<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 4, 1997
REGISTRATION NO. 333-19909
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
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 LLP
153 EAST 53RD STREET 60 STATE STREET
NEW YORK, NEW YORK 10022 BOSTON, MASSACHUSETTS 02109
(212) 821-8000 (617) 526-6000
</TABLE>
------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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>
SUBJECT TO COMPLETION, JANUARY 16, 1997
2,000,000 SHARES
[LOGO]
FINE HOST CORPORATION
COMMON STOCK
OF THE 2,000,000 SHARES OF COMMON STOCK BEING OFFERED HEREBY, 1,814,000
SHARES ARE BEING SOLD BY FINE HOST CORPORATION AND 186,000 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.
THE COMPANY'S COMMON STOCK IS TRADED ON THE NASDAQ NATIONAL MARKET UNDER THE
SYMBOL "FINE." ON FEBRUARY 3, 1997, THE LAST REPORTED SALE PRICE OF THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET WAS $25.00 PER SHARE. SEE "PRICE RANGE OF
COMMON STOCK."
SEE "RISK FACTORS" COMMENCING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE UNDERWRITING 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 $575,000.
(3) THE COMPANY HAS GRANTED TO THE UNDERWRITERS A 30-DAY OPTION TO PURCHASE UP
TO 300,000 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 , 1997.
------------------------
MONTGOMERY SECURITIES
PIPER JAFFRAY INC.
SMITH BARNEY INC.
<PAGE>
, 1997
<PAGE>
[LOGO]
[GRAPHIC OMITTED]
FINE HOST CORPORATION provides food and beverage services at
more than 400 facilities located in 38 states.
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.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK
ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE "UNDERWRITING."
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 ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION.
THE COMPANY
Fine Host Corporation is a leading contract food service management company,
providing food and beverage concession, catering and other ancillary services at
more than 400 facilities located in 38 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 elementary and
secondary 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 and $87.2 million for the nine months ended
September 25, 1996. 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 Lawrence
Convention Center in Pittsburgh, Pennsylvania; 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
Pro Player Stadium (home of the Miami Dolphins and the Florida Marlins and the
site of two Super Bowls), the Orange County Convention Center in Orlando,
Florida (one of the largest convention centers in the world) and Boise State
University in Boise, Idaho. Servicing these larger facilities gives the Company
high visibility in the industry and strengthens its credibility when bidding on
new contracts or pursuing acquisitions.
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 renewing existing
contracts, by successfully bidding on new targeted accounts and by making
acquisitions. The Company believes that its strong
3
<PAGE>
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 13 convention
center contracts that have come up for renewal. 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 expansion into the
education and corporate dining markets and its establishment of an international
presence. From April 1993 through January 1997, the Company completed nine
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."
Fine Host's growth has accelerated since its initial public offering on June
25, 1996 (the "Initial Public Offering") with the successful completion of five
strategic acquisitions. These acquisitions significantly increase the Company's
presence in the education and corporate dining markets in the northeastern and
mid-Atlantic regions of the United States. Four of these acquisitions, Ideal
Management Services, Inc. ("Ideal"), Republic Management Corp. of Massachusetts
("Republic"), Service Dynamics Corp. ("Service Dynamics") and Serv-Rite
Corporation ("Serv-Rite"), increase the Company's presence in the school
nutrition (grades K-12) ("School Nutrition") market, a market estimated by the
U.S. government to be approximately $10 billion in 1995. The Company believes
that all of these companies have experienced management teams and strong
operating results at their facilities, yet can benefit from the Company's size
and operating infrastructure. The following table provides selected information
regarding each acquisition:
<TABLE>
<CAPTION>
# OF PURCHASE
COMPANY DATE ACQUIRED CONTRACTS PRIMARY MARKET(S) REGION REVENUES* PRICE
- -------------------- ----------------- --------- --------------------------------- -------------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Ideal July 1996 26 School Nutrition NY $ 7.7 $ 3.6
PCS November 1996 60 Corporate Dining Eastern U.S. 15.7 6.0
Republic December 1996 55 School Nutrition and MA, RI, CT 14.6 8.6
Corporate Dining
Service Dynamics December 1996 32 School Nutrition and NY, NJ, CT 11.0 3.0
Corporate Dining
Serv-Rite January 1997 350 Education and NY, PA 34.2 7.5
Corporate Dining
</TABLE>
- -------------
* For last completed fiscal year of the acquired company for which financial
statements are available.
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.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company................ 1,814,000 shares
Common Stock offered by the Selling Stockholders... 186,000 shares
Common Stock to be outstanding after the
Offering......................................... 8,080,766 shares(1)
Use of Proceeds.................................... To repay outstanding indebtedness and
for general corporate purposes. See
"Use of Proceeds."
Nasdaq National Market symbol...................... FINE
</TABLE>
- ------------------------
(1) Based on shares outstanding as of February 3, 1997. Does not include 495,444
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 85,500 shares of Common Stock issuable upon
conversion of outstanding convertible notes at such date. An aggregate of
86,334 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 and Convertible Notes."
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEARS (1) ----------------------------
----------------------------------------------------- SEPTEMBER 27, SEPTEMBER 25,
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- ------------- -------------
<S> <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 $ 69,859 $ 87,236
Gross profit................................... 3,176 4,031 5,396 8,286 9,886 7,140 9,450
Income from operations......................... 795 949 2,747 4,880 6,260 4,257 5,406
Net income..................................... $ 215 $ 340 $ 1,084 $ 1,866 $ 2,196 $ 1,327 $ 1,908
Net income per share assuming full dilution
(2).......................................... $ 0.10 $ 0.17 $ 0.28 $ 0.49 $ 0.39 $ 0.32 $ 0.13
Average number of shares of Common Stock
outstanding assuming full dilution........... 2,048 2,048 3,087 3,287 3,330 3,278 4,525
SELECTED OPERATING DATA:
EBITDA (3)..................................... $ 1,932 $ 2,154 $ 4,631 $ 7,563 $ 10,416 $ 6,946 $ 8,685
Net cash provided by (used in) operating
activities................................... 1,099 1,676 3,765 2,570 2,971 3,178 (3,046)
Net cash used in investing activities.......... (2,371) (2,295) (7,669) (9,046) (8,124) (7,087) (13,204)
Net cash provided by financing activities...... 1,852 463 2,737 7,632 4,255 4,834 19,487
Total contracts (at end of period) (4)......... 21 28 42 81 95 93 194
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 25, 1996
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA (5) AS ADJUSTED (5)
--------- ------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Total debt.............................................................. $ 19,376 $ 50,970 $ 8,690
Stockholders' equity.................................................... 44,876 44,876 87,336
</TABLE>
- ----------------------------------
(1) The Company's fiscal year ends on the last Wednesday of December. The 1992
fiscal year was a 53-week period.
(2) Net income 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) and $900 ($0.27 per share) for fiscal 1993, 1994 and
1995, respectively, and $286 ($0.09 per share) and $1,300 ($0.29 per share)
for the nine months ended September 27, 1995 and September 25, 1996,
respectively.
(3) 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.
(4) Represents total contracts other than contracts for one-time or special
events.
(5) Pro forma reflects that the Company expects that its senior indebtedness as
of the close of the Offering will be approximately $45.0 million. Pro forma
as adjusted gives effect to the sale by the Company of the 1,814,000 shares
of Common Stock offered by it hereby at an assumed offering price of $25 and
the application of the net proceeds of the Offering to repay approximately
$42.3 million of such senior indebtedness. See "Use of Proceeds."
6
<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. 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 BELOW.
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. From April 1993 through January 1997, the Company acquired
nine companies, including five since the closing of the Initial Public Offering.
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. 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. Most of the Company's corporate dining contracts are terminable after
a short notice period. The Company's remaining contracts generally have a fixed
term and in any fiscal year a number of these contracts either expire or come up
for renewal. 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. To the extent the Company
continues to expand 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."
7
<PAGE>
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."
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 and acquisitions, 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. In addition, many
education dining facilities are closed during the summer months. 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."
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 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
8
<PAGE>
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 16.4% of the outstanding shares of Common Stock
(approximately 15.9% 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 8,080,766 shares of Common Stock to be outstanding
after the Offering, the Company estimates that approximately 6,694,366 shares,
including the 2,000,000 shares of Common Stock to be sold in the Offering, will
be freely tradable without restriction. Of the remaining outstanding shares of
Common Stock, 1,318,500 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 90 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. Upon the expiration or release
of the lock-up agreements, these shares will become eligible for sale in the
public market, subject to the provisions of Rule 144 under the Securities Act of
1933, as amended (the "Securities Act"). Promptly after the closing of the
Offering, the Company intends to file a shelf registration statement under the
Securities Act covering the sale of 223,000 shares of Common Stock held by
certain officers of the Company, which would entitle them to sell such shares
within the volume limitations of Rule 144 under
9
<PAGE>
the Securities Act. These shares will be subject to the lock-up agreements. As
of February 3, 1997, there were outstanding options to purchase a total of
495,444 shares of Common Stock. See "Management-- Compensation Pursuant to
Plans." The Company has granted certain stockholders registration rights with
respect to 1,219,256 shares of Common Stock (including shares issuable upon the
exercise of warrants and convertible notes). 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
The Company's Restated Certificate of Incorporation, as amended (the
"Restated Certificate"), provides for a classified Board of Directors and
authorizes 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."
LIMITED PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
The Common Stock has traded on the Nasdaq National Market since June 1996
and has a limited public market history. There can be no assurance that future
market prices for the shares will equal or exceed the price to public set forth
on the cover page of this Prospectus. 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."
10
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,814,000 shares of
Common Stock offered by it hereby at an assumed public offering price of $25 are
estimated to be approximately $42.3 million (approximately $49.4 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.
All of the net proceeds of the Offering to be received by the Company will
be used to repay indebtedness outstanding under the Company's bank credit
facility. Such indebtedness matures from 1999 to 2002 and bears interest at a
rate per annum equal to LIBOR plus 2.0% to 2.5% or the prime rate plus 0.5%, at
the Company's option. The indebtedness was incurred to finance acquisitions and
for general working capital purposes. In the event the over-allotment option is
exercised, the additional proceeds will be used first to repay any remaining
bank indebtedness and then for general working capital purposes.
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.
PRICE RANGE OF COMMON STOCK
The Common Stock has been quoted on the Nasdaq National Market under the
symbol "FINE" since the Initial Public Offering on June 19, 1996.
The following table sets forth the high and low sale prices of the Common
Stock on the Nasdaq National Market for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
Fiscal Year Ended December 25, 1996:
Second Quarter (beginning June 19, 1996)................................. $12.25 $10.75
Third Quarter............................................................ 16.25 10.50
Fourth Quarter........................................................... 19.25 14.00
Fiscal Year Ending December 31, 1997:
First Quarter (through February 3, 1997)................................. $25.88 $18.38
</TABLE>
On February 3, 1997, the last reported sale price for the Common Stock as
reported by Nasdaq was $25 per share. As of February 3, 1997, there were
approximately 40 holders of record of the Common Stock.
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."
11
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 25, 1996: (1) on an actual basis; (2) on a pro forma basis to reflect
that the Company expects that its senior indebtedness as of the close of the
Offering will be approximately $45.0 million; and (3) on a pro forma as adjusted
basis to give effect to the sale by the Company of the 1,814,000 shares of
Common Stock offered by it hereby at an assumed offering price of $25 and the
application of the net proceeds of the Offering to repay $42.3 million of senior
indebtedness. 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>
SEPTEMBER 25, 1996
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term obligations:
Current portion of long-term debt........................................ $ 598 $ 598 $ --
Current portion of subordinated debt..................................... 1,532 1,532 1,532
--------- ------------- -----------
Total................................................................ $ 2,130 $ 2,130 $ 1,532
--------- ------------- -----------
--------- ------------- -----------
Long-term obligations:
Long-term debt........................................................... $ 12,808 $ 44,402 $ 2,720
Subordinated debt........................................................ 4,438 4,438 4,438
--------- ------------- -----------
Total................................................................ 17,246 48,840 7,158
Stockholders' equity:
Preferred Stock, $.01 par value, 1,000,000 shares authorized; none issued
and outstanding........................................................ -- --
Common Stock, $.01 par value, 25,000,000 shares authorized; 6,212,016
issued and outstanding actual and 8,080,766 issued and outstanding as
adjusted (1)........................................................... 62 62 81
Additional paid-in capital............................................... 41,778 41,778 84,219
Retained earnings........................................................ 3,225 3,225 3,225
Receivables from stockholders for purchase of Common Stock............... (189) (189) (189)
--------- ------------- -----------
Total stockholders' equity........................................... 44,876 44,876 87,336
--------- ------------- -----------
Total capitalization............................................... $ 62,122 $ 93,716 $ 94,494
--------- ------------- -----------
--------- ------------- -----------
</TABLE>
- ------------------------
(1) Does not include 495,444 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 85,500 shares of Common Stock
issuable upon conversion of outstanding convertible notes. An aggregate of
86,334 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 and Convertible Notes."
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 September 27, 1995 and September 25, 1996 and for each of the nine-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 and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
FISCAL YEARS (1) NINE MONTHS ENDED
----------------------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SEPTEMBER 27, SEPTEMBER 25,
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- ------------- -------------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AND CONTRACT DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales.................................... $ 35,471 $ 39,429 $ 61,212 $ 82,119 $ 95,462 $ 69,859 $ 87,236
Cost of sales................................ 32,295 35,398 55,816 73,833 85,576 62,719 77,786
--------- --------- --------- --------- --------- ------------- -------------
Gross profit................................. 3,176 4,031 5,396 8,286 9,886 7,140 9,450
General and administrative expenses.......... 2,381 3,082 2,649 3,406 3,626 2,883 4,044
--------- --------- --------- --------- --------- ------------- -------------
Income from operations....................... 795 949 2,747 4,880 6,260 4,257 5,406
Interest expense, net........................ 442 393 834 1,629 2,479 1,971 2,018
--------- --------- --------- --------- --------- ------------- -------------
Income before tax provision and extraordinary
item....................................... 353 556 1,913 3,251 3,781 2,286 3,388
Tax provision................................ 138 216 829 1,385 1,585 959 1,480
--------- --------- --------- --------- --------- ------------- -------------
Income before extraordinary item............. 215 340 1,084 1,866 2,196 1,327 1,908
Extraordinary item........................... -- -- 112 -- -- -- --
--------- --------- --------- --------- --------- ------------- -------------
Net income................................... 215 340 972 1,866 2,196 1,327 1,908
Accretion to redemption value of warrants.... -- -- (230) (250) (900) (286) (1,300)
--------- --------- --------- --------- --------- ------------- -------------
Net income available to Common Stockholders.. $ 215 $ 340 $ 742 $ 1,616 $ 1,296 $ 1,041 $ 608
--------- --------- --------- --------- --------- ------------- -------------
--------- --------- --------- --------- --------- ------------- -------------
Net income per share assuming full
dilution(2)................................ $ 0.10 $ 0.17 $ 0.24 $ 0.49 $ 0.39 $ 0.32 $ 0.13
--------- --------- --------- --------- --------- ------------- -------------
--------- --------- --------- --------- --------- ------------- -------------
Average number of shares of Common Stock
outstanding assuming full dilution......... 2,048 2,048 3,087 3,287 3,330 3,278 4,525
--------- --------- --------- --------- --------- ------------- -------------
--------- --------- --------- --------- --------- ------------- -------------
Supplemental pro forma net income per share
assuming full dilution(3).................. $ 0.45 $ 0.19
--------- -------------
--------- -------------
SELECTED OPERATING DATA:
EBITDA(4).................................... $ 1,932 $ 2,154 $ 4,631 $ 7,563 $10,416 $ 6,946 $ 8,685
Net cash provided by (used in) operating
activities................................. 1,099 1,676 3,765 2,570 2,971 3,178 (3,046 )
Net cash used in investing activities........ (2,371) (2,295) (7,669) (9,046) (8,124) (7,087 ) (13,204 )
Net cash provided by financing activities.... 1,852 463 2,737 7,632 4,255 4,834 19,487
Total contracts (at end of period)(5)........ 21 28 42 81 95 93 194
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (deficit).................... $ 1,772 $ 843 $ (33) $(4,056) $(4,499) $ (3,101 ) $ 3,357
Total assets................................. 17,868 19,938 29,174 53,153 60,581 62,046 91,936
Total debt................................... 10,296 10,759 13,358 25,518 28,931 29,884 19,376
Stockholders' equity......................... 2,618 2,726 6,970 8,586 11,382 11,662 44,876
</TABLE>
(FOOTNOTES APPEAR ON THE FOLLOWING PAGE)
13
<PAGE>
- ------------------------------
(1) The Company's fiscal year ends on the last Wednesday of December. The 1992
fiscal year was a 53-week period.
(2) Net income 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) and $900 ($0.27 per share) for fiscal 1993, 1994 and
1995, respectively, and $286 ($0.09 per share) and $1,300 ($0.29 per share)
for the nine months ended September 27, 1995 and September 25, 1996,
respectively.
(3) Supplemental pro forma net income 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. See
"Use of Proceeds."
(4) 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.
(5) Represents total contracts other than contracts for one-time or special
events.
14
<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, catering and other ancillary services to more than
400 facilities in 38 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 education and school nutrition markets
("Education"), serving colleges, universities and, since 1996, elementary and
secondary schools; and the corporate dining market ("Corporate Dining") serving
corporate cafeterias, office complexes and manufacturing plants.
A significant portion of the Company's growth to date has been derived from
acquisitions. From April 1993 through January 1997, the Company acquired nine
companies. In April 1993, the Company acquired Fanfare, Inc., which primarily
serves Recreation and Leisure facilities. In September 1994, the Company
acquired Creative Food Management, Inc., which serves the Education, Corporate
Dining and Recreation and Leisure markets. In July 1995, the Company acquired
Northwest Food Service, Inc., which serves the Education and Corporate Dining
markets. The Company acquired Sun West Services, Inc. ("Sun West") in March
1996, Ideal in July 1996, HCS Management Corp. (now known as PCS Holding Corp.)
("PCS") in November 1996, Republic in December 1996 and Service Dynamics in
December 1996, for an aggregate of approximately $25 million. In January 1997,
the Company acquired Serv-Rite, which serves the Education and Corporate Dining
markets, for a purchase price of approximately $7.5 million.
Sun West provides services to elementary and secondary schools, as well as
jails and other institutions, primarily in the southwestern U.S. Ideal provides
services to elementary and secondary schools in New York. PCS provides
non-patient contract food and other services to hospitals and corporations in
the eastern U.S. Republic provides services to the college, corporate dining and
vending markets in Massachusetts, Rhode Island and Connecticut. Service Dynamics
provides services to elementary and secondary schools and corporate dining
markets in New York, New Jersey and Connecticut. Serve-Rite provides contract
food services to the Education, Corporate Dining and vending markets in New York
and Pennsylvania.
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.
15
<PAGE>
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. Most of the Company's
Corporate Dining contracts are terminable after a short notice period. The
Company's remaining contracts generally have a fixed term and in any fiscal year
a number of these contracts either expire or come up for renewal.
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 contracts was approximately
$11.3 million at September 25, 1996, consisting of costs related to 40
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 $7.6 million at September 25, 1996, consisting of rights relating
to 154 contracts. Generally, contracts acquired through acquisitions 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 NINE MONTHS ENDED
------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C>
SEPTEMBER 27, SEPTEMBER 25,
1993 1994 1995 1995 1996
--------- --------- --------- --------------- ---------------
<CAPTION>
<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 89.8 89.2
--------- --------- --------- ----- -----
Gross profit.............................................. 8.8 10.1 10.4 10.2 10.8
General and administrative expenses....................... 4.3 4.1 3.8 4.1 4.6
--------- --------- --------- ----- -----
Income from operations.................................... 4.5 6.0 6.6 6.1 6.2
Interest expense, net..................................... 1.4 2.0 2.6 2.8 2.3
--------- --------- --------- ----- -----
Income before tax provision and extraordinary item........ 3.1 4.0 4.0 3.3 3.9
Tax provision............................................. 1.3 1.7 1.7 1.4 1.7
--------- --------- --------- ----- -----
Income before extraordinary item.......................... 1.8% 2.3% 2.3% 1.9% 2.2%
--------- --------- --------- ----- -----
--------- --------- --------- ----- -----
</TABLE>
16
<PAGE>
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 NINE MONTHS ENDED
---------------------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SEPTEMBER 27,
1993 1994 1995 1995
-------------------- -------------------- -------------------- --------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Recreation and Leisure.................... $ 37,897 61.9% $ 45,773 55.7% $ 42,657 44.7% $ 32,339 46.3%
Convention Centers........................ 23,315 38.1 30,443 37.1 34,746 36.4 25,106 35.9
Education................................. 2,715 3.3 8,902 9.3 5,518 7.9
Corporate Dining.......................... 3,188 3.9 9,157 9.6 6,896 9.9
--------- --------- --------- --------- --------- --------- --------- ---------
Total................................... $ 61,212 100.0% $ 82,119 100.0% $ 95,462 100.0% $ 69,859 100.0%
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
<S> <C> <C>
SEPTEMBER 25,
1996
--------------------
<S> <C> <C>
Recreation and Leisure.................... $ 30,850 35.4%
Convention Centers........................ 30,224 34.6
Education................................. 14,522 16.6
Corporate Dining.......................... 11,640 13.4
--------- ---------
Total................................... $ 87,236 100.0%
--------- ---------
--------- ---------
</TABLE>
The following table sets forth the net sales and gross profit attributable
to the Company's principal types of contracts (in thousands):
<TABLE>
<CAPTION>
NINE
MONTHS
FISCAL YEARS ENDED
---------------------------------------------------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
SEPTEMBER
27,
1993 1994 1995 1995
-------------------- -------------------- -------------------- ---------
SUMMARY BY GROSS GROSS GROSS
CONTRACT TYPE NET SALES PROFIT NET SALES PROFIT NET SALES PROFIT NET SALES
- --------------------------------------------------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
P&L................................................ $ 18,069 $ 2,264 $ 40,197 $ 4,960 $ 53,312 $ 6,784 $ 37,695
Profit sharing..................................... 42,284 2,273 39,694 2,023 39,354 2,030 29,925
Management fee..................................... 859 859 2,228 1,303 2,796 1,072 2,239
--------- --------- --------- --------- --------- --------- ---------
$ 61,212 $ 5,396 $ 82,119 $ 8,286 $ 95,462 $ 9,886 $ 69,859
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
<S> <C> <C> <C>
SEPTEMBER 25,
1996
--------------------
SUMMARY BY GROSS GROSS
CONTRACT TYPE PROFIT NET SALES PROFIT
- --------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
P&L................................................ $ 3,926 $ 52,282 $ 6,359
Profit sharing..................................... 1,827 28,633 1,572
Management fee..................................... 1,387 6,321 1,519
--------- --------- ---------
$ 7,140 $ 87,236 $ 9,450
--------- --------- ---------
--------- --------- ---------
</TABLE>
NINE MONTHS ENDED SEPTEMBER 25, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 27,
1995
NET SALES. The Company's net sales increased 24.9%, from $69.9 million for
the nine months ended September 27, 1995 to $87.2 million for the nine months
ended September 25, 1996. Net sales increased in all market areas, except
Recreation and Leisure. Recreation and Leisure net sales decreased 4.6%,
primarily because of a decrease in attendance at Florida Marlins Major League
Baseball games and the decision by a private tenant of one of the Company's
clients to build a new facility and self-operate its food service. Net sales
from Convention Centers increased 20.4% primarily as a result of increased sales
from existing contracts. Net sales in Education and Corporate Dining more than
doubled, resulting from the impact of the acquisition of Northwest in June 1995,
Sun West in March 1996 and Ideal in July 1996 and the impact of new contracts.
