AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 31, 1996
333-04261
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
AMERIKING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 5812 36-3970707
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Number) Identification No.)
</TABLE>
AMERIKING, INC.
2215 ENTERPRISE DRIVE, SUITE 1502
WESTCHESTER, ILLINOIS 60154
(708) 947-2150
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
- -----------------------------------------------------------------------------
LAWRENCE E. JARO
AMERIKING, INC.
2215 ENTERPRISE DRIVE, SUITE 1502
WESTCHESTER, ILLINOIS 60154
(708) 947-2150
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
--------------------
COPIES TO:
<TABLE>
<CAPTION>
<S> <C>
James B. Carlson, Esq. John T. Gaffney, Esq.
Mayer, Brown & Platt Cravath, Swaine & Moore
1675 Broadway Worldwide Plaza
New York, New York 10019 825 Eighth Avenue
(212) 506-2500 New York, New York 10019
(212) 474-1000
</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, other than securities offered only in connection with dividend
or interest reinvestment plans, 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. [ ]
--------------------
CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
================================================================================================
TITLE OF EACH CLASS OF SECURITIES PROPOSED MAXIMUM AGGREGATE
TO BE REGISTERED OFFERING PRICE(1)(2) AMOUNT OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK ($.01 PAR VALUE PER SHARE) $118,128,000 $40,733.79(3)
================================================================================================
</TABLE>
- -----------------------------------------------------------------------------
(1) Includes $15,408,000 of shares of Common Stock issuable upon exercise
of an over-allotment option granted to the U.S. Underwriters by the
Company.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 promulgated under the Securities Act of 1933.
(3) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, 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>
AMERIKING, INC.
CROSS REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM AND HEADING OF FORM S-1 HEADING OR LOCATION IN PROSPECTUS
---------------------------- ---------------------------------
<S> <C> <C>
1. Forepart of the Registration Facing Page of Registration Statement; Cross
Statement and Outside Front Cover Reference Sheet; Outside Front Cover Page of
Page of Prospectus ............... Prospectus
2. Inside Front and Outside Back Cover Inside Front and Outside Back Cover Page of
Pages of Prospectus .............. Prospectus
3. Summary Information and Risk
Factors .......................... Prospectus Summary; Risk Factors
4. Use of Proceeds .................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price ... Outside Front Cover Page of Prospectus; Risk
Factors; Underwriting
6. Dilution ........................... Dilution
7. Selling Security Holders ........... Not Applicable
8. Plan of Distribution ............... Outside and Inside Front Cover Pages of
Prospectus; Underwriting
9. Description of Securities to be Outside Front Cover Page of Prospectus; Dividend
Registered ....................... Policy; Description of Capital Stock; Shares
Eligible for Future Sale
10. Interest of Named Experts and
Counsel .......................... Legal Matters; Experts
11. Information with Respect to the Outside Front and Outside Back Cover Page of
Registrant ....................... Prospectus; Prospectus Summary; Risk Factors;
Dividend Policy; Dilution; Capitalization; Pro
Forma Consolidated Financial Statements; Selected
Consolidated Financial Information; Management's
Discussion and Analysis of Financial Condition and
Results of Operations; Business; Management;
Principal Stockholders; Description of Capital
Stock; Description of Certain Indebtedness;
Certain Transactions; Shares Eligible for Future
Sale; Underwriting; Experts; Index to Consolidated
Financial Statements
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities .................... Not Applicable
</TABLE>
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be
used in connection with an underwritten public offering in the United States
and Canada (the "U.S. Prospectus") and one to be used in a concurrent
underwritten public offering outside the United States and Canada (the
"International Prospectus"). The U.S. Prospectus and the International
Prospectus are identical except for the front and back cover pages. The form
of U.S. Prospectus is included herein and is followed by the alternate pages
to be used in the International Prospectus. The alternate pages for the
International Prospectus included herein are labeled "Alternate Page For
International Prospectus." Final forms of each prospectus will be filed with
the Securities and Exchange Commission under Rule 424(b) under the Securities
Act of 1933, as amended.
<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.
SUBJECT TO COMPLETION, DATED JULY 31, 1996
PROSPECTUS
6,420,000 SHARES
[GRAPHIC TO COME]
COMMON STOCK
----------
All of the shares of common stock (the "Common Stock") of AmeriKing, Inc.
(the "Company") offered hereby are being sold by the Company. Of the
6,420,000 shares of Common Stock offered hereby, a total of 5,136,000 shares
are being offered hereby for sale in the United States and Canada (the "U.S.
Offering") by the U.S. Underwriters (as defined) and a total of 1,284,000
shares are being offered by the Managers (as defined) in a concurrent
international offering outside the United States and Canada (the
"International Offering" and, together with the U.S. Offering, the
"Offerings").
Prior to the Offerings, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price will
be between $14.00 and $16.00 per share. See "Underwriting" for information
relating to the factors considered in determining the initial public offering
price. The Common Stock has been approved for trading on the Nasdaq National
Market under the symbol "AKNG," subject to official notice of issuance.
----------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN 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>
=============================================================================
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS (1) COMPANY (2)
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- -----------------------------------------------------------------------------
Total (3) $ $ $
=============================================================================
</TABLE>
(1) For information regarding indemnification of the U.S. Underwriters and
the Managers, see "Underwriting."
(2) Before deducting expenses estimated at $ payable by the Company.
(3) The Company has granted the U.S. Underwriters a 30-day option to
purchase up to 963,000 additional shares of Common Stock solely to
cover over-allotments, if any. See "Underwriting." If such option is
exercised in full, the total Price to Public, Underwriting Discounts
and Commissions and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
----------
The shares of Common Stock are being offered by the several U.S.
Underwriters named herein, subject to prior sale, when, as and if accepted by
them and subject to certain conditions. It is expected that certificates for
the shares of Common Stock offered hereby will be available for delivery on
or about , 1996, at the offices of Smith Barney Inc., 333 West 34th
Street, New York, New York 10001.
----------
SMITH BARNEY INC.
PAINEWEBBER INCORPORATED
EVEREN SECURITIES, INC.
, 1996
<PAGE>
[MAP]
Burger King(Registered Trademark) is a registered trademark and service
mark and Whopper(Registered Trademark) is a registered trademark of Burger
King Brands, Inc., a wholly-owned subsidiary of Burger King Corporation.
Burger King Corporation is wholly-owned by Grand Metropolitan PLC. Neither
Burger King Corporation nor any of its subsidiaries or affiliates is in any
way participating in or approving the Offerings. For a full discussion of the
Burger King Corporation disclaimer, please see "Available Information."
IN CONNECTION WITH THE OFFERINGS, THE U.S. UNDERWRITERS AND MANAGERS MAY
OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET
PRICE OF THE COMMON STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED
THROUGH THE NASDAQ NATIONAL MARKET, IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to and
should be read in conjunction with the more detailed information and
financial statements, including the notes thereto, appearing elsewhere in
this Prospectus. Unless otherwise indicated, the information in this
Prospectus (i) gives effect to the recapitalization of the Company's capital
stock, including the 6,318.86-to-1 stock split which will occur in connection
with the Offerings (the "Recapitalization") and (ii) assumes that the
over-allotment option granted by the Company to the U.S. Underwriters is not
exercised. References to a fiscal year refer in each case to the year ended
December 31, except that references to fiscal 1995 refer to the fiscal year
ended January 1, 1996. Unless the context indicates or requires otherwise,
references in this Prospectus to the "Company" or "AmeriKing" are to
AmeriKing, Inc. and its subsidiaries.
THE COMPANY
The Company is a leading independent Burger King franchisee, with pro
forma fiscal 1995 restaurant sales of $237.4 million. The Company was formed
in 1994 by a group consisting of Burger King franchisees, former Burger King
Corporation ("BKC") executives and The Jordan Company to take advantage of
significant acquisition and related new restaurant development opportunities
within the growing Burger King system. Since its inception, the Company has
grown primarily through a series of nine acquisitions involving the purchase
of 175 Burger King restaurants. Currently, the Company operates 180 Burger
King restaurants in the states of Illinois, Virginia, Indiana, Colorado,
Texas, Tennessee, Kentucky, Wisconsin, Ohio, North Carolina and Georgia.
The Company's growth strategy consists of two principal components: (i)
strategic acquisitions of multi-restaurant Burger King operations in new and
existing markets and (ii) development of new Burger King restaurants in
markets in which the Company has established a presence. The Company
currently intends to acquire 40 restaurants in the Michigan Acquisition (as
described below) and plans to develop 16 new restaurants in fiscal 1996
(including four developed to date, with the remaining 12 in the initial
stages of development) and 34 new restaurants in fiscal 1997.
Management believes that there are many attractive acquisition candidates
in the $8.4 billion Burger King system because of its significant size and
highly fragmented nature. According to information publicly filed by Grand
Metropolitan PLC ("GrandMet"), BKC's parent corporation, as of September 30,
1995, the Burger King system included more than 8,000 restaurants worldwide,
of which over 90% were operated by approximately 1,500 independent
franchisees. Management believes that, based upon publicly available
information, the five largest franchisees in the Burger King system operate
less than 12% of all domestic Burger King restaurants. In addition, since
September 30, 1991, the number of restaurants in the Burger King system has
grown by approximately 30%. During BKC's fiscal year ended September 30,
1995, a record number of 657 new restaurants were added to the Burger King
system.
The Company has and will continue to target acquisitions in geographic
markets which have potential for substantial new restaurant development.
Management believes that the underpenetration of the Burger King system
relative to other quick-service hamburger restaurant concepts provides the
Company with significant new development opportunities. Moreover, management
believes that the proven success of the Burger King concept and the relative
predictability of development costs and restaurant profitability versus that
of newer restaurant concepts substantially reduce the Company's new
restaurant development risk. For fiscal 1996, the Company has budgeted
approximately $350,000 for the development of each new Burger King restaurant
(exclusive of land acquisition and building costs, as the Company leases each
of its properties). For the 121 restaurants operated by the Company for all
of fiscal 1995, average restaurant sales and average restaurant operating
cash flow were approximately $1.1 million and $173,000, respectively.
The Company's operating strategy is to maximize restaurant level and
overall profitability. The Company implements this strategy from a revenue
perspective principally by engaging in activities and undertaking investments
designed to expand the Company's customer base and to increase sales volume.
The Company regularly reviews its restaurant properties for revenue-enhancing
opportunities (such as improvements in drive-thru efficiencies and the
addition or expansion of children's playground facilities) and when
appropriate implements such opportunities.
3
<PAGE>
In addition, the Company tightly controls its operating costs at both the
restaurant and corporate levels and captures economies of scale throughout
its operations. The Company believes that the large number of restaurants it
operates, combined with its sophisticated management information systems,
provide the Company with significant advantages over many other quick-service
restaurant operators, particularly with respect to market consistency and
cost control. In addition, the Company believes that its size and management
information systems will continue to enhance profitability in the future,
providing the Company with significant cost saving opportunities as it
continues to acquire and develop restaurants.
The Company's senior management has extensive experience in the Burger
King system as either former executives of BKC or as independent Burger King
franchisees. The top four members of the Company's senior management each
have over 10 years of experience, and in some cases more than 20 years of
experience, within the Burger King system in connection with the operation,
acquisition and development of restaurants. In addition, most of the
Company's regional managing directors, district managers and restaurant
managers have substantial experience within the Burger King system and/or the
quick-service restaurant industry.
BURGER KING CORPORATION
The Company believes that it benefits from its affiliation with BKC as a
result of, among other things, the widespread recognition of the Burger King
name and products, the size and market penetration of BKC's media budget
(which was approximately $200 million for its fiscal year ended September 30,
1995, according to LNA/Arbitron Multi-Media Service), BKC's overall
management of the Burger King concept, including new product development,
quality assurance and strategic planning, and the continuing growth of the
Burger King system.
BKC, an operating subsidiary of GrandMet, was founded in 1954 and is
currently the second largest restaurant franchisor in the world with
system-wide restaurant sales of $8.4 billion for its fiscal year ended
September 30, 1995. According to Technomic Information Services
("Technomic"), an independent research organization, domestic revenues for
the quick-service hamburger restaurant industry totaled approximately $37.6
billion in 1995, and the Burger King system accounted for approximately 18%
of these sales, as compared to 42% for McDonald's, 11% for Wendy's and 8% for
Hardees.
THE MICHIGAN ACQUISITION
On May 11, 1996, the Company executed purchase agreements to acquire 40
Burger King restaurants in the Grand Rapids, Michigan area (the "Michigan
Acquisition") from a franchisee for an aggregate cash purchase price of $36.5
million. The Company plans to use a portion of the net proceeds from the
Offerings to fund the Michigan Acquisition. The Michigan Acquisition is
conditioned on, among other things, the consummation of the Offerings, BKC's
consent (described below) and standard closing conditions. As part of the
Michigan Acquisition, it is expected that the seller will enter into a
non-competition agreement and an agreement to assist the Company in
developing additional Burger King restaurant sites in the Michigan market. It
is anticipated that the key operating personnel of the restaurants acquired
in the Michigan Acquisition will be retained. Pursuant to the terms of BKC's
standard franchise agreements, acquisitions of Burger King restaurants,
including those to be acquired in the Michigan Acquisition, are subject to
BKC's consent and right of first refusal. See "Risk Factors--BKC Franchise
Agreement Restrictions." On June 21, 1996, BKC agreed not to exercise its
right of first refusal with respect to the Michigan Acquisition. Management
anticipates receiving BKC's consent for the Michigan Acquisition prior to the
consummation of the Offerings.
The Company was incorporated in the State of Delaware on August 17, 1994
as NRE Holdings, Inc. On May 10, 1996, the Company changed its name to
"AmeriKing, Inc." Its principal executive offices are located at 2215
Enterprise Drive, Suite 1502, Westchester, Illinois 60154, and its telephone
number is (708) 947-2150.
4
<PAGE>
THE OFFERINGS
<TABLE>
<CAPTION>
<S> <C>
COMMON STOCK OFFERED:
U.S. Offering ................... 5,136,000 shares
International Offering .......... 1,284,000 shares
----------------
Total ......................... 6,420,000 shares
Common Stock to be outstanding
after the Offerings .............. 13,600,000 shares(1)(2)
Use of proceeds ................... To fund the Michigan Acquisition and reduce outstanding
indebtedness. See "Use of Proceeds."
Nasdaq National Market Symbol .... AKNG
</TABLE>
- ------------
(1)Excludes an aggregate of 680,000 shares of Common Stock reserved for
issuance under the Company's 1996 Long-Term Incentive Plan. See
"Management--Employee Benefit Plans."
