AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 19, 1996
REGISTRATION NO. 333-2906
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 3
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: / /
-------------------
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 19, 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.
[CAPTION]
<TABLE>
<S> <C> <C> <C> <C>
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]
FINE HOST
CORPORATION
[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 31 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>
- ------------
(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."
On May 31, 1996, one of the Company's customers filed for protection from
its creditors under Chapter 11 of the United States Bankruptcy Code. The client
had previously executed mortgages on its facility in favor of the Company to
secure its obligation to repay the unamortized amount of the Company's
investment in the facility, which was approximately $1.0 million as of May 31,
1996. The Company does not believe that the impact, if any, of the customer's
bankruptcy filing is likely to be material to the Company's consolidated
financial position or results of operations, although there can be no assurance
that such filing will not have a material adverse effect.
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 $31.3 million at
June 1, 1996, to repurchase outstanding warrants for an aggregate purchase price
of approximately $3.2 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 $24.2 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 $700,000. 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).
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
-------
-------
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 31 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
21
<PAGE>
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.
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.
The Company capitalizes certain directly attributable costs, primarily
direct payments to clients to acquire contracts and costs of licenses and
permits, in obtaining contracts with clients. The unamortized value of such
capitalized costs related to internally generated contacts was approximately
$8.2 million at December 27, 1995, consisting of costs related to 34 contracts.
The value of contract rights acquired through acquisitions has been determined
through independent valuation based on projected cash flows discounted at a rate
that market participants would use to determine fair value. The unamortized
value of contract rights acquired through acquisitions was approximately $4.7
million at December 27, 1995, consisting of rights relating to 65 contracts.
Generally, contracts acquired through acquisitons are smaller in size and
generate less annual cash flow than internally developed contracts. Sales
volume and related cash flows are typically larger for the internally generated
contracts.
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
------------------------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
- ------------------------------- ------- ------ ------- ------ ------- ------ ------- ------ ------- ------
<CAPTION>
<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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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.
In June 1996, the Amended Bank Agreement was further amended to increase
maximum borrowings thereunder to $35.0 million by increasing the Working Capital
Line to $10.9 million and the Guidance Line to $14.0 million.
As of June 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. The Company's obligations under the revised credit facility are
expected to be collateralized by a pledge of shares of the common stock or other
equity interests of the Company's subsidiaries, as well as 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.
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
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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.
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.
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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 31 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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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 31 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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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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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 June 1, 1996, the Company provided contract food service
management at 197 locations, including 74 recreation and leisure facilities, 24
convention centers, 54 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 June 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:
RECREATION AND LEISURE
Allen County War Memorial Complex
(Fort Wayne, IN)(3)
Arizona State University Athletic Facilities
(Tempe, AZ)(6)
Battle Creek Complex (Battle Creek, MI)(3)
Bell County Expo Center (Belton, TX)
Boy Scouts of America (Cimmeron, NM )
B.S.A. Camp Lawton (Mt. Lemmon, AZ)
Camp Elliott Barker (Eagle Nest, NM)
Camp Of The Tall Pines (Cloudcroft, NM)
Camp Shaver (Jemez Springs, NM)
Charleston Civic Center Complex
(Charleston, WV)(3)
Cimmarroncita Ranch Camp for Girls (Ute Park, NM)
City of Palms Park (Fort Myers, FL)
Concord Pavilion (Concord, CA)
Coral Sky Amphitheater (West Palm Beach, FL)
Dutchess County Stadium
(Wappingers Falls, NY)
Ft. Worth/Tarrant County Convention Center
(Fort Worth, TX)
Great Woods Center for the Performing Arts
(Mansfield, MA)
Joe Robbie Stadium (Miami, FL)
King Richard's Faire (Carver, MA)
Lackawanna Coal Mine Tour (Scranton, PA)
Lackawanna County Stadium (Scranton, PA)
Les Bois Racetrack (Boise, ID)
Louisiana Purchase Gardens and Zoo (Monroe, LA)
Lucas County Recreational Center Facilities
(Maumee, OH)(4)
Montage Mountain (Moosic, PA)
Montlure Camping Council (Greer, AZ)
Northwestern University Athletic Facilities
(Evanston, IL)(3)
Onondaga County--War Memorial, Mulroy Civic Center
(Syracuse, NY)(2)
Oregon Coast Aquarium (Newport, OR)
Orpheum Theater (Boston, MA)
Palace Theater (Louisville, KY)
Palmer Auditorium (Austin, TX)(2)
Plainfield Greyhound Park (Plainfield, CT)
Port of Seattle (Seattle, WA)
Portland Center for the Performing Arts (Portland, OR)
Portland Civic Stadium & Expo Center
(Portland, OR)(2)
Pyramid Arena (Memphis, TN)
Rancho Del Chaparral Girl Scout Camp (Cuba, NM)
Rice University Athletic Facilities
(Houston, TX)(2)
Sioux City Convention Center Complex
(Sioux City, IA)(3)
South Commons Complex (Columbus, GA)(3)
Springfield Civic Center & Symphony Hall
(Springfield, MA)(2)
Tulsa Convention Center Complex
(Tulsa, OK)
Twin City Queen (Monroe, LA)
University of Minnesota Athletic Facilities
(Minneapolis, MN) (3)
Western Idaho Fairgrounds
(includes Expo Building) (Boise, ID)(2)
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CONVENTION CENTERS
Albuquerque Convention Center
(Albuquerque, NM)
Allen County War Memorial Coliseum
(Fort Wayne, IN)
Arlington Convention Center (Arlington, TX)
Austin Convention Center (Austin, TX)
Bayside Exposition Center (Dorchester, MA)
Charleston Civic Center (Charleston, WV)
Columbus Georgia Convention and Trade Center
(Columbus, GA)
Dayton Convention Center (Dayton, OH)
Des Moines Convention Center (Des Moines, IA)
El Paso Convention Center & Performing Arts Center
(El Paso, TX)
Ft. Worth/Tarrant County Convention Center
(Fort Worth, TX)
Lansing Center (Lansing, MI)
Lawrence Convention Center (Pittsburgh, PA)
M.C. Benton Jr. Convention & Civic Center
(Winston-Salem, NC)
Monroe Civic Center (Monroe, LA)
Onondaga County--ON Center (Syracuse, NY)
Orange County Convention/Civic Center (Orlando, FL)
Oregon Convention Center (Portland, OR)
Queen Sirikit National Convention Center
(Bangkok, Thailand)
Sioux City Convention Center (Sioux City, IA)
Tulsa Convention Center (Tulsa, OK)
Virginia Beach Pavilion (Virginia Beach, VA)
Wisconsin Center (Milwaukee, WI)
World Trade Center Boston (Boston, MA)
EDUCATION
COLLEGES
Albertson College (Caldwell, ID)
Brevard Community College (Melbourne, FL)(2)
College of the Siskiyous (Weed, CA)
College of Southern Idaho (Twin Falls, ID)
DeKalb College (Clarkston, GA)
Evergreen State College (Olympia, WA)
Huston-Tillotson College (Austin, TX)
Lassen College (Susanville, CA)
Northwest College (Powell, WY)
Morris Brown College (Atlanta, GA)
Mt. Hood Community College (Gresham, OR)
Navajo Community College (Shiprock, NM)
Navajo Community College (Tsaile, AZ)
Philander Smith College (Little Rock, AR)
Pierce College (Tacoma, WA)
St. Edward's University (Austin, TX)
San Juan College (Farmington, NM)
Siena Heights College (Adrian, MI)
Southwestern Indian Polytechnic Institute
(Albuquerque, NM)
Tacoma Community College (Tacoma, WA)
Treasure Valley Community College (Ontario, OR)
Wayne State University (Detroit, MI)
Wenatchee Valley College (Wenatchee, WA)
Westminster College (Salt Lake City, UT)
Xavier University (New Orleans, LA)
PUBLIC AND PRIVATE SCHOOLS
Archuleta School District #50
(Pagosa Springs, CO)
Boysville of Michigan (Clinton, MI)
Blue Ridge School District (Lakeside, AZ)
Buckeye Union High School (Buckeye, AZ)
Casa Grande Union High School
(Casa Grande, AZ)
Cedar Unified School District
(Keams Canyon, AZ)
Eunice Public School (Eunice, NM)
Ganado Public School (Ganado, AZ)
Hayden-Winkelman Schools (Winkelman, AZ)
Ignacio Public Schools (Ignacio, CO)
Kayenta Unified School District (Kayenta, AZ)
Marana Public Schools (Marana, AZ)
McNary Schools (McNary, AZ)
Miami School District (Miami, AZ)
Navajo Preparatory School (Farmington, NM)
Pinon Unified School District (Pinon, AZ)
Pojoaque Valley Schools (Santa Fe, NM)
Red Mesa School District (Teec Nos Pos, AZ)
St. Francis High School (Toledo, OH)
St. John's High School (Toledo, OH)
St. Michael's Catholic School (St. Michaels, AZ)
St. Michael's High School (Santa Fe, NM)
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)
CORPORATE DINING
Allied Signal, Inc.(Perrysburg, OH)
Blue Cross of Washington (Mountlake Terrace, WA)
Carl D. Perkins Rehabilitation Center (Thelma, KY)
Chrysler Corporation Toledo Plant
(Perrysburg, OH)
Dana Corp. (Toledo, OH)
Dana Tech Center (Ottawa Lake, MI)
Data I/O Corporation (Redmond, WA)
Ford Motor Company, Inc. (Maumee, OH)
Frank Russell Co. (Tacoma, WA)
General Motors Corporation (Defiance, OH)
Greenwich Office Park (Greenwich, CT)
Holnam, Inc. (Dundee, MI)
J.R. Simplot Company, Inc. (Caldwell, ID)
King County Medical Examiners Office (Seattle, WA)
KIRO, Inc. (Seattle, WA)
Lane, Powell, Spears, Lubersky (Seattle, WA)
Libbey-Owens-Ford Co., Inc. (Toledo, OH)(2)
Ore-Ida Foods, Inc. (Boise, ID)
Pierce County Medical Center (Tacoma, WA)
Trinova Corporation (Maumee, OH)
Univar Corporation (Kirkland, WA)
Whirlpool Corporation (Clyde, OH)
35
<PAGE>
OTHER
Apache County Jail (St. Johns, AZ)
Chaves County Detention Center (Roswell, NM)
Colfax County Jail (Raton, NM)
Curry County Jail (Clovis, NM)
Devereux-Santa Barbara (Goleta, CA)
Devereux-Scottsdale (Scottsdale, AZ)
Dona Ana County Jail (Las Cruces, NM)
Gila County Jail (Globe, AZ)
Golden Plains Community Hospital (Borger, TX)
Graham County Jail (Safford, AZ)
Gray County Jail (Pampa, TX)
Holy Cross Hospital (Taos, NM)
LaPaz County Jail (Parker, AZ)
Navajo County Jail (Holbrook, AZ)
New Mexico Youth Diagnostic and Development Center
(Albuquerque, NM)
Otero County Detention Center (Alamogordo, NM)
Pinal County Jail (Florence, AZ)
Quay County Detention Center (Tucumcari, NM)
Sandoval County Detention (Bernalillo, NM)
Santa Cruz County Jail (Nogales, AZ)
Sequoyah Treatment Center (Albuquerque, NM)
Springer Boys' School (Springer, NM)
Winslow City Jail (Winslow, AZ)
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 June 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 June 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 June 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>
On May 31, 1996, one of the Company's customers filed for protection from
its creditors under Chapter 11 of the United States Bankruptcy Code. The client
had previously executed mortgages on its facility in favor of the Company to
secure its obligation to repay the unamortized amount of the Company's
investment in the facility, which was approximately $1.0 million as of May 31,
1996. The Company does not believe that the impact, if any, of the customer's
bankruptcy filing is likely to be material to the Company's consolidated
financial position or results of operations, although there can be no assurance
that such filing will not have a material adverse effect.
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
37
<PAGE>
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 (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 June 1, 1996, the Company had 398 full-time salaried employees,
including 241 in operations, 134 in administration and 23 in sales. During May
1996, approximately 7,000 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 June 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.
38
<PAGE>
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 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)...................... 48 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 38,338
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 June 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.
44
<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,
$77,412 and $34,618 and having outstanding principal amounts of $81,995, $74,208
and $32,796 as of June 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 June 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.
45
<PAGE>
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.
46
<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.
47
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with regard to the
beneficial ownership of the Common Stock as of June 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%.
48
<PAGE>
(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 $700,000. 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.
49
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company currently consists of 25,000,000
shares of Common Stock, par value $.01 per share, 250,000 shares of Non-Voting
Common Stock, par value $.01 per share, 250,000 shares of Series A Convertible
Preferred Stock, par value $.01 per share and 1,000,000 additional shares of
Preferred Stock, par value $.01 per share. As of June 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
50
<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 $700,000. 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)).
51
<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
52
<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.
NUMBER OF
UNDERWRITERS SHARES
- ---------------------------------------------------------------- ---------
Montgomery Securities...........................................
Oppenheimer & Co., Inc..........................................
---------
Total....................................................... 4,030,000
---------
---------
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-3
Consolidated Balance Sheets as of December 28, 1994 and December 27, 1995.......... F-4
Consolidated Statements of Income for the fiscal years ended December 29, 1993,
December 28, 1994 and December 27, 1995........................................... F-5
Consolidated Statements of Stockholders' Equity for the fiscal years ended December
29, 1993, December 28, 1994 and December 27, 1995................................ F-6
Consolidated Statements of Cash Flows for the fiscal years ended December 29, 1993,
December 28, 1994 and December 27, 1995........................................... F-7
Notes to Consolidated Financial Statements......................................... F-8
Consolidated Balance Sheets as of December 27, 1995 and March 27, 1996
(unaudited)....................................................................... F-23
Unaudited Consolidated Statements of Income for the three months ended March 29,
1995 and March 27, 1996........................................................... F-24
Unaudited Consolidated Statements of Stockholders' Equity for the three months
ended March 29, 1995 and March 27, 1996.......................................... F-25
Unaudited Consolidated Statements of Cash Flows for the three months ended March
29, 1995 and March 27, 1996...................................................... F-26
Notes to Unaudited Consolidated Financial Statements............................... F-27
SUN WEST SERVICES, INC.
Independent Auditors' Report....................................................... F-31
Balance Sheets as of December 31, 1994 and 1995.................................... F-32
Statements of Operations for the fiscal years ended
December 31, 1993, 1994 and 1995................................................. F-33
Statements of Stockholders' Equity (Capital Deficiency) for the fiscal years ended
December 31, 1993, 1994 and 1995.................................................. F-34
Statements of Cash Flows for the fiscal years ended December 31, 1993, 1994 and
1995.............................................................................. F-35
Notes to Financial Statements...................................................... F-36
Balance Sheets as of December 31, 1995 and March 25, 1996 (unaudited).............. F-42
Unaudited Statements of Operations for the three months ended March 31, 1995 and
March 25, 1996.................................................................... F-43
Unaudited Statements of Cash Flows for the three months ended
March 31, 1995 and March 25, 1996................................................ F-44
Notes to Unaudited Financial Statements............................................ F-45
CREATIVE FOOD MANAGEMENT, INC.
Independent Auditors' Report....................................................... F-47
Consolidated Balance Sheet as of December 31, 1993................................. F-48
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
Statement of Operations for the fiscal year ended December 31, 1993................ F-49
Statement of Cash Flows for the fiscal year ended December 31, 1993................ F-50
Notes to Financial Statements...................................................... F-51
Consolidated Balance Sheets as of December 31, 1993 and July 1, 1994 (unaudited)... F-56
Unaudited Consolidated Statements of Operations for the six months ended July 2,
1993 and July 1, 1994............................................................ F-57
Unaudited Consolidated Statements of Cash Flows for the six months ended July 2,
1993 and July 1, 1994............................................................ F-58
Notes to Unaudited Financial Statements............................................ F-59
</TABLE>
F-2
<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-3
<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
----------------- -----------------
ASSETS
<S> <C> <C>
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-4
<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-5
<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-6
<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-7
<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. The unamortized value of such capitalized costs was $8,155
at December 27, 1995, consisting of costs related to 34 contracts. Contract
rights are being amortized over a range of 3 to 20 years, with an average
amortization period of 8 years as of December 27, 1995. 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 cash flows discounted at a rate that
market participants would use to determine fair value and is being amortized
over the projected lives as determined through the valuation process, with an
average amortization period of 10 years as of December 27, 1995. The
unamortized value of contract rights acquired through acquisitions was $4,711
at December 27, 1995, consisting of rights relating to 65 contracts.
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 over the remaining amortization period, on an
undiscounted basis, will be less than the carrying amount of the asset,
plus allocated goodwill if acquired in a business combination. 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 discounted at a rate that market participants would
use to determine fair value.
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-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)
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
-----------------------------
<S> <C> <C> <C>
1993 1994 1995
------- ------- -------
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-9
<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-10
<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
----------------------------
<S> <C> <C>
DECEMBER 28, DECEMBER 27,
1994 1995
------------ ------------
<CAPTION>
<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-11
<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-12
<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:
YEAR ENDING AMOUNT
- --------------------------------------------------------- -------
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
-------
-------
Interest paid on long-term debt was $447, $639 and $1,645 for fiscal 1993,
1994 and 1995, respectively.
F-13
<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-14
<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:
YEAR ENDING AMOUNT
- --------------------------------------------------------- -------
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
-------
-------
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-15
<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:
SHARES
-------
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
-------
-------
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-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)
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-17
<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-18
<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:
YEAR ---------------------------------------------------- AMOUNT
-------
1996..................................................... $ 3,098
1997..................................................... 2,921
1998..................................................... 1,807
1999..................................................... 791
2000..................................................... 666
Thereafter............................................... 1,198
-------
Total.............................................. $10,481
-------
-------
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-19
<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-20
<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-21
<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-22
<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-23
<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-24
<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-25
<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-26
<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-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)
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:
THREE MONTHS ENDED
-------------------------
MARCH 29, MARCH 27,
1995 1996
--------- ---------
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)
3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consists of the following:
DEC. 27, MARCH 27,
1995 1996
-------- ---------
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
-------- ---------
-------- ---------
4. LONG-TERM DEBT
Long-term debt consists of the following:
DEC. 27, MARCH 27,
1995 1996
-------- ---------
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
-------- ---------
-------- ---------
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-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)
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-29
<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-30
<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-31
<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-32
<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-33
<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-34
<PAGE>
SUN WEST SERVICES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
<S> <C> <C> <C>
1993 1994 1995
----- ---- -----
<CAPTION>
<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-35
<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-36
<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:
1993 1994 1995
------- ------- -------
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
------- ------- -------
------- ------- -------
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:
1994 1995
---- ----
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
---- ----
---- ----
F-37
<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:
1994 1995
---- ----
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
---- ----
---- ----
F-38
<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:
1996................................................................. $48
1997................................................................. 16
1998................................................................. 8
1999................................................................. 3
---
Total.......................................................... $75
---
---
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-39
<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:
1996................................................................. $12
1997................................................................. --
---
Total............................................................ $12
---
---
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-40
<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-41
<PAGE>
SUN WEST SERVICES, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 25,
1995 1996
------------ ---------
(UNAUDITED)
ASSETS
<S> <C> <C>
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-42
<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-43
<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-44
<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-45
<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:
1997.................................................................. $ 6
1998.................................................................. 1
---
Total............................................................. $ 7
---
---
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-46
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Creative Food Management, Inc.
Toledo, Ohio
We have audited the accompanying consolidated balance sheet 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-47
<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-48
<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-49
<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-50
<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-51
<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:
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
------
------
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-52
<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:
Organization costs.................................................. $240
Financing costs..................................................... 50
----
290
Less accumulated amortization....................................... 66
----
Total............................................................. $224
----
----
Other assets consist of the following:
Contracts, net accumulated amortization of $202..................... $556
Non-compete agreements, net of accumulated amortization of $78...... 42
Other............................................................... 75
----
Total............................................................. $673
----
----
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:
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
-----
-----
Annual maturities of long-term debt are as follows:
1994................................................................ $ 182
1995................................................................ $ 162
1996................................................................ $ 154
1997................................................................ $ 105
F-53
<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:
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
-----
-----
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 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.
F-54
<PAGE>
CREATIVE FOOD MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
8. COMMITMENTS--(CONTINUED)
The following is a schedule, by year, of non-cancelable operating lease
payments due as of December 31, 1993:
1994.............................................................. $102
1995.............................................................. 44
1996.............................................................. 19
1997.............................................................. 4
----
Total............................................................. $169
----
----
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-55
<PAGE>
CREATIVE FOOD MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, 1993 JULY 1, 1994
----------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash.......................................................... $ 176 $ 519
Accounts receivable........................................... 718 315
Notes receivable.............................................. -- 41
Inventories................................................... 500 563
Prepaid expenses and other current assets..................... 22 21
------- ------------
Total current assets...................................... 1,416 1,459
Fixtures and equipment, net..................................... 3,562 2,888
Notes receivable................................................ -- 123
Assets held for sale............................................ 327 117
Deferred costs.................................................. 224 234
Other assets.................................................... 673 277
------- ------------
Total assets.............................................. $ 6,202 $ 5,098
------- ------------
------- ------------
LIABILITIES AND STOCKHOLDERS'
CAPITAL DEFICIENCY
Current liabilities:
Accounts payable.............................................. $ 3,298 $ 3,260
Accrued expenses and other current liabilities................ 1,385 1,616
Current portion of long-term debt............................. 182 437
Note payable.................................................. 1,807 1,094
------- ------------
Total current liabilities................................. 6,672 6,407
Long-term debt.................................................. 421 312
Commitments
Stockholders' capital deficiency:
Common stock, no par value, 100 shares authorized, 80 shares
issued and outstanding....................................... 300 300
Deficit....................................................... (1,191) (1,921)
------- ------------
Total stockholders' capital deficiency.................... (891) (1,621)
------- ------------
Total liabilities and stockholders' capital
deficiency............................................. $ 6,202 $ 5,098
------- ------------
------- ------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-56
<PAGE>
CREATIVE FOOD MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------
JULY 2, 1993 JULY 1, 1994
------------ ------------
<S> <C> <C>
(UNAUDITED)
Net sales............................................................ $ 11,555 $ 10,424
Cost of sales........................................................ 11,385 9,943
------------ ------------
Gross profit......................................................... 170 481
General and administrative expenses.................................. 1,541 1,107
Loss from operations................................................. (1,371) (626)
Interest expense..................................................... 161 104
------------ ------------
Net loss............................................................. $ (1,532) $ (730)
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-57
<PAGE>
CREATIVE FOOD MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------
JULY 2, 1993 JULY 1, 1994
------------ ------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................................... $ (1,532) $ (730)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization.................................... 262 172
Changes in operating assets and liabilities:
Accounts receivable.............................................. 493 402
Notes receivable................................................. (164)
Inventories...................................................... 69 (63)
Prepaid expenses and other current assets........................ (42) 386
Accounts payable................................................. (47) (37)
Accrued expenses and other current liabilities................... 204 178
------------ ------
Net cash provided by (used in) operating activities................ (593) 144
Cash flows from investing activities:
Property and equipment............................................. (648) --
Cash proceeds from sale of business units.......................... 1,730 768
------------ ------
Net cash provided by investing activities.......................... 1,082 768
Cash flows from financing activities:
Borrowings under long term debt.................................... 852 145
Repayment of notes payable......................................... (1,395) (714)
------------ ------
Net cash used in financing activities.............................. (543) (569)
------------ ------
Increase (decrease) in cash.......................................... (54) 343
Cash, beginning of year.............................................. 253 176
------------ ------
Cash, end of year.................................................... $ 199 $ 519
------------ ------
------------ ------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-58
<PAGE>
CREATIVE FOOD MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JULY 2, 1993 AND JULY 1, 1994
(IN THOUSANDS)
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 six months ended July 2,
1993 and July 1, 1994. 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, 1993.
Effective June 18, 1993, December 10, 1993 and April 18, 1994, the Company
sold portions of the assets of Canteen, an operator of vending machines, for a
total of $959.
2. SALE OF CREATIVE FOOD MANAGEMENT, INC.
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.
3. ASSETS HELD FOR SALE
Assets held for sale ($327 and $117) consists of property and equipment
which was sold (April 1994 and September 1994, respectively), in connection with
the sale of an insignificant portion of the Company's business.
4. NOTES RECEIVABLE
In February 1994, in connection with the sale of a segment of the business,
the Company received a five year, $100 non-interest bearing note receivable.
Payments are due in five equal installments. The balance due as of July 1, 1994
is $100, $80, of which is classified as long term.
In 1993 the Company received a note receivable in connection with the sale
of a segment of the business. The note is non-interest bearing from April 1,
1993, through March 1, 1994, at which time interest is charged at prime plus 2%
adjusted quarterly. Monthly principal and interest payments of $2 are required
with any remaining balance due September 1, 1997. The sales agreement provides
for a reduction in the value of the note in the event of certain occurrences. In
May 1994, the parties agreed to reduce the value of the note by $25, which has
been reflected in the balance as of July 1, 1994. The balance due as of July 1,
1994 is $64, of which $43 is classified as long term.
5. 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. Borrowings under this
agreement were $1,094 at July 1, 1994. The line of credit is secured by accounts
F-59
<PAGE>
CREATIVE FOOD MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE SIX MONTHS ENDED JULY 2, 1993 AND JULY 1, 1994
(IN THOUSANDS)
5. NOTE PAYABLE--(CONTINUED)
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 July 1, 1994, 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 2.
6. 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 on a minimum rental with
certain leases providing for additional rentals based upon a percentage of sales
of income as specified in the lease agreements.
The following is a schedule, by year, of non-cancelable operating lease
payments due as of July 1, 1994:
1994......................... 51
1995......................... 44
1996......................... 19
1997......................... 3
----
Total.................... $117
----
----
Rental expense was $100 for the six months ended July 1, 1997.
The Company pledges financial support and commits to providing capital
improvements at certain universities where it provides food service. As of July
1, 1994, 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 July 1, 1994.
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 July 1, 1994.
F-60
<PAGE>
- ------------------------------------------ -----------------------------------
========================================== ===================================
No dealer, salesman or other person is
authorized to give any information or to make 4,030,000 SHARES
any representation in connection with this
offering not contained in this Prospectus, and
any information or representation not
contained herein must not be relied upon as [LOGO]
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 FINE HOST CORPORATION
the shares of 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. COMMON STOCK
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.
---------------------
TABLE OF CONTENTS
---------------------
Page
----
Prospectus Summary.................... 3 ----------------
PROSPECTUS
----------------
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
Management's Discussion and Analysis
of
Financial Condition and Results of
Operations............................ 21
Business.............................. 29 MONTGOMERY SECURITIES
Management............................ 40
Certain Transactions.................. 45 OPPENHEIMER & CO., INC.
Principal and Selling Stockholders.... 48
Description of Capital Stock.......... 50
Shares Eligible for Future Sale....... 54
Underwriting.......................... 56 , 1996
Legal Matters......................... 57
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. 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:
AMOUNT
----------
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
----------
----------
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.
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.
II-3
<PAGE>
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.
*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.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------------------------
<C> <S>
*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(a) Second Amended and Restated Loan Agreement, dated as of April 24, 1995, among
the Company, as borrower, its Subsidiaries and USTrust, The Daiwa Bank
Limited, NBD Bank and State Street Bank and Trust Company.
*10.13(b) First Amendment to Second Amended and Restated Loan Agreement, dated as of
August 1, 1995.
*10.13(c) Second Amendment to Second Amended and Restated Loan Agreement, dated as of
August 24, 1995.
*10.13(d) Third Amendment to Second Amended and Restated Loan Agreement, dated as of
January 16, 1996.
*10.13(e) Fourth Amendment to Second Amended and Restated Loan Agreement, dated as of
March 22, 1996.
10.13(f) Fifth Amendment to Second Amended and Restated Loan Agreement, dated as of
June 5, 1996.
*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.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------------------------
<C> <S>
*10.28 Form of Registration Rights Agreement by and among the Company and Messrs.
Kerley, Spector, Ziegler and Stabler.
10.29 Form of Third Amended and Restated Loan Agreement.
*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.
(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
June 17, 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 June 17, 1996
.................................... Officer and Director (Principal
Richard E. Kerley Executive Officer)
/s/ NELSON A. BARBER Senior Vice President and Chief June 17, 1996
.................................... Financial Officer (Principal
Nelson A. Barber Financial and Accounting Officer)
* Executive Vice President and June 17, 1996
.................................... Director
Randall K. Ziegler
* Chairman of the Board of Directors June 17, 1996
....................................
William R. Berkley
* Director June 17, 1996
....................................
Andrew M. Bursky
* Director June 17, 1996
....................................
Catherine B. James
* Director June 17, 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(a) Second Amended and Restated Loan Agreement, dated as of April 24,
1995, among the Company, as borrower, its Subsidiaries and USTrust,
The Daiwa Bank Limited, NBD Bank and State Street Bank and Trust
Company.
*10.13(b) First Amendment to Second Amended and Restated Loan Agreement,
dated as of August 1, 1995.
*10.13(c) Second Amendment to Second Amended and Restated Loan Agreement,
dated as of August 24, 1995.
*10.13(d) Third Amendment to Second Amended and Restated Loan Agreement,
dated as of January 16, 1996.
*10.13(e) Fourth Amendment to Second Amended and Restated Loan Agreement,
dated as of March 22, 1996.
10.13(f) Fifth Amendment to Second Amended and Restated Loan Agreement,
dated as of June 5, 1996.
*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.
10.29 Form of Third Amended and Restated Loan Agreement
*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.
EXHIBIT 10.13(F)
FIFTH AMENDMENT TO
SECOND AMENDED AND RESTATED LOAN AGREEMENT
This FIFTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AGREEMENT (this
"Fifth Amendment") is entered into as of this 5th day of June, 1996, by and
---------------
among (a) FINE HOST CORPORATION, a Delaware corporation, with its principal
place of business and chief executive office at 3 Greenwich Office Park,
Greenwich, Connecticut 06831 (the "Borrower"), (b) FINE HOST SERVICES
--------
CORPORATION, a Delaware corporation, which is a wholly-owned subsidiary of the
Borrower, and whose principal place of business is at 3 Greenwich Office Park,
Greenwich, Connecticut 06831 ("Fine Host Services"), (c) FINE HOST OF VERMONT,
------------------
INC., a Vermont corporation, which is a wholly-owned subsidiary of the Borrower,
and whose principal place of business is at 255 Maple Street, Stowe, Vermont
05672 ("Fine Host of Vermont"), (d) FANFARE, INC., a Massachusetts corporation,
--------------------
which is a wholly-owned subsidiary of the Borrower, and whose principal place of
business is at 797 Turnpike Street, North Andover, Massachusetts 01845
("Fanfare"), (e) GLOBAL FANFARE, INC., an Indiana corporation, which is a
-------
wholly-owned subsidiary of the Borrower, and whose principal place of business
is at 4000 Parnell Avenue, Fort Wayne, Indiana 46805 ("Global Fanfare"), (f)
--------------
FINE HOST INTERNATIONAL CORPORATION, a Delaware corporation, which is a wholly-
owned subsidiary of the Borrower, and whose principal place of business is at 3
Greenwich Office Park, Greenwich, Connecticut 06831 ("Fine Host International"),
-----------------------
(g) CREATIVE FOOD MANAGEMENT, INC., an Ohio corporation (formerly known as VGE
Acquisition Corp.), which is a wholly-owned subsidiary of the Borrower, and
whose principal place of business is at 6061 Telegraph Road, Suite MM, Toledo,
Ohio 43612 ("CFM"), (h) NORTHWEST FOOD SERVICE, INC., an Idaho corporation which
---
is a wholly-owned subsidiary of the Borrower, and whose principal place of
business is at 305 East 37th Street, Boise, Idaho 83714 ("Northwest"), (i)
---------
TARRANT COUNTY CONCESSIONS, L.L.C., a Texas limited liability company, with its
principal place of business located at 100 Congress Avenue, Suite 1100, Austin,
Texas 78746 ("Tarrant County"), (j) SUN WEST SERVICES, INC., a New Mexico
--------------
corporation, which is a wholly-owned subsidiary of the Borrower, and whose
principal place of business is at 19 West Alameda Drive, Suite No. 101, Tempe,
Arizona 85282 ("SWSI"), (k) USTRUST, a Massachusetts trust company, having an
----
office at 30 Court Street, Boston, Massachusetts 02108 (acting for itself,
"UST"), (l) USTRUST, a Massachusetts trust company, having an office at 30 Court
---
Street, Boston, Massachusetts 02108 (acting as agent for the Banks, including
itself, the "Agent"), (m) THE SUMITOMO BANK, LIMITED, a Japanese bank, having an
-----
office at 233 South Wacker Drive, Chicago, Illinois 60606 ("Sumitomo"), (n)
--------
STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company, having an
office at 225 Franklin Street, Boston, Massachusetts 02110 ("SSB"), (o) BANK OF
---
BOSTON CONNECTICUT, a Connecticut bank, having an office at One Landmark Square,
Suite 2002, Stamford, Connecticut 06901 ("BBC") and (p) THE BANK OF NEW YORK,
---
a New York bank, having an office at 530 Fifth Avenue, New York, New York 10036
("BNY").
---
All capitalized terms not defined herein but defined in a certain Second
Amended and Restated Loan Agreement, dated as of April 24, 1995, by and among
the Borrower, certain Subsidiaries of the Borrower, UST, The Daiwa Bank,
Limited, a Japanese bank ("Daiwa"), NBD Bank, a Michigan banking corporation
-----
("NBD"), SSB (UST, Daiwa, NBD and SSB are hereinafter sometimes referred to
---
collectively as the "Original Banks") and the Agent, as amended by (a) a certain
--------------
First Amendment to Second Amended and Restated Loan Agreement, dated as of
<PAGE>
August 1, 1995, by and among the Borrower, certain Subsidiaries of the Borrower,
the Original Banks and the Agent, (b) a certain Second Amendment to Second
Amended and Restated Loan Agreement, dated as of August 24, 1995, by and among
the Borrower, certain Subsidiaries of the Borrower, the Original Banks and the
Agent, (c) a certain Third Amendment to Second Amended and Restated Loan
Agreement, dated as of January 16, 1996, by and among the Borrower, certain
Subsidiaries of the Borrower, the Original Banks and the Agent, and (d) a
certain Fourth Amendment to Second Amended and Restated Loan Agreement, dated as
of March 22, 1996, by and among the Borrower, certain Subsidiaries of the
Borrower, UST, Sumitomo as assignee of Daiwa, NBD, SSB and the Agent (as so
amended, and as the same may hereafter be further amended, the "Loan Agreement")
--------------
shall have the meanings ascribed to them in the Loan Agreement.
