by or on behalf of such Underwriter to such person, if
required by law so to have been delivered, at or prior to the written
confirmation of the sale of the Shares to such person, and if the Prospectus (as
so amended or supplemented) would have cured the defect giving rise to such
loss, claim, damage, liability or expense and the Company has delivered the
Prospectus (as so amended or supplemented) to the several Underwriters on a
timely basis to permit such delivery or sending; provided further that no
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Principal Selling Stockholder shall have any liability hereunder with respect to
any inaccuracy in the representations and warranties of the Company or any other
Principal Selling Stockholder contained herein or with respect to any failure of
the Company or any other Principal Selling Stockholder to perform its
obligations hereunder or under law; and provided further that no Principal
-------- -------
Selling Stockholder shall be required to provide indemnification hereunder until
the Underwriter or controlling person seeking indemnification shall have first
made a demand for payment on the Company with respect to any such loss, claim,
damage, liability or expense and the Company shall have either rejected such
demand or failed to make such requested payment within 90 days after receipt
thereof. The Company and the Principal Selling Stockholders may agree, as among
themselves and without limiting the rights of the Underwriters under this
Agreement, as to their respective amounts of such liability for which they each
shall be responsible. In addition to their other
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<PAGE>
obligations under this Section 11(a)(i), the Company and the Principal Selling
Stockholders agree that, as an interim measure during the pendency of any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, or any
inaccuracy in the representations and warranties of the Company or the Principal
Selling Stockholders herein or failure to perform their obligations hereunder,
all as described in this Section 11(a)(i), they will reimburse each Underwriter
on a quarterly basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Company's
or the Principal Selling Stockholders' obligation to reimburse each Underwriter
for such expenses and the possibility that such payments might later be held to
have been improper by a court of competent jurisdiction. To the extent that any
such interim reimbursement payment is so held to have been improper, each
Underwriter shall promptly return it to the Company and the Principal Selling
Stockholders, as applicable, together with interest, compounded daily,
determined on the basis of the prime rate (or other commercial lending rate for
borrowers of the highest credit standing) announced from time to time by Bank of
America NT&SA, San Francisco, California (the "Prime Rate"). Any such interim
reimbursement payments which are not made to an Underwriter within 30 days of a
request for reimbursement, shall bear interest at the Prime Rate from the date
of such request. This indemnity agreement will be in addition to any liability
which the Company or the Principal Selling Stockholders may otherwise have.
(ii) The Selling Stockholders other than the Principal Selling
Stockholders (collectively, the "Other Selling Stockholders"), severally, agree
to indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of the Act against any losses,
claims, damages, liabilities or expenses, joint or several, to which such
Underwriter or such controlling person may become subject, under the Act, the
Exchange Act or other federal or state statutory law or regulation, or at common
law or otherwise (including in settlement of any litigation, if such settlement
is effected with the written consent of the Company), insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof as
contemplated below) arise out of or are based upon any untrue statement or
alleged untrue
34
<PAGE>
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state in
any of them a material fact required to be stated therein or necessary to make
the statements in any of them not misleading, in each case to the extent, but
only to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto,
in reliance upon and in conformity with information furnished to the Company by
such Other Selling Stockholder with respect to such Other Selling Stockholder,
or arise out of or are based in whole or in part on any inaccuracy in the
representations and warranties of such Other Selling Stockholder contained
herein or any failure of such Other Selling Stockholder to perform its
obligations hereunder or under law; and will reimburse each Underwriter and each
such controlling person for any legal and other expenses as such expenses are
reasonably incurred by such Underwriter or such controlling person in connection
with investigating, defending, settling, compromising or paying any such loss,
claim, damage, liability, expense or action; provided, however, that the
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foregoing indemnity agreement with respect to any Preliminary Prospectus shall
not inure to the benefit of any Underwriter from whom the person asserting any
such loss, claim, damage, liability or expenses purchased Shares, or any person
controlling such Underwriter, if a copy of the Prospectus (as then amended or
supplemented) was not sent or given by or on behalf of such Underwriter to such
person, if required by law so to have been delivered, at or prior to the written
confirmation of the sale of the Shares to such person, and if the Prospectus (as
so amended or supplemented) would have cured the defect giving rise to such
loss, claim, damage, liability or expense and the Company has delivered the
Prospectus (as so amended or supplemented) to the several Underwriters on a
timely basis to permit such delivery or sending. The Company and the Other
Selling Stockholders may agree, as among themselves and without limiting the
rights of the Underwriters under this Agreement, as to their respective amounts
of such liability for which they each shall be responsible. In addition to its
other obligations under this Section 11(a)(ii), each Other Selling Stockholder
agrees that, as an interim measure during the pendency of any claim, action,
investigation, inquiry or other proceeding arising out of or based upon any
statement or omission, or any alleged statement or omission, or any inaccuracy
in the representations and warranties of such Other Selling Stockholder herein
or failure to perform its obligations hereunder, all as described in this
Section 11(a)(ii), it will reimburse each Underwriter on a quarterly basis for
all reasonable legal or other expenses incurred in connection with investigating
or defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of such Other Selling Stockholder's obligation to reimburse each
Underwriter for such expenses and the possibility that such payments might later
be held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have been
improper, each Underwriter shall promptly return it to the applicable Other
Selling Stockholder, together with interest, compounded daily, determined on the
basis
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<PAGE>
of the Prime Rate. Any such interim reimbursement payments which are not made
to an Underwriter within 30 days of a request for reimbursement, shall bear
interest at the Prime Rate from the date of such request. This indemnity
agreement will be in addition to any liability which the Other Selling
Stockholders may otherwise have.
(iii) Notwithstanding anything to the contrary herein, no
Selling Stockholder shall be liable under this Section 11(a) for an amount in
excess of the proceeds (net of the applicable underwriting discount and, in the
case of a Selling Stockholder selling Shares to be issued to it upon exercise of
a stock purchase warrant, net of the aggregate exercise price required to
purchase such Shares under the warrant) received by such Selling Stockholder
with respect to the Shares purchased by the Underwriters from such Selling
Stockholder hereunder.