(2)Includes: (i) 709,987 shares of Non-Voting Common Stock (as hereinafter
defined) issuable upon exercise of immediately exercisable warrants
beneficially owned by BancBoston Investments Inc. ("BancBoston"), (ii)
80,000 shares of Common Stock to be distributed in the Preferred Stock
Merger (as hereinafter defined), and (iii) 71,024 shares of Common
Stock to be issued to certain executives of the Company simultaneously
with the consummation of the Offerings in connection with such
executives' exercises of previously granted stock options (the "Stock
Option Exercises"). See "Management--Employee Benefit Plans,"
"Principal Stockholders," "Description of Capital Stock--Non-Voting
Common Stock" and "Certain Transactions."
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth certain historical financial and operating
data for the Company and restaurants formerly owned and operated by BKC (the
"BKC Restaurants") and entities controlled by certain members of the
Company's current management (the "Management Restaurants") (collectively,
the "Initial Acquisitions") and certain pro forma financial and operating
data for the Company as of the dates and for the periods indicated. Prior to
their acquisition by the Company on September 2, 1994, the BKC Restaurants
and the Management Restaurants were not under common control or management.
In addition, restaurant contribution for the BKC Restaurants and the
Management Restaurants, which reflects restaurant sales net of restaurant
operating expenses, does not reflect all costs of operating the BKC
Restaurants and Management Restaurants. Accordingly, restaurant sales,
restaurant operating expenses and restaurant contribution may not be
comparable to or indicative of post-acquisition results. The following
information should be read in conjunction with the "Selected Consolidated
Financial Information," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Pro Forma Consolidated Financial
Statements," the Consolidated Financial Statements of the Company and the
notes thereto and the Historical Schedules of Restaurant Contribution and the
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THE INITIAL
ACQUISITIONS(1)(2)
--------------------------
JAN. 1, 1994
FISCAL THROUGH SEPT.
1993 1, 1994
--------- ---------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
INCOME STATEMENT DATA:
Restaurant sales ................. $82,895 $56,720
Restaurant operating expenses .... 76,297 53,351
--------- ---------------
Restaurant contribution .......... $ 6,598 $ 3,369
========= ===============
General and administrative
expenses .........................
Operating income .................
Interest expense .................
Other income (expense) ...........
Provision for income taxes .......
Net income (loss) ................
Net income per share(6) ..........
Weighted average number of shares
outstanding (in thousands)(6) ...
SELECTED OPERATING DATA:
Restaurants open at end of period 82 82
Average sales per restaurant(7) .. $ 1,011
SUPPLEMENTAL DATA: (8)(9)
Restaurant sales:
BKC Restaurants .................. $70,667 $47,762
Management Restaurants:
Jaro restaurants ................ 10,115 7,400
Osborn restaurants .............. 2,113 1,558
--------- ---------------
Total for Initial Acquisitions $82,895 $56,720
========= ===============
Restaurant operating expenses:
BKC Restaurants .................. $65,263 $45,257
Management Restaurants:
Jaro restaurants ................ 9,166 6,718
Osborn restaurants .............. 1,868 1,376
--------- ---------------
Total for Initial Acquisitions $76,297 $53,351
========= ===============
Restaurant contribution:
BKC Restaurants .................. $ 5,404 $ 2,505
Management Restaurants:
Jaro restaurants ................ 949 682
Osborn restaurants .............. 245 182
--------- ---------------
Total for Initial Acquisitions $ 6,598 $ 3,369
========= ===============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
THE COMPANY
-------------------------------------------------------------------------------
FIRST QUARTER ENDED
------------------------------------
FISCAL 1995 APRIL 1, 1996
------------------------ -----------------------
SEPT. 2, 1994 PRO FORMA, PRO FORMA,
THROUGH DEC. AS MARCH 31, AS
31, 1994(3) ACTUAL ADJUSTED(4) 1995 ACTUAL ADJUSTED(4)
--------------- ---------- ------------ ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Restaurant sales ................. $33,931 $139,572 $237,389 $30,967 $43,103 $56,851
Restaurant operating expenses .... 29,876 123,181 210,308 28,338 38,862 51,527
--------------- ---------- ------------ ----------- --------- ------------
Restaurant contribution .......... 4,055 16,391 27,081 2,629 4,241 5,324
General and administrative
expenses ......................... 1,374 5,904 7,779 1,203 1,932 2,218
--------------- ---------- ------------ ----------- --------- ------------
Operating income ................. 2,681 10,487 19,302 1,426 2,309 3,106
Interest expense ................. (1,925) (8,323) (7,135) (2,036) (2,742) (1,548)
Other income (expense) ........... (324) (437) (201) (87) (227) (101)
Provision for income taxes ....... 191 825 5,023 (333) (271) 597
--------------- ---------- ------------ ----------- --------- ------------
Net income (loss) ................ $ 241 $ 902 $ 6,943(5) $ (364) $ (389) $ 860(5)
=============== ========== ============ =========== ========= ============
Net income per share(6) .......... $ 0.51 $ 0.06
Weighted average number of shares
outstanding (in thousands)(6) ... 13,600 13,600
SELECTED OPERATING DATA:
Restaurants open at end of period 121 140 213 121 178 216
Average sales per restaurant(7) .. $ 1,125 $ 1,147 $ 256 $ 263 $ 265
SUPPLEMENTAL DATA: (8)(9)
Restaurant sales:
BKC Restaurants ..................
Management Restaurants:
Jaro restaurants ................
Osborn restaurants ..............
Total for Initial Acquisitions
Restaurant operating expenses:
BKC Restaurants ..................
Management Restaurants:
Jaro restaurants ................
Osborn restaurants ..............
Total for Initial Acquisitions
Restaurant contribution:
BKC Restaurants ..................
Management Restaurants:
Jaro restaurants ................
Osborn restaurants ..............
Total for Initial Acquisitions
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
AS OF APRIL 1, 1996
-------------------------
PRO FORMA,
AS
ACTUAL ADJUSTED(10)
----------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency) $(17,400) $(15,151)
Total assets ................ 150,758 187,823
Long term debt and
capitalized leases ......... 115,961 80,178
Total stockholders' equity . 8,354 83,600
</TABLE>
- ------------
(1) Reflects the combined historical financial results of the 68 BKC
Restaurants and the 14 Management Restaurants acquired by the Company
on September 2, 1994 for the indicated period during which the
restaurants were owned and operated by BKC and management-controlled
entities. The results of the Initial Acquisitions for fiscal 1993 and
the period from January 1, 1994 through September 1, 1994 may not be
reflective of the ongoing operations of the Company under its current
ownership structure.
(2) Due to the inability of the Company to determine certain expenses for
the Initial Acquisitions during the period prior to their acquisition
by the Company on a meaningful and consistent basis, net income is not
comparable and is not presented for the Initial Acquisitions.
(3) Reflects the historical results of the Company, including the Initial
Acquisitions subsequent to their acquisition by the Company on
September 2, 1994. Also includes limited expenses of the Company during
the period August 17, 1994 (date of incorporation) to September 2,
1994, during which period the Company had no operations.
(4) Pro forma, as adjusted, to reflect (i) the 1995 Acquisitions (in the
case of fiscal 1995), (ii) the 1996 Acquisitions, (iii) the Michigan
Acquisition, (iv) the refinancing of the BKC Note (as defined herein),
(v) the establishment of the New Credit Facility (as defined herein),
(vi) the Preferred Stock Merger and (vii) the Offerings, including the
application of the estimated net proceeds therefrom at an assumed
initial public offering price of $15 per share (the mid-point of the
price range set forth on the cover of this Prospectus) as if all such
events occurred on January 1, 1995. See "Use of Proceeds" and "Pro
Forma Consolidated Financial Statements."
(5) The pro forma income statements do not give effect to an extraordinary
pre-tax charge which the Company expects to incur immediately following
the close of the Offerings. If such pre-tax charge were taken at the
beginning of fiscal 1995, such charge would have been approximately
$10,115 (approximately $5,968 on an after-tax basis, or $0.44 per
share), consisting of (i) an approximate $2,240 (approximately $1,321
on an after-tax basis) write-off of deferred financing costs related to
the repayment of the Subordinated Debt, (ii) an approximate $3,825
(approximately $2,257 on an after-tax basis) write-off of deferred
financing costs related to the repayment of the existing Credit
Agreement and (iii) an approximate $4,050 (approximately $2,390 on an
after-tax basis) prepayment premium incurred in connection with the
repayment of the Subordinated Debt.
(6) Net income per share was computed using the weighted average number of
shares of Common Stock outstanding assuming the exercise of all
currently exercisable options and warrants and the consummation of the
Offerings and the Preferred Stock Merger.
(7) Reflects the results of only those restaurants operating for the entire
period.
(8) Sets forth for the Initial Acquisitions the components constituting
aggregate restaurant sales, restaurant operating expenses and
restaurant contribution for the indicated periods. See the Historical
Schedules of Restaurant Contribution and the notes thereto with respect
to the Initial Acquisitions.
(9) Jaro restaurants consist of the 11 Management Restaurants acquired from
entities owned or controlled by Lawrence Jaro, the Company's current
Chief Executive Officer and Chairman of the Company's Board of
Directors. Osborn restaurants consist of the three Management
Restaurants acquired from entities owned or controlled by William
Osborn, the current Vice Chairman of the Company's Board of Directors.
(10)Pro forma, as adjusted, to give effect to (i) the Michigan Acquisition,
(ii) the refinancing of the BKC Note (as defined herein), (iii) the
establishment of the New Credit Facility (as defined herein), (iv) the
Preferred Stock Merger and (v) the Offerings and the application of the
estimated net proceeds therefrom, as if all such transactions had
occurred at the end of the period. See "Use of Proceeds,"
"Capitalization" and "Pro Forma Consolidated Financial Statements."
7
<PAGE>
RISK FACTORS
Prospective purchasers of the Common Stock offered hereby should consider
carefully the following risk factors, in addition to the other information
set forth in this Prospectus, before purchasing any shares of Common Stock.
BKC FRANCHISE AGREEMENT RESTRICTIONS; CONSENT TO RESTAURANT ACQUISITION AND
DEVELOPMENT AND FRANCHISE RENEWAL; RIGHT OF FIRST REFUSAL.
The Company operates Burger King restaurants through its wholly owned
subsidiaries, each of which is party to a BKC franchise agreement. In
addition to the contractual restrictions imposed on the Company's
subsidiaries in the BKC franchise agreements, the Company and its
subsidiaries are subject to certain restrictions imposed by BKC policies and
procedures as in effect from time to time. These restrictions may have the
effect of limiting the Company's ability to pursue its business plan.
Part of the Company's business strategy is to expand its operations
through both the acquisition and development of Burger King restaurants.
Pursuant to current BKC policies and procedures applicable to the Company,
BKC's approval is required for the acquisition of Burger King restaurants by
the Company from other Burger King franchisees and the development of new
Burger King restaurants by the Company. Pursuant to BKC's franchise
agreements, BKC's approval is also required for the renewal of existing
franchise agreements. BKC's consent to such renewals, acquisitions or
development may be withheld in BKC's sole discretion. Within five years of
April 1, 1996, 26 of the Company's current 180 franchise agreements with BKC,
which generated $26.9 million in total restaurant sales in fiscal 1995, are
scheduled to expire. BKC may also condition its consent to any such renewal,
acquisition or development on the Company's agreement to take certain
actions, such as making capital expenditures on acquired restaurants,
providing information to BKC's management information systems, disposing of
certain acquired restaurants and maintaining specified financial ratios. For
example, in connection with one of the Company's acquisitions in 1995, the
Company renewed its commitment to sell up to 10 specified Burger King
restaurants in the Chicago market to a BKC designee on or prior to July 19,
1996. In the event the transaction is not consummated by that date, BKC has
the right to designate an alternative purchaser until such transaction is
completed. The Company believes that the sale of the 10 specified Burger King
restaurants will not have a material adverse effect on the Company's
financial condition or results of operations. In addition, BKC's franchise
agreements provide BKC with a right of first refusal to purchase all Burger
King restaurants which franchisees wish to sell. Accordingly, no assurances
can be made that BKC will (i) grant successor franchise agreements to the
Company with respect to the Company's existing Burger King restaurants, (ii)
consent to the Company's development of additional Burger King restaurants,
in each case without requiring the Company to incur substantial costs or
undertake certain other actions, or (iii) not exercise its right of first
refusal with respect to the sale of Burger King restaurants that the Company
seeks to acquire.
BKC CONSENT TO CERTAIN CHANGES IN CAPITAL STRUCTURE AND CORPORATE GOVERNANCE.
Current BKC policies and procedures require the Company and each of its
subsidiaries which is a franchisee to seek BKC's consent prior to making
certain changes to their capital structure and modifications to their
corporate governance documents, including changing the (i) description of the
Company or the relevant subsidiary franchisee's purpose or authorized
activities; (ii) designation of, or the procedures for designating, the
managing owner (the individual primarily in charge of implementing BKC's
policies and procedures) or (iii) authority granted to the managing owner.
BKC RESTRICTIONS ON MANAGEMENT STRUCTURE.
Current BKC policies and procedures place certain restrictions on the
management structure of Burger King franchisees. For example, in the event
Mr. Jaro, the Company's Chairman, Chief Executive Officer and managing owner,
was to terminate his relationship with the Company, the Company would be
required to seek BKC's approval to appoint a new managing owner, who would,
absent the consent of BKC, be subject to approval by BKC and be required to
have a currently exercisable 5% voting equity
8
<PAGE>
interest in the Company and to personally guarantee the Company's obligations
to BKC. Absent BKC's waiver of the 5% equity ownership and guarantee
requirements, there can be no assurance that the Company will be able to
obtain a successor managing owner, which would cause the Company's
subsidiaries to be in default of their franchise agreements with BKC.
Furthermore, pursuant to the terms of BKC's franchise agreements, Messrs.
Jaro, Osborn and Hubert, who are named as owners under the franchisee
agreements, may not sell, encumber or otherwise transfer any portion of their
equity interests in the Company without first obtaining the consent of BKC.
Should the Company, the managing owner, or owners fail to comply, as
applicable, with current BKC policies and procedures or any provision of
BKC's franchise agreements, BKC could, among other remedies, terminate its
franchise agreements with the Company's subsidiaries. In addition, BKC has
the right to terminate its franchise agreements with a franchisee if (i) the
franchisee or the managing owner is convicted of a crime punishable by a term
of imprisonment in excess of one year or (ii) the franchisee or the managing
owner or any managing director engages in conduct that reflects unfavorably
on the franchisee or the Burger King system generally. Although not required
under their franchise agreements with BKC, the Company's subsidiaries may
also, as a practical matter, be required to adopt price discount programs
instituted by BKC which could have a material adverse effect on the Company's
financial condition and results of operations.