Preliminary Statements:
----------------------
A. Pursuant to the terms and conditions of the Loan Agreement and the
other Loan Documents, UST, Sumitomo, NBD and SSB made, or agreed to make,
certain Loans to, and for the benefit of, the Borrower and the Subsidiaries, in
an aggregate principal amount of up to Thirty-Two Million Five Hundred Thousand
and 00/100 Dollars ($32,500,000.00); and
B. NBD has assigned to BBC, and BBC has accepted from NBD Fifty Percent
(50%) of all of the rights, title, interests and obligations of NBD under the
Loan Documents; and
C. NBD has also assigned to BNY, and BNY has accepted from NBD the
remaining Fifty Percent (50%) of all of the rights, title, interests and
obligations of NBD under the Loan Documents; and
D. The Borrower and the Subsidiaries now request that UST, Sumitomo, SSB,
BBC and BNY (hereinafter sometimes referred to collectively as the "Banks"):
-----
(i) increase the aggregate principal amount available under the
Working Capital Line from Nine Million Four Hundred Twenty-Five Thousand
and 00/100 Dollars ($9,425,000.00) to Ten Million Nine Hundred Twenty-Five
Thousand and 00/100 Dollars ($10,925,000.00); and
(ii) increase the aggregate principal amount available under the
Guidance Line of Credit from Thirteen Million and 00/100 Dollars
($13,000,000.00) to Fourteen Million and 00/100 Dollars ($14,000,000.00);
whereupon the aggregate principal amount of all of the Loans committed to the
Borrower and its Subsidiaries will become Thirty-Four Million Six Hundred Fifty
Thousand and 00/100 Dollars ($34,650,000.00) as of the date hereof; and
- 2 -
<PAGE>
E. The Banks are not willing to increase the aggregate principal amount
available under the Working Capital Line and under the Guidance Line of Credit,
as so requested by the Borrower and its Subsidiaries, unless and until the
Borrower and each of the Subsidiaries have entered into and agreed to all of the
terms and conditions of this Fifth Amendment, which further amends and modifies
the Loan Agreement; and
F. The parties hereto agree that upon execution and delivery of this
Fifth Amendment by all of the parties hereto, (i) UST shall have a Twenty-Five
and 00/100 Percent (25%) interest in the Loans, (ii) Sumitomo shall have a
Twenty-Five and 00/100 Percent (25%) interest in the Loans, (iii) SSB shall have
a Twenty-Five and 00/100 Percent (25%) interest in the Loans, (iv) BBC shall
have a Twelve and 50/100 Percent (12.5%) interest in the Loans, and (v) BNY
shall have a Twelve and 50/100 Percent (12.5%) interest in the Loans;
NOW, THEREFORE, in consideration of the mutual agreements and covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, all of the parties hereto agree as
follows:
1. Assignments to BBC and BNY. The Borrower and each of Fine Host
--------------------------
Services, Fine Host of Vermont, Fanfare, Global Fanfare, Fine Host
International, CFM, Northwest, Tarrant County and SWSI, hereby acknowledges and
agrees that each of BBC and BNY now holds, by assignments, a Fifty Percent (50%)
interest in all of the rights, title, interests of NBD and obligations of NBD
under the Loan Documents; the Borrower and each of Fine Host Services, Fine Host
of Vermont, Fanfare, Global Fanfare, Fine Host International, CFM, Northwest,
Tarrant County and SWSI further acknowledges, ratifies and confirms, and agrees
to observe and perform for the benefit of BBC and BNY, each obligation and
liability of such person, as described in the Loan Documents to which such
person is a signatory or by which such person is bound, as though each of BBC
and BNY had been named instead of NBD in each of the Loan Documents; and
represents, warrants and covenants that all of the Loan Documents are the legal,
valid and binding obligations of each of them to the extent that each of them is
a party thereto. All references contained in the Loan Documents to "NBD Bank,"
or "NBD" shall now and hereafter mean or refer to BBC and BNY.
2. Amendments to Loan Agreement
----------------------------
2.1 Amendment to Fifth Paragraph of Preliminary Statement. The fifth
-----------------------------------------------------
paragraph of the Preliminary Statement of the Loan Agreement is hereby
deleted in its entirety, and replaced with the following:
"The Banks have agreed to increase certain of such loan
arrangements such that the total aggregate principal amount of all
such loan arrangements is increased to up to Thirty Five Million and
00/100 Dollars ($35,000,000.00), as more particularly described in
this Agreement. The aggregate commitment of UST
- 3 -
<PAGE>
hereunder is no greater than Eight Million Seven Hundred Fifty Thousand and
00/100 Dollars ($8,750,000.00), the aggregate commitment of Sumitomo hereunder
is no greater than Eight Million Seven Hundred Fifty Thousand and 00/100 Dollars
($8,750,000.00), the aggregate commitment of SSB hereunder is no greater than
Eight Million Seven Hundred Fifty Thousand and 00/100 Dollars ($8,750,000.00),
the aggregate commitment of BBC hereunder is no greater than Four Million Three
Hundred Seventy-Five Thousand and 00/100 Dollars ($4,375,000.00) and the
aggregate commitment of BNY hereunder is no greater than Four Million Three
Hundred Seventy-Five Thousand and 00/100 Dollars ($4,375,000.00).
Notwithstanding anything contained herein to the contrary, all obligations of
the Banks hereunder with respect to such loan arrangements are several, and not
joint, obligations of the Banks."
2.2 Amendments to Section 1.1. The definitions of "Term Notes" and
-------------------------
Working Capital Notes" contained in Section 1.1 of the Loan Agreement are
hereby replaced, respectively, with the following:
"'Term Notes' shall mean the amended and restated promissory
notes evidencing the Term Loan, executed and delivered under
subsection 2.2, as they may be amended, modified, supplemented,
--------------
restated, or extended from time to time, each substantially in the
form attached hereto as Exhibit A."
---------
"'Working Capital Notes' shall mean the amended and restated
promissory notes evidencing the Working Capital Loans, executed and
delivered under subsection 2.1, as they may be amended, modified,
--------------
supplemented, restated or extended from time to time, each
substantially in the form attached hereto as Exhibit B."
---------
2.3 Amendment to Section 2.1(a). Each reference in clause (a) of
---------------------------
Section 2.1 of the Loan Agreement to "Nine Million Four Hundred Twenty-Five
Thousand and 00/100 Dollars ($9,425,000.00)" is deleted and replaced with
the following: "Ten Million Nine Hundred Twenty-Five Thousand and 00/100
Dollars ($10,925,000.00)".
2.4 Amendment to Section 2.1(c). The first sentence of clause (c) of
---------------------------
Section 2.1 of the Loan Agreement is deleted in its entirety and replaced
with the following:
"The Working Capital Loans made to the Borrower by the Banks shall be
evidenced by five (5) Working Capital Notes, three of which are each
in the principal amount of Two Million Seven Hundred Thirty-One
Thousand Two Hundred Fifty and 00/100 Dollars ($2,731,250.00) and made
payable to UST, Sumitomo and SSB, respectively and two of which are
each in the principal amount of One Million Three Hundred Sixty-Five
Thousand Six Hundred Twenty-
- 4 -
<PAGE>
Five and 00/100 Dollars ($1,365,625.00) and made payable to BBC and BNY,
respectively."
2.5 Amendment to Section 2.2(a). The following sentence is inserted
---------------------------
at the end of clause (a) of Section 2.2 of the Loan Agreement:
"As of June 5, 1996, the outstanding principal balance of the Term
Loan is Eight Million Two Hundred Twenty-Five Thousand and 00/100
Dollars ($8,225,000.00)."
2.6 Amendment to Section 2.2(b). The first two sentences of clause
---------------------------
(b) of Section 2.2 of the Loan Agreement are hereby deleted in their
entirety, and replaced with the following:
"The Term Loan is evidenced by, and is repayable in accordance with
the terms of, the Term Notes, three of which are each in the principal
amount of Two Million Fifty-Six Thousand Two Hundred Fifty and 00/100
Dollars ($2,056,250.00) and made payable to UST, Sumitomo and SSB
respectively, and two of which are each in the principal amount of One
Million Twenty-Eight Thousand One Hundred Twenty-Five and 00/100
Dollars ($1,028,125.00) and made payable to BBC and BNY, respectively.
The Term Notes shall be payable in combined Forty-Seven (47) equal
monthly installments of principal of One Hundred Seventy-Five Thousand
and 00/100 Dollars ($175,000.00) on the fifteenth day of each month
commencing on the first of such dates next succeeding the date of
issuance; together with interest (computed on the basis of the actual
number of days elapsed over a 360-day year) on the unpaid principal
amount thereof at a rate equal to the Base Lending Rate in effect from
time to time as provided in the Term Notes, plus one and one-half
percent (1.5%)."
2.7 Amendment to Section 2.3(a). The first two sentences of clause
---------------------------
(a) of Section 2.3 of the Loan Agreement are deleted in their entirety and
replaced with the following two sentences:
"Subject to the terms and conditions hereof and in reliance upon the
representations and warranties of the Borrower and its Subsidiaries to
the Banks, the Banks hereby establish a guidance line of credit
facility in favor of the Borrower in the maximum principal amount of
Fourteen Million and 00/100 Dollars ($14,000,000.00)(the 'Guidance
Line of Credit'). The parties hereto acknowledge and agree that as of
June 5, 1996, the aggregate outstanding principal balance of the
Guidance Line of Credit is Nine Million Four Hundred Forty-Eight
Thousand Four Hundred Twenty-Seven and 68/100 Dollars
($9,448,427.68)."
- 5 -
<PAGE>
2.8 Amendment to Section 2.3(c). The first sentence of clause (c) of
---------------------------
Section 2.3 of the Loan Agreement is deleted in its entirety and replaced
with the following:
"Each Guidance Loan made to the Borrower by the Banks shall be
evidenced by five Guidance Notes of the Borrower, three of such
Guidance Notes to be each in the principal amount of Twenty-Five
Percent (25%) of such Guidance Loan and made payable to UST, Sumitomo
and SSB, respectively, and two of such Guidance Notes to each be in
the principal amount of Twelve and 50/100 Percent (12.5%) of such
Guidance Loan and made payable to BBC and BNY, respectively, and each
of such Guidance Notes to be in the form of the Guidance Note annexed
hereto as 'Exhibit 'C'."
----------
2.9 Amendment to Section 2.4(e). The reference in the first sentence
---------------------------
of clause (e) of Section 2.4 of the Loan Agreement to "March 31, 1997" is
deleted and replaced with the following: "April 30, 1998".
2.10 Amendment to Section 2.9. The first sentence of Section 2.9 of
------------------------
the Loan Agreement is hereby deleted in its entirety and replaced with the
following:
"The commitments of the Banks to make the Loans and of UST to issue
Letters of Credit hereunder shall commence on the Closing Date and
continue through the earliest of (a) April 30, 1998, (b) the date of
acceleration of any of the Liabilities under subsection 8.2, or (c)
--------------
the date on which Borrower gives notice to the Banks of its desire to
terminate the obligations of the Banks to make Loans and of UST to
issue Letters of Credit under this Agreement, which notice shall only
be effective if all Liabilities have been paid in full, there are no
outstanding Letters of Credit and, in the event that such termination
occurs as a result of the sale of the Borrower's business or a
refinancing of the Loans from outside sources of funding, each Bank
shall have received its pro rata share of a cancellation fee (the
--- ----
'Cancellation Fee') equal to one and one-half percent (1.50%) of the
total Loans committed to be made hereunder (the earliest of such dates
being referred to as the 'Termination Date'); provided that all of the
--------
Agent's and the Banks' rights and remedies under this Agreement and
under any of the other Loan Documents (including all security
interests and guaranties created thereunder), shall survive the
Termination Date until all of the Liabilities have been paid in full.
2.11 Amendments to Section 7.4. Section 7.4 of the Loan Agreement is
-------------------------
hereby deleted in its entirety and replaced with the following:
"7.4 Acquisitions. Except for the Fanfare/Global Acquisition,
------------
the CFM Acquisition, the acquisition by the Borrower of controlling
equity interests in each of the Majority Venture Subsidiaries, and the
acquisition by the Borrower of all of
- 6 -
<PAGE>
the issued and outstanding capital stock of Northwest and SWSI, the Borrower and
each of its Subsidiaries shall not acquire any stock of any corporation or
ownership interest in any other entity, or acquire all or substantially all of
the assets of, or such of the assets as would permit the transferee to continue
any one or more integral business operations of, any Person. Notwithstanding
any provision contained in this Section 7.4 to the contrary, the Borrower or a
Subsidiary may acquire stock of a corporation (said corporation is hereinafter
referred to as a 'Target Corporation') which, as a result of such acquisition,
becomes a Subsidiary (or if any applicable, an Offshore Subsidiary); provided,
---------
however, that: (a) that the Target Corporation becomes a Guarantor of all of the
- -------
Liabilities; (b) the Target Corporation is sufficiently capitalized which
includes, among other things, the delivery by the Borrower to the Agent of a pro
forma financial statement prepared in accordance with GAAP and certified by the
president or chief financial officer of the Borrower, and based upon, in part,
an audit conducted by Deloitte & Touche LLP (or another firm of independent
public accountants of nationally recognized standing acceptable to the Agent) of
certain historical financial information contained in the financial statements
for the Target Corporation for its fiscal year ending during the Acquisition
Period (as defined below), which pro forma financial statements shall evidence
that the Operating Cash Flow for the Borrower during the Acquisition Period plus
----
the Operating Cash Flow for the Target Corporation during the Acquisition
Period, exceeds the Fixed Charges of the Borrower during the Acquisition Period,
-------
plus the pro-forma Fixed Charges relating to the acquisition of the Target
- ----
Corporation for the twelve (12) month period commencing on the first day of the
first fiscal month following the closing date for such acquisition (as adjusted
to give effect to the acquisition and the transactions, including any
refinancing, effected in connection therewith), multiplied by 1.5); and (c) the
----------
Borrower has obtained the consent of all of the Banks. As used herein, the term
'Acquisition Period' means the twelve (12) month period prior to the closing
------------------
date for an acquisition by the Borrower of a Target Corporation, which period
ends on the last day of a fiscal month that is not more than seventy-five (75)
days before such closing date.
The parties hereto acknowledge and agree that (a) Fine Host
International is a party to an agreement with F&B International
Company Limited, pursuant to which, among other things, Fine Host
International may acquire an interest in Fine Host Asia, a joint
venture that may be organized in accordance with the laws of Thailand
(Queen Sirikit National Convention Center)(said joint venture is
hereinafter referred to as 'Fine Host Asia'), and (b) Fine Host Asia
shall not, at any time, become a Subsidiary unless and until the
Borrower has caused Fine Host Asia to comply with all of the
applicable provisions contained herein."
- 7 -
<PAGE>
2.12 Amendment to Section 9.2(h). The reference in clause (h) of
---------------------------
Section 9.2 of the Loan Agreement to "eighty percent (80%)" is deleted and
replaced with the following: "seventy-five percent (75%)".
2.13 Amendment to Section 10.8. The following words are inserted in
-------------------------
the second sentence of Section 10.8 of the Loan Agreement immediately after
comma following the word "jury" and before the word "and" contained
therein:
"IN ANY LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT, ANY OF THE OTHER LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREIN OR THEREIN"
3. Representations and Warranties. The Borrower and each of Fine Host
------------------------------
Services, Fine Host of Vermont, Fanfare, Global Fanfare, Fine Host
International, CFM, Northwest, Tarrant County and SWSI hereby acknowledges and
confirms that all of the representations and warranties of the Borrower and each
of the Subsidiaries in the Loan Agreement and all of the other Loan Documents
are and remain true, correct and complete as of the date hereof as if made as of
the date hereof (except as the same may expressly relate to an earlier date).
4. No Events of Default. The Borrower and each of Fine Host Services,
--------------------
Fine Host of Vermont, Fanfare, Global Fanfare, Fine Host International, CFM,
Northwest, Tarrant County and SWSI hereby represents and warrants to the Banks
that no Event of Default or Default has occurred and is now continuing under the
Loan Agreement or under any of the other Loan Documents, and there does not now
exist any circumstance or set of facts, which with the passage of time or the
giving of notice or both would constitute or result in an Event of Default or a
default under the Loan Agreement or under any of the other Loan Documents.
5. Ratification of Loan Documents.
------------------------------
5.1 Ratification by Borrower. Subject to the amendments set forth
------------------------
herein, the Borrower hereby ratifies and reaffirms all of the terms and
provisions of the Loan Agreement and all of the other Loan Documents to
which it is a party or by which it or its property is bound, and hereby
expressly acknowledges and confirms that the terms and provisions of each
thereof, as amended hereby, shall and do remain in full force and effect.
5.2 Ratification by Fine Host Services, Fine Host of Vermont,
---------------------------------------------------------
Fanfare, Global Fanfare, Fine Host International, CFM, Northwest, Tarrant
-------------------------------------------------------------------------
County and SWSI; Reaffirmation of Unlimited Guaranties. Subject to the
--------------- --------------------------------------
amendments set forth herein, each of Fine Host Services, Fine Host of
Vermont, Fanfare, Global Fanfare, Fine Host International, CFM, Northwest,
Tarrant County and SWSI hereby ratifies and reaffirms all of the terms and
provisions of the Loan Agreement and all of the other Loan Documents to
which it is a party or by which it or its property is bound, and hereby
expressly
- 8 -
<PAGE>
acknowledges and confirms that the terms and provisions of each thereof, as
amended hereby, shall and do remain in full force and effect. Without limiting
the generality of the foregoing, each of Fine Host Services, Fine Host of
Vermont, Fanfare, Global Fanfare, Fine Host International, CFM, Northwest,
Tarrant County and SWSI hereby expressly (a) ratifies and reaffirms all of the
terms and provisions of their respective Unlimited Guaranties (as defined and
identified in Section 3.1(e) of the Loan Agreement), (b) acknowledges and agrees
that the term "Bank," as used in the definition of the term "Liabilities"
contained in the second paragraph of their respective Unlimited Guaranties now
means and includes each of UST, Sumitomo, SSB, BBC and BNY, together with their
respective successsors and assigns and (c) acknowledges and confirms that the
terms and provisions of their respective Unlimited Guaranties shall and do
remain in full force and effect.
6. Miscellaneous.
-------------
6.1 No Other Amendments; No Waiver. Except for the amendments set
------------------------------
forth in this Fifth Amendment, nothing herein shall: be construed to
modify, amend or otherwise alter any of the terms or provisions of the Loan
Agreement or any of the other Loan Documents; constitute a waiver of or bar
to any rights or remedies available to the Banks, or a waiver of any
Default or Event of Default under the Loan Documents on any occasion;
constitute an agreement by the Banks or obligate the Banks to take or
refrain from taking any action; or constitute an agreement by the Banks to
give notice to or obtain acknowledgements from any of the parties, on any
other occasion, whether similar to or dissimilar from this occasion.
6.2 Execution; Counterparts. This Fifth Amendment may be executed in
-----------------------
any number of counterparts, each of which shall be deemed to be an original
as against any party whose signature appears hereon, and all of which shall
together constitute one and the same instrument. This Fifth Amendment
shall become binding when one or more counterparts hereof, individually or
taken together, shall bear the signatures of all of the parties shown as
the signatories.
6.3 Successors and Assigns. This Fifth Amendment shall be binding
----------------------
upon and inure to the benefit of the parties hereto, and their respective
representatives, successors and assigns.
6.4 Governing Law. This Fifth Amendment and all questions relating
-------------
to its validity, interpretation, performance and enforcement shall be
governed by and construed in accordance with the laws of The Commonwealth
of Massachusetts, notwithstanding any conflict-of-law provisions to the
contrary.
- 9 -
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Fifth Amendment
under seal as of the date first set forth above.
USTRUST AS AGENT
By: /s/ Michael D. O'Neill
------------------------------------
Title: Vice President
---------------------------------
USTRUST
By: /s/ Michael D. O'Neill
-----------------------------------
Title: Vice President
---------------------------------
THE SUMITOMO BANK, LIMITED
By: /s/ Ronald W. Gale /s/ William Paty
-----------------------------------------
Title: Vice President Vice President
----------------------------------------
STATE STREET BANK AND TRUST COMPANY
By: /s/ William Zola
------------------------------------
Title: Vice President
---------------------------------
BANK OF BOSTON CONNECTICUT
By: /s/ W. Lincoln Schoff, Jr.
------------------------------------
Title: Director
-----------------------------------
THE BANK OF NEW YORK
By: /s/ David M. Duffy
------------------------------------
Title: Vice President
------------------------------------
- 10 -
<PAGE>
FINE HOST CORPORATION
By: /s/ Randy B. Spector
-------------------------------------
Title: Executive Vice President
----------------------------------
FINE HOST SERVICES CORPORATION
By: /s/ Randy B. Spector
-------------------------------------
Title: Vice President
------------------------------------
FINE HOST OF VERMONT, INC.
By: /s/ Randy B. Spector
---------------------------------
Title: President
---------------------------------
FANFARE, INC.
By: /s/ Randy B. Spector
------------------------------------
Title: Clerk
------------------------------------
GLOBAL FANFARE, INC.
By: /s/ Randy B. Spector
-------------------------------------
Title: Vice President
------------------------------------
FINE HOST INTERNATIONAL
CORPORATION
By: /s/ Randy B. Spector
-------------------------------------
Title: Vice President
------------------------------------
CREATIVE FOOD MANAGEMENT, INC.
By: /s/ Randy B. Spector
-------------------------------------
Title: Executive Vice President
----------------------------------
- 11 -
<PAGE>
NORTHWEST FOOD SERVICE, INC.
By: /s/ Randy B. Spector
--------------------------------------
Title: Secretary
--------------------------------------
TARRANT COUNTY CONCESSIONS,
L.L.C.
By: /s/ Todd M. Avila
---------------------------------------
Title:
---------------------------------------
SUN WEST SERVICES, INC.
By: /s/ Randy B. Spector
---------------------------------------
Title: Executive Vice President
------------------------------------
- 12 -
EXHIBIT 10.29
DRAFT DATE: 6/13/96
----------
THIRD AMENDED AND RESTATED LOAN AGREEMENT
Dated as of June __, 1996
Among
FINE HOST CORPORATION (the "Borrower"),
FINE HOST SERVICES CORPORATION ("Fine Host Services"),
FINE HOST INTERNATIONAL CORPORATION ("Fine Host International"),
FINE HOST OF VERMONT, INC. ("Fine Host of Vermont"),
FANFARE, INC. ("Fanfare"),
GLOBAL FANFARE, INC. ("Global Fanfare"),
CREATIVE FOOD MANAGEMENT, INC. ("CFM"),
NORTHWEST FOOD SERVICE, INC. ("Northwest"),
TARRANT COUNTY CONCESSIONS, L.L.C. ("Tarrant County"),
SUN WEST SERVICES, INC. ("SWSI"),
USTRUST ("UST"),
THE SUMITOMO BANK, LIMITED ("Sumitomo"),
STATE STREET BANK AND TRUST COMPANY ("SSB"),
BANK OF BOSTON CONNECTICUT ("BBC"),
MELLON BANK, N.A. ("Mellon") and
THE BANK OF NEW YORK ("BNY")
<PAGE>
(UST, SUMITOMO, SSB, BBC, MELLON AND BNY ARE COLLECTIVELY
REFERRED TO AS THE "BANKS")
<PAGE>
TABLE OF CONTENTS
Item Page No.
- ---- --------
1. DEFINITIONS
1.1 General Terms
1.2 Accounting Terms
1.3 Other Terms Defined in Uniform Commercial Code
1.4 Construction
2. LOANS
2.1 Working Capital Loans
2.2 Guidance Loans
2.3 Letters of Credit Under Working Capital Line
2.4 Borrower's Loan Account
2.5 Statements
2.6 Fees
2.7 Method of Making Payments
2.8 Term of this Agreement
2.9 Limitation on Charges
2.10 Capital Adequacy Provisions
2.11 Additional Collateral Following Termination
3. SECURITY FOR THE LIABILITIES; GUARANTIES
3.1 Security
3.2 Chattel Paper Instruments
3.3 Vehicles
3.4 Equipment
3.5 Equipment Records
3.6 Safekeeping of Equipment
3.7 Maintenance of Properties
4. CONDITIONS OF ADVANCES
4.1 Borrower's Request
4.2 Financial Condition
4.3 No Event of Default
4.4 Representations and Warranties
4.5 Additional Conditions for Approval of Guidance Loan
4.6 Additional Conditions for Approval of Working Capital Loans
-1-
<PAGE>
4.7 Other Requirements
4.8 Additional Conditions for Making Loans
5. REPRESENTATIONS AND WARRANTIES
5.1 Corporate Existence
5.2 Corporate Authority
5.3 Binding Effect
5.4 Financial Data
5.5 Tangible Assets
5.6 Title to Collateral
5.7 Real Property; Leases
5.8 Solvency
5.9 Principal Place of Business
5.10 Other Corporate Names
5.11 Tax Liabilities
5.12 Loans
5.13 Margin Securities
5.14 Subsidiaries; Divisions
5.15 Litigation and Proceedings
5.16 Registration Statement
5.17 Material Agreements
5.18 Largest Customers
5.19 Employee Controversies and Employment and Labor Agreements
5.20 Compliance with Laws and Regulations
5.21 Intellectual Property Rights
5.22 Pension Related Matters
5.23 Environmental Matters
5.24 Broker's Fee
5.25 Securities Matters
5.26 Equity Beneficial Ownership
5.27 Disclosure
5.28 Capitalization
5.29 Corporate Structure
5.30 Facility Agreements with Change in Stock Ownership Restrictions
6. AFFIRMATIVE COVENANTS
6.1 Financial Covenants
6.1.1 Debt to Operating Cash Flow Ratio
6.1.2 Operating Cash Flow to Fixed Charge-Ratio
6.1.3 Operating Cash Flow to Cash Interest Expense Ratio
6.1.4 Minimum Net Worth
6.1.5 Minimum Operating Cash Flow
-2-
<PAGE>
6.1.6 Minimum Tangible Capital Base
6.2 Financial Statements
6.3 Inspection
6.4 Conduct of Business
6.5 Claims and Taxes
6.6 The Agent's and the Banks' Costs and
Expenses as Additional Liabilities
6.7 Borrower's Liability Insurance
6.8 Borrower's Insurance
6.9 Pension Plans
6.10 Notice of Suit
6.11 Supervening Changes in Law
6.12 Environmental Notices
6.13 Use of the Proceeds
6.14 Depository Accounts
6.15 Collateral Assignments of Licenses and
Management Agreements
6.16 Application of Net Contract Proceeds
6.17 Covenants in Subordinated Debt Documents
7. NEGATIVE COVENANTS
7.1 Encumbrances
7.2 Indebtedness
7.3 Mergers and Consolidations
7.4 Acquisitions
7.5 Disposal of Property
7.6 Investment or Loans
7.7 Guaranties
7.8 Capital Expenditure Limitations
7.9 Distributions
7.10 Compensation
7.11 Transactions with Affiliates
7.12 Prepayment of Other Liabilities
7.13 Modification of Indebtedness
7.14 Amendment of Certificate or Articles of Incorporation or By-Laws
7.15 ERISA Termination Event
7.16 Subordinated Debt Documents
7.17 CFM Notes
8. DEFAULT, RIGHTS AND REMEDIES OF THE AGENT
8.1 Event of Default
8.2 Termination of Obligation to Make Loans and Acceleration
-3-
<PAGE>
8.3 Rights and Remedies Generally
8.4 Entry Upon Premises and Access to Information
8.5 Sale or Other Disposition of Collateral by the Agent
8.6 Waiver of Demand
8.7 Waiver of Notice
8.8 Advice of Counsel
9. THE AGENT
9.1 Appointment of the Agent
9.2 Administration of the Loans/Letters of Credit
9.3 Agent's Duty of Care
9.4 Reliance by Agent
9.5 Notice of Default
9.6 Non-Reliance on Agent and Other Banks
9.7 Indemnification
9.8 Successor Agent
9.9 Rescission of Loan Payments
9.10 Sharing of Payments
9.11 Representations and Warranties of the Other Banks
and of the Agent
9.12 Notices
10. MISCELLANEOUS
10.1 Waiver
10.2 Attorneys' Fees and Expenses
10.3 Expenditures by the Agent
10.4 Custody and Preservation by Collateral
10.5 Reliance by the Banks
10.6 Assignability; Parties
10.7 Applicable Law; Severability
10.8 Submission to Jurisdiction; Jury Trial Waiver; Waiver of Bond
10.9 Application of Payments
10.10 Marshalling; Payments Set Aside
10.11 Section Titles
10.12 Continuing Effect
10.13 Notices
10.14 Equitable Relief
10.15 Entire Agreement; Amendments
10.16 Participations/Assignments
10.17 Changes in Accounting Principles
10.18 Indemnity
10.19 Representations and Warranties, etc.
-4-
<PAGE>
10.20 Treatment of Certain Information
10.21 Independence of Covenants
10.22 Time of the Essence
Exhibit A Form of Commercial Promissory Note (Working Capital
Loan)
Exhibit B Form of Commercial Promissory Note (Guidance Line of
Credit)
Exhibit C Form of Application for Commercial Letter of Credit and
Agreement, with Addendum
Exhibit D Form of First Amended and Restated Unlimited Guaranty
Exhibit E Form of First Amended and Restated Security Agreement -
All Assets for Borrower and Unlimited Guarantors
Exhibit F Form of First Amended and Restated Assignment of
Receivables and Proceeds for Borrower and Unlimited
Guarantors
Exhibit G Form of First Amended and Restated Limited Guaranty
Exhibit H Form of First Amended and Restated Security Agreement -
All Assets for Limited Guarantors.
Exhibit I Form of First Amended and Restated Assignment of
Receivables and Proceeds for Limited Guarantors.
Exhibit J Form of First Amended and Restated Stock Pledge
Agreement
Exhibit K Form of First Amended and Restated LLC Pledge Agreement
Exhibit L Form of First Amended and Restated Joint Venture Pledge
Agreement
Schedule 3.4 Equipment.
Schedule 5.1 Corporate Existence.
Schedule 5.4 Financial Data.
Schedule 5.5 Tangible Assets.
Schedule 5.6 Title to Collateral.
Schedule 5.7 Real Property; Leases.
Schedule 5.8 Solvency.
Schedule 5.9 Principal Place of Business.
Schedule 5.10 Other Corporate Names.
Schedule 5.11 Tax Liabilities.
Schedule 5.12 Loans.
Schedule 5.13 Margin Securities.
Schedule 5.14 Subsidiaries; Divisions.
Schedule 5.15 Litigation and Proceedings.
Schedule 5.16 Registration Statement.
Schedule 5.17 Material Agreements.
Schedule 5.18 Largest Customers.
Schedule 5.19 Employment Controversies and Employment and Labor
Agreements.
-5-
<PAGE>
Schedule 5.20 Compliance with Laws and Regulations.
Schedule 5.21 Intellectual Property Rights.
Schedule 5.22 Pension Related Matters.
Schedule 5.23 Environmental Matters.
Schedule 5.24 Broker's Fees.
Schedule 5.26 Capital Stock.
Schedule 5.30 Interest in Other Entities.
Schedule 7.1 Permitted Liens.
Schedule 7.2 Permitted Indebtedness.
Schedule 7.4 Acquisitions.
Schedule 7.6 Ongoing Investments
Schedule 7.7 Guaranties.
Schedule 7.10 Compensation to Affiliates.
Schedule 7.11 Transactions with Affiliates
-6-
<PAGE>
This THIRD AMENDED AND RESTATED LOAN AGREEMENT (this "Agreement") is
executed and effective (subject to all of the conditions contained herein) on
June __, 1996, but is dated as of the Closing Date (as defined below), by and
among (a) FINE HOST CORPORATION, a Delaware corporation, with its principal
place of business and chief executive office at 3 Greenwich Office Park,
Greenwich, Connecticut 06831 ("Borrower" or the "Borrower"), (b) FINE HOST
SERVICES CORPORATION, a Delaware corporation, which is a wholly-owned subsidiary
of the Borrower, and whose principal place of business is at 3 Greenwich Office
Park, Greenwich, Connecticut 06831 ("Fine Host Services"), (c) FINE HOST OF
VERMONT, INC., a Vermont corporation, which is a wholly-owned subsidiary of the
Borrower, and whose principal place of business is at 255 Maple Street, Stowe,
Vermont 05672 ("Fine Host of Vermont"), (d) FANFARE, INC., a Massachusetts
corporation, which is a wholly-owned subsidiary of the Borrower, and whose
principal place of business is at 797 Turnpike Street, North Andover,
Massachusetts 01845 ("Fanfare"), (e) GLOBAL FANFARE, INC., an Indiana
corporation, which is a wholly-owned subsidiary of the Borrower, and whose
principal place of business is at 4000 Parnell Avenue, Fort Wayne, Indiana 46805
("Global Fanfare"), (f) FINE HOST INTERNATIONAL CORPORATION, a Delaware
corporation, which is a wholly-owned subsidiary of the Borrower, and whose
principal place of business is at 3 Greenwich Office Park, Greenwich,
Connecticut 06831 ("Fine Host International"), (g) CREATIVE FOOD MANAGEMENT,
INC., an Ohio corporation (formerly known as VGE Acquisition Corp.), which is a
wholly-owned subsidiary of the Borrower, and whose principal place of business
is at 6061 Telegraph Road, Suite MM, Toledo, Ohio 43612 ("CFM"), (h) NORTHWEST
FOOD SERVICE, INC., an Idaho corporation which is a wholly-owned subsidiary of
the Borrower, and whose principal place of business is at 305 East 37th Street,
Boise, Idaho 83714 ("Northwest"), (i) TARRANT COUNTY CONCESSIONS, L.L.C., a
Texas limited liability company, with its principal place of business located at
100 Congress Avenue, Suite 1100, Austin, Texas 78746 ("Tarrant County"), (j)
SUN WEST SERVICES, INC., a New Mexico corporation, which is a wholly-owned
subsidiary of the Borrower, and whose principal place of business is at 19 West
Alameda Drive, Suite No. 101, Tempe, Arizona 85282 ("SWSI"), (k) USTRUST, a
Massachusetts trust company, having an office at 30 Court Street, Boston,
Massachusetts 02108 (acting for itself, "UST"), (l) USTRUST, a Massachusetts
trust company, having an office at 30 Court Street, Boston, Massachusetts 02108
(acting as agent for the Banks, including itself, the "Agent"), (m) THE SUMITOMO
BANK, LIMITED, a Japanese bank, having an office at 233 South Wacker Drive,
Chicago, Illinois 60606 ("Sumitomo"), (n) STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company, having an office at 225 Franklin Street, Boston,
Massachusetts 02110 ("SSB"), (o) BANK OF BOSTON CONNECTICUT, a Connecticut bank,
having an office at One Landmark Square, Suite 2002, Stamford, Connecticut
06901 ("BBC"), (p) MELLON BANK, N.A., a national banking association, having an
office at 1735 Market Street, P.O. Box 7899, Philadelphia, Pennsylvania 19101
("Mellon") and (q) THE BANK OF NEW YORK, a New York bank, having an office at
530 Fifth Avenue, New York, New York 10036 ("BNY"). (UST for itself, Sumitomo,
SSB, BBC, Mellon and BNY are hereinafter sometimes referred to collectively as
the "Banks" and singly as a "Bank").
<PAGE>
PRELIMINARY STATEMENTS
UST, Sumitomo, SSB, BBC, BNY, the Borrower and its Subsidiaries have
entered into certain loan arrangements which are evidenced by, among other
documents, a certain Second Amended and Restated Loan Agreement dated April 24,
1995 among UST, Sumitomo, SSB, BBC, BNY, the Borrower and its Subsidiaries, as
subsequently amended, pursuant to which UST, Sumitomo, SSB, BBC and BNY have
made certain loans to the Borrower as more particularly described therein (as so
amended, the "Existing Loan Agreement").
UST, Sumitomo, SSB, BBC, BNY and Mellon have agreed to increase certain of
such loan arrangements such that the total aggregate principal amount of all
such loan arrangements is increased to up to Seventy-Five Million and 00/100
Dollars ($75,000,000.00), as more particularly described in this Agreement. The
aggregate commitment of UST hereunder is no greater than Fifteen Million and
00/100 Dollars ($15,000,000.00), the aggregate commitment of Sumitomo hereunder
is no greater than Fifteen Million and 00/100 Dollars ($15,000,000.00), the
aggregate commitment of SSB hereunder is no greater than Fifteen Million and
00/100 Dollars ($15,000,000.00), the aggregate commitment of BBC hereunder is no
greater than Ten Million and 00/100 Dollars ($10,000,000.00), the aggregate
commitment of Mellon hereunder is no greater than Ten Million and 00/100 Dollars
($10,000,000.00), and the aggregate commitment of BNY hereunder is no greater
than Ten Million and 00/100 Dollars ($10,000,000.00). Notwithstanding anything
contained herein to the contrary, all obligations of the Banks hereunder with
respect to such loan arrangements are several, and not joint, obligations of the
Banks.