(b) Each Underwriter will severally indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the Registration
Statement, the Selling Stockholders and each person, if any, who controls the
Company or any Selling Stockholder within the meaning of the Act, against any
losses, claims, damages, liabilities or expenses to which the Company, or any
such director, officer, Selling Stockholder or controlling person may become
subject, under the Act, the Exchange Act, or other federal or state statutory
law or regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of such
Underwriter), insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof as contemplated below) arise out of or are based
upon any untrue or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, in reliance upon and in conformity with the information
furnished to the Company by and on behalf of the Underwriters pursuant to
Section 4 hereof; and will, subject to the third sentence of subsection (c) of
this Section 11, reimburse the Company, or any such director, officer, Selling
Stockholder or controlling person for any legal and other expense reasonably
incurred by the Company, or any such director, officer, Selling Stockholder or
controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action. In addition to its other obligations under this Section 11(b), each
Underwriter severally agrees that, as an interim measure during
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<PAGE>
the pendency of any claim, action, investigation, inquiry or other proceeding
arising out of or based upon any statement or omission, or any alleged statement
or omission, described in this Section 11(b) which relates to information
furnished to the Company pursuant to Section 4 hereof, it will reimburse the
Company (and, to the extent applicable, each officer, director, controlling
person or Selling Stockholder) on a quarterly basis for all reasonable legal or
other expenses incurred in connection with investigating or defending any such
claim, action, investigation, inquiry or other proceeding, notwithstanding the
absence of a judicial determination as to the propriety and enforceability of
the Underwriters' obligation to reimburse the Company (and, to the extent
applicable, each officer, director, controlling person or Selling Stockholder)
for such expenses and the possibility that such payments might later be held to
have been improper by a court of competent jurisdiction. To the extent that any
such interim reimbursement payment is so held to have been improper, the Company
(and, to the extent applicable, each officer, director, controlling person or
Selling Stockholder) shall promptly return it to the Underwriters, together with
interest, compounded daily, determined on the basis of the Prime Rate. Any such
interim reimbursement payments which are not made to the Company within 30 days
of a request for reimbursement, shall bear interest at the Prime Rate from the
date of such request. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under this
Section, notify the indemnifying party in writing of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party for indemnity or
contribution contained in this Section to the extent the indemnifying party is
not prejudiced as a proximate result of such failure. In case any such action
is brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it may wish, jointly
with all other indemnifying parties similarly notified, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified party;
provided, however, if the defendants in any such action include both the
- -------- -------
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be a conflict between the positions of
the indemnifying party and the indemnified party in conducting the defense of
any such action or that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to
the indemnifying party, the indemnified party or parties shall have the right to
select one separate counsel to assume such legal
37
<PAGE>
defenses and to otherwise participate in the defense of such action on behalf of
such indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of its election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying party
will not be liable to such indemnified party under this Section for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
such counsel in connection with the assumption of legal defenses in accordance
with the proviso to the next preceding sentence (it being understood, however,
that the indemnifying party shall not be liable for the expenses of more than
one separate counsel, approved by the Representatives in the case of paragraph
(a), representing the indemnified parties who are parties to such action) or
(ii) the indemnifying party shall not have employed counsel reasonably
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action, in each of which
cases the fees and expenses of counsel shall be at the expense of the
indemnifying party.
(d) If the indemnification provided for in this Section 11 is
required by its terms but is for any reason held to be unavailable to or
otherwise insufficient to hold harmless an indemnified party under paragraphs
(a), (b) or (c) in respect of any losses, claims, damages, liabilities or
expenses referred to herein, then each applicable indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of any losses, claims, damages, liabilities or expenses referred to herein
(i) in such proportion as is appropriate to reflect the relative benefits
received by the Company, the Selling Stockholders and the Underwriters from the
offering of the Common Shares or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company, the Selling Stockholders and the
Underwriters in connection with the statements or omissions or inaccuracies in
the representations and warranties herein which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The respective relative benefits received by the Company, the
Selling Stockholders and the Underwriters shall be deemed to be in the same
proportion, in the case of the Company and the Selling Stockholders as the total
price paid to the Company and to the Selling Stockholders, respectively, for the
Common Shares sold by them to the Underwriters (net of underwriting commissions
but before deducting expenses), and in the case of the Underwriters as the
underwriting commissions received by them bears to the total of such amounts
paid to the Company and to the Selling Stockholders and received by the
Underwriters as underwriting commissions. The relative
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fault of the Company, the Selling Stockholders and the Underwriters shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact or the inaccurate or the alleged inaccurate representation
and/or warranty relates to information supplied by the Company, the Selling
Stockholders or the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in subparagraph (c) of this
Section 11, any legal or other fees or expenses reasonably incurred by such
party in connection with investigating or defending any action or claim. The
provisions set forth in subparagraph (c) of this Section 11 with respect to
notice of commencement of any action shall apply if a claim for contribution is
to be made under this subparagraph (d); provided, however, that no additional
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notice shall be required with respect to any action for which notice has been
given under subparagraph (c) for purposes of indemnification. The Company, the
Selling Stockholders and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 11 were determined solely by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in this paragraph. Notwithstanding
the provisions of this Section 11, no Underwriter shall be required to
contribute any amount in excess of the amount of the total underwriting
commissions received by such Underwriter in connection with the Common Shares
underwritten by it and distributed to the public. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 11 are several in proportion to their respective
underwriting commitments and not joint.
(e) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in Sections 11(a) and 11(b)
hereof, including the amounts of any requested reimbursement payments and the
method of determining such amounts, shall be settled by arbitration conducted
under the provisions of the Constitution and Rules of the Board of Governors of
the New York Stock Exchange, Inc. or pursuant to the Code of Arbitration
Procedure of the NASD. Any such arbitration must be commenced by service of a
written demand for arbitration or written notice of intention to arbitrate,
therein electing the arbitration tribunal. In the event the party demanding
arbitration does not make such designation of an arbitration tribunal in such
demand or notice, then the party responding to
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<PAGE>
said demand or notice is authorized to do so. Such an arbitration would be
limited to the operation of the interim reimbursement provisions contained in
Sections 11(a) and 11(b) hereof and would not resolve the ultimate propriety or
enforceability of the obligation to reimburse expenses which is created by the
provisions of such Sections 11(a) and 11(b) hereof.
SECTION 12. Default of Underwriters. It shall be a condition to this
-----------------------
Agreement and the obligation of the Company and the Selling Stockholders to sell
and deliver the Common Shares hereunder, and of each Underwriter to purchase the
Common Shares in the manner as described herein, that, except as hereinafter in
this paragraph provided, each of the Underwriters shall purchase and pay for all
the Common Shares agreed to be purchased by such Underwriter hereunder upon
tender to the Representatives of all such shares in accordance with the terms
hereof. If any Underwriter or Underwriters default in their obligations to
purchase Common Shares hereunder on either the First or Second Closing Date and
the aggregate number of Common Shares which such defaulting Underwriter or
Underwriters agreed but failed to purchase on such Closing Date does not exceed
10% of the total number of Common Shares which the Underwriters are obligated to
purchase on such Closing Date, the non-defaulting Underwriters shall be
obligated severally, in proportion to their respective commitments hereunder, to
purchase the Common Shares which such defaulting Underwriters agreed but failed
to purchase on such Closing Date. If any Underwriter or Underwriters so default
and the aggregate number of Common Shares with respect to which such default
occurs is more than the above percentage and arrangements satisfactory to the
Representatives and the Company for the purchase of such Common Shares by other
persons are not made within 48 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or the
Company or the Selling Stockholders except for the expenses to be paid by the
Company and the Selling Stockholders pursuant to Section 7 hereof and except to
the extent provided in Section 11 hereof.
In the event that Common Shares to which a default relates are to be
purchased by the non-defaulting Underwriters or by another party or parties, the
Representatives or the Company shall have the right to postpone the First or
Second Closing Date, as the case may be, for not more than five business days in
order that the necessary changes in the Registration Statement, Prospectus and
any other documents, as well as any other arrangements, may be effected. As
used in this Agreement, the term "Underwriter" includes any person substituted
for an Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default.