BKC CONSENT TO ISSUANCE OF SECURITIES; CHANGE OF CONTROL.
Pursuant to BKC's franchise agreements, BKC's consent may be required for
certain transfers or issuances by the Company of its equity securities. In
addition, transfers that result in a change of control of the Company in
connection with a public tender offer may require BKC's consent. If BKC's
required consent is not obtained in connection with any such issuance or
transfer of the Company's equity securities, including in connection with a
public tender offer, BKC could terminate its franchise agreements with the
Company's subsidiaries, which would have a material adverse effect on the
Company's financial condition and results of operations. In addition, the
Company's financial flexibility and ability to issue equity securities in
connection with acquiring future Burger King restaurants could be limited by
BKC. Any such limitation would affect the Company's growth strategy and could
have a material adverse effect on the Company's financial condition and
results of operations.
BKC INDEMNITY AGREEMENT.
In connection with the Offerings, the Company will be required to enter
into an agreement with BKC pursuant to which the Company will (i) indemnify
BKC for any claims against BKC arising out of the Offerings and (ii) be
prohibited, absent BKC's consent, from appointing certain classes of persons,
including officers of competing quick-service hamburger restaurant concepts
and BKC employees and suppliers, from serving on the boards of directors of
the Company or its subsidiaries. See "Business--Franchise Agreements,"
"Description of Capital Stock--Anti-Takeover Effects of Delaware Law and the
BKC Franchise Agreements" and "Certain Transactions."
DEPENDENCE UPON BURGER KING CORPORATION
The Company's financial performance is directly related to the success of
the Burger King restaurant system, including the management and financial
condition of BKC as well as restaurants operated by other Burger King
franchisees. The inability of Burger King restaurants to compete effectively
with other quick-service restaurants would have a material adverse effect on
the Company's operations. The success of Burger King restaurants depends in
part on the effectiveness of BKC's marketing efforts, new product development
programs, quality assurance and other operational systems over which the
Company has no control. For example, adverse publicity involving BKC or one
or more Burger King franchisees could have an adverse effect on all Burger
King franchisees, including the Company. See "Business--Burger King
Corporation" and "--Competition."
RISKS OF EXPANSION AND DEVELOPMENT
The Company intends to expand rapidly in the future through the
acquisition and development of additional Burger King restaurants. This
expansion could significantly increase the number of restaurants
9
APITAL PRINTING SYSTEMS]
<PAGE>
operated by the Company. The Company currently intends to acquire an
additional 40 restaurants in the Michigan Acquisition and to develop 16 new
restaurants in fiscal 1996 (including four developed to date, with the
remaining 12 in the initial stages of development) and 34 new Burger King
restaurants in fiscal 1997. To date, the Company has had limited experience
in the development of Burger King restaurants and BKC exercises sole and
absolute discretion with respect to any development by its franchisees. The
Company's ability to achieve its expansion goals will depend on a number of
factors, including (i) the availability of existing franchises for sale and
suitable sites for new restaurant development, (ii) the availability of funds
for expansion, (iii) the consent of BKC, (iv) BKC not exercising its right of
first refusal on the sale of any franchise that the Company seeks to acquire,
(v) the hiring, training and retention of skilled management and other
restaurant personnel and (vi) the ability to obtain the necessary
governmental permits and approvals. No assurances can be made that the
Company's expansion plans will be achieved, that a new restaurant will be
operated profitably, that new restaurants (particularly acquired restaurants)
will be smoothly integrated into the Company's operations, or that such
expansion will not cannibalize sales at existing Company restaurants located
near newly opened restaurants. A substantial portion of the Company's capital
resources will be used for acquisitions and development of Burger King
restaurants. Consequently, the Company may require additional debt or equity
financing for future acquisitions, which additional financing may not be
available or, if available, may not be on terms that are acceptable to the
Company. In addition, the Credit Agreement and the New Credit Facility
(described below) contain restrictions on, among other things, new
acquisitions, capital expenditures and the incurrence of additional
indebtedness. Moreover, BKC may require that, as a condition to approving a
proposed restaurant acquisition or development opportunity, the Company limit
the amount of its proposed or future debt financing. The failure to continue
its expansion by acquisition or development of restaurant sites could have a
material adverse effect on the Company's performance.
LIMITED OPERATING HISTORY
The Company was formed on August 17, 1994 and has a limited operating
history. The board of directors of the Company (the "Board of Directors") and
executive officers have overall responsibility for the management of the
Company. Although certain of the Company's executive officers and directors
have extensive experience in the acquisition, development, operation and
financing of Burger King restaurants prior to the commencement of the
Company's operations, no executive officer of the Company had significant
experience in operating a business of the size and geographic diversity of
the Company.
LEVERAGE AND RELATED FINANCIAL AND OPERATING RESTRICTIONS
In connection with its acquisition of Burger King restaurants, the Company
has incurred substantial indebtedness resulting in a highly leveraged capital
structure. The Company and National Restaurant Enterprises, Inc.
("Enterprises"), the Company's principal operating subsidiary and parent
corporation to the Company's other subsidiaries, are parties to a Second
Amended and Restated Revolving Credit and Term Loan Agreement (the "Credit
Agreement"). At April 1, 1996, the Company had $127.9 million of long-term
debt outstanding, of which $89.0 million was outstanding under the Credit
Agreement. Concurrent with the consummation of the Offerings, the Company
will replace the Credit Agreement with a new credit agreement (the "New
Credit Facility"), which will, among other things, increase the Company's
borrowing capacity by $50 million. A portion of the net proceeds of the
Offerings, together with borrowings under the New Credit Facility, will be
used to repay in full amounts outstanding under the Credit Agreement and
other outstanding Company indebtedness. See "Use of Proceeds." On a pro forma
basis giving effect to (i) the Michigan Acquisition, (ii) the borrowing of
$82.6 million under the New Credit Facility, (iii) the Preferred Stock Merger
and (iv) the Offerings and the application of the net proceeds thereof at an
assumed initial public offering price of $15 per share (the mid-point of the
price range set forth on the cover of this Prospectus), the Company would
have had $90.8 million of debt and capital lease obligations outstanding at
April 1, 1996. See "Capitalization." The Company anticipates that it may
require additional debt financing for future acquisition and development
activities resulting in a more leveraged capital structure.
10
<PAGE>
To date, a substantial portion of the Company's cash flow has been devoted
to debt service. The ability of the Company to make payments of principal and
interest on outstanding indebtedness will be largely dependent upon its
future performance. Failure to generate sufficient cash flow from operations
will limit the Company's ability to expand through additional restaurant
acquisitions and development and could limit the Company's ability to obtain
additional financing. In addition, under the terms of the Credit Agreement
and the terms of the New Credit Facility, the Company is required and will be
required to meet certain financial covenants on a regular basis, including
minimum cash flow, debt service and interest coverage ratios, and is
restricted in its ability to incur additional indebtedness, create additional
liens, invest further in certain of its subsidiaries, engage in business
activities other than the ownership and operation of Burger King restaurants
or dispose of certain of its assets without obtaining the prior approval of
the lenders (the "Lenders"). If the Company is unable to generate sufficient
cash flow or otherwise obtain funds necessary to make required payments under
the Credit Agreement or the New Credit Facility, or if the Company fails to
comply with the various other covenants or restrictions contained in the
Credit Agreement or the New Credit Facility, the Lenders would be able to
accelerate the maturity of all amounts borrowed under the Credit Agreement or
the New Credit Facility to be due and payable, together with accrued and
unpaid interest, if any. If the Company is unable to repay its indebtedness
to the Lenders, the Lenders could foreclose on substantially all of the
tangible operating assets of the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Description of Certain Indebtedness--Credit
Agreement."
REGIONAL CONCENTRATION OF OPERATIONS
A substantial majority of the Company's Burger King restaurants are
located in the midwestern United States. Of the Company's 220 restaurants
(including the 40 restaurants to be acquired in the Michigan Acquisition),
113 or 51.4% are located in the Chicago, Illinois area, thereby exposing the
Company to adverse developments in the Chicago region's economy, weather
conditions, and demographic and population changes. While the Company intends
to expand into other regions of the United States, no assurances can be made
that the current geographic concentration of the Company's business will not
have a material adverse effect on the Company's financial condition and
results of operations. See "Business--Restaurant Locations."
COMPETITION
The quick-service restaurant industry is intensely competitive with
respect to price, product quality, variety and taste, speed of service,
convenience of location and restaurant cleanliness and upkeep. In each of its
markets, the Company's Burger King restaurants compete with large national
quick-service chains, some of which have greater financial and other
resources than the Company. McDonald's, Wendy's and Hardees are the Company's
principal competitors, and the Company's Burger King restaurants also compete
against locally-owned restaurants offering low-priced menus and
quick-service. To a lesser degree, the Company also competes against
quick-service chains offering alternative menus such as Taco Bell, Pizza Hut
and Kentucky Fried Chicken as well as convenience stores and grocery stores
that offer menu items comparable to that of Burger King restaurants. To the
extent that a competitor of the Company offers items which are better priced,
more appealing to consumer tastes or if such competitor increases the number
of restaurants it operates in one of the Company's targeted markets, this
could have a material adverse effect on the Company's financial condition and
results of operations. See "Business--Competition."
In addition, the Company faces competition in its expansion plans. The
Company's potential competitors in acquiring and developing Burger King
restaurants include BKC, which (i) has exercised its right of first refusal
with respect to previously proposed restaurant sales, (ii) controls the areas
in which new Burger King restaurant sites can be developed and (iii) may
impose, as a condition to its consent to any proposed acquisition or
development opportunity, conditions, limitations or other restrictions on the
Company and its activities. BKC has substantially greater financial resources
than the Company to fund acquisitions and restaurant development. There can
be no assurance that BKC will not (i) exercise its
11
<PAGE>
right of first refusal with respect to future restaurant acquisitions by the
Company, (ii) limit the areas in which the Company may develop restaurants or
(iii) impose significant or unacceptable conditions, limitations or other
restrictions on the Company and its activities. Other potential competitors
in acquiring and developing Burger King restaurants include other investors
and existing Burger King franchisees. The Company also competes with other
quick-service restaurant operators and developers for the most desirable site
locations. Many of the Company's competitors may have greater financial
resources than the Company to finance acquisition and development
opportunities or may be willing to pay higher prices for the same
opportunities. See "Business--Competition."
DEPENDENCE UPON SENIOR MANAGEMENT
The Company is dependent on the personal efforts, relationships and
abilities of its senior management team. The loss of services of any of these
individuals would have a material adverse effect on the future performance of
the Company. In addition, pursuant to the terms of BKC's franchise
agreements, the Company must receive BKC's consent prior to replacing Mr.
Jaro as its managing owner. In addition, Messrs. Jaro, Osborn and Hubert are
personally liable to BKC for the Company's obligations under each of its
franchise agreements and leases with BKC as the lessor. Following the
completion of the Offerings, the Company intends to seek the release of
Messrs. Jaro, Osborn and Hubert from these personal guarantees. To the extent
BKC requires the Company's senior management to continue to guarantee such
obligations, it may be more difficult for the Company to retain such
executives or replace these executives in the future with other qualified
individuals. The Company believes that its success is dependent on its
ability to attract and retain additional qualified employees, and the failure
to recruit such other skilled personnel could have a material adverse effect
on the Company's financial condition and results of operations. See
"Business--Employees," "--Franchise Agreements" and "Management--Employment
Agreements."
CONTROL BY PRINCIPAL STOCKHOLDERS
The Company's executive officers and directors (and their respective
affiliates, including The Jordan Company) will beneficially own an aggregate
of 36.0% of the Company's outstanding shares of Common Stock after the
Offerings (33.6% if the U.S. Underwriters' over-allotment option is exercised
in full). Such stockholders, if voting together, will have sufficient voting
power to elect the entire Board of Directors, exercise control over the
business, policies and affairs of the Company and, in general, determine the
outcome of any corporate transaction or other matters submitted to the
stockholders for approval such as (i) any amendment to the amended and
restated certificate of incorporation of the Company (the "Certificate of
Incorporation"), (ii) any merger, consolidation, sale of all or substantially
all of the assets of the Company, and (iii) any "going private" transaction,
and prevent or cause a change of control of the Company, all of which may
adversely affect the Company and its stockholders. See "Principal
Stockholders."
GOVERNMENT REGULATION
The restaurant business is subject to extensive laws and regulations
relating to the development and operation of restaurants, including zoning,
the preparation and sale of food and employer/employee relationships. Any
substantial increases in the minimum wage (including those currently under
consideration in the U.S. Congress) or mandatory health care coverage could
adversely affect the Company's financial condition and results of operations.
Violations of zoning or building codes or regulations could delay new
restaurant openings or the acquisition of existing restaurants. See
"Business--Government Regulation."
FACTORS AFFECTING OPERATIONS
A number of factors beyond the control of the Company may affect sales and
profitability of the Company, including, among other things, the strength of
regional economies where the Company operates, weather, gas prices and public
health concerns regarding certain foods served at quick-service
12
<PAGE>
restaurants. Severe weather conditions in some of the Company's principal
markets, such as Chicago, Illinois, may have a negative impact on customer
traffic, sales and restaurant contribution. An economic downturn in any of
the Company's regional markets may also have a similar effect.
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Certificate of Incorporation, the Company's
amended and restated bylaws (the "Bylaws"), BKC's franchise agreements and
BKC policies and procedures may delay, discourage or prevent a change in
control of the Company. Such provisions may also discourage bids for the
Common Stock at a premium over the market price of the Common Stock and may
adversely affect the market price and the voting and other rights of the
holders of Common Stock. In addition, the Board of Directors has the
authority without action by the Company's stockholders to fix the rights,
privileges and preferences of and to issue shares of the Company's preferred
stock, $.01 par value per share (the "Preferred Stock"), which may have the
effect of delaying, deterring or preventing a change in control of the
Company. The Company's Bylaws also impose various procedural and other
requirements that could make it more difficult for stockholders to effect
certain corporate actions. See "Business--Franchise Agreements," "Description
of Capital Stock--Certificate of Incorporation and Bylaws" and
"--Anti-Takeover Effects of the BKC Franchise Agreements."