GROSS PROFIT. Gross profit as a percentage of net sales increased to 10.8%
for the nine months ended September 25, 1996 from 10.2% for the nine months
ended September 27, 1995. This increase in gross profit percentage was
attributable to the mix of higher margin business and to purchasing efficiencies
realized from an expanded base of business.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased, from $2.9 million (or 4.1% of net sales) for the nine months ended
September 27, 1995 to $4.0 million (or 4.6% of net sales) for the nine months
ended September 25, 1996. The increase was attributable primarily to additional
investment in regional staff and training to support the Company's growth.
OPERATING INCOME. Operating income increased 27.0%, from $4.3 million for
the nine months ended September 27, 1995 to $5.4 million for the nine months
ended September 25, 1996, primarily as a result of the factors discussed above.
INTEREST EXPENSE. Interest expense increased approximately $47,000 for the
nine months ended September 25, 1996, due primarily to increased debt levels
prior to the Initial Public Offering, incurred to finance investments in both
new accounts and acquisitions.
17
<PAGE>
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 Pro Player 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 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 12.8%.
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 Pro Player 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.
18
<PAGE>
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
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>
FISCAL QUARTERS
----------------------------------------------
1995
----------------------------------------------
FIRST SECOND THIRD FOURTH
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
<CAPTION>
<S> <C> <C> <C> <C>
Net sales................................................................. $ 23,429 $ 20,090 $ 26,340 $ 25,603
Cost of sales............................................................. 21,295 18,422 23,002 22,857
---------- ---------- ---------- ----------
Gross profit.............................................................. 2,134 1,668 3,338 2,746
General and administrative expenses....................................... 1,090 923 870 743
---------- ---------- ---------- ----------
Income from operations.................................................... 1,044 745 2,468 2,003
Interest expense, net..................................................... 696 633 642 508
---------- ---------- ---------- ----------
Income before tax provision............................................... 348 112 1,826 1,495
Tax provision............................................................. 140 38 781 626
---------- ---------- ---------- ----------
Net income................................................................ $ 208 $ 74 $ 1,045 $ 869
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
<CAPTION>
(AS A PERCENTAGE OF NET SALES)
<S> <C> <C> <C> <C>
Net sales................................................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales............................................................. 90.9 91.7 87.3 89.3
---------- ---------- ---------- ----------
Gross profit.............................................................. 9.1 8.3 12.7 10.7
General and administrative expenses....................................... 4.6 4.6 3.3 2.9
---------- ---------- ---------- ----------
Income from operations.................................................... 4.5 3.7 9.4 7.8
Interest expense, net..................................................... 3.0 3.2 2.5 2.0
---------- ---------- ---------- ----------
Income before tax provision............................................... 1.5 0.5 6.9 5.8
Tax provision............................................................. 0.6 0.2 3.0 2.4
---------- ---------- ---------- ----------
Net income................................................................ 0.9% 0.3% 3.9% 3.4%
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
<CAPTION>
1996
----------------------------------
FIRST SECOND THIRD
---------- ---------- ----------
<S> <C> <C> <C>
<S> <C> <C> <C>
Net sales................................................................. $ 24,160 $ 25,804 $ 37,272
Cost of sales............................................................. 21,630 23,390 32,766
---------- ---------- ----------
Gross profit.............................................................. 2,530 2,414 4,506
General and administrative expenses....................................... 1,336 1,241 1,467
---------- ---------- ----------
Income from operations.................................................... 1,194 1,173 3,039
Interest expense, net..................................................... 767 755 496
---------- ---------- ----------
Income before tax provision............................................... 427 418 2,543
Tax provision............................................................. 168 167 1,144
---------- ---------- ----------
Net income................................................................ $ 259 $ 251 $ 1,399
---------- ---------- ----------
---------- ---------- ----------
<S> <C> <C> <C>
Net sales................................................................. 100.0% 100.0% 100.0%
Cost of sales............................................................. 89.5 90.6 87.9
---------- ---------- ----------
Gross profit.............................................................. 10.5 9.4 12.1
General and administrative expenses....................................... 5.5 4.9 3.9
---------- ---------- ----------
Income from operations.................................................... 5.0 4.5 8.2
Interest expense, net..................................................... 3.2 2.9 1.3
---------- ---------- ----------
Income before tax provision............................................... 1.8 1.6 6.9
Tax provision............................................................. 0.7 0.6 3.1
---------- ---------- ----------
Net income................................................................ 1.1% 1.0% 3.8%
---------- ---------- ----------
---------- ---------- ----------
</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. Cash flow from operating activities was a use
of funds of approximately $3.0 million for the nine months ended September 25,
1996, compared to a source of funds of approximately $3.2 million for the nine
months ended September 27, 1995. This use of funds resulted primarily from an
increase in trade receivables related to the newly acquired Education and
Corporate Dining businesses, which generally invest in shorter term assets
(i.e., accounts receivable), as compared to the Company's Recreation and Leisure
business which invests in longer term assets (i.e.,
19
<PAGE>
fixtures and equipment). EBITDA was $4.6 million, $7.6 million and $10.4 million
in fiscal 1993, 1994 and 1995, respectively, and $6.9 million and $8.7 million
for the nine months ended September 27, 1995 and September 25, 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 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.
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 were approximately $7.1 million and
$13.2 million for the nine months ended September 27, 1995 and September 25,
1996, respectively. For the nine months ended September 25, 1996, $5.2 million
was used in connection with the Sun West acquisition and Ideal acquisition and
$8.5 million was used for contract investments, including $4.0 million for
additions to fixed assets. Subsequent to September 25, 1996, the Company has
completed acquisitions of four companies for an aggregate purchase price of
approximately $25.1 million.
In June 1996, the Company completed its Initial Public Offering, resulting
in net proceeds of approximately $32.6 million after deducting underwriting
discounts and certain expenses.
In connection with the Initial Public Offering, the Company's credit
facility was amended and restated on June 19, 1996 (the "Restated Bank
Agreement"). The Restated Bank Agreement provides for (i) a working capital
revolving credit line for general obligations and letters of credit, in the
maximum aggregate amount of $20.0 million (the "Working Capital Line") and (ii)
a line of credit to provide for future expansion by the Company, in the maximum
amount of $55.0 million. The maximum aggregate allowable borrowings under the
Restated Bank Agreement is $75.0 million. The Restated Bank Agreement terminates
on April 30, 1999. The Working Capital Line provides funds for liquidity,
seasonal borrowing needs and other general corporate purposes.
At September 25, 1996 the Company's current assets exceeded its current
liabilities, resulting in a working capital surplus of $3.4 million. The surplus
resulted primarily from an increase in trade receivables related to the newly
acquired Education and Corporate Dining businesses, which generally invest in
shorter term assets (i.e., accounts receivable), as compared to the Company's
Recreation and Leisure business, which invests in longer term assets (i.e.,
fixtures and equipment).
The Company believes that the proceeds of the Offering, funds expected to be
generated from operations and amounts available under the Restated Bank
Agreement will be sufficient to satisfy the Company's capital requirements for
at least the next twelve months.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of. SFAS No. 121 establishes accounting
standards for recognizing the impairment of long-lived assets, certain
identifiable intangibles and for long-lived assets and certain identifiable
intangibles to be disposed of. SFAS No. 121 is effective for financial
statements for fiscal years beginning after December 15, 1995. The
20
<PAGE>
adoption of SFAS No. 121 did not 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 will 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. In addition, many Education facilities
are closed during the summer months. Among other things, the Company adjusts its
labor scheduling and staffing to compensate for these fluctuations.
21
<PAGE>
BUSINESS
GENERAL
Fine Host Corporation is a leading contract food service management company,
providing food and beverage concession, catering and other ancillary services at
more than 400 facilities located in 38 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 elementary and
secondary 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
22
<PAGE>
(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.
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 and other ancillary
services at more than 400 facilities, including recreation and leisure
facilities, convention centers, educational facilities and corporate dining
facilities of varying sizes. These facilities are located domestically in 38
states and internationally in Southeast Asia. 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 renewal of existing contracts, the addition of new contracts
and acquisitions.
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
ongoing 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 13 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.
23
<PAGE>
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
entry through acquisition into the education and corporate dining markets
provides the Company with operating experience which the Company believes
will facilitate further penetration into these highly fragmented markets.
This has been evidenced recently by the Company's entrance into the School
Nutrition market, which is shifting toward outsourcing contract food
services.
- 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. In addition,
the Company recently expanded its presence in Southeast Asia through the
execution of multi-year food service management agreements to operate the
Bangkok International Trade and Exhibition Center in Bangkok, Thailand and
the Bali Festival Park in Bali, Indonesia. 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.
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."
Fine Host's growth has accelerated since its Initial Public Offering with
the successful completion of five strategic acquisitions. These acquisitions
significantly increase the Company's presence in the Education and Corporate
Dining markets in the northeastern and mid-Atlantic regions of the United
States. Four of these acquisitions, Ideal, Republic, Service Dynamics and
Serv-Rite, have increased the Company's presence in the School Nutrition market,
a market estimated by the U.S. government to be approximately
24
<PAGE>
$10 billion in 1995. The Company believes that all of these companies have
effective management teams and strong operating results at their facilities, yet
can benefit from the Company's size and operating infrastructure. The following
table provides selected information regarding each acquisition:
<TABLE>
<CAPTION>
# OF PURCHASE
COMPANY DATE ACQUIRED CONTRACTS PRIMARY MARKET(S) REGION REVENUES* PRICE
- -------------------- ----------------- --------- ------------------------------ -------------- --------------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Ideal July 1996 26 School Nutrition NY $ 7.7 $ 3.6
PCS November 1996 60 Corporate Dining Eastern U.S. 15.7 6.0
Republic December 1996 55 School Nutrition and MA, RI, CT 14.6 8.6
Corporate Dining
Service Dynamics December 1996 32 School Nutrition and NY, NJ, CT 11.0 3.0
Corporate Dining
Serv-Rite January 1997 350 Education and NY, PA 34.2 7.5
Corporate Dining
</TABLE>
- -------------
* For last completed fiscal year of the acquired company for which financial
statements are available.
SERVICES AND OPERATIONS
The Company provides a wide array of food services, ranging from food and
beverage concessions, 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:
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
25
<PAGE>
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 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.
26
<PAGE>
CLIENTS
The Company provides contract food services principally to recreation and
leisure facilities, convention centers, education facilities and corporate
dining accounts. As of December 25, 1996, the Company provided contract food
service management at approximately 400 facilities under 341 contracts,
including 30 recreation and leisure, 24 convention center, 111 education and 148
corporate dining contracts, as well as 28 contracts serving 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 December
25, 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 Pro Player 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, Boise State 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 Lawrence Convention Center in Pittsburgh,
Pennsylvania; 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 student cafeterias, food courts, snack bars and clubs at colleges,
universities and elementary and secondary schools. 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 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
27
<PAGE>
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.
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 December 25, 1996, the Company
had 240 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 December
25, 1996, the Company had 18 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 December
25, 1996, the Company had 83 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."
28
<PAGE>
The length of contracts varies depending on the type of facility, type of
contract and financial investment. Contracts for recreation and leisure
facilities typically include the largest capital investment by the Company and
generally have a term of three to ten years. Contracts for convention centers
generally have a term of three to five years. Education contracts generally have
a term of one to five years. Corporate dining accounts, which generally require
the smallest capital investment by the Company, typically have a shorter term
than those in the recreation and leisure, convention center and education areas,
and generally contain a provision allowing either party to terminate for
convenience after a short notice period, typically ranging from 30 to 90 days.
Most corporate dining contracts are terminable after a short notice period. The
Company's remaining contracts generally have a fixed term and in any fiscal year
a number of these contracts either expire or come up for renewal.
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 ten 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, universities and elementary and secondary
schools. 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
29
<PAGE>
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 December 30, 1996, the Company had 1,665 full-time salaried employees,
including 1,501 in operations, 136 in administration and 28 in sales. During
December 1996, approximately 7,900 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 9.0% 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 December 25, 1996, the Company and its affiliates held liquor licenses in 20
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 32 applications it has submitted, and has
never had an alcoholic beverage license revoked or suspended.
Typically, liquor licenses must be renewed annually and may be revoked or
suspended for cause at any time. Alcoholic beverage control regulations relate
to numerous aspects of the Company's operations, including minimum age of
patrons and employees, hours of operation, advertising, wholesale purchasing,
inventory control and handling, and storage and dispensing of alcoholic
beverages. The Company has not encountered any material problems relating to
alcoholic beverage licenses to date. The failure to receive or retain a liquor
license in a particular location could adversely affect the Company's ability to
obtain such a license elsewhere.
The Company is subject to "dram-shop" statutes in the states in which
facilities are located. These statutes generally provide a person injured by an
intoxicated person the right to recover damages from an establishment which
wrongfully served alcoholic beverages to the intoxicated individual. The Company
carries liquor liability coverage as part of its existing comprehensive general
liability insurance which it believes is adequate. While the Company maintains
such insurance, there can be no assurance that such insurance will be adequate
to cover any potential liability or that such insurance 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
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<PAGE>
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 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
State 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. According to the complaint, 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. Thereafter, the
Company cross-claimed for contribution and indemnification against a
co-defendant.
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.
31
<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).................................. 55 President, Chief Executive Officer and Director
Randy B. Spector...................................... 45 Executive Vice President--Administration
Randall K. Ziegler.................................... 54 Executive Vice President--Recreation and Leisure and
Director
Robert F. Barney...................................... 57 Executive Vice President--Education and Corporate
Dining
Nelson A. Barber...................................... 41 Senior Vice President and Chief Financial Officer
Ellen Keats........................................... 39 Vice President and General Counsel
Cynthia J. Robbins.................................... 41 Vice President and Controller
William R. Berkley(1)(2).............................. 50 Chairman of the Board of Directors
Ronald E. Blaylock(3)................................. 36 Director
Andrew M. Bursky(2)................................... 40 Director
Catherine B. James.................................... 44 Director
Jack H. Nusbaum(3).................................... 56 Director
Joshua A. Polan(1)(2)(3).............................. 48 Director
</TABLE>
- ------------------------
(1) Member of Executive Committee.
(2) Member of Compensation Committee.
(3) Member of Audit Committee.
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--Recreation and Leisure
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.
ROBERT F. BARNEY joined the Company as Vice President--Education and
Corporate Dining in 1995 and became Executive Vice President--Education and
Corporate Dining in 1996. Prior to joining Fine Host, 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.
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<PAGE>
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.
Ellen Keats has been Vice President and General Counsel of the Company since
December 1996. She previously served as Corporate Counsel of the Company from
1994 to 1996. Prior to joining the Company, from 1993 to 1994, Ms. Keats was
General Counsel of EIS International, Inc., a telecommunications and software
company in Stamford, Connecticut. Prior to such time, Ms. Keats was a partner
with the Greenwich, Connecticut law firm of Gilbride, Tusa, Last and Spellane.
Cynthia J. Robbins has been the Vice President and Controller of the Company
since December 1996. From 1995 to 1996, Ms. Robbins was Vice President-Finance
of ACI America Holdings Inc. ("ACI"), a diversified manufacturing company. From
1992 to 1995, Ms. Robbins was Controller and Treasurer of ACI. From 1989 to
1992, Ms. Robbins was Vice President, Director of Accounting for Citicorp POS
Information Services, Inc., an information gathering company.
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 became a director of the Company upon the closing of the
Initial Public Offering in June 1996. 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.
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<PAGE>
JACK H. NUSBAUM became a director of the Company upon the closing of the
Initial Public Offering in June 1996. 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, Strategic Distribution, 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 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 were 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 was 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.
The Board of Directors is 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 serve in the class
whose terms expire in 1997; Mr. Blaylock, Mr. Bursky and Ms. James serve in the
class whose terms expire in 1998; and Messrs. Kerley, Ziegler and Berkley 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 has also established an Audit Committee, which reviews 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 makes 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 comprise a majority of the members of the Audit Committee.
DIRECTORS' ANNUAL COMPENSATION
Members of the Board of Directors who are not officers or employees of the
Company receive $2,500 per meeting and participate in the 1996 Non-Employee
Director Stock Plan. The Company reimburses its Board members for all reasonable
expenses incurred in connection with their attendance at directors' meetings.
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. Messrs.
Berkley, Bursky and Polan receive compensation for their service as
34
<PAGE>
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 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") during the fiscal years ended
December 27, 1995 and December 25, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------ ---------------------
FISCAL OTHER ANNUAL SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (1) OPTIONS/SARS COMPENSATION (2)
- -------------------------------------- ------ -------- -------- ---------------- --------------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Richard E. Kerley..................... 1996 $225,000 (3) -- 54,000 $44,811
President and CEO 1995 185,000 $125,000 -- -- 1,440
Randall K. Ziegler.................... 1996 193,500 (3) -- 15,000 28,602
Executive Vice President 1995 180,000 52,500 -- -- 1,440
Randy B. Spector...................... 1996 175,000 (3) -- 22,000 39,732
Executive Vice President 1995 155,000 62,500 -- -- 510
Robert F. Barney (4).................. 1996 160,000 (3) 50,362 14,500 4,300
Executive Vice President 1995 60,000 17,500 -- -- --
Nelson A. Barber...................... 1996 132,000 (3) -- 14,500 2,396
Senior Vice President 1995 115,000 52,500 -- -- --
</TABLE>
- ------------------------
(1) Other annual compensation in the form of perquisites and other personal
benefits has been omitted for certain executive officers where the aggregate
amount of such perquisites and other personal benefits was less than
$50,000.
(2) Represents premiums of excess group life insurance (Mr. Kerley - $2,250; Mr.
Ziegler - $1,440; Mr. Spector - $870; Mr. Barney - $2,250; Mr. Barber -
$437) and contributions by the Company to each officer's 401(k) savings plan
(Mr. Kerley - $3,614; Mr. Ziegler - $3,614; Mr. Spector - $3,614; Mr. Barney
- $2,050; Mr. Barber - $1,959). Also represents forgiveness of interest on
promissory notes payable by certain executive officers (Mr. Kerley -
$38,947; Mr. Ziegler - $23,548; Mr. Spector - $35,248) -- see "Certain
Transactions--Employee Notes and Registration."
(3) Bonuses for the fiscal year ended December 25, 1996 have not yet been
awarded, but are expected to be awarded and paid in April 1997.
(4) Mr. Barney became an executive officer of the Company in July 1995.
35
<PAGE>
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding options granted to the
Executive Officer Group during the fiscal year ended December 25, 1996.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF POTENTIAL REALIZABLE
SECURITIES OPTIONS GRANTED VALUE(1)
UNDERLYING TO EMPLOYEES IN EXERCISE EXPIRATION ------------------------
NAME OPTIONS GRANTED FISCAL YEAR PRICE DATE 5% 10%
- ------------------------------------- ------------------- ----------------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Richard E. Kerley.................... 54,000 14.2% $ 12.00 6/19/06 $ 407,521 $ 1,032,742
Randall K. Ziegler................... 15,000 3.9 12.00 6/19/06 113,200 286,873
Randy B. Spector..................... 22,000 5.8 12.00 6/19/06 166,027 420,747
Robert F. Barney..................... 14,500 3.8 12.00 6/19/06 109,427 277,310
Nelson A. Barber..................... 14,500 3.8 12.00 6/19/06 109,427 277,310
</TABLE>
- ------------------------
(1) These columns illustrate the hypothetical appreciation in the value of the
stock options under the assumption that the Common Stock, which had a value
per share of $12.00 on the date of grant of the option, appreciates at the
rate of 5% or 10%, respectively, compounded annually for ten years, the term
of the options.
Additionally, on January 7, 1997 the Compensation Committee granted stock
options to purchase 15,000, 7,500, 5,000, 5,000 and 2,500 shares, having an
exercise price of $20.75, to each of Messrs. Kerley, Spector, Barber, Barney and
Ziegler, respectively.
AGGREGATE FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning the number and value
of unexercised stock options held at December 25, 1996 by each member of the
Executive Officer Group. No stock options were exercised by members of the
Executive Officer Group during the fiscal year ended December 25, 1996.
<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..................... 15,166 61,584 $ 181,157 $ 434,839
Randall K. Ziegler.................... 5,833 17,917 69,675 130,468
Randy B. Spector...................... 10,500 27,250 125,422 202,961
Robert F. Barney...................... 4,666 16,834 52,422 118,659
Nelson A. Barber...................... 10,500 19,750 125,422 155,148
</TABLE>
- ------------------------
(1) The amounts set forth in this column were calculated using the difference in
the fiscal year-end closing price of the Common Stock, $18.375 per share,
and the exercise price per share.
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.
36
<PAGE>
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 February 3, 1997, options to
purchase an aggregate of 481,672 shares of Common Stock under the 1994 Stock
Plan are outstanding.
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. Six members of the Board of Directors are currently
eligible for participation in the Directors Plan, including Mr. Berkley.
Upon consummation of the Initial Public Offering, each Non-Employee Director
was granted 1,250 shares pursuant to the terms of the Directors Plan.
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.
37
<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 fiscal 1994, 1995 and 1996, 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 February 3, 1997, respectively. In addition, in 1985, Douglas
Stabler, a former officer of the Company, and Mr. 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 February 3, 1997 of $16,779. Upon the closing of the
Initial Public 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) was
forgiven and interest thereafter ceased to accrue. In addition, the employee
notes were amended to extend their maturity for three years. The Company agreed
to file a shelf registration statement under the Securities Act after the first
anniversary of the Initial Public Offering covering the sale of shares of Common
Stock held by Messrs. Kerley, Ziegler, Spector and Stabler, which would entitle
them to sell such shares within the volume limitations of Rule 144 under the
Securities Act. The Company has now agreed to file this registration statement
promptly after the closing of the Offering. These shares will be subject to
90-day lock-up agreements with the Representatives. 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.