SECTION 13. Effective Date. This Agreement shall become effective
--------------
immediately as to Sections 7, 9, 11, 14 and 16 and, as
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to all other provisions, (i) if at the time of execution of this Agreement the
Registration Statement has not become effective, at 2:00 P.M., California time,
on the first full business day following the effectiveness of the Registration
Statement, or (ii) if at the time of execution of this Agreement the
Registration Statement has been declared effective, at 2:00 P.M., California
time, on the first full business day following the date of execution of this
Agreement; but this Agreement shall nevertheless become effective at such
earlier time after the Registration Statement becomes effective as you may
determine on and by notice to the Company or by release of any of the Common
Shares for sale to the public. For the purposes of this Section 13, the Common
Shares shall be deemed to have been so released upon the release for publication
of any newspaper advertisement relating to the Common Shares or upon the release
by you of telegrams (i) advising Underwriters that the Common Shares are
released for public offering, or (ii) offering the Common Shares for sale to
securities dealers, whichever may occur first.
SECTION 14. Termination. Without limiting the right to terminate
-----------
this Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by the Company by notice to
you and the Selling Stockholders or by you by notice to the Company
and the Selling Stockholders at any time prior to the time this
Agreement shall become effective as to all its provisions, and any
such termination shall be without liability on the part of the Company
or the Selling Stockholders to any Underwriter (except for the
expenses to be paid or reimbursed by the Company and the Selling
Stockholders pursuant to Sections 7 and 9 hereof and except to the
extent provided in Section 11 hereof) or of any Underwriter to the
Company or the Selling Stockholders (except to the extent provided in
Section 11 hereof).
(b) This Agreement may also be terminated by you prior to the
First Closing Date by notice to the Company (i) if additional material
governmental restrictions, not in force and effect on the date hereof,
shall have been imposed upon trading in securities generally or
minimum or maximum prices shall have been generally established on the
New York Stock Exchange or on the American Stock Exchange or in the
over the counter market by the NASD, or trading in securities
generally shall have been suspended on either such Exchange or in the
over the counter market by the NASD, or a general banking moratorium
shall have been established by federal, New York or California
authorities, (ii) if an outbreak of major hostilities or other
national or international calamity or any substantial change in
political, financial or economic conditions shall have occurred or
shall have accelerated or escalated to such an extent, as, in the
judgment of the Representatives, to affect adversely the marketability
of the
41
<PAGE>
Common Shares, (iii) if any adverse event shall have occurred or shall
exist which makes untrue or incorrect in any material respect any
statement or information contained in the Registration Statement or
Prospectus or which is not reflected in the Registration Statement or
Prospectus but should be reflected therein in order to make the
statements or information contained therein not misleading in any
material respect, or (iv) if there shall be any action, suit or
proceeding pending or threatened, or there shall have been any
development or prospective development involving particularly the
business or properties or securities of the Company or any of its
subsidiaries or the transactions contemplated by this Agreement,
which, in the reasonable judgment of the Representatives, may
materially and adversely affect the Company's business or earnings and
makes it impracticable or inadvisable to offer or sell the Common
Shares. Any termination pursuant to this subsection (b) shall be
without liability on the part of any Underwriter to the Company or the
Selling Stockholders or on the part of the Company or the Selling
Stockholders to any Underwriter (except for expenses to be paid or
reimbursed by the Company and the Selling Stockholders pursuant to
Sections 7 and 9 hereof and except to the extent provided in Section
11 hereof.
SECTION 15. Failure of the Selling Stockholders to Sell and Deliver.
-------------------------------------------------------
If one or more of the Selling Stockholders shall fail to sell and deliver to the
Underwriters the Common Shares to be sold and delivered by such Selling
Stockholders at the First Closing Date under the terms of this Agreement, then
the Underwriters may at their option, by written notice from you to the Company
and the Selling Stockholders, either (i) terminate this Agreement without any
liability on the part of any Underwriter (except as provided in Section 11
hereof) or the Company or the Selling Stockholders (except as provided in
Sections 7, 9 and 11 hereof) or (ii) purchase the shares which the Company and
other Selling Stockholders have agreed to sell and deliver in accordance with
the terms hereof. In the event of a failure by one or more of the Selling
Stockholders to sell and deliver as referred to in this Section, either you or
the Company shall have the right to postpone the Closing Date for a period not
exceeding seven business days in order that the necessary changes in the
Registration Statement, Prospectus and any other documents, as well as any other
arrangements, may be effected.
SECTION 16. Representations and Indemnities to Survive Delivery. The
---------------------------------------------------
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers, of the Selling Stockholders and of
the several Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter or the Company or any of
42
<PAGE>
its or their partners, officers or directors or any controlling person, or the
Selling Stockholders, as the case may be, and will survive delivery of and
payment for the Common Shares sold hereunder and any termination of this
Agreement.
SECTION 17. Notices. All communications hereunder shall be in
-------
writing and, if sent to the Representatives shall be mailed, delivered or
telegraphed and confirmed to you at 600 Montgomery Street, San Francisco,
California 94111, Attention: Karl L. Matthies and Jack Levin, with a copy to
Hale and Dorr, 60 State Street, Boston, Massachusetts, 02109, Attention: Mark
G. Borden, Esq.; and if sent to the Company or the Selling Stockholders shall be
mailed, delivered or telegraphed and confirmed to the Company at 3 Greenwich
Office Park, Greenwich, Connecticut, 06831, Attention: Randy B. Spector, with a
copy to Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street, New
York, New York 10022, Attention: Steven J. Gartner, Esq. The Company, the
Selling Stockholders or you may change the address for receipt of communications
hereunder by giving notice to the others.
SECTION 18. Successors. This Agreement will inure to the benefit of
----------
and be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 12 hereof, and to the benefit of the officers and directors
and controlling persons referred to in Section 11, and in each case their
respective successors, personal representatives and assigns, and no other person
will have any right or obligation hereunder. No such assignment shall relieve
any party of its obligations hereunder. The term "successors" shall not include
any purchaser of the Common Shares as such from any of the Underwriters merely
by reason of such purchase.
SECTION 19. Representation of Underwriters. You will act as
------------------------------
Representatives for the several Underwriters in connection with all dealings
hereunder, and any action under or in respect of this Agreement taken by you
jointly or by Montgomery Securities, as Representatives, will be binding upon
all the Underwriters.
SECTION 20. Partial Unenforceability. The invalidity or
------------------------
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 21. Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the internal laws (and not the laws pertaining to
conflicts of laws) of the State of California.
43
<PAGE>
SECTION 22. General. This Agreement constitutes the entire agreement
-------
of the parties to this Agreement and supersedes all prior written or oral and
all contemporaneous oral agreements, understandings and negotiations with
respect to the subject matter hereof. This Agreement may be executed in several
counterparts, each one of which shall be an original, and all of which shall
constitute one and the same document.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company, the Selling Stockholders and you.
Any person executing and delivering this Agreement as Attorney-in-fact
for the Selling Stockholders represents by so doing that he has been duly
appointed as Attorney-in-fact by such Selling Stockholder pursuant to a validly
existing and binding Power of Attorney which authorizes such Attorney-in-fact to
take such action. Any action taken under this Agreement by any of the
Attorneys-in-fact will be binding on all the Selling Stockholders.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed copies hereof, whereupon it
will become a binding agreement among the Company, the Selling Stockholders and
the several Underwriters including you, all in accordance with its terms.