The Banks have agreed to designate UST as the "Agent" for the loan
arrangements described in this Agreement and, notwithstanding anything contained
herein to the contrary, the Agent shall act for all of the Banks in all matters
arising hereunder relating to the Banks as contemplated by Section 9.
The Banks, the Borrower and its Subsidiaries have agreed to amend and
restate the Existing Loan Agreement in its entirety, and all of the parties to
this Agreement acknowledge and agree that, upon execution and delivery of this
Agreement, this Agreement, from and after this date, shall govern the
relationship of the parties hereto.
AGREEMENTS
NOW, THEREFORE, in consideration of the terms and conditions contained
herein, and of any loans or extensions of credit now or hereafter made to or for
the benefit of the Borrower by the Banks, the parties hereto hereby agree as
follows:
-2-
<PAGE>
1. DEFINITIONS
-----------
1.1 General Terms. When used herein, the following capitalized
-------------
terms shall have the following meanings:
"Acceptable Supplement" shall have the meaning given to that term in
subsection 5.6.
- --------------
"Accumulated Funding Deficiency" shall mean a funding deficiency described
in Section 302 of ERISA.
"Affiliate" shall mean, as applied to any Person, any other Person (other
than the Borrower or any Subsidiary of Borrower) (a) that directly or
indirectly, through one or more intermediaries, controls or is controlled by, or
is under common control with, the Borrower, (b) that directly or beneficially
owns or holds ten percent (10%) or more of any class of the voting stock (or in
the case of a Person which is not a corporation, ten percent (10%) or more of
the equity interest) of the Borrower or (c) ten percent (10%) or more of whose
voting stock (or in the case of a Person which is not a corporation, ten percent
(10%) or more of the equity interest) is owned directly or beneficially or held
by the Borrower.
"Agent" shall mean UST, acting as agent for the Banks under this Agreement.
"Agreement" shall mean this Third Amended and Restated Loan Agreement,
together with all exhibits and schedules hereto, as amended, modified,
supplemented, restated or extended from time to time.
"Approval" shall mean each approval, consent, filing or registration by or
with any Federal, state or other regulatory authority necessary to authorize or
permit the execution, delivery or performance of this Agreement or the Loan
Documents or for the validity or enforceability hereof or thereof by the
Borrower and its Affiliates.
"Assignments of Receivables and Proceeds" shall mean the First Amended and
Restated Assignments of Receivables and Proceeds, dated as of the Closing Date,
by and between the Borrower or the applicable Subsidiary and the Agent, which
are to be executed and delivered in accordance with the provisions of subsection
----------
4.8 below, as the same may be further amended, reaffirmed, modified,
- ---
supplemented, restated or extended from time to time, and any and all other
assignments of receivables and proceeds which may in the future be required to
be executed and delivered by the Borrower or any Subsidiary in favor of the
Agent, in compliance with the provisions of subsection 3.1(b) below.
-----------------
"Banks" or "the Banks" shall mean UST, Sumitomo, SSB, BBC, Mellon, BNY and
their respective successors and assigns.
-3-
<PAGE>
"Base Lending Rate" shall mean the variable rate of interest, per annum,
most recently announced by UST at its headquarters in Boston, Massachusetts, as
its "base lending rate," with the understanding that UST's "base lending rate"
is one of its interest rates and serves as a basis upon which effective rates of
interest are calculated for loans making reference thereto and may not be the
lowest of UST's interest rates. Any change in the Base Lending Rate shall be
effective as of the effective date stated in the announcement by UST of such
change.
"Borrower" or "the Borrower" shall mean Fine Host Corporation, a Delaware
corporation, and all its successors and assigns.
"Business Day" shall mean except as provided in the LIBOR provisions of the
Notes, any day other than a Saturday, Sunday, public holiday under the laws of
the Commonwealth of Massachusetts, the Commonwealth of Pennsylvania, the State
of Connecticut or the State of New York or other day on which banking
institutions are authorized or are required to be closed in Boston,
Massachusetts, New York, New York, Pittsburgh, Pennsylvania, or Hartford,
Connecticut.
"Cancellation Fee" shall have the meaning given to that term in subsection
----------
2.8.
- ---
"Capital Base" shall mean, at any date as of which determination is made,
the sum of the consolidated Net Worth of the Borrower and its Subsidiaries,
taken as a whole, plus any Subordinated Debt.
"Capital Expenditure" shall mean, for any period, the sum of (a) the
aggregate amount of all expenditures of the Borrower and its Subsidiaries for
fixed or capital assets made during such period which, in accordance with GAAP,
would be classified as capital expenditures, and (b) the aggregate amount of all
Capitalized Lease Obligations during such period.
"Capitalization Period" shall have the meaning given to that term in
subsection 4.5(b).
- -----------------
"Capitalized Lease Obligations" shall mean, for any period, all of the
Borrower's and any Subsidiary's obligations under any lease of property (real,
personal or mixed) or other periodic payment arrangement which have been or
should be capitalized on the Borrower's and Subsidiaries' consolidated balance
sheet in accordance with GAAP, in each case taken at the amount thereof
accounted for as indebtedness, net of interest expense, determined in accordance
with GAAP, the stated maturity of which shall be the date of the last payment of
any amount thereunder prior to the first date upon which such arrangement may be
terminated by the Borrower or its Subsidiaries without payment of any penalty.
"Cash Equivalent Investment" shall mean, at any time: (i) securities
issued or directly and fully guaranteed or insured by the United States of
America or any agency or
-4-
<PAGE>
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof) having maturities of not more
than one year from the date of acquisition, (ii) time deposits and certificates
of deposit with maturities of not more than 90 days from the date of
acquisition, of any commercial banking institution that is a member of the
Federal Reserve System having capital and surplus in excess of $500,000,000,
whose debt has a rating at the time of any such investment of at least "A-2" or
the equivalent thereof by Standard & Poor's or at least "P-2" or the equivalent
thereof by Moody's or any Bank, (iii) fully secured repurchase obligations with
a term of not more than seven days for underlying securities of the types
described in clause (i) entered into with UST, and (iv) commercial paper issued
by the parent corporation of any commercial banking institution that is a member
of the Federal Reserve System having capital and surplus in excess of
$500,000,000 and commercial paper or master notes of issuers, rated at the time
of any such investment at least "A-2" or the equivalent thereof by Standard &
Poor's or at least "P-2" or the equivalent thereof by Moody's or any Bank, and
in each case maturing within 270 days after the date of acquisition.
"Cash Interest Expense" shall mean, with respect to any Person for any
period, the interest expense of such Person for such period, less all non-cash
items constituting interest expense during such period (including, without
limitation, amortization of debt discounts and payments of interest on
Indebtedness through the issuance of Indebtedness).
"CFM Notes" shall mean the following: (a) a certain Subordinated
Promissory Note, dated as of November 15, 1995, from the Borrower, made payable
to the order of James E. Kern, in the original principal amount of One Million
Four Hundred Forty Thousand and 00/100 Dollars ($1,440,000.00); (b) a certain
Subordinated Promissory Note, dated as of December 8, 1994, from the Borrower,
made payable to the order of James E. Kern, in the original principal amount of
Eighty Thousand and 00/100 Dollars ($80,000.00); (c) a certain Subordinated
Promissory Note, dated as of November 13, 1995, from the Borrower, made payable
to the order of John F. Kusner, in the original principal amount of Seven
Hundred Fifty-Six Thousand and 00/100 Dollars ($756,000.00); and (d) a certain
Subordinated Promissory Note, dated as of December 8, 1994, from the Borrower,
made payable to the order of John F. Kusner, in the original principal amount of
Three Hundred Fifty-Four Thousand and 00/100 Dollars ($354,000.00).
"Change in Control" means a majority of the members of the Board of
Directors of the Borrower are not Continuing Directors.
"Closing" or "Closing Date" shall meaning to that term in subsection 10.23.
----------------
"Code" shall mean the Uniform Commercial Code of the Commonwealth of
Massachusetts (or with respect to Collateral in which a Lien may only be
perfected pursuant to the laws of any other state or the District of Columbia,
the Uniform Commercial Code of such state or of the District of Columbia), as
amended, and any successor statute of similar import as in effect from time to
time.
-5-
<PAGE>
"Collateral" shall mean all of Borrower's or its Subsidiaries' right,
title, and interest in and to the Collateral, as defined in the applicable
Security Agreement, in or upon which a Lien has been or is granted to the Agent,
as security for the Liabilities, whether under this Agreement, the other Loan
Documents, at law or in equity, or under any other documents, instruments,
agreements or writings delivered to the Agent or any Bank which were executed by
the Borrower, its Subsidiaries, any Affiliate of the Borrower, or any such other
Person.
"Common Shares" means the shares of common stock, $.01 par value per share,
of the Borrower, of which 25,000,000 shares are authorized pursuant to the
certificate of incorporation of the Borrower, as amended through the date
hereof.
"Continuing Director" shall mean and include a member of the Board of
Directors of the Borrower who was (i) a member of the Board of Directors on the
date hereof or (ii) nominated for election or elected to the Board of the
Directors with the affirmative vote of at least two-thirds of (x) members
described in clause (i) or (y) members who were in turn so nominated or so
elected by members described in clause (i) or clause (ii)(x).
"Contract Extension" shall have the meaning given to that term in
subsection 4.5(a).
- -----------------
"Converted Amount" shall have the meaning given to that term in subsection
----------
2.2(d).
- ------
"Debt" shall mean the total of, without duplication (a) Liabilities (less
the stated undrawn amount of the Letters of Credit issued by UST under
subsection 2.3 or subsection 2.1(a)); (b) all Indebtedness allowed pursuant to
- -------------- -----------------
subsection 7.2(c) and (g); (c) any draws under any letter of credit issued by
- -------------------------
any Person for the benefit of Borrower or any of its Subsidiaries as account
party; and (d) any such letter of credit which becomes a banker's acceptance.
"Default" shall mean an event which through the passage of time or the
service of notice or both would (assuming no action is taken by the Borrower to
cure the same) mature into an Event of Default.
"Designated Banks" shall have the meaning given such phrase in subsection
----------
9.2(h).
- ------
"Dollar", "Dollars" and "$" shall mean lawful money of the United States of
America.
"Employment and Labor Agreements" shall have the meaning given to that term
in subsection 5.19(b).
------------------
-6-
<PAGE>
"Environmental Laws" shall mean all Laws relating to health, safety and
environmental matters, including without limitation all Laws relating to the
release, disposal, handling, storage, production, removal, processing or
transporting of Hazardous Substances. Such Laws include but are not limited to
the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. Sec.6901 et seq
-- ---
as amended; the Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA"), 42 U.S.C. Sec.9601 et seq, as amended; the Toxic Substance Act,
-- ---
15 U.S.C. Sec.2601 et seq , as amended, the Clean Water Act, 33 U.S.C. Sec.466
-- ---
et seq, as amended; the Clear Air Act, 42 U.S.C. Sec.7401 et seq, as amended;
- -- --- -- ---
state and federal superlien and environmental laws and regulations, including
cleanup programs; and United States Department of Transportation regulations.
"Environmental Notice" shall mean any summons, citation, directive,
information request, notice of potential responsibility, notice of violation or
deficiency, order, claim, complaint, investigation, proceeding, judgment, letter
or other communication, written or oral, actual or threatened, from the United
States Environmental Protection Agency or other federal, state or local agency
or authority, or any other entity or individual, public or private, concerning
(i) any intentional or unintentional act or omission which involves Management
of Hazardous Substances either on or off any property owned or leased by the
Borrower or any Subsidiary of the Borrower; (ii) the imposition of any Lien on
such property, including but not limited to Liens asserted by government
entities in connection with Responses to the presence or Release of Hazardous
Substances; and (iii) any alleged violation of or responsibility under
Environmental Laws.
"Equipment" shall mean all of the Borrower's or its Subsidiaries' right,
title, and interest in and to equipment (as defined in the Code), including
without limitation machinery, furniture, Vehicles and fixtures and other
tangible personal property other than Inventory, whether located on premises
owned, leased or occupied by the Borrower or located elsewhere, together with
any and all accessions, parts and appurtenances thereto, whether now owned or
hereafter acquired and owned by the Borrower, including all right, title, and
interest of Borrower and its Subsidiaries to any Equipment used in connection
with or under a Facility Agreement.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, and regulations and
rulings thereunder, in each case as in effect from time to time. References to
sections of ERISA shall be construed to refer to any successor sections.
"ERISA Affiliate" shall mean each trade or business, including the
Borrower, whether incorporated or not, which together with the Borrower would be
treated as a single employer under Section 4001 of ERISA.
"ERISA Termination Event" shall mean (a) the occurrence of a Reportable
Event or a Prohibited Transaction, (b) the complete or partial withdrawal (as
defined in Sections 4203 and 4205 of ERISA) by the Borrower or any ERISA
Affiliate from a Multiemployer
-7-
<PAGE>
Plan, or the receipt by the Borrower or any ERISA Affiliate of a demand from any
Multiemployer Plan for withdrawal liability, (c) the filing of a notice of
intent to terminate any Plan or the treatment of a plan amendment as a
termination of any such Plan under Section 4041 of ERISA, (d) as soon as the
Borrower or any ERISA Affiliate has knowledge thereof, any action causing
termination under Section 4041A of ERISA of any Multiemployer Plan, (e) as soon
as the Borrower or any ERISA Affiliate has knowledge thereof, the institution of
proceedings to terminate any Plan or Multiemployer Plan by the PBGC under
Section 4042 of ERISA, or (f) the occurrence of any other event or condition
which might constitute grounds under Sections 4041A or 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan.
"Event of Default" shall have the meaning given to that term in subsection
----------
8.1 hereof.
- ---
"Existing Loan Agreement" shall have the meaning given that term in the
first paragraph of Preliminary Statements of this Agreement.
"Facility Agreements" shall mean all concession, license or management
agreements to which the Borrower or any of its Subsidiaries is currently or
hereafter becomes a party, and pursuant to which the Borrower or any such
Subsidiary has agreed (a) to provide food and beverage services at certain
facilities described therein, (b) to operate and otherwise use food, beverage
and liquor licenses at such facilities, or (c) to manage certain concession and
food service areas at such facilities whether such facilities or locations are
owned by the Borrower, any Affiliate of the Borrower, or any other Person.
"Financials" shall have the meaning set forth in subsection 5.4 hereof.
--------------
"Fixed Charges" shall mean, for any period, the sum of (i) all regularly
scheduled payments of principal on Indebtedness of the Borrower and its
Subsidiaries made or required to be made in such period, (ii) payments under
Capitalized Lease Obligations made or required to be made in such period, and
(iii) Cash Interest Expense of Borrower and its Subsidiaries.
"GAAP" shall mean generally accepted accounting principles, as promulgated
by the Financial Accounting Standards Board or other successor governing body,
as in effect from time to time, consistently applied.
"Guaranties" shall mean the Unlimited Guaranties and the Limited
Guaranties.
"Guarantor" shall mean any guarantor of all or any part of the Liabilities,
including without limitation, the Subsidiaries and the Limited Guarantors.
"Guidance Line Conversion Dates" means and includes any and all of the
following dates: September 30, 1997, December 31, 1998, May 31, 1999, and any
date on
-8-
<PAGE>
which the aggregate outstanding principal amount of all Guidance Loans is Twenty
Million and 00/100 Dollars ($20,000,000.00) or more.
"Guidance Line of Credit" shall have the meaning given to such term under
subsection 2.2.
- --------------
"Guidance Loans" shall have the meaning given that term in subsection 2.2.
--------------
"Guidance Notes" shall mean the Commercial Promissory Notes evidencing the
Guidance Loans, which are to be executed and delivered by the Borrower pursuant
to the provisions of subsection 2.2 below, as the same may be amended, modified,
--------------
supplemented, restated or extended from time to time.
"Hazardous Substances" shall mean hazardous substances, hazardous wastes,
hazardous waste constituents, hazardous materials, pesticides, oil and other
petroleum products, and toxic substances, including asbestos and PCBS, as those
terms are defined pursuant to Environmental Laws.
"Impermissible Qualification" means, relative to the opinion or
certification of any independent public accountant as to any financial statement
of the Borrower, any qualification or exception to such opinion or certification
(a) which is of a "going concern" or similar nature;
(b) which relates to the limited scope of examination of matters relevant
to such financial statement; or
(c) which relates to the treatment or classification of any item in such
financial statement and which, as a condition to its removal, would require an
adjustment to such item the effect of which would be to cause the Borrower to be
in default of any of its obligations under subsection 6.1 below.
--------------
"Indebtedness" shall mean without duplication, with respect to any Person:
(a) all obligations of such Person for borrowed money (including all
notes payable and drafts accepted representing extensions of credit) and
all obligations evidenced by bonds, debentures, notes or other similar
instruments on which interest charges are customarily paid;
(b) all obligations, contingent or otherwise, relative to the face
amount of all letters of credit, whether or not drawn, and banker's
acceptances issued for the account of such Person;
(c) all other items
-9-
<PAGE>
(i) which, in accordance with GAAP, would be included as
liabilities on the liability side of the balance sheet of such Person
(including any leasing or similar arrangement which is classified as a
capitalized lease) as of the date at which Indebtedness is to be
determined, and
(ii) which are incurred as a financing, whether or not in the
ordinary course of business;
(d) whether or not so included as liabilities in accordance with GAAP,
(i) all obligations of such Person to pay the deferred purchase
price of property or services and indebtedness (excluding prepaid interest
thereon) secured by a Lien on property owned or being purchased by such Person
(including indebtedness arising under conditional sales or other title retention
agreements), whether or not such indebtedness shall have been assumed by such
Person or is limited in recourse; provided, however, that, for purposes of
--------- -------
determining the amount of any Indebtedness of the type described in this clause,
if recourse with respect to such Indebtedness is limited to such property, the
amount of such Indebtedness shall be limited to the fair market value of such
property; and
(ii) all guaranties made by such Person; and
(e) net obligations under interest rate swap, exchange or cap
agreements.
"Insolvent" or "Insolvency" shall mean, with respect to any Person, when
any of the following events shall have occurred in respect of such Person:
admission in writing of its inability, or its general inability, to pay its
debts as they become due, dissolution, termination of existence, cessation of
normal business operations (other than a temporary cessation due to fire or
other casualty, acts of God, strike or other event not within the control of
such Person), insolvency, appointment of a receiver for any material part of the
property of, legal or equitable assignment, conveyance or transfer of, all or
substantially all of the property for the benefit of creditors by, or a
commencement of any proceedings under any bankruptcy or insolvency Laws or any
Laws relating to the relief of debtors, readjustment of Indebtedness,
reorganization, composition or extension by or against such Person, but shall
not include transactions permitted under subsection 7.3 .
--------------
"Inventory" shall mean all of the right, title, and interest of the
Borrower or any of its Subsidiaries in and to any and all inventory (as defined
in the Code), including without limitation, goods in transit, wheresoever
located, whether now owned or hereafter acquired and owned by the Borrower or
its Subsidiaries, which are held for sale or lease, furnished under any contract
of service or held as raw materials, work-in-process or supplies, and all
materials used or consumed in the Borrower's or such Subsidiary's business, and
shall include such property the sale or other disposition of which has given
rise to accounts
-10-
<PAGE>
receivable and which has been returned to, or repossessed or stopped in transit
by, the Borrower or any such Subsidiary.
"Investment" shall mean relative to any Person,
(a) any loan or advance made by such Person to any other Person
(excluding commission, travel and similar advances to officers and
employees made in the ordinary course of business);
(b) any payment made with respect to a Facility Agreement that is
required to be capitalized or is otherwise capitalized as a contract right
pursuant to GAAP;
(c) any guaranty of such Person; and
(d) any ownership or similar interest held by such Person in any
other Person.
The amount of any Investment shall be the original principal or capital amount
thereof less all returns of principal or equity thereon (and without adjustment
by reason of the financial condition of such other Person) and shall, if made by
the transfer or exchange of property other than cash, be deemed to have been
made in an original principal or capital amount equal to the fair market value
of such property.
"Joint Venture Interests" shall mean any interests in any joint venture,
partnership or trust which are, at the time, either directly or indirectly,
owned by the Borrower or any of its Subsidiaries, and which are more than fifty
percent (50%) of all of the outstanding interests of such joint venture,
partnership or trust.
"Joint Venture Pledge Agreements" shall mean the First Amended and Restated
Joint Venture Pledge Agreements, each dated as of the Closing Date, by and
between the Borrower and the Agent, which are to be executed and delivered in
accordance with the provisions of subsection 4.8 below, as the same may be
--------------
further amended, reaffirmed, modified, supplemented, restated or extended from
time to time, and any and all other pledge agreements which may in the future be
required to be executed and delivered by the Borrower or any Subsidiary in favor
of the Agent, in compliance with the provisions of subsection 3.1(f) below.
-----------------
"Law" shall mean any law (including common law), constitution, statute,
treaty, regulation, rule, ordinance, order, injunction, writ, decree, judgment
or award of any governmental body (including, without limitation, any court or
any administrative or regulatory agency).
"Letter of Credit" or "Letters of Credit" shall mean any one or more of the
letters of credit to be issued by the Agent under subsection 2.1(a) or
-----------------
subsection 2.3, which shall be
- --------------
-11-
<PAGE>
acceptable to the proposed beneficiary, and reference herein to "principal
amount" of such letters of credit shall mean the initial principal amount
thereof, whether drawn or undrawn.
"Letter of Credit Line" shall mean the credit facility which the Banks
extend to the Borrower under subsection 2.3.
--------------
"Letter of Credit Loan" shall have the meaning given to that term in
subsection 2.3.
- --------------
"Liabilities" shall mean all of the Borrower's and its Subsidiaries'
liabilities, obligations, and indebtedness to the Banks or the Banks'
Affiliates, of any and every kind and nature, whether heretofore, now or
hereafter owing, arising, due or payable and howsoever evidenced, created,
incurred, or acquired, whether primary, secondary, direct or indirect, absolute
or contingent, fixed or otherwise (including obligations of performance under
and the requirement to reimburse draws on Letters of Credit) and whether arising
or existing under written agreement or by operation of Law as a result of the
Borrower's and its Subsidiaries' Indebtedness and obligations to the Banks under
this Agreement or any of the other Loan Documents, as they may be amended,
modified, supplemented, restated or extended from time to time.
"LIBOR" shall have the meaning given that term in the Notes.
"License or Licenses" shall have the meaning given to that term in
subsection 5.20(b).
- ------------------
"Lien" shall mean any mortgage, deed of trust, pledge, lien, security
interest, charge or encumbrance or security arrangement of any nature
whatsoever, whether arising by written or oral agreement or by operation of Law,
including but not limited to any conditional sale or title retention
arrangement, and any assignment, deposit arrangement or lease intended as, or
having the effect of, security.
"Limited Guaranties" shall mean the First Amended and Restated Limited
Guaranties, each dated as of the Closing, from each of the Orange County Joint
Venture and the Oregon Joint Venture, in favor of the Banks, which are to be
executed and delivered in accordance with the provisions of subsection 4.8
--------------
below, as the same may be further reaffirmed, amended, modified, supplemented,
restated or extended from time to time and any and all other limited guaranties
which may in the future be executed and delivered by any Person in favor of the
Banks.
"Limited Guarantors" shall mean each of the Orange County Joint Venture and
the Oregon Joint Venture, and any and all other Persons who may in the future
execute and deliver, Limited Guaranties in favor of the Banks.
-12-
<PAGE>
"LLC Pledge Agreements" shall mean the First Amended and Restated LLC
Pledge Agreement, dated as of the Closing Date, by and between the Borrower and
Agent, which is to be executed and delivered in accordance with the provisions
of subsection 4.8 below, as the same may be further amended, reaffirmed,
--------------
modified, supplemented, restated or extended from time to time, and any and all
other pledge agreements which may in the future be required to be executed and
delivered by the Borrower or any Subsidiary in favor of the Agent, in compliance
with the provisions of subsection 3.1(g) below.
-----------------
"Loan Account" shall mean the account on the books of the Agent in which
will be recorded Loans and advances made to the Borrower, issued by the Agent
to, or for the benefit of, the Borrower pursuant to this Agreement or any of the
other Loan Documents, payments made on such Loans and other appropriate debits
and credits as provided by this Agreement or any of the other Loan Documents.
"Loan" or "Loans" shall mean one or more advances made to the Borrower
pursuant to Section 2 and the issuance of Letters of Credit (whether drawn or
---------
undrawn) pursuant to Section 2.
---------
"Loan Documents" shall mean this Agreement, the Notes, the Letters of
Credit, and all agreements, instruments and documents referenced in Section 3
---------
hereof and any related subordination agreements, intercreditor agreements,
powers of attorney, consents, security agreements or financing statements,
whether heretofore, now, or hereafter executed by or on behalf of the Borrower,
any Subsidiary of the Borrower, any Affiliate of the Borrower, any Guarantor or
any other Person and delivered to the Agent or any Bank in connection with the
Loans, all as may be amended, modified, supplemented, restated or extended from
time to time.
"Manage" or "Management" shall mean to generate, handle, manufacture,
process, treat, store, use, re-use, refine, recycle, reclaim, blend or burn for
energy recovery,
incinerate, accumulate speculatively, transport, transfer, dispose of, Release,
threaten to Release or abandon Hazardous Substances.
"Material Adverse Effect" or "Material Adverse Change" shall mean, with
respect to any Person, an effect, resulting from any occurrence of whatever
nature (including, without limitation, any adverse determination in litigation,
arbitration or governmental investigation or proceeding), materially adverse to
the business, financial condition, operations or prospects of such Person and
its Subsidiaries, taken as a whole.
"Membership Interests" shall mean any membership interests in any limited
liability company which are, at the time, either directly or indirectly, owned
by the Borrower or any of its Subsidiaries, and which are more than fifty
percent (50%) of all of the outstanding membership interests of such limited
liability company.
-13-
<PAGE>
"Moody's" shall mean Moody's Investors Service, Inc. or any other entity
succeeding to any or all of its functions.
"Multiemployer Plan" shall mean any "multiemployer plan" within the meaning
of Section 3(37) of ERISA and to which the Borrower or any ERISA Affiliate has
or had any obligation to contribute.
"NASD" shall mean the National Association of Securities Dealers, Inc. or
any other entity succeeding to any or all of its functions.
"Net Contract Proceeds" shall mean, with respect to the sale, cancellation,
termination or other discontinuation of any Facility Agreement with any Person
at any time, the sum of (a) (i) the gross cash proceeds received by the Borrower
or any of its Subsidiaries from or on account of such Person as a result thereof
and, without duplication, (ii) all payments received by the Borrower or any of
its Subsidiaries on account of Indebtedness owing to any of them from such
Person (including payments on Notes Receivable) less (b) (i) all reasonable
----
legal, accounting and other professional fees, costs and expenses incurred in
connection therewith, (ii) all taxes actually paid or estimated by the Borrower
(in good faith) to be payable in connection therewith and (iii) all payments
made at such time (and not at any earlier time) by the Borrower or any of its
Subsidiaries to such Person in order to repay or otherwise retire Indebtedness
incurred in connection with such Facility Agreement.
"Net Income" or "Net Loss" for any fiscal period of the Borrower shall mean
income or loss of the Borrower and its Subsidiaries, taken as a whole, after
deduction of all expenses, taxes and other proper charges, as would be set forth
on a consolidated income statement of the Borrower and its Subsidiaries for such
fiscal period, prepared in accordance with GAAP.
"Net Worth" shall mean, at any time, the excess by which the value of all
of the assets of Borrower and its Subsidiaries, taken as a whole, exceeds the
total of all the liabilities of the Borrower and its Subsidiaries, taken as a
whole, as determined on a consolidated basis, in accordance with GAAP.
"New Project" shall have the meaning given to that term in subsection
----------
4.5(a).
- ------
"Northwest Acquisition Indebtedness" means the Indebtedness of the Borrower
to Robert F. Barney in the original principal amount of One Million Three
Hundred Fifty Thousand and 00/100 Dollars ($1,350,000.00).
"Notes" shall mean the Working Capital Notes and the Guidance Notes.
"Notes Receivable" shall mean any promissory note (or related bond or
letter of credit), or similar agreement or arrangement by any Person to pay
money to the Borrower or any of its Subsidiaries under the terms of or in
connection with a Facility Agreement.
-14-
<PAGE>
"Offshore Subsidiary" means a Subsidiary of the Borrower which is
established, organized or otherwise formed outside the United States of America.
"Ongoing Investments" shall have the meaning given to that term in
subsection 7.6.
- --------------
"Operating Cash Flow" shall mean, for the Borrower and its consolidated
Subsidiaries, determined in accordance with GAAP, earnings before interest
expense, depreciation and amortization (net of all applicable taxes), less the
following (net of all applicable taxes): (i) any reversal of any contingency
reserve (other than as allowed by GAAP), (ii) all extraordinary gains and
losses, (iii) all gains and losses from acquisitions, sales, exchanges and
dispositions of property not in the ordinary course of business, (iv) any gain
or loss arising from the collection of the proceeds of any insurance policy, (v)
any gain or loss resulting from the write-up of any property and (vi) any non-
recurring credit or charge items.
"Orange County Joint Venture" means Fine Host/R&N/A Cup Above Joint
Venture, a joint venture organized pursuant to a certain Joint Venture
Agreement, dated 1994, by and among (a) the Borrower, (b) Ronald O. Rogers and
Tyrone W. Nabbie d/b/a R&N Management Services and (c) Ellen Korbin d/b/a A Cup
Above.
"Oregon Joint Venture" means Fine Host/S. Brooks & Associates Joint Venture
, a joint venture organized pursuant to a certain Joint Venture Agreement, dated
May, 1995, by and between the Borrower and S. Brooks & Associates, Inc. an
Oregon corporation.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
under Title IV of ERISA or any other governmental agency, department or
instrumentality succeeding to the functions of said corporation.
"Person" shall mean any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, entity, party, or government (whether
national, federal, state, provincial, county, city, municipal or otherwise,
including without limitation any instrumentality, division, agency, body or
department thereof).
"Plan" shall mean any employee pension or benefit plan (other than a
Multiemployer Plan) to which Section 4021(a) of ERISA applies and (a) which is
maintained for employees of the Borrower or any of its ERISA Affiliates; or (b)
to which the Borrower or any of its ERISA Affiliates made, or was required to
make, contributions at any time within the preceding five years.
"Pledge Agreements" shall mean the Stock Pledge Agreements, the Joint
Venture Pledge Agreements and the LLC Pledge Agreements.
-15-
<PAGE>
"Prohibited Transaction" shall mean with respect to any Plan any
transaction described in Section 406 of ERISA which is not exempt by reason of
Section 408 of ERISA or the transitional rules set forth in Section 414(c) of
ERISA and any transaction described in Section 4975(c)(1) of the Tax Code which
is not exempt by reason of Section 4975(c)(2) or Section 4975(d) of the Tax
Code, or the transitional rules of Section 2003(c) of ERISA.
"Project Costs" shall mean, with respect to any New Project or Contract
Extension (as defined in subsection 4.5), the sum of the following items, to the
--------------
extent required by the Facility Agreement associated with the New Project or
Contract Extension: (a) Capital Expenditures, in accordance with GAAP, (b) costs
capitalized as contract rights pursuant to GAAP, and (c) Notes Receivable.
"Registration Statement" shall have the meaning set forth in subsection
----------
5.16.
- ----
"Regulatory Change" shall mean, with respect to any Bank, any change after
the date of this Agreement in Federal, state or foreign law or regulations
(including, without limitation, Regulation D of the Federal Reserve Board) or
the adoption or making after such date of any interpretation, directive or
request applying to a class of banks including such Bank of or under any
Federal, state or foreign law or regulations (whether or not having the force of
law and whether or not failure to comply therewith would be unlawful) by any
court or governmental or monetary authority charged with the interpretation or
administration thereof.
"Release" shall mean any actual or threatened spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injection, escaping, leaching, dumping
or disposing of Hazardous Substances into the environment, as the term
'environment' is defined in CERCLA.
"Reportable Event" shall mean (a) a reportable event described in Section
4043 of ERISA and regulations thereunder, for which the obligation to give
notice to the PBGC has not been waived by the PBGC in accordance with applicable
regulations, (b) a withdrawal by a substantial employer from a single-employer
plan which is a Plan and which has two or more contributing sponsors at least
two of which are not under common control, as referred to in Section 4063(b) of
ERISA, or (c) a cessation of operations at a facility causing more than twenty
percent of plan participants to be separated from employment, as referred to in
Section 4068(f) of ERISA.
"Respond" or "Response" shall mean any action taken pursuant to
Environmental Laws to correct, remove, remediate, clean up, prevent, mitigate,
monitor, evaluate, investigate or assess the Release of a Hazardous Substance.
"SEC" shall mean the United States Securities and Exchange Commission or
any other federal governmental agency which may hereafter perform its functions.
-16-
<PAGE>
"Securities Laws" shall have the meaning given to that term in subsection
----------
5.25.
- ----
"Security Agreements" shall mean the First Amended and Restated Security
Agreements - All Property, each dated as of the Closing Date, by and between the
Borrower or the applicable Subsidiary and the Agent, which are to be executed
and delivered in accordance with the provisions of subsection 4.8 below, as the
--------------
same may be further amended, reaffirmed, modified, supplemented, restated or
extended from time to time, and any and all other security agreements which may
in the future be required to be executed and delivered by the Borrower or any
Subsidiary in favor of the Agent, in compliance with the provisions of
subsection 3.1(a) below.
- -----------------
"Special Events" shall have the meaning given to that term in subsection
----------
4.5(c).
- ------
"Special Texas Corporations" shall mean (a) Convention Beverages, Inc., a
Texas corporation, (b) Fine Host of Texas, Inc., a Texas corporation, and (c)
each other company incorporated under the laws of the State of Texas in which
the Borrower enters into an arrangement, on terms reasonably satisfactory to the
Agent, for substantially the same purpose that it has entered into Texas
Management Agreements with the corporations referred to in clauses (a) and (b)
----------- ---
of this definition.
"Standard & Poor's" means Standard & Poor's Corporation or any other entity
succeeding to any or all of its functions.
"Stock" shall mean the capital stock of the Borrower and warrants, options,
or other rights to purchase or acquire the capital stock of the Borrower.
"Stock Pledge Agreements" shall mean , the First Amended and Restated Stock
Pledge Agreement, dated as of the Closing Date, by and between the Borrower and
the Agent, which is to be executed and delivered in accordance with the
provisions of subsection 4.8 below, as the same may be further amended,
--------------
reaffirmed, modified, supplemented, restated or extended from time to time, and
any and all other stock pledge agreements which may in the future be required to
be executed and delivered by the Borrower or any Subsidiary in favor of the
Agent, in compliance with the provisions of subsection 3.1(e) below.
-----------------
"Subordinated Debt" shall mean liabilities, if any, of the Borrower or any
of its Subsidiaries which are subordinated to the Liabilities upon such terms
and conditions as are satisfactory to the Designated Banks in their sole
discretion, including but not limited to the Indebtedness under the CFM Notes,
the Northwest Acquisition Indebtedness and the SWSI Acquisition Indebtedness,
which the Banks hereby acknowledge are upon terms and conditions satisfactory to
the Banks.
"Subordinated Debt Documents" shall mean all documents evidencing,
securing, or related to the Subordinated Debt.