LACK OF PRIOR PUBLIC MARKET FOR COMMON STOCK
Prior to the Offerings, there has been no public market for the Common
Stock. The Common Stock has been approved for trading on the Nasdaq National
Market under the symbol "AKNG," subject to official notice of issuance. There
can be no assurance, however, that an active public market will develop for
the Common Stock. The initial public offering price will be determined
through negotiations between the Company and the Representatives (as
hereinafter defined) of the U.S. Underwriters and the Managers, and may not
be indicative of the market price of the Common Stock after the completion of
the Offerings.
The market price of the Common Stock after the completion of the Offerings
could be subject to significant fluctuations in response to variations in the
Company's quarterly operating results and other factors. In addition, the
stock market in recent years has experienced broad price and volume
fluctuations which often have been unrelated to the operating performance of
companies. These broad fluctuations may also adversely affect the market
price of the Common Stock. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
After the completion of the Offerings, 13,600,000 shares of Common Stock
will be outstanding (assuming the consummation of the Preferred Stock Merger,
the exercise of all currently outstanding options and warrants and the
conversion of the Non-Voting Common Stock into Common Stock). Of such shares,
only the 6,420,000 shares sold pursuant to the Offerings will be tradeable
without restriction by persons other than "affiliates" of the Company. The
remaining 7,180,000 shares of Common Stock outstanding after the Offerings
will be "restricted securities" within the meaning of Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"), and may not be
publicly resold, except in compliance with the registration requirements of
the Securities Act or pursuant to an exemption from registration, including
that provided by Rule 144 promulgated under the Securities Act. No prediction
can be made as to the effect, if any, that future sales of shares, or the
availability of shares for future sale, will have on the market price of the
Common Stock prevailing from time to time. Sales of substantial amounts of
Common Stock, or the perception that such sales could occur, could adversely
affect the prevailing market price of the Common Stock.
The Company, the directors and executive officers of the Company, and each
holder of capital stock of the Company immediately prior to the Offerings
(including holders of options and warrants exercisable into shares of Common
Stock) have agreed that, for a period of 180 days after the date of this
Prospectus, they will not, without the prior written consent of Smith Barney
Inc., offer, sell, contract to sell or otherwise dispose of any Common Stock
or securities convertible, exercisable or exchangeable for
13
<PAGE>
Common Stock or grant any options or warrants to purchase Common Stock,
subject to certain exceptions. Upon expiration of the 180-day period,
7,180,000 shares of Common Stock (assuming the consummation of the Preferred
Stock Merger, the exercise of all currently outstanding options and warrants
and the conversion of the Non-Voting Common Stock into Common Stock) will be
eligible for immediate resale without restriction under the Securities Act,
subject to certain volume, timing and other requirements of Rule 144
promulgated under the Securities Act. The Company intends to file
Registration Statements on Form S-8 immediately following the Offerings to
register under the Securities Act an aggregate of 680,000 shares of Common
Stock covered by the Employee Benefit Plans. See "Management--Employee
Benefit Plans." In addition, after the consummation of the Offerings,
stockholders beneficially owning 7,180,000 shares of Common Stock and
Non-Voting Common Stock will be entitled to incidental registration rights
and certain stockholders of the Company will be entitled to demand
registration rights with respect to 2,913,437 shares of Common Stock and
Non-Voting Common Stock. After the expiration of the 180-day period, such
holders may choose to exercise such rights, which could result in a large
number of shares being sold in the public market and could have an adverse
effect on the market price for the Common Stock. See "Description of Capital
Stock--Registration Rights" and "Shares Eligible for Future Sale."
SUBSTANTIAL DILUTION
Based on an initial public offering price of $15.00 (the midpoint of the
price range set forth on the cover of this Prospectus), purchasers of the
Common Stock offered hereby will experience substantial dilution in the net
tangible book value per share of Common Stock of $18.77. As of the date of
this Prospectus, the Company had granted warrants and options to purchase an
aggregate of 781,011 shares of Common Stock, all of which will be exercisable
upon the consummation of the Offerings. All such warrants and options will be
immediately exercisable upon consummation of the Offerings and their exercise
has been assumed in the calculation of dilution set forth above. See
"Dilution."
ABSENCE OF DIVIDENDS
The Company has never declared or paid any dividends on the Common Stock
and does not anticipate paying any cash dividends on the Common Stock in the
foreseeable future. In addition, the Company's existing and future loan and
financing documents will likely restrict the Company's ability to pay
dividends. See "Dividend Policy" and "Description of Certain Indebtedness."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offerings at an assumed initial
public offering price of $15 per share (the mid-point of the price range set
forth on the cover of this Prospectus) are estimated to be approximately
$87.8 million (approximately $101.3 million if the U.S. Underwriters'
over-allotment option is exercised in full) after deducting estimated
underwriting discounts and expenses of the Offerings payable by the Company
of $8.5 million. The net proceeds from the Offerings, combined with
borrowings under the New Credit Facility, will be used (i) to finance the
Michigan Acquisition, (ii) to repay borrowings under the Credit Agreement,
(iii) to repay the Senior Subordinated Notes (including a prepayment
penalty), the Subordinated Notes, the BBI Note and the Seller Notes (each as
hereinafter defined and collectively referred to herein as the "Subordinated
Debt") and (iv) to redeem all of the shares of the various classes of the
Company's preferred stock issued and outstanding prior to the
Recapitalization (collectively, the "Original Preferred Stock") other than
the shares of Original Preferred Stock that will be cancelled pursuant to the
Preferred Stock Merger. Affiliates of the Company will receive a portion of
the proceeds from the Offerings. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources," "Business," "Certain Transactions," "Description of Certain
Indebtedness," "Description of Capital Stock--The Recapitalization" and
"Summary--The Michigan Acquisition."
The following table sets forth an estimated breakdown of the sources and
uses of funds, assuming a closing had taken place on April 1, 1996.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
SOURCES OF FUNDS:
Offerings (net proceeds) ........................ $ 87,800
Borrowings under New Credit Facility ............ 82,608
--------------
Total Sources ................................. $170,408
==============
USES OF FUNDS:
Finance Michigan Acquisition .................... $ 37,624(1)
Repay Credit Agreement Borrowings ............... 89,000(2)
Prepay Subordinated Debt (including a prepayment
penalty of $4,050) ............................. 35,050(3)
Redeem Original Preferred Stock ................. 6,984
Financing costs related to the New Credit
Facility ....................................... 1,750
Total Uses .................................... $170,408
==============
</TABLE>
(1) Reflects a $36,450 purchase price plus (i) a $640 estimated working
capital adjustment and (ii) $534 in estimated transaction expenses. See
"Business--Business Strategy--Growth by Acquisition" and the Pro Forma
Consolidated Financial Statements and the notes thereto included in
this Prospectus.
(2) Credit Agreement borrowings consist of (i) two term loans, $45,000
principal amount of term loans ("Term Loan A") which mature on January
31, 2002, and $40,000 principal amount of term loans ("Term Loan B")
which mature on January 31, 2004, and (ii) $4,000 principal amount of
revolving credit loans which mature on January 31, 2002. As of April 1,
1996, the weighted average interest rate with respect to all Credit
Agreement borrowings was 8.36%. See "Description of Certain
Indebtedness."
(3) Subordinated Debt consists of: (i) $15,000 principal amount of Senior
Subordinated Notes bearing interest at a rate of 12.5% per annum with a
scheduled maturity of January 31, 2005; (ii) $11,000 principal amount
of Subordinated Notes bearing interest at a rate of 12.75% per annum
with a scheduled maturity of August 31, 2005; (iii) a $4,050 prepayment
premium to be paid in connection with the repayment of the Senior
Subordinated Notes; (iv) a $600 principal amount BBI Note bearing
interest at a rate of 6% per annum with a scheduled maturity of March
31, 2005; and (v) $4,400 principal amount of Seller Notes bearing
interest at a rate of 12.75% per annum with a scheduled maturity of
August 31, 2005. See "Description of Certain Indebtedness."
15
<PAGE>
DIVIDEND POLICY
The Company has never declared or paid any dividends on its capital stock.
Enterprises has paid dividends to the Company from time to time in order to
permit the Company to pay interest on the Subordinated Notes, which the
Company intends to repay in full with the net proceeds of the Offerings. The
Company does not anticipate paying any dividends on the Common Stock in the
foreseeable future and intends to retain all available funds for use in the
operation and development of its business. The Board of Directors intends to
review the Company's dividend policy from time to time. Any payment of
dividends in the future will be at the discretion of the Board of Directors
and will be dependent on the earnings and financial requirements of the
Company and other factors, including the restrictions imposed by the General
Corporation Law of the State of Delaware ("Delaware Corporation Law") on the
payment of dividends, covenants restricting the payment of dividends in
existing and future loan and financing documents, and such other factors as
the Board of Directors deems relevant.
DILUTION
As of April 1, 1996, the net tangible book value of the Company was
$(99.0) million or $(13.94) per share. Net tangible book value per share is
defined as the total book value of tangible assets of the Company, less total
liabilities, divided by the number of shares of Common Stock outstanding.
After giving effect to: (i) the sale of 6,420,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $15 per share
(the midpoint of the price range set forth on the cover of this Prospectus
and after deducting estimated underwriting discounts and expenses of the
Offerings), (ii) the issuance of 80,000 shares of Common Stock to certain
entities controlled by Mr. Jaro pursuant to the Preferred Stock Merger; and
(iii) the Michigan Acquisition, the refinancing of the BKC Note, and the
establishment of the New Credit Facility, the pro forma net tangible book
value of the Company as of April 1, 1996 would have been $(51.3) million or
$(3.77) per share, representing an immediate increase in net tangible book
value of $10.17 per share to the existing stockholders and an immediate
dilution to new stockholders of $18.77 per share. The following table
illustrates the dilution per share to new stockholders:
<TABLE>
<CAPTION>
PER SHARE
-----------
<S> <C> <C>
Initial public offering price .............................. $15.00
Deficit in net tangible book value ........................ $(13.94)
Net increase in net tangible book value attributable to
the Offerings ............................................ 10.17
----------
Pro forma net tangible book value after the Offerings ..... (3.77)
-----------
Dilution to new investors .................................. $18.77
===========
</TABLE>
The following table summarizes, on a pro forma basis as of April 1, 1996,
the difference between (i) the number of shares of Common Stock which the
existing stockholders acquired since the Company's inception or which they
have a right to acquire within 60 days after the date of this Prospectus;
(ii) the number of shares of Common Stock purchased from the Company by new
investors in the Offerings; (iii) the total cash consideration paid by
existing stockholders and the new investors; and (iv) the average purchase
price per share paid by existing stockholders and the new investors (before
deducting the underwriting discounts and commissions and expenses of the
Offerings):
<TABLE>
<CAPTION>
AVERAGE
PRICE PER
SHARES PURCHASED TOTAL CONSIDERATION SHARE
----------------------- ------------------------ -----------
NUMBER PERCENT AMOUNT PERCENT
------------ --------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders
(1)(2) .................... 7,180,000 52.8% $ 1,301,125 1.3% $ 0.18
New stockholders ........... 6,420,000 47.2 96,300,000 98.7 15.00
------------ --------- ------------- --------- -----------
Total .................. 13,600,000 100.0% $97,601,125 100.0% $ 7.18
============ ========= ============= ========= ===========
</TABLE>
- ------------
(1) Does not include 680,000 shares of Common Stock reserved for issuance
under the Company's Employee Benefit Plans.
(2) Includes: (i) 709,987 shares of Non-Voting Common Stock (as hereinafter
defined) issuable upon exercise of immediately exercisable warrants
beneficially owned by BancBoston, (ii) 80,000 shares of Common Stock to
be distributed in the Preferred Stock Merger, and (iii) 71,024 shares
of Common Stock to be issued in the Stock Option Exercises. See
"Management--Employee Benefit Plans," "Principal Stockholders,"
"Description of Capital Stock--Non-Voting Common Stock" and "Certain
Transactions."
16
<PAGE>
CAPITALIZATION
The following table sets forth as of April 1, 1996, (i) the consolidated
capitalization of the Company and (ii) the pro forma consolidated
capitalization after giving effect to the Michigan Acquisition, the
refinancing of the BKC Note, the establishment of the New Credit Facility,
the Preferred Stock Merger and the Offerings and the application of the
estimated net proceeds therefrom at an assumed initial offering price of $15
per share (the mid-point of the price range set forth on the cover page of
this Prospectus) as described in "Use of Proceeds." This table should be read
in conjunction with the Consolidated Financial Statements and notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
APRIL 1, 1996
---------------------------
PRO FORMA, AS
ACTUAL(1) ADJUSTED(2)
---------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt and capital leases $ 12,231 $ 10,622
========== ===============
Long-term debt--less current portion:
Borrowings under the Credit Agreement .............. $ 83,100
Borrowings under New Credit Facility ............... $ 72,608
Subordinated Debt .................................. 31,000
Other long-term debt ............................... 1,712 7,421
---------- ---------------
Total long-term debt--less current portion ...... 115,812 80,029
Other long-term liabilities .......................... 149 149
Total long-term debt ................................. 115,961 80,178
---------- ---------------
Stockholders' equity:
Preferred Stock(3) .................................
Common Stock(4) .................................... 65
Non-Voting Common Stock ............................
Additional paid-in capital ......................... 7,600 89,035
Retained earnings (deficit) ........................ 754 (5,500)
---------- ---------------
Total stockholders' equity ....................... 8,354 83,600
---------- ---------------
Total capitalization ........................... $124,315 $163,778
========== ===============
</TABLE>
- -----------
(1) Historical capitalization of the Company as of April 1, 1996.
(2) Gives effect to the Michigan Acquisition, the refinancing of the BKC
Note, the establishment of the New Credit Facility, the Preferred Stock
Merger and the Offerings and the application of the estimated net
proceeds therefrom at an assumed initial offering price of $15 per
share (the mid-point of the price range set forth on the cover page of
this Prospectus), as if each had occurred as of April 1, 1996. For
information relating to the pro forma assumptions and adjustments, see
"Pro Forma Consolidated Financial Statements" and the notes thereto
included in this Prospectus.
(3) Due to rounding, the "Actual" column does not reflect the Company's
outstanding Original Preferred Stock with a total par value of seventy
five dollars, which will be redeemed in full with a portion of the net
proceeds of the Offerings and through the consummation of the Preferred
Stock Merger. See "Use of Proceeds" and "Description of Capital
Stock--The Recapitalization" and "Certain Transactions."
(4) Due to rounding, the "Actual" column does not reflect the Company's
outstanding common stock with a total par value of ten dollars.