Very truly yours,
FINE HOST CORPORATION
By:______________________________
Name:
Title:
SELLING STOCKHOLDERS
By:______________________________
(Attorney-in-fact)
<PAGE>
The foregoing Underwriting Agreement
is hereby confirmed and accepted by
us in San Francisco, California as of
the date first above written.
MONTGOMERY SECURITIES
OPPENHEIMER & CO., INC.
Acting as Representatives of the
several Underwriters named in
the attached Schedule A.
By MONTGOMERY SECURITIES
By:______________________________
Authorized Signatory
<PAGE>
SCHEDULE A
Number of Firm
Common Shares
Name of Underwriter to be Purchased
- ----------------------- ---------------
Montgomery Securities . . . . . . . . . . . . .
Oppenheimer & Co., Inc. . . . . . . . . . . . . .
_________
TOTAL . . . . . . . . . . . . . 4,030,000
=========
<PAGE>
SCHEDULE B
Number of Firm
Common Shares to
be Sold by Selling
Name of Selling Stockholder Stockholders
- --------------------------- ------------------
GRD Corp. . . . . . . . . . . . . . . . . . . . . . . 713,328
Interlaken Investment Partners, L.P. . . . . . . . . . 221,053
The Berkley Family Partnership . . . . . . . . . . . . 128,401
John L. Read . . . . . . . . . . . . . . . . . . . . . 14,000
Edgar W. Blanch, Jr. . . . . . . . . . . . . . . . . . 21,000
Don McLeland . . . . . . . . . . . . . . . . . . . . . 21,000
Klara Silverstein . . . . . . . . . . . . . . . . . . . 21,000
---------
TOTAL . . . . . . . . . . . . . . . . . . . . 1,139,782
=========
Exhibit 10.24
AMENDED AND RESTATED PROMISSORY NOTE
$81,995.00 May __, 1996
FOR VALUE RECEIVED, the undersigned, Richard E. Kerley (the
"Maker"), hereby promises to pay to the order of Fine Host Corporation, a
Delaware corporation (the "Company"), at its office at 3 Greenwich Office Park,
Greenwich, Connecticut 06831 (or at such other place as the holder of this Note
may designate), the principal amount of EIGHTY ONE THOUSAND NINE HUNDRED
NINETY-FIVE DOLLARS ($81,995.00). The repayment of the entire principal amount
hereof shall be due and payable, without interest, on June 30, 1999. All
payments hereunder shall be made in lawful money of the United States of
America, without offset.
This Note amends and restates the Promissory Note, dated June 11,
1991, in the original principal amount of $86,554.50, between the Maker and the
Company, and the accompanying letter agreement, dated as of June 5, 1991,
between the Maker and the Company.
This Note is being delivered in payment of a portion of the
purchase price of certain shares (the "Shares) of the common stock of the
Company purchased by the Maker pursuant to the terms of a Stock Purchase
Agreement dated as of June 5, 1991 (the "Agreement") between the Maker
and the Company, and may be prepaid in whole or in part at any time
without penalty or premium.
This Note shall become due and payable, without any action on the
part of the holder hereof, upon the filing of any petition in bankruptcy or
insolvency with respect to the Maker or any of his property.
This Note shall be governed by and construed and enforced in
accordance with the laws of the State of Connecticut.
The Maker hereby pledges the Shares purchased by him pursuant to
the terms of the Agreement to the Company and agrees that the Shares shall
serve as collateral (and as a grant to the Company of a continuing security
interest in the Shares) for the performance of each and all of the obligations
imposed upon the undersigned as Maker under the terms of this Note, and
that the Company may, at its sole option, levy against such collateral as
permitted by law in the event that the Maker breaches any of his obligations,
including but not limited to prompt payment of all amounts due under this Note;
provided, however, that the Company shall release its security interest on
any Shares sold by the Maker concurrently with the sale of such Shares and
the application of 33 1/3% of the proceeds thereof in prepayment of the
principal amount of this Note.
IN WITNESS WHEREOF, the undersigned has duly executed this Note
as of the day and year first hereinabove set forth.
WITNESS:
- ----------------------------- ---------------------------
RICHARD E. KERLEY
ACKNOWLEDGED:
FINE HOST CORPORATION
- -----------------------------
Exhibit 10.25
AMENDED AND RESTATED PROMISSORY NOTE
$74,208.00 May __, 1996
FOR VALUE RECEIVED, the undersigned, Randy B. Spector (the
"Maker"), hereby promises to pay to the order of Fine Host Corporation, a
Delaware corporation (the "Company"), at its office at 3 Greenwich Office Park,
Greenwich, Connecticut 06831 (or at such other place as the holder of this Note
may designate), the principal amount of SEVENTY-FOUR THOUSAND TWO HUNDRED EIGHT
DOLLARS ($74,208.00). The repayment of the entire principal amount hereof shall
be due and payable, without interest, on June 30, 1999. All payments hereunder
shall be made in lawful money of the United States of America, without offset.
This Note amends and restates the Promissory Notes, dated _______
__, 1987 and June 24, 1991, in the original principal amounts of $[34,618] and
$41,411.64 , respectively, between the Maker and the Company, and the
accompanying letter agreement, dated _____ __, 1991, between the Maker and the
Company.
This Note is being delivered in payment of a portion of the
purchase price of certain shares (the "Shares) of the common stock of the
Company which were purchased by the Maker pursuant to the terms of a
Shareholders Agreement dated as of November 14, 1985 (the "Agreement"), between
the Company and certain other persons, and a Stock Purchase Agreement, dated as
of ________ __, 1991, between the Company and the Maker, and may be
prepaid in whole or in part at any time without penalty or premium.
This Note shall become due and payable, without any action on the
part of the holder hereof, upon the filing of any petition in bankruptcy or
insolvency with respect to the Maker or any of his property.
This Note shall be governed by and construed and enforced in
accordance with the laws of the State of Connecticut.
The Maker hereby pledges the Shares purchased by him pursuant to
the terms of the Agreement and the Stock Purchase Agreement to the Company and
agrees that the Shares shall serve as collateral (and as a grant to the
Company of a continuing security interest in the Shares) for the
performance of each and all of the obligations imposed upon the undersigned as
Maker under the terms of this Note, and that the Company may, at its sole
option, levy against such collateral as permitted by law in the event that the
Maker breaches any of his obligations, including but not limited to prompt
payment of all amounts due under this Note; provided, however, that the
Company shall release its security interest on any Shares sold by the
Maker concurrently with the sale of such Shares and the application of
33 1/3% of the proceeds thereof in prepayment of the principal amount of this
Note.
IN WITNESS WHEREOF, the undersigned has duly executed this Note
as of the day and year first hereinabove set forth.