38
<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 were repurchased by the Company
upon the closing of the Initial Public Offering.
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"). 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. Upon the closing of the Initial
Public Offering, the shares of Series A Convertible Preferred Stock held by the
Partnership and GRD were converted into 109,550 and 608,594 shares of Common
Stock, respectively. All shares issuable upon exercise of the warrants issued to
the Partnership and GRD were sold in the Initial Public Offering, except for
warrants to acquire 133,756 shares. See "Description of Capital
Stock--Registration Rights."
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 Initial Public Offering, the shares of Series A
Convertible Preferred Stock held by Interlaken Partners were 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."
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, a director of the Company,
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.
39
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with regard to the
beneficial ownership of the Common Stock as of February 3, 1997 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...................... 1,117,250 17.9% 116,000 1,001,250 12.4%
165 Mason Street
Greenwich, CT 06830
Richard E. Kerley....................... 85,166 (2) 1.4 15,000 70,166 *
Randall K. Ziegler...................... 75,833 (3) 1.2 15,000 60,833 *
Randy B. Spector........................ 66,500 (4) 1.1 10,000 56,500 *
Robert F. Barney........................ 5,666 (5) * -- 5,666 *
Nelson A. Barber........................ 750 (6) * -- 750 *
Ronald E. Blaylock...................... 1,250 * -- 1,250 *
Andrew M. Bursky........................ 71,250 1.1 17,500 53,750 *
Catherine B. James...................... 43,250 * 8,500 34,750 *
Jack H. Nusbaum......................... 6,250 * -- 6,250 *
Joshua A. Polan......................... 43,250 * 4,000 39,250 *
All directors and executive officers as
a group (13 persons).................. 1,516,415 (7) 24.2% 186,000 1,330,415(7) 16.4%
</TABLE>
- ------------------------
* Less than 1%.
(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. Percentages are based upon 6,278,681 shares of Common Stock
outstanding prior to the Offering and 8,117,681 shares of Common Stock
outstanding after the Offering.
(2) Includes 15,166 shares of Common Stock issuable upon exercise of stock
options.
(3) Includes 5,833 shares of Common Stock issuable upon exercise of stock
options.
(4) Includes 10,500 shares of Common Stock issuable upon exercise of stock
options.
(5) Includes 4,666 shares of Common Stock issuable upon exercise of stock
options.
(6) Consists of 750 shares of Common Stock issuable upon exercise of stock
options.
(7) Includes 36,915 shares of Common Stock issuable upon exercise of stock
options beneficially owned by directors and executive officers of the
Company.
40
<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, and 1,000,000 shares of
Preferred Stock, par value $.01 per share. Upon the closing of the Offering,
there will be 8,080,766 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
The Board of Directors has 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 has 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 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 AND CONVERTIBLE NOTES
The Company currently has warrants outstanding to acquire an aggregate of
133,756 shares of Common Stock, at an exercise price of $.01 per share (the
"Warrants"). In the event the Company's consolidated net income before income
taxes (subject to certain adjustments set forth in the Warrants) is equal to or
greater than $5.9 million for the fiscal year ended December 25, 1996, the
Warrants will be
41
<PAGE>
canceled and of no further force or effect. The Warrants may not be exercised
before April 15, 1997. The Company expects the Warrants to be cancelled. In
connection with the acquisition of Ideal, the Company issued to the sellers
subordinated notes in the aggregate principal amount of $1,420,000, which are
convertible into shares of Common Stock at a price of $15 per share, or an
aggregate of 94,667 shares of Common Stock.
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"). The Holders are entitled,
with respect to 1,133,756 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)).
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.
Promptly after the closing of the Offering, the Company intends to file a
shelf registration statement under the Securities Act covering the sale of
223,000 shares of Common Stock held by certain officers of the Company, which
would entitle them to sell such shares within the volume limitations of Rule 144
under the Securities Act. These shares will be subject to 90-day lock-up
agreements with the Representatives.
In addition, an aggregate of 85,500 shares underlying convertible
subordinated notes issued by the Company in connection with the acquisition of
Ideal are subject to demand and piggyback registration rights beginning after
June 25, 1997.
LIMITATIONS ON DIRECTORS' LIABILITY
The Restated Certificate and By-laws 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 do not limit liability under state or federal securities
laws. The Company believes that these provisions assist the Company in
attracting and retaining qualified individuals to serve as directors.
CLASSIFIED BOARD OF DIRECTORS; PREFERRED STOCK
The Restated Certificate provides for a classified Board of Directors and
authorizes the issuance of Preferred Stock without stockholder approval and upon
such terms as the Board of Directors may determine. These provisions may have
the effect of making it 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 would be subject to, and may be
42
<PAGE>
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 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 is quoted on the Nasdaq National Market under the symbol
"FINE."
43
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of the Offering, the Company will have outstanding
8,080,766 shares of Common Stock, assuming no exercise of the Underwriters'
over-allotment option. Of such outstanding shares, 6,694,366 shares (including
the 2,000,000 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 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.
The Company and certain of its executive officers, directors and
stockholders have agreed that, for a period of 90 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), 1,318,500 restricted shares
will become eligible for sale subject to the provisions of Rule 144.
In general, under Rule 144, 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 is 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 80,808 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 is entitled to sell such shares under Rule
144(k) without regard to such volume limitations.
Promptly after the closing of the Offering, the Company intends to file a
shelf registration statement under the Securities Act covering the sale of
223,000 of Common Stock held by certain officers of the Company, which would
entitle them to sell such shares within the volume limitations of Rule 144 under
the Securities Act. These shares will be subject to the lock-up agreements. The
holders of approximately 1,219,256 shares, including shares issuable upon the
exercise of warrants and convertible notes, are entitled to certain registration
rights with respect to their shares. See "Description of Capital
Stock--Registration Rights."
Prior to the Offering, there has been a limited public market history. There
can be no assurance that future market prices for the shares will equal or
exceed the price to public set forth on the cover page of this Prospectus. 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.
44
<PAGE>
UNDERWRITING
The Underwriters named below, represented by Montgomery Securities, Piper
Jaffray Inc. and Smith Barney Inc. (the "Representatives"), have severally
agreed, subject to the terms and conditions set forth in the underwriting
agreement (the "Underwriting Agreement"), to purchase from the Company and the
Selling Stockholders the number of shares of Common Stock indicated below
opposite their respective names at the initial public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent and that the Underwriters are committed
to purchase all of such shares if they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Montgomery Securities............................................................
Piper Jaffray Inc................................................................
Smith Barney Inc.................................................................
----------
Total........................................................................ 2,000,000
----------
----------
</TABLE>
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters propose initially to offer the Common Stock to the public
on the terms set forth on the cover page of this Prospectus. The Underwriters
may allow to selected dealers a concession of not more than $ per share; and
the Underwriters may allow, and such dealers may reallow, a concession of not
more than $ per share to certain other dealers. After the 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.
In connection with the Offering, certain Underwriters and selling group
members, if any, may engage in passive market making transactions in the Common
Stock on the Nasdaq National Market immediately prior to the commencement of
sales in the Offering, in accordance with Rule 10b-6A under the Exchange Act.
Passive market making consists of displaying bids on the Nasdaq National Market
limited by the bid prices of independent market makers and purchases limited by
such prices and effected in response to order flow. Net purchases by a passive
market maker on each day are limited to a specified percentage of the passive
market maker's average daily trading volume in the Common Stock during a
specified prior period and must be discontinued when such limit is reached.
Passive market making may stabilize the market price of the Common Stock at a
level above that which might otherwise prevail and, if commenced, may be
discontinued at any time.
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 300,000 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 1,318,500 shares
of Common Stock, including all of the directors and executive officers of the
Company and all of the Selling Stockholders, 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
45
<PAGE>
position" within the meaning of Rule 16a-1(h) under the Exchange Act of 1934, as
amended (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 90 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 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 90 days after the date of this Prospectus.
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,
Chairman of Willkie Farr & Gallagher, is a director of the Company and
beneficially owns 6,250 shares of Common Stock. Certain legal matters relating
to the Offering will be passed upon for the Underwriters by Hale and Dorr LLP,
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.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public facilities of the Commission at its principal office at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
at its regional offices in Chicago (Citicorp Center, Suite 1400, 500 West
Madison Street, Chicago, Illinois 60611), and in New York (Seven World Trade
Center, New York, New York 10007). Any interested party may obtain copies of all
or any portion of the Registration Statement at prescribed rates from the Public
Reference Section of the Commission at its principal office at Judiciary Plaza,
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. The Commission also
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants, such as the Company, that file
electronically with the Commission. Any interested party may access such
information at Web site http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act, with respect to the Shares. For the purposes
hereof, the term "Registration Statement" means the original Registration
Statement and any and all amendments thereto, including the schedules and
exhibits to such original Registration Statement or any such amendment. This
Prospectus does not contain all of the information set forth in the Registration
Statement, to which reference hereby is made. Each statement made in this
Prospectus concerning a document filed as an exhibit to the Registration
Statement is qualified in its entirety by reference to such exhibit for a
complete statement of its provisions. Any interested party may inspect the
Registration Statement, without charge, at the public reference facilities of
the Commission as described in the previous paragraph.
46
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Independent Auditors' Report............................................................................. F-2
Consolidated Balance Sheets as of December 28, 1994 and December 27, 1995................................ F-3
Consolidated Statements of Income for the fiscal years ended December 29, 1993, December 28, 1994 and
December 27, 1995...................................................................................... F-4
Consolidated Statements of Stockholders' Equity for the fiscal years ended December 29, 1993, December
28, 1994 and December 27, 1995......................................................................... F-5
Consolidated Statements of Cash Flows for the fiscal years ended December 29, 1993, December 28, 1994 and
December 27, 1995...................................................................................... F-6
Notes to Consolidated Financial Statements............................................................... F-7
Consolidated Balance Sheets as of December 27, 1995 and September 25, 1996 (unaudited)................... F-23
Unaudited Consolidated Statements of Income for the nine months ended September 27, 1995 and September
25, 1996............................................................................................... F-24
Unaudited Consolidated Statements of Stockholders' Equity for the nine months ended September 27, 1995
and September 25, 1996................................................................................. F-25
Unaudited Consolidated Statements of Cash Flows for the nine months ended September 27, 1995 and
September 25, 1996..................................................................................... F-26
Notes to Unaudited Consolidated Financial Statements..................................................... F-27
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
FINE HOST CORPORATION
We have audited the accompanying consolidated balance sheets of Fine Host
Corporation and subsidiaries (the "Company") as of December 28, 1994 and
December 27, 1995, and the consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended December
27, 1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well a evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Fine Host Corporation and
subsidiaries as of December 28, 1994 and December 27, 1995 and the results of
their operations and their cash flows for each of the three years in the period
ended December 27, 1995 in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
New York, New York
May 24, 1996 (June 25, 1996 as to Note 18)
F-2
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 28, 1994 DECEMBER 27, 1995
----------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash..................................................................... $ 1,532 $ 634
Accounts receivable...................................................... 6,750 7,548
Notes receivable......................................................... 1,964 520
Inventories.............................................................. 2,218 2,099
Prepaid expenses and other current assets................................ 2,121 1,893
------- -------
Total current assets................................................. 14,585 12,694
Contract rights, net....................................................... 9,715 12,866
Fixtures and equipment, net................................................ 13,372 15,829
Notes receivable........................................................... 2,059 1,391
Excess of cost over fair value of net assets acquired, net................. 10,455 13,406
Other assets............................................................... 2,967 4,395
------- -------
Total assets......................................................... $ 53,153 $ 60,581
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.................................... $ 13,565 $ 12,467
Current portion of long-term debt........................................ 3,738 2,981
Current portion of subordinated debt..................................... 1,338 1,745
------- -------
Total current liabilities............................................ 18,641 17,193
Deferred income taxes...................................................... 5,004 6,421
Long-term debt............................................................. 8,289 15,326
Subordinated debt.......................................................... 12,153 8,879
------- -------
Total liabilities.................................................... 44,087 47,819
Commitments and contingencies
Stock warrants............................................................. 480 1,380
Stockholders' equity:
Convertible Preferred Stock, $.01 par value, 250,000 shares authorized,
102,592 and 134,171 issued and outstanding at December 28, 1994 and
December 27, 1995, respectively........................................ 1 1
Common Stock, $.01 par value, 7,000,000 shares authorized, 2,048,200
issued and outstanding................................................. 20 20
Additional paid-in capital............................................... 7,433 8,933
Retained earnings........................................................ 1,321 2,617
Receivables from stockholders for purchase of Common Stock............... (189) (189)
------- -------
Total stockholders' equity........................................... 8,586 11,382
------- -------
Total liabilities and stockholders' equity......................... $ 53,153 $ 60,581
------- -------
------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
----------------------------------------
DECEMBER 29, DECEMBER 28, DECEMBER 27,
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net sales............................................................. $ 61,212 $ 82,119 $ 95,462
Cost of sales......................................................... 55,816 73,833 85,576
------------ ------------ ------------
Gross profit.......................................................... 5,396 8,286 9,886
General and administrative expenses................................... 2,649 3,406 3,626
------------ ------------ ------------
Income from operations................................................ 2,747 4,880 6,260
Interest expense, net................................................. 834 1,629 2,479
------------ ------------ ------------
Income before tax provision and extraordinary item.................... 1,913 3,251 3,781
Tax provision......................................................... 829 1,385 1,585
------------ ------------ ------------
Income before extraordinary item...................................... 1,084 1,866 2,196
Extraordinary item (net of related tax benefit of $74)................ 112 -- --
------------ ------------ ------------
Net income............................................................ 972 1,866 2,196
Accretion to redemption value of warrants (Note 2).................... (230) (250) (900)
------------ ------------ ------------
Net income available to Common Stockholders........................... $ 742 $ 1,616 $ 1,296
------------ ------------ ------------
------------ ------------ ------------
Earnings per share of Common Stock:
Income before extraordinary item.................................... $ 0.28 $ 0.50 $ 0.39
Extraordinary item.................................................. (0.04) -- --
------------ ------------ ------------
Net income.......................................................... $ 0.24 $ 0.50 $ 0.39
------------ ------------ ------------
------------ ------------ ------------
Average number of shares of Common Stock outstanding.................. 3,087 3,230 3,307
------------ ------------ ------------
------------ ------------ ------------
Earnings per share assuming full dilution:
Income before extraordinary item.................................... $ 0.28 $ 0.49 $ 0.39
Extraordinary item.................................................. (0.04) -- --
------------ ------------ ------------
Net income.......................................................... $ 0.24 $ 0.49 $ 0.39
------------ ------------ ------------
------------ ------------ ------------
Average number of shares of Common Stock outstanding assuming full
dilution............................................................ 3,087 3,287 3,330
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
RECEIVABLES
FROM
CONVERTIBLE PREFERRED STOCKHOLDERS
STOCK COMMON STOCK ADDITIONAL RETAINED FOR PURCHASE
---------------------- ----------------------- PAID-IN EARNINGS OF COMMON
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) STOCK
--------- ----------- ---------- ----------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 30, 1992................. $ 2,048,200 $ 20 $ 3,940 $ (1,037) $ (197)
Shares issued............................ 102,592 1 3,493
Stock warrant accretion.................. (230)
Payments by stockholders................. 8
Net income............................... 972
--------- ----- ---------- --- ----------- --------- -----
Balance, December 29, 1993................. 102,592 1 2,048,200 20 7,433 (295) (189)
Stock warrant accretion.................. (250)
Net income............................... 1,866
--------- ----- ---------- --- ----------- --------- -----
Balance, December 28, 1994................. 102,592 1 2,048,200 20 7,433 1,321 (189)
Stock warrant accretion.................. (900)
Shares issued............................ 31,579 1,500
Net income............................... 2,196
--------- ----- ---------- --- ----------- --------- -----
Balance, December 27, 1995................. 134,171 $ 1 2,048,200 $ 20 $ 8,933 $ 2,617 $ (189)
--------- ----- ---------- --- ----------- --------- -----
--------- ----- ---------- --- ----------- --------- -----
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
------------
<S> <C>
Balance, December 30, 1992................. $ 2,726
Shares issued............................ 3,494
Stock warrant accretion.................. (230)
Payments by stockholders................. 8
Net income............................... 972
------------
Balance, December 29, 1993................. 6,970
Stock warrant accretion.................. (250)
Net income............................... 1,866
------------
Balance, December 28, 1994................. 8,586
Stock warrant accretion.................. (900)
Shares issued............................ 1,500
Net income............................... 2,196
------------
Balance, December 27, 1995................. $ 11,382
------------
------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
----------------------------------------
DECEMBER 29, DECEMBER 28, DECEMBER 27,
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................................. $ 972 $ 1,866 $ 2,196
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................ 1,609 2,379 3,804
Deferred income tax provision............................................ 738 1,359 1,536
Changes in operating assets and liabilities:
Accounts receivable.................................................... (279) (2,238) (372)
Inventories............................................................ (164) (367) 306
Prepaid expenses and other current assets.............................. (301) (1,001) (473)
Accounts payable and accrued expenses.................................. 1,313 2,100 (2,627)
Increase in other assets................................................... (123) (1,528) (1,399)
------------ ------------ ------------
Net cash provided by operating activities................................ 3,765 2,570 2,971
------------ ------------ ------------
Cash flows from investing activities:
Increase in contract rights................................................ (2,039) (234) (3,446)
Purchases of fixtures and equipment........................................ (974) (6,303) (3,329)
Disposal of fixed assets................................................... 349 -- --
Acquisition of business, net of cash acquired.............................. (6,662) (777) (3,478)
Collection of notes receivable............................................. 1,657 548 2,129
Issuance of notes receivable............................................... -- (2,280) --
------------ ------------ ------------
Net cash used in investing activities.................................... (7,669) (9,046) (8,124)
------------ ------------ ------------
Cash flows from financing activities:
Issuance of convertible preferred stock.................................... 2,954 -- 1,500
Borrowings under long-term debt agreement.................................. 1,017 10,739 8,580
Issuance of subordinated debt.............................................. 8,500 -- --
Payment of long-term debt.................................................. (9,742) (1,529) (2,300)
Payment of subordinated debt............................................... -- (1,578) (3,525)
Collection of subscriptions receivable..................................... 8 -- --
------------ ------------ ------------
Net cash provided by financing activities................................ 2,737 7,632 4,255
------------ ------------ ------------
(Decrease) increase in cash................................................ (1,167) 1,156 (898)
Cash, beginning of year.................................................... 1,543 376 1,532
------------ ------------ ------------
Cash, end of year.......................................................... $ 376 $ 1,532 $ 634
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND 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.
F-7
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
F-8
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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.
F-9
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
3. ACQUISITIONS (CONTINUED)
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 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,
F-10
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
5. NOTES RECEIVABLE (CONTINUED)
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, 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.
F-11
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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>
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.
F-12
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
8. LONG-TERM DEBT (CONTINUED)
The Amended Bank Agreement contains various financial and other
restrictions, including, but not limited to, restrictions on indebtedness,
capital expenditures and commitments. Additional obligations require maintenance
of certain financial ratios, including the ratio of total debt to operating cash
flow, operating cash flow to cash interest expense, and minimum net worth and
operating cash flow. The Amended Bank Agreement also contains prohibitions on
both the payment of dividends and changes in control of the Company.
The Company's obligations under the Amended Bank Agreement are
collateralized both by a pledge of shares of Common Stock owned by officers and
directors of the Company and an affiliate, and the common stock of the Company's
subsidiaries. The loan is also collateralized by certain fixtures and equipment,
notes receivable and other assets, as well as the receipt, if any, of certain
funds paid to the Company with respect to the termination of client contracts
prior to their expiration.
On December 27, 1995, the prime rate was 8.5%. Interest payable on the Term
Loan, Working Capital Line and Guidance Line is the prime rate plus 1.5%, 1.25%
and 1.5%, respectively.
Long-term debt at December 27, 1995 is payable as follows:
<TABLE>
<CAPTION>
YEAR ENDING AMOUNT
- ------------------------------------------------------------------------- ---------
<S> <C>
December 25, 1996........................................................ $ 2,981
December 31, 1997........................................................ 8,981
December 30, 1998........................................................ 2,785
December 29, 1999........................................................ 2,569
December 27, 2000........................................................ 991
---------
Total.............................................................. $ 18,307
---------
---------
</TABLE>
Interest paid on long-term debt was $447, $639 and $1,645 for fiscal 1993,
1994 and 1995, respectively.
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
F-13
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
9. SUBORDINATED DEBT (CONTINUED)
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.
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
F-14
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
9. SUBORDINATED DEBT (CONTINUED)
estimated fair value of subordinated debt as of December 27, 1995 and December
28, 1994 is not necessarily indicative of the amounts that the Company could
realize in a current market exchange.
Subordinated debt at December 27, 1995 is payable as follows:
<TABLE>
<CAPTION>
YEAR ENDING AMOUNT
- ------------------------------------------------------------------------- ---------
<S> <C>
December 25, 1996........................................................ $ 1,745
December 31, 1997........................................................ 954
December 30, 1998........................................................ 865
December 29, 1999........................................................ 2,711
December 27, 2000........................................................ 2,375
Thereafter............................................................... 2,125
---------
10,775
Less: discount on subordinated note...................................... 151
---------
Total.............................................................. $ 10,624
---------
---------
</TABLE>
Interest paid on subordinated debt was $661, $1,253 and $1,427 for fiscal
1993, 1994 and 1995, respectively.
10. STOCKHOLDERS' EQUITY
COMMON STOCK--Holders of Common Stock are entitled to one vote per share in
all matters to be voted on by the stockholders of the Company. Subject to
preferences that may be applicable to any Preferred Stock outstanding at the
time, holders of Common Stock are entitled to receive ratably such dividends, if
any, as may be declared from time to time by the Board of Directors out of funds
legally available therefore.
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
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
11. STOCK OPTIONS AND WARRANTS
STOCK OPTIONS--The 1994 Stock Option Plan authorizes the grant to key
employees of options to purchase shares of Common Stock. The maximum number of
shares which may be subject to options under this plan is 175,000. Options are
granted at no less than the fair market value at the time of grant for a period
not in excess of ten years. In addition, included in the table are 27,944
options issued in connection with the Fanfare acquisition in 1993 (see Note 3).