-17-
<PAGE>
"Subsidiary" shall mean, at any time, any corporation of which at least 50
percent of the issued and outstanding capital stock having ordinary voting power
to elect a majority of the board of directors or other governing body of such
corporation (irrespective of whether at the time stock of any other class or
classes of such corporation shall have or might have voting power by reason of
the happening of any contingency) is at the time, directly or indirectly, owned
by the Borrower or any of its Subsidiaries, or any partnership or joint venture
of which more than fifty percent (50%) of the outstanding equity interests is at
the time, directly or indirectly, owned by the Borrower or any of its
Subsidiaries, including without limitation, each of the Orange County Joint
Venture and the Oregon Joint Venture.
"Subsidiary Stock" shall mean the capital stock of each of the Subsidiaries
and warrants, options, or other rights to purchase or acquire the capital stock
of each of the Subsidiaries.
"SWSI Acquisition Indebtedness" means (i) the Indebtedness of the Borrower
to William S. Smitherman and Joann McBride Smitherman in the original principal
amount of One Million Three Hundred Fifty Thousand and 00/100 Dollars
($1,350,000.00), and (ii) the Indebtedness of the Borrower to Edward G. Enos in
the original principal amount of Six Hundred Thirty-Seven Thousand Five Hundred
and 00/100 Dollars ($637,500.00).
"Tangible Capital Base" shall mean Net Worth, plus Subordinated Debt, less
intangibles (including without limitation, all contract rights other than those
contract rights which any of the clients or customers of the Borrower or its
Subsidiaries are obligated to repurchase upon the terms and conditions of any
applicable Facility Agreements) calculated in accordance with GAAP.
"Tax Code" shall mean the Internal Revenue Code of 1986, as amended, and
any successor statute of similar import, and rules and regulations thereunder,
in each case as in effect from time to time. References to sections of the Tax
Code shall be construed to refer to any successor sections as well.
"Termination Date" shall have the meaning set forth in subsection 2.8
--------------
hereof.
"Texas Management Agreements" shall mean, collectively, the Management
Services Agreement, dated May 20, 1992, between Convention Beverages, Inc. and
the Borrower and the Management Services Agreement, dated January 31, 1991,
between Fine Host of Texas, Inc. and the Borrower, and each other management
services agreement, reasonably satisfactory to the Designated Banks, entered
into with any corporation referred to in clause (c) of the definition of Special
Texas Corporations, as each of such agreements may be amended, modified,
supplemented, restated or extended from time to time.
"Unlimited Guaranties" shall mean the First Amended and Restated Unlimited
Guaranties, each dated as of the Closing Date, from each of the Subsidiaries
(other than the Orange County Joint Venture and the Oregon Joint Venture) in
favor of the Banks, which are
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<PAGE>
to be executed and delivered in accordance with the provisions of subsection 4.8
--------------
below, as the same may be further amended, reaffirmed, modified, supplemented,
restated or extended from time to time, and any and all other unlimited
guaranties which may in the future be required to be executed and delivered by
any Subsidiary (other than the Orange County Joint Venture and the Oregon Joint
Venture) in favor of the Banks, in compliance with the provisions of subsection
----------
3.1(c) below.
- ------
"Vehicles" shall mean any of the Borrower's rolling stock, motor vehicles
or other movable goods required by applicable Law in any jurisdiction where the
Borrower does business to be registered or titled.
"VGE" shall mean VGE Acquisition Corporation, an Ohio corporation.
"Working Capital Line" shall mean the credit facility which the Banks
extend to the Borrower under subsection 2.1.
---------------
"Working Capital Loans" shall mean at any time, the aggregate principal
amount, at such time, of the outstanding advances of the Banks to the Borrower
under subsection 2.1.
---------------
"Working Capital Notes" shall mean the Commercial Promissory Notes
evidencing the Working Capital Loans, which are to be executed and delivered by
the Borrower pursuant to the provisions of subsection 2.1 below, as the same may
--------------
be amended, modified, supplemented, restated or extended from time to time.
1.2 Accounting Terms. Any accounting terms used in this Agreement which
----------------
are not specifically defined herein shall have the meanings customarily given
to such terms in accordance with GAAP.
1.3 Other Terms Defined in the Uniform Commercial Code. All terms
--------------------------------------------------
contained in this Agreement (and which are not otherwise specifically defined
herein) shall have the meanings provided by the Code to the extent the same are
used or defined therein.
1.4 Construction. Unless the context of this Agreement otherwise clearly
------------
requires, references to the plural include the singular, references to the
singular include the plural, the term "including" is not limiting, and the term
"or" has the inclusive meaning represented by the phrase "and/or". The terms
"hereof," "herein," "hereunder" and similar terms in this Agreement refer to
this Agreement as a whole and not to any particular provision of this Agreement.
Section, subsection, clause, exhibit and schedule references are to this
Agreement unless otherwise specified.
2. LOANS.
-----
2.1 Working Capital Loans.
---------------------
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<PAGE>
(a) Subject to the terms and conditions hereof and in reliance upon the
representations and warranties of the Borrower and its Subsidiaries to the
Banks, the Banks hereby establish a line of credit facility in favor of the
Borrower in the maximum principal amount of Twenty Million and 00/100 Dollars
($20,000,000.00) (the "Working Capital Line"). Each Loan made under the Working
Capital Line (other than use of such line for one or more Letters of Credit as
provided herein) shall be referred to as a "Working Capital Loan". Prior to the
Termination Date, upon the Borrower's request made in the manner set forth in
subsection 4.1 and subject to the terms and conditions of Section 4, the Banks
- -------------- ----------
will make Working Capital Loans to the Borrower in such amounts as may be
requested by the Borrower, up to a total outstanding principal indebtedness
under such Working Capital Loans (and any Letters of Credit issued pursuant to
this subsection 2.1(a)) at any time of Twenty Million and 00/100 Dollars
-----------------
($20,000,000.00). In addition, provided (i) there is no Default or Event of
Default hereunder, (ii) the amount outstanding under the Working Capital Line is
less than Twenty Million Dollars ($20,000,000.00), and (iii) the Borrower is in
compliance with the requirements of Section 4 (and, with respect to the
---------
requested Letter of Credit, subsection 2.3), then the Borrower may request and
--------------
UST shall issue one or more Letters of Credit in compliance with subsection 2.3
--------------
and Section 4, in an aggregate amount for all such Letters of Credit not to
---------
exceed at any time the lesser of (x) Five Million and 00/100 Dollars
($5,000,000.00) and (y) the difference between the outstanding principal
indebtedness under the Working Capital Loans and Twenty Million and 00/100
Dollars ($20,000,000.00).
(b) Prior to the Termination Date, the Borrower may pay or prepay without
penalty or premium all or any portion of the Working Capital Loans made from
time to time hereunder, and subject to the terms and conditions herein provided,
may reborrow the amounts so paid or prepaid as provided in subsection 2.1(a).
-----------------
The Borrower agrees that if at any time the sum of the outstanding principal
amount of all Working Capital Loans and Letters of Credit issued pursuant to
subsection 2.1(a) shall exceed at any time the Working Capital Line, the
- -----------------
Borrower shall immediately pay the Agent for the benefit of the Banks such
amount as is necessary to eliminate such excess.
(c) The Working Capital Loans made to the Borrower by the Banks shall be
evidenced by six (6) Working Capital Notes (substantially in the form attached
hereto as Exhibit A), three of which are each in the principal amount of Four
---------
Million and 00/100 Dollars ($4,000,000.00) and made payable to UST, Sumitomo and
SSB, respectively and three of which are each in the principal amount of Two
Million Six Hundred Sixty-Six Thousand Six Hundred Sixty-Six and 66/100 Dollars
($2,666,666.66) and made payable to BBC, Mellon and BNY, respectively. The
outstanding principal, and all accrued and unpaid interest and other charges
thereon or incurred in respect thereof, shall be due and payable upon the
Termination Date. Each Working Capital Note shall bear interest (computed on
the basis of the actual number of days elapsed over a 360-day year) on the
unpaid principal amount thereof at a rate selected by the Borrower and equal (i)
to LIBOR for 30, 90 or 180 days plus two percent (2.00%) or (ii) to the Base
Lending Rate, all as specified in each Working Capital Note. Subject to the
terms and conditions contained in the Working Capital Notes, the Borrower shall
designate, from time to time, the portions of outstanding principal
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<PAGE>
of the Working Capital Loans which will accrue interest at LIBOR, and all other
principal under the Working Capital Loans not so designated shall accrue
interest at the Base Lending Rate. Interest on all Working Capital Loans
evidenced by the Working Capital Notes shall be payable monthly in arrears, as
provided in the Working Capital Notes.
(d) The Agent may, at its sole discretion, directly charge the Working
Capital Line for any fees owed to the Banks pursuant to this Agreement, or any
past due interest payments (after any applicable grace periods) owed to the
Banks pursuant to this Agreement, with notice to the Borrower at the time of
such charge. Provided there then exists no Event of Default, prior to directly
charging the Working Capital Line, the Agent shall give the Borrower not less
than fifteen (15) days prior notice of any fees due to the Banks and payable by
the Borrower as a result of services of any Person other than the Banks or their
direct employees.
(e) The proceeds of the Working Capital Loans shall be used solely for the
general corporate purposes of the Borrower and its Subsidiaries in the ordinary
course of their business (which shall include the reimbursement of any Letter of
Credit Loan) and for Letters of Credit issued pursuant to subsection 2.1(a), but
-----------------
in no event shall such proceeds be used for the payment of any of the following:
(i) The payment of principal on any loan (other than a Letter of
Credit Loan hereunder), whether to the Banks or any other Person;
(ii) For Project Costs funded by the proceeds of a Guidance Loan; or
(iii) Distributions or payments which are prohibited or restricted
(including payments which require the Banks to authorize such payments and
which have not been authorized) under the terms of this Agreement.
2.2 Guidance Loans.
--------------
(a) Subject to the terms and conditions hereof and in reliance upon the
representations and warranties of the Borrower and its Subsidiaries to the
Banks, the Banks hereby establish a guidance line of credit facility in favor of
the Borrower in the maximum principal amount of Fifty Five Million and 00/100
Dollars ($55,000,000.00) (the 'Guidance Line of Credit'). Each Loan made under
the Guidance Line of Credit shall be referred to as a "Guidance Loan". Prior to
the Termination Date, upon the Borrower's request made in the manner set forth
in subsection 4.5 and subject to the terms and conditions of Section 4, the
-------------- ----------
Banks will make Guidance Loans to the Borrower in such amounts as may be
requested by the Borrower, up to a total outstanding principal indebtedness
under such Guidance Loans at any time of not more than the maximum principal
amount of the Guidance Line of Credit.
(b) Prior to the Termination Date, the Borrower may pay or prepay without
penalty or premium all or any portion of the Guidance Loans made from time to
time
-21-
<PAGE>
hereunder, and subject to the terms and conditions herein provided, may reborrow
the amounts so paid or prepaid. The Borrower agrees that if at any time the sum
of the outstanding principal amount of all the Guidance Loans shall exceed at
any time the Guidance Line of Credit, the Borrower shall immediately pay the
Agent for the benefit of the Banks such amount as is necessary to eliminate such
excess. In addition, Guidance Loans shall be prepaid in accordance with the
terms of subsections 6.8 and 6.16 of this Agreement.
--------------- ----
(c) The Guidance Loans made to the Borrower by the Banks shall be
evidenced by six (6) Guidance Notes (substantially in the form attached hereto
as Exhibit B), three of which are each in the principal amount of Eleven Million
---------
and 00/100 Dollars ($11,000,000.00) and made payable to UST, Sumitomo and SSB,
respectively and three of which are each in the principal amount of Seven
Million Three Hundred Thirty-Three Thousand Three Hundred Thirty-Three and
33/100 Dollars ($7,333,333.33) and made payable to BBC, Mellon and BNY,
respectively. Up to and including the Guidance Line Conversion Date, interest on
the Guidance Loans (computed on the basis of the actual number of days elapsed
over a 360-day year) shall accrue on the unpaid principal amount thereof at a
rate equal to the Base Lending Rate in effect from time to time plus one-half
percent (0.5%). Until the Guidance Line Conversion Date, no principal shall be
due and payable on the Guidance Loans; Interest accruing on the Guidance Loans
shall be due and payable monthly, in arrears, as provided in each Guidance Note.
(d) Except as otherwise agreed to by all of the Banks, on each and every
Guidance Line Conversion Date, the aggregate principal amount of all Guidance
Loans outstanding on any such date (each a "Converted Amount") may no longer be
reborrowed under the Guidance Line of Credit and the Guidance Line of Credit
shall thereupon be reduced by such Converted Amount. From and after any such
date, the then outstanding principal amount of each of the Guidance Notes
evidencing such Converted Amount shall be payable in equal monthly installments
commencing on the first date of each month succeeding any such date based on a
loan with a term of sixty (60) months; together with interest (computed on the
basis of the actual number of days elapsed over a 360-day year) on the unpaid
principal amount thereof at a rate selected by the Borrower equal (i) to the
Base Lending Rate in effect from time to time plus one-half percent (0.5%) or
(ii) to LIBOR for 30, 90 or 180 days plus two and one-half percent (2.5%) all as
provided in each Guidance Note. All unpaid principal of each Guidance Note,
together with all accrued and unpaid interest thereon and all other charges
thereon or incurred in respect thereof shall be due and payable upon the
maturity date provided in such Guidance Note; provided however that the entire
-------- -------
principal balance of each Guidance Note, together with all accrued and unpaid
interest thereon and all other charges thereon and in respect thereof will be
due and payable on such earlier date, if any, upon which the Liabilities are
accelerated as provided in subsection 8.2.
--------------
(e) The proceeds of any Guidance Loan shall be used solely for the payment
of Project Costs required by a New Project or Contract Extension (as such terms
are defined in subsection 4.5 below), and which Project Costs shall be presented
--------------
and shown on the proposal
-22-
<PAGE>
given to the Agent in accordance with subsection 4.5, but in no event shall such
--------------
Proceeds be used for the payment of any of the following:
(i) The payment of principal, interest, or charges on any loan,
whether to the Banks or any other Person;
(ii) For payment of Working Capital Loans or Letter of Credit Loans;
or
(iii) Distributions or payments which are prohibited or restricted
(including payments which require the Banks to authorize such payments and
which have not been authorized) under the terms of this Agreement.
2.3 Letters of Credit Under Working Capital Line.
--------------------------------------------
(a) Subject to the terms and conditions hereof (including without
limitation the terms and conditions of subsection 2.1(a)) and in reliance upon
-----------------
the representations and warranties of the Borrower and its Subsidiaries to the
Banks, the Banks have agreed, as part of the Working Capital Line, to issue
either performance standby Letters of Credit or financial standby Letters of
Credit, in the maximum aggregate amount of Five Million Dollars ($5,000,000.00)
(the "Letter of Credit Line"). Each letter of credit issued under the Letter of
Credit Line pursuant to subsection 2.1(a) shall be referred to as a "Letter of
-----------------
Credit", and the issuance of any such Letter of Credit shall be a "Letter of
Credit Loan". Prior to the Termination Date, upon the request of the Borrower
(and if applicable, any Subsidiary) made in the manner set forth in, and subject
to the terms and conditions of, Section 4, UST, on behalf of the Banks, will
---------
issue its Letters of Credit on behalf of the Borrower or a Subsidiary as account
party for Persons named by the Borrower, in such amounts as may be requested by
the Borrower, so long as the total of (a) the undrawn amount of all outstanding
Letters of Credit is equal to or less than the maximum limit specified in
subsection 2.1(a).
- -----------------
(b) The amount of any draw on any Letter of Credit shall be due and
payable by Borrower to the Agent one Business Day after the Agent gives
telephonic or written notice of such draw to Borrower, and shall bear interest
from the date of such draw until the date which is one Business Day after the
date of such notice at the rate then selected by the Borrower as provided in the
Working Capital Notes, and thereafter at the default rate as set forth in the
Working Capital Notes.
(c) Any Letter of Credit issued by UST shall contain such terms and
conditions for draws thereon as UST, in its reasonable discretion, determines
are required given the circumstances and agreements associated with and related
to the issuance of such Letter of Credit, including without limitation the terms
and conditions contained in UST's standard Application for Commercial Letter of
Credit and Agreement, in the form attached hereto as Exhibit C or in any form
---------
adopted by UST in replacement or modification thereof subsequent to the date
hereof.
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<PAGE>
(d) The Borrower shall pay to the Agent, on the date of issuance of any
Letter of Credit, and on each annual anniversary of such issuance date if such
Letter of Credit is outstanding on such anniversary date, a fee of one and
one-half of one percent (1.5%) per annum multiplied by the stated outstanding
amount of the Letter of Credit (for the period outstanding) if such Letter of
Credit is issued as a performance standby Letter of Credit, or a fee of two and
one-quarter of one percent (2.25%) per annum multiplied by the stated amount
outstanding of the Letter of Credit (for the period outstanding) if such Letter
of Credit is issued as a financial standby Letter of Credit, as determined in
accordance with applicable banking regulations and based upon a 360-day year.
Each such fee shall be distributed by the Agent one-eighth of one percent
(.125%) to the Agent, with the balance of such fee to be distributed pro rata to
--- ----
the Banks (including UST). The fees required under this subsection 2.3(d) shall
-----------------
be in addition to the any other fees required under this Agreement or any of the
other Loan Documents.
(e) Each Letter of Credit shall specify a termination date, which date
shall be no later than May 31, 1999. The parties hereto acknowledge and agree
that UST has already issued the following Letters of Credit under the Letter of
Credit Line:
(i) a certain irrevocable Letter of Credit No. 5151 originally dated
as of April 29, 1993 for the account of the Borrower, for the benefit of
Barnett Bank of South Florida, N.A, which was subsequently reissued by UST
on February 15, 1996, and which is currently outstanding in the amount of
Five Hundred Thousand and 00/100 Dollars ($500,000.00), and has an expiry
date of February 15, 1997; and
(ii) a certain irrevocable Letter of Credit No. 5527 dated as of March
1, 1996, for the account of the Borrower, for the benefit of United States
Fidelity and Guaranty, and which is currently outstanding in the amount of
One Million and 00/100 Dollars ($1,000,000.00), and has an expiry date of
June 17, 1997.
(f) The proceeds of draws on any Letter of Credit shall not be used,
directly or indirectly, for any of the following purposes:
(i) The payment of principal, interest, or charges on any loan,
whether to the Banks or any other Person;
(ii) For payment of the Working Capital Loans or the Guidance Loans;
or
(iii) Distributions or payments which are prohibited or restricted
(including payments which require the Banks to authorize such payments)
under the terms of this Agreement.
(g) If required by a proposed beneficiary of a Letter of Credit, UST shall
provide security arrangements reasonably satisfactory to such proposed
beneficiary to support such Letter of Credit.
-24-
<PAGE>
2.4 Borrower's Loan Account. The Agent shall maintain a Loan Account for
-----------------------
the Borrower on its books in which shall be recorded (a) all Loans made by the
Agent to or for the Borrower pursuant to this Agreement or any of the other Loan
Documents, (b) all payments made by the Borrower on all such Loans and (c) all
other appropriate debits and credits as provided in this Agreement or any of the
other Loan Documents, including without limitation, all fees, charges, expenses
and interest. At the discretion of the Agent, the Borrower's Loan Account may
be segregated and accounted for on the basis of each Note, each Loan, or in
aggregate for all Loans. All entries in the Borrower's Loan Account shall be
made in accordance with the Agent's customary accounting practices as in effect
from time to time, and the debit balance reflected in the Loan Account shall be
rebuttably presumptive evidence of the amount owed to the Banks by the Borrower.
The Borrower promises to pay all of its obligations hereunder as such amounts
become due or are declared due pursuant to the terms of this Agreement.
2.5 Statements. All Loans made to the Borrower, and all other debits and
----------
credits provided for in this Agreement, shall be evidenced by entries made by
the Agent in its internal data control systems showing the date, amount and
reason for each such debit or credit. Until such time as the Agent shall have
rendered to the Borrower written statements of account as provided herein, the
balance in the Borrower's Loan Account, as set forth on the Agent's most recent
printout, shall be rebuttably presumptive evidence of the amounts due and owing
to the Banks by the Borrower. The Agent shall render to the Borrower a monthly
statement setting forth the balance of the Borrower's Loan Account, including
principal, interest, expenses and fees. Each such statement shall be subject to
subsequent adjustment by the Agent but shall, absent manifest errors or
omissions, be presumed correct and binding upon the Borrower.
2.6 Fees. The Borrower shall pay to the Agent at Closing a Facility
----
Fee in the amount of Three Hundred Seventy Five Thousand and 00/100 Dollars
($375,000.00), to be distributed by the Agent pro rata to the Banks. On the
--- ----
last day of each calendar quarter commencing June 30, 1996 to and including the
Termination Date, the Agent shall charge the Borrower an unused commitment fee
computed at the annual rate of one-quarter of one percent (0.25%) of the monthly
weighted average of the then available and unborrowed Working Capital Line and
of the then available and unborrowed Guidance Line of Credit in such calendar
quarter.
2.7 Method of Making Payments.
-------------------------
(a) Unless otherwise agreed in writing from time to time hereafter,
all payments which the Borrower is required to make to the Agent under this
Agreement or under any of the other Loan Documents shall be made in
immediately available Dollars not later than 12:00 p.m. local time in
Boston, Massachusetts on the date of payment at the Agent's office at 30
Court Street, Boston, Massachusetts 02108, or at such other place as the
Agent directs from time to time, or, in Agent's sole and absolute
discretion, by appropriate debits to the Loan Account. Payments received
by
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<PAGE>
the Agent after 12:00 p.m. (Boston time) shall be deemed to have been made
on the next succeeding Business Day.
(b) All payments made by the Borrower in connection with this
Agreement or any of the other Loan Documents shall be made free and clear
of, and without reduction for or on account of, any present or future stamp
or other taxes, levies, imposts, duties, charges, fees, deductions or
withholdings, together with any interest, penalties, or additions thereto,
now or hereafter imposed, levied, collected, withheld, or assessed by any
governmental entity. If, however, any such items are required by Law to be
deducted or withheld from any such payments to the Banks, the amount of
such payments shall be increased to the extent necessary in order that the
amount of such payment to the Banks (after payment of the applicable item)
shall equal the amount which would have been received by the Banks in the
absence of such item, or any such other amounts payable.
2.8 Term of this Agreement. The commitments of the Banks to make the
----------------------
Loans and of UST to issue Letters of Credit hereunder shall commence on the
Closing Date and continue through the earliest of (a) May 31, 1999, (b) the date
of acceleration of any of the Liabilities under subsection 8.2, and (c) the date
--------------
on which Borrower gives notice to the Banks of its desire to terminate the
obligations of the Banks to make Loans and of UST to issue Letters of Credit
under this Agreement (which notice shall only be effective if all Liabilities
have been paid in full, there are no outstanding Letters of Credit) and, in the
event that such termination occurs as a result of the sale of the Borrower's
business or a refinancing of the Loans from outside sources of funding (the
earliest of such dates is hereinafter referred to as the "Termination Date"),
each Bank shall have received its pro rata share of a cancellation fee (the
--- ----
"Cancellation Fee") equal to, for the applicable period set forth below, that
corresponding percentage set forth below of the total Loans committed to be made
hereunder:
Period Elapsed
from the Date hereof Percentage on which
to Termination Date Cancellation Fee is based
------------------- -------------------------
less than 12 months 3.5%
12 to 24 months 2.5%
more than 24 months 0.5%;
provided that all of the Agent's and the Banks' rights and remedies under this
- --------
Agreement and under any of the other Loan Documents (including all security
interests and guaranties created thereunder), shall survive the Termination Date
until all of the Liabilities have been paid in full. From and after the
Termination Date until all of the Liabilities shall have been fully paid and
satisfied, the Agent shall be entitled to retain its security interests in and
to all existing and future Collateral. Any provision of this Agreement to the
contrary notwithstanding, this Agreement shall continue to be effective or be
reinstated, as the case may be, if at any time any amount received by the Agent
or any Bank in respect of the Loans is rescinded or must otherwise be
-26-
<PAGE>
restored or returned by the Agent or by any Bank upon the Insolvency of the
Borrower or any of its Subsidiaries, all as though such payments had not been
made.
2.9 Limitation on Charges. It being the intent of the parties that the
---------------------
rate of interest and all other charges to the Borrower be lawful, if for any
reason the payment of a portion of the interest or other charges otherwise
required to be paid under this Agreement would exceed the limit which the Banks
may lawfully charge the Borrower, then the obligation to pay interest or other
charges by the Borrower shall automatically be reduced to such limit, and if any
amounts in excess of such limit shall have been paid, then such amounts shall be
applied to the outstanding Loans as a principal reduction, first to the Working
Capital Loans (including the Letter of Credit Loans) and, then to the Guidance
Loans, so that under no circumstances shall the interest or other charges
required to be paid by the Borrower hereunder exceed the maximum rate allowed by
Law.
2.10 Capital Adequacy Provisions. The Borrower shall pay directly to each
---------------------------
Bank from time to time on request such amounts as such Bank may reasonably
determine to be necessary to compensate such Bank (or, without duplication, the
bank holding company of which such Bank is a subsidiary) for any costs that it
reasonably determines are attributable to the maintenance by such Bank (or any
such bank holding company), pursuant to any law or regulation or any
interpretation, directive or request (whether or not having the force of law and
whether or not failure to comply therewith would be unlawful) of any court or
governmental or monetary authority ((i) following any Regulatory Change or (ii)
implementing any risk-based capital guideline or other requirement (whether or
not having the force of law and whether or not the failure to comply therewith
would be unlawful) heretofore or hereafter issued by any government or
governmental or supervisory authority implementing at the national level the
Basel Accord (including, without limitation, the Final Risk-Based Capital
Guidelines of the Board of Governors of the Federal Reserve System (12 C.F.R.
Part 208, Appendix A; 12 C.F.R. Part 225, Appendix A), and the Final Risk-Based
Capital Guidelines of the Office of the Comptroller of the Currency (12 C.F.R.
Part 3, Appendix A)), of capital in respect of its commitments or loans (such
compensation to include, without limitation, an amount equal to any reduction of
the rate of return on assets or equity of such Bank (or any such bank holding
company) to a level below that which such Bank (or any such bank holding
company) could have achieved but for such law, regulation, interpretation,
directive or request). For purposes of this subsection 2.11 and Exhibit C,
--------------- ---------
"Basel Accord" shall mean the proposals for risk-based capital framework
described by the Basel Committee on Banking Regulations and Supervisory
Practices in its paper entitled "International Convergence of Capital
Measurement and Capital Standards" dated July 1988, as amended, modified and
supplemented and in effect from time to time, or any replacement thereof.
2.11 Additional Collateral Following Termination. At any time that the
--------------------------------------------
Working Capital Line is terminated pursuant to subsection 8.2 or otherwise, the
--------------
Borrower shall furnish the Agent, for deposit in a cash collateral account
maintained at the Agent for the ratable benefit of the Banks, adequate cash
reserves for the benefit of the Banks on the Termination Date in the amount of
any Letters of Credit then outstanding which have an expiration date which
extends
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<PAGE>
beyond the Termination Date, or the Borrower must otherwise provide for a
financial institution acceptable to the Banks to (x) issue a letter of credit in
form and substance satisfactory to the Banks, naming the Banks as "beneficiary"
therein, or, at the option of the Banks, (y) otherwise indemnify the Banks
against loss in connection with outstanding Letters of Credit, pursuant to
indemnification documentation in form and substance satisfactory to the Banks.
3. SECURITY FOR THE LIABILITIES; GUARANTIES.
----------------------------------------
3.1 Security. The Notes, the Liabilities and any other obligations of the
--------
Borrower to the Banks hereunder or under any of the Loan Documents shall be
secured by and entitled to the benefits of the following:
(a) a first priority security interest in all of the right, title,
and interest of the Borrower and its Subsidiaries in all tangible and
intangible personal property and fixtures of the Borrower and its
Subsidiaries pursuant to the Security Agreements signed by each of them.
(b) an Assignment of Receivables and Proceeds from the Borrower and
each of its Subsidiaries, assigning to the Agent as Collateral all right,
title, and interest of the Borrower and its Subsidiaries in and to the
proceeds from certain agreements relating to its business (including but
not limited to all rights for payment and collection of moneys, both in the
normal and ordinary course and as a result of breach or termination of any
Facility Agreement) except that the Assignment shall be an absolute and
unconditional assignment to the Agent (and not for security purposes only)
of all prepayments made on Notes Receivable and Net Contract Proceeds
financed by Guidance Loans (up to the total outstanding principal amount of
such Guidance Loans);
(c) an Unlimited Guaranty of payment and performance by each of the
Subsidiaries (other than the Orange County Joint Venture and the Oregon
Joint Venture);
(d) a Limited Guaranty of each of the Limited Guarantors (including
without limitation, the Orange County Joint Venture and the Oregon Joint
Venture);
(e) a Stock Pledge Agreement from the Borrower (and any Subsidiary
that owns any Subsidiary Stock) pledging all of the Subsidiary Stock;
(f) a Joint Venture Pledge Agreement from the Borrower (and any
Subsidiary that owns any Joint Venture Interest) pledging all of the Joint
Venture Interests; and
(g) a LLC Pledge Agreement from the Borrower (and any Subsidiary that
owns any Membership Interest) pledging all of the Membership Interests.
Subject to the terms of the applicable Loan Document with respect to the
rights granted thereunder as to specific Collateral, the Borrower agrees to take
such actions as may be
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<PAGE>
necessary from time to time to cause the Agent, on behalf of the Banks, to be
secured by and entitled to the benefits of the Loan Documents described in this
subsection, including without limitation, obtaining consents of any third
parties. Each of the Loan Documents described in this subsection shall be
satisfactory in form and substance to the Banks and their respective counsel.
3.2 Chattel Paper Instruments. Promptly after receipt thereof by the
-------------------------
Borrower, the Borrower shall deliver or cause to be delivered to the Agent with
appropriate endorsement and assignment to the Agent, with full recourse to the
Borrower, and possession in the Agent for security purposes only, all chattel
paper and instruments which the Borrower now owns or may at any time or times
hereafter acquire.
3.3 Vehicles. Upon the request of the Agent or the Designated Banks, the
--------
Borrower will promptly deliver to the Agent the original title certificates for
all titled or registered motor vehicles or rolling stock now owned or hereafter
acquired by the Borrower. The Borrower agrees to take all steps necessary to
keep all of its vehicles and rolling stock titled and adequately insured in its
state of registration. The Borrower will promptly notify the Agent of any
additions to its vehicles or rolling stock. Upon the request of the Agent, the
Borrower will execute such agreements and documents as are necessary to reflect
the Agent's Liens on such vehicles and rolling stock.
3.4 Equipment. With respect to all Equipment of the Borrower, the
---------
Borrower and each Subsidiary warrants that (a) except as disclosed on Schedule
--------
3.4, as supplemented from time to time by an Acceptable Supplement, it is owned
- ---
by the Borrower or a Subsidiary, is located on one of the premises listed on
Schedule 3.4, as so supplemented, or, in the case of any vehicles or rolling
- ------------
stock, is based at one of the premises listed on Schedule 3.4, as so
-------------
supplemented, and that the Borrower or such Subsidiary has the right to subject
the same to a Lien in favor of the Agent; (b) it is not subject to any Lien
except that of the Agent hereunder and except as specifically permitted
hereunder; and (c) as of the date of execution hereof, it is in good condition
and repair and is currently used or usable in the Borrower's or such
Subsidiary's business, and thereafter, if and to the extent not in good
condition and repair, shall be repaired, replaced, or sold (consistent with the
terms of this Agreement) as required under the applicable Facility Agreements.
3.5 Equipment Records. The Borrower and each Subsidiary shall at all
-----------------
times hereafter keep correct and accurate records itemizing and describing the
kind, type, age and condition of all Equipment, the Borrower's or such
Subsidiary's cost therefor and accumulated depreciation thereon; and
retirements, sales, or other dispositions thereof, all of which records shall be
available during the Borrower's usual business hours at the request of the
Agent.
3.6 Safekeeping of Equipment. Except as required by the Code, the Agent
------------------------
and the Banks shall not be responsible for: (a) the safekeeping of the
Equipment; (b) any loss or damage to such Equipment; (c) any diminution in the
value of such Equipment; or (d) any act or default of any repairmen, bailee or
any other Person with respect to such Equipment. All risk of loss,
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<PAGE>
damage, destruction or diminution in value of such Equipment shall be borne by
the Borrower and its Subsidiaries.
3.7 Maintenance of Properties. The Borrower and its Subsidiaries shall
-------------------------
maintain or cause to be maintained in good repair, working order and condition,
ordinary wear and tear excepted, the properties now or hereafter owned, leased,
or otherwise possessed by it and shall make or cause to be made all needful and
proper repairs, renewals, replacements and improvements thereto, except to the
extent that the failure to maintain such properties could not have a Material
Adverse Effect on the Borrower and its Subsidiaries.
4. CONDITIONS OF ADVANCES
----------------------
Any other provisions contained in this Agreement notwithstanding, the
making of any Loan provided for in this Agreement (which shall include the
issuance of any Letter of Credit) shall be conditioned upon the following:
4.1 Borrower's Request. The Agent shall have received, by at least
------------------
eleven o'clock (11:00 a.m.) (New York City time) in Boston, Massachusetts, on
the Business Day on which an advance is requested to be made hereunder in the
case of a Working Capital Loan (except as otherwise provided in the applicable
LIBOR provisions, if any, contained in the Notes) or the issuance of a Letter of
Credit, and three Business Days prior to the day on which an advance is
requested to be made hereunder in the case of a Guidance Loan (except as
otherwise provided in the applicable LIBOR provisions, if any, contained in the
Notes), (a) a telephonic request or written request from any Person authorized
by the Borrower pursuant to a written list provided to the Agent, for an advance
in a specific amount, and (b) all documents not previously delivered and
required to be delivered to the Agent, at or prior to the time of such advance,
under this Agreement or any of the other Loan Documents. The Agent shall not be
liable to the Borrower or any other Person as the result of acting on any
telephonic request which the Agent believes in good faith to have been made by
any Person authorized by the Borrower pursuant to such written list.
4.2 Financial Condition. No Material Adverse Change in the Borrower and
-------------------
its Subsidiaries shall have occurred at any time or times subsequent to the most
recent Financial Statements provided pursuant to this Agreement.
4.3 No Event of Default. After giving effect to the requested Loan or the
-------------------
issuance of the requested Letter of Credit, neither a Default nor an Event of
Default shall have occurred and be continuing.
4.4 Representations and Warranties. The representations and warranties
------------------------------
contained herein and in each of the other Loan Documents shall be true and
correct as if made on and as of the date of such Loan, as modified by any
supplemental Schedules filed by Borrower or any of its Subsidiaries from time to
time, provided that any Financial Statements shall relate only to the date or
dates as of which information is presented therein and, with respect to other
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<PAGE>
information, if and to the extent it relates to an earlier date, then it shall
be true and correct as of that earlier date.
4.5 Additional Conditions for Approval of Guidance Loan.
---------------------------------------------------
(a) With respect to requests for a Guidance Loan, the Borrower shall
have submitted to the Agent (and with respect to a Guidance Loan for which
the Banks' prior approval is required pursuant to subsection 4.5(e), the
-----------------
Banks shall have approved in writing in their discretion) a proposal for
the financing of a Facility Agreement for: (i) (A) a facility not
theretofore serviced by the Borrower or any of its Subsidiaries, (B) a
one-time-only special event at any facility which shall not be included
within the scope of a Facility Agreement existing as of the date of this
Agreement, (C) a material expansion of size of a facility or scope of
service under a Facility Agreement, or (D) the acquisition of concession,
license, management or other food and beverage service agreements from a
Person, directly, or indirectly, through the purchase of stock or assets of
a Person (each, a "New Project"), or (ii) the extension of any Facility
Agreement then being serviced by the Borrower or any of its Subsidiaries (a
"Contract Extension"). Any existing Facility Agreement which is put out
for bid by the other parties thereto and on which the Borrower, its
Subsidiaries, and any other Persons may bid at the end of its term shall be
considered a New Project rather than a Contract Extension.