WITNESS:
- ----------------------------- ---------------------------
RANDY B. SPECTOR
ACKNOWLEDGED:
FINE HOST CORPORATION
- -----------------------------
Exhibit 10.26
AMENDED AND RESTATED PROMISSORY NOTE
$16,779.30 May __, 1996
FOR VALUE RECEIVED, the undersigned, Douglas M. Stabler (the
"Maker") hereby promises to pay to the order of Interlaken Capital Partners
Limited Partnership (the "Partnership"), at its office at 165 Mason Street,
Greenwich, Connecticut 06830 (or at such other place as the holder of this Note
may designate), the principal amount of SIXTEEN THOUSAND SEVEN HUNDRED
SEVENTY-NINE DOLLARS AND THIRTY CENTS ($16,779.30). The repayment of the entire
principal amount hereof shall be due and payable, without interest, on June 30,
1999. All payments hereunder shall be made in lawful money of the United States
of America, without offset.
This Note amends and restates the Promissory Note, dated as of
[June 24, 1991], in the original principal amount of $16,779.30, between the
Maker and the Partnership, and the accompanying letter agreement, dated as
of [June 24, 1991], by and among the Maker, Fine Host Corporation, a Delaware
corporation (the "Company"), and Interlaken Capital, Inc.
This Note is being delivered in payment of a portion of the
purchase price of certain shares (the "Shares) of the common stock of the
Company which were purchased by the Maker pursuant to the terms of a
Shareholders Agreement, dated as of November 14, 1985 (the "Agreement"), between
the Company and certain other persons, and may be prepaid in whole or in part at
any time without penalty or premium.
This Note shall become due and payable, without any action on the
part of the holder hereof, upon the filing of any petition in bankruptcy or
insolvency with respect to the Maker or any of his property.
This Note shall be governed by and construed and enforced in
accordance with the laws of the State of Connecticut.
The Maker hereby pledges the Shares purchased by him pursuant to
the terms of the Agreement to the Partnership and agrees that the Shares shall
serve as collateral (and as a grant to the Partnership of a continuing security
interest in the Shares) for the performance of each and all of the obligations
imposed upon the undersigned as Maker under the terms of this Note, and that
the Partnership may, at its sole option, levy against such collateral as
permitted by law in the event that the Maker breaches any of his obligations,
including but not limited to prompt payment of all amounts due under this Note;
provided, however, that the Partnership shall release its security interest on
any Shares sold by the Maker concurrently with the sale of such Shares and
the application of 33 1/3% of the proceeds thereof in prepayment of the
principal amount of this Note.
IN WITNESS WHEREOF, the undersigned has duly executed this Note
as of the day and year first hereinabove set forth.
WITNESS:
- ----------------------------- ---------------------------
DOUGLAS M. STABLER
ACKNOWLEDGED:
INTERLAKEN CAPITAL PARTNERS
LIMITED PARTNERSHIP
- -----------------------------
Exhibit 10.27
AMENDED AND RESTATED PROMISSORY NOTE
$32,796.00 May __, 1996
FOR VALUE RECEIVED, the undersigned, Randall K. Ziegler (the
"Maker"), hereby promises to pay to the order of Fine Host Corporation, a
Delaware corporation (the "Company"), at its office at 3 Greenwich Office Park,
Greenwich, Connecticut 06831 (or at such other place as the holders of this Note
may designate), the principal amount of THIRTY-TWO THOUSAND SEVEN HUNDRED
NINETY-SIX DOLLARS ($32,796.00). The repayment of the entire principal amount
hereof shall be due and payable, without interest, on June 30, 1999. All
payments hereunder shall be made in lawful money of the United States of
America, without offset.
This Note amends and restates the Promissory Note, dated June 24,
1991, in the original principal amount of $34,618, between the Maker and the
Company, and the accompanying letter agreement, dated as of June 24, 1991, by
and among the Maker, the Company and Interlaken Capital, Inc.
This Note is being delivered in payment of a portion of the
purchase price of certain shares (the "Shares) of the common stock of the
Company being purchased by the Maker pursuant to the terms of a Stock Purchase
Agreement, dated as of _________ ___, 1991 (the "Agreement"), between the
Maker and the Company, and may be prepaid in whole or in part at any time
without penalty or premium.
This Note shall become due and payable, without any action on the
part of the holder hereof, upon the filing of any petition in bankruptcy or
insolvency with respect to the Maker or any of his property.
This Note shall be governed by and construed and enforced in
accordance with the laws of the State of Connecticut.
The Maker hereby pledges the Shares purchased by him pursuant to
the terms of the Agreement to the Company and agrees that the Shares shall
serve as collateral (and as a grant to the Company of a continuing security
interest in the Shares) for the performance of each and all of the obligations
imposed upon the undersigned as Maker under the terms of this Note, and that
the Company may, at its sole option, levy against such collateral as permitted
by law in the event that the Maker breaches any of his obligations, including
but not limited to prompt payment of all amounts due under this Note;
provided, however, that the Company shall release its security interest on
any Shares sold by the Maker concurrently with the sale of such Shares and
the application of 33 1/3% of the proceeds thereof in prepayment of the
principal amount of this Note.
IN WITNESS WHEREOF, the undersigned has duly executed this Note
as of the day and year first hereinabove set forth.
WITNESS:
- ---------------------------- ---------------------------
RANDALL K. ZIEGLER
ACKNOWLEDGED:
FINE HOST CORPORATION
- -----------------------------
<PAGE>
AMENDED AND RESTATED PROMISSORY NOTE
$16,779.30 May __, 1996
FOR VALUE RECEIVED, the undersigned, Randall K. Ziegler (the
"Maker"), promises to pay to the order of Interlaken Capital Partners Limited
Partnership (the "Partnership"), at its office at 165 Mason Street, Greenwich,
Connecticut 06830 (or at such other place as the holder of this Note may
designate), the principal amount of SIXTEEN THOUSAND SEVEN HUNDRED SEVENTY-NINE
DOLLARS AND THIRTY CENTS ($16,779.30). The repayment of the entire principal
amount hereof shall be due and payable, without interest, on June 30, 1999. All
payments hereunder shall be made in lawful money of the United States of
America, without offset.
This Note amends and restates the Promissory Note, dated June 24,
1991, in the original principal amount of $16,779.30, between the Maker and the
Partnership, and the accompanying letter agreement, dated as of June 24, 1991,
by and among the Maker, Interlaken Capital, Inc. and Fine Host Corporation, a
Delaware corporation (the "Company").
This Note is being delivered in payment of a portion of the
purchase price of certain shares (the "Shares) of the common stock of the
Company which were purchased by the Maker pursuant to the terms of a
Shareholders Agreement, dated as of November 14, 1985 (the "Agreement"), between
the Company and certain other persons, and a Stock Purchase Agreement, dated as
of _________ __, 1991, between the Company and the Maker, and may be
prepaid in whole or in part at any time without penalty or premium.
This Note shall become due and payable, without any action on the
part of the holder hereof, upon the filing of any petition in bankruptcy or
insolvency with respect to the Maker or any of his property.
This Note shall be governed by and construed and enforced in
accordance with the laws of the State of Connecticut.