Combined information with respect to stock options is as follows:
<TABLE>
<CAPTION>
SHARES
---------
<S> <C>
Balance, December 29, 1993......................................................... 27,944
Granted.......................................................................... 105,000
---------
Balance, December 28, 1994......................................................... 132,944
Granted.......................................................................... 10,500
---------
Balance, December 27, 1995
($4.93--$7.14 per share)......................................................... 143,444
---------
---------
Currently exercisable, December 27, 1995........................................... 46,597
---------
---------
</TABLE>
At December 27, 1995, there were 59,500 shares available for grant.
WARRANTS--Warrants issued and outstanding to purchase, at specified prices,
shares of Common Stock at December 27, 1995 consist of the following:
<TABLE>
<CAPTION>
EXERCISE PRICE
----------------------
<S> <C> <C>
$4.93 $.01
---------- ----------
<CAPTION>
<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,
F-16
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
11. STOCK OPTIONS AND WARRANTS (CONTINUED)
2003, respectively. The Company may earn back portions of the respective
warrants if 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
F-17
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
11. STOCK OPTIONS AND WARRANTS (CONTINUED)
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.
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 SHARE AND PER SHARE DATA)
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum commitments as of December 27, 1995 for all noncancelable
operating leases and Client Contracts are as follows:
<TABLE>
<CAPTION>
YEAR -------------------------------------------------------------------- AMOUNT
---------
<S> <C>
1996..................................................................... $ 3,098
1997..................................................................... 2,921
1998..................................................................... 1,807
1999..................................................................... 791
2000..................................................................... 666
Thereafter............................................................... 1,198
---------
Total.............................................................. $ 10,481
---------
---------
</TABLE>
Pursuant to its contracts with various clients, the Company is committed to
spend approximately $4,987 for equipment and capital improvements as of December
27, 1995. At December 27, 1995, the Company was contingently liable for the
following: (1) a standby Letter of Credit for $1,000, the principal amount of
which is reduced annually pursuant to its terms, (2) a $1,000 Letter of Credit
which collateralized the Company's ability to have written on its behalf an
aggregate of $4,000 in performance bonds, (3) performance bonds in the aggregate
amount of $2,600, and (4) an additional $2,000 Letter of Credit which was
converted to a loan under the Guidance Line (see Note 8) in January 1996.
The Company has entered into purchasing agreements with various national and
regional suppliers pursuant to which the Company agreed to purchase its
requirements of products (as defined in the agreements). If the Company exceeds
the agreed-upon purchasing levels, additional rebates and promotional allowances
may be payable by the suppliers. If the Company fails to meet agreed-upon
purchasing levels during the term of the agreements, the suppliers may elect to
extend the term of the agreements by one year, or a longer period, if necessary,
to reach agreed-upon purchasing levels.
13. INCOME TAXES
The income tax provision consists of the following:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
---------------------------------------------
<S> <C> <C> <C>
DECEMBER 29, DECEMBER 28, DECEMBER 27,
1993 1994 1995
--------------- ------------- -------------
<CAPTION>
<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 SHARE AND 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
-------------------------------------------------
<S> <C> <C> <C>
DECEMBER 29, DECEMBER 28, DECEMBER 27,
1993 1994 1995
--------------- --------------- ---------------
<CAPTION>
<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 summary judgment
for the
F-20
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
14. LITIGATION (CONTINUED)
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 SHARE AND 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
------------------------------------------
<S> <C> <C> <C> <C>
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
<CAPTION>
<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. Upon
consummation of the offering, all of the currently outstanding Series A
Convertible Preferred Stock converted automatically into 939,197 shares of
Common Stock as discussed in Note 10.
The Company issued 2,890,218 shares at $12.00 per share, generating net
proceeds of approximately $31,100, after deducting the underwriting discount and
offering expenses paid by the Company. The net proceeds were used to repay
obligations under the Amended Bank Agreement and the subordinated notes as well
as to repurchase certain warrants (see Note 11).
F-22
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 27, 1995 SEPTEMBER 25, 1996
----------------- ------------------
<S> <C> <C>
(UNAUDITED)
<CAPTION>
<S> <C> <C>
ASSETS
Current assets:
Cash..................................................................... $ 634 $ 3,871
Accounts receivable...................................................... 7,548 13,970
Notes receivable......................................................... 520 568
Inventories.............................................................. 2,099 3,018
Prepaid expenses and other current assets................................ 1,893 2,792
------- -------
Total current assets................................................. 12,694 24,219
Contract rights, net....................................................... 12,866 18,867
Fixtures and equipment, net................................................ 15,829 18,230
Notes receivable........................................................... 1,391 1,596
Excess of cost over fair value of net assets acquired, net................. 13,406 20,801
Other assets............................................................... 4,395 8,223
------- -------
Total assets......................................................... $ 60,581 $ 91,936
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.................................... $ 12,467 $ 18,732
Current portion of long-term debt........................................ 2,981 598
Current portion of subordinated debt..................................... 1,745 1,532
------- -------
Total current liabilities............................................ 17,193 20,862
Deferred income taxes...................................................... 6,421 8,952
Long-term debt............................................................. 15,326 12,808
Subordinated debt.......................................................... 8,879 4,438
------- -------
Total liabilities.................................................... 47,819 47,060
Commitments and contingencies
Stock warrants............................................................. 1,380 --
Stockholders' equity:
Convertible Preferred Stock, $.01 par value, 1,000,000 shares authorized,
134,171 issued and outstanding at December 27, 1995.................... 1 0
Common Stock, $.01 par value, 25,000,000 shares authorized, 2,048,200 and
6,212,016 issued and outstanding at December 27, 1995 and September 25,
1996, respectively..................................................... 20 62
Additional paid-in capital............................................... 8,933 41,778
Retained earnings........................................................ 2,617 3,225
Receivables from stockholders for purchase of Common Stock............... (189) (189)
------- -------
Total stockholders' equity........................................... 11,382 44,876
------- -------
Total liabilities and stockholders' equity......................... $ 60,581 $ 91,936
------- -------
------- -------
</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>
NINE MONTHS ENDED
----------------------------
SEPTEMBER 27, SEPTEMBER 25,
1995 1996
------------- -------------
<S> <C> <C>
Net sales .......................................................................... $ 69,859 $ 87,236
Cost of sales ...................................................................... 62,719 77,786
------------- -------------
Gross profit........................................................................ 7,140 9,450
General and administrative expenses................................................. 2,883 4,044
------------- -------------
Income from operations.............................................................. 4,257 5,406
Interest expense, net............................................................... 1,971 2,018
------------- -------------
Income before tax provision......................................................... 2,286 3,388
Tax provision....................................................................... 959 1,480
------------- -------------
Net income.......................................................................... 1,327 1,908
Accretion to redemption value of warrants........................................... (286) (1,300)
------------- -------------
Net income available to Common Stockholders......................................... $ 1,041 $ 608
------------- -------------
------------- -------------
Earnings per share of Common Stock.................................................. $ 0.32 $ 0.14
------------- -------------
------------- -------------
Average number of shares of Common Stock outstanding................................ 3,245 4,476
------------- -------------
------------- -------------
Earnings per share assuming full dilution........................................... $ 0.32 $ 0.13
------------- -------------
------------- -------------
Average number of shares of Common Stock outstanding assuming full dilution......... 3,278 4,525
------------- -------------
------------- -------------
</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>
CONVERTIBLE PREFERRED
STOCK COMMON STOCK ADDITIONAL
------------------------- ----------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
---------- ------------- ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 27, 1995............. 134,171 $ 1 2,048,200 $ 20 $ 8,933 $ 2,617
Stock warrant accretion.............. (1,300)
Shares issued in connection with Sun
West acquisition................... 25,900 1 369
Shares issued in connection with
Initial Public Offering............ 2,890,218 29 30,513
Conversion of Preferred Stock........ (134,171) (1) 939,197 9 (8)
Warrants exercised................... 123,585 1 608
Warrants redeemed.................... (200)
Shares issued upon exercise of over
allotment option................... 174,500 1 1,454
Options exercised.................... 2,916 -- 19
Stock issued to non-employee
directors.......................... 7,500 1 90
Net income........................... 1,908
--
---------- ---------- --- ----------- ---------
Balance, September 25, 1996............ -- $-- 6,212,016 $ 62 $ 41,778 $ 3,225
--
--
---------- ---------- --- ----------- ---------
---------- ---------- --- ----------- ---------
<CAPTION>
RECEIVABLES FROM
STOCKHOLDERS FOR
PURCHASE OF
COMMON STOCKHOLDERS'
STOCK EQUITY
----------------- ------------
<S> <C> <C>
Balance, December 27, 1995............. $ (189) $ 11,382
Stock warrant accretion.............. (1,300)
Shares issued in connection with Sun
West acquisition................... 370
Shares issued in connection with
Initial Public Offering............ 30,542
Conversion of Preferred Stock........ --
Warrants exercised................... 609
Warrants redeemed.................... (200)
Shares issued upon exercise of over
allotment option................... 1,455
Options exercised.................... 19
Stock issued to non-employee
directors.......................... 91
Net income........................... 1,908
----- ------------
Balance, September 25, 1996............ $ (189 ) $ 44,876
----- ------------
----- ------------
</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>
NINE MONTHS ENDED
----------------------------
SEPTEMBER 27, SEPTEMBER 25,
1995 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................................................ $ 1,327 $ 1,908
Adjustments to reconcile net income to net cash (used in) provided by operating
activities:
Depreciation and amortization ....................................................... 2,369 3,115
Deferred income tax provision ....................................................... 959 1,479
Changes in operating assets and liabilities:
Accounts receivable ............................................................... (231) (4,381)
Inventories ....................................................................... 83 (549)
Prepaid expenses and other current assets.......................................... (896) (1,788)
Accounts payable and accrued expenses.............................................. 762 735
Increase in other assets............................................................... (1,195) (3,565)
------------- -------------
Net cash (used in) provided by operating activities.................................. 3,178 (3,046)
------------- -------------
Cash flows from investing activities:
Increase in contract rights............................................................ (2,953) (4,679)
Purchases of fixtures and equipment.................................................... (2,643) (3,914)
Sale of fixtures and equipment......................................................... -- 64
Acquisition of business, net of cash acquired.......................................... (3,478) (5,169)
Collection of notes receivable......................................................... 1,987 494
------------- -------------
Net cash used in investing activities................................................ (7,087) (13,204)
------------- -------------
Cash flows from financing activities:
Borrowings under long-term debt agreement.............................................. 8,284 14,367
Proceeds from issuance of preferred stock.............................................. 1,500 --
Proceeds from issuance of common stock................................................. -- 32,016
Payment of long-term debt.............................................................. (1,674) (19,268)
Payment of subordinated debt........................................................... (3,276) (8,037)
Redemption of warrants................................................................. -- (200)
Proceeds from exercise of warrants..................................................... -- 609
------------- -------------
Net cash provided by financing activities............................................ 4,834 19,487
------------- -------------
Net increase in cash................................................................... 925 3,237
Cash, beginning of period.............................................................. 1,532 634
------------- -------------
Cash, end of period.................................................................... $ 2,457 $ 3,871
------------- -------------
------------- -------------
</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 NINE MONTHS ENDED SEPTEMBER 27, 1995 AND SEPTEMBER 25, 1996
(IN THOUSANDS, EXCEPT SHARE AND 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 nine months ended September 27, 1995 and September 25, 1996.
The accompanying unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements of the Company and notes
thereto for the fiscal year ended December 27, 1995.
EARNINGS PER SHARE--Earnings per share of Common Stock is computed based on
the weighted average number of common and common equivalent shares outstanding
during each period. 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 except when their effect is antidilutive. In
calculating earnings per share, net income has been reduced for the accretion to
the redemption value of warrants by $286 and $1,300 for the nine months ended
September 27, 1995 and September 25, 1996, respectively.
2. ACQUISITIONS
On November 8, 1996, the Company acquired 100% of the stock of HCS
Management Corp. (now known as PCS Holding Corp.) ("PCS"). PCS, through its
operating subsidiaries, provides non-patient contract food and other services to
hospitals and corporations. The purchase price was approximately $6,000,
consisting of cash to the seller plus assumed debt of PCS.
On July 31, 1996, the Company acquired 100% of the outstanding stock of
Ideal Management Inc. ("Ideal"). Ideal provides contract food and beverage
services to public school districts in New York State. The purchase price was
approximately $3,600, consisting of cash, convertible subordinated notes with
interest at 7 1/4%, and a seven year covenant not to compete. At the option of
the noteholders, the outstanding principal balance of the notes is convertible
into Common Stock at a conversion price of $15 per share.
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
F-27
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1995 AND SEPTEMBER 25, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
2. ACQUISITIONS (CONTINUED)
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 nine months ended September 27,
1995, as if the acquisitions of Ideal, Sun West and Northwest had been completed
as of the beginning of such period; and (ii) with respect to the income
statement data for the nine months ended September 25, 1996, as if the
acquisition of Ideal and Sun West had been completed as of the beginning of such
period. No adjustments for acquisition synergies (i.e. overhead reductions) have
been reflected:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------
<S> <C> <C>
SEPTEMBER 27, SEPTEMBER 25,
1995 1996
------------- -------------
SUMMARY STATEMENT OF INCOME DATA:
Net sales............................................... $ 92,375 $ 95,690
Income from operations.................................. 3,788 5,258
Net income.............................................. 28 231
Net income per share assuming full dilution............. $ 0.01 $ 0.05
------------- -------------
------------- -------------
</TABLE>
This pro forma information is provided for informational purposes only. It
is based on historical information and does not necessarily reflect the actual
results that would have occurred nor is it necessarily indicative of future
results of operations of the combined enterprise.
3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 27, SEPTEMBER 25,
1995 1996
------------ -------------
<S> <C> <C>
Accounts payable................................................ $ 5,197 $ 7,666
Accrued wages and benefits...................................... 1,607 3,918
Accrued rent to clients......................................... 2,576 3,676
Accrued other................................................... 3,087 3,472
------------ -------------
Total..................................................... $ 12,467 $ 18,732
------------ -------------
------------ -------------
</TABLE>
F-28
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1995 AND SEPTEMBER 25, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 27, SEPTEMBER 25,
1995 1996
------------ -------------
<S> <C> <C>
Term Loan....................................................... $ 9,100 $ --
Working Capital Line............................................ 6,000 10,417
Guidance Line................................................... 3,207 2,989
------------ -------------
18,307 13,406
Less: current portion........................................... 2,981 598
------------ -------------
Total..................................................... $ 15,326 $ 12,808
------------ -------------
------------ -------------
</TABLE>
The Company's bank agreement was amended and restated on June 19, 1996 in
connection with the Initial Public Offering (the "Restated Bank Agreement") and
provides for (i) a working capital revolving credit line (the "Working Capital
Line") for general obligations and letters of credit of the Company, in the
maximum amount of $20,000, and (ii) a line of credit to provide for future
expansion by the Company (the "Guidance Line") in the maximum amount of $55,000.
The maximum borrowing under the Restated Bank Agreement was $75,000 as of June
19, 1996. The Restated Bank Agreement terminates on April 30, 1999.
The Company's obligations under the Restated Bank Agreement are
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.
The Restated 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 Restated Bank Agreement also contains prohibitions on
the payment of dividends.
5. SUBORDINATED DEBT
In July 1996, as part of the acquisition of Ideal (see Note 2), the Company
issued to the stockholders of Ideal two convertible subordinated promissory
notes each with a face value of $710 at 7 1/4% interest per annum, payable in
quarterly installments. At the option of the noteholders, the outstanding
principal balance of the notes is convertible into Common Stock at a conversion
price of $15 per share. The notes were discounted to present value using a
market rate of 13.0% and had a combined balance at September 25, 1996 of $1,213,
of which $957 was classified as long-term.
In March 1996, as part of the acquisition of Sun West (see Note 2), the
Company issued to the stockholders of Sun West the following: (1) a subordinated
promissory note with a face value of $1,350 at 7% interest per annum, 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 per annum, payable in
three annual installments beginning in 1997. The notes were discounted to
present value using a market rate of 10%.
F-29
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1995 AND SEPTEMBER 25, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
5. SUBORDINATED DEBT (CONTINUED)
The respective balances at September 25, 1996 were $1,214 and $598, of which
$1,183 and $326 were classified as long-term.
In July 1995, as part of the purchase price of Northwest (see Note 2), the
Company issued a $1,350 note to the seller at 6% interest per annum 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 September 25, 1996 of $1,197 of which
$967 was classified as long-term.
6. STOCKHOLDERS' EQUITY
On July 19, 1996, pursuant to the terms of the over-allotment option granted
to the underwriters of the initial public offering, the Company sold 174,500
shares of Common Stock at the initial public offering price of $12.00 per share,
generating net proceeds of approximately $1,500 after deducting the underwriting
discount and certain expenses. The net proceeds have been invested in short term
investments in accordance with the Company's investment policy.
On June 19, 1996, the effective date of the initial public offering, the
Company sold 2,890,218 shares at a price of $12.00 per share, generating net
proceeds (including the net proceeds received by the Company upon the exercise
of certain warrants) of approximately $31,100 after deducting the underwriting
discount and offering expenses paid by the Company. The net proceeds were used
to repay obligations under the Company's credit facility in effect prior to the
initial public offering and subordinated notes, as well as the amount required
to repurchase certain warrants. In addition, all of the then outstanding Series
A Convertible Preferred Stock was converted into 939,197 shares of Common Stock.
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 the initial
public offering. In connection therewith, the Company's Board of Directors
declared a 7-for-1 stock split in the form of a stock dividend which was
effected prior to the initial public offering. Current and prior year
information has been restated to reflect this stock split.
F-30
<PAGE>
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1995 AND SEPTEMBER 25, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
7. INCOME TAXES
The income tax provision consists of the following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------
SEPTEMBER 27, SEPTEMBER 25,
1995 1996
------------- -------------
<S> <C> <C>
Current:
Federal........................................................................... $ -- $ --
State and local................................................................... 3 1
------ ------
Total current................................................................. 3 1
------ ------
Deferred:
Federal........................................................................... 777 1,152
State and local................................................................... 179 327
------ ------
Total deferred................................................................ 956 1,479
------ ------
Total....................................................................... $ 959 $ 1,480
------ ------
------ ------
</TABLE>
At September 25, 1996, the Company had, for Federal income tax reporting, an
estimated net operating loss carryforward of approximately $2,800 that will
begin to expire in 2008.
8. MAJOR CLIENT
During the nine months ended September 27, 1995, one client represented
15.4% of net sales and for the nine months ended September 25, 1996, another
client represented 9.8% of net sales.
9. SUBSEQUENT EVENTS
On November 8, 1996, the Company acquired PCS. PCS, through its operating
subsidiaries, provides non-patient contract food and other services to hospitals
and corporations. The purchase price was approximately $6,000, consisting of
cash and assumed debt of PCS.
On December 8, 1996, the Company acquired Republic, a contract service
management company that provides food services to the college, corporate dining
and vending markets. The purchase price was approximately $8,600, consisting of
cash and a subordinated promissory note in the amount of $1,000, bearing
interest at 8.75% per annum and maturing in 1999.
On December 30, 1996, the Company acquired Service Dynamics, a contract food
services management company that is a leading provider of contract food services
to school districts and corporate dining markets in New York, New Jersey and
Connecticut for $3,000.
On January 15, 1997, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission for the sale
by the Company of 1,814,000 shares of Common Stock.
On January 23, 1997, the Company acquired Serv-Rite Corporation
("Serv-Rite"), a contract food services management company that provides food
services to the education and corporate dining markets in New York and
Pennsylvania. The purchase price was approximately $7,500, consisting of cash
and assumed debt of Serv-Rite.
F-31
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
NO DEALER, SALESMAN OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING NOT CONTAINED IN
THIS PROSPECTUS, AND ANY INFORMATION OR REPRESENTATION NOT CONTAINED HEREIN MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE SHARES OF COMMON STOCK TO WHICH IT
RELATES, OR AN OFFER TO, OR SOLICITATION OF, ANY PERSON IN ANY JURISDICTION
WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
---------------------
TABLE OF CONTENTS
---------------------
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
PROSPECTUS SUMMARY........................... 3
RISK FACTORS................................. 7
USE OF PROCEEDS.............................. 11
PRICE RANGE OF COMMON STOCK.................. 11
DIVIDEND POLICY.............................. 11
CAPITALIZATION............................... 12
SELECTED CONSOLIDATED FINANCIAL DATA......... 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................. 15
BUSINESS..................................... 22
MANAGEMENT................................... 32
CERTAIN TRANSACTIONS......................... 38
PRINCIPAL AND SELLING STOCKHOLDERS........... 40
DESCRIPTION OF CAPITAL STOCK................. 41
SHARES ELIGIBLE FOR FUTURE SALE.............. 44
UNDERWRITING................................. 45
LEGAL MATTERS................................ 46
EXPERTS...................................... 46
ADDITIONAL INFORMATION....................... 46
INDEX TO FINANCIAL STATEMENTS................ F-1
</TABLE>
2,000,000 SHARES
[LOGO]
FINE HOST CORPORATION
COMMON STOCK
------------
PROSPECTUS
-------------------
MONTGOMERY SECURITIES
PIPER JAFFRAY INC.
SMITH BARNEY INC.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered which will be paid
solely by the Company. All the amounts shown are estimates, except the SEC
registration fee, the NASD filing fee and the Nasdaq National Market listing
fee:
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
SEC registration fee.............................................................. $ 17,076
NASD filing fee................................................................... 6,135
Nasdaq listing fee................................................................ 17,500
Transfer agent and registrar fees and expenses.................................... 10,000
Printing and engraving expenses................................................... 150,000
Legal fees and expenses........................................................... 200,000
Accounting fees and expenses...................................................... 100,000
Blue Sky fees and expenses........................................................ 12,000
Miscellaneous expenses............................................................ 62,289
----------
Total......................................................................... $ 575,000
----------
----------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Restated Certificate of Incorporation (the "Restated
Certificate") provides that the Company shall indemnify each person who is or
was a director, officer or employee of the Company to the fullest extent
permitted under Section 145 of the Delaware General Corporation Law. Section 145
of the Delaware General Corporation Law empowers a Delaware corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of such corporation) by reason of the fact that such person is or was
a director, officer, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. A corporation may indemnify such person
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. A corporation may, in
advance of the final disposition of any civil, criminal, administrative or
investigative action, suit or proceeding, pay the expenses (including attorneys'
fees) incurred by any officer or director in defending such action, provided
that the director or officer undertakes to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
corporation.