(b) Each such proposal for a New Project or a Contract Extension
shall consist of the following: (i) a copy of the Facility Agreement if it
exists, otherwise the proposed form of the Facility Agreement which will be
in effect upon the commencement of the term thereof, if it exists; (ii) a
detailed itemization of the Project Costs of such New Project or Contract
Extension, including a separate itemization of the use of all the proceeds
of such Guidance Loan; (iii) copies of all market studies, pro forma
--- -----
financial statements, and business plans and studies prepared in connection
with such New Project or Contract Extension, as the case may be; (iv) a
separate itemization of Project Costs, prepared by the Borrower and
certified as accurate by Borrower's president or chief financial officer,
identifying the capitalization period for such Project Costs (the
"Capitalization Period"); and (v) such other information as the Agent in
its reasonable discretion may request.
(c) With respect to a New Project: (i) the aggregate principal amount
of the requested Guidance Loan shall (subject to subsection 4.5(e)) not
-----------------
exceed eighty percent (80%) of Project Costs; and (ii) during the
immediately preceding six-month period, the Borrower and its Subsidiaries,
taken as a whole, cannot have entered into more than thirty (30) agreements
for New Projects (not including New Projects involving a one-time only
special events, which shall be referred to herein as "Special Events", or
acquisitions described in subsection 4.5(a)(i)(D)) or Contract Extensions
------------------------
without the consent of the Designated Banks; all references to permitted
numbers of New Projects in this paragraph (c) shall be increased by the
number of facilities as to which a Facility Agreement has terminated during
the applicable period;
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<PAGE>
(d) With respect to any Guidance Loan, the Borrower shall be in
compliance with the financial covenants set forth in subsection 6.1 after
--------------
giving effect to the requested Guidance Loan.
(e) The Designated Banks may, in their sole discretion, approve or
disapprove any requested Guidance Loan which would require the Banks to
fund an aggregate of Two Million Five Hundred Thousand and 00/100 Dollars
($2,500,000.00) or more for Project Costs for any New Project or Contract
Extension or acquisitions described in subsection 4.5(a)(i)(D).
-----------------------
Notwithstanding the preceding sentence and subsection 4.5(c)(i), the
--------------------
aggregate principal amount of the requested Guidance Loan shall not exceed
ninety percent (90%) of Project Costs and the approval of the Designated
Banks shall only be required to fund an aggregate of Three Million Five
Hundred Thousand and 00/100 Dollars ($3,500,000.00) or more for Project
Costs for any New Project or Contract Extension or acquisitions described
in subsection 4.5(a)(i)(D) if (i) the total outstanding amount on the
-----------------------
Guidance Line of Credit is less than Twenty Million and 00/100 Dollars
($20,000,000.00) and (ii) the ratio of total Debt to total Operating Cash
Flow (including the amount of the requested Guidance Loan) is less than
2.00 to 1.00 as of the month-end that is not more than sixty (60) calendar
days prior to the time the Guidance Loan is to be funded. If the
requirements of only one of clauses (i) and (ii) of the preceding sentence
are met, then the requested principal amount of the requested Guidance Loan
shall not exceed eighty-five percent (85%) of Project Costs and such
approval of the Designated Banks shall be required for any requested
Guidance Loan which would require the Banks to fund an aggregate of Three
Million and 00/100 Dollars ($3,000,000.00). Notwithstanding any other
provision of this subsection 4.5(e), the approval of the Designated Banks
-----------------
shall be required for any acquisition described in subsection 4.5(a)(i)(D)
-----------------------
with a total valuation (based on stock or asset price and face amount of
issued and assumed debt) of Four Million and 00/100 Dollars ($4,000,000.00)
or more.
4.6 Additional Conditions for Approval of Working Capital Loans. With
-----------------------------------------------------------
respect to any Working Capital Loan, including the issuance of any Letter of
Credit pursuant to subsection 2.1(a), the Borrower shall be in compliance with
-----------------
the financial covenants set forth in subsection 6.1 after giving effect to the
---------------
requested Loan.
4.7 Other Requirements. The Agent shall have received, in form and
------------------
substance reasonably satisfactory to the Agent and its counsel, all
certificates, orders, authorities, consents, affidavits, schedules, instruments,
security agreements, financing statements, mortgages and other documents which
are provided for hereunder or under any of the other Loan Documents, and all
other information relating to the transaction reasonably requested by the Agent.
4.8 Additional Conditions for Making Loans. In addition to the foregoing,
--------------------------------------
the following shall be preconditions for the making of any Loan or the issuance
of any Letter of Credit under this Agreement:
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<PAGE>
(a) The Liabilities shall be senior indebtedness of Borrower and its
Subsidiaries for all purposes;
(b) The Borrower shall have paid all costs of the Banks in connection
with the making and closing of the Loans and the issuance of the Letters of
Credit, including but not limited to the fees and expenses of the Banks'
counsel and as set forth in subsection 6.6;
--------------
(c) The Borrower and each of its Subsidiaries shall have received all
Approvals and the same shall continue to be in full force and effect as of
the Closing Date;
(d) On or before the Closing Date, the Borrower and each of its
Subsidiaries (other than the Orange County Joint Venture and the Oregon
Joint Venture) shall have executed and delivered to the Agent the
following:
(i) First Amended and Restated Unlimited Guaranty, substantially
in the form attached hereto as Exhibit D;
---------
(ii) First Amendment and Restated Security Agreement - All
Assets, substantially in the form attached hereto as Exhibit E; and
---------
(iii) First Amended and Restated Assignment of Receivables
and
Proceeds, substantially in the form attached hereto as Exhibit F;
---------
(e) On or before the Closing Date, each of the Orange County Joint
Venture and the Oregon Joint Venture shall have executed and delivered to
the Agent the following:
(i) a First Amended and Restated Limited Guaranty, substantially
in the form attached hereto as Exhibit G;
---------
(ii) First Amendment and Restated Security Agreement - All
Assets, substantially in the form attached hereto as Exhibit H; and
---------
(iii) First Amended and Restated Assignment of Receivables
and
Proceeds, substantially in the form attached hereto as Exhibit I;
---------
(f) On or before the Closing Date, the Borrower shall have executed
and delivered to the Agent the following:
(i) First Amended and Restated Stock Pledge Agreement,
substantially in the form attached hereto as Exhibit J;
---------
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<PAGE>
(ii) First Amended and Restated LLC Pledge Agreement,
substantially in the form attached hereto as Exhibit K; and
---------
(iii) First Amended and Restated Joint Venture Pledge
Agreement, substantially in the form attached hereto as Exhibit L.
---------
5. REPRESENTATIONS AND WARRANTIES
------------------------------
In order to induce the Banks to enter into this Agreement and to make the
Loans and in order to induce UST to issue the Letters of Credit, the Borrower,
and its Subsidiaries, hereby jointly and severally represent and warrant that as
of the date of this Agreement, and continuing so long as any Liabilities remain
outstanding, and so long as this Agreement remains in effect:
5.1 Corporate Existence. Each of the Borrower and its Subsidiaries is a
-------------------
corporation duly organized and in good standing under the laws of its state of
incorporation and is duly qualified and licensed as a foreign corporation and in
good standing in all other states except where the failure to qualify and remain
in good standing would not have a Material Adverse Effect on the Borrower. All
such states of qualification as of the date hereof are listed on Schedule 5.1,
------------
which shall be supplemented in writing by the Borrower and its Subsidiaries from
time to time as may be necessary to maintain the accuracy and completeness of
the information required to be disclosed therein.
5.2 Corporate Authority.
-------------------
(a) Each of the Borrower and its Subsidiaries has all requisite
corporate power and authority, as applicable, to own and operate each of
their respective properties and to carry on each of their respective
businesses as now conducted and proposed to be conducted.
(b) The execution and delivery by each of the Borrower and its
Subsidiaries, as applicable, of this Agreement and all of the other Loan
Documents and the performance of each such entity's obligations hereunder
and thereunder: (i) are within each such entity's powers; (ii) are duly
authorized by each of their respective Boards of Directors and, if
necessary, by each of their respective shareholders; (iii) are not in
contravention of the terms of each of their Certificates of Incorporation
or Articles of Organization, or By-Laws, or any indenture, agreement or
undertaking to which the Borrower or any of its Subsidiaries is a party or
by which such entity or any of its property is bound; (iv) do not require
any governmental consent, registration or Approval or the giving of any
notice to, or the granting of any exemption by, any governmental authority
except as contemplated by the Loan Documents; (v) do not contravene any Law
or contractual or governmental restriction binding upon such corporation;
(vi) will not, except as contemplated herein, result in the imposition of
any Lien upon any property of
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<PAGE>
such entity under any Law or any existing indenture, mortgage, deed of
trust, loan or credit agreement or other material agreement or instrument
to which each such entity is a party or by which it or any of its property
may be bound or affected; and (vii) will not result in the cancellation,
modification, revocation or suspension of any Licenses, as defined in
subsection 5.20(b) which are material to the operation of the business of
------------------
the Borrower and its Subsidiaries, taken as a whole. Copies of the
Certificate or Articles of Incorporation and By-laws of each of the
Borrower and its Subsidiaries, with all amendments thereto to the date
hereof, have been furnished to the Agent, and such copies are accurate and
complete as of the date hereof.
5.3 Binding Effect. This Agreement and the other Loan Documents are the
--------------
legal, valid and binding obligations of each of the Borrower and its
Subsidiaries which is a party hereto or thereto, and are enforceable against
each of the Borrower and its Subsidiaries, as applicable, in accordance with
their respective terms.
5.4 Financial Data.
--------------
(a) The Borrower has furnished to the Agent its audited consolidated
financial statements, dated December 27, 1995, including the report and
opinion of Deloitte & Touche LLP, relating thereto (collectively, the
"Financials"), and its unaudited monthly schedules showing income and
expenses (excluding income taxes), for the four months ended April 24,
1996, copies of which are attached hereto as Schedule 5.4. All of the
------------
material liabilities (actual and contingent) of each of the Borrower and
its Subsidiaries, are fully, accurately and completely disclosed in the
Financials.
(b) All financial statements furnished herewith have been and all
financial statements to be furnished in accordance with subsection 6.1 will
--------------
be prepared in accordance with the books and records of the Borrower and
its Subsidiaries and fairly present or will fairly present, as applicable,
the financial condition of the Borrower and its Subsidiaries, taken as a
whole, at the dates thereof and the results of operations for the periods
indicated (subject, in the case of unaudited financial statements, to
normal year-end adjustments, none of which are expected to be material).
All of the Financials have been and all of the financial statements to be
provided hereunder will be prepared in conformity with GAAP.
(c) All information, reports and other papers and data furnished or
to be furnished to the Agent by the Borrower or any Subsidiary have been
and will be, at the time the same are so furnished to the Agent, accurate
and correct in all material respects and complete insofar as completeness
may be necessary to give the Agent a true and accurate knowledge of the
subject matter thereof. Since the date of the Financials, there has been
no Material Adverse Change with respect to the Borrower and its
Subsidiaries.
5.5 Tangible Assets. Attached as Schedule 5.5 hereto is a list of all of
--------------- ------------
the Borrower's and its Subsidiaries' right, title, and interest in and to
tangible assets, by location and category,
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<PAGE>
as of December 27, 1995, to be supplemented with each Financial Statement
required under subsection 6.2(a) by an Acceptable Supplement (as defined in
-----------------
subsection 5.6) with respect to items not previously listed, with an individual
- --------------
book value or estimated fair market value of Twenty-Five Thousand and 00/100
Dollars ($25,000.00) or more.
5.6 Title to Collateral. Except as disclosed on Schedule 5.6 and except
------------------- ------------
as contemplated in subsection 7.1, all of the Collateral is free and clear of
--------------
all Liens. Each of the Borrower and its Subsidiaries has good and valid title
to all of the assets reflected on its respective books and records as being
owned by it. All Collateral is and shall be kept only at the locations
specified on Schedule 5.6, as such Schedule may be supplemented, in writing by
------------
the Borrower or its Subsidiaries from time to time as may be necessary to
maintain the accuracy and completeness of the information required to be
disclosed therein, which supplement shall be acceptable to the Agent unless the
supplement reflects a Material Adverse Change of the Borrower (any such
supplement not indicating a Material Adverse Change of the Borrower or which is
otherwise acceptable to the Agent being referred to as an "Acceptable
Supplement"). The Agent's security interests in, pledge of and mortgages in the
Collateral covered by the Loan Documents have been duly perfected and, as
necessary, recorded and no security interests, pledges or mortgages shall exist
at the Closing with respect to such Collateral, other than the security
interests, pledges and mortgages granted to the Agent under the Loan Documents
or Liens permitted by this Agreement.
5.7 Real Property; Leases. All real property owned, leased, or
---------------------
occupied by the Borrower or any of its Subsidiaries, and all leases with respect
thereto, are disclosed on Schedule 5.7 attached hereto, as such Schedule may be
------------
supplemented in writing by an Acceptable Supplement. Except as set forth in
Schedule 5.7 or an Acceptable Supplement, each of the Borrower and its
- ------------
Subsidiaries enjoys peaceful and undisturbed possession of such property subject
to all leases, licenses for occupancy, or occupancy or use agreements of real
property, and all such leases, licenses for occupancy, or occupancy or use
agreements are valid and subsisting, in full force and effect; to the best
knowledge of Borrower and its Subsidiaries, no material default exists
thereunder; and all leases, licenses for use, or agreements for use of personal
property are valid and subsisting, in full force and effect, and no material
default exists thereunder.
5.8 Solvency. The Borrower and its Subsidiaries, taken as a whole, and
--------
(ii) the Borrower, when examined separately:
(1) will be able to pay its Indebtedness as the same becomes due,
including without limitation, all of the Liabilities;
(2) will have funds and capital sufficient to carry on its business as
now conducted or as contemplated to be conducted;
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<PAGE>
(3) owns property having a value both at fair valuation and at present
fair saleable value greater than the amount required to pay its debts as
they become due, including without limitation, all of the Liabilities; and
(4) is not Insolvent and will not be rendered Insolvent as determined
by the Uniform Fraudulent Conveyance Act, as adopted and in effect in the
Commonwealth of Massachusetts in Massachusetts General Laws, Chapter 109A,
Section 1, or any other applicable law.
When examined as a whole, neither the Borrower nor the Borrower and its
Subsidiaries, taken as a whole:
(1) (A) is Insolvent on the date hereof; or
(B) is engaged in business or a transaction, or is
about to engage in business or a transaction, for which, taking
into account any property remaining with the Borrower and its
Subsidiaries, they would, taken as a whole, have an unreasonably
small capital; or
(C) intends to incur, or believes that the Borrower and its
Subsidiaries would incur, Indebtedness that would be beyond the
ability of the Borrower and its Subsidiaries, taken as a whole,
to pay as such Indebtedness matures; or
(2) is transferring an interest in the Borrower or any of its
Subsidiaries, or incurring an obligation which, under Section 548 of the
Bankruptcy Code (Title 11 of the United States Code), may be avoided.
Neither the Borrower nor any of its Subsidiaries (a) is considering the filing
of a petition by it under any Insolvency Laws, or the liquidation of all or a
major portion of its respective properties; and (b) has any knowledge of any
Person contemplating the filing against any of them of any such petition.
5.9 Principal Place of Business. The principal places of business and
---------------------------
chief executive office of the Borrower and each of its Subsidiaries are the
addresses first set forth above in this Agreement. The Borrower shall notify
the Agent of any change thereof prior to such change. The books and records of
the Borrower and each of its Subsidiaries are located at the principal place of
business and chief executive office of the Borrower. The Borrower shall
promptly notify the Agent of any change thereof prior to such change.
5.10 Other Corporate Names. Neither the Borrower nor any of its
---------------------
Subsidiaries has used any corporate or fictitious name (including any tradename,
tradestyle, assumed name, division name or any similar name), other than the
corporate name shown on such
-37-
<PAGE>
corporation's Certificate of Incorporation or Articles of Organization or as
listed on Schedule 5.10 or disclosed in an Acceptable Supplement.
-------------
5.11 Tax Liabilities. The Borrower and each of its Subsidiaries has filed
---------------
all federal, state and local tax reports and returns required by any Law to be
filed thereby except for extensions duly obtained, and has paid all taxes,
assessments and other governmental charges levied upon each of their respective
properties, assets, income or franchises, other than those not yet delinquent
and those, not substantial in aggregate amount, reserved against, or those being
contested as permitted by subsection 6.5. The charges, accruals and reserves on
--------------
the books of each of the Borrower and its Subsidiaries in respect of each of
their respective taxes are adequate in the opinion of the Borrower, and each of
the Borrower and its Subsidiaries is not subject to any unpaid assessments for
additional taxes (other than any such assessments for amounts which would not
have a Material Adverse Effect on the Borrower) and do not know of any basis
therefor.
5.12 Loans. Except as disclosed on and set forth in the Financials or on
-----
Schedule 5.12 and except for trade payables and accrued expenses arising in the
- -------------
ordinary course of the Borrower's and its Subsidiaries' business since the date
of the latest Financials provided pursuant to subsection 5.4, neither the
--------------
Borrower nor any Subsidiary is obligated on any loans or other Indebtedness for
borrowed money as of the Closing Date (other than as permitted under subsection
----------
7.2).
- ---
5.13. Margin Securities. Neither the Borrower nor any Subsidiary owns
-----------------
any margin securities and none of the Loans advanced hereunder will be used for
the purpose of purchasing or carrying any margin securities or for the purpose
of reducing or retiring any Indebtedness which was originally incurred to
purchase any margin securities or for any other purpose not permitted by
Regulation G or U of the Board of Governors of the Federal Reserve System. If
requested by the Agent, the Borrower and its Subsidiaries will furnish the Agent
with a statement in conformity with the requirements of Federal Reserve Form G-1
or U-1 referred to in said Regulation. No part of the proceeds of the Loans to
be made hereunder will be used by the Borrower or any of its Subsidiaries for
any purpose which violates, or which is inconsistent with, the provisions of
Regulation X of said Board of Governors.
5.14 Subsidiaries; Divisions. Except as disclosed on Schedule 5.14, as the
----------------------- -------------
same may be supplemented in writing from time to time, the Borrower has no
Subsidiaries (including without limitation, no Offshore Subsidiaries) and is not
engaged in any joint venture or partnership with any other Person. Neither the
Borrower nor any of its Subsidiaries owns or holds, directly or indirectly, any
capital stock or equity security of, or any equity interest in, any Person other
than as disclosed on Schedule 5.14, as so supplemented.
-------------
5.15 Litigation and Proceedings. Except as disclosed on Schedule 5.15, no
-------------------------- -------------
judgments are outstanding against the Borrower or any of its Subsidiaries nor is
there now
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<PAGE>
pending or, to the knowledge of the Borrower or any Subsidiary, threatened, any
litigation, contested claim, or federal, state or municipal governmental
proceeding by or against the Borrower or any of its Subsidiaries or, to the best
of each of their knowledge after due inquiry, any basis therefor, which
litigation, claim or proceeding could reasonably be expected to result in a
Material Adverse Effect. The Borrower and its Subsidiaries shall supplement
such schedule with an Acceptable Supplement from time to time which schedule
shall be deemed an Acceptable Supplement if all material threatened or pending
litigation and proceedings (including but not limited to all material threatened
or pending litigation and proceedings between the Borrower or a Subsidiary and
another party to a Facility Agreement) are accurately described therein.
5.16 Registration Statement.
-----------------------
(a) The Borrower's Registration Statement (No. 333-2906) on Form S-1
filed with the SEC on March 29, 1996, as amended (the "Registration
Statement"), and the final Prospectus included therein, do not contain any
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(b) No representation or warranty made by the Borrower herein or in
any other certificate furnished from time to time in connection herewith,
contains or will contain any misrepresentation of a material fact or omits
or will omit to state any material fact necessary to make the statements
herein or therein (taken as a whole in conjunction with all such documents)
not misleading when made. To the best of the Borrower's knowledge, there
is no condition specific to the business of the Borrower which adversely
affects, or which would in the future adversely affect, the business,
operations, property or financial condition of the Borrower in a manner
which would materially adversely affect the Collateral or the Borrower's
ability to perform its obligations under this Agreement or any of the other
Loan Documents.
5.17 Material Agreements. Attached as Schedule 5.17 hereto is a true,
------------------- -------------
complete and accurate list of all material agreements as of the Closing Date
(including all amendments thereto), oral or written, involving the payment or
expenditure of One Hundred Thousand and 00/100 Dollars ($100,000.00) or more
(other than sales or purchase orders entered into in the ordinary course of
business of the Borrower or any of its Subsidiaries) (i) to which the Borrower
or any of its Subsidiaries is a party, (ii) by which any assets of the Borrower
or any of its Subsidiaries are bound, or (iii) to which any director, officer,
shareholder or Affiliate of any of the foregoing is a party or which any agent
of any of the foregoing has entered into, in any such case, on behalf of the
Borrower or any Subsidiary, including without limitation, all leases and
management maintenance, brokerage, supply and service contracts and any
contract, agreement or other arrangement providing for the employment of,
furnishing of services to or by, the Borrower or any of its Subsidiaries, any
director, officer or shareholder thereof, or any Affiliate of any of the
foregoing. A true, correct and complete copy of all of the agreements
(including all amendments thereto) as set forth on
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<PAGE>
Schedule 5.17 has previously been furnished to the Agent. As of the Closing
- -------------
Date, neither the Borrower or any of its Subsidiaries nor any officer, director,
shareholder or Affiliate of the Borrower or any of its Subsidiaries is in
default under any such material agreement which could reasonably be expected to
have a Materially Adverse Effect on the Borrower or which could reasonably be
expected to have a Materially Adverse Effect on the ability of the Borrower to
perform its obligations under any of the Loan Documents to which it is a party.
The execution and delivery of the Loan Documents was not and is not a default
under of any of the agreements listed on Schedule 5.17. As of the date hereof,
-------------
the Borrower knows of no dispute regarding any contract, lease, or commitment
which would have a Material Adverse Effect on the Borrower and its Subsidiaries
or, to the best of its knowledge, after due inquiry, any basis therefor.
5.18 Largest Customers. Except as set forth on Schedule 5.18, as of the
----------------- -------------
Closing Date, the Borrower has no reason to believe that any of its ten largest
customers intends significantly to alter its sales or purchases so as to have a
Material Adverse Effect on the Borrower and its Subsidiaries.
5.19 Employee Controversies and Employment and Labor Agreements.
----------------------------------------------------------
(a) There are no controversies pending or, to the best of the
Borrower's knowledge after due inquiry, threatened, between the Borrower or
any of its Subsidiaries and any of its employees, other than employee
grievances arising in the ordinary course of business which are not, in the
aggregate, material to the financial condition, results of operation or
business of the Borrower and its Subsidiaries, taken as a whole. Each of
the Borrower and its Subsidiaries is in compliance with all federal and
state laws respecting employment and employment terms, conditions and
practices the failure to comply with which could have a Material Adverse
Effect on the Borrower and its Subsidiaries. Neither the Borrower nor any
of its Subsidiaries has union representation questions, grievances,
discrimination or unfair labor practice complaints pending or threatened
against it before any state or federal board or agency respecting
employment and employment terms, conditions and practices the failure to
comply with which could have a Material Adverse Effect on the Borrower and
its Subsidiaries or, to the best of its knowledge, after due inquiry, any
basis therefor, except as set forth on Schedule 5.19 or on an Acceptable
-------------
Supplement.
(b) Except as set forth in Schedule 5.19: (i) neither the Borrower
-------------
nor any of its Subsidiaries is a party as of the Closing Date to any
outstanding employment agreements or contracts with officers or employees
that are not terminable at will, or that provide for the payment of any
bonus or commission; (ii) as of the Closing Date, neither the Borrower nor
any of its Subsidiaries is a party to any agreement, policy or practice
that requires it to pay termination or severance pay to salaried,
non-exempt or hourly employees (other than as required by law); (iii)
neither the Borrower nor any of its Subsidiaries is a party to any
collective bargaining agreement or other labor union contract applicable to
persons employed by the Borrower or any of its Subsidiaries nor do the
Borrower or any of its
-40-
<PAGE>
Subsidiaries know of any activities or proceedings of any labor union to
organize any such employees, except in any such case as may be set forth on
an Acceptable Supplement. Each of the Borrower and its Subsidiaries has
furnished to the Agent complete and correct copies of all such agreements
("Employment and Labor Agreements"). Neither the Borrower nor any of its
Subsidiaries has breached or otherwise failed to comply in any material
respect with any provisions of any Employment and Labor Agreement, and
there are no material grievances outstanding thereunder, except in any such
case as may be set forth on an Acceptable Supplement.
5.20 Compliance with Laws and Regulations.
------------------------------------
(a) Each of the Borrower and its Subsidiaries is in compliance with
all Laws and with each of their respective Certificate of Incorporation or
Articles of Organization, the failure to comply with which could have,
individually or in the aggregate, a Material Adverse Effect on the Borrower
and its Subsidiaries.
(b) Schedule 5.20(b) attached hereto sets forth, as of the Closing
---------------
Date, a true and complete list of all material licenses (excluding motor
vehicle registrations and including, but not limited to, any license
relating to alcoholic beverages, beer, wine or liquor), permits,
franchises, authorizations and approvals issued or granted to each of the
Borrower and its Subsidiaries by the United States, any state or local
government, any foreign national or local government, or any department,
agency, board, commission, bureau of instrumentality of any of the
foregoing (each a "License", and, collectively, the "Licenses"), and all
pending applications therefor. Such list contains a summary description of
each such item and, where applicable, specifies the date issued, granted or
applied for, the expiration date and the current status thereof. Except as
set forth in Schedule 5.20(b) attached hereto, each License has been issued
----------------
to, and duly obtained and fully paid for by, the holder thereof and is
valid, in full force and effect, and not subject to any pending or
threatened administrative or judicial proceeding to suspend, revoke, cancel
or declare such License invalid in any respect. Borrower shall supplement
Schedule 5.20(b) with an Acceptable Supplement provided with each Financial
----------------
Statement required under subsection 6.2(a), which Acceptable Supplement
-----------------
shall list all liquor licenses and all other material licenses not
theretofore listed.
(c) Each of the Borrower and its Subsidiaries has all Licenses
required, and such Licenses are sufficient and adequate in all respects, to
permit the continued lawful conduct of each of the Borrower's and its
Subsidiaries' respective businesses in the manner now conducted and the
ownership, occupancy and operation of their real property for their present
uses. Except as set forth in Schedule 5.20(c), attached hereto or as may
----------------
be set forth in an Acceptable Supplement: (i) neither the Borrower nor any
of its Subsidiaries is in violation of any of the Licenses; (ii) none of
the operations of the Borrower or any of its Subsidiaries is being
conducted in a manner
-41-
<PAGE>
that violates any of the terms or conditions under which any License was
granted; (iii) none of the Licenses of the Borrower or any of its
Subsidiaries' relating to alcoholic beverages, beer, wine or liquor has
ever been suspended, revoked or otherwise terminated, or subject to
judicial or administrative review, for any reason other than the renewal or
expiration thereof nor has any application by the Borrower or its
Subsidiaries of any of such Licenses ever been denied; and (iv) no License
will in any way be affected by, or terminate or lapse by reason of, the
transactions contemplated by the Loan Documents or the Subordinated Debt
Documents.
5.21 Intellectual Property Rights. Each of the Borrower and its
----------------------------
Subsidiaries, as applicable, possesses and will possess adequate assets,
licenses, patents, patent applications, copyrights, service marks, trademarks,
trademark applications, tradestyles and tradenames to continue to conduct its
business as heretofore conducted by it. Neither the Borrower nor any of its
Subsidiaries has been charged or, to each of their knowledge, has been
threatened to be charged with, any infringement of, nor has any of them
infringed on, any unexpired trademark, trademark registration, tradename,
patent, copyright, copyright registration, or other proprietary right of any
other Person, which infringement could have a Material Adverse Effect on the
Borrower and its Subsidiaries.
5.22 Pension Related Matters. Each Plan maintained by the Borrower or any
-----------------------
ERISA Affiliate complies, and has been administered in accordance with its terms
and all material applicable requirements of ERISA and of the Tax Code and with
all material applicable rulings and regulations issued under the provisions of
ERISA and the Tax Code setting forth those requirements. No Reportable Event,
Prohibited Transaction or withdrawal from a Multiemployer Plan has occurred and
no Accumulated Funding Deficiencies exist with respect to any Plan or
Multiemployer Plan which could have a Material Adverse Effect on the Borrower or
any ERISA Affiliate. The Borrower and each ERISA Affiliate has satisfied all of
the funding standards applicable to such Plans and Multiemployer Plans under
Section 302 of ERISA and Section 412 of the Tax Code and the PBGC has not
instituted any proceedings, and there exists no event or condition which would
constitute grounds for the institution of proceedings by the PBGC, to terminate
any Plan or Multiemployer Plan under Section 4042 of ERISA which could have a
Material Adverse Effect on the Borrower or any ERISA Affiliate. Neither the
Borrower nor any ERISA Affiliate has taken any steps to terminate any Plan,
which termination could have a Material Adverse Effect on the Borrower or any
ERISA Affiliate. Neither the Borrower nor any ERISA Affiliate has taken any
steps to terminate its participation in any Multiemployer Plan or withdraw from
any Multiemployer Plan. Each of the Borrower and each ERISA Affiliate has made
all contributions to each Plan and each Multiemployer Plan to which it has
become obligated to contribute as to which the failure to make contributions
could have a Material Adverse Effect on the Borrower or any ERISA Affiliate.
The Borrower is not aware of any assessments or assertions of withdrawal
liability against it or any ERISA Affiliate with respect to any Plan or
Multiemployer Plan. The aggregate potential withdrawal liability under all
Multiemployer Plans to which each of the Borrower and each ERISA Affiliate is
obligated to contribute is less than an amount
-42-
<PAGE>
which, if all such liabilities were incurred, could have a Material Adverse
Effect on the Borrower, its Subsidiaries, and any ERISA Affiliate, taken as a
whole.
5.23 Environmental Matters. Except as disclosed on Schedule 5.23, as
--------------------- -------------
supplemented by any Acceptable Supplement: (a) each of the Borrower and its
Subsidiaries has complied in all material respects with Environmental Laws
regarding transfer, construction on and operation of the business and property,
including but not limited to notifying authorities, observing restrictions on
use, transferring, modifying or obtaining permits, licenses, approvals and
registrations, making required notices, certifications and submissions,
complying with financial liability requirements, Managing Hazardous Substances,
and Responding to the presence or Release of Hazardous Substances connected with
operation of its business or property; (b) neither the Borrower nor any of its
Subsidiaries has any material contingent liability with respect to the
Management of any Hazardous Substance; (c) during the term of this Agreement,
neither the Borrower nor any of its Subsidiaries shall, nor shall it permit
others to, manage, whether on or off the property of the Borrower or such
Subsidiary, Hazardous Substances except in full compliance with Environmental
Laws; (d) each of the Borrower and its Subsidiaries shall take prompt action in
full compliance with Environmental Laws to Respond to the on-site or off-site
Release of Hazardous Substances connected with operation of its business or
property; (e) neither the Borrower nor any Subsidiary has received any
Environmental Notice; and (f) to the best of the knowledge of the Borrower and
its Subsidiaries, no conditions exist on property owned or leased, or previously
owned or leased, by Borrower or any of its Subsidiaries which would result in
issuance of an Environmental Notice to Borrower or any of its Subsidiaries. Any
supplemental Schedule 5.23 filed shall be deemed to be an Acceptable Supplement
-------------
with respect to Environmental Notices if it reflects all Environmental Notices
which would result in a Material Adverse Effect and any Environmental Notice
from any governmental agency or authority.
5.24 Broker's Fee. Except as set forth on Schedule 5.24, neither the
------------ -------------
Borrower nor any of its Subsidiaries is in any way obligated to any Person in
respect of any finder's or broker's fee or similar commission in connection with
the transactions contemplated by this Agreement. Each of the Borrower and its
Subsidiaries agrees to indemnify the Agent and the Banks and hold the Agent and
the Banks harmless from and against any claims for any such fee or commission by
any such Persons.
5.25 Securities Matters. The making of the Loans hereunder, the
------------------
application of the proceeds and repayment thereof by the Borrower and the
consummation of the transactions contemplated by this Agreement have not and
will not violate any provision of any federal or state securities statutes,
rules or regulations, or any order issued by the Securities and Exchange
Commission (collectively, "Securities Laws"). Neither the Borrower nor any of
its Subsidiaries has issued any securities in violation of any Securities Law.
Promptly upon the filing thereof, the Borrower shall deliver to the Agent a true
and complete copy of each statement, document and report, periodic or otherwise,
filed pursuant to any Securities Law. The Borrower agrees to indemnify the
Agent and the Banks and hold the Agent and the
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<PAGE>
Banks harmless from and against the claims of any Persons in connection with the
violation or alleged violation by Borrower or any Subsidiary of any Securities
Laws.
5.26 Equity Beneficial Ownership. Schedule 5.26 sets forth the number of
--------------------------- -------------
shares of each class of capital stock authorized for the Borrower and the number
of shares of each such class of stock outstanding. The outstanding capital
stock of the Borrower is duly authorized, validly issued, fully paid and
non-assessable. The Borrower shall supplement Schedule 5.26 from time to time
-------------
as required by an Acceptable Supplement.
5.27 Disclosure. No written information provided or statements made by the
----------
Borrower, its Subsidiaries, or any other Affiliate of the Borrower in connection
with this transaction, or any of the representations and warranties to the Banks
herein or in any of the Loan Documents contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The Borrower has disclosed to the Agent in writing, every fact of
which it is aware (other than those relating to general economic matters or
matters of public knowledge) which, insofar as the Borrower can reasonably
foresee, might materially and adversely affect the business prospects,
operations or financial condition of the Borrower and its Subsidiaries or the
ability of each of the Borrower and its Subsidiaries to perform their respective
obligations hereunder or under any other Loan Documents.
5.28 Capitalization.
--------------
(a) As of the date hereof there are no treasury shares held by the
Borrower, and there are no outstanding options, warrant agreements,
conversion rights, preemptive rights or other rights to subscribe for,
purchase or otherwise acquire any unissued or treasury shares of capital
stock of the Borrower except as described in the Registration Statement.
(b) The total authorized capital stock of Fine Host Services consists
of One Thousand Five Hundred (1,500) shares of common stock, without par
value, of which One Hundred (100) shares are validly issued and outstanding
as of the Closing Date, all of which are owned by the Borrower. There are
no treasury shares held by Fine Host Services. There are no outstanding
options, warrant agreements, conversion rights, preemptive rights or other
rights to subscribe for, purchase or otherwise acquire any unissued or
treasury shares of capital stock of Fine Host Services.
(c) The total authorized capital stock of Fine Host of Vermont
consists of One Hundred (100) shares of common stock, without par value, of
which One Hundred (100) shares are validly issued and outstanding as of the
Closing Date, all of which are owned by the Borrower. There are no treasury
shares held by Fine Host of Vermont. There are no outstanding options,
warrant agreements, conversion rights, preemptive rights or other rights to
subscribe for, purchase or otherwise acquire any unissued or treasury
shares of capital stock of Fine Host of Vermont.
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<PAGE>
(d) The total authorized capital stock of Fanfare consists of Fifteen
Thousand (15,000) shares of common stock, without par value, of which Two
Thousand (2,000) shares are validly issued and outstanding as of the
Closing Date, all of which are owned by the Borrower. There are no treasury
shares held by Fanfare. There are no outstanding options, warrant
agreements, conversion rights, preemptive rights or other rights to
subscribe for, purchase or otherwise acquire any unissued or treasury
shares of capital stock of Fanfare.