The Maker hereby pledges the Shares purchased by him pursuant to
the terms of the Agreement and the Stock Purchase Agreement to the Partnership
and agrees that the Shares shall serve as collateral (and as a grant to the
Partnership of a continuing security interest in the Shares) for the
performance of each and all of the obligations imposed upon the undersigned as
Maker under the terms of this Note, and that the Partnership may, at its sole
option, levy against such collateral as permitted by law in the event that the
Maker breaches any of his obligations, including but not limited to prompt
payment of all amounts due under this Note; provided, however, that the
Partnership shall release its security interest on any Shares sold by the
Maker concurrently with the sale of such Shares and the application of 33 1/3%
of the proceeds thereof in prepayment of the principal amount of this Note.
IN WITNESS WHEREOF, the undersigned has duly executed this Note
as of the day and year first hereinabove set forth.
WITNESS:
- --------------------------- ---------------------------
RANDALL K. ZIEGLER
ACKNOWLEDGED:
INTERLAKEN CAPITAL PARTNERS
LIMITED PARTNERSHIP
- -----------------------------
Exhibit 10.28
WF&G DRAFT
5/14/96
REGISTRATION RIGHTS AGREEMENT
THIS AGREEMENT is made as of May , 1996 between Fine Host
Corporation, a Delaware corporation (the "Company") and the shareholders set
forth on the signature page hereto (each a "Shareholder" and collectively, the
"Shareholders").
WHEREAS, each of the Shareholders is a holder of the number of
shares of Common Stock, par value $.01 per share (the "Common Stock"), of the
Company, set forth opposite such Shareholder's name on the signature page
hereto; and
WHEREAS, the Company and the Shareholders desire to provide for
the registration of the Common Stock held by the Shareholders, as set forth in
this Agreement.
NOW, THEREFORE, in consideration of the above and the mutual
covenants contained herein, the parties hereto agree as follows:
Section 1. Definitions. As used in this Agreement the following
-----------
capitalized terms shall have the following meanings:
Business Day: Any day other than a Saturday, Sunday or a day on
------------
which banking institutions in the State of New York are authorized or obligated
by law or executive order to remain closed.
Person: Any individual, corporation, partnership, association,
------
limited liability company, trust, unincorporated organization or other entity.
Registrable Securities: The shares of Common Stock set forth
----------------------
opposite each Shareholder's name on the signature page hereto, and any
securities into which such Common Stock shall have hereafter been changed,
converted or exchanged (pursuant to a transaction with the Company or any of its
affiliates or by way of any merger, consolidation or other reorganization or any
similar transaction) or which have been received as a dividend or distribution
with respect thereto; provided, however, that any particular securities shall
-------- -------
cease to be Registrable Securities upon the earlier of the following
occurrences: (i) a registration statement with respect to the sale of such
securities shall have become effective under the Securities Act and such
securities shall have been disposed of in accordance with such registration
statement, (ii) all such securities are eligible to be sold to the public
pursuant to Rule 144 in a single three-month period or (iii) such securities
shall have ceased to be outstanding.
<PAGE>
Registration Expenses: All expenses incident to the Company's
---------------------
performance of or compliance with the registration requirements set forth in
this Agreement, including without limitation the following: (i) all
registration, filing and stock exchange listing fees, (ii) the reasonable fees,
disbursements and expenses of the Company's counsel and accountants (including
the cost of any special audit letters required in connection with the
performance by the Company of its obligations hereunder), (iii) all reasonable
expenses in connection with the preparation, printing and filing of the
registration statement, any preliminary prospectus or final prospectus, any
other offering document and amendments and supplements thereto and (iv) all
expenses in connection with the qualification of Registrable Securities to be
disposed of for offering and sale under state securities laws, including the
reasonable fees and disbursements of counsel for the underwriters, if any, in
connection with such qualification and any blue sky or legal investment
memoranda.
Rule 144: Rule 144 promulgated under the Securities Act, or any
--------
successor rule of similar effect.
SEC: The United States Securities and Exchange Commission.
---
Securities Act: The Securities Act of 1933, as amended, or
--------------
any successor statute.
Shelf Registration Statement: A "shelf" registration statement on
----------------------------
Form S-3 filed by the Company pursuant to Rule 415 promulgated under the
Securities Act, or any successor rule of similar effect. The Company shall use
reasonable efforts to remain eligible to use Form S-3. If the Company is not so
eligible, it shall take all actions reasonably requested by any Shareholder to
fulfill the purposes and intents hereof.
Section 2. Registration.
------------
2.1 Shelf Registration.
------------------
(a) Promptly following the one-year anniversary of the
closing of the Company's initial public offering, the Company shall file with
the SEC, in accordance with the procedures herein set forth, a Shelf
Registration Statement providing for the sale by each of the Shareholders, from
time to time, of the Registrable Securities held by such Shareholders. The
Company shall use reasonable efforts to cause the Shelf Registration Statement
to be declared effective as promptly as reasonably practicable after the filing
thereof and thereafter to keep it continuously effective until the date when all
securities which were Registrable Securities registered under such registration
statement cease to be Registrable Securities.
(b) The Company further agrees to supplement or make
amendments to the Shelf Registration Statement, if required
-2-
<PAGE>
by the rules, regulations or instructions applicable to the registration form
utilized by the Company, or by the Securities Act or the rules and regulations
thereunder for shelf registrations, or as reasonably requested by the
Shareholders.
2.2 Draw Down Notice; Blockage. Each Shareholder agrees to
--------------------------
provide the Company with at least five (5) Business Days notice of his intent to
draw down all or any portion of the Registrable Securities under the Shelf
Registration Statement (a "Draw Down Notice"). If the Company notifies such
Shareholder within three (3) Business Days of its receipt of a Draw Down Notice
that a sale of Registrable Securities under the Shelf Registration Statement is
not permissible under applicable law or Company policy with respect to
employees, such Shareholder agrees not to sell Registrable Securities under the
Shelf Registration Statement. If the Company notifies such Shareholder that such
a sale is permissible, or fails to notify such Shareholder that such a sale is
not permissible within three (3) Business Days, such Shareholder shall have a
period of thirty (30) days from the expiration of such five (5) Business Days to
sell the Registrable Securities pursuant to the Shelf Registration Statement;
provided, however, that no Shareholder shall sell Registrable Securities in any
- -------- ------
three-month period in excess of the number of shares of Common Stock such
Shareholder would be permitted to sell within the volume limitations of Rule
144(e) under the Securities Act if such shares of Common Stock were permitted to
be sold under Rule 144. In the event a sale of Registrable Securities is not
permissible under applicable law or Company policy with respect to employees,
the Company shall promptly notify such Shareholder when such Shareholder may
sell Registrable Securities pursuant to the Shelf Registration Statement. No
Shareholder will sell Registrable Securities pursuant to the Shelf Registration
Statement except as expressly permitted by this Section 2.2.