A Delaware corporation may indemnify officers and directors in an action by
or in the right of the corporation to procure a judgment in its favor under the
same conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation.
Where an officer or director is successful on the merits or otherwise in the
defense of any action referred to above, the corporation must indemnify him
against the expenses (including attorneys' fees) which he actually and
reasonably incurred in connection therewith. The indemnification provided is not
deemed to be exclusive of any other rights to which an officer or director may
be entitled under any corporation's bylaw, agreement, vote or otherwise.
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
II-1
<PAGE>
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:
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.
II-2
<PAGE>
On June 30, 1995, the Company issued a subordinated promissory note, due
June 30, 2001, to Robert F. Barney, in 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.
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.
On July 31, 1996, the Company issued two convertible promissory notes, due
2000, to the sellers, in the aggregate principal amount of $1,420,000, in
connection with the acquisition of Ideal.
On December 5, 1996, the Company issued a subordinated promissory note, due
December 1, 1999, to Richard B. Schenkel, in the aggregate principal amount of
$1,000,000, in connection with the acquisition of Republic.
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 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 453,432 shares of
Common Stock, par value $0.01 per share, at a price of $0.01 per share.
**10.4 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.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------ -------------------------------------------------------------------------------------------------
<C> <S>
**10.5 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.
**10.6 (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.
**10.6 (b) First Amendment to Second Amended and Restated Loan Agreement, dated as of August 1, 1995.
**10.6 (c) Second Amendment to Second Amended and Restated Loan Agreement, dated as of August 24, 1995.
**10.6 (d) Third Amendment to Second Amended and Restated Loan Agreement, dated as of January 16, 1996.
**10.6 (e) Fourth Amendment to Second Amended and Restated Loan Agreement, dated as of March 22, 1996.
**10.6 (f) Fifth Amendment to Second Amended and Restated Loan Agreement, dated as of June 5, 1996.
**10.7 Subscription Agreement, dated as of April 24, 1995, by and among the Company and Interlaken
Investment Partners, L.P.
**10.8 Registration Rights Agreement, dated as of April 24, 1995, between the Company and Interlaken
Investment Partners, L.P.
**10.9 Advisory Services Agreement, dated as of March 25, 1996, between the Company and Interlaken
Capital, Inc.
**10.10 Form of 1994 Stock Option Plan, as amended
**10.11 Form of 1996 Non-Employee Director Stock Option Plan
**10.12 Employment Agreement, dated as of June 30, 1995, by and among the Company, Northwest Food
Service, Inc. and Robert F. Barney.
**10.13 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.
**10.14 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.
**10.15 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.
**10.16 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.
**10.17 Form of Promissory Note from Richard E. Kerley to the Company.
**10.18 Form of Promissory Note from Randy B. Spector to the Company.
**10.19 Form of Promissory Note from Douglas M. Stabler to Interlaken Capital Partners Limited
Partnership.
**10.20 Form of Promissory Notes from Randall K. Ziegler to the Company and Interlaken Capital Partners
Limited Partnership.
**10.21 Form of Registration Rights Agreement by and among the Company and Messrs. Kerley, Spector,
Ziegler and Stabler.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------ -------------------------------------------------------------------------------------------------
<C> <S>
**10.22 Form of Third Amended and Restated Loan Agreement.
*11 Computations of Per Share Earnings
21 Subsidiaries
*23.1 Consent of Willkie Farr & Gallagher
23.2 Consent of Deloitte & Touche LLP
*24 Power of Attorney
</TABLE>
- ------------------------
* Previously filed.
** Incorporated by reference to the Registrant's Registration Statement on Form
S-1 (File No. 333-2906), as amended, originally filed with the Securities
and Exchange Commission on March 29, 1996.
Certain instruments defining the rights of holders of long-term debt of the
Company have not been filed in accordance with Item 601(b)(4)(iii) of Regulation
S-K under the Securities Act. The Company hereby agrees to furnish a copy of
such instruments to the Commission upon request.
(b) FINANCIAL STATEMENT SCHEDULES
None.
ITEM 17. UNDERTAKINGS
(1) 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.
(2) 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-5
<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
February 3, 1997.
FINE HOST CORPORATION
By: /s/ RICHARD E. KERLEY
------------------------------------
Name: Richard E. Kerley
Title: President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registrant's 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>
/s/ RICHARD E. KERLEY President and Chief Executive Officer and February 3, 1997
- ----------------------------------- Director (Principal Executive Officer)
Richard E. Kerley
* Senior Vice President and Chief Financial February 3, 1997
- ----------------------------------- Officer (Principal Financial and Accounting
Nelson A. Barber Officer)
* Executive Vice President and Director February 3, 1997
- -----------------------------------
Randall K. Ziegler
* Chairman of the Board of Directors February 3, 1997
- -----------------------------------
William R. Berkley
* Director February 3, 1997
- -----------------------------------
Andrew M. Bursky
* Director February 3, 1997
- -----------------------------------
Catherine B. James
* Director February 3, 1997
- -----------------------------------
Joshua A. Polan
* Director February 3, 1997
- -----------------------------------
Ronald E. Blaylock
* Director February 3, 1997
- -----------------------------------
Jack H. Nusbaum
* By: /s/ RICHARD E. KERLEY
------------------------------
Richard E. Kerley
Attorney-in-Fact
</TABLE>
II-6
<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 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 453,432
shares of Common Stock, par value $0.01 per share, at a price of $0.01 per share.
**10.4 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.
**10.5 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.
**10.6 (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.
**10.6 (b) First Amendment to Second Amended and Restated Loan Agreement, dated as of August 1,
1995.
**10.6 (c) Second Amendment to Second Amended and Restated Loan Agreement, dated as of August
24, 1995.
**10.6 (d) Third Amendment to Second Amended and Restated Loan Agreement, dated as of January
16, 1996.
**10.6 (e) Fourth Amendment to Second Amended and Restated Loan Agreement, dated as of March
22, 1996.
**10.6 (f) Fifth Amendment to Second Amended and Restated Loan Agreement, dated as of June 5,
1996.
**10.7 Subscription Agreement, dated as of April 24, 1995, by and among the Company and
Interlaken Investment Partners, L.P.
**10.8 Registration Rights Agreement, dated as of April 24, 1995, between the Company and
Interlaken Investment Partners, L.P.
**10.9 Advisory Services Agreement, dated as of March 25, 1996, between the Company and
Interlaken Capital, Inc.
**10.10 Form of 1994 Stock Option Plan, as amended
**10.11 Form of 1996 Non-Employee Director Stock Option Plan
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- ------------ ------------------------------------------------------------------------------------ ---------------
<C> <S> <C>
**10.12 Employment Agreement, dated as of June 30, 1995, by and among the Company, Northwest
Food Service, Inc. and Robert F. Barney.
**10.13 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.
**10.14 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.
**10.15 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.
**10.16 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.
**10.17 Form of Promissory Note from Richard E. Kerley to the Company.
**10.18 Form of Promissory Note from Randy B. Spector to the Company.
**10.19 Form of Promissory Note from Douglas M. Stabler to Interlaken Capital Partners
Limited Partnership.
**10.20 Form of Promissory Notes from Randall K. Ziegler to the Company and Interlaken
Capital Partners Limited Partnership.
**10.21 Form of Registration Rights Agreement by and among the Company and Messrs. Kerley,
Spector, Ziegler and Stabler.
**10.22 Form of Third Amended and Restated Loan Agreement.
*11 Computations of Per Share Earnings
21 Subsidiaries
*23.1 Consent of Willkie Farr & Gallagher
23.2 Consent of Deloitte & Touche LLP
*24 Power of Attorney
</TABLE>
- ------------------------
* Previously filed.
** Incorporated by reference to the Registrant's Registration Statement on Form
S-1 (File No. 333-2906), as amended, originally filed with the Securities
and Exchange Commission on March 29, 1996.
<PAGE>
DRAFT 1/31/97
2,000,000 Shares
FINE HOST CORPORATION
Common Stock
UNDERWRITING AGREEMENT
__________, 1997
MONTGOMERY SECURITIES
PIPER JAFFRAY INC.
SMITH BARNEY INC.
As Representatives of the several Underwriters
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
SECTION 1. Introductory. Fine Host Corporation, a Delaware corporation
(the "Company"), proposes to issue and sell 1,814,000 shares of its authorized
but unissued Common Stock (the "Common Stock") and certain stockholders of the
Company named in Schedule B annexed hereto (the "Selling Stockholders") propose
to sell an aggregate of 186,000 shares of the Company's issued and outstanding
Common Stock to the several underwriters named in Schedule A annexed hereto (the
"Underwriters"), for whom you are acting as Representatives. Said aggregate of
2,000,000 shares are herein called the "Firm Common Shares." In addition, the
Company proposes to grant to the Underwriters an option to purchase up to
300,000 additional shares of Common Stock (the "Optional Common Shares"), as
provided in Section 5 hereof. The Firm Common Shares and, to the extent such
option is exercised, the Optional Common Shares are hereinafter collectively
referred to as the "Common Shares."
You have advised the Company and the Selling Stockholders that the
Underwriters propose to make a public offering of their respective portions of
the Common Shares on the effective date of the registration statement
hereinafter referred to, or as soon thereafter as in your judgment is advisable.
<PAGE>
The Company and each of the Selling Stockholders hereby confirm their
respective agreements with respect to the purchase of the Common Shares by the
Underwriters as follows:
SECTION 2. Representations and Warranties of the Company. The Company
represents and warrants to the several Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-19909) with
respect to the Common Shares has been prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as amended
(the "Act"), and the rules and regulations (the "Rules and Regulations")
of the Securities and Exchange Commission (the "Commission") thereunder,
and has been filed with the Commission. The Company has prepared and has
filed or proposes to file prior to the effective date of such registration
statement an amendment or amendments to such registration statement, which
amendment or amendments have been or will be similarly prepared. There
have been delivered to you two signed copies of such registration
statement and amendments, together with two copies of each exhibit filed
therewith. Conformed copies of such registration statement and amendments
(but without exhibits) and of the related preliminary prospectus have been
delivered to you in such reasonable quantities as you have requested for
each of the Underwriters. The Company will next file with the Commission
one of the following: (i) prior to effectiveness of such registration
statement, a further amendment thereto, including the form of final
prospectus, (ii) a final prospectus in accordance with Rules 430A and
424(b) of the Rules and Regulations or (iii) a term sheet (the "Term
Sheet") as described in and in accordance with Rules 434 and 424(b) of the
Rules and Regulations. As filed, the final prospectus, if one is used, or
the Term Sheet and Preliminary Prospectus, if a final prospectus is not
used, shall include all Rule 430A Information and, except to the extent
that you shall agree in writing to a modification, shall be in all
substantive respects in the form furnished to you prior to the date and
time that this Agreement was executed and delivered by the parties hereto,
or, to the extent not completed at such date and time, shall contain only
such specific additional information and other changes (beyond that
contained in the latest Preliminary Prospectus) as the Company shall have
previously advised you in writing would be included or made therein.
The term "Registration Statement" as used in this Agreement shall
mean such registration statement at the time such registration statement
becomes effective and, in the event any post-effective amendment thereto
becomes effective
-2-
<PAGE>
prior to the First Closing Date (as hereinafter defined), shall also mean
such registration statement as so amended; provided, however, that such
term shall also include (i) all Rule 430A Information deemed to be
included in such registration statement at the time such registration
statement becomes effective as provided by Rule 430A of the Rules and
Regulations and (ii) any registration statement filed pursuant to 462(b)
of the Rules and Regulations relating to the Common Shares. The term
"Preliminary Prospectus" shall mean any preliminary prospectus referred to
in the preceding paragraph and any preliminary prospectus included in the
Registration Statement at the time it becomes effective that omits Rule
430A Information. The term "Prospectus" as used in this Agreement shall
mean (i) the prospectus relating to the Common Shares in the form in which
it is first filed with the Commission pursuant to Rule 424(b) of the Rules
and Regulations, or (ii) if a Term Sheet is not used and no filing
pursuant to Rule 424(b) of the Rules and Regulations is required, the form
of final prospectus included in the Registration Statement at the time
such registration statement becomes effective or (iii) if a Term Sheet is
used, the Term Sheet in the form in which it is first filed with the
Commission pursuant to Rule 424(b) of the Rules and Regulations, together
with the Preliminary Prospectus included in the Registration Statement at
the time it becomes effective. The term "Rule 430A Information" means
information with respect to the Common Shares and the offering thereof
permitted to be omitted from the Registration Statement when it becomes
effective pursuant to Rule 430A of the Rules and Regulations.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus, and each Preliminary Prospectus has
conformed in all material respects to the requirements of the Act and the
Rules and Regulations and, as of its date, has not included any untrue
statement of a material fact or omitted to state a material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading; and at the time the Registration
Statement becomes effective, the Registration Statement will contain all
material statements and information required to be included therein by the
Act and the Rules and Regulations, will conform in all material respects
to the requirements of the Act and the Rules and Regulations, and will not
include any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and the Prospectus, as amended and
supplemented, as applicable, at the time the Registration Statement
becomes effective, and at the First Closing Date hereinafter mentioned,
will not include any untrue statement
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of a material fact or omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, no representation or
warranty contained in this subsection 2(b) shall be applicable to
information contained in or omitted from any Preliminary Prospectus, the
Registration Statement, the Prospectus or any such amendment or supplement
in reliance upon and in conformity with written information furnished to
the Company by or on behalf of any Underwriter, directly or through the
Representatives, specifically for use in the preparation thereof.
(c) The Company does not own or control, directly or indirectly, any
corporation, association or other entity other than (i) the subsidiaries
listed in Exhibit 21 to the Registration Statement (the "Significant
Subsidiaries") and (ii) Fine Host International Corporation, Fine Host of
Vermont, Inc., Global Fanfare, Inc., Tarrant County Concessions, L.L.C.,
Fine Host/R&N/A Cup Above Joint Venture, Fine Host/S. Brooks and
Associates Joint Venture, Fine Host International Corporation and F&B
International Company Joint Venture, Five-Star Marketing, Inc., Ideal
Management Services, Inc. and Service Dynamics Corp. (collectively, the
"Excluded Subsidiaries" and, together with the Significant Subsidiaries,
the Company's "subsidiaries"). The Excluded Subsidiaries, considered in
the aggregate as a single subsidiary, would not constitute a significant
subsidiary within the meaning of Rule 1-02(v) of Regulation S-X under the
Act. The Company and each of its subsidiaries have been duly incorporated
and are validly existing as corporations in good standing under the laws
of their respective jurisdictions of incorporation, with full power and
authority (corporate and other) to own and lease their properties and
conduct their respective businesses as described in the Prospectus; the
Company owns all of the outstanding capital stock of its Significant
Subsidiaries, and owns the stock or other interest held by it directly or
indirectly in the Excluded Subsidiaries, free and clear of all claims,
liens, charges and encumbrances; the Company and each of its subsidiaries
are in possession of and operating in compliance with all authorizations,
licenses, permits, consents, certificates and orders material to the
conduct of their respective businesses, all of which are valid and in full
force and effect except where the failure to possess or be operating in
compliance with such authorizations, licenses, permits, consents,
certificates or orders would not have a material adverse effect on the
Company and its subsidiaries taken as a whole; the Company and each of its
subsidiaries are duly qualified to do business and in good standing as
foreign corporations in each jurisdiction in which the ownership or
leasing of properties or the conduct of their
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respective businesses requires such qualification, except for
jurisdictions in which the failure to so qualify would not have a material
adverse effect upon the Company and its subsidiaries taken as a whole;
and, to the knowledge of the Company, no proceeding has been instituted in
any such jurisdiction, revoking, limiting or curtailing, or seeking to
revoke, limit or curtail, such power and authority or qualification.
(d) The Company has an authorized and outstanding capital stock as
set forth under the heading "Capitalization" in the Prospectus; the issued
and outstanding shares of Common Stock (including the Common Shares to be
sold by the Selling Stockholders hereunder) have been duly authorized and
validly issued, are and will be fully paid and nonassessable, have been
and will be issued in compliance with all federal and state securities
laws, were not and will not be issued in violation of any preemptive
rights or other rights to subscribe for or purchase securities or, except
for such rights that will expire or be terminated on the First Closing
Date, subject to any such rights, and conform in all material respects to
the description thereof contained in the Prospectus. All issued and
outstanding shares of capital stock of each Significant Subsidiary, and
all shares of capital stock held by the Company directly or indirectly in
any Excluded Subsidiary, have been duly authorized and validly issued and
are fully paid and nonassessable. Except as disclosed in or contemplated
by the Prospectus and the financial statements of the Company, and the
related notes thereto, included in the Prospectus, neither the Company nor
any subsidiary has outstanding any options to purchase, or any preemptive
rights or other rights to subscribe for or to purchase, any securities or
obligations convertible into, or any contracts or commitments to issue or
sell, shares of its capital stock or any such options, rights, convertible
securities or obligations (other than preemptive or other such rights
which have been waived in connection with the transactions contemplated by
this Agreement and will expire or be terminated on the First Closing
Date). The description of the Company's stock option, stock bonus and
other stock plans or arrangements, and the options or other rights granted
and exercised thereunder, set forth in the Prospectus accurately and
fairly presents the information required to be shown with respect to such
plans, arrangements, options and rights.
(e) The Common Shares to be sold by the Company have been duly
authorized and, when issued, delivered and paid for in the manner set
forth in this Agreement, will be duly authorized, validly issued, fully
paid and nonassessable, and will conform in all material respects to the
description
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<PAGE>
thereof contained in the Prospectus. No preemptive rights or other rights
to subscribe for or purchase any security of the Company exist with
respect to the issuance and sale of the Common Shares by the Company
pursuant to this Agreement (other than those which have been waived). No
stockholder of the Company has any right which has not been waived to
require the Company to register the sale of any shares owned by such
stockholder under the Act in the public offering contemplated by this
Agreement. No further approval or authority of the stockholders or the
Board of Directors of the Company will be required for the transfer and
sale of the Common Shares to be sold by the Selling Stockholders or the
issuance and sale of the Common Shares to be sold by the Company as
contemplated herein.
(f) The Company has full legal right, power and authority to enter
into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company
and constitutes a valid and binding obligation of the Company enforceable
in accordance with its terms except (x) as enforceability may be limited
by general equitable principles, bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally, (y) as
availability of equitable remedies may be limited by equitable principles
of general applicability and (z) with respect to those provisions relating
to indemnities or contributions for liabilities under the Act. The making
and performance of this Agreement by the Company and the consummation of
the transactions herein contemplated will not violate any provisions of
the certificate of incorporation or bylaws, or other organizational
documents, of the Company or any of its subsidiaries, and will not
conflict with, result in the breach or violation of, or constitute, either
by itself or upon notice or the passage of time or both, a default under
any agreement, mortgage, deed of trust, lease, franchise, license,
indenture, permit or other instrument to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries
or any of its respective properties may be bound or affected, any statute
or any authorization, judgment, decree, order, rule or regulation of any
court or any regulatory body, administrative agency or other governmental
body applicable to the Company or any of its subsidiaries or any of their
respective properties except for such conflicts, breaches or violations or
defaults which would not have a material adverse effect on the Company and
its subsidiaries taken as a whole. No consent, approval, authorization or
other order of any court, regulatory body, administrative agency or other
governmental body is required for the execution and delivery of this
Agreement or the consummation of the transactions
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<PAGE>
contemplated by this Agreement, except for compliance with the Act, the
Blue Sky laws applicable to the public offering of the Common Shares by
the several Underwriters and the clearance of such offering with the
National Association of Securities Dealers, Inc. (the "NASD").
(g) Deloitte & Touche LLP, who have expressed their opinion with
respect to the financial statements and schedules filed with the
Commission as a part of the Registration Statement and included in the
Prospectus and in the Registration Statement, are independent accountants
as required by the Act and the Rules and Regulations.
(h) The financial statements and schedules of the Company, and the
related notes thereto, included in the Registration Statement and the
Prospectus present fairly the financial position of the Company as of the
respective dates of such financial statements and schedules, and the
results of operations and changes in financial position of the Company for
the respective periods covered thereby. Such statements, schedules and
related notes have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis as certified by the
independent accountants named in subsection 2(g). No other financial
statements, pro forma financial statements or schedules are required to be
included in the Registration Statement. The selected financial data set
forth in the Prospectus under the captions "Capitalization" and "Selected
Consolidated Financial Data" fairly present the information set forth
therein on the basis stated in the Registration Statement.
(i) Except as disclosed in the Prospectus, and except as to defaults
which individually or in the aggregate would not be material to the
Company and its subsidiaries taken as a whole, neither the Company nor any
of its subsidiaries is in violation or default of any provision of its
certificate of incorporation or bylaws, or other organizational documents,
or is in breach of or default with respect to any provision of any
agreement, judgment, decree, order, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument to which it is a
party or by which it or any of its properties are bound; and there does
not exist any state of facts which constitutes an event of default on the
part of the Company or any such subsidiary as defined in such documents or
which, with notice or lapse of time or both, would constitute such an
event of default, which event of default would have a material adverse
effect on the Company and its subsidiaries taken as a whole.
(j) There are no contracts or other documents required to be
described in the Registration Statement or to be filed
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<PAGE>
as exhibits to the Registration Statement by the Act or by the Rules and
Regulations which have not been described or filed as required. The
contracts so described in or filed as an exhibit to the Registration
Statement are in full force and effect on the date hereof; and neither the
Company nor any of its subsidiaries, nor to the best of the Company's
knowledge, any other party is in breach of or default under any of such
contracts.
(k) Except as disclosed in the Prospectus, there are no legal or
governmental actions, suits or proceedings pending or, to the best of the
Company's knowledge, threatened to which the Company or any of its
subsidiaries is or may be a party or of which property owned or leased by
the Company or any of its subsidiaries is or may be the subject, or
related to environmental or discrimination matters, which actions, suits
or proceedings might, individually or in the aggregate, prevent or
adversely affect the Company's ability to consummate the transactions
contemplated by this Agreement or result in a material adverse change in
the condition (financial or otherwise), properties, business, results of
operations or prospects of the Company and its subsidiaries taken as a
whole; and no labor disturbance by the employees of the Company or any of
its subsidiaries exists or, to the Company's knowledge, is imminent which
might be expected to materially adversely affect such condition,
properties, business, results of operations or prospects. Neither the
Company nor any of its subsidiaries is a party or subject to the
provisions of any material injunction, judgment, decree or order of any
court, regulatory body, administrative agency or other governmental body.