(e) The total authorized capital stock of Global Fanfare consists of
One Thousand (1,000) shares of common stock, without par value, of which
Four Hundred (400) shares are validly issued and outstanding as of the
Closing Date, all of which are owned by the Borrower. There are no
treasury shares held by Global Fanfare. There are no outstanding options,
warrant agreements, conversion rights, preemptive rights or other rights to
subscribe for, purchase or otherwise acquire any unissued or treasury
shares of capital stock of Global Fanfare.
(f) The total authorized capital stock of Fine Host International
consists of One Thousand (1,000) shares of common stock, without par value,
of which One Hundred (100) shares are validly issued and outstanding as of
the Closing Date, all of which are owned by the Borrower. There are no
treasury shares held by Fine Host International. There are no outstanding
options, warrant agreements, conversion rights, preemptive rights or other
rights to subscribe for, purchase or otherwise acquire any unissued or
treasury shares of capital stock of Fine Host International.
(g) The total authorized capital stock of each of the Special Texas
Corporations in existence as of the Closing Date consists of One Thousand
(1,000) shares of common stock, with One and 00/100 Dollar ($1.00) par
value per share, of which One Thousand (1,000) shares are validly issued
and outstanding for Convention Beverages, Inc., and One Thousand (1,000)
shares of common stock, with $.01 par value per share, of which One
Thousand (1,000) shares are validly issued and outstanding for Fine Host of
Texas, Inc., and all of which are owned as shown on Schedule 5.26. There
--------------
are no treasury shares held by any Special Texas Corporation. There are no
outstanding options, warrant agreements, conversion rights, preemptive
rights or other rights to subscribe for, purchase or otherwise acquire any
unissued or treasury shares of capital stock of the Special Texas
Corporations. The Agent has been provided with true and copies of the
Texas Management Agreements and the articles of incorporation and bylaws of
the Special Texas Corporations.
(h) The total authorized capital stock of CFM in existence as of the
Closing Date consists of One Hundred (100) shares of common stock, with no
par value per share, of which Seventy-Five (75) shares are validly issued
and outstanding as of the Closing Date, all of which are owed by the
Borrower. There are no treasury shares held by CFM. There are no
outstanding options, warrant agreements, conversion
-45-
<PAGE>
rights, preemptive rights or other rights to subscribe for, purchase or
otherwise acquire any unissued or treasury shares of capital stock of CFM.
(i) The total authorized capital stock of Northwest in existence as of
the Closing Date consists of Ten Thousand (10,000) shares of common stock,
with no par value per share, of which Eight Hundred Twenty (820) shares are
validly issued and outstanding as of the Closing Date, all of which are
owned by the Borrower. There are no treasury shares held by Northwest.
There are no outstanding options, warrant agreements, conversion rights,
preemptive rights or other rights to subscribe for, purchase or otherwise
acquire any unissued or treasury shares of capital stock of Northwest.
(j) The total authorized capital stock of SWSI in existence as of the
Closing Date consists of (i) One Million (1,000,000) shares of class A
common stock, with $.01 par value per share, of which Twenty-Five Thousand
(25,000) shares are validly issued and outstanding as of the Closing Date,
all of which are owned by the Borrower, and (ii) Two Hundred Thousand
(200,000) shares of class B common stock, with $.01 par value per share, of
which no shares are issued and outstanding. There are no treasury shares
held by SWSI. There are no outstanding options, warrant agreements,
conversion rights, preemptive rights or other rights to subscribe for,
purchase or otherwise acquire any unissued or treasury shares of capital
stock of Northwest.
(k) The Borrower is the present owner and holder of Seventy-Eight
Percent (78%) of all of the membership interests of Tarrant County. There
are no outstanding options, warrant agreements, conversion rights,
preemptive rights or other rights to subscribe for, purchase or otherwise
acquire any membership interests of Tarrant County.
(l) The Borrower is the present owner and holder of Seventy-Six
Percent (76%) of all of the joint venture interests of the Orange County
Joint Venture. There are no outstanding options, warrant agreements,
conversion rights, preemptive rights or other rights to subscribe for,
purchase or otherwise acquire any joint venture interests of the Orange
County Joint Venture.
(m) The Borrower is the present owner and holder of Eighty-Five
Percent (85%) of all of the joint venture interests of the Oregon Joint
Venture. There are no outstanding options, warrant agreements, conversion
rights, preemptive rights or other rights to subscribe for, purchase or
otherwise acquire any joint venture interests of the Oregon Joint Venture.
5.29 Corporate Structure. Schedule 5.30 attached hereto sets forth (a) the
------------------- -------------
name of each corporation, partnership, joint venture or other entity engaged in
the recreation food and beverage business or concession or food service business
of which the Borrower or any of its
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<PAGE>
Subsidiaries owns (or has the right to acquire), directly or indirectly, (i) in
the case of corporations or other entities with voting securities, shares of
capital stock having in the aggregate Ten Percent (10%) or more of the total
combined voting power of the issued and outstanding shares of capital stock
entitled to vote generally in the election of directors of such corporation and
(ii) in the case of partnerships or other entities without voting securities,
any general partnership interest or a limited partnership interest entitling the
Borrower or any of its Subsidiaries to Ten Percent (10%) or more of the profits
or assets upon liquidation and (b) in the case of each corporation described in
clause (a) above, (i) the jurisdiction of incorporation, (ii) the states where
such corporation is qualified to do business as a foreign corporation, (iii) the
principal place of business, (iv) the capitalization thereof and the percentage
of each class of capital voting stock owned by the Borrower and each of its
Subsidiaries, as applicable, and (v) a brief description of the nature of the
business; and (c) in the case of each unincorporated entity described in clause
(a) above, information substantially equivalent to that provided pursuant to
clause (b) above with regard to corporate entities.
5.30 Facility Agreements with Change in Stock Ownership Restrictions.
---------------------------------------------------------------
Neither the Borrower nor any of its Subsidiaries has entered into any Facility
Agreement which contains provisions which restrict or penalize a change in stock
ownership of the Borrower or any of its Subsidiaries except as set forth in
Schedule 5.30 attached hereto.
- -------------
6. AFFIRMATIVE COVENANTS.
---------------------
Each of the Borrower and its Subsidiaries hereby covenants and agrees that
so long as any Liabilities remain outstanding, and (even if there shall be no
Liabilities outstanding) so long as this Agreement remains in effect:
6.1 Financial Covenants. The Borrower shall:
-------------------
6.1.1 Debt To Operating Cash Flow Ratio. Maintain at all times
---------------------------------
(to be tested as of the last day of each such fiscal quarter) a maximum
ratio of its Debt to Operating Cash Flow of 3.50 to 1.00.
6.1.2 Operating Cash Flow to Fixed Charge-Ratio. Maintain at all
-----------------------------------------
times (to be tested as of the last day of each fiscal quarter of the
Borrower for the twelve (12) month period ending on that date), commencing
with the fiscal quarter of the Borrower ending June 26, 1996, a ratio of
its Operating Cash Flow to its Fixed Charges of greater than or equal to
the ratio set forth below opposite the applicable period.
Quarters Ending in the
Periods Ratio
------------------------- -----
June 26, 1996 through 1.85 to 1.00
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<PAGE>
September 25, 1996
September 25, 1996 2.00 to 1.00
and thereafter
6.1.3 Operating Cash Flow to Cash Interest Expense Ratio.
--------------------------------------------------
Maintain at all times (to be tested as of the last day of each fiscal
quarter of the Borrower for the twelve (12) month period ending on that
date), commencing with the fiscal quarter of the Borrower ending December
25, 1996, a ratio of Operating Cash Flow to its Cash Interest Expenses of
greater than or equal to 4.00 to 1.00.
6.1.4 Minimum Net Worth. Maintain at all times (to be tested as
-----------------
of the last day of each fiscal quarter of the Borrower) during the periods
set forth below, for each fiscal quarter of the Borrower, a minimum Net
Worth as set forth below.
Quarters Ending Net Worth
--------------- ---------
June 26, 1996 $45,750,000
September 25, 1996 $47,500,000
December 25, 1996 $48,745,000
March 26, 1997 $49,450,000
June 5, 1997 $50,150,000
September 24, 1997 $52,700,000
December 31, 1997 $54,250,000
April 1, 1998 $55,150,000
July 1, 1998 $56,050,000
September 30, 1998 $59,300,000
December 30, 1998 $61,050,000
March 31, 1999 $62,150,000
6.1.5 Minimum Operating Cash Flow. Maintain at all times (to be
---------------------------
tested as of the last day of each fiscal quarter of the Borrower commencing with
the fiscal quarter ending December 25, 1996), a minimum Operating Cash Flow of
at least:
$2,150,000 for the quarter ending June 26, 1996;
$2,750,000 for the quarters ending September 25, 1996 through June 5,
1997; $3,250,000 for the quarters ending September 24, 1997 through
July 1, 1998; and $4,000,000 for each subsequent quarter.
6.1.6 Minimum Tangible Capital Base. Maintain at all times (to be
-----------------------------
tested as of the last day of each fiscal quarter of the Borrower commencing
with the fiscal quarter ending June 26, 1996), a minimum Tangible Capital
Base of at least Five Million and 00/100 Dollars ( $5,000,000.00).
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<PAGE>
6.2 Financial Statements. The Borrower shall keep proper books of record
--------------------
and account in which full and true entries will be made of all dealings or
transactions of or in relation to the business and affairs of the Borrower, in
accordance with GAAP, and the Borrower shall cause to be furnished to the Agent,
in accordance with the notice provisions of subsection 10.13:
----------------
(a) as soon as they become available and are filed with the SEC, but
in any event within forty-five 45 days after the close of each fiscal
quarter (other than the last fiscal quarter) of the Borrower, consolidated
balance sheets at the close of such fiscal quarter, and consolidated
statements of income, stockholders' equity and cash flows for such fiscal
quarter and for the period commencing at the close of the previous fiscal
year and ending with the close of such fiscal quarter of the Borrower and
its Subsidiaries (with comparable information at the close of and for the
corresponding fiscal quarter of the prior fiscal year and for the
corresponding portion of such prior fiscal year), certified by the
principal accounting or financial officer of the Borrower (provided that
the requirements of this clause (a) for any fiscal quarter may be satisfied
by delivery of a copy of the Borrower's Quarterly Report on Form 10-Q for
such quarter);
(b) as soon as they become available and are filed with the SEC, but
in any event within ninety (90) days after the close of each fiscal year of
the Borrower, consolidated balance sheets at the close of such fiscal year,
and consolidated statements of income, stockholders' equity and cash flows
for such fiscal year (with comparable information for the prior fiscal
year), in each case as audited (without any Impermissible Qualification) by
a firm of independent public accountants of nationally recognized standing
acceptable to the Agent (provided that the requirements of the foregoing
provisions of this clause (b) for any fiscal year may be satisfied by
delivery of a copy of the Borrower's Annual Report on Form 10-K for such
year), together with a certificate from such accountants to the effect
that, in making the examination necessary for the signing of such annual
report by such accountants, they have not become aware of any Default or
Event of Default that has occurred and is continuing, or, if they have
become aware of such Default or Event of Default, describing such Default
or Event of Default;
(c) as soon as it becomes available, but in any event within thirty
(30) days after the close of each fiscal month of the Borrower, an
Operating Results and Comparison Schedule as to contract and venue
performance for such fiscal month, in substantially the form delivered by
the Borrower to UST prior to the Closing Date;
(d) as soon as it becomes available, but in any event within forty-
five (45) days after the close of each fiscal year of the Borrower, a
budget for the next succeeding fiscal year of the Borrower and its
Subsidiaries, which budget shall be prepared on a fiscal month basis and
shall contain a projected consolidated balance sheet and statements of
earnings and cash flows of the Borrower and its Subsidiaries
-49-
<PAGE>
for such succeeding fiscal year, certified by the principal accounting or
financial officer of the Borrower;
(e) promptly, but in any event within five (5) days after the
Borrower or any of its Subsidiaries obtains knowledge of any of the
following, a statement of the chief executive, financial or accounting
officer of the Borrower setting forth in reasonable detail the nature
thereof and the action which the Borrower has taken and proposes to take
with respect thereto:
(i) the occurrence of any litigation, arbitration or governmental
investigation or proceeding not previously disclosed by the Borrower
pursuant hereto which has been instituted or, to the knowledge of the
Borrower or any of its Subsidiaries, is threatened against, the
Borrower or any of its Subsidiaries or to which any of its properties,
assets or revenues is subject which, if adversely determined, might
have a Material Adverse Effect on the Borrower and its Subsidiaries;
(ii) the occurrence of any circumstance which has a reasonable
likelihood of having a Material Adverse Effect on the Borrower and its
Subsidiaries;
(iii) any material adverse development which shall occur in any
litigation, arbitration or governmental investigation or proceeding
previously disclosed by the Borrower;
(iv) the occurrence of any Default; and
(v) the occurrence of a Reportable Event (as defined in ERISA)
under, or the institution of steps by the Borrower or any of its
Subsidiaries to withdraw from, or the institution by the PBGC or
otherwise of any steps to terminate, any employee benefit plan covered
by Title IV of such Act;
(f) promptly upon the receipt thereof and in any event within Five
(5) Business Days, copies of all detailed financial and management reports
submitted to the Borrower by its independent public accountants;
(g) as soon as it becomes available, but in any event within ten (10)
days of delivery to the Borrower, a copy of any management or other letter
issued by a public accounting firm or other management consultants with
respect to the Borrower's and the Subsidiaries' financial or accounting
systems or controls;
(h) the Borrower's and the Subsidiaries' responses to any of the
matters referenced in any letter issued by a public accounting firm or
other management consultants with respect to the Borrower's and the
Subsidiaries' financial or accounting
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<PAGE>
systems or controls at such time as the Borrower or the Subsidiaries
deliver such response to such firm or consultants, and upon receipt by the
Borrower or the Subsidiaries of any response thereto, a copy thereof to the
Agent;
(i) as soon as they become available, but in any event, within ten
(10) days after the issuance thereof, the Borrower shall furnish to the
Agent copies of such other financial statements, proxy material and
reports as the Borrower shall send or make available to its stockholders,
and promptly upon the filing thereof, copies of all reports and materials
which the Borrower or any Subsidiary files with any governmental commission
(including without limitation, the SEC), department or agency or with any
domestic or foreign stock exchange or with the NASD, including without
limitation, copies of (i) any registration statements, prospectuses and any
amendments and supplements thereto, and any regular and periodic reports
(including without limitation, reports on Form 10-K, Form 10-Q and Form 8-
K) filed by the Borrower or any Subsidiary with the SEC or any domestic or
foreign stock exchange or with the NASD; and (ii) any letters of comment or
correspondence with respect to filings or compliance matters sent to the
Borrower or any Subsidiary by any such governmental commission (including
without limitation, the SEC), department or agency or any such domestic or
foreign stock exchange or the NASD; provided that the foregoing provisions
shall not apply to reports, materials, letters or correspondence (other
than those filed with or received from the SEC) filed or received by the
Borrower or its Subsidiaries in the ordinary course of business or which
otherwise do not involve matters that could result in a Material Adverse
Effect; and
(j) such other information with respect to the financial condition,
business, property, assets, revenues and operations of the Borrower or any
of its Subsidiaries as the Agent may from time to time reasonably request.
All financial statements delivered to the Agent pursuant to the
requirements of this subsection 6.2 (except where otherwise expressly indicated)
--------------
shall be prepared in accordance with GAAP on a consolidated basis. Together with
each delivery of financial statements required by clause (a) or (b) above, the
--- ---
Borrower (and if requested by the Agent, any or all of its Subsidiaries) shall
deliver to the Agent an officer's certificate stating that there exists no
Default or Event of Default, or, if any Event of Default or Default exists,
specifying in reasonable detail the nature thereof, the period of existence
thereof and what action the Borrower has taken or proposes to take with respect
thereto. The Agent and the Banks acknowledge that, from and after the Closing
Date, the Borrower will be a reporting company under the Securities Exchange Act
of 1934, as amended, and that its Common Shares will be publicly traded, and
agree to keep all information acquired pursuant to this subsection 6.2 or under
--------------
any other provision of the Loan Documents, or as a result of any inspection
conducted in accordance with subsection 6.3 below, confidential; provided that
--------------
the Banks may, in their sole discretion, communicate such information (v) to any
holder of Subordinated Debt, (w) with the prior consent of the Borrower (not to
be unreasonably withheld), to any other Person in accordance with its customary
practices relating to routine trade inquiries, (x) to any court
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<PAGE>
or regulatory authority having jurisdiction over the Banks or any of them or as
required by law or legal process, (y) to any other Person in connection with the
Banks' sale of any interests or participations in the Liabilities, or (z) to any
other Person in connection with the exercise of the Agent's or the Banks' rights
hereunder or under any of the other Loan Documents, it being the intent of this
sentence not to create rights in and to such documents to any Person other than
the Agent and the Banks; provided that the foregoing restrictions shall not
apply to any information that the Borrower has made publicly available. The
Borrower and each of the Subsidiaries authorize the Agent to discuss the
financial condition of the Borrower and its Subsidiaries with the Borrower's
independent certified public accountants and agree that such discussion or
communication shall be without liability to the Agent or the Banks. Upon the
Agent's review of any management or other letter issued by a public accounting
firm or other management consultants, the Borrower and its Subsidiaries agree to
address, in a manner reasonably satisfactory to the Agent, any matter addressed
therein or explain, to the Agent's reasonable satisfaction, the positions of the
Borrower with respect thereto why such matter will not be addressed.
6.3 Inspection. The Agent and/or the Banks shall have the right, from
----------
time to time hereafter upon reasonable notice, to call at the Borrower's or any
of its Subsidiaries' place of business (or any other place where the Collateral
or any information relating thereto is kept or located) during ordinary business
hours, and, without hindrance or delay (except to the extent that the rights of
third parties would be violated or unless an order from a competent court is
issued allowing enforcement of the Agent's rights despite the alleged violation
of the rights of such third parties), (a) to inspect, audit, check and make
copies of and extracts from the Borrower's or any of its Subsidiaries' books,
records, journals, orders, receipts and any correspondence and other data
relating to the Borrower's business or to any transactions between the parties
hereto, (b) to make such verification concerning the Collateral as the Agent may
consider reasonable under the circumstances, and (c) to discuss the affairs,
finances and business of the Borrower with any officers, employees or directors
of the Borrower.
6.4 Conduct of Business. Except as provided herein, each of the Borrower
-------------------
and its Subsidiaries shall maintain its legal existence, shall maintain in full
force and effect all licenses, permits, authorizations, bonds, franchises,
leases, patents, contracts, and other rights necessary or desirable to the
profitable conduct of its respective business, shall continue in, and shall
limit its operations to, the same general lines of business as those currently
conducted (which is providing catering or concession services at recreational
and leisure facilities, convention centers, schools and institutions) except
that CFM may engage in vending and manual dining services, and comply with all
applicable Laws, except for such Laws the violation of which would not, in the
aggregate, have a Material Adverse Effect on the Borrower's financial condition,
results of operations or businesses. The Borrower shall not permit any default
by the Borrower to occur under any mortgage or other Lien that encumbers any
real property leased by the Borrower or any Subsidiary. Each of the Borrower
and its Subsidiaries shall maintain, preserve and protect all trade names, trade
marks, copyrights and patents and all other property necessary to the conduct of
each of its businesses
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<PAGE>
and keep all tangible property in good repair, working order and condition,
ordinary wear and tear excepted.
6.5 Claims and Taxes. Each of the Borrower and its Subsidiaries agrees to
----------------
indemnify and hold the Agent and the Banks harmless from and against any and all
claims, demands, liabilities, losses, damages, penalties, costs, and expenses
(including reasonable attorneys' and other professionals' fees and
disbursements) relating to or in any way arising out of the possession, use,
operation or control of the assets of each of the Borrower and its Subsidiaries
(other than any such claims, demands, liabilities, losses, damages, penalties,
costs or expenses attributable to the gross negligence or wilful misconduct of
the Agent or the Banks or any of their respective officers, directors, employees
or agents). Each of the Borrower and its Subsidiaries shall pay or cause to be
paid all license fees, bonding premiums and related taxes and charges, and pay
or cause to be paid all of the real and personal property taxes of each of the
Borrower and its Subsidiaries, all assessments and charges of each of the
Borrower and its Subsidiaries, and all franchise, income, unemployment, use,
excise, old age benefit, withholding, sales and other taxes and other
governmental charges assessed against the Borrower or any of its Subsidiaries,
or payable by the Borrower or any of its Subsidiaries, at such times and in such
manner as to prevent any penalty from accruing or any Lien from attaching to its
property; provided however that the Borrower and its Subsidiaries shall have the
-------- -------
right to contest in good faith, by an appropriate proceeding promptly initiated
and diligently conducted, the validity, amount or imposition of any such tax,
assessment or charge, and upon such good faith contest, to delay or refuse
payment thereof, if (a) the Borrower or the applicable Subsidiary establishes
adequate reserves, in accordance with GAAP, to cover such contested taxes,
assessments or charges, and (b) such contest does not have a Material Adverse
Effect on the financial condition of the Borrower and its Subsidiaries, taken as
a whole, the ability of the Borrower and its Subsidiaries, taken as a whole, to
pay any of the Liabilities, or the priority or value of the Agent's Lien on the
Collateral.
6.6 The Agent's and the Banks' Costs and Expenses as Additional
-----------------------------------------------------------
Liabilities. The Borrower shall reimburse the Agent for all expenses and fees
- -----------
paid or incurred by the Agent or the Banks in connection with (a) the
documentation, negotiation and closing of the Loans and other transactions
described herein and in the other Loan Documents, (b) any amendment, waiver or
consent executed in connection with this Agreement or any of the other Loan
Documents, and (c) the enforcement or preservation of the Agent's or any Bank's
rights under this Agreement and any of the other Loan Documents, including
without limitation appraisal, stamp, document, transfer filing and recording
fees and the reasonable fees and expenses of the Agent's and the Banks'
auditors, attorneys and paralegals, whether such expenses and fees are incurred
prior to or after the date hereof. All such costs and expenses incurred by the
Agent and the Banks with respect to the documentation, negotiation, enforcement,
collection and protection of the Agent's interests in the Collateral, including
without limitation the cost of such equipment and real estate appraisals and
environmental update inspections as may hereafter be reasonably required by the
Agent, shall be additional Liabilities of the Borrower
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<PAGE>
to the Banks, payable on demand or otherwise repaid as provided herein, and
secured by the Collateral.
6.7 Borrower's Liability Insurance. Each of the Borrower and its
------------------------------
Subsidiaries shall, at its expense, keep and maintain such public liability and
third party property damage insurance in such amounts and with such deductibles
as is reasonably acceptable to the Agent, and shall deliver to the Agent the
original (or a certified copy) of each policy of insurance and evidence of the
payment of all premiums therefor. Such policies of insurance shall contain an
endorsement providing that the insurance company will give the Agent at least
thirty (30) days prior written notice before any such policy or policies of
insurance shall be altered or cancelled.
6.8 Borrower's Insurance. Each of the Borrower and its Subsidiaries
--------------------
shall, at its expense, keep and maintain its assets insured against loss or
damage by fire, theft, explosion, spoilage and all other hazards and risks
ordinarily insured against by other owners or users of such properties in
similar businesses in an amount at least equal to the full insurable value of
all such property which coverages shall include, without limitation, liquor
liability coverages. All such policies of insurance shall be in form and
substance reasonably satisfactory to the Agent and issued by an insurance
company reasonably satisfactory to the Agent, and shall have deductibles not
exceeding Twenty-Five Thousand and 00/100 Dollars ($25,000.00). Each of the
Borrower and its Subsidiaries shall deliver to the Agent the original (or a
certified copy) of each policy of insurance and evidence of payment of all
premiums therefor. All of the policies of insurance pertaining to the
Borrower's or any such Subsidiary's assets shall contain an endorsement, in form
and substance reasonably satisfactory to the Agent, showing all losses payable
to the Agent as provided below in this subsection 6.8; provided, that such
--------------
policies may show loss payees in addition to the Agent in connection with the
lease or purchase money financing of equipment or real estate by the Borrower or
a Subsidiary, if such other loss payees are reasonably acceptable to the Agent
(and the Agent has approved same in writing) and if such other loss payees have
no interest in the proceeds of any loss relating to the Collateral, other than
the specific assets that are the subject of such lease or purchase money
financing. Such endorsement, or an independent instrument furnished to the
Agent, shall provide that such insurance company will give the Agent at least
thirty (30) days prior written notice before any such policy or policies of
insurance shall be altered or cancelled and that no act or default of the
Borrower or any of its Subsidiaries shall affect the right of the Agent to
recover under such policy or policies of insurance in case of loss or damage.
All insurance policies referred to in this subsection 6.8 shall name the Agent
--------------
as an additional loss payee with respect to all claims relating to the
Collateral resulting in payments of One Hundred Thousand and 00/100
($100,000.00) or less, and as additional insured and sole loss payee in respect
of each claim relating to the Collateral resulting in a payment under any such
insurance policy exceeding One Hundred Thousand and 00/100 Dollars
($100,000.00). Provided that no Default or Event of Default then exists, the
Agent agrees promptly upon its receipt thereof, to pay over to the Borrower the
proceeds of such payment to enable the Borrower to repair, restore, or replace
the Collateral subject to such claim. To the extent that the Borrower elects
not to repair, restore or replace such Collateral, any such proceeds in
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<PAGE>
excess of One Hundred Thousand and 00/100 ($100,000.00) shall be deposited with
the Agent, which deposit shall be invested by the Agent in Cash Equivalent
Investments and shall be held by the Agent as additional Collateral for the
Liabilities. If the Borrower certifies to the Agent, on or prior to thirty (30)
days after receipt by the Borrower or any of its Subsidiaries of such insurance
proceeds that it intends to use such insurance proceeds to construct replacement
property or repair the damaged property within three hundred sixty (360) days of
the receipt of such insurance proceeds, the Agent shall, if no Default has
occurred and is then continuing, release to the Borrower that part of the
insurance proceeds to be used for the aforementioned purposes. To the extent
that the Borrower does not provide such certification, all of such insurance
proceeds shall be applied to the prepayment of the Liabilities as set forth
below. In addition, if any of the insurance proceeds previously released are
not in fact applied in the manner specified in such certification, the Borrower
shall pay to the Agent, on which the date which is three hundred sixty-one (361)
days after the receipt of such insurance proceeds by the Borrower or any of its
Subsidiaries, an amount equal to the insurance proceeds released by the Agent to
the Borrower pursuant to this subsection 6.8 (less amounts actually spent for
--------------
the purposes specified in such certification) and such amount shall be applied
to the prepayment of the Liabilities. All such proceeds at any time on deposit
with the Agent shall be fully drawn down under this subsection 6.8 before the
--------------
Agent is required to make any new Guidance Loan. In addition, such proceeds may
also be used, in the Agent's sole discretion, to meet the Borrower's obligation
to reimburse the Banks as a result of any draw under any Letter of Credit. The
Agent shall apply any such proceeds not so used first to amounts due under the
Guidance Loans, and if any proceeds should remain thereafter, to the reduction
of the Liabilities in such manner as the Agent shall determine. If a Default or
an Event of Default exists, the Agent shall (a) hold the proceeds of such
payment as Collateral for the Loans until such Default or Event of Default shall
no longer exist and then, subject to the foregoing provisions of this subsection
----------
6.8, pay over the same to the Borrower for the repair, restoration, or
- ---
replacement of the Collateral subject to such claim. The Borrower hereby
directs all insurers under such policies of insurance to pay all proceeds of
insurance policies directly to the Agent as and to the extent set forth above.
The Borrower irrevocably makes, constitutes and appoints the Agent (and all
officers, employees or agents designated by the Agent) as the Borrower's true
and lawful attorney-in-fact for the purpose, after and during the continuance of
an Event of Default, of making, settling and adjusting claims under all such
policies of insurance, endorsing the name of the Borrower or any of its
Subsidiaries on any check, draft, instrument or other item of payment received
by the Borrower, or the Agent pursuant to any such policies of insurance and
making all determinations and decisions with respect to such policies of
insurance. If the Borrower or any of its Subsidiaries, at any time or times
hereafter, shall fail to obtain or maintain any of the policies of insurance
required above or to pay any premium in whole or in part relating thereto, then
the Agent, without waiving or releasing any obligation or default by the
Borrower hereunder, may at any time or times thereafter (but shall be under no
obligation to do so) obtain and maintain such policies of insurance and pay such
premiums and take any other action with respect thereto which the Agent deems
advisable, and the amount so expended, together with interest thereon at the
rate applicable to the Guidance Loans, shall be part of the Liabilities, payable
on demand or otherwise repaid as provided
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<PAGE>
herein and secured by the Collateral. Notwithstanding anything in the
subsection 6.8 to the contrary, in the event insurance proceeds result from a
- --------------
casualty to property used in connection with a Facility Agreement, and such
Facility Agreement is no longer in force as of the date of payment of insurance
proceeds by the insurer or before such proceeds are used to repair, replace or
restore such property, then the full amount of such proceeds (up to the
outstanding amount of any Guidance Loan related to such Facility Agreement),
shall be paid to the Agent to retire such Guidance Loan, before the application
of the other provisions of this subsection 6.8.
--------------
6.9 Pension Plans. The Borrower shall, and shall (to the extent within
-------------
the control of the Borrower) cause each ERISA Affiliate to, (a) make
contributions to all of the Plans (including any Multiemployer Plans) in a
timely manner and in a sufficient amount to comply with the requirements of
ERISA; (b) comply with all material requirements of ERISA and the Tax Code which
relate to such Plans and Multiemployer Plans, the failure to comply with which
would if applicable to the Borrower or any ERISA Affiliate, have a Material
Adverse Effect on the Borrower; (c) notify the Agent immediately upon receipt by
the Borrower of any notice of the institution of any proceeding or other action
which may result in the termination of any Plans or Multiemployer Plans; and (d)
immediately notify the Agent of the occurrence of an ERISA Termination Event.
Neither the Borrower nor any of its Subsidiaries shall fail to make any payments
to any Multiemployer Plan that the Borrower or any ERISA Affiliate of the
Borrower or any of its Subsidiaries under ERISA may be required to make under
any agreement relating to any Multiemployer Plan or any Law pertaining thereto
except any payments being contested in good faith with respect to which the
Borrower has established adequate reserves.
6.10 Notice of Suit. The Borrower shall, as soon as possible, and in any
--------------
event within five (5) Business Days after the Borrower learns of the following,
give written notice to the Agent of any proceeding(s) being instituted or
threatened to be instituted by or against the Borrower or, any of its
Subsidiaries in any federal, state, local or foreign court or before any
arbitration or mediation panel, commission or other regulatory body (federal,
state, local or foreign); provided, that the Borrower shall not be required to
notify the Agent of any such proceeding instituted or threatened to be
instituted unless such proceeding could, individually, or when aggregated with
other outstanding proceedings, if adversely determined, have a Material Adverse
Effect on the Borrower and its Subsidiaries.
6.11 Supervening Changes in Law. If, at any time or times hereafter,
--------------------------
there shall become effective any amendment to, deletion from or revision,
modification or other change in any Law, or the application or enforcement
thereof, materially and negatively affecting the Banks' extension of credit
described in this Agreement or the selling of interests or participations
therein or increasing the Banks' costs associated with the transactions
contemplated by this Agreement and the other Loan Documents, (a) if and to the
extent clause (b) of this subsection 6.11 is not applicable, then the Borrower
----------------
shall indemnify and hold the Agent and the Banks harmless from and against any
and all obligations, fees, liabilities, losses, penalties, costs, expenses and
damages, of every kind and nature, imposed upon or incurred
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<PAGE>
by the Agent or the Banks by reason of such amendment, deletion, revision,
modification, or other change, and (b), to the extent such amendment to,
deletion from or revision, modification or other change in Law, or the
application or enforcement thereof, requires that the Banks no longer carry or
hold the Loans, Letters of Credit, or any portion thereof, then the Borrower
shall immediately pay to the Banks the then outstanding balance of the
Liabilities, and hold the Agent and the Banks harmless from and against any and
all obligations, fees, liabilities, losses, penalties, costs, expenses and
damages, of every kind and nature, imposed upon or incurred by the Borrower by
reason of the Banks' failure or inability to comply with the terms of this
Agreement or any of the other Loan Documents. The Borrower's obligations under
this subsection 6.11 shall survive repayment of the Liabilities and termination
---------------
of this Agreement and the other Loan Documents.
6.12 Environmental Notices. The Borrower and the Subsidiaries shall
---------------------
promptly notify and furnish the Agent with a copy of any and all Environmental
Notices which would result in a Material Adverse Effect and any Environmental
Notice from any governmental agency or authority which are received by the
Borrower or any Subsidiary. The Borrower shall take prompt and appropriate
action in response to any and all such Environmental Notices and shall promptly
furnish the Agent with a description of the Borrower's response thereto.
6.13 Use of the Proceeds. Proceeds of the Loans shall be used solely for
-------------------
the business purposes of the Borrower, consistent with the terms and provisions
of this Agreement and the other Loan Documents.
6.14 Depository Accounts. Except to the extent otherwise permitted by the
-------------------
Agent in writing, the Borrower shall maintain its primary depository and
operating accounts with UST.
6.15 Collateral Assignments of Licenses and Management Agreements. The
------------------------------------------------------------
Borrower shall notify the Agent promptly upon the execution of any Facility
Agreement and shall provide such information in respect thereof as the Agent
shall reasonably request.
6.16 Application of Net Contract Proceeds. If, in any calendar year, after
------------------------------------
giving effect to the provision contained in the last sentence of this subsection
----------
6.16, the Borrower or any Subsidiary receives Net Contract Proceeds and such Net
- ----
Contract Proceeds are in the amount of One Million and 00/100 Dollars
($1,000,000.00) or more, the Borrower or such Subsidiary shall apply the amount
of Net Contract Proceeds toward the acquisition or payment of Project Costs
required by a New Project or Contract Extension (as such terms are defined in
subsection 4.5 above). Pending such application, the Borrower or such
- --------------
Subsidiary shall immediately deposit the full amount of such Net Contract
Proceeds with the Agent, which deposit shall be invested by the Agent in Cash
Equivalent Investments and shall be held by the Agent as additional Collateral
for the Liabilities. The Borrower shall have the right to draw down all or part
of such Net Contract Proceeds for the same purposes and subject to the same
terms and conditions as are applicable to Guidance Loans under subsection 2.2.
--------------
All Net Contract Proceeds at any time on deposit with the Agent shall be fully
drawn down under this
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<PAGE>
subsection 6.16 before the Borrower shall make any request for any Guidance
- ---------------
Loan. In addition, such proceeds may also be used, in the Agent's sole
discretion, to meet the Borrower's obligations to reimburse the Banks as a
result of any draw under any Letter of Credit. If any such Net Contract
Proceeds are not drawn down prior to the earlier of the first anniversary of the
date on which they were deposited with the Agent or the Termination Date, the
Agent shall apply such Net Contract Proceeds first to prepayment of the Guidance
Loans and, second, to the prepayment of Working Capital Loans. If any proceeds
should remain after application of the two previous sentences, such proceeds
shall be used to reduce the Liabilities in such manner as the Agent determines
in its sole discretion. The Borrower or any Subsidiary shall be entitled to
retain and utilize in its discretion Net Contract Proceeds less than One Million
and 00/100 Dollars ($1,000,000.00) in any calendar year which may be received at
any time by such Person.
6.17 Covenants in Subordinated Debt Documents. The Borrower and each of
----------------------------------------
its Subsidiaries hereby covenant to perform, comply with and be bound by for the
benefit of the Banks at all times all of its agreements, covenants, and
obligations in the Subordinated Debt Documents.