Section 3. Registration Procedures. When the Company is required
-----------------------
to effect the registration of any Registrable Securities under the Securities
Act as provided in Section 2 hereof, the Company will as promptly as is
reasonably practicable:
(a) prepare, file and use reasonable efforts to cause to
become and remain effective a registration statement under the Securities Act
covering such Registrable Securities to be offered;
(b) prepare and file with the SEC such amendments,
supplements and exhibits to such registration statement (on a suitable
registration form) and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective and to comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities for the period of time set forth in Section 2.1(a);
-3-
<PAGE>
(c) furnish to the Shareholders such number of conformed
copies of such registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies of the
prospectus included in such registration statement (including each preliminary
prospectus and any summary prospectus) in conformity with the requirements of
the Securities Act, such documents incorporated by reference in such
registration statement or prospectus and such other documents as the
Shareholders may reasonably request;
(d) use reasonable efforts to register or qualify all
Registrable Securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as the Shareholders shall
reasonably request, and do any and all other acts and things which may be
necessary or advisable to enable the Shareholders to consummate the disposition
in such jurisdictions of the Registrable Securities covered by such registration
statement, except that the Company shall not for any such purpose be required to
qualify generally to do business as a foreign corporation in any jurisdiction
where it is not so qualified or to subject itself to taxation in any such
jurisdiction, or to consent to general service of process in any such
jurisdiction;
(e) during any period in which a Shareholder is permitted
to sell Registrable Securities pursuant to Section 2.2 hereof, immediately
notify such Shareholder of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, and at
the request of such Shareholder during such time prepare and furnish to the
Shareholders as promptly as reasonably practicable a reasonable number of copies
of a supplement to or an amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such Registrable Securities,
such prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they are made, not
misleading;
(f) promptly notify the Shareholders of the issuance of
any stop order suspending the effectiveness of a registration statement, or of
any order suspending or preventing the use of any related prospectus or
suspending the qualification of any Common Stock included in such registration
statement for sale in any jurisdiction and use reasonable efforts to obtain
promptly the withdrawal of any such order;
(g) if requested by any Shareholder, use reasonable
efforts to cause all Registrable Securities covered by the registration
statement to be listed on each securities
-4-
<PAGE>
exchange on which similar securities issued by the Company are then listed; and
(h) otherwise use its reasonable efforts to comply with
all applicable rules and regulations of the SEC and the securities exchange on
which the Registrable Securities may be listed, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months beginning with the first day of
the Company's first full calendar quarter after the effective date of the
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 thereunder.
The Company may require the Shareholders to furnish the Company
such information regarding the Shareholders and the distribution of such
securities as the Company may from time to time reasonably request in writing
and as shall be required by law or by the SEC or the securities exchange on
which the Registrable Securities may be listed in connection with any
registration effected pursuant to this Agreement.
Section 4. Registration Expenses. The Company shall pay all
---------------------
Registration Expenses incurred in connection with the registration effected
pursuant to this Agreement. Each Shareholder shall pay any underwriting
discounts and commissions and transfer taxes applicable to the Registrable
Securities sold for the account of such Shareholder. The Shareholders shall also
pay the fees and expenses of their counsel and other advisors, if any.
Section 5. Indemnification.
---------------
(a) The Company shall indemnify and hold harmless each
Shareholder against any losses, claims, damages, liabilities and expenses, joint
or several, to which such Shareholder may be subject under the Securities Act or
otherwise insofar as such losses, claims, damages, liabilities or expenses (or
action or proceedings in respect thereof) arise out of or are based upon (i) any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which Registrable Securities were registered
under the Securities Act, any preliminary prospectus or final prospectus
included therein, or any amendment or supplement thereto, or any document
incorporated by reference therein, or (ii) any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and the Company will reimburse each such
Shareholder for any reasonable legal or other expenses reasonably incurred by
such Shareholder in connection with investigating or defending any such claim,
action or proceeding; provided that the Company shall not be liable in any such
--------
case to the extent that any such loss, claim, damage, liability or expense (or
action or proceeding in respect thereof) arises out of or is based upon an
-5-
<PAGE>
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, any such preliminary prospectus or final
prospectus, amendment or supplement in reliance upon and in conformity with
written information furnished to the Company by such Shareholder specifically
for inclusion therein.
(b) Each Shareholder shall indemnify and hold harmless (in
the same manner and to the same extent as set forth in clause (a) of this
Section 5) the Company, each director of the Company, each officer of the
Company who shall sign such registration statement, and each Person, if any, who
controls the Company within the meaning of the Securities Act, with respect to
any statement in or omission from such registration statement, any preliminary
prospectus or final prospectus included therein, or any amendment or supplement
thereto, if such statement or omission was made in reliance upon and in
conformity with written information furnished by such Shareholder to the Company
specifically for inclusion in such registration statement or prospectus.
(c) Any Shareholder, the Company and any other Person
entitled to indemnification hereunder will (i) give prompt written notice to the
indemnifying party of any claim with respect to which it seeks indemnification
and (ii) unless in such indemnified party's reasonable judgment a conflict of
interest between such indemnified and indemnifying parties may exist with
respect to such claim, permit such indemnifying party to assume the defense of
such claim with counsel reasonably satisfactory to the indemnified party. If
such defense is assumed, the indemnifying party will not be subject to any
liability for any settlement made by the indemnified party without the consent
of the indemnifying party (but such consent will not be unreasonably withheld).
An indemnifying party who is not entitled to, or elects not to, assume the
defense of a claim will not be obligated to pay the fees and expenses of more
than one counsel for all parties indemnified by such indemnifying party with
respect to such claim, unless in the reasonable judgment of any indemnified
party a conflict of interest may exist between such indemnified party and any
other of such indemnified parties with respect to such claim.
(d) No Shareholder shall be liable for indemnification or
contribution in connection with a registration effected pursuant to this
Agreement in an aggregate amount that exceeds the gross proceeds received by
such Shareholder in connection with such registration.
(e) If the indemnification provided for in this Section 5
is held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage or expense referred to
herein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable
-6-
<PAGE>
by such indemnified party as a result of such loss, liability, claim, damage or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue (or alleged untrue) statement of a material fact or the
omission (or alleged omission) to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
(f) The indemnification and contribution provided for
under this Agreement will remain in full force and effect regardless of any
investigation made by or on behalf of the indemnified party or any officer,
director or controlling Person of such indemnified party and will survive the
transfer of Registrable Securities by the Shareholders.
Section 6. Miscellaneous.
-------------
6.1 Governing Law. This Agreement shall be construed,
-------------
performed and enforced in accordance with, and governed by, the laws of the
State of New York, without giving effect to the principles of conflicts of laws
thereof.
6.2 Severability. In the event that any part of this
------------
Agreement is declared by any court or other judicial or administrative body to
be null, void or unenforceable, all of the other provisions of this Agreement
shall remain in full force and effect, and any such unenforceability in any
jurisdiction shall not render unenforceable such provision in any other
jurisdiction.
6.3 Notices. All notices, requests, demands and other
-------
communications under this Agreement shall be in writing and shall be effective
upon receipt. Such notices, requests, demands and communications shall be
addressed to the respective parties as follows:
-7-
<PAGE>
If to the Company:
Fine Host Corporation
3 Greenwich Office Park
Greenwich, Connecticut 06831
Telecopier No.: (203) 629-5089
Attention: Richard E. Kerley
If to the Shareholders:
Fine Host Corporation
3 Greenwich Office Park
Greenwich, Connecticut 06831
Telecopier No.: (203) 629-5089
Attention: Randy B. Spector
Any party may change its address for the purpose of this Section by giving the
other party written notice of its new address in the manner set forth above.