(l) The Company or the applicable subsidiary has good and marketable
title to all the properties and assets reflected as owned in the financial
statements hereinabove described (or elsewhere in the Prospectus), subject
to no lien, mortgage, pledge, charge or encumbrance of any kind except (i)
those, if any, reflected in such financial statements (or elsewhere in the
Prospectus), or (ii) those which are not material in amount and do not
materially adversely affect the use made and proposed to be made of such
property by the Company and its subsidiaries. The Company or the
applicable subsidiary holds its leased properties under valid and binding
leases, with such exceptions as are not materially significant in relation
to the business of the Company. Except as disclosed in the Prospectus, the
Company owns or leases all such properties as are necessary to its
operations as now conducted.
(m) Since the respective dates as of which information is given in
the Registration Statement and Prospectus, and
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<PAGE>
except as described in or specifically contemplated by the Prospectus: (i)
the Company and its subsidiaries have not incurred any material
liabilities or obligations, indirect, direct or contingent, or entered
into any material agreement or other transaction which is not in the
ordinary course of business or which could result in a material reduction
in the future earnings of the Company and its subsidiaries; (ii) the
Company and its subsidiaries have not sustained any material loss or
interference with their respective businesses or properties from fire,
flood, windstorm, accident or other calamity, whether or not covered by
insurance; (iii) the Company has not paid or declared any dividends or
other distributions with respect to its capital stock and the Company and
its subsidiaries are not in default in the payment of principal or
interest on any outstanding debt obligations; (iv) there has not been any
change in the capital stock (other than upon the sale of the Common Shares
hereunder) or indebtedness material to the Company and its subsidiaries
(other than in the ordinary course of business); and (v) there has not
been any material adverse change in the condition (financial or
otherwise), business, properties, results of operations or prospects of
the Company and its subsidiaries taken as a whole.
(n) Except as disclosed in or specifically contemplated by the
Prospectus, the Company and its subsidiaries have sufficient trademarks,
trade names, patent rights, mask works, copyrights, licenses, approvals
and governmental authorizations to conduct their businesses as now
conducted; except for "Fine Host" and the Company's pear symbol, the
expiration of any trademarks, trade names, patent rights, mask works,
copyrights, licenses, approvals or governmental authorizations would not
have a material adverse effect on the condition (financial or otherwise),
business, results of operations or prospects of the Company and its
subsidiaries taken as a whole; and the Company has no knowledge of any
material infringement by it or its subsidiaries of trademark, trade name
rights, patent rights, mask works, copyrights, licenses, trade secret or
other similar rights of others, and the Company has no knowledge of any
claim being made against the Company or its subsidiaries regarding
trademark, trade name, patent, mask work, copyright, license, trade secret
or other infringement which could have a material adverse effect on the
condition (financial or otherwise), business, results of operations or
prospects of the Company and its subsidiaries taken as a whole.
(o) The Company has not been advised, and has no reason to believe,
that either it or any of its subsidiaries is not conducting business in
compliance with all applicable laws, rules and regulations of the
jurisdictions in which it is
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<PAGE>
conducting business, including, without limitation, all applicable local,
state and federal environmental laws and regulations; except where failure
to be so in compliance would not materially adversely affect the condition
(financial or otherwise), business, results of operations or prospects of
the Company and its subsidiaries taken as a whole.
(p) The Company and its subsidiaries have filed all federal, state
and foreign income and franchise tax returns required to be filed and have
paid all taxes shown as due thereon other than those being contested in
good faith and as to which adequate reserves have been established; and
the Company has no knowledge of any tax deficiency which has been or might
be asserted or threatened against the Company or its subsidiaries which
could materially and adversely affect the business, operations or
properties of the Company and its subsidiaries taken as a whole.
(q) The Company is not an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
(r) The Company has not distributed and will not distribute prior to
the First Closing Date any offering material in connection with the
offering and sale of the Common Shares other than the Preliminary
Prospectus dated January 16, 1997, the Prospectus, the Registration
Statement and the other materials permitted by the Act.
(s) Each of the Company and its subsidiaries maintains insurance of
the types and in amounts which the Company believes to be adequate for its
business, including, but not limited to, insurance covering real and
personal property owned or leased by the Company and its subsidiaries
against theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full force and
effect except where the failure to maintain such insurance would not have
a material adverse effect on the Company and its subsidiaries taken as a
whole.
(t) Neither the Company nor any of its subsidiaries has at any time
during the last five years (i) made any unlawful contribution to any
candidate for foreign office, or failed to disclose fully any contribution
in violation of law, or (ii) made any payment to any federal or state
governmental officer or official, or other person charged with similar
public or quasi-public duties, other than payments required or permitted
by the laws of the United States of any jurisdiction thereof.
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<PAGE>
(u) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might be reasonably expected to
cause or result in stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Common Shares.
(v) The Common Stock of the Company has been registered under
Section 12(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and all of the outstanding shares of Common Stock
(including the Common Shares to be sold by the Selling Stockholders
hereunder) and the Common Shares to be issued and sold by the Company
hereunder have been listed on the Nasdaq National Market.
(w) The Company has filed with the Commission, on a timely basis,
all documents required to have been filed by the Company pursuant to the
Exchange Act or the rules and regulations promulgated thereunder. Each
such document, when filed with the Commission, conformed in all material
respects to the requirements of the Exchange Act and the rules and
regulations promulgated thereunder, and did not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
SECTION 3. Representations, Warranties and Covenants of the Selling
Stockholders.
(a) Each of the Selling Stockholders severally represents and
warrants to, and agrees with, the several Underwriters that:
(i) Such Selling Stockholder has, and on the First Closing
Date hereinafter mentioned will have, good and marketable title to
the Common Shares proposed to be sold by such Selling Stockholder
hereunder on such Closing Date and full right, power and authority
to enter into this Agreement and to sell, assign, transfer and
deliver such Common Shares hereunder, free and clear of all voting
trust arrangements, liens, encumbrances, equities, security
interests, restrictions and claims whatsoever; and upon delivery of
and payment for such Common Shares hereunder in the manner set forth
in this Agreement, the Underwriters will acquire good and marketable
title thereto, free and clear of all liens, encumbrances, equities,
claims, restrictions, security interests, voting trusts or other
defects of title whatsoever.
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(ii) Such Selling Stockholder has executed and delivered an
Irrevocable Power of Attorney and has executed and delivered or caused to
be executed and delivered on his behalf a Custody Agreement (hereinafter
collectively referred to as the "Stockholders Agreement") and in
connection herewith such Selling Stockholder further represents, warrants
and agrees that such Selling Stockholder has deposited in custody, under
the Stockholders Agreement, with the agent named therein (the "Agent") as
custodian, certificates in negotiable form for the Common Shares to be
sold hereunder by such Selling Stockholder (or notices to exercise options
to purchase Common Stock exercisable for a number of shares of Common
Stock at least equal to the number of Common Shares to be sold hereunder
by such Selling Stockholder), for the purpose of further delivery pursuant
to this Agreement. Such Selling Stockholder agrees that the Common Shares
to be sold by such Selling Stockholder (or the option exercise materials,
as the case may be) on deposit with the Agent are subject to the interests
of the Company and the Underwriters, that the arrangements made for such
custody are to that extent irrevocable, and that the obligations of such
Selling Stockholder hereunder shall not be terminated, except as provided
in this Agreement or in the Stockholders Agreement, by any act of such
Selling Stockholder, by operation of law, by the death or incapacity of
such Selling Stockholder or by the occurrence of any other event. If the
Selling Stockholder should die or become incapacitated, or if any other
event should occur, before the delivery of the Common Shares hereunder,
the documents evidencing Common Shares then on deposit with the Agent
shall be delivered by the Agent in accordance with the terms and
conditions of this Agreement as if such death, incapacity or other event
had not occurred, regardless of whether or not the Agent shall have
received notice thereof.
(iii) This Agreement and the Stockholders Agreement have been duly
authorized, executed and delivered by such Selling Stockholder and each
constitutes the valid and binding obligation and agreement of such Selling
Stockholder, enforceable against such Selling Stockholder in accordance
with its terms except (x) as enforceability may be limited by general
equitable principles, bankruptcy, insolvency, reorganization, moratorium
or other laws affecting creditors' rights generally, (y) as availability
of equitable remedies may be limited by equitable principles of general
applicability and (z) with respect to those provisions
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<PAGE>
relating to indemnities or contributions for liabilities under the Act.
(iv) The performance of this Agreement and the Stockholders
Agreement and the consummation of the transactions contemplated hereby and
by the Stockholders Agreement will not result in a breach or violation by
such Selling Stockholder of any of the terms or provisions of, or
constitute a default by such Selling Stockholder under, any indenture,
mortgage, deed of trust, trust (constructive or other), loan agreement,
lease, franchise, license or other agreement or instrument to which such
Selling Stockholder is a party or by which such Selling Stockholder or any
of its properties is bound, any statute, or any judgment, decree, order,
rule or regulation of any court or governmental agency or body applicable
to such Selling Stockholder or any of its properties except for such
breaches or violations or defaults which would not have a material adverse
effect on the ability of such Selling Stockholder to consummate the
transactions contemplated by this Agreement and deliver good and
marketable title to the Common Shares to be sold by such Selling
Stockholder hereunder. No consent, approval, authorization or other order
of any court, regulatory body, administrative agency or other governmental
body is required for the execution and delivery by such Selling
Stockholder of this Agreement and the Stockholders Agreement or the
consummation by such Selling Stockholder of the transactions contemplated
by this Agreement and the Stockholders Agreement, except such consents,
approvals, authorizations or orders (x) as have been obtained, (y) as may
be required under state securities or Blue Sky laws or foreign securities
laws in connection with the purchase and distribution of the Shares by the
Underwriters, and (z) as may be required by the NASD.
(v) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to or which has constituted or
which might reasonably be expected to cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Common Shares.
(vi) The information pertaining to such Selling Stockholder under
the captions "Principal and Selling Stockholders" and, if applicable,
"Certain Transactions" included in the Prospectus is complete and accurate
in all material respects.
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<PAGE>
(vii) Such Selling Stockholder is not aware that any of the
representations and warranties of the Company set forth in Section 2 above
is untrue or inaccurate in any material respect.
(b) Each of the Selling Stockholders agrees with the Company and the
Underwriters that he or it will not, without the prior written consent
either of Montgomery Securities or of each of the Representatives (which
consent may be withheld in its or their sole discretion), directly or
indirectly, sell, offer, contract or grant any option to sell (including
without limitation any short sale), pledge, transfer, establish an open
"put equivalent position" within the meaning of Rule 16a-1(h) under the
Exchange Act or otherwise dispose of any shares of Common Stock, options
or warrants to acquire shares of Common Stock, or securities exchangeable
or exercisable for or convertible into shares of Common Stock currently or
hereafter owned either of record or beneficially (as defined in Rule 13d-3
under the Exchange Act) by such Selling Stockholder, or publicly announce
his or its intention to do any of the foregoing, for a period continuing
through the date 90 days after the first date any of the Common Shares are
released by you for sale to the public. Each Selling Stockholder also
agrees and consents to the entry of stop transfer instructions with the
Company's transfer agent and registrar against the transfer of shares of
Common Stock or securities convertible into or exchangeable or exercisable
for Common Stock held by him or it except in compliance with the foregoing
restrictions.
SECTION 4. Representations and Warranties of the Underwriters. The
Representatives, on behalf of the several Underwriters, represent and warrant to
the Company and to the Selling Stockholders that the information set forth (i)
in the first sentence of the last paragraph on the cover page of the Prospectus,
(ii) in the stabilization and passive market making legends on the inside front
cover page of the Prospectus and (iii) in the first and second paragraphs under
the caption "Underwriting" in the Prospectus (including the list of Underwriters
set forth in tabular form in the first paragraph) was furnished to the Company
by and on behalf of the Underwriters for use in connection with the preparation
of the Registration Statement and the Prospectus and is correct in all material
respects. The Representatives represent and warrant that they have been
authorized by each of the other Underwriters as the Representatives to enter
into this Agreement on its behalf and to act for it in the manner herein
provided.
SECTION 5. Purchase, Sale and Delivery of Common Shares. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set
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forth, (i) the Company agrees to issue and sell to the Underwriters 1,814,000 of
the Firm Common Shares, and (ii) the Selling Stockholders agree, severally and
not jointly, to sell to the Underwriters in the respective amounts set forth in
Schedule B hereto, an aggregate of 186,000 of the Firm Common Shares. The
Underwriters agree, severally and not jointly, to purchase from the Company and
the Selling Stockholders, respectively, the number of Firm Common Shares
described below. The purchase price per share to be paid by the several
Underwriters to the Company and to the Selling Stockholders, respectively, shall
be $_____ per share.
The obligation of each Underwriter to the Company shall be to purchase
from the Company that number of full shares which (as nearly as practicable, as
determined by you) bears to 1,814,000 the same proportion as the number of
shares set forth opposite the name of such Underwriter in Schedule A hereto
bears to the total number of Firm Common Shares. The obligation of each
Underwriter to the Selling Stockholders shall be to purchase from the Selling
Stockholders that number of full shares which (as nearly as practicable, as
determined by you) bears to 186,000 the same proportion as the number of shares
set forth opposite the name of such Underwriter in Schedule A hereto bears to
the total number of Firm Common Shares.
Delivery of certificates for the Firm Common Shares to be purchased by the
Underwriters and payment therefor shall be made at the offices of Montgomery
Securities, 600 Montgomery Street, San Francisco, California (or such other
place as may be agreed upon by the Company and the Representatives) at such time
and date, not later than the third (or, if the Firm Common Shares are priced, as
contemplated by Rule 15c6-1(c) under the Exchange Act, after 4:30 P.M.
Washington, D.C. time, the fourth) full business day following the first date
that any of the Common Shares are released by you for sale to the public, as you
shall designate by at least 48 hours prior notice to the Company (or at such
other time and date, not later than one week after such third or fourth, as the
case may be, full business day as may be agreed upon by the Company and the
Representatives) (the "First Closing Date"); provided, however, that if the
Prospectus is at any time prior to the First Closing Date recirculated to the
public, the First Closing Date shall occur upon the later of the fifth full
business day following the first date that any of the Common Shares are released
by you for sale to the public or the date that is 48 hours after the date that
the Prospectus has been so recirculated.
Delivery of certificates for the Firm Common Shares shall be made by or on
behalf of the Company and the Selling Stockholders to you, for the respective
accounts of the Underwriters with respect to the Firm Common Shares to be sold
by the Company and by the Selling Stockholders against payment by you, for the
accounts of the several Underwriters, of the purchase price therefor by
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wire transfer or other same-day funds to the order of the Company and of the
Agent in proportion to the number of Firm Common Shares to be sold by the
Company and the Selling Stockholders, respectively. The certificates for the
Firm Common Shares shall be registered in such names and denominations as you
shall have requested at least two full business days prior to the First Closing
Date, and shall be made available for checking and packaging on the business day
preceding the First Closing Date at a location in New York, New York, as may be
designated by you. Time shall be of the essence, and delivery at the time and
place specified in this Agreement is a further condition to the obligations of
the Underwriters.
In addition, on the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company hereby grants an option to the several Underwriters to
purchase, severally and not jointly, up to an aggregate of 300,000 Optional
Common Shares at the purchase price per share to be paid for the Firm Common
Shares, for use solely in covering any over-allotments made by you for the
account of the Underwriters in the sale and distribution of the Firm Common
Shares. The option granted hereunder may be exercised at any time (but not more
than once) within 30 days after the first date that any of the Common Shares are
released by you for sale to the public, upon notice by you to the Company
setting forth the aggregate number of Optional Common Shares as to which the
Underwriters are exercising the option, the names and denominations in which the
certificates for such shares are to be registered and the time and place at
which such certificates will be delivered. Such time of delivery (which may not
be earlier than the First Closing Date), being herein referred to as the "Second
Closing Date," shall be determined by you, but if at any time other than the
First Closing Date shall not be earlier than three nor later than five full
business days after delivery of such notice of exercise. The number of Optional
Common Shares to be purchased by each Underwriter shall be determined by
multiplying the number of Optional Common Shares to be sold by the Company
pursuant to such notice of exercise by a fraction, the numerator of which is the
number of Firm Common Shares to be purchased by such Underwriter as set forth
opposite its name in Schedule A and the denominator of which is the total number
of Firm Common Shares (subject to such adjustments to eliminate any fractional
share purchases as you in your discretion may make). Certificates for the
Optional Common Shares will be made available for checking and packaging on the
business day preceding the Second Closing Date at a location in New York, New
York, as may be designated by you. The manner of payment for and delivery of the
Optional Common Shares shall be the same as for the Firm Common Shares purchased
from the Company as specified in the two preceding paragraphs. At any time
before lapse of the option, you may cancel such option by giving written notice
of such
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cancellation to the Company. If the option is cancelled or expires unexercised
in whole or in part, the Company will deregister under the Act the number of
Option Shares as to which the option has not been exercised.
You have advised the Company and the Selling Stockholders that each
Underwriter has authorized you to accept delivery of its Common Shares, to make
payment and to receipt therefor. You, individually and not as the
Representatives of the Underwriters, may (but shall not be obligated to) make
payment for any Common Shares to be purchased by any Underwriter whose funds
shall not have been received by you by the First Closing Date or the Second
Closing Date, as the case may be, for the account of such Underwriter, but any
such payment shall not relieve such Underwriter from any of its obligations
under this Agreement.
Subject to the terms and conditions hereof, the Underwriters propose to
make a public offering of their respective portions of the Common Shares as soon
after the effective date of the Registration Statement as in the judgment of the
Representatives is advisable and at the public offering price set forth on the
cover page of and on the terms set forth in the final prospectus, if one is
used, or on the first page of the Term Sheet, if one is used.
SECTION 6. Covenants of the Company. The Company covenants and agrees
that:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date
that this Agreement is executed and delivered by the parties hereto, to
become effective. If the Registration Statement has become or becomes
effective pursuant to Rule 430A of the Rules and Regulations, or the
filing of the Prospectus is otherwise required under Rule 424(b) of the
Rules and Regulations, the Company will file the Prospectus, properly
completed, pursuant to the applicable paragraph of Rule 424(b) of the
Rules and Regulations within the time period prescribed and will provide
evidence satisfactory to you of such timely filing. The Company will
promptly advise you in writing (i) of the receipt of any comments of the
Commission, (ii) of any request of the Commission for amendment of or
supplement to the Registration Statement (either before or after it
becomes effective), any Preliminary Prospectus or the Prospectus or for
additional information, (iii) when the Registration Statement shall have
become effective and (iv) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or of the
institution of any proceedings for that purpose. If the Commission shall
enter any such stop order at any time,
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the Company will use its best efforts to obtain the lifting of such order
at the earliest possible moment. The Company will not file any amendment
or supplement to the Registration Statement (either before or after it
becomes effective), any Preliminary Prospectus or the Prospectus of which
you have not been furnished with a copy a reasonable time prior to such
filing or to which you reasonably object (except to the extent any
amendment or supplement to which you object is necessary in the opinion of
counsel to the Company to make the statements in the Registration
Statement, Preliminary Prospectus or Prospectus not misleading) or which
is not in compliance in all material respects with the Act and the Rules
and Regulations.
(b) The Company will prepare and file with the Commission, promptly
upon your request, any amendments or supplements to the Registration
Statement or the Prospectus which in your judgment may be necessary or
advisable to enable the several Underwriters to continue the distribution
of the Common Shares and will use its best efforts to cause the same to
become effective as promptly as possible (except to the extent any
amendment or supplement would in the opinion of counsel to the Company
make the statements in the Registration Statement or Prospectus
misleading). The Company will fully and completely comply with the
provisions of Rule 430A of the Rules and Regulations with respect to
information omitted from the Registration Statement in reliance upon such
Rule.
(c) If at any time within the nine-month period referred to in
Section 10(a)(3) of the Act during which a prospectus relating to the
Common Shares is required to be delivered under the Act any event occurs,
as a result of which the Prospectus, including any amendments or
supplements, would include an untrue statement of a material fact, or omit
to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances then existing,
not misleading, or if it is necessary at any time to amend the Prospectus,
including any amendments or supplements, to comply with the Act or the
Rules and Regulations, the Company will promptly advise you thereof and
will promptly prepare and file with the Commission, at its own expense, an
amendment or supplement which will correct such statement or omission or
an amendment or supplement which will effect such compliance and will use
its best efforts to cause the same to become effective as soon as
possible; and, in case any Underwriter is required to deliver a prospectus
after such nine-month period, the Company upon request, but at the expense
of such Underwriter, will promptly prepare such amendment or amendments to
the Registration Statement and such Prospectus or Prospectuses as
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may be necessary to permit compliance with the requirements of Section
10(a)(3) of the Act.
(d) As soon as practicable, but not later than 45 days after the end
of the first quarter ending after one year following the "effective date
of the Registration Statement" (as defined in Rule 158(c) of the Rules and
Regulations), the Company will make generally available to its security
holders an earnings statement (which need not be audited) covering a
period of 12 consecutive months beginning after the effective date of the
Registration Statement which will satisfy the provisions of the last
paragraph of Section 11(a) of the Act.
(e) During such period as a prospectus is required by law to be
delivered in connection with sales by an Underwriter or dealer, the
Company, at its expense, but only for the nine-month period referred to in
Section 10(a)(3) of the Act, will furnish to you and the Selling
Stockholders or mail to your order copies of the Registration Statement,
the Prospectus and all amendments and supplements to any such documents in
each case as soon as available and in such quantities as you and the
Selling Stockholders may reasonably request, for the purposes contemplated
by the Act.
(f) The Company shall cooperate with you and your counsel in order
to qualify or register the Common Shares for sale under (or obtain
exemptions from the application of) the Blue Sky laws of such
jurisdictions as you designate and Canadian securities laws, will comply
with such laws and will continue such qualifications, registrations and
exemptions in effect so long as reasonably required for the distribution
of the Common Shares. The Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process in
any such jurisdiction where it is not presently qualified or where it
would be subject to taxation as a foreign corporation. The Company will
advise you promptly of the suspension of the qualification or registration
of (or any such exemption relating to) the Common Shares for offering,
sale or trading in any jurisdiction or any initiation or threat received
by the Company of any proceeding for any such purpose, and in the event of
the issuance of any order suspending such qualification, registration or
exemption, the Company, with your cooperation, will use its best efforts
to obtain the withdrawal thereof.