7. NEGATIVE COVENANTS.
------------------
Each of the Borrower and its Subsidiaries hereby covenants and agrees that
so long as any Liabilities remain outstanding, and (even if there shall be no
Liabilities outstanding) so long as this Agreement remains in effect:
7.1 Encumbrances. The Borrower will not create, incur, assume or suffer
------------
to exist or permit any of its Subsidiaries to create, incur, assume or suffer to
exist any Lien or other encumbrance of any nature whatsoever on any of its
assets, including without limitation the Collateral, other than: (a) Liens
securing the payment of taxes, either not yet due or the validity of which is
being contested in good faith by appropriate proceedings, and as to which the
Borrower or the applicable Subsidiary shall, if appropriate under GAAP, have set
aside on its books and records adequate reserves; provided that such contest
-------------
does not have a Material Adverse Effect on the ability of the Borrower to pay
any of the Liabilities or the priority or value of the Agent's Lien on the
Collateral; (b) deposits under worker's compensation, unemployment insurance,
social security and other similar Laws, or to secure the performance of bids,
tenders or contracts (other than for the repayment of borrowed money) or to
secure indemnity, performance or other similar bonds for the performance of
bids, tenders or contracts (other than for the repayment of borrowed money) or
to secure statutory obligations or surety or appeal bonds, or to secure
indemnity, performance or other similar bonds in the ordinary course of
business, and Liens securing judgments that have not resulted in an Event of
Default under clause (d) of subsection 8.1 hereof; (c) statutory Liens of
--------------
landlords, carriers, warehousemen, mechanics, materialmen or suppliers incurred
in the ordinary course of business for sums not yet delinquent; (d) Liens in
favor of the Agent and the Banks; (e) purchase money security interests arising
in connection with Equipment or real estate purchases or lease financings made
as permitted by this Agreement, not to exceed an
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<PAGE>
aggregate of One Million and 00/100 Dollars ($1,000,000.00); (f) Liens described
on Schedule 7.1; (g) judgment Liens in existence less than thirty (30) days
------------
after the entry thereof or with respect to which execution has been stayed or
the payment of which is covered in full (subject to a customary deductible) by
insurance; and (h) Liens other than those permitted in subsections 7.1(a)-(g)
----------------------
securing obligations in an aggregate outstanding amount of no more than Two
Hundred Fifty Thousand and 00/100 Dollars ($250,000.00).
7.2 Indebtedness. The Borrower shall not, and shall not permit any
------------
Subsidiary to, incur, create, assume, become or be liable in any manner with
respect to, or permit to exist, any Indebtedness, except: (a) the Liabilities;
(b) trade obligations and normal accruals in the ordinary course of business not
yet due and payable, or with respect to which the Borrower or the applicable
Subsidiary is contesting in good faith the amount or validity thereof by
appropriate proceedings, and then only to the extent that the Borrower or the
applicable Subsidiary has set aside on its books adequate reserves therefor, in
accordance with GAAP; (c) purchase money Indebtedness incurred to finance the
purchase or lease of Equipment, subject to an aggregate limit on such
Indebtedness outstanding of One Million and 00/100 Dollars ($1,000,000.00); (d)
Indebtedness of the Borrower to any Subsidiary or of any Subsidiary to the
Borrower or any other Subsidiary; (e) unsecured guaranties of the Borrower of
the Indebtedness for borrowed money incurred by either Special Texas Corporation
for the purpose of obtaining or maintaining any concessions or food services
management agreement or other recreational food and beverage services contract
to be performed entirely within the State of Texas, provided the Borrower
continues to act as manager under the Texas Management Agreement and the total
amount of such guaranties shall not exceed Two Hundred Thousand and 00/100
Dollars ($200,000.00) in the aggregate; (f) Indebtedness of the Borrower or a
Subsidiary in respect of performance, bid or similar bonds related to Facility
Agreements, in a principal amount not to exceed Ten Million and 00/100 Dollars
($10,000,000.00) in the aggregate at any time; (g) other Indebtedness incurred
after the Closing Date in an aggregate principal amount outstanding at any time
not to exceed One Million and 00/100 Dollars ($1,000,000.00); and (h)
Indebtedness existing on the Closing Date and reflected on Schedule 7.2.
------------
7.3 Mergers and Consolidations. Except as allowed under subsection 7.4,
-------------------------- --------------
each of the Borrower and its Subsidiaries shall not enter into any transaction
of merger or consolidation, or liquidate, wind up or dissolve (or suffer any
liquidation or dissolution), or convey, sell, lease, transfer or otherwise
dispose of, in one transaction or a series of transactions, all or substantially
all of its business, property or tangible or intangible assets, whether now
owned or hereafter acquired, except that any Subsidiary may merge or consolidate
with, or convey, sell, lease, transfer or dispose of assets to, the Borrower or
another Subsidiary and thereafter dissolve (provided that in the case of a
merger or consolidation involving the Borrower, the Borrower is the surviving
corporation); and except that any Subsidiary of the Borrower may merge or
consolidate with any other Person with which the Borrower is permitted to merge
or consolidate (provided that the Subsidiary is the surviving corporation).
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7.4 Acquisitions. Neither the Borrower nor any of its Subsidiaries shall
------------
acquire any stock of any corporation or ownership interest in any other entity,
or acquire all or substantially all of the assets of, or such of the assets as
would permit the transferee to continue any one or more integral business
operations of, any Person. Notwithstanding the preceding sentence to the
contrary, (i) the Borrower or a Subsidiary may acquire stock of a corporation
which, as a result of such acquisition, becomes a Subsidiary (or if any
applicable, an Offshore Subsidiary) provided (a) that such Subsidiary (or if any
applicable, such Offshore Subsidiary) becomes a Guarantor of all of the
Liabilities; (b) such corporation is sufficiently capitalized and (c) if the
total valuation of such corporation (based on stock price and face amount of
issued and assumed debt) is Four Million and 00/100 Dollars ($4,000,000.00) or
more, the approval of the Designated Banks is obtained, and (2) the Borrower or
a Subsidiary may acquire assets of any Person, as referred to above, provided
that if the total value of the assets so acquired (based on purchase price and
face amount of issued and assumed debt) is Four Million and 00/100 Dollars
($4,000,000.00) or more, the approval of the Designated Banks is obtained.
The parties hereto acknowledge and agree that (a) Fine Host International
is a party to an agreement with F&B International Company Limited, pursuant to
which, among other things, Fine Host International may acquire an interest in
Fine Host Asia, a joint venture that may be organized in accordance with the
laws of Thailand (Queen Sirikit National Convention Center)(said joint venture
is hereinafter referred to as "Fine Host Asia"), and (b) Fine Host Asia shall
not, at any time, become a Subsidiary unless and until the Borrower has caused
Fine Host Asia to comply with all of the applicable provisions contained herein,
including without limitations, the provisions of subsection 3.1 above.
--------------
7.5 Disposal of Property. Neither the Borrower nor any of its
--------------------
Subsidiaries shall sell, lease, transfer or otherwise dispose of any of its
properties, assets and rights to any Person (other than the Borrower or a
Subsidiary) except: (a) sales of Inventory in the ordinary course of business;
(b) sales of property being replaced in the ordinary course of business by other
property with a fair market value equal to or greater than the property being so
replaced; (c) sales or disposal of obsolete or unused Equipment having a value
of less than Twenty-Five Thousand and 00/100 Dollars ($25,000.00) per fiscal
year of the Borrower; (d) subject to subsection 6.16, sales or transfers
---------------
pursuant to the termination of a Facility Agreement which will not result in any
extraordinary gains or losses pursuant to GAAP (including the prepayment of any
Note Receivable or receipt of any Net Contract Proceeds, subject to the terms of
the Assignment of Notes Receivable and Net Contract Proceeds executed and
delivered to the Agent); or (e) sales or disposal of Equipment having a net book
value as of such sale or disposition aggregating not more than Five Hundred
Thousand and 00/100 ($500,000.00) since the Closing Date. If any of the
Equipment is sold, transferred or otherwise disposed of as herein provided, and
such sale, transfer or disposition is made in connection with the purchase by
the Borrower of replacement Equipment, the Borrower shall use the proceeds of
such sale, transfer or disposition solely to finance the purchase by the
Borrower of such replacement Equipment and shall deliver to the Agent written
evidence of the use of the proceeds for such purchase. All replacement
Equipment purchased by the
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<PAGE>
Borrower or any of its Subsidiaries shall be free and clear of all Liens, except
for those of the Agent and except for purchase money security interests arising
out of such purchases to the extent permitted under subsection 7.1.
--------------
7.6 Investments or Loans. The Borrower will not, and will not permit any
--------------------
of its Subsidiaries to, make, incur, assume or suffer to exist any Investment in
any other Person, except:
(a) Investments existing on the Closing Date and identified in
Schedule 7.6 ("Ongoing Investments");
------------
(b) Cash Equivalent Investments;
(c) Without duplication, Investments permitted as Indebtedness
pursuant to subsection 7.2;
--------------
(d) in the ordinary course of business, Investments by the Borrower
in any of its Subsidiaries, or by any such Subsidiary in any of its
Subsidiaries, by way of contributions to capital or loans or advances; and
(e) other Investments made or committed to be made in any fiscal year
of the Borrower pursuant to or necessary (in the reasonable opinion of the
Borrower) in connection with any Facility Agreement which do not aggregate
in excess of the amount of Nineteen Million and 00/100 Dollars
($19,000,000.00) for the fiscal year ending December 25, 1996 and for each
fiscal year thereafter;
provided, however, that
- -------- -------
(i) to the extent Investments are made or committed to be made in any
fiscal year of the Borrower in an aggregate amount less than the maximum amount
permitted for such fiscal year as provided above in this clause (e), the
Investments which the Borrower or its Subsidiaries may make or commit to make in
the next following fiscal year of the Borrower shall be increased by Fifty
Percent (50%) of the amount of the permitted Investments not so made or
committed to be made in such immediately preceding fiscal year (it being agreed
that such Investments may not be carried forward to any further succeeding
fiscal years of the Borrower).
(ii) no portion of any Investments so carried forward in any fiscal year of
the Borrower shall be used until the entire amount of Investments permitted to
be made or committed to be made in such fiscal year as provided above in this
clause (e) shall have been used;
(iii) any Capital Expenditures made pursuant to subsection 7.8 shall
--------------
reduce, dollar-for-dollar, any Investments permitted to be made pursuant to this
clause (e) (it being agreed
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<PAGE>
that such reduction shall be applied first against the Investments permitted to
be made or committed to be made as provided above in this clause (e) before
reducing any carry-forward amount); and
(iv) the amount of Investments permitted to be made as provided above in
this clause (e) shall not be reduced by the amount of any Net Contract Proceeds
which the Borrower has notified the Agent in writing prior to the application
thereof, are being applied pursuant to this clause (e); and
----------
provided further, however, that no Investment otherwise permitted by clause (d)
- -------- ------- ------- ----------
or (e) shall be permitted to be made if, immediately before or after giving
---
effect thereto, any Default shall have occurred and be continuing.
7.7 Guaranties. Neither the Borrower nor any of its Subsidiaries shall
----------
guarantee, endorse or otherwise in any way become or be responsible for
obligations of any other Person (including without limitation any officer,
director, employee or stockholder of the Borrower or such Subsidiary, but
excluding the Borrower and its Subsidiaries), whether by agreement to purchase
the Indebtedness of any other Person or through the purchase of goods, supplies
or services, or maintenance of working capital or other balance sheet covenants
or conditions, or by way of stock purchase, capital contribution, advance or
loan for the purpose of paying or discharging any Indebtedness or obligation of
such other Person or otherwise, except (a) endorsements of negotiable
instruments for collection in the ordinary course of business, (b) performance
bonds given in connection with the entry by the Borrower or a Subsidiary into a
Facility Agreement, bonds necessary to submit bids for a Facility Agreement, or
similar bonds or agreements, and (c) guaranties or bonds by the Borrower or any
of its Subsidiaries required by any Person other than the Borrower or any
Affiliate in connection with obtaining or maintaining a License necessary for a
Facility Agreement. All bonds and agreements encompassed under clauses (b) and
(c) of the preceding sentence as of the date hereof are listed on Schedule 7.7.
------------
Nothing in this subsection 7.7 is intended to limit the exceptions to
--------------
Indebtedness, Investments, or Loans which are permitted under subsections 7.2
---------------
and 7.6.
---
7.8 Capital Expenditure Limitations. The Borrower will not, and will not
-------------------------------
permit any of its Subsidiaries to, make, or commit to make, Capital Expenditures
in any fiscal year of the Borrower, except in connection with Guidance Loans and
except for Capital Expenditures which do not aggregate in excess of the amount
of Nineteen Million and 00/100 Dollars ($19,000,000.00) for the fiscal year
ending December 25, 1996 and for each fiscal year thereafter;
provided, however, that
-------- -------
(i) to the extent Capital Expenditures are made or committed to be
made in any fiscal year of the Borrower in an aggregate amount less than
the maximum amount permitted for such fiscal year as provided above, the
Capital Expenditures which the Borrower or its Subsidiaries may make or
commit to make in the next following fiscal
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<PAGE>
year of the Borrower shall be increased by Fifty Percent (50%) of the
amount of the permitted Capital Expenditures not so made or committed to be
made in such immediately preceding fiscal year (it being agreed that such
Capital Expenditures may not be carried forward to any further succeeding
fiscal years of the Borrower);
(ii) no portion of any Capital Expenditures so carried forward in any
fiscal year of the Borrower shall be used until the entire amount of
Capital Expenditures permitted to be made or committed to be made in such
fiscal year as provided above shall have been used; and
(iii) any Investments made pursuant to clause (e) of subsection
---------- ----------
7.6 shall reduce, dollar-for-dollar, any Capital Expenditures permitted to
---
be made pursuant to this subsection 7.8 (it being agreed that such
--------------
reduction shall be applied first against the Capital Expenditures permitted
to be made or committed to be made as provided above before reducing any
carry-forward amount); and
(iv) the amount of Capital Expenditures permitted to be made as
provided above shall not be reduced by the amount of any Net Contract
Proceeds which the Borrower has notified the Agent in writing, prior to the
application thereof, are being applied pursuant to this subsection 7.8.
--------------
7.9 Distributions. Neither the Borrower nor any of its Subsidiaries shall
-------------
pay any dividends (other than stock dividends, provided that stock dividends
paid with respect to Stock which is subject to Pledge Agreements to the Agent
shall be subject to the terms of such Pledge Agreement) or distributions, either
in cash or in kind, on any class of its capital stock, nor make any distribution
on account of its stock, nor redeem, purchase or otherwise acquire, directly or
indirectly, any of its stock; provided, however, any Subsidiary shall be
-------- -------
permitted to make distributions or pay dividends to the Borrower or to its
immediate parent.
7.10 Compensation. None of the Borrower or any of its Subsidiaries shall
------------
pay compensation, directly or indirectly, whether in cash or in property
(including fringe benefits, and whether in respect of stock ownership,
consulting or other services or for any other reason whatsoever), to any
Affiliate of the Borrower except as set forth in Schedule 7.10 or as disclosed
-------------
in the Registration Statement and except that the provisions of this subsection
----------
7.10 shall not apply to reasonable payments or employee benefits made to
- ----
employees or officers of the Borrower or any Subsidiary, as determined in good
faith by the Board of Directors of the Borrower or, in the case of directors, to
reasonable and customary directors' fees, in each case in the ordinary course of
business.
7.11 Transactions with Affiliates. Other than as set forth on Schedule
---------------------------- --------
7.11, and except as permitted by subsection 7.10 or as disclosed in the
- ---- ---------------
Registration Statement neither the Borrower nor any of its Subsidiaries shall
loan, contribute or otherwise transfer any cash or property to any Affiliate of
the Borrower or any of its Subsidiaries or enter into any transaction, including
without limitation the purchase, sale or exchange of property or the
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<PAGE>
rendering of any service to any Affiliate of the Borrower, or any Affiliate of
such Subsidiary, except that transactions with Affiliates of the Borrower which
are at arm's length, are for fair value and are in the ordinary course of the
Borrower's and such Affiliate's business shall be permitted.
7.12 Prepayment of Other Liabilities. The Borrower shall not directly or
-------------------------------
indirectly prepay, purchase, redeem, retire, defease or otherwise acquire, or
make any optional payment on account of any principal of or any interest on or
premium payable in connection with the optional repayment, redemption or
retirement of, any of its Indebtedness (including but not limited to
Subordinated Debt) except for (i) the Liabilities; (ii) any obligations related
to a Facility Agreement which results in the prepayment in full of the
corresponding and related Guidance Loan; and (iii) mandatory prepayments and
other scheduled payments required under any Indebtedness that is permitted under
this Agreement.
7.13 Modification of Indebtedness. The Borrower will not permit the
----------------------------
modification or waiver of or any change in any provisions of any agreement
relating to Indebtedness for borrowed money of the Borrower, including, without
the consent of the Banks, the negotiation or renegotiation of any provisions of
any agreement with the holders of the Subordinated Debt, if in any such case,
such modification or waiver or change (taken as a whole) would be adverse to the
Borrower's interests or the rights and interests of the Agent and the Banks.
7.14 Amendment of Certificate or Articles of Incorporation or By-Laws.
----------------------------------------------------------------
Neither the Borrower nor any of its Subsidiaries shall amend its Certificate or
Articles of Incorporation or organization, or By-Laws, change its fiscal year-
end, or adopt or alter any preferred stock terms or preferences if such
amendment, adoption, or alteration would (i) adversely affect the ability of the
Borrower and its Subsidiaries, taken as a whole, to repay the Liabilities; (ii)
result in a Material Adverse Change to the value of the Collateral or the Banks'
ability to enforce its rights and remedies under this Agreement or any other
Loan Document; or (iii) result in a Material Adverse Change to the Borrower.
7.15 ERISA Termination Event. The Borrower shall not permit any ERISA
-----------------------
Termination Event to occur, or suffer any ERISA Termination Event to exist, if,
in either case, such ERISA Termination Event could have a Material Adverse
Effect on the Borrower.
7.16 Subordinated Debt Documents. Neither the Borrower nor any of its
---------------------------
Subsidiaries shall violate or permit violation of any covenant in the
Subordinated Debt Documents.
7.17 CFM Notes. Neither the Borrower nor any of its Subsidiaries will
---------
consent under Section 9 of the CFM Notes to the sale, assignment, pledge,
hypothecation, encumbrance or other transfer or disposition of all or any
portion of the CFM Notes by the holders thereof.
8. DEFAULT, RIGHTS AND REMEDIES OF THE AGENT.
-----------------------------------------
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<PAGE>
8.1 "Event of Default" shall mean the occurrence or existence of any one
or more of the following events:
(a) the Borrower fails to pay any of the Liabilities when such
Liabilities are due or are declared due, whether at stated maturity, by
acceleration or otherwise, within five (5) days of the date due;
(b) the Borrower, any of its Subsidiaries or any Guarantor fails or
neglects to perform, keep or observe any of the covenants, conditions,
promises or agreements contained in this Agreement or in any of the other
Loan Documents within ten (10) days after the date of notice by the Agent
of the failure to perform, keep, or observe such covenant, condition,
promise, or agreement (provided that there shall be no such ten (10) day
grace period for failure to comply with any covenant in Section 7 hereof),
---------
or any of the Loan Documents are unenforceable in whole or in part in
accordance with their terms;
(c) any warranty or representation now or hereafter made by the
Borrower, any of its Subsidiaries, or any Guarantor pursuant to this
Agreement or any of the other Loan Documents is untrue, incorrect or
incomplete in any material respect, or any schedule, certificate,
statement, report, financial data, notice, or writing furnished at any time
by the Borrower, any of its Subsidiaries, or any Guarantor to any Bank
pursuant to or in connection with the Loans is untrue, incorrect or
incomplete in any material respect, on the date as of which the facts set
forth therein are stated or certified or restated or recertified;
(d) judgments or orders requiring aggregate payments in excess of
Five Hundred Thousand and 00/100 Dollars ($500,000.00) shall be rendered
against the Borrower or any of its Subsidiaries, and such judgments or
orders shall remain unsatisfied or undischarged and in effect for thirty
(30) consecutive days without a stay of enforcement or execution, provided
that this clause (d) shall not apply to the extent that any judgment for
which the Borrower or such Subsidiary, as applicable, is insured and to the
extent to which the insurer has admitted, in writing, liability for the
amount thereof;
(e) a notice of Lien, levy or assessment is filed or recorded with
respect to all or a material part of the Collateral by the United States,
or any department, agency or instrumentality thereof, or by any state,
county, municipality or other governmental agency, or any taxes or debts
owing at any time or times hereafter to any one or more of them become a
Lien, upon all or a material part of the Collateral, provided that this
clause (e) shall not apply to any Liens, levies, or assessments which are
being contested in good faith (provided the Borrower has complied with the
provisions of clauses (a) and (b) of subsection 6.5);
--------------
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<PAGE>
(f) all or any material part of the Collateral is attached, seized,
subjected to a writ or distress warrant, or is levied upon, or comes within
the possession of any judgment creditor, receiver, trustee, custodian or
assignee for the benefit of creditors;
(g) a proceeding under any Insolvency Law is filed against the
Borrower or any of its Subsidiaries and such proceeding is not dismissed
within sixty (60) days of the date of its filing, or a proceeding under any
Law is filed by the Borrower or any of its Subsidiaries, or the Borrower or
any of its Subsidiaries files an answer admitting the material allegations
of a petition filed against it, or the Borrower or any of its Subsidiaries
makes an assignment for the benefit of creditors, or the Borrower or any of
its Subsidiaries takes any corporate or other action to authorize any of
the foregoing;
(h) the Borrower or any of its Subsidiaries voluntarily or
involuntarily dissolves or is dissolved except as permitted by subsection
----------
7.3, or terminates or is terminated;
---
(i) the Borrower or any of its Subsidiaries becomes Insolvent, or
admits in writing its inability, or fails generally, to pay its debts as
they become due;
(j) the Borrower or any of its Subsidiaries is enjoined, restrained,
or in any way prevented from conducting all or any material part of its
business affairs;
(k) a material default by the Borrower or any of its Subsidiaries,
shall occur (and any applicable cure period shall have expired) under any
Facility Agreement or related agreement, document or instrument, whether
heretofore, now or hereafter existing between the Borrower, such Subsidiary
or any other Person unless, within five (5) Business Days of such default,
the Borrower provides to the Agent a certificate (together with any other
documents reasonably required by the Agent) from the chief financial
officer or president of the Borrower that the Borrower and its
Subsidiaries, taken as a whole, notwithstanding termination of such
Facility Agreement or related agreement, document, or instrument, shall
continue to meet, and shall in the foreseeable future continue to meet, the
financial covenants in subsection 6.1;
--------------
(l) the Borrower or any of its Subsidiaries shall default in making
any payment when due, whether at stated maturity, by acceleration or
otherwise, on any obligation for borrowed money in an aggregate amount in
excess of Five Hundred Fifty Thousand and 00/100 Dollars ($550,000.00) or
the holder of any such obligation shall become entitled to cause such
obligation to become due prior to its stated date of maturity;
(m) there shall be a Change in Control of the Borrower;
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<PAGE>
(n) there shall occur a Material Adverse Change affecting the
Borrower, which could reasonably be expected to have a Material and Adverse
Effect on the value of the Collateral or the ability of the Borrower to
repay the Liabilities;
(o) there shall occur any loss, theft, substantial damage or
destruction of any item or items of Collateral ("Loss") if (x) the amount
of such Loss with respect to which an insurer has not admitted, in writing,
liability within a reasonable time (as reasonably determined by the Agent)
after the occurrence of such Loss, exceeds One Million and 00/100 Dollars
($1,000,000.00) in the aggregate, (y) any such Loss results in a material
interruption of the business of the Borrower and its Subsidiaries, or (z)
the aggregate of deductibles for Losses exceeds One Million and 00/100
Dollars ($1,000,000.00);
(p) the Borrower or any of its Subsidiaries shall be convicted of any
crime for which forfeiture of a material amount of its property, or payment
of a material penalty, will be required, or for which a license may be
revoked, terminated, or suspended, and such revocation, termination, or
suspension would result in a Material Adverse Effect on the Borrower;
(q) any Guaranty shall at any time after its execution and delivery
and for any reason cease to be in full force and effect or shall be
declared null and void;
(r) any Security Agreement shall at any time after its execution and
delivery and for any reason cease: (A) to create a valid and perfected
first priority security interest in and to a material portion of the
Collateral covered by such Security Agreement; or (B) to be in full force
and effect or shall be declared null and void; or
(s) any Pledge Agreement shall at any time after its execution and
delivery and for any reason cease: (A) to create a valid and perfected
first priority security interest in and to the property purported to be
subject to such Pledge Agreement; or (B) to be in full force and effect or
shall be declared null and void.
8.2 Termination of Obligation to Make Loans and Acceleration. Upon the
--------------------------------------------------------
occurrence of an Event of Default referred to in subsection 8.1(g), all of the
-----------------
Liabilities shall automatically, without notice of any kind, be immediately due
and payable and the Agent shall have no further obligation to make Loans
hereunder. Upon the occurrence of any other Event of Default, the Banks shall
have no further obligation to make Loans hereunder and any or all of the
Liabilities may, at the option of the Agent, acting in accordance with the
provisions of subsection 9.2(h), and without presentment, demand, protest or
-----------------
notice of any kind, be declared, and thereupon shall become, immediately due and
payable, provided that the Agent shall give notice of such acceleration to the
Borrower.
8.3 Rights and Remedies Generally. Upon the occurrence of an Event of
-----------------------------
Default, the Agent shall have, in addition to any other rights and remedies
contained in this Agreement
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<PAGE>
or in any of the other Loan Documents, all of the rights and remedies of a
secured party under the Code or other applicable Laws, all of which rights and
remedies shall be cumulative and non-exclusive, to the extent permitted by Law.
The Agent shall further have as a matter of right and without notice to the
Borrower or any of its Subsidiaries, unless otherwise required by applicable
law, and without regard to the adequacy or inadequacy of any Collateral as
security for the Liabilities or the interest of the Borrower or any of its
Subsidiaries therein, the right to apply to any court of competent jurisdiction
to appoint a receiver or receivers of the Borrower or any of its Subsidiaries of
all or any portion of the property of the Borrower or any of its Subsidiaries
comprising the Collateral and to have such receiver or receivers appointed, and
each of the Borrower and its Subsidiaries hereby irrevocably consents to such
appointment and waives notice of any application therefor (except as may be
required by law). Any such receiver or receivers shall have all the usual
powers and duties of receivers in like or similar cases and all the powers and
duties of the Agent provided in this Agreement and the other Loan Documents
including, without limitation and to the extent permitted by law, and by such
documents, the right to operate under existing licenses, franchises and permits
granted or issued to the Borrower or any of its Subsidiaries and the right to
enter into licenses, sublicenses, leases and subleases of all or any part of the
Collateral to the extent the Borrower or any of its Subsidiaries possessed such
rights, and shall continue as such and exercise all such powers until the date
of confirmation of sale of the Collateral unless such receivership is sooner
terminated.
8.4 Entry Upon Premises and Access to Information. Upon the occurrence
---------------------------------------------
and during the continuance of an Event of Default, the Agent shall have the
right, to the extent permitted by Law, to enter upon the premises of each of the
Borrower and its Subsidiaries where the Collateral is located (or is believed to
be located) without any obligation to pay rent to the Borrower or any of its
Subsidiaries, or, except to the extent that the rights of third parties would be
violated, until an appropriate order from a competent court is issued, any other
place or places where the Collateral is believed to be located and kept, and
remove the Collateral therefrom to the premises of the Agent, for such time as
the Agent may desire, in order effectively to collect or liquidate the
Collateral, or the Agent may require the Borrower or any of its Subsidiaries to
assemble the Collateral and make it available to the Agent at a place or places
to be designated by the Agent. Upon the occurrence and during the continuance
of an Event of Default, the Agent shall have the right to obtain access to the
data processing equipment, computer hardware and software of the Borrower or any
of its Subsidiaries relating to the Collateral and to use all of the foregoing
and the information contained therein in any manner the Agent deems appropriate
for the purposes of protecting the rights of the Agent hereunder and its rights
to the Collateral; and the Agent shall have the right to notify post office
authorities to change the address for delivery of the mail of the Borrower and
each Subsidiary to an address designated by the Agent and to receive, open and
process all mail addressed to the Borrower and each such Subsidiary.
8.5 Sale or Other Disposition of Collateral by the Agent. The net
----------------------------------------------------
proceeds realized by the Agent upon any such sale or other disposition, after
deduction for the expense of retaking, holding, preparing for sale, selling or
the like and the reasonable attorneys' and
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<PAGE>
paralegals' fees and legal expenses incurred by the Agent in connection
therewith, shall be applied as provided herein toward satisfaction of the
Liabilities. The Agent shall account to each of the Borrower and its
Subsidiaries for any surplus realized upon such sale or other disposition, and
each of the Borrower and its Subsidiaries shall remain liable for any
deficiency. The commencement of any action, legal or equitable, or the
rendering of any judgment or decree for any deficiency, shall not affect the
Agent's security interest in the Collateral until the Liabilities are fully
paid. Each of the Borrower and its Subsidiaries agrees that the Agent has no
obligation to preserve rights to the Collateral against any other parties.
8.6 Waiver of Demand. Demand, presentment, protest and notice of
----------------
nonpayment are hereby waived by each of the Borrower and its Subsidiaries. To
the extent permitted by Law the Borrower and its Subsidiaries also waive the
benefit of all valuation, appraisal and exemption laws.
8.7 Waiver of Notice. UPON THE OCCURRENCE AND CONTINUANCE OF A DEFAULT,
----------------
EACH OF THE BORROWER AND ITS SUBSIDIARIES HEREBY WAIVES ALL RIGHTS TO NOTICE AND
HEARING OF ANY KIND PRIOR TO THE EXERCISE BY THE AGENT OR THE BANKS OF ITS OR
THEIR RIGHTS TO REPOSSESS THE COLLATERAL WITHOUT JUDICIAL PROCESS OR TO REPLEVY,
ATTACH OR LEVY UPON THE COLLATERAL WITHOUT PRIOR NOTICE OR HEARING, TO THE
EXTENT PERMITTED IN THE JURISDICTION IN WHICH SUCH COLLATERAL IS LOCATED.
8.8 Advice of Counsel. Each of the Borrower and its Subsidiaries hereby
-----------------
acknowledges that each of them has received advice from its counsel with respect
to this transaction and this Agreement, including without limitation any waivers
contained herein.
9. THE AGENT
---------
9.1 Appointment of the Agent.
------------------------
(a) Each Bank hereby irrevocably appoints and authorizes UST as the Agent
of such Bank under the Loan Documents and each such Bank hereby irrevocably
authorizes UST, as the Agent for such Bank, subject to the terms and provisions
hereof, to take such action on its behalf, and to the extent of its interest
therein, under the provisions of the Loan Documents and to exercise such powers
and perform such duties as are exercisable and performable by the Agent by the
terms of the Loan Documents, together with such other powers as are reasonably
incidental thereto. Such powers shall include, without limitation, to advance,
administer, collect, enforce foreclosure on security for, and otherwise service
the Loans and the Letters of Credit, including, without limitation, subject to
the provisions of the Loan Documents, the protection, perfection and enforcement
of the Agent's rights as secured creditor under this Agreement and the other
Loan Documents, and, subject to the express terms and conditions hereof and
under the Loan Documents, to take such action and exercise such powers and
discretion on the Banks' behalf under this Agreement and the other Loan
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Documents as shall be reasonably necessary or advisable for such purposes. As
to any matter not provided for herein, the Agent shall be fully protected in
exercising any discretion or taking any action upon the written instructions of
the Banks. Notwithstanding any provision to the contrary elsewhere in this
Agreement or in any of the other Loan Documents, the Agent shall act solely as
agent of the Banks and the Agent shall not have any duties or responsibilities,
except those expressly set forth herein or in the other Loan Documents, nor any
fiduciary relationship with any of the Banks; no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or the other Loan Documents or otherwise shall exist against the Agent
and the Agent shall not be required to take any action in its capacity as agent
of the Banks hereunder that exposes it to personal liability or that is contrary
to applicable law.
(b) The Agent hereby accepts such appointment and agrees to act as the
agent of the Banks in accordance with this Agreement. In the performance of its
function under this Agreement, the Agent shall act solely as agent of the Banks,
and the Agent shall not assume, nor shall it be deemed to have assumed, any
obligation or relationship of agency or trust with or for the Borrower or any of
its Subsidiaries.
9.2 Administration of the Loans/Letters of Credit.
---------------------------------------------
(a) The Agent shall hold the original Loan Documents, with the exception
of the Notes delivered to Sumitomo, SSB, BBC, Mellon and BNY in accordance with
this Agreement (of which the Agent will hold only a copy), and administer the
Loan Documents in the name of the Banks for the pro rata benefit of the Banks,
--- ----
subject to the terms of this Section 9.
---------
(b) Each Loan under the Working Capital Line and the Guidance Line of
Credit shall be made by the Agent on the Banks' behalf in accordance with the
terms hereof and in accordance with this Agreement, and all requests for Loans
or Letters of Credit and other documents to be provided by the Borrower or any
of its Subsidiaries in connection with requests for Loans or Letters of Credit
shall be received by the Agent on the Banks' behalf before 11:00 a.m. (New York
City time) on the date each Loan is required to be made to the Borrower, except
as otherwise provided in the applicable LIBOR provisions, if any, contained in
the Notes. Upon receipt of a request for a Loan under the Working Capital Line
or the Guidance Line of Credit, the Agent shall notify the Banks by 1:00 p.m. on
such date of such request and of each Bank's pro rata share of the requested
--- ----
Loan. Not later than 2:30 p.m. (New York City time) on the date each Loan is
required to be made to the Borrower, each Bank shall make available its pro rata
--- ----
share of such Loan, in Federal or other funds immediately available in Boston,
to the Agent at its address stated in subsection 10.13. Unless the Agent
----------------
determines that any applicable condition precedent specified in this Agreement
for such Loan has not been satisfied, and additionally in the case of each
Guidance Loan, subject to the approval of the Designated Banks, to the extent
that approval of the Designated Banks is required by subsection 4.5 of this
--------------
Agreement, the Agent will make the funds so received from the Banks available to
the Borrower at the Agent's aforesaid address.
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(c) Unless the Agent shall have received notice from any Bank prior to the
date of any Loan that any Bank will not make available to the Agent its share of
such Loan, the Agent may assume that each Bank will make its pro rata share
--- ----
available to the Agent on the date of such Loan in accordance with subsection
----------
9.2(b) above and the Agent may, in reliance upon such assumption, make available
- ------
to the Borrower on such date a corresponding amount on behalf of the Banks. If
and to the extent that any Bank shall not have so made such share available to
the Agent, and the Agent, relying on such assumption, shall have made available
to the Borrower any such Bank's pro rata share of such Loan, from funds of the
--- ----
Agent, each such Bank agrees to repay to the Agent forthwith on demand such
corresponding amount, together with interest thereon, for each day from the date
such amount is made available by the Agent to the Borrower until the date such
amount is repaid to the Agent by each such Bank, at the overnight Federal funds
rate. If any such Bank shall repay to the Agent such corresponding amount, such
amount so repaid shall constitute such Bank's pro rata share of any such Loan
--- ----
for purposes of this Agreement. Nothing herein shall be deemed to relieve each
Bank from its obligation to fulfill its commitments under this Agreement or to
prejudice any rights which the Borrower may have against any of the Banks as a
result of any default by any of the Banks hereunder; provided however, that no
Bank shall be responsible for the failure of any other Bank to make available to
the Agent such Bank's pro rata share of any such Loan; and provided further,
--- ----
however, that a default by one Bank in providing its pro rata share of any Loan
--- ----
shall not by itself relieve any other Bank of its obligation to make its pro
---
rata share of such Loan.