17
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Each of the pro forma consolidated income statements of the Company for
fiscal 1995 and for the first quarter ended April 1, 1996 gives effect to
each of the following transactions as if each had occurred on January 1,
1995: (i) the Company's acquisition of a total of 18 restaurants from BKC and
two existing Burger King franchisees in three transactions, one in September
1995, one in October 1995 and one in November 1995, including five
restaurants in Colorado, nine in Tennessee, two in Illinois and two in
Georgia (collectively, the "1995 Acquisitions"); (ii) the Company's
acquisition of a total of 36 restaurants from two existing Burger King
franchisees in two transactions in February 1996, including 21 restaurants in
Virginia, three in North Carolina, seven in Kentucky, three in Ohio and two
in Indiana (collectively, the "1996 Acquisitions"); (iii) the refinancing of
the BKC Note; (iv) the establishment of the New Credit Facility; (v) the
Michigan Acquisition; (vi) the Preferred Stock Merger; and (vii) the
consummation of the Offerings and the application of the estimated net
proceeds therefrom as described in "Use of Proceeds." The pro forma
consolidated balance sheet as of April 1, 1996 gives effect to each of the
following transactions as if each had occurred on April 1, 1996: (i) the
refinancing of the BKC Note; (ii) the establishment of the New Credit
Facility; (iii) the Michigan Acquisition; (iv) the Preferred Stock Merger and
(v) the consummation of the Offerings and the application of the estimated
net proceeds therefrom at an assumed initial public offering price of $15 per
share (the mid-point of the price range set forth on the cover of this
Prospectus) as further described in "Use of Proceeds."
Subject to certain conditions, the Company has executed purchase
agreements to acquire 40 restaurants in the Grand Rapids, Michigan area in
the Michigan Acquisition for an aggregate cash purchase price (including a
working capital adjustment and estimated transaction costs) of approximately
$37.6 million. The Company anticipates that it will consummate the Michigan
Acquisition concurrently with the completion of the Offerings and that a
portion of the net proceeds of the Offerings will be used to fund the
Michigan Acquisition. See "Summary--The Michigan Acquisition." The Michigan
Acquisition is accounted for in the pro forma financial statements under the
purchase method of accounting. The total purchase price is allocated to
tangible and identifiable intangible assets and liabilities based on
management's estimate of their fair values with the excess of cost, including
transaction costs, over the fair value of the net assets acquired allocated
to goodwill. The actual assigned values for the acquired assets are estimated
and may be adjusted in the future in the event the Michigan Acquisition is
consummated.
The Company believes that the assumptions used in the pro forma financial
statements provide a reasonable basis on which to present the statements. The
pro forma financial statements are provided for information purposes only and
should not be construed to be indicative of the Company's results of
operations or financial position had the Offerings and the other events
described below been consummated on or as of the dates assumed, and are not
intended to project the Company's results of operations or its financial
position for any future period or as of any future date. The Pro Forma
Consolidated Financial Statements of the Company and accompanying notes
should be read in conjunction with the Historical Schedules of Restaurant
Contribution and the notes thereto and the audited Consolidated Financial
Statements of the Company and the notes thereto, each included elsewhere in
this Prospectus.
18
<PAGE>
PRO FORMA CONSOLIDATED INCOME STATEMENT
FOR FISCAL 1995
<TABLE>
<CAPTION>
ADJUSTMENTS
---------------------------------------------
1995 1996 1995 AND 1996
ACQUISITIONS ACQUISITIONS ACQUISITIONS
ACTUAL (1) (2) ADJUSTMENTS
--------- -------------- -------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Restaurant sales ........ $139,572 $14,399 $41,721 $
Restaurant operating
expenses:
Cost of sales .......... 44,798 4,846 13,116
Restaurant labor and
related costs ......... 34,526 4,037 10,254
Depreciation and
amortization .......... 4,927 321 436 1,381 (4)
Occupancy and other
operating expenses ... 38,930 3,834 12,393 (1,500)(5)
(241)(6)
--------- -------------- -------------- -------------
Total restaurant
operating expenses .. 123,181 13,038 36,199 (360)
--------- -------------- -------------- -------------
Restaurant contribution 16,391 1,361 5,522 360
General and
administrative expenses 5,904 799(7) 1,992(7) (463) (8)
(1,096) (8)
128 (9)
--------- -------------- -------------- -------------
Operating income ...... 10,487 562(11) 3,530(11) 1,791
Other income (expense):
Interest expense ....... (8,323) (4,463)(12)
Amortization of
deferred costs ........ (511) (367)(14)
Other income (expense),
net ................... 74
--------- -------------- -------------- -------------
Total other income
(expense), net ....... (8,760) (4,830)
--------- -------------- -------------- -------------
Income before income
taxes .................. 1,727 562(11) 3,530(11) (3,039)
Provision for income
taxes .................. 825 432 (16)
--------- -------------- -------------- -------------
Net income .............. $ 902 $ 562(11) $ 3,530(11) $ (3,471)
========= ============== ============== =============
Net income per share(21)
Weighted average shares
outstanding (in
thousands)(21) .........
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
ADJUSTMENTS
---------------------------------------
MICHIGAN MICHIGAN
PRO FORMA ACQUISITION ACQUISITION OFFERINGS PRO FORMA, AS
SUBTOTAL (3) ADJUSTMENTS ADJUSTMENTS ADJUSTED
--------- ------------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Restaurant sales ........ $195,692 $41,697 $ $ $237,389
Restaurant operating
expenses:
Cost of sales .......... 62,760 13,450 76,210
Restaurant labor and
related costs ......... 48,817 12,239 61,056
Depreciation and
amortization .......... 7,065 926 661 (4) 8,652
Occupancy and other
operating expenses ... 53,416 11,332 (358)(6) 64,390
--------- ------------- ----------- ----------- --------------
Total restaurant
operating expenses .. 172,058 37,947 303 210,308
--------- ------------- ----------- ----------- --------------
Restaurant contribution 23,634 3,750 (303) 27,081
General and
administrative expenses 7,264 1,443(7) (621) (8) (307) (10) 7,779
--------- ------------- ----------- ----------- --------------
Operating income ...... 16,370 2,307(11) 318 307 19,302
Other income (expense):
Interest expense ....... (12,786) 5,651 (13) (7,135)
Amortization of
deferred costs ........ (878) 603 (15) (275)
Other income (expense),
net ................... 74 74
--------- ------------- ----------- ----------- --------------
Total other income
(expense), net ....... (13,590) 6,254 (7,336)
--------- ------------- ----------- ----------- --------------
Income before income
taxes .................. 2,780 2,307(11) 318 6,561 11,966
Provision for income
taxes .................. 1,257 1,076 (17) 2,690 (18) 5,023
--------- ------------- ----------- ----------- --------------
Net income .............. $ 1,523 $ 2,307(11) $ (758) $3,871 $ 6,943(19)(20)
========= ============= =========== =========== ==============
Net income per share(21) $ 0.51
Weighted average shares
outstanding (in
thousands)(21) ......... 13,600
</TABLE>
19
<PAGE>
PRO FORMA CONSOLIDATED INCOME STATEMENT
FOR QUARTER ENDED APRIL 1, 1996
<TABLE>
<CAPTION>
ADJUSTMENTS
------------------------------
1996 1996
ACQUISITIONS ACQUISITIONS PRO FORMA
ACTUAL (2) ADJUSTMENTS SUBTOTAL
--------- -------------- -------------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Restaurant sales ........ $43,103 $3,454 $ $46,557
Restaurant operating
expenses:
Cost of sales .......... 14,033 1,121 15,154
Restaurant labor and
related costs ......... 11,059 938 11,997
Depreciation and
amortization .......... 1,669 44 132 (4) 1,845
Occupancy and other
operating expenses ... 12,101 1,169 (145) (5) 13,125
--------- -------------- -------------- -----------
Total restaurant
operating expenses .. 38,862 3,272 (13) 42,121
--------- -------------- -------------- -----------
Restaurant contribution 4,241 182 13 4,436
General and
administrative expenses 1,932 235(7) (143) (8) 2,031
7 (9)
--------- -------------- -------------- -----------
Operating income ...... 2,309 (53)(11) 149 2,405
Other income (expense):
Interest expense ....... (2,742) (300) (12) (3,042)
Amortization of
deferred costs ........ (224) (31) (14) (255)
Other income (expense),
net ................... (3) (3)
--------- -------------- -------------- -----------
Total other income
(expense), net ....... (2,969) (331) (3,300)
--------- -------------- -------------- -----------
Income before income
taxes .................. (660) (53)(11) (182) (895)
Provision for income
taxes .................. (271) (96)(16) (367)
--------- -------------- -------------- -----------
Net income .............. $ (389) $ (53)(11) $ (86) $ (528)
========= ============== ============== ===========
Net income per share(21)
Weighted average shares
outstanding (in
thousands)(21) .........
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
ADJUSTMENTS
---------------------------------------------
MICHIGAN
MICHIGAN ACQUISITION OFFERINGS PRO FORMA,
ACQUISITION (3) ADJUSTMENTS ADJUSTMENTS AS ADJUSTED
--------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Restaurant sales ........ $10,294 $ $ $56,851
Restaurant operating
expenses:
Cost of sales .......... 3,344 18,498
Restaurant labor and
related costs ......... 2,841 14,838
Depreciation and
amortization .......... 222 203 (4) 2,270
Occupancy and other
operating expenses ... 2,965 (169)(6) 15,921
--------------- ------------- ------------- --------------
Total restaurant
operating expenses .. 9,372 34 51,527
--------------- ------------- ------------- --------------
Restaurant contribution 922 (34) 5,324
General and
administrative expenses 281(7) (57) (8) (37) (10) 2,218
--------------- ------------- ------------- --------------
Operating income ...... 641(11) 23 37 3,106
Other income (expense):
Interest expense ....... 1,494 (13) (1,548)
Amortization of
deferred costs ........ 157 (15) (98)
Other income (expense),
net ................... (3)
--------------- ------------- ------------- --------------
Total other income
(expense), net ....... 1,651 (1,649)
--------------- ------------- ------------- --------------
Income before income
taxes .................. 641(11) 23 1,688 1,457
Provision for income
taxes .................. 272 (17) 692 (18) 597
--------------- ------------- ------------- --------------
Net income .............. $ 641(11) $(249) $ 996 $ 860(19)(20)
=============== ============= ============= ==============
Net income per share(21) $ 0.06
Weighted average shares
outstanding (in
thousands)(21) ......... 13,600
</TABLE>
20
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED INCOME STATEMENTS
The Pro Forma Consolidated Income Statements of the Company for fiscal
1995 and for the quarter ended April 1, 1996 give effect to the 1995
Acquisitions, the 1996 Acquisitions, the Michigan Acquisition, the Preferred
Stock Merger and the Offerings and the application of the estimated net
proceeds therefrom, as if each such transaction had occurred on January 1,
1995.
(1) Reflects restaurant contribution and the unaudited estimates of
general and administrative expenses for the restaurants acquired in
the 1995 Acquisitions for the period prior to their respective
acquisition by the Company, during which period such acquired
restaurants were operated by their prior owners. See the Historical
Schedules of Restaurant Contribution and the footnotes thereto
included elsewhere in this Prospectus. The "1995 Acquisitions"
consist of the September 12, 1995 asset purchase of five restaurants
in Colorado; the October 24, 1995 asset purchase of two restaurants
in Illinois; and the November 21, 1995 stock purchase of nine
restaurants in Tennessee and two in Georgia. Restaurant contribution
for such acquired restaurants subsequent to their acquisition is
included under "Actual" for fiscal 1995.
(2) Reflects restaurant contribution and the unaudited estimates of
general and administrative expenses for the restaurants acquired in
the 1996 Acquisitions for the period prior to their respective
acquisition, during which period such acquired restaurants were
operated by their prior owners. See the Historical Schedules of
Restaurant Contribution and the footnotes thereto included elsewhere
in this Prospectus. The "1996 Acquisitions" consist of two asset
purchases as of February 7, 1996: (i) seven restaurants in Kentucky,
three in Ohio and two in Indiana, and (ii) the acquisition of 21
restaurants in Virginia and three in North Carolina. Restaurant
contribution for such acquired restaurants subsequent to their
respective acquisition is included under "Actual" for the quarter
ended April 1, 1996.
(3) Reflects restaurant contribution and the unaudited estimates of
general and administrative expenses for the restaurants to be
acquired in the Michigan Acquisition. See the Historical Schedules of
Restaurant Contribution and the footnotes thereto included elsewhere
in this Prospectus. The "Michigan Acquisition" consists of the
proposed acquisition of 40 restaurants in the Grand Rapids, Michigan
area of which 37 were in operation during fiscal 1995 and 38 were in
operation during the quarter ended April 1, 1996. The other two
restaurants are expected to open in the third quarter of fiscal 1996.
(4) Reflects an increase in depreciation and amortization expense arising
from the Company's increased basis in acquired tangible restaurant
assets (restaurant equipment, signs and decor) and intangible assets
(franchise agreements and goodwill). For fiscal 1995, the $1,381
adjustment for the 1995 and 1996 Acquisitions consists of $141 and
$1,240 pertaining to the 1995 Acquisitions and the 1996 Acquisitions,
respectively.
(5) Reflects a decrease in occupancy and other operating expenses
resulting from a decrease in equipment rental expense relating to the
purchase of certain restaurant equipment previously leased in the
1996 Acquisitions. For fiscal 1995, the full amount of the $1,500
decrease for the 1995 and 1996 Acquisitions pertains to the 1996
Acquisitions.
(6) Reflects an overall decrease in occupancy and other operating
expenses resulting from a decrease in rental expense reflecting more
favorable leasing terms negotiated by the Company in connection with
the acquisition of certain restaurants. For fiscal 1995, the $241
adjustment for the 1995 and 1996 Acquisitions consists of a $44
increase and $285 decrease in rental expense pertaining to the 1995
Acquisitions and the 1996 Acquisitions, respectively.
(7) The amounts set forth reflect the Company's estimates of general and
administrative expenses of the prior owners of the acquired
restaurants, based upon unaudited information provided by the prior
owners to the extent that such information was available. See Notes
to Historical Schedules of Restaurant Contribution.
(8) The adjustments to general and administrative expenses reflect cost
savings resulting from employee terminations and other consequences
of the acquisition of Burger King restaurants by the Company, net of
additional costs incurred by the Company to operate the acquired
restaurants.