(g) During the period of five years hereafter, the Company will
furnish to the Representatives and, upon request of the Representatives,
to each of the other Underwriters: (i) as soon as practicable after the
end of each fiscal year, copies of the Annual Report of the Company
containing the
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balance sheet of the Company as of the close of such fiscal year and
statements of income, stockholders' equity and cash flows for the year
then ended and the opinion thereon of the Company's independent public
accountants; (ii) as soon as practicable after the filing thereof, copies
of each proxy statement, Annual Report on Form 10-K, Quarterly Report on
Form 10-Q, Report on Form 8-K or other report filed by the Company with
the Commission, the NASD or any securities exchange; and (iii) as soon as
available, copies of any report or communication of the Company mailed
generally to holders of its Common Stock.
(h) During the period of 90 days after the first date that any of
the Common Shares are released by you for sale to the public, without the
prior written consent either of Montgomery Securities or of each of the
Representatives (which consent may be withheld at the sole discretion of
Montgomery Securities or the Representatives, as the case may be), the
Company will not offer, sell, grant options to purchase or otherwise
dispose of any of the Company's equity securities or any other securities
convertible into or exchangeable with its Common Stock or other equity
security; provided, however, that the Company may (i) issue shares of
Common Stock upon the exercise of stock options and warrants outstanding
on the date hereof and described in the Prospectus (it being agreed that
the Company shall not accelerate the exercisability of any such options or
warrants) and (ii) grant options and issue shares of Common Stock in
accordance with its 1994 Stock Option Plan and 1996 Non-Employee Director
Stock Plan as described in the Prospectus and as they may be subsequently
amended by the stockholders of the Company.
(i) The Company will apply the net proceeds of the sale of the
Common Shares sold by it substantially in accordance with its statements
under the caption "Use of Proceeds" in the Prospectus.
(j) The Company will use its best efforts to qualify or register its
Common Stock for sale in non-issuer transactions under (or obtain
exemptions from the application of) the Blue Sky laws of the State of
California (and thereby permit market making transactions and secondary
trading in the Company's Common Stock in California), will comply with
such Blue Sky laws and will continue such qualifications, registrations
and exemptions in effect for a period of five years after the date hereof.
You, on behalf of the Underwriters, may, in your sole discretion, waive in
writing the performance by the Company of any
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one or more of the foregoing covenants or extend the time for their performance.
SECTION 7. Payment of Expenses. Whether or not the transactions
contemplated hereunder are consummated or this Agreement becomes effective or is
terminated, the Company and, unless otherwise paid by the Company, the Selling
Stockholders agree to pay in such proportions as they may agree upon among
themselves all costs, fees and expenses incurred in connection with the
performance of their obligations hereunder and in connection with the
transactions contemplated hereby, including without limiting the generality of
the foregoing, (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Common Shares to the Underwriters, (iv) all fees and expenses of
the Company's counsel and the Company's independent accountants, (v) all costs
and expenses incurred in connection with the preparation, printing, filing,
shipping and distribution of the Registration Statement, each Preliminary
Prospectus and the Prospectus (including all exhibits and financial statements)
and all amendments and supplements provided for herein, this Agreement, the
Agreement Among Underwriters, the Selected Dealers Agreement, the Underwriters'
Questionnaire, the Underwriters' Power of Attorney and the Blue Sky memorandum,
(vi) all filing fees, attorneys' fees and expenses incurred by the Company or
the Underwriters in connection with qualifying or registering (or obtaining
exemptions from the qualification or registration of) all or any part of the
Common Shares for offer and sale under the Blue Sky laws and Canadian securities
laws, (vii) the filing fee of the National Association of Securities Dealers,
Inc., and (viii) all other fees, costs and expenses referred to in Item 13 of
the Registration Statement. The Underwriters may deem the Company to be the
primary obligor with respect to all costs, fees and expenses to be paid by the
Company and by the Selling Stockholders. Except as provided in this Section 7,
Section 9 and Section 11 hereof, the Underwriters shall pay all of their own
expenses, including the fees and disbursements of their counsel (excluding those
relating to qualification, registration or exemption under the Blue Sky laws and
Canadian securities laws and the Blue Sky memorandum referred to above). This
Section 7 shall not affect any agreements relating to the payment of expenses
between the Company and the Selling Stockholders.
The Selling Stockholders will pay (directly or by reimbursement) all fees
and expenses incident to the performance of their obligations under this
Agreement which are not otherwise specifically provided for herein, including
but not limited to (i) any fees and expenses of counsel for such Selling
Stockholders
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to the extent the Company is not contractually obligated to pay such fees and
expenses; (ii) any fees and expenses of the Agent; and (iii) all expenses and
taxes incident to the sale and delivery of the Common Shares to be sold by such
Selling Stockholders to the Underwriters hereunder.
SECTION 8. Conditions of the Obligations of the Underwriters. The
obligations of the several Underwriters to purchase and pay for the Firm Common
Shares on the First Closing Date and the Optional Common Shares on the Second
Closing Date shall be subject to the accuracy of the representations and
warranties on the part of the Company and the Selling Stockholders herein set
forth as of the date hereof and as of the First Closing Date or the Second
Closing Date, as the case may be, to the accuracy of the statements of Company
officers and the Selling Stockholders made pursuant to the provisions hereof, to
the performance by the Company and the Selling Stockholders of their respective
obligations hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective not later
than 5:00 P.M. (or, in the case of a registration statement filed pursuant
to Rule 462(b) of the Rules and Regulations relating to the Common Shares,
not later than 10:00 P.M.), Washington, D.C. Time, on the date of this
Agreement, or at such later time as shall have been consented to by you;
if the filing of the Prospectus, or any supplement thereto, is required
pursuant to Rule 424(b) of the Rules and Regulations, the Prospectus shall
have been filed in the manner and within the time period required by Rule
424(b) of the Rules and Regulations; and prior to such Closing Date, no
stop order suspending the effectiveness of the Registration Statement
shall have been issued and no proceedings for that purpose shall have been
instituted or shall be pending or, to the knowledge of the Company, the
Selling Stockholders or you, shall be contemplated by the Commission; and
any request of the Commission for inclusion of additional information in
the Registration Statement, or otherwise, shall have been complied with to
your satisfaction.
(b) You shall be satisfied that since the respective dates as of
which information is given in the Registration Statement and Prospectus,
(i) except as set forth or contemplated by the Registration Statement or
the Prospectus, there shall not have been any change in the capital stock
of the Company or any of its subsidiaries, other than pursuant to the
exercise of outstanding options and warrants disclosed in the Prospectus,
or any material change in the indebtedness (other than in the ordinary
course of business) of the Company or any of its subsidiaries, (ii) except
as set forth
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or contemplated by the Registration Statement or the Prospectus, no
material agreement or other transaction shall have been entered into by
the Company or any of its subsidiaries, which is not in the ordinary
course of business or which could result in a material reduction in the
future earnings of the Company and its subsidiaries, (iii) no loss or
damage (whether or not insured) to the property of the Company or any of
its subsidiaries shall have been sustained which materially and adversely
affects the condition (financial or otherwise), business, results of
operations or prospects of the Company and its subsidiaries taken as a
whole, (iv) no legal or governmental action, suit or proceeding affecting
the Company, any of its subsidiaries or any Selling Stockholder which is
material to the Company and its subsidiaries taken as a whole or which
affects or may affect the ability of the Company or any Selling
Stockholder to consummate the transactions contemplated by this Agreement
shall have been instituted or threatened and (v) there shall not have been
any material change in the condition (financial or otherwise), business,
management, results of operations or prospects of the Company and its
subsidiaries taken as a whole which makes it impracticable or inadvisable
in the judgment of the Representatives to proceed with the public offering
or purchase the Common Shares as contemplated hereby.
(c) There shall have been furnished to you, as Representatives of
the Underwriters, on each Closing Date, in form and substance satisfactory
to you, except as otherwise expressly provided below:
(i) An opinion of Willkie Farr & Gallagher, counsel for the
Company and the Selling Stockholders, addressed to the Underwriters
and dated the First Closing Date, or the Second Closing Date (in the
latter case with respect to the Company only), as the case may be,
to the effect that:
(1) Each of the Company and its Significant Subsidiaries
has been duly incorporated and is validly existing as a
corporation in good standing under the laws of its
jurisdiction of incorporation, is duly qualified to do
business as a foreign corporation and is in good standing in
all other jurisdictions where the ownership or leasing of
properties or the conduct of its business requires such
qualification, except where the failure to so qualify
(considering all such cases in the aggregate) would not have a
material adverse effect on the Company and its subsidiaries
taken as a whole, and has full corporate power and
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authority to own its properties and conduct its business as
described in the Registration Statement;
(2) The authorized, issued and outstanding capital stock
of the Company is as set forth under the caption
"Capitalization" in the Prospectus; all necessary and proper
corporate proceedings have been taken in order to authorize
validly such authorized Common Stock; all outstanding shares
of Common Stock have been duly and validly issued, are (except
for an aggregate of 154,000 shares of Common Stock issued to
Richard E. Kerley, Randy B. Spector and Randall Ziegler in
consideration for promissory notes as described in the
Prospectus) fully paid and nonassessable, have been issued
pursuant to an exemption from the registration requirements of
the Act, were not issued in violation of any statutory
preemptive rights or, to the best of such counsel's knowledge,
other rights to subscribe for or purchase any securities and
conform in all material respects to the description thereof
contained in the Prospectus; the issued and outstanding shares
of Common Stock to be sold hereunder by Richard E. Kerley,
Randy B. Spector and Randall Ziegler are and will be fully
paid and nonassessable;
(3) All of the issued and outstanding shares of the
Company's Significant Subsidiaries have been duly and validly
authorized and issued, are fully paid and nonassessable and
are owned beneficially by the Company free and clear, to the
best of such counsel's knowledge, of any liens, encumbrances
or security interests, except as disclosed in the Registration
Statement;
(4) The certificates evidencing the Common Shares to be
delivered hereunder are in due and proper form under Delaware
law, and when duly countersigned by the Company's transfer
agent and registrar, and delivered to you or upon your order
against payment of the agreed consideration therefor in
accordance with the provisions of this Agreement, the Common
Shares represented thereby will be duly authorized and validly
issued, fully paid and nonassessable, will not have been
issued in violation of any statutory preemptive rights or, to
the best of such counsel's knowledge, other rights to
subscribe for or purchase securities and
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will conform in all material respects to the description
thereof contained in the Prospectus;
(5) Except as disclosed in or specifically contemplated
by the Prospectus, to the best of such counsel's knowledge,
there are no outstanding options, warrants or other rights
calling for the issuance of, no agreements to issue, and no
reservation of shares for future issuance of, any shares of
capital stock of the Company or any security convertible into
or exchangeable for capital stock of the Company;
(6)(a) To the best of such counsel's knowledge, based
solely upon a telephone conversation with a member of the
staff of the Commission, the Registration Statement has become
effective under the Act, and, to the best of such counsel's
knowledge, no stop order suspending the effectiveness of the
Registration Statement or preventing the use of the Prospectus
has been issued and, to the best of such counsel's knowledge,
no proceedings for that purpose have been instituted or are
pending or contemplated by the Commission; any required filing
of the Prospectus and any supplement thereto pursuant to Rule
424(b) of the Rules and Regulations has been made in the
manner and within the time period required by such Rule
424(b);
(b) The Registration Statement, the Prospectus and each
amendment or supplement thereto (except for the financial
statements and schedules included therein as to which such
counsel need express no opinion) appear on their face to have
been appropriately responsive in all material respects with
the requirements of the Act and the Rules and Regulations.
(c) To the best of such counsel's knowledge, there are
no leases, contracts, agreements or documents of a character
required to be disclosed in the Registration Statement or
Prospectus or to be filed as exhibits to the Registration
Statement which are not disclosed or filed, as required;
(d) To the best of such counsel's knowledge, there are
no legal or governmental actions, suits or proceedings pending
or threatened against the Company which are required to be
described in the Prospectus which are not described as
required;
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(7) The Company has full right, power and authority to
enter into this Agreement and to sell and deliver the Common
Shares to be sold by it to the several Underwriters; this
Agreement has been duly and validly authorized by all
necessary corporate action by the Company and has been duly
and validly executed and delivered by and on behalf of the
Company; and no approval, authorization, order, consent,
registration, filing, qualification, license or permit of or
with any court, regulatory, administrative or other
governmental body is required for the execution and delivery
of this Agreement by the Company or the consummation of the
transactions contemplated by this Agreement, except such as
have been obtained and are in full force and effect under the
Act and such as may be required under applicable Blue Sky laws
and Canadian securities laws in connection with the purchase
and distribution of the Common Shares by the Underwriters and
the clearance of such offering with the NASD (as to which such
counsel need express no opinion);
(8) The execution and performance of this Agreement by
the Company and the consummation of the transactions herein
contemplated will not conflict with, result in the breach of,
or constitute, either by itself or upon notice or the passage
of time or both, a default under, any agreement filed as an
exhibit to the Registration Statement, or violate any of the
provisions of the certificate of incorporation or bylaws, or
other organizational documents, of the Company or any of its
Significant Subsidiaries or, so far as is known to such
counsel, violate any statute, judgment, decree, order, rule or
regulation of any court or governmental body having
jurisdiction over the Company or any of its Significant
Subsidiaries or any of its or their property;
(9) To the best of such counsel's knowledge, no holders
of securities of the Company have rights which have not been
waived to the registration of shares of Common Stock or other
securities, because of the filing of the Registration
Statement by the Company or the offering contemplated hereby;
(10) This Agreement and the Stockholders Agreement have
been duly authorized, executed and delivered by or on behalf
of each of the Selling Stockholders; the Agent has been duly
and validly
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authorized to act as the custodian of the Common Shares to be
sold by each such Selling Stockholder; and the performance of
this Agreement and the Stockholders Agreement and the
consummation of the transactions herein contemplated by the
Selling Stockholders will not result in a breach of, or
constitute a default under, any indenture, mortgage, deed of
trust, trust (constructive or other), loan agreement, lease,
franchise, license or other agreement or instrument known to
such counsel to which any of the Selling Stockholders is a
party or by which any of the Selling Stockholders or any of
their properties may be bound, or violate any statute,
judgment, decree, order, rule or regulation known to such
counsel of any court or governmental body having jurisdiction
over any of the Selling Stockholders or any of their
properties except for such breaches, defaults or violations
which would not have a material adverse effect on the
consummation of the transactions contemplated by this
Agreement or the ability of such Selling Stockholder to
deliver good and marketable title to the Shares to be sold by
it hereunder; and, to the best of such counsel's knowledge, no
approval, authorization, order or consent of any court,
regulatory body, administrative agency or other governmental
body is required for the execution and delivery of this
Agreement or the Stockholders Agreement or the consummation by
the Selling Stockholders of the transactions contemplated by
this Agreement, except such as have been obtained and are in
full force and effect under the Act and such as may be
required under the rules of the NASD and applicable Blue Sky
laws;
(11) To the best of such counsel's knowledge, each
Selling Stockholder has full right, power and authority to
enter into this Agreement and the Stockholders Agreement and
to sell, transfer and deliver the Common Shares to be sold on
such Closing Date by such Selling Stockholder hereunder and
good and marketable title to such Common Shares so sold, free
and clear of all adverse claims has been transferred to the
Underwriters (whom counsel may assume to be bona fide
purchasers without notice of any adverse claim) who have
purchased such Common Shares hereunder;
(12) The Stockholders Agreement is a valid and binding
agreement of each of the Selling Stockholders in accordance
with its terms, except
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(i) as enforceability may be limited by general equitable
principles, bankruptcy, insolvency, reorganization, moratorium
or other laws affecting creditors' rights generally, (ii) as
availability of equitable remedies may be limited by equitable
principles of general applicability and (iii) except with
respect to those provisions relating to indemnities or
contributions for liabilities under the Act, as to which no
opinion need be expressed; and
(13) No transfer taxes are required to be paid in
connection with the sale and delivery of the Common Shares to
the Underwriters hereunder;
it being understood that any of the matters in paragraphs (1), (3)
and (8) of such opinion, insofar as they relate to any Significant
Subsidiary not incorporated in Delaware, may be the subject of one
or more separate opinions of local counsel to the Company reasonably
accepted to the Underwriters, in which case the opinion of Willkie
Farr and Gallagher need not address such matters.
In rendering such opinion, such counsel may rely as to matters
of local law, on opinions of local counsel, and as to matters of
fact, on certificates of the Selling Stockholders and of officers of
the Company and of governmental officials, in which case their
opinion is to state that they are so doing and that the Underwriters
are justified in relying on such opinions or certificates and copies
of said opinions or certificates are to be attached to the opinion.
Such counsel shall also include a statement to the effect that no
facts have come to such counsel's attention that would lead such
counsel to believe that, at its effective date, the Registration
Statement contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or that the
Prospectus, as amended or supplemented, if applicable, as of its
date or at the applicable Closing Date, included or includes an
untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading.
(ii) Such opinion or opinions of Hale and Dorr LLP, counsel
for the Underwriters dated the First Closing Date or the Second
Closing Date, as the case may be,
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with respect to the incorporation of the Company, the sufficiency of
all corporate proceedings and other legal matters relating to this
Agreement, the validity of the Common Shares, the Registration
Statement and the Prospectus and other related matters as you may
reasonably require, and the Company and the Selling Stockholders
shall have furnished to such counsel such documents and shall have
exhibited to them such papers and records as they may reasonably
request for the purpose of enabling them to pass upon such matters.
In connection with such opinions, such counsel may rely on
representations or certificates of officers of the Company and
governmental officials.
(iii) A certificate of the Company executed by the Chairman of
the Board or President and the chief financial or accounting officer
of the Company, dated the First Closing Date or the Second Closing
Date, as the case may be, to the effect that:
(1) The representations and warranties of the Company
set forth in Section 2 of this Agreement are true and correct
as of the date of this Agreement and as of the First Closing
Date or the Second Closing Date, as the case may be, and the
Company has complied with all the agreements and satisfied all
the conditions on its part to be performed or satisfied on or
prior to such Closing Date;
(2) The Commission has not issued any order preventing
or suspending the use of the Prospectus or any Preliminary
Prospectus filed as a part of the Registration Statement or
any amendment thereto; no stop order suspending the
effectiveness of the Registration Statement has been issued;
and to the best of the knowledge of the respective signers, no
proceedings for that purpose have been substituted or are
pending or contemplated under the Act;
(3) Each of the respective signers of the certificate
has carefully examined the Registration Statement and the
Prospectus; in his opinion and to the best of his knowledge,
the Registration Statement and the Prospectus and any
amendments or supplements thereto contain all statements
required to be stated therein regarding the Company and its
subsidiaries; and neither the Registration Statement nor the
Prospectus nor any amendment or supplement thereto includes
any untrue statement of
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a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were
made, not misleading;
(4) Since the initial date on which the Registration
Statement was filed, no agreement, written or oral,
transaction or event has occurred which should have been set
forth in an amendment to the Registration Statement or in a
supplement to or amendment of any prospectus which has not
been disclosed in such a supplement or amendment;
(5) Since the respective dates as of which information
is given in the Registration Statement and the Prospectus, and
except as disclosed in or contemplated by the Prospectus,
there has not been any material adverse change or a
development involving a material adverse change in the
condition (financial or otherwise), business, properties,
results of operations, management or prospects of the Company
and its subsidiaries taken as a whole; and no legal or
governmental action, suit or proceeding is pending or
threatened against the Company or any of its subsidiaries
which is material to the Company and its subsidiaries taken as
whole, whether or not arising from transactions in the
ordinary course of business, or which may adversely affect the
Company's ability to consummate the transactions contemplated
by this Agreement; since such dates and except as so
disclosed, neither the Company nor any of its subsidiaries has
entered into any agreement or other transaction which is not
in the ordinary course of business or which could result in a
material reduction in the future earnings of the Company or
incurred any material liability or obligation, direct,
contingent or indirect, made any change in its capital stock,
made any material change in its short-term debt or funded debt
or repurchased or otherwise acquired any of the Company's
capital stock; and, except as so disclosed, the Company has
not declared or paid any dividend, or made any other
distribution, upon its outstanding capital stock payable to
stockholders of record on a date prior to the First Closing
Date or Second Closing Date; and
(6) Since the respective dates as of which information
is given in the Registration Statement
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and the Prospectus and except as disclosed in or contemplated
by the Prospectus, the Company and its subsidiaries have not
sustained a material loss or damage by strike, fire, flood,
windstorm, accident or other calamity (whether or not
insured).
(iv) On the First Closing Date, a certificate, dated such
Closing Date and addressed to you, signed by or on behalf of each of
the Selling Stockholders to the effect that the representations and
warranties of such Selling Stockholder in this Agreement are true
and correct, as if made at and as of the First Closing Date, and
such Selling Stockholder has complied with all the agreements and
satisfied all the conditions on his part to be performed or
satisfied prior to the First Closing Date.
(v) On the date this Agreement is executed and also on the
First Closing Date and the Second Closing Date, a letter addressed
to you, as Representatives of the Underwriters, from Deloitte &
Touche LLP, independent accountants, the first one to be dated the
date of this Agreement, the second one to be dated the First Closing
Date and the third one (in the event of a Second Closing) to be
dated the Second Closing Date, in form and substance satisfactory to
you.
(vi) On or before the First Closing Date, letters from each of
the Selling Stockholders, from each director and officer of the
Company, and from stockholders of the Company, and the holders of
certain warrants and options to purchase Common Stock, holding a
number of shares of Common Stock, or options and warrants to
purchase the number of shares of Common Stock, as the case may be,
as described in the Prospectus under the caption "Underwriting", in
the form previously provided by you, confirming that for a period of
90 days after the first date that any of the Common Shares are
released by you for sale to the public, such person will not
directly or indirectly sell or offer to sell or otherwise dispose of
any shares of Common Stock or any right to acquire such shares
without the prior written consent either of Montgomery Securities or
of each of the Representatives, which consent may be withheld at the
sole discretion of Montgomery Securities or each of the
Representatives, as the case may be.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are reasonably satisfactory
to you and to Hale and Dorr LLP, counsel for the Underwriters. The Company shall
furnish you with such
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manually signed or conformed copies of such opinions, certificates, letters and
documents as you reasonably request. Any certificate signed by any officer of
the Company and delivered to the Representatives or to counsel for the
Underwriters shall be deemed to be a representation and warranty by the Company
to the Underwriters as to the statements made therein.
If any condition to the Underwriters' obligations hereunder to be
satisfied prior to or at the First Closing Date is not so satisfied, this
Agreement at your election will terminate upon notification by you as
Representatives to the Company and the Selling Stockholders without liability on
the part of any Underwriter, the Company or the Selling Stockholders except for
the expenses to be paid or reimbursed by the Company and by the Selling
Stockholders pursuant to Sections 7 and 9 hereof and except to the extent
provided in Section 11 hereof.