- ----
(d) In the event that the Agent makes any payment under any Letter of
Credit and the Borrower shall not have reimbursed such amount in full to the
Agent pursuant to subsection 2.3(b) of this Agreement, the Agent shall promptly
-----------------
notify the Banks of such failure, and each Bank shall promptly and
unconditionally pay to the Agent the amount of its pro rata share of such
--- ----
unreimbursed payment in immediately available funds. If and to the extent any
Bank shall not have so made its pro rata share of the amount of such payment
--- ----
available to the Agent, such Bank agrees to pay to the Agent, forthwith on
demand, such amount, together with interest thereon, for each day from such date
until the date such amount is paid to the Agent, at the overnight Federal funds
rate.
(e) The Agent shall collect and receive all amounts paid in connection
with the Loans and the Letters of Credit, whether as principal, interest, fees,
late charges, reimbursement of draws under the Letters of Credit, proceeds of or
recoveries under insurance policies, amounts realized as the result of enforcing
the Loan Documents, income from the sale of any collateral or proceeds of any
refinancing of the Loans, or otherwise, in trust for the benefit of the Banks in
proportion to their respective interests therein and shall credit all such
amounts to the Loan Account to the extent provided for in this Agreement and in
the other Loan Documents. The Agent will render to the Banks on a monthly basis
a written statement of the Loan Account. Amounts so received as payments on
Notes held by Sumitomo, SSB, BBC, Mellon and BNY shall be deemed payments by the
Borrower on account of such Notes, notwithstanding any contrary provision
contained in such Notes regarding place or manner of payment.
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<PAGE>
(f) After any funds received in connection with the Loans or reimbursement
of draws under Letters of Credit have been credited to the Loan Account as
collected funds, the Agent shall remit to each Bank its respective pro rata
--- ----
shares of such amounts. Subject to the next two sentences, such remittances to
the Banks shall be made by wire transfer of Federal funds, pursuant to
instructions provided by the Banks, on the same day as the Agent shall have
received such collected funds. If any Bank then owes funds to the Agent in
connection with the Loans, the Letters of Credit or this Agreement, the Agent
may apply such sums to the payments due to the Agent. Notwithstanding the
foregoing, if any payment from the Borrower is returned after the Agent has made
a pro rata distribution to the Banks, at the Agent's option, (i) each Bank shall
--- ----
repay the Agent promptly upon notice of its pro rata distribution or (ii) the
--- ----
Agent may offset each Bank's pro rata share of the amount of such returned or
--- ----
uncollected payment against any future payment due to the Banks.
(g) The Agent agrees to keep the Banks reasonably informed and generally
advised concerning the status of the Loans, the Letters of Credit, and the
Subordinated Debt and of any material of which it has or gains knowledge with
respect to the same or the Borrower's performance thereunder, including, without
limitation, any facts or circumstances that would constitute a Material Adverse
Effect with respect to the Borrower or the Borrower and its Subsidiaries, taken
as a whole. The Agent shall give the Banks notice of any Default or Event of
Default under this Agreement, the Notes or any of the other Loan Documents of
which the Agent shall have knowledge. The Banks shall each cooperate with the
Agent if and to the extent that the Agent determines that the Banks' direct
involvement is required in any enforcement action, and shall take such action,
at the Banks' pro rata expense.
--- ----
(h) Except as set forth below, (i) the Agent shall have full discretion in
connection with the administration and collection of the Loans and amounts
funded under the Letters of Credit, including the right to make all decisions
regarding exercise, protection, perfection or enforcement of the rights, powers
and remedies of the Agent and the Banks hereunder or under the other Loan
Documents, and the right to make all other determinations or requests that the
Loan Documents provide are to be made by "the Banks", (ii) the Agent may take
such action, at the Banks' pro rata expense, as the Agent deems reasonably
--- ----
necessary or advisable to exercise, protect, perfect or enforce all rights,
powers and remedies of the Agent and the Banks under this Agreement or the other
Loan Documents, without the consent or approval of the Banks, and (iii) the
Agent shall, for the pro rata benefit of the Banks, receive, collect, hold and
--- ----
dispose of, in accordance with the provisions of this Agreement and the other
Loan Documents, the Collateral and any other properties or assets delivered or
paid over to "the Banks" in accordance with the provisions of this Agreement and
the other Loan Documents. The Agent shall not, however, without the prior
written consent of those Banks holding no less than Sixty-Five Percent (65%) of
the Loans (the "Designated Banks"), (A) consent to the making of any Guidance
----------------
Loan for which consent is required under subsection 4.5, (B) alter or amend the
---------- ---
Loan Documents or waive compliance with any provision thereof, (C) release any
Collateral above the levels permitted under subsection 7.5, so long as the value
--------------
of such Collateral so released does not exceed One Hundred Thousand and 00/100
Dollars ($100,000.00) per occasion of such release and does not represent a
total release of Collateral
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having a value of Five Hundred Thousand and 00/100 Dollars ($500,000.00) per
fiscal year of the Borrower, (D) declare an acceleration of the Loans upon the
occurrence of an Event of Default, (E) commence collateral enforcement or
foreclosure proceedings, or (F) consent to the assignment or transfer by the
Borrower or any of Borrower's or any of its Subsidiaries' rights and obligations
under any Loan Document. The Agent shall not, without the prior written consent
of all of the Banks, (u) release any Collateral above the levels permitted under
subsection 7.5, and which also exceed the levels permitted to be released by the
- ---------------
Designated Banks under subsection 9.2(h)(C), (v) release any Guarantor which is
--------------------
a Subsidiary, (w) extend the amortization schedule of repayment of any Loan, or
change the rates or the fees payable on the Loans, or extend the time of payment
of interest accruing on the Loans or extend the time or waive any requirement
for the reduction or termination of the commitment of the Banks, (x) extend the
final scheduled maturity date, or reduce the principal amount, of any Loan or
Note, (y) increase the commitment of the Banks with respect to the total amount
of the Loans or (z) amend this subsection 9.2(h).
-----------------
(i) If the Agent, acting in good faith and in a commercially reasonable
manner pursuant to the terms of this Agreement or the other Loan Documents,
shall foreclose or enforce the security interests of the Agent in the
Collateral, upon the authority of the Designated Banks, the Agent shall be
authorized to bid, itself or through its nominee, on behalf of the Banks at any
foreclosure sale up to the then outstanding balance of the Loans, including
principal, interest, costs and attorneys' fees, and in the event that the Agent
is the successful bidder at such sale, title to the property foreclosed shall be
held by the Agent for the pro rata benefit of the Banks. The Banks shall share
--- ----
all costs and expenses incurred in the holding and management of any such
property on a pro rata basis.
--- ----
(j) The Agent shall deliver to the Banks copies of all financial
statements and other related information and all material notices and documents
received by the Agent from the Borrower or its Subsidiaries.
(k) All books and records concerning the Loans and the Letters of Credit
which are maintained by the Agent shall be available for inspection by any Bank
during the Agent's normal business hours upon reasonable prior request.
9.3 Agent's Duty of Care.
--------------------
The Agent agrees that, in acting as agent of the Banks hereunder, it will
exercise the same degree of care in advancing, administering, collecting and
enforcing the Loans, including, without limitation, the management, protection
and perfection of the Collateral for the Loans, that it exercises in the
ordinary course of its day-to-day business in advancing, administering,
collecting and enforcing other loans for its own account. Neither the Agent nor
its officers, directors, agents, attorneys or employees shall be liable to the
Banks for any acts or omissions in making, administering, collecting or
enforcing the Loans unless such acts or omissions constitute gross negligence or
wilful misconduct. Neither the Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or affiliates shall be responsible in
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<PAGE>
any manner to any Bank for any recitals, statements, representations or
warranties made by any party to the Loan Documents or in any certificate,
report, statement or other document referred to or provided for in, or received
by the Agent under or in connection with, this Agreement or in the other Loan
Documents or for the value, validity, effectiveness, genuineness, enforceability
or sufficiency of this Agreement or any of the other Loan Documents or for any
failure of any party to this Agreement or to the other Loan Documents or any
other Person to perform its obligations thereunder. The Agent shall not be
under any obligation to any Bank to ascertain or to inquire as to the observance
or performance of any of the agreements contained in, or conditions of, this
Agreement or the other Loan Documents, or to inspect the properties, books or
records of any party to this Agreement or to the other Loan Documents. The
Agent shall not be under any liability or responsibility whatsoever, to any
party to this Agreement or to the other Loan Documents or any other Person as a
consequence of any failure or delay in performance, or any breach, by any Bank
of any of its obligations under any of the Loan Documents. Without limiting the
generality of the foregoing, the Agent (i) may consult with legal counsel,
including, without limitation, counsel for the Borrower, independent public
accountants and other experts elected by it, and shall not be liable for any
action taken or omitted to be taken by it in good faith in accordance with the
advice of such counsel, accountants or experts, and (ii) shall incur no
liability by acting or omitting to act upon any writing or other communication
believed by it to be genuine and signed or sent by the proper party.
9.4. Reliance by Agent.
-----------------
The Agent shall be entitled to rely, and shall be fully protected in
relying, upon any writing, resolution, notice, consent, certificate, affidavit,
opinion, letter, cablegram, telegram, telecopy, telex, telefax or teletype
message, statement, order or other document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to any party to the Loan Documents), independent accountants
and other experts selected by the Agent. The Agent shall not be under any duty
to examine or pass upon the validity, effectiveness or genuineness of the Loan
Documents or any instrument, document or communication furnished pursuant
thereto or in connection therewith, and the Agent shall be entitled to assume
that the same are valid, effective and genuine, have been signed or sent by the
proper parties and are what they purport to be. The Agent shall be fully
justified in failing or refusing to take any action under the Loan Documents
unless it shall first receive such advice or concurrence of the Banks as it
deems appropriate. The Agent shall in all cases be fully protected in acting,
or in refraining from acting, under the Loan Documents in accordance with a
request of the Banks, and such request and any action taken or failure to act
pursuant thereto shall be binding upon the Banks.
9.5 Notice of Default.
-----------------
The Agent shall not be deemed to have knowledge or notice of the occurrence
of any Default or Event of Default unless the Agent has received written notice
thereof from a Bank,
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<PAGE>
the Borrower or its Subsidiaries. In the event that the Agent receives such a
notice, the Agent shall promptly give notice thereof to the Banks. The Agent
shall take such action with respect to such Default or Event of Default as it is
instructed so to do in accordance with this Section 9.
---------
9.6 Non-Reliance on Agent and Other Banks.
-------------------------------------
Each Bank expressly acknowledges that neither the Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or affiliates has made
any representations or warranties to it and that no act by the Agent
hereinafter, including any review of the affairs of any party to the Loan
Documents, shall be deemed to constitute any representation or warranty by the
Agent to any Bank. Each Bank represents to the Agent that it has, independently
and without reliance upon the Agent or any other Bank, and based on such
documents and information as it has deemed appropriate, made its own evaluation
of and investigation into the business, operations, property, financial and
other condition and creditworthiness of the Borrower and its Subsidiaries and
made its own decision to enter into this Agreement. Each Bank also represents
that it will, independently and without reliance upon the Agent or any other
Bank and based on such documents and information as it shall deem appropriate at
the time, continue to make its own credit analysis, evaluations and decisions in
taking or not taking action under this Agreement or under any other Loan
Document, and to make such investigation as it deems necessary to inform itself
as to the business, operations, property, financial and other condition and
creditworthiness of the Borrower and its Subsidiaries. Except for notices,
reports and other documents expressly required to be furnished to the Banks
hereunder by the Agent, the Agent shall not have any duty or responsibility to
provide any Bank with any credit or other information concerning the business,
operations, property, financial and other condition or creditworthiness of the
Borrower and its Subsidiaries which may come into the possession of the Agent or
any of its officers, directors, employees, agents, attorneys-in-fact or
affiliates.
9.7 Indemnification.
---------------
(a) To the extent the Agent is not reimbursed and indemnified by the
Borrower, its Subsidiaries or the Limited Guarantors, the Banks will reimburse
and indemnify the Agent, in proportion to their respective pro rata shares in
--- ----
the Loans, from and against any and all expenses, losses, claims, damages or
liabilities that are incurred by the Agent, including, but not limited to,
reasonable attorneys' fees and expenses, caused by, or in any way resulting from
or relating to, any action taken or omitted to be taken by the Agent in any way
relating to or arising out of the performance of the agency contemplated by this
Section 9; provided however, that the Banks shall not by liable to the Agent for
- ---------
payment of any portion of such expenses, losses, claims, damages or liabilities
resulting solely from the gross negligence or willful misconduct of the Agent.
(b) Without limiting the foregoing, each Bank agrees to reimburse the
Agent promptly upon demand for its pro rata share of any out-of-pocket expenses,
--- ----
including,
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<PAGE>
without limitation, reasonable counsel fees, incurred by the Agent in connection
with the preparation, execution, delivery, administration, modification,
amendment or enforcement of, or legal advice in respect of rights or
responsibilities under, this Agreement and the other Loan Documents, to the
extent that the Agent is not reimbursed for each Bank's pro rata share of such
--- ----
expenses by the Borrower.
9.8 Successor Agent. The Agent may resign the agency constituted hereby
---------------
only with the prior written consent of the Designated Banks and the Borrower,
but may not assign its agency without the consent of the other Banks. Upon any
such resignation, the Banks shall determine which of them shall become the
successor agent hereunder. Any successor agent shall act as Agent for the
Banks, and shall have the same rights, powers, privileges and duties with
respect to the Banks as the Agent has hereunder, and the Agent shall be
discharged from its duties and obligation hereunder as the Agent of the Banks
with respect to all periods after the successor agent shall have accepted such
appointment by the Banks. In the event that the Agent or its assets are taken
over by any state or federal agency having jurisdiction over the Agent or its
assets, the Banks holding more than a majority of the outstanding balance of the
Loans may appoint another Bank as successor to the Agent.
9.9 Rescission of Loan Payments. The Banks agree that this Section 9
--------------------------- ---------
shall continue to be effective or be reinstated, as the case may be, if at any
time payment of all or any part of the Loans or reimbursement of all or part of
draws under Letter of Credit, in any case received while the parties hereto were
parties to this Agreement, is rescinded or otherwise must be restored to the
Borrower, any of its Subsidiaries, or their respective creditors or
representatives, upon the insolvency, bankruptcy or reorganization of the
Borrower or any of its Subsidiaries, or otherwise, all as though such payments
had not been made.
9.10 Sharing of Payments. If any Bank shall obtain any payment of any sums
-------------------
due under the Loans or any reimbursement of draws on Letters of Credit, whether
such payment is voluntary of involuntary, or received through the exercise of
any right of setoff or banker's lien, by realization upon security or
enforcement of any right under the Loan Documents or otherwise, in excess of its
respective pro rata share thereof, the other Banks shall forthwith purchase for
--- ----
cash, without recourse or warranty from the other such interests in the Loans as
shall be necessary to cause the Banks to share the excess payment ratably with
each other, but if any excess payment is afterward recovered from such
purchaser, the additional interest shall be rescinded and the amount paid
restored, without interest, to the extent of such recovery. If any Bank or the
Agent fails to make any payment required hereunder to any Bank or the Agent,
then such Bank or the Agent shall pay interest at the Federal Funds rate to the
paying party.
9.11 Representations and Warranties of the Other Banks and of the Agent.
------------------------------------------------------------------
Sumitomo, SSB, BBC, Mellon and BNY, each as to itself only, hereby represents
and warrants to the Agent that (i) it is a sophisticated buyer with respect to
the Loans, has adequate information concerning the business and financial
condition of the Borrower and its
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<PAGE>
Subsidiaries to make an informed decision regarding its participation in the
Loans hereunder, and has independently and without reliance upon the Agent, and
based on such information as it has deemed appropriate, made its own analysis
and decision to enter into this Agreement and (ii) it has received copies of all
of the Loan Documents it has requested. The Agent represents and warrants to
Sumitomo, SSB, BBC, Mellon and BNY that, to the best of its knowledge, it has
sent to such Banks all of the Loan Documents, including material waivers and
amendments thereto, in its possession.
9.12. Notices. All communications between the Agent and the Banks or
-------
notices in connection herewith shall be addressed to the Agent or to the
appropriate Bank at its address set forth on page one of this Agreement. All
such communications and notices shall be sent in the manner provided in
subsection 10.13 of this Agreement, and shall be effective in the time frames
- ----------------
provided in subsection 10.13, except that notice by telecopy shall be permitted
----------------
and shall be deemed received on the same Business Day when sent.
10. MISCELLANEOUS.
-------------
10.1 Waiver. The Agent's failure, at any time or times hereafter, to
------
require strict performance by each of the Borrower and its Subsidiaries of any
of the provisions of this Agreement shall not waive, affect or diminish any
right of the Agent thereafter to demand strict compliance and performance
therewith. Any suspension or waiver by the Agent of a Default or an Event of
Default by the Borrower or any of its Subsidiaries under this Agreement shall
not waive, affect or diminish any right of the Agent thereafter to demand strict
compliance and performance therewith. Any suspension or waiver by the Agent of
a Default or an Event of Default by the Borrower or any of its Subsidiaries
under this Agreement or a default under any of the other Loan Documents shall
not suspend, waive or affect any other Default or Event of Default by the
Borrower or any of its Subsidiaries under this Agreement or default under any
of the other Loan Documents whether the same is prior or subsequent thereto and
whether of the same or of a different kind or character. None of the
undertakings, agreements, warranties, covenants and representations of the
Borrower or any of its Subsidiaries contained in this Agreement or any of the
other Loan Documents and no Default or Event of Default by the Borrower or any
of its Subsidiaries under this Agreement or default under any of the other Loan
Documents shall be deemed to have been suspended or waived by the Agent unless
such suspension or waiver is in writing signed by an officer of the Agent, and
directed to the Borrower or any of its Subsidiaries specifying such suspension
or waiver. The Agent shall not be deemed to have waived any of its rights upon
or under this Agreement or any of the other Loan Documents unless such waiver is
in writing and signed by an officer of the Agent. No delay or omission on the
part of the Agent in exercising any other right shall operate as a waiver of
such right or any other right. A waiver on any one occasion shall not be
construed as a bar to or waiver of the assertion of any right on any future
occasion.
10.2 Attorneys' Fees and Expenses. If at any time or times hereafter the
----------------------------
Agent employs counsel in connection with protecting or perfecting the Agent's
security interest in
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<PAGE>
the Collateral or in connection with any matters contemplated by or arising out
of this Agreement, whether (a) to commence, defend, or intervene in any
litigation or to file a petition, complaint, answer, motion or other pleadings,
(b) to take any other action in or with respect to any suit or proceeding
(Insolvency or otherwise), (c) to consult with officers of the Agent to advise
the Agent, (d) to protect, collect, lease, sell, take possession of, or
liquidate any of the Collateral, or (e) to attempt to enforce or to enforce any
Lien on any of the Collateral or to attempt to enforce or to enforce any rights
of the Agent to collect any of the Liabilities, then in any of such events, all
of the attorneys' and paralegals' reasonable fees arising from such services,
and any reasonable expenses, costs and charges relating thereto, together with
interest at the rate prescribed herein for the Guidance Loans, shall be part of
the Liabilities, payable on demand and secured by the Collateral.
10.3 Expenditures by the Agent. Except as permitted herein, in the event
-------------------------
the Borrower or any of its Subsidiaries shall fail to pay taxes, insurance,
assessments, costs or expenses which the Borrower or any of its Subsidiaries is,
under any of the terms hereof or of any of the other Loan Documents, required to
pay, or fails to keep the Collateral free from Liens, or fails to perform under
any agreement related to or for which a Letter of Credit has been issued or a
Guidance Loan has been made, the Agent may, in its sole and absolute discretion,
make expenditures for any or all of such purposes, and the amount so expended,
together with interest thereon at the rate prescribed herein for the Guidance
Loans, shall be part of the Liabilities, payable on demand and secured by the
Collateral.
10.4 Custody and Preservation of Collateral. The Agent and each Bank shall
--------------------------------------
be deemed to have exercised reasonable care in the custody and preservation of
any of the Collateral in its possession if it takes such action for that purpose
as the Agent or such Bank would with respect to similar property held in such
Bank's name.
10.5 Reliance by the Banks. Each of the Borrower and its Subsidiaries
---------------------
hereby acknowledges that the Banks, in entering into this Agreement and
agreeing, to the extent provided herein, to make Loans and otherwise extend
credit to the Borrower or its Subsidiaries hereunder, have relied upon the
accuracy of the covenants, agreements, representations and warranties made
herein by each of the Borrower and its Subsidiaries and the information
delivered by each of the Borrower and its Subsidiaries to the Banks in
connection herewith (including without limitation the Financials).
10.6 Assignability; Parties. This Agreement is not assignable by the
----------------------
Borrower or any of its Subsidiaries. Whenever in this Agreement there is
reference made to any of the parties hereto, such reference shall be deemed to
include, wherever applicable, a reference to the successors and permitted
assigns of each of the Borrower and its Subsidiaries, and the successors and
assigns of the Agent and the Banks.
10.7 Applicable Law; Severability. THIS AGREEMENT SHALL BE CONSTRUED IN ALL
----------------------------
RESPECTS IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS AND DECISIONS OF THE
COMMONWEALTH OF MASSACHUSETTS, WITHOUT REGARD
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TO CONFLICT OF LAW PRINCIPLES. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provisions or the remaining provisions of this Agreement.
10.8 Submission to Jurisdiction; Jury Trial Waiver; Waiver of Bond. EACH
-------------------------------------------------------------
OF THE BORROWER AND ITS SUBSIDIARIES HEREBY CONSENTS TO THE JURISDICTION OF ANY
LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN SUFFOLK COUNTY, MASSACHUSETTS AND
WAIVES ANY OBJECTION WHICH THE BORROWER MAY HAVE BASED ON IMPROPER VENUE OR
FORUM NON CONVENIENS TO THE CONDUCT OF ANY PROCEEDING IN ANY SUCH COURT AND EACH
- --------------------
OF THE BORROWER AND ITS SUBSIDIARIES CONSENTS THAT ALL SERVICE OF PROCESS UPON
IT BE MADE BY REGISTERED MAIL OR MESSENGER DIRECTED TO IT AT THE ADDRESS SET
FORTH IN SUBSECTION 10.13 AND THAT SERVICE SO MADE SHALL BE DEEMED TO BE
----------------
COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT OR THREE (3) DAYS AFTER THE SAME
SHALL HAVE BEEN POSTED TO THE BORROWER'S OR SUCH SUBSIDIARY'S ADDRESS. EACH OF
THE BORROWER AND ITS SUBSIDIARIES HEREBY WAIVES, TO THE EXTENT PERMITTED BY LAW,
TRIAL BY JURY, IN ANY LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT, ANY OF THE OTHER LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREIN OR THEREIN AND WAIVES ANY BOND OR SURETY OR SECURITY UPON
SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF THE AGENT, THE BANKS
OR ANY OF THEM, AND LIKEWISE WAIVES, TO THE EXTENT PERMITTED BY LAW, ANY BOND OR
SURETY WHICH MIGHT BE REQUIRED OF THE AGENT, THE BANKS OR ANY OF THEM IN ANY
LEGAL PROCEEDING. NOTHING CONTAINED IN THIS SUBSECTION 10.8 SHALL AFFECT THE
---------------
RIGHT OF EACH BANK TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW
OR AFFECT THE RIGHT OF EACH BANK TO BRING ANY ACTION OR PROCEEDING AGAINST THE
BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER PROPER JURISDICTION.
10.9 Application of Payments. After the occurrence and during the
-----------------------
continuance of an Event of Default, any contrary provision contained in this
Agreement or the other Loan Documents notwithstanding, the Agent shall have the
continuing exclusive right to apply and reapply any and all payments received at
any time or times hereafter, whether with respect to the Collateral or
otherwise, against the Liabilities in such manner as the Agent may deem
advisable, any entry by the Agent upon its books and records notwithstanding,
and each of the Borrower and its Subsidiaries hereby irrevocably waives the
right to direct the application of any and all payments at any time or times
hereafter received by the Agent from the Borrower or any of its Subsidiaries or
with respect to any of the Collateral in such circumstances.
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<PAGE>
10.10 Marshalling; Payments Set Aside. No Bank shall be under any
-------------------------------
obligation to marshall any assets in favor of the Borrower or any of its
Subsidiaries or any other Person or against or in payment of any or all of the
Liabilities. To the extent that the Borrower or any of its Subsidiaries makes a
payment or payments to the Agent or any Bank or the Agent or any Bank enforces
the Liens or exercises its rights of setoff, and such payment or payments or the
proceeds of such enforcement or setoff or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside or required to
be repaid to a trustee, receiver or any other party under any bankruptcy or
other law, then to the extent of such recovery, the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full force
and effect as if such payment had not been made or such enforcement or setoff
had not occurred.
10.11 Section Titles. The section and subsection titles contained in
--------------
this Agreement are for reference purposes only and shall be without substantive
meaning or content of any kind whatsoever and are not a part of the agreement
between the parties.
10.12 Continuing Effect. This Agreement, the Agent's Liens on the
-----------------
Collateral, and all of the other Loan Documents shall continue in full force and
effect so long as any Liabilities shall be owed to the Banks, and (even if there
shall be no Liabilities outstanding) so long as this Agreement has not been
terminated as provided herein.
10.13 Notices. Except as otherwise expressly provided herein, any
-------
notice required or desired to be served, given or delivered hereunder shall be
in writing, and shall be deemed to have been validly served, given or delivered
upon the earlier of (a) personal delivery to the address set forth below, (b) in
the case of mailed notice, three (3) days after deposit in the United States
mails, with proper postage for certified mail, return receipt requested,
prepaid, or (c) in the case of notice by Federal Express or other reputable
overnight courier service, one (1) Business Day after delivery to such courier
service, addressed to the party to be notified as follows:
(i) If to the Agent, at:
USTrust
30 Court Street
Boston, Massachusetts 02108
Attention: Michael D. O'Neill, Vice President
(ii) If to the Borrower and/or its Subsidiaries, at:
Fine Host Corporation
3 Greenwich Office Park
Greenwich, CT 06831
Attention: Richard E. Kerley, President
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<PAGE>
or to such other Person or address as each party designates to the other in the
manner herein prescribed. Notices sent by or to the Borrower shall be deemed to
include its Subsidiaries for all purposes under this Agreement.
10.14 Equitable Relief. Each of the Borrower and its Subsidiaries
----------------
recognizes that, in the event the Borrower and its Subsidiaries fails to
perform, observe or discharge any of the Liabilities under this Agreement, any
remedy at law may prove to be inadequate relief to the Banks. Therefore, the
Borrower agrees that the Banks, if the Banks so request, shall be entitled to
temporary and permanent injunctive relief in any such case without the necessity
of proving actual damages.
10.15 Entire Agreement; Amendments. This Agreement, together with the
----------------------------
Loan Documents executed in connection herewith, and all exhibits and schedules
attached hereto or thereto, constitutes the entire Agreement among the parties
with respect to the subject matter hereof, and supersedes all prior written oral
understandings with respect thereto. This Agreement may be amended only by a
written instrument signed by the Borrower and the Designated Banks, except that
any amendment that would (i) make any change or permit any action specified in
the last sentence of subsection 9.2(h) or (ii) amend this subsection 10.15,
----------------- ----------------
shall be signed by the Borrower and all of the Banks.
10.16 Participations/Assignments.
--------------------------
(a) After obtaining the consent of UST, which consent shall not be
unreasonably withheld, each Bank shall have the right, without the consent of
the Borrower or any of its Subsidiaries or notice to the Borrower or any of its
Subsidiaries, to sell interests and participations in or to assign all or any
portion of its interest under any or all of the Loan Documents on such terms as
such Bank and a purchaser of such participation shall determine. However, no
Bank shall have any obligation to sell interests or any participations in the
Loan Documents.
(b) In addition to the assignments and participations permitted under
subparagraph (a) above, any Bank may assign and pledge all or any portion of its
pro rata share in the Loans and Notes to (i) any affiliate of such Bank or (ii)
- --- ----
any Federal Reserve Bank as collateral security pursuant to Regulation A of the
Board of Governors of the Federal Reserve System and any Operating Circular
issued by such Federal Reserve Bank. No such assignment shall release the
assigning Bank from its obligations hereunder.
10.17 Changes in Accounting Principles. (a) If any changes in
--------------------------------
accounting principles from those used in the preparation of the Financials are
hereafter occasioned by the promulgation of rules, regulations, pronouncements,
or opinions of, or required by, the Financial Accounting Standards Board or the
American Institute of Certified Public Accountants (or successors thereto or
agencies with similar functions), or there shall occur any change in the
Borrower's or any Subsidiary's fiscal or tax years and, as a result of any such
changes, there shall result a change in the method of calculating any of the
financial
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<PAGE>
covenants, negative covenants, standards, or other terms or conditions found in
this Agreement or any of the other Loan Documents, or (b) if the Borrower, for
reasonable business purposes, shall desire to change such accounting principles
or the application thereof (which change shall be consistent with accounting
principles then in effect pursuant to rules, regulations, pronouncements, or
opinions of the Financial Accounting Standards Board or the American Institute
of Certified Public Accountants) and such desired change would result in a
change in the method of calculating any of the financial covenants, negative
covenants or other terms and conditions found in this Agreement or any of the
other Loan Documents, then the parties hereto agree to enter into negotiations
in order to amend such provisions and the definition of GAAP, set forth in
subsection 1.1 so as to reflect equitably such changes with the desired result
- --------------
that the criteria for evaluating the financial condition and performance of the
Borrower and the Subsidiaries shall be the same after such changes as if such
changes had not been made.
10.18 Indemnity. Each of the Borrower and its Subsidiaries agrees to
---------
indemnify and hold the Agent and each Bank and the officers, directors,
employees and Affiliates of the Agent and such Bank harmless from and against
any claims, demands, losses, damages, penalties, costs and expenses to which the
Agent, such Bank, its subsidiaries or any such Persons or Affiliates may become
subject, insofar as such claims, demands, losses, damages, penalties, costs and
expenses arise out of or by reason of any investigation, litigation or other
proceedings related to the transactions contemplated by this Agreement, any of
the other Loan Documents, and to reimburse the Agent, each Bank and each such
Person and Affiliate, upon demand, for any legal or other expenses incurred in
connection with investigating or defending any such claims, demands, losses,
damages, penalties, costs and expenses; provided, however, that each of the
Borrower and its Subsidiaries shall not be liable for any such claims, demands,
losses, damages, penalties, costs and expenses arising out of any such action
taken by the Agent or by the Banks or any such Person or Affiliate to the extent
that the same shall be determined by a court of competent jurisdiction to have
constituted gross negligence or willful misconduct of the party to be
indemnified. Without limiting the foregoing, the Borrower and each of its
Subsidiaries shall indemnify and hold harmless the Agent's and each Bank's audit
officers, directors, employees and Affiliates from and against any claims,
demands, penalties, costs and expenses associated with Environmental Laws,
Hazardous Substances, and any covenants, representations and warranties relating
thereto contained in this Agreement, no matter how arising, and all matters
listed in Schedule 5.23. The obligations of each of the Borrower and its
-------------
Subsidiaries under this subsection 10.18 shall survive repayment of the
----------------
Liabilities and the other Loan Documents.
10.19 Representations and Warranties, etc. Anything to the contrary
-----------------------------------
contained herein notwithstanding, (i) each representation and warranty contained
in this Agreement or any of the other Loan Documents shall survive the execution
and delivery of this Agreement and the other Loan Documents and the making of
the Loans and the repayment of the Liabilities hereunder, (ii) each
representation and warranty contained in this Agreement and, except as otherwise
provided herein, each other Loan Document shall be remade on the date of each
Loan made hereunder, and (iii) each representation and warranty and other
covenant or
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<PAGE>
obligation of Borrower or any Subsidiary contained in this Agreement or any
other Loan Document is made jointly and severally by the Borrower and each of
its Subsidiaries.
10.20 Treatment of Certain Information. The Borrower (a) acknowledges
--------------------------------
that services may be offered or provided to it (in connection with this
Agreement or otherwise) by each Bank or by one or more of their respective
subsidiaries or affiliates and (b) acknowledges that information delivered to
each Bank by the Borrower may be provided to each such subsidiary and affiliate.
10.21 Independence of Covenants. All covenants hereunder shall be
--------------------------
given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or be otherwise within the limitations of, another covenant shall
not avoid the occurrence of a Default or Event of Default if such action is
taken or condition exists.
10.22 Time of the Essence. Time and punctuality shall be of the
--------------------
essence with respect to this Agreement, but no delay or failure of the Agent or
any Bank to enforce any of the provisions herein contained and no conduct or
statement of the Agent or any Bank shall waive or affect any of the Agent's or
any Bank's rights hereunder.
10.23 Closing Date. The Closing (the "Closing") under this Agreement
------------
shall occur (subject to all of the conditions contained herein) as of the date
on which the Borrower has completed the underwritten public offering of its
common stock pursuant to the Registration Statement, resulting in net proceeds
to the Borrower sufficient for the Borrower's Net Worth to be at least Forty-
Five Million Seven Hundred Fifty Thousand and 00/100 Dollars ($45,750,000.00) as
of such date (said date is hereinafter referred to as the "Closing Date").
Notwithstanding the preceding sentence to the contrary, this Agreement and all
of the transactions contemplated herein shall automatically terminate and be
null and void, and shall have no further force or effect, if the Closing Date
does not occur on or prior to July 11, 1996.
The parties hereto acknowledge and agree that all references contained in
(i) the Notes, (ii) all of the Security Agreements, the Assignments of
Receivables and Proceeds, the Joint Venture Pledge Agreements, the LLC Pledge
Agreement, the Unlimited Guaranties, and the Limited Guaranties referred to in
clauses (d), (e) and (f) of subsection 4.8 and (iii) all other agreements,
--------------
assignments, certificates, filings, instruments and other documents executed in
connection with the transactions contemplated herein to the words "dated of even
date herewith" shall mean and refer to the Closing Date.
[THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK]
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as an instrument
under seal by the duly authorized representative of each party hereto, as of the
day and year first above written.
USTRUST AS AGENT
By:______________________________
Title:_____________________________
USTRUST
By:______________________________
Title:_____________________________
THE SUMITOMO BANK, LIMITED
By:______________________________
Title:_____________________________
By:______________________________
Title:_____________________________
STATE STREET BANK AND TRUST COMPANY
By:______________________________
Title:_____________________________
BANK OF BOSTON CONNECTICUT
By:______________________________
Title:_____________________________
MELLON BANK, N.A.
By:______________________________
Title:_____________________________
-84-
<PAGE>
THE BANK OF NEW YORK
By:_______________________________
Title:______________________________
FINE HOST CORPORATION
By:______________________________
Title:_____________________________
FINE HOST SERVICES CORPORATION
By:______________________________
Title:_____________________________
FINE HOST OF VERMONT, INC.
By:______________________________
Title:_____________________________
FANFARE, INC.
By:______________________________
Title:_____________________________
GLOBAL FANFARE, INC.
By:______________________________
Title:_____________________________
FINE HOST INTERNATIONAL CORPORATION
By:______________________________
Title:_____________________________
-85-
<PAGE>
CREATIVE FOOD MANAGEMENT, INC.
By:______________________________
Title:_____________________________
NORTHWEST FOOD SERVICE, INC.
By:______________________________
Title:_____________________________
TARRANT COUNTY CONCESSIONS, L.L.C.
By:______________________________
Title:_____________________________
SUN WEST SERVICES, INC.
By:______________________________
Title:_____________________________
-86-
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
June 17, 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
June 17, 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
June 17, 1996
2