<TABLE>
<CAPTION>
FISCAL 1995:
1995 1996 MICHIGAN
ACQUISITIONS ACQUISITIONS ACQUISITIONS
-------------- -------------- -------------
<S> <C> <C> <C>
Employee termination and corresponding decrease in
compensation and benefit expense ............................. $(394) $ (754) $(693)
Employee hiring and corresponding increase in compensation
and benefit expense .......................................... 56 -- 208
Reduction in overhead expense as a result of the consolidation
of seller administrative functions at the Company's
headquarters ................................................. -- (104) (33)
Non-recurring legal and related expenses incurred by the sellers
in connection with the sale of Burger King restaurants to the
Company ...................................................... (125) (238) (103)
-------------- -------------- -------------
Total ..................................................... $(463) $(1,096) $(621)
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED APRIL 1, 1996:
1996 MICHIGAN
ACQUISITIONS ACQUISITIONS
-------------- -------------
<S> <C> <C>
Employee termination and corresponding decrease in
compensation and benefit expense ............................ $ (132) $(145)
Employee hiring and corresponding increase in compensation
and benefit expense ......................................... -- 119
Reduction in overhead expense as a result of the consolidation
of seller administrative functions at the Company's
headquarters ................................................ (11) (17)
Non-recurring legal and related expenses incurred by the sellers
in connection with the sale of Burger King restaurants to the
Company ...................................................... -- (14)
-------------- -------------
Total ..................................................... $ (143) $ (57)
============== =============
</TABLE>
(9) Reflects an increase in management fees payable under the management
consulting agreement (the "TJC Consulting Agreement") with an
affiliate of The Jordan Company. For fiscal 1995, the $128 adjustment
for the 1995 and 1996 Acquisitions consists of $20 and $108
pertaining to the 1995 Acquisitions and the 1996 Acquisitions,
respectively. See "Certain Transactions."
(10) Reflects a change in management fees due to the amendment of certain
provisions of the TJC Consulting Agreement. See "Certain
Transactions."
(11) Presented for informational and referencing purposes only.
(12) Reflects an increase in interest expense associated with an aggregate
increase in average net borrowings for the 1995 and 1996 Acquisitions
(in the case of the fiscal 1995 pro forma income statement) and for
the 1996 Acquisitions (in the case of the first quarter ended April
1, 1996). For fiscal 1995, the $4,463 adjustment for the 1995 and
1996 Acquisitions consists of $567 and $3,896 pertaining to the 1995
Acquisitions and the 1996 Acquisitions, respectively.
(13) Reflects the application of a portion of the estimated net proceeds
of the Offerings to pay or prepay aggregate borrowings.
(14) Reflects the amortization of deferred financing and organizational
costs on a straight line basis over seven and five years,
respectively. For fiscal 1995, the $367 adjustment for the 1995 and
1996 Acquisitions consists of $18 and $349 pertaining to the 1995
Acquisitions and the 1996 Acquisitions, respectively.
(15) Reflects a change in amortization expense relating to the write-off
of deferred financing costs associated with the prepayment of the
Subordinated Debt and the repayment of the existing Credit Agreement,
offset by the amortization expense of the deferred financing costs of
the New Credit Facility.
(16) Represents the incremental tax effect of the pro forma adjustments
assuming an effective corporate tax rate of 41.0%. For fiscal 1995,
the $432 increase relates to $1,053 of incremental income before
income taxes comprised of $562 for the 1995 Acquisitions, $3,530 for
the 1996 Acquisitions and $(3,039) for the adjustments to restaurant
operating expenses, corporate overhead and capital structure arising
from the 1995 and 1996 Acquisitions. For the first quarter ended
April 1, 1996, the $96 decrease relates to $235 of incremental loss
before income taxes comprised of $53 of incremental loss for the 1996
Acquisitions and $182 for the adjustments to restaurant operating
expenses, corporate overhead and capital structure arising from the
1996 Acquisitions.
(17) Represents the incremental tax effect of the Michigan pro forma
adjustments assuming an effective corporate tax rate of 41.0%. For
fiscal 1995, the $1,076 increase relates to the $2,625 of incremental
income before income taxes comprised of $2,307 for the Michigan
Acquisition and $318 for the adjustments to restaurant operating
expenses, corporate overhead and capital structure arising from the
Michigan Acquisition. For the first quarter ended April 1, 1996, the
$272 increase relates to the $664 of incremental income before income
taxes comprised of $641 for the Michigan Acquisition and $23 for the
adjustments to restaurant operating expenses, corporate overhead and
capital structure arising from the Michigan Acquisitions.
(18) Represents the incremental tax effect of the Offerings pro forma
adjustments assuming an effective corporate tax rate of 41.0%.
(19) Does not reflect anticipated future increases in salary expenses
under the Company's employment agreements with its executive
officers. See "Management--Employment Agreements."
(20) The pro forma statements of income do not give effect to an
extraordinary pre-tax charge which the Company expects to incur
immediately following the close of the Offerings. If such pre-tax
charge were taken at the beginning of fiscal 1995, such charge would
have been approximately $10,115 (approximately $5,968 on an after-tax
basis, or $0.44 per share), consisting of (i) an approximate $2,240
(approximately $1,321 on an after-tax basis) write-off of deferred
financing costs related to the repayment of the Subordinated Debt,
(ii) an approximate $3,825 (approximately $2,257 on an after-tax
basis) write-off of deferred financing costs related to the repayment
of the existing Credit Agreement and (iii) an approximate $4,050
(approximately $2,390 on an after-tax basis) prepayment premium
incurred in connection with the repayment of the Subordinated Debt.
(21) Net income per share was computed using the weighted average number
of shares of Common Stock outstanding assuming the exercise of all
currently exercisable options and warrants and the consummation of
the Offerings and the Preferred Stock Merger.
22
<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF APRIL 1, 1996
<TABLE>
<CAPTION>
ADJUSTMENTS
-----------------------------
MICHIGAN OFFERINGS PRO FORMA, AS
ACTUAL ACQUISITION ADJUSTMENTS ADJUSTED
---------- ------------- -------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........ $ 4,580 $ 40(1) $ 4,620
Accounts receivable .............. 771 771
Inventory ........................ 1,236 240(2) 1,476
Prepaid expenses ................. 1,667 360(3) 2,027
---------- ------------- -------------- -------------
Total current assets ........... 8,254 640 8,894
PROPERTY AND EQUIPMENT ............. 35,172 8,811(4) 43,983
GOODWILL ........................... 97,326 26,913(5) 124,239
OTHER ASSETS:
Deferred financing costs ......... 5,531 $ (3,640) (6) 1,891
Deferred organization costs ...... 205 205
Franchise agreements ............. 4,270 1,260(7) 5,530
Deferred income taxes ............ 3,081 (8) 3,081
---------- ------------- -------------- -------------
Total other assets ............. 10,006 1,260 (559) 10,707
---------- ------------- -------------- -------------
TOTAL ASSETS ....................... $150,758 $37,624 $ (559) $187,823
========== ============= ============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and other accrued
expenses ........................ $ 8,378 $ 8,378
Accrued payroll .................. 2,145 2,145
Accrued sales tax payable ........ 1,395 1,395
Accrued interest payable ......... 1,505 1,505
Current portion of long-term debt 12,126 $ (1,609) (9) 10,517
Current portion of capital leases 105 105
---------- ------------- -------------- -------------
Total current liabilities ...... 25,654 (1,609) 24,045
LONG-TERM DEBT--Less current
portion ............................ 115,812 $37,624(10) (73,407)(11) 80,029
OTHER LONG-TERM LIABILITIES ....... 149 149
DEFERRED INCOME TAXES .............. 789 (789)(8)
---------- ------------- -------------- -------------
TOTAL LIABILITIES .................. 142,404 37,624 (75,805) 104,223
---------- ------------- -------------- -------------
STOCKHOLDERS' EQUITY
Preferred Stock ..................
Common stock ..................... 65 (12) 65
Additional paid-in capital ....... 7,600 81,435 (13) 89,035
Retained earnings (deficit) ...... 754 (6,254)(14) (5,500)
---------- ------------- -------------- -------------
Total stockholders' equity ..... 8,354 75,246 83,600
---------- ------------- -------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY .............. $150,758 $37,624 $ (559) $187,823
========== ============= ============== =============
</TABLE>
23
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
The Pro Forma Consolidated Balance Sheet of the Company as of April 1,
1996 gives effect to the consummation of the Michigan Acquisition, the
refinancing of the BKC Note, the establishment of the New Credit Facility,
the Preferred Stock Merger and the consummation of the Offerings and the
application of the estimated net proceeds therefrom, as if each such
transaction had occurred on April 1, 1996.
(1) Reflects the acquisition of restaurant cash on hand in the Michigan
Acquisition.
(2) Reflects the acquisition of inventory in the Michigan Acquisition.
(3) Reflects the acquisition of prepaid expenses in the Michigan
Acquisition.
(4) Reflects the acquisition of restaurant property and equipment in the
Michigan Acquisition.
(5) Goodwill represents the excess of the total cost of the assets to be
acquired in the Michigan Acquisition plus transaction costs over
their fair value. Amounts for the Michigan Acquisition are estimated.
(6) Reflects a decrease in deferred financing costs relating the
prepayment of the Subordinated Debt and costs related to the existing
Credit Agreement which is partially offset by an increase in
financing costs pertaining to the New Credit Facility. See Note 14.
(7) Reflects the value of the BKC franchise agreements to be acquired in
the Michigan Acquisition.
(8) Reflects the net income tax benefit to be received upon the write-off
of deferred financing costs and prepayment penalties paid in
connection with the prepayment of Subordinated Debt. See Note 14.
(9) Represents the refinancing of the BKC Note in the principal amount of
$6,103 ($394 on a short term basis and $5,709 on a long term basis)
and the reclassification of $4,100 reclassification of indebtedness
under the New Credit Facility from long-term to current debt due to
the change in amortization schedules under the New Credit Facility.
(10) Represents additional borrowings to fund the Michigan Acquisition.
(11) Reflects the repayment of indebtedness.
(12) Reflects the issuance of 6.5 million shares of Common Stock, $.01 par
value per share, in the Offerings and the Preferred Stock Merger.
(13) Reflects (i) the redemption (with a portion of the net proceeds of
the Offering) and cancellation (through the consummation of the
Preferred Stock Merger) of the Original Preferred Stock and the
related $7,500 reduction to paid in capital and (ii) the issuance of
Common Stock in the Offerings and the Preferred Stock Merger and the
related $88,935 increase in paid in capital at an assumed initial
public offering price of $15 per share (the mid-point of the price
range set forth on the cover of this Prospectus).
(14) Reflects the extraordinary pre-tax charge which the Company expects
to incur immediately following the close of the Offerings. If such
pre-tax charge were taken at the end of the first quarter ended April
1, 1996, such charge would have been approximately $9,440
(approximately $5,570 on an after-tax basis, or $0.41 per share),
consisting of (i) an approximate $2,014 (approximately $1,188 on an
after-tax basis) write-off of deferred financing costs related to the
repayment of the Subordinated Debt, (ii) an approximate $3,376
(approximately $1,992 on an after-tax basis) write-off of deferred
financing costs related to the repayment of the existing credit
agreement and (iii) an approximate $4,050 (approximately $2,390 on an
after-tax basis) prepayment premium incurred in connection with the
repayment of the Subordinated Debt. In addition, reflects cumulative
paid-in-kind dividends of $684 to be paid in connection with the
redemption and cancellation of the Original Preferred Stock
(including pursuant to the Preferred Stock Merger).
24
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The financial data set forth below are derived from the consolidated
financial statements of the Company and the Historical Schedules of
Restaurant Contribution. The data presented for the Initial Acquisitions as
of and for the year ended December 31, 1993 and for the period from January
1, 1994 through September 1, 1994 are derived from the audited Historical
Schedules of Restaurant Contribution for the 68 BKC Restaurants and the 14
Management Restaurants formerly owned and operated by BKC and entities
controlled by certain members of the Company's current management. Prior to
their acquisition by the Company on September 2, 1994, the BKC Restaurants
and the Management Restaurants were not under common control or management.
In addition, restaurant contribution for the BKC Restaurants and the
Management Restaurants, which reflects restaurant sales net of restaurant
operating expenses, does not reflect all costs of operating the BKC
Restaurants and Management Restaurants. Accordingly, restaurant sales,
restaurant operating expenses and restaurant contribution may not be
comparable to or indicative of post-acquisition results. The data presented
for the Company as of December 31, 1994 and for the period from September 2,
1994 through December 31, 1994, and for the fiscal year ended January 1, 1996
are derived from the Company's audited financial statements appearing
elsewhere herein. The audited Historical Schedules of Restaurant Contribution
and financial statements of the Company were each audited by Deloitte &
Touche LLP. The data presented for the Company for the quarters ended March
31, 1995 and April 1, 1996 and as of April 1, 1996 are derived from the
unaudited financial statements of the Company, appearing elsewhere herein,
and in the opinion of management include all adjustments (consisting only of
normal recurring adjustments) which the Company considers necessary for a
fair presentation of the Company's results of operations and financial
condition for those periods. The data for the quarter ended April 1, 1996 are
not necessarily indicative of results that may be expected for any other
interim period or for the fiscal year ending December 30, 1996. The Selected
Consolidated Financial Information should be read in conjunction with (i)
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", (ii) the audited Historical Schedules of Restaurant Contribution
and the notes thereto, (iii) the audited financial statements for the Company
and the notes thereto and (iv) the Pro Forma Consolidated Financial
Statements, each included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THE INITIAL
ACQUISITIONS(1)(2)
--------------------------
JAN. 1, 1994
FISCAL THROUGH
1993 SEPT. 1, 1994
--------- ---------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT DATA:
<S> <C> <C>
Restaurant sales ................. $82,895 $56,720
Restaurant operating expenses:
Cost of sales .................... 25,832 18,602
Restaurant labor and related
costs ............................ 21,998 15,529
Depreciation and amortization ... 2,062 1,366
Occupancy and other operating
expenses ......................... 26,405 17,854
--------- ---------------
Total restaurant operating
expenses ...................... 76,297 53,351
--------- ---------------
Restaurant contribution .......... $ 6,598 $ 3,369
========= ===============
General and administrative
expenses ........................
Operating income .................
Other income (expense):
Interest expense ................
Amortization of deferred costs ..
Other income (expense), net .....
Total other income (expense) ...
Income (loss) before income taxes
Provision for income taxes .......
Net income (loss) ................
Net income per share(6) ..........
Weighted average shares number of
outstanding (in thousands)(6) ....