SECTION 9. Reimbursement of Underwriters' Expenses. Notwithstanding any
other provisions hereof, if this Agreement shall be terminated by you pursuant
to Section 8, or if the sale to the Underwriters of the Common Shares at the
First Closing is not consummated because of any refusal, inability or failure on
the part of the Company or the Selling Stockholders to perform any agreement
herein or to comply with any provision hereof, the Company agrees to reimburse
you and the other Underwriters upon demand for all out-of-pocket expenses that
shall have been reasonably incurred by you and them in connection with the
proposed purchase and the sale of the Common Shares, including but not limited
to reasonable fees and disbursements of counsel, printing expenses, travel
expenses, postage, telegraph charges and telephone charges relating directly to
the offering contemplated by the Prospectus. Any such termination shall be
without liability of any party to any other party except that the provisions of
this Section, Section 7 and Section 11 shall at all times be effective and shall
apply.
SECTION 10. Effectiveness of Registration Statement. You, the Company and
the Selling Stockholders will use your, its and their best efforts to cause the
Registration Statement to become effective, to prevent the issuance of any stop
order suspending the effectiveness of the Registration Statement and, if such
stop order be issued, to obtain as soon as possible the lifting thereof.
SECTION 11. Indemnification. (a)(i) The Company and each of the Selling
Stockholders, jointly and severally, agree to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of the Act against any losses, claims, damages, liabilities or expenses,
joint or several, to which such Underwriter or such controlling person may
become subject, under the Act, the Exchange Act or
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other federal or state statutory law or regulation, or at common law or
otherwise (including in settlement of any litigation, if such settlement is
effected with the written consent of the Company), insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof as
contemplated below) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state in any of them a material fact required to be stated therein
or necessary to make the statements in any of them not misleading, or arise out
of or are based in whole or in part on any inaccuracy in the representations and
warranties of the Company or the Selling Stockholders contained herein or any
failure of the Company or the Selling Stockholders to perform their respective
obligations hereunder or under law; and, subject to the third sentence of
subsection (c) of this Section, will reimburse each Underwriter and each such
controlling person for any legal and other expenses as such expenses are
reasonably incurred by such Underwriter or such controlling person in connection
with investigating, defending, settling, compromising or paying any such loss,
claim, damage, liability, expense or action; provided, however, that neither the
Company nor the Selling Stockholders will be liable in any such case to the
extent that any such loss, claim, damage, liability or expense arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement, any Preliminary Prospectus,
the Prospectus or any amendment or supplement thereto (x) in reliance upon and
in conformity with the information furnished to the Company by and on behalf of
the Underwriters pursuant to Section 4 hereof or (y) in reliance upon and in
conformity with information furnished to the Company by a Selling Stockholder
with respect to such Selling Stockholder (except that the Selling Stockholder
furnishing such information shall not be so relieved of liability); provided
further that the foregoing indemnity agreement with respect to any Preliminary
Prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any such loss, claim, damage, liability or expenses purchased
Shares, or any person controlling such Underwriter, if a copy of the Prospectus
(as then amended or supplemented) was not sent or given by or on behalf of such
Underwriter to such person, if required by law so to have been delivered, at or
prior to the written confirmation of the sale of the Shares to such person, and
if the Prospectus (as so amended or supplemented) would have cured the defect
giving rise to such loss, claim, damage, liability or expense and the Company
has delivered the Prospectus (as so amended or supplemented) to the several
Underwriters on a timely basis to permit such delivery or sending; provided
further that no Selling Stockholder shall have any liability hereunder with
respect to any inaccuracy in the
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representations and warranties of the Company or any other Selling Stockholder
contained herein or with respect to any failure of the Company or any other
Selling Stockholder to perform its obligations hereunder or under law; and
provided further that no Selling Stockholder shall be required to provide
indemnification hereunder until the Underwriter or controlling person seeking
indemnification shall have first made a demand for payment on the Company with
respect to any such loss, claim, damage, liability or expense and the Company
shall have either rejected such demand or failed to make such requested payment
within 90 days after receipt thereof. The Company and the Selling Stockholders
may agree, as among themselves and without limiting the rights of the
Underwriters under this Agreement, as to their respective amounts of such
liability for which they each shall be responsible. In addition to their other
obligations under this Section 11(a)(i), the Company and the Selling
Stockholders agree that, as an interim measure during the pendency of any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, or any
inaccuracy in the representations and warranties of the Company or the Selling
Stockholders herein or failure to perform their obligations hereunder, all as
described in this Section 11(a)(i), they will reimburse each Underwriter on a
quarterly basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Company's
or the Selling Stockholders' obligation to reimburse each Underwriter for such
expenses and the possibility that such payments might later be held to have been
improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, each Underwriter
shall promptly return it to the Company and the Selling Stockholders, as
applicable, together with interest, compounded daily, determined on the basis of
the prime rate (or other commercial lending rate for borrowers of the highest
credit standing) announced from time to time by Bank of America NT&SA, San
Francisco, California (the "Prime Rate"). Any such interim reimbursement
payments which are not made to an Underwriter within 30 days of a request for
reimbursement, shall bear interest at the Prime Rate from the date of such
request. This indemnity agreement will be in addition to any liability which the
Company or the Selling Stockholders may otherwise have.
(ii) Notwithstanding anything to the contrary herein, no Selling
Stockholder shall be liable under this Section 11(a) for an amount in excess of
the proceeds (net of the applicable underwriting discount) received by such
Selling Stockholder with respect to the Shares purchased by the Underwriters
from such Selling Stockholder hereunder.
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(b) Each Underwriter will severally indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the Registration
Statement, the Selling Stockholders and each person, if any, who controls the
Company or any Selling Stockholder within the meaning of the Act, against any
losses, claims, damages, liabilities or expenses to which the Company, or any
such director, officer, Selling Stockholder or controlling person may become
subject, under the Act, the Exchange Act, or other federal or state statutory
law or regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of such
Underwriter), insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof as contemplated below) arise out of or are based
upon any untrue or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, in reliance upon and in conformity with the information
furnished to the Company by and on behalf of the Underwriters pursuant to
Section 4 hereof; and will, subject to the third sentence of subsection (c) of
this Section 11, reimburse the Company, or any such director, officer, Selling
Stockholder or controlling person for any legal and other expense reasonably
incurred by the Company, or any such director, officer, Selling Stockholder or
controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action. In addition to its other obligations under this Section 11(b), each
Underwriter severally agrees that, as an interim measure during the pendency of
any claim, action, investigation, inquiry or other proceeding arising out of or
based upon any statement or omission, or any alleged statement or omission,
described in this Section 11(b) which relates to information furnished to the
Company pursuant to Section 4 hereof, it will reimburse the Company (and, to the
extent applicable, each officer, director, controlling person or Selling
Stockholder) on a quarterly basis for all reasonable legal or other expenses
incurred in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company (and, to the extent
applicable, each officer, director, controlling person or Selling Stockholder)
for such expenses and the possibility that such payments might later be held to
have been improper by a court of competent jurisdiction. To the extent
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that any such interim reimbursement payment is so held to have been improper,
the Company (and, to the extent applicable, each officer, director, controlling
person or Selling Stockholder) shall promptly return it to the Underwriters,
together with interest, compounded daily, determined on the basis of the Prime
Rate. Any such interim reimbursement payments which are not made to the Company
within 30 days of a request for reimbursement, shall bear interest at the Prime
Rate from the date of such request. This indemnity agreement will be in addition
to any liability which such Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under this
Section, notify the indemnifying party in writing of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party for indemnity or
contribution contained in this Section to the extent the indemnifying party is
not prejudiced as a proximate result of such failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it may wish, jointly
with all other indemnifying parties similarly notified, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified party;
provided, however, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be a conflict between the positions of
the indemnifying party and the indemnified party in conducting the defense of
any such action or that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to
the indemnifying party, the indemnified party or parties shall have the right to
select one separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of its election so to assume the defense of such action and approval by
the indemnified party of counsel, the indemnifying party will not be liable to
such indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed such counsel in
connection with the assumption of legal defenses in accordance with the proviso
to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel, approved by the Representatives in the case of paragraph (a),
representing the indemnified parties who are parties to such
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action) or (ii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after notice of commencement of the action, in
each of which cases the fees and expenses of counsel shall be at the expense of
the indemnifying party.
(d) If the indemnification provided for in this Section 11 is required by
its terms but is for any reason held to be unavailable to or otherwise
insufficient to hold harmless an indemnified party under paragraphs (a), (b) or
(c) in respect of any losses, claims, damages, liabilities or expenses referred
to herein, then each applicable indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of any losses,
claims, damages, liabilities or expenses referred to herein (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company, the Selling Stockholders and the Underwriters from the offering of the
Common Shares or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company, the Selling Stockholders and the Underwriters in
connection with the statements or omissions or inaccuracies in the
representations and warranties herein which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The respective relative benefits received by the Company, the
Selling Stockholders and the Underwriters shall be deemed to be in the same
proportion, in the case of the Company and the Selling Stockholders as the total
price paid to the Company and to the Selling Stockholders, respectively, for the
Common Shares sold by them to the Underwriters (net of underwriting commissions
but before deducting expenses), and in the case of the Underwriters as the
underwriting commissions received by them bears to the total of such amounts
paid to the Company and to the Selling Stockholders and received by the
Underwriters as underwriting commissions. The relative fault of the Company, the
Selling Stockholders and the Underwriters shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact or the
inaccurate or the alleged inaccurate representation and/or warranty relates to
information supplied by the Company, the Selling Stockholders or the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The amount
paid or payable by a party as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include, subject
to the limitations set forth in subparagraph (c) of this Section 11, any legal
or other fees or expenses reasonably incurred by such party in connection with
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investigating or defending any action or claim. The provisions set forth in
subparagraph (c) of this Section 11 with respect to notice of commencement of
any action shall apply if a claim for contribution is to be made under this
subparagraph (d); provided, however, that no additional notice shall be required
with respect to any action for which notice has been given under subparagraph
(c) for purposes of indemnification. The Company, the Selling Stockholders and
the Underwriters agree that it would not be just and equitable if contribution
pursuant to this Section 11 were determined solely by pro rata allocation (even
if the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations
referred to in this paragraph. Notwithstanding the provisions of this Section
11, no Underwriter shall be required to contribute any amount in excess of the
amount of the total underwriting commissions received by such Underwriter in
connection with the Common Shares underwritten by it and distributed to the
public. No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute pursuant to this Section 11 are several in proportion
to their respective underwriting commitments and not joint.
(e) It is agreed that any controversy arising out of the operation of the
interim reimbursement arrangements set forth in Sections 11(a) and 11(b) hereof,
including the amounts of any requested reimbursement payments and the method of
determining such amounts, shall be settled by arbitration conducted under the
provisions of the Constitution and Rules of the Board of Governors of the New
York Stock Exchange, Inc. or pursuant to the Code of Arbitration Procedure of
the NASD. Any such arbitration must be commenced by service of a written demand
for arbitration or written notice of intention to arbitrate, therein electing
the arbitration tribunal. In the event the party demanding arbitration does not
make such designation of an arbitration tribunal in such demand or notice, then
the party responding to said demand or notice is authorized to do so. Such an
arbitration would be limited to the operation of the interim reimbursement
provisions contained in Sections 11(a) and 11(b) hereof and would not resolve
the ultimate propriety or enforceability of the obligation to reimburse expenses
which is created by the provisions of such Sections 11(a) and 11(b) hereof.
SECTION 12. Default of Underwriters. It shall be a condition to this
Agreement and the obligation of the Company and the Selling Stockholders to sell
and deliver the Common Shares hereunder, and of each Underwriter to purchase the
Common Shares in the manner as described herein, that, except as hereinafter in
this paragraph provided, each of the Underwriters shall purchase
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and pay for all the Common Shares agreed to be purchased by such Underwriter
hereunder upon tender to the Representatives of all such shares in accordance
with the terms hereof. If any Underwriter or Underwriters default in their
obligations to purchase Common Shares hereunder on either the First or Second
Closing Date and the aggregate number of Common Shares which such defaulting
Underwriter or Underwriters agreed but failed to purchase on such Closing Date
does not exceed 10% of the total number of Common Shares which the Underwriters
are obligated to purchase on such Closing Date, the non-defaulting Underwriters
shall be obligated severally, in proportion to their respective commitments
hereunder, to purchase the Common Shares which such defaulting Underwriters
agreed but failed to purchase on such Closing Date. If any Underwriter or
Underwriters so default and the aggregate number of Common Shares with respect
to which such default occurs is more than the above percentage and arrangements
satisfactory to the Representatives and the Company for the purchase of such
Common Shares by other persons are not made within 48 hours after such default,
this Agreement will terminate without liability on the part of any
non-defaulting Underwriter or the Company or the Selling Stockholders except for
the expenses to be paid by the Company and the Selling Stockholders pursuant to
Section 7 hereof and except to the extent provided in Section 11 hereof.
In the event that Common Shares to which a default relates are to be
purchased by the non-defaulting Underwriters or by another party or parties, the
Representatives or the Company shall have the right to postpone the First or
Second Closing Date, as the case may be, for not more than five business days in
order that the necessary changes in the Registration Statement, Prospectus and
any other documents, as well as any other arrangements, may be effected. As used
in this Agreement, the term "Underwriter" includes any person substituted for an
Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default.
SECTION 13. Effective Date. This Agreement shall become effective
immediately as to Sections 7, 9, 11, 14 and 16 and, as to all other provisions,
(i) if at the time of execution of this Agreement the Registration Statement has
not become effective, at 2:00 P.M., California time, on the first full business
day following the effectiveness of the Registration Statement, or (ii) if at the
time of execution of this Agreement the Registration Statement has been declared
effective, at 2:00 P.M., California time, on the first full business day
following the date of execution of this Agreement; but this Agreement shall
nevertheless become effective at such earlier time after the Registration
Statement becomes effective as you may determine on and by notice to the Company
or by release of any of the Common Shares for sale to the public. For the
purposes of this
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Section 13, the Common Shares shall be deemed to have been so released upon the
release for publication of any newspaper advertisement relating to the Common
Shares or upon the release by you of telegrams (i) advising Underwriters that
the Common Shares are released for public offering, or (ii) offering the Common
Shares for sale to securities dealers, whichever may occur first.
SECTION 14. Termination. Without limiting the right to terminate this
Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by the Company by notice to you
and the Selling Stockholders or by you by notice to the Company and the
Selling Stockholders at any time prior to the time this Agreement shall
become effective as to all its provisions, and any such termination shall
be without liability on the part of the Company or the Selling
Stockholders to any Underwriter (except for the expenses to be paid or
reimbursed by the Company and the Selling Stockholders pursuant to
Sections 7 and 9 hereof and except to the extent provided in Section 11
hereof) or of any Underwriter to the Company or the Selling Stockholders
(except to the extent provided in Section 11 hereof).
(b) This Agreement may also be terminated by you prior to the First
Closing Date by notice to the Company (i) if additional material
governmental restrictions, not in force and effect on the date hereof,
shall have been imposed upon trading in securities generally or minimum or
maximum prices shall have been generally established on the New York Stock
Exchange or on the American Stock Exchange or in the over the counter
market by the NASD, or trading in securities generally shall have been
suspended on either such Exchange or in the over the counter market by the
NASD, or a general banking moratorium shall have been established by
federal, New York or California authorities, (ii) if an outbreak of major
hostilities or other national or international calamity or any substantial
change in political, financial or economic conditions shall have occurred
or shall have accelerated or escalated to such an extent, as, in the
judgment of the Representatives, to affect adversely the marketability of
the Common Shares, (iii) if any adverse event shall have occurred or shall
exist which makes untrue or incorrect in any material respect any
statement or information contained in the Registration Statement or
Prospectus or which is not reflected in the Registration Statement or
Prospectus but should be reflected therein in order to make the statements
or information contained therein not misleading in any material respect,
or (iv) if there shall be any action, suit or proceeding pending or
threatened, or there shall have been any development or prospective
development involving particularly the business or properties or
securities of the
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Company or any of its subsidiaries or the transactions contemplated by this
Agreement, which, in the reasonable judgment of the Representatives, may
materially and adversely affect the Company's business or earnings and makes it
impracticable or inadvisable to offer or sell the Common Shares. Any termination
pursuant to this subsection (b) shall be without liability on the part of any
Underwriter to the Company or the Selling Stockholders or on the part of the
Company or the Selling Stockholders to any Underwriter (except for expenses to
be paid or reimbursed by the Company and the Selling Stockholders pursuant to
Sections 7 and 9 hereof and except to the extent provided in Section 11 hereof.
SECTION 15. Failure of the Selling Stockholders to Sell and Deliver. If
one or more of the Selling Stockholders shall fail to sell and deliver to the
Underwriters the Common Shares to be sold and delivered by such Selling
Stockholders at the First Closing Date under the terms of this Agreement, then
the Underwriters may at their option, by written notice from you to the Company
and the Selling Stockholders, either (i) terminate this Agreement without any
liability on the part of any Underwriter (except as provided in Section 11
hereof) or the Company or the Selling Stockholders (except as provided in
Sections 7, 9 and 11 hereof) or (ii) purchase the shares which the Company and
other Selling Stockholders have agreed to sell and deliver in accordance with
the terms hereof. In the event of a failure by one or more of the Selling
Stockholders to sell and deliver as referred to in this Section, either you or
the Company shall have the right to postpone the Closing Date for a period not
exceeding seven business days in order that the necessary changes in the
Registration Statement, Prospectus and any other documents, as well as any other
arrangements, may be effected.
SECTION 16. Representations and Indemnities to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers, of the Selling Stockholders and of
the several Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter or the Company or any of its or their partners,
officers or directors or any controlling person, or the Selling Stockholders, as
the case may be, and will survive delivery of and payment for the Common Shares
sold hereunder and any termination of this Agreement.
SECTION 17. Notices. All communications hereunder shall be in writing and,
if sent to the Representatives shall be mailed, delivered or telegraphed and
confirmed to you at 600 Montgomery Street, San Francisco, California 94111,
Attention: Karl L. Matthies and Jack Levin, with a copy to Hale and Dorr LLP, 60
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<PAGE>
State Street, Boston, Massachusetts, 02109, Attention: Mark G. Borden, Esq.; and
if sent to the Company or the Selling Stockholders shall be mailed, delivered or
telegraphed and confirmed to the Company at 3 Greenwich Office Park, Greenwich,
Connecticut, 06831, Attention: Randy B. Spector, with a copy to Willkie Farr &
Gallagher, One Citicorp Center, 153 East 53rd Street, New York, New York 10022,
Attention: Steven J. Gartner, Esq. The Company, the Selling Stockholders or you
may change the address for receipt of communications hereunder by giving notice
to the others.
SECTION 18. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto, including any substitute Underwriters pursuant
to Section 12 hereof, and to the benefit of the officers and directors and
controlling persons referred to in Section 11, and in each case their respective
successors, personal representatives and assigns, and no other person will have
any right or obligation hereunder. No such assignment shall relieve any party of
its obligations hereunder. The term "successors" shall not include any purchaser
of the Common Shares as such from any of the Underwriters merely by reason of
such purchase.
SECTION 19. Representation of Underwriters. You will act as
Representatives for the several Underwriters in connection with all dealings
hereunder, and any action under or in respect of this Agreement taken by you
jointly or by Montgomery Securities, as Representatives, will be binding upon
all the Underwriters.
SECTION 20. Partial Unenforceability. The invalidity or unenforceability
of any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
SECTION 21. Applicable Law. This Agreement shall be governed by and
construed in accordance with the internal laws (and not the laws pertaining to
conflicts of laws) of the State of California.
SECTION 22. General. This Agreement constitutes the entire agreement of
the parties to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof. This Agreement may be executed in several
counterparts, each one of which shall be an original, and all of which shall
constitute one and the same document.
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<PAGE>
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company, the Selling Stockholders and you.
Any person executing and delivering this Agreement as Attorney-in-fact for
the Selling Stockholders represents by so doing that he has been duly appointed
as Attorney-in-fact by such Selling Stockholder pursuant to a validly existing
and binding Power of Attorney which authorizes such Attorney-in-fact to take
such action. Any action taken under this Agreement by any of the
Attorneys-in-fact will be binding on all the Selling Stockholders.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed copies hereof, whereupon it
will become a binding agreement among the Company, the Selling Stockholders and
the several Underwriters including you, all in accordance with its terms.
Very truly yours,
FINE HOST CORPORATION
By:______________________________
Name:
Title:
SELLING STOCKHOLDERS
By:______________________________
(Attorney-in-fact)
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<PAGE>
The foregoing Underwriting Agreement
is hereby confirmed and accepted by
us in San Francisco, California as of
the date first above written.
MONTGOMERY SECURITIES
PIPER JAFFRAY INC.
SMITH BARNEY INC.
Acting as Representatives of the
several Underwriters named in
the attached Schedule A.
By MONTGOMERY SECURITIES
By:______________________________
Authorized Signatory
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<PAGE>
SCHEDULE A
Number of Firm
Common Shares
Name of Underwriter to be Purchased
- ------------------- ---------------
Montgomery Securities ............................
Piper Jaffray Inc. ...............................
Smith Barney Inc. ................................
TOTAL ................................. ---------
2,000,000
=========
A-1
<PAGE>
SCHEDULE B
Number of Firm
Common Shares to
be Sold by Selling
Name of Selling Stockholder Stockholders
- --------------------------- ------------------
William R. Berkley ............................... 116,000
Richard A. Kerley ................................ 15,000
Randall K. Ziegler ............................... 15,000
Randy B. Spector ................................. 10,000
Andrew M. Bursky ................................. 17,500
Catherine B. James ............................... 8,500
Joshua A. Polan .................................. 4,000
-------
TOTAL ................................. 186,000
=======
B-1
<PAGE>
EXHIBIT 21
SUBSIDIARIES
1. Fine Host Services Corporation, a Delaware corporation.
2. Fanfare, Inc., a Massachusetts corporation.
3. Creative Food Management, Inc., an Ohio corporation.
4. Northwest Food Service, Inc., an Idaho corporation.
5. PCS Holdings Corp., a North Carolina corporation (formerly known as HCS
Management Corp.).
6. Republic Management Corp. of Massachusetts, a Masschusetts corporation.
7. Serv-Rite Corporation, a New York corporation.
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Fine Host Corporation
We consent to the use in this Amendment No. 1 to the Registration Statement No.
333-19909 of Fine Host Corporation on Form S-1 of our report dated May 24, 1996
(June 25, 1996 as to Note 18) appearing in the prospectus which is a part of
such 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
February 4, 1997