6.4 Amendments; Waivers. This Agreement may be amended or
-------------------
modified, and any of the terms, covenants or conditions hereof may be waived,
only by a written instrument executed by the parties hereto, or in the case of a
waiver, by the party waiving compliance. Any waiver by any party of any
condition, or of the breach of any provision, term or covenant contained in this
Agreement, in any one or more instances, shall not be deemed to be nor construed
as furthering or continuing waiver of any such condition, or of the breach of
any other provision, term or covenant of this Agreement.
6.5 Section and Paragraph Headings. The section and
------------------------------
paragraph headings in this Agreement are for reference purposes only and shall
not affect the meaning or interpretation of this Agreement.
6.6 Counterparts. This Agreement may be executed in
------------
counterparts, each of which shall be deemed an original, but all of which shall
constitute the same instrument.
6.7 Business Days. If the date on which any action to be
-------------
taken under this Agreement is to occur (including, but not limited to, the
delivery of notices) falls on a day which is not a Business Day, such action
will be deemed timely taken if taken on the first Business Day following.
6.8 Successors and Assigns. The registration rights
----------------------
pursuant to this Agreement shall not be assignable to any person without the
Company's prior written consent. In all other respects, this Agreement shall
inure to the benefit of, and be binding on, the successors and assigns of the
parties hereto.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of the date first above written.
FINE HOST CORPORATION
By:
------------------------
Name:
Title:
SHAREHOLDERS:
---------------------------
Richard E. Kerley
Number of Shares: _________
---------------------------
Randy B. Spector
Number of Shares: _________
---------------------------
Douglas M. Stabler
Number of Shares: _________
---------------------------
Randall K. Ziegler
Number of Shares: _________
-9-
EXHIBIT 11
<TABLE><CAPTION>
FISCAL YEAR ENDED DECEMBER
----------------------------------------------------------------
1993 1994 1995
------------------- ------------------ ------------------
Fully Fully Fully
Primary Diluted Primary Diluted Primary Diluted
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Income applicable to Common Stock $972 $972 $1,866 $1,866 $2,196 $2,196
Accretion to redemption value of warrants (230) (230) (250) (250) (900) (900)
-------- -------- -------- ------- ------- -------
Net income available to Common Stockholders $742 $742 $1,616 $1,616 $1,296 $1,296
======== ======== ======== ======= ======= =======
Average number of common shares outstanding(1) 2,048,200 2,048,200 2,048,200 2,048,200 2,048,200 2,048,200
Average convertible Preferred shares outstanding(2) 538,708 538,708 718,244 718,244 884,034 884,034
Assumed Conversion of:
$4.93 Warrants -- -- 125,866 179,702 193,394 211,588
$ .01 Warrants 500,589 500,589 333,837 333,884 166,959 166,959
$4.93 Options -- -- 4,566 6,519 7,906 8,650
$6.43 Options -- -- -- -- 6,796 10,441
$7.14 Options -- -- -- -- -- --
--------------------------------------------------------------------
3,087,497 3,087,497 3,230,713 3,286,549 3,307,289 3,329,902
========== ========= ========= ========= ========= =========
Earnings per Share $0.24 $0.24 $0.50 $0.49 $0.39 $0.39
========== ========= ========== ========= ========= =========
<CAPTION>
THREE MONTHS ENDED
-----------------------------
MARCH 29, 1995 MARCH 27, 1996
------------------ -----------------
Fully Fully
Primary Diluted Primary Diluted
------- ------- ------- -------
<S> <C> <C> <C> <C>
Income Applicable to Common Stock $208 $208 $259 $259
Accretion to redemption value of warrants (72) (72) (1,040) (1,040)
-------- -------- ------- -------
Net income (loss) available to Common Stockholders $136 $136 $(781) $(781)
======== ========= ======== =======
Average number of common shares outstanding(1)
Average convertible Preferred shares outstanding(2) 2,048,200 2,048,200 2,048,200 2,048,200
718,244 718,244 939,297 939,297
Assumed Conversion of:
$4.93 Warrants
$ .01 Warrants 195,785 211,016 364,755 442,870
$4.93 Options 166,949 166,956 -- --
$6.43 Options 7,102 7,655 14,911 18,104
$7.14 Options 2,859 5,567 41,126 56,775
-- -- -- 5,145
--------------------------------------------
3,139,139 3,157,638 3,408,289 3,510,391
========= ========= ========= =========
Earnings per Share $0.04 $0.04 $(0.23) $(0.22)
========= ========= ========= =========
</TABLE>
- --------------------
(1) Share and per share amounts have been restated to reflect the 7-for-1
stock split in the form of a stock dividend.
(2) Convertible preferred shares represent a common stock equivalent.
EXHIBIT 23.2
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Fine Host Corporation
We consent to the use in this Registration Statement of Fine Host Corporation on
Form S-1 of our report dated May 24, 1996 included in or made a part of this
Registration Statement, and to the reference to us under the headings "Selected
Consolidated Financial Data" and "Experts" in such Registration Statement.
Deloitte & Touche LLP
New York, New York
May 31, 1996
<PAGE>
EXHIBIT 23.2
(CONTINUED)
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Fine Host Corporation
We consent to the use in this Registration Statement of Fine Host Corporation on
Form S-1 of our report on the financial statements of Sun West Services, Inc.,
dated March 15, 1996 (March 25, 1996 as to the last paragraph of Notes 3 and 9)
included in or made a part of this Registration Statement, and to the reference
to us under the heading "Experts" in such Registration Statement.
Deloitte & Touche LLP
New York, New York
March 31, 1996
<PAGE>
EXHIBIT 23.2
(CONTINUED)
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Fine Host Corporation
We consent to the use in this Registration Statement of Fine Host Corporation on
Form S-1 of our report on the financial statements of Creative Food Management,
Inc., dated July 29, 1994 included in or made a part of this Registration
Statement, and to the reference to us under the heading "Experts" in such
Registration Statement.
Deloitte & Touche LLP
New York, New York
May 31, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE REGISTRANT'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER
31, 1995
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-27-1995
<PERIOD-END> DEC-27-1995
<CASH> 634
<SECURITIES> 0
<RECEIVABLES> 7,548
<ALLOWANCES> 0
<INVENTORY> 2,099
<CURRENT-ASSETS> 12,694
<PP&E> 21,540
<DEPRECIATION> 5,711
<TOTAL-ASSETS> 60,581
<CURRENT-LIABILITIES> 17,193
<BONDS> 0
0
1
<COMMON> 20
<OTHER-SE> 11,361
<TOTAL-LIABILITY-AND-EQUITY> 60,581
<SALES> 95,462
<TOTAL-REVENUES> 95,462
<CGS> 85,576
<TOTAL-COSTS> 85,576
<OTHER-EXPENSES> 3,626
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,479
<INCOME-PRETAX> 3,781
<INCOME-TAX> 1,585
<INCOME-CONTINUING> 2,196
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,196
<EPS-PRIMARY> .39
<EPS-DILUTED> .39
</TABLE>