SELECTED OPERATING DATA:
Restaurants open at end of period 82 82
Average sales per restaurant(7) .. $ 1,011
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
THE COMPANY
---------------------------------------------------------------------------------
FIRST QUARTER ENDED
-------------------------------------
FISCAL 1995 APRIL 1, 1996
SEPT. 2, 1994 -------------------------- ---------- -------------------------
THROUGH PRO FORMA, MAR. 31, PRO FORMA,
DEC. 31, 1994(3) ACTUAL AS ADJUSTED(4) 1995 ACTUAL AS ADJUSTED(4)
-------------- ---------- -------------- ---------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Restaurant sales ................. $33,931 $139,572 $237,389 $30,967 $43,103 $56,851
Restaurant operating expenses:
Cost of sales .................... 10,807 44,798 76,210 9,938 14,033 18,498
Restaurant labor and related
costs ............................ 8,647 34,526 61,056 8,291 11,059 14,838
Depreciation and amortization ... 1,193 4,927 8,652 1,182 1,669 2,270
Occupancy and other operating
expenses ......................... 9,229 38,930 64,390 8,927 12,101 15,921
-------------- ---------- -------------- ---------- --------- --------------
Total restaurant operating
expenses ...................... 29,876 123,181 210,308 28,338 38,862 51,527
-------------- ---------- -------------- ---------- --------- --------------
Restaurant contribution .......... 4,055 16,391 27,081 2,629 4,241 5,324
General and administrative
expenses ........................ 1,374 5,904 7,779 1,203 1,932 2,218
-------------- ---------- -------------- ---------- --------- --------------
Operating income ................. 2,681 10,487 19,302 1,426 2,309 3,106
Other income (expense):
Interest expense ................ (1,925) (8,323) (7,135) (2,036) (2,742) (1,548)
Amortization of deferred costs .. (104) (511) (275) (123) (224) (98)
Other income (expense), net ..... (220) 74 74 36 (3) (3)
-------------- ---------- -------------- ---------- --------- --------------
Total other income (expense) ... (2,249) (8,760) (7,336) (2,123) (2,969) (1,649)
-------------- ---------- -------------- ---------- --------- --------------
Income (loss) before income taxes 432 1,727 11,966 (697) (660) 1,457
Provision for income taxes ....... 191 825 5,023 (333) (271) 597
-------------- ---------- -------------- ---------- --------- --------------
Net income (loss) ................ $ 241 $ 902 $ 6,943(5) $ (364) $ (389) $ 860(5)
============== ========== ============== ========== ========= ==============
Net income per share(6) .......... $ 0.51 $ 0.06
Weighted average shares number of
outstanding (in thousands)(6) .... 13,600 13,600
SELECTED OPERATING DATA:
Restaurants open at end of period 121 140 213 121 178 216
Average sales per restaurant(7) .. $ 1,125 $ 1,147 $ 256 $ 263 $ 265
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
THE INITIAL ACQUISITIONS
--------------------------
JAN. 1, 1994
FISCAL THROUGH SEPT.
1993 1, 1994
--------- ---------------
<S> <C> <C>
SUPPLEMENTAL DATA(8)(9):
RESTAURANT SALES:
BKC Restaurants ............... $70,667 $47,762
Management Restaurants:
Jaro restaurants ............. 10,115 7,400
Osborn restaurants ........... 2,113 1,558
--------- ---------------
Total for Initial
Acquisitions ............... $82,895 $56,720
========= ===============
RESTAURANT OPERATING EXPENSES:
BKC Restaurants ............... $65,263 $45,257
Management Restaurants:
Jaro restaurants ............. 9,166 6,718
Osborn restaurants ........... 1,868 1,376
--------- ---------------
Total for Initial
Acquisitions ............... $76,297 $53,351
========= ===============
RESTAURANT CONTRIBUTION:
BKC Restaurants .............. $ 5,404 $ 2,505
Management Restaurants:
Jaro restaurants ............ 949 682
Osborn restaurants .......... 245 182
--------- ---------------
Total for Initial
Acquisitions ............... $ 6,598 $ 3,369
========= ===============
</TABLE>
<TABLE>
<CAPTION>
APRIL 1, 1996
AS OF AS OF --------------------------
FISCAL 1994 FISCAL 1995 PRO FORMA AS
YEAR END YEAR END ACTUAL ADJUSTED
----------- ----------- ---------- --------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency) ......... $ (3,085) $(13,202) $(17,400) $(15,151)
Total assets ......................... 101,790 107,236 150,758 187,823
Long term debt and capitalized leases.. 81,050 79,270 115,961 80,178
Total stockholders' equity ........... 7,841 8,743 8,354 83,600
</TABLE>
- ------------
(1) The Initial Acquisitions consist of the 68 BKC Restaurants and the 14
Management Restaurants acquired by the Company on September 2, 1994
from BKC and from entities formerly controlled by certain members of
the Company's current management. The information set forth under
"Initial Acquisitions" reflects the combined historical financial
results of the BKC Restaurants and Management Restaurants for the
indicated period during which time the restaurants were owned and
operated by BKC and management-controlled entities. The results of the
Initial Acquisitions for fiscal 1993 and the period from January 1,
1994 through September 1, 1994 may not be reflective of the ongoing
operations of the Company under its current ownership structure.
(2) Due to the inability of the Company to determine certain expenses for
the Initial Acquisitions prior to their acquisition by the Company on a
meaningful and consistent basis, net income is not comparable and is
not presented for the Initial Acquisitions.
(3) Reflects the historical results of the Company, including the Initial
Acquisitions subsequent to their acquisition by the Company on
September 2, 1994. Also includes limited expenses of the Company during
the period August 17, 1994 (date of incorporation) to September 2,
1994, during which period the Company had no operations.
(4) Pro forma, as adjusted, to reflect (i) the 1995 Acquisitions, (ii) the
1996 Acquisitions, (iii) the Michigan Acquisition and (iv) the
Offerings, including the application of the estimated net proceeds
therefrom at an assumed initial public offering price of $15 per share
(the mid-point of the price range set forth on the cover of this
Prospectus), as if all such events occurred on January 1, 1995. See
"Use of Proceeds" and "Pro Forma Consolidated Financial Statements."
(5) The pro forma income statements do not give effect to an extraordinary
pre-tax charge which the Company expects to incur immediately following
the close of the Offerings. If such pre-tax charge were taken at the
beginning of fiscal 1995, such charge would have been approximately
$10,115 (approximately $5,968 on an after-tax basis or $0.44 per
share), consisting of (i) an approximate $2,240 (approximately $1,321
on an after-tax basis) write-off of deferred financing costs related to
the repayment of the Subordinated Debt, (ii) an approximate $3,825
(approximately $2,257 on an after-tax basis) write-off of deferred
financing costs related to the repayment of the existing Credit
Agreement and (iii) an approximate $4,050 (approximately $2,390 on an
after-tax basis) prepayment premium incurred in connection with the
repayment of the Subordinated Debt.
(6) Net income per share was computed using the weighted average number of
shares of Common Stock outstanding assuming the exercise of all
currently exercisable options and warrants and the consummation of the
Offerings and the Preferred Stock Merger.
(7) Reflects the results of only those restaurants operating for the entire
period.
(8) Sets forth for the Initial Acquisitions the components constituting
aggregate restaurant sales, restaurant operating expenses and
restaurant contributions for the indicated periods. See the Historical
Schedules of Restaurant Contribution and the notes thereto with respect
to the Initial Acquisitions.
(9) Jaro restaurants consist of the 11 Management Restaurants acquired from
entities owned or controlled by Lawrence Jaro, the Company's current
Chief Executive Officer and Chairman of the Company's Board of
Directors. Osborn restaurants consist of the three Management
Restaurants acquired from entities owned or controlled by William
Osborn, the current Vice Chairman of the Company's Board of Directors.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a leading independent Burger King franchisee, with pro
forma fiscal 1995 restaurant sales of $237.4 million. The Company was
incorporated in August 1994 to effect the acquisition of the 68 BKC
Restaurants and the 14 Management Restaurants. Subsequently, the Company has
grown primarily through the acquisition of Burger King restaurants, including
the acquisition of 39 restaurants in 1994, 18 restaurants in 1995 and 36
restaurants in 1996. In addition, the Company has developed five Burger King
restaurants.
Each of the Company's Burger King restaurants operates under a separate
franchise agreement between BKC and the Company's subsidiaries which
generally has a term of 20 years and requires payment of a monthly royalty
fee to BKC equal to 3.5% of each restaurant's sales and a monthly advertising
contribution of 4.0% of sales. The franchise agreements are generally
renewable, subject to certain conditions being met by the Company and payment
by the Company's subsidiaries of a successor franchise fee. The franchise
agreements require the Company's subsidiaries to pay an initial franchise fee
(currently $40,000) for each new restaurant opened and to pay a successor
franchise fee (equal to the then-current franchise fee) upon renewal. The
Company amortizes these franchise fees over the terms of the related
franchise agreements. See "Business--Franchise Agreements."
To date the Company has grown principally through the acquisition of
existing Burger King restaurants. As the Company acquires additional Burger
King restaurants, it capitalizes the value of the acquired franchise
agreements based on the number of years remaining on their terms and the
franchise fee in effect at the time of acquisition (currently, $2,000 per
year) and it capitalizes excess cost over fair value of the other net assets
acquired and amortizes for financial statement purposes the goodwill expense
over a 35-year period. The Company generally purchases assets and is able to
deduct goodwill amortization expense for tax purposes over a 15-year period.
Restaurant sales include food sales and merchandise sales. Merchandise
sales include convenience store sales at the Company's dual-use facilities
(of which the Company currently has five), as well as sales of promotional
products at the Company's restaurants. Historically, merchandise sales have
contributed less than 2.5% to restaurant sales. Promotional products, which
account for the majority of merchandise sales, are generally sold at or near
the Company's costs.
Restaurant contribution is defined as restaurant sales less restaurant
operating expenses other than general and administrative expenses such as
office overhead and non-restaurant supervisory management. As a result,
restaurant contribution does not include all of the Company's costs of doing
business.
The Company includes in the comparable restaurant sales analysis discussed
below only those restaurants that have been in operation for a minimum of
thirteen months. For a restaurant not operating for the entire prior annual
period, the sales for the quarterly period in the prior year are compared to
that for the comparable quarterly period in the indicated year. The Company
includes newly acquired, existing restaurants in the comparable restaurant
sales analysis directly following the acquisition thereof.
On August 1, 1995, the Company converted its fiscal year to a 52/53 week
fiscal year. Due to the conversion, the 1995 fiscal year ended January 1,
1996 and included 366 days of operating activity. All fiscal years discussed
herein had a length of approximately 52 weeks.
RESULTS OF OPERATIONS
Prior to their acquisition by the Company on September 2, 1994, the 68 BKC
Restaurants and the 14 Management Restaurants (which constitute the Initial
Acquisitions) were not under common control or management. The table set
forth below combines the results of operations for the BKC Restaurants and
the Management Restaurants for the period from January 1, 1994 through
September 1, 1994 with the results of operations of the Company from
September 2, 1994 through December 31, 1994. The results of operations for
the Company also include limited expenses of the Company during the period
August 17,
27
<PAGE>
1994 (date of incorporation) to September 2, 1994, during which period the
Company had no operations. Prior to September 1, 1994, the BKC Restaurants
and the Management Restaurants were operated under a different management and
capitalization structure than that of the Company. Accordingly, the
information set forth below with respect to the Initial Acquisitions and the
"Combined" results for the Initial Acquisitions and the Company for fiscal
1994 is provided for the purposes of analysis only and may not be comparable
to or indicative of post-acquisition results. In addition, the results with
respect to the Initial Acquisitions and the "Combined" results may not be
representative of what the Company's results of operations would have been if
the Company had owned the BKC Restaurants and Management Restaurants for all
of fiscal 1993 and fiscal 1994.
<TABLE>
<CAPTION>
INITIAL INITIAL
ACQUISITIONS ACQUISITIONS THE COMPANY COMBINED
-------------- --------------- --------------- ----------
JAN. 1, 1994 SEPT. 2, 1994
THROUGH SEPT. THROUGH DEC. FISCAL
FISCAL 1993 1, 1994 31, 1994 1994
-------------- --------------- --------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Restaurant sales ....................... $82,895 $56,720 $33,931 $90,651
Restaurant operating expenses:
Cost of sales ......................... 25,832 18,602 10,807 29,409
Restaurant labor and related costs ... 21,998 15,529 8,647 24,176
Depreciation and amortization ......... 2,062 1,366 1,193 2,559
Occupancy and other operating expenses 26,405 17,854 9,229 27,083
-------------- --------------- --------------- ----------
Total restaurant operating expenses . 76,297 53,351 29,876 83,227
-------------- --------------- --------------- ----------
Restaurant contribution ................ $ 6,598 $ 3,369 $ 4,055 $ 7,424
============== =============== =============== ==========
</TABLE>
The following table sets forth, for the periods indicated, operating
results as a percentage of restaurant sales.
<TABLE>
<CAPTION>
AS A PERCENTAGE OF SALES
---------------------------------------------------------------------
THE COMPANY
--------------------------------------
FIRST QUARTER ENDED
-----------------------
INITIAL
ACQUISITIONS COMBINED MARCH 31, APRIL 1,
FISCAL 1993 FISCAL 1994 FISCAL 1995 1995 1996
-------------- ------------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Restaurant sales ....................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales .......................... 31.2 32.4 32.1 32.1 32.6
Restaurant labor and related costs .... 26.5 26.7 24.7 26.8 25.6
Depreciation and amortization .......... 2.5 2.8 3.6 3.8 3.9
Occupancy and other operating expenses 31.8 29.9 27.9 28.8 28.1
-------------- ------------- ------------- ----------- ----------
Restaurant operating expenses ......... 92.0 91.8 88.3 91.5 90.2
-------------- ------------- ------------- ----------- ----------
Restaurant contribution ................ 8.0% 8.2% 11.7 8.5 9.8
============== ============= ============= =========== ==========
General and administrative expenses ... 4.2 3.9 4.4
------------- ----------- ----------
Operating income ....................... 7.5 4.6 5.4
Other income (expense) ................. (6.3) (6.9) (6.9)
------------- ----------- ----------
Income (loss) before income taxes ..... 1.2 (2.3) (1.5)
Provision for income taxes ............. 0.6 (1.1) (0.6)
------------- ----------- ----------
Net income (loss) ...................... 0.6% (1.2)% (0.9)%
============= =========== ==========
</TABLE>
FIRST QUARTER 1996 ENDED APRIL 1, 1996 COMPARED TO FIRST QUARTER 1995 ENDED
MARCH 31, 1995
Restaurant Sales. Restaurant sales increased $12.1 million or 39.2% during
first quarter 1996 to $43.1 million from $31.0 million in first quarter 1995,
due primarily to the inclusion of a full quarter of operations for the five
restaurants purchased in September 1995, the two restaurants purchased in
October 1995, and the eleven restaurants purchased in November 1995. Sales
also increased due to the inclusion of a partial quarter of operations for
the 36 restaurants purchased in Virginia and Cincinnati in February 1996. In
addition, the Company developed one new restaurant in August 1995 and two new
28
<PAGE>
restaurants in February 1996. The inclusion of the newly acquired restaurants
accounted for $10.5 million of the total increase in restaurant sales, while
new restaurant development accounted for $0.5 million of the increase in
sales. Sales at the 121 comparable restaurants owned by the Company at the
end of the first quarter 1996 increased 2.3%. Menu prices remained stable
during the first quarter.
Restaurant Operating Expenses. Total restaurant operating expenses
increased $10.5 million, or 37.1% during the first quarter 1996, to $38.8
million from $28.3 million in first quarter 1995. As a percentage of
restaurant sales, restaurant operating expenses declined 1.3% to 90.2% in
first quarter 1996 from 91.5% in first quarter 1995. The first quarter is the
lowest average sales quarter of the year.
Cost of sales increased $4.1 million during first quarter 1996, and
increased 0.5% as a percentage of restaurant sales to 32.6% in the first
quarter 1996 from 32.1% in the first quarter 1995 due primarily to a 0.4%
increase in the cost of paper as a percentage of restaurant sales.
Additionally, the Company experienced a 0.2% decrease in the cost of food as
a percentage of restaurant sales created by improved shrinkage control at the
restaurants through the use of the Company's management information system
which was not in place during the first quarter of 1995. The cost of
promotional merchandise increased 0.3%.
Restaurant labor and related expenses increased $2.8 million during the
first quarter 1996, but decreased 1.2% as a percentage of restaurant sales to
25.6% in the first quarter 1996 from 26.8% in the first quarter 1995, due
primarily to improvements in group insurance costs over the larger restaurant
base and the successful application of the Company's management information
system as it relates to scheduling and labor control.
Depreciation and amortization increased $0.5 million during the first
quarter 1996, to $1.7 million in the first quarter 1996, from $1.2 million in
the first quarter 1995. As a percentage of restaurant sales, depreciation and
amortization expenses increased 0.1% to 3.9% in the first quarter 1996 from
3.8% in the first quarter 1995, due primarily to the increase in goodwill
amortization resulting from the purchase method of accounting for the newly
acquired restaurants.
Occupancy and other expenses increased $3.2 million during the first
quarter 1996, but decreased 0.7% as a percentage of restaurant sales to 28.1%
in the first quarter 1996 from 28.8% in the first quarter 1995. Occupancy
expense increased $1.1 million, but decreased 0.7% as a percentage of sales
to 11.2% in the first quarter 1996 from 11.9% in the first quarter 1995, due
primarily to lower effective rental rates (as a result of higher sales
increase at restaurants with sales below the additional percentage rent
threshold), and lower property taxes as a percentage of sales for the
acquired restaurants. Other expenses increased $2.0 million during first
quarter 1996, but remained constant as a percentage of restaurant sales at
16.9%.
Restaurant Contribution. Restaurant contribution increased $1.6 million or
61.3% to $4.2 million in the first quarter 1996 from $2.6 million in the
first quarter 1995. As a percentage of restaurant sales, restaurant
contribution increased 1.3% to 9.8% for the first quarter of 1996 from 8.5%
in the first quarter of 1995, due primarily to the improvements described
above.
Pro Forma Effect of Michigan Acquisition. On a pro forma basis, giving
incremental effect to the Michigan Acquisition, for the first quarter ended
April 1, 1996 the Company's restaurant sales would have increased by $10.3
million and restaurant contribution would have increased by $0.9 million.
FISCAL 1995 COMPARED TO FISCAL 1994
Restaurant Sales. Restaurant sales increased $48.9 million or 54.0% during
fiscal 1995, to $139.6 million from $90.7 million in fiscal 1994, due
primarily to the inclusion of a full year of operations for the 39
restaurants purchased in December 1994, and a partial year of operations for
the five restaurants purchased in September 1995, the two restaurants
purchased in October 1995 and the 11 restaurants purchased in November 1995.
The inclusion of these newly acquired restaurants accounted for $46.4 million
of the total increase in restaurant sales. In addition, the Company developed
a single new restaurant in August 1995. Sales at comparable restaurants for
all 139 restaurants owned by the Company
29
<PAGE>
at the end of fiscal 1995 declined 0.1%, primarily as a result of the
discontinuation of extensive promotional couponing at the 39 restaurants
acquired in December 1994. Comparable restaurant sales for the 82 restaurants
owned by the Company since its inception increased 1.7%. Restaurant menu
prices remained stable during the year.
Restaurant Operating Expenses. Total restaurant operating expenses
increased $40.0 million or 48.0% during fiscal 1995, to $123.2 million from
$83.2 million in fiscal 1994. As a percentage of restaurant sales, restaurant
operating expenses declined 3.5% to 88.3% in fiscal 1995 from 91.8% in fiscal
1994.
Cost of sales increased $15.4 million during fiscal 1995, but decreased
0.3% as a percentage of restaurant sales to 32.1% in fiscal 1995 from 32.4%
in fiscal 1994 due primarily to a 1.0% decline in food and paper costs as a
percentage of restaurant sales created by improved distribution efficiencies
from restaurant acquisitions. This decline was partially offset by a 0.7%
increase in the cost of promotional merchandise.
Restaurant labor and related expenses increased $10.4 million during
fiscal 1995, but decreased 2.0% as a percentage of restaurant sales to 24.7%
in fiscal 1995 from 26.7% in fiscal 1994, due primarily to improvements in
group insurance costs being applied over the larger restaurant base. In
addition, the successful application of the Company's information systems
technology within the restaurant base increased scheduling efficiency and
further reduced labor costs as a percentage of restaurant sales.
Depreciation and amortization increased $2.4 million during fiscal 1995,
to $4.9 million in fiscal 1995 from $2.5 million in fiscal 1994. As a
percentage of restaurant sales, depreciation and amortization expense
increased 0.8% to 3.6% in fiscal 1995 from 2.8% in fiscal 1994, due primarily
to the increase in goodwill amortization resulting from the purchase method
of accounting for the newly acquired restaurants.
Occupancy and other expenses increased $11.8 million during fiscal 1995,
but decreased 2.0% as a percentage of restaurant sales to 27.9% in fiscal
1995 from 29.9% in fiscal 1994. Occupancy expense increased $4.5 million, but
decreased 1.0% as a percentage of sales to 11.1% in fiscal 1995 from 12.1% in
fiscal 1994, due primarily to the negotiation of more favorable lease terms
under the Company's existing lease agreements. Other operating expenses
increased $7.3 million during fiscal 1995, but decreased 1.0% as a percentage
of restaurant sales to 16.8% in fiscal 1995 from 17.8% in fiscal 1994, due
primarily to the result of more favorable terms negotiated for general
liability insurance policies covering the Company's larger restaurant base.
Restaurant Contribution. Restaurant contribution increased $9.0 million or
120.8% to $16.4 million in fiscal 1995 from $7.4 million in fiscal 1994. As a
percentage of restaurant sales, restaurant contribution increased 3.5%, to
11.7% in fiscal 1995 from 8.2% in fiscal 1994, due primarily to the
improvements as described above.
Pro Forma Effect of Michigan Acquisition. On a pro forma basis, giving
incremental effect to the Michigan Acquisition, for fiscal 1995 the Company's
restaurant sales would have increased by $41.7 million and restaurant
contribution would have increased by $3.4 million.
FISCAL 1994 COMPARED TO FISCAL 1993
Restaurant Sales. Restaurant sales increased $7.8 million or 9.4% during
fiscal 1994 to $90.7 million from $82.9 million in fiscal 1993. This increase
was due in part to the acquisition of the 39 restaurants purchased in
December 1994 which accounted for 50% of the increase in total sales. In
addition, sales at comparable restaurants for all 121 restaurants owned by
the Company at the end of fiscal 1994 increased 4.4% as a result of the
impact of the introduction of Value Meals(Registered Trademark) in the
Company's restaurants.
Restaurant Operating Expenses. Total restaurant operating expenses
increased $6.9 million, or 9.1%, during fiscal 1994, to $83.2 million from
$76.3 million in fiscal 1993. As a percentage of restaurant sales, restaurant
operating expenses declined 0.2% to 91.8% in fiscal 1994 from 92.0% in fiscal
1993.
Cost of sales increased $3.6 million during fiscal 1994 and increased 1.2%
as a percentage of restaurant sales to 32.4% from 31.2% in fiscal 1993, due
primarily to a 0.9% increase in food and paper
30
<PAGE>
costs as a percentage of restaurant sales, created by the introduction of
Value Meals(Registered Trademark) in the Company's restaurants. In addition,
merchandise costs increased 0.3% as a percentage of restaurant sales due to
the increase in promotional activities by the Company.
Restaurant labor and related expenses increased $2.2 million during fiscal
1994 and increased 0.2% as a percentage of restaurant sales to 26.7% from
26.5% in fiscal 1993, due primarily to an increase in direct labor costs.
This increase was partially offset by improvements in group insurance costs
being applied over the newly acquired restaurant base.
Depreciation and amortization increased $0.5 million during fiscal 1994 to
$2.6 million from $2.1 million in fiscal 1993. As a percentage of restaurant
sales, depreciation and amortization expense increased 0.3% to 2.8% in fiscal
1994 from 2.5% in fiscal 1993, due primarily to the increase in goodwill
amortization resulting from the purchase method of accounting for the newly
acquired restaurants.
Occupancy and other expenses increased $0.7 million during fiscal 1994,
but decreased 1.9% as a percentage of restaurant sales to 29.9% from 31.8% in
fiscal 1993. Occupancy expense decreased 0.6% as a percentage of sales and
other expenses decreased 1.3% as a percentage of restaurant sales, due
primarily to increased sales at comparable restaurants and increased sales
leverage over a larger restaurant base.
Restaurant Contribution. Restaurant contribution increased $0.8 million or
12.5% to $7.4 million in fiscal 1994 from $6.6 million in fiscal 1993. As a
percentage of restaurant sales, restaurant contribution increased 0.2%, to
8.2% from 8.0% in fiscal 1993, due primarily to the improvements described
above.
LIQUIDITY AND CAPITAL RESOURCES
The following table presents a summary of the Company's cash flows for
August 17, 1994 (date of incorporation) through December 31, 1994, fiscal
1995, the first quarter ended March 31, 1995 and the first quarter ended
April 1, 1996.
<TABLE>
<CAPTION>
FIRST QUARTER FIRST QUARTER
FISCAL ENDED MARCH 31, ENDED MARCH 31,
1994 FISCAL 1995 1995 1996
---------- ----------- --------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net cash provided by (used) operating activities ... $ 7,658 $ 4,173 $ (903) $ 7,096
Net cash used in investing activities ............... (82,558) (15,092) (624) (39,841)
Net cash provided by (used) financing activities ... 82,550 5,156 (862) 35,438
---------- ----------- --------------- --------------
Net increase (decrease) in cash and cash equivalents $ 7,650 $ (5,763) $(2,389) $ 2,693
========== =========== =============== ==============
</TABLE>
The Company does not have significant receivables or inventory and
receives trade credit based upon negotiated terms in purchasing food products
and other supplies. Therefore, the Company's business has not required
significant working capital to meet its operating requirements. The Company
requires capital primarily for the acquisition and development of Burger King
restaurants and has historically financed these activities from capital
contributions by its shareholders, loans made under its Credit Agreement and
cash generated from operations. During fiscal 1995, the Company's operations
generated approximately $4.2 million in cash, compared with approximately
$7.7 million in the September 2, 1994 through December 31, 1994 period. The
Company had capital expenditures, associated primarily with new restaurant
development and acquisitions, during fiscal 1995 and the September 2, 1994
through December 31, 1994 period of approximately $15.1 million and
approximately $82.6 million, respectively.
During the first quarter of 1996, the Company's operations generated
approximately $7.1 million in cash, compared with a net use of cash of
approximately $0.9 million during the first quarter of 1995. The increase in
cash generated is related to the acquisition of 36 restaurants during the
quarter and 18 restaurants during 1995, resulting in an increase in accounts
payable, accrued payroll and other accrued expenses. The Company had capital
expenditures, associated primarily with new restaurant development and
acquisitions, during the first quarter 1996 and first quarter 1995 of
approximately $39.8 million and $0.6 million, respectively.
At January 1, 1996, the Company had $1.9 million in cash and cash
equivalent balances, compared to $7.7 million at December 31, 1994. At April
1, 1996, the Company had $4.6 million in cash and cash
31
<PAGE>
equivalent balances compared to $5.3 million at March 31, 1995. The Credit
Agreement and the New Credit Facility require that a specified percentage of
the Company's excess cash flow be applied to repay amounts outstanding under
its outstanding term loans within 100 days of the end of the immediately
preceding fiscal year.
The Company's Credit Agreement currently provides for up to $100 million
of senior secured debt, consisting of (i) a $45 million term loan, (ii) a $40
million term loan, and (iii) a $15 million revolving credit facility. On
April 1, 1996, the outstanding principal balance under the revolving credit
facility was $4 million, leaving $11 million of revolving credit
availability. The interest rate on each of the three facilities under the
Credit Agreement is variable, and as of April 1, 1996 the weighted average
interest rate of all three facilities was approximately 8.36%. The Company
has entered into an interest rate protection agreement in connection with the
Credit Agreement which currently covers up to $25.6 million in borrowings.
Amounts outstanding under the revolving credit facility are payable in full
by January 31, 2002. Concurrent with the consummation of the Offerings, the
Company will replace the Credit Agreement with the New Credit Facility, which
will provide for an additional $50 million of senior indebtedness. The other
terms of the New Credit Facility will be substantially similar to those of
the Credit Agreement, except that the New Credit Facility will, among other
things, provide for a lower interest rate.
The Company's primary cash requirements following the Offerings will be to
finance additional acquisitions, capital expenditures in connection with the
development of new restaurants, upgrades of acquired and existing restaurants
and general working capital needs. The Company intends to develop 16 new
restaurants in fiscal 1996 (including four developed to date and another
seven in the initial stages of development) and 34 new restaurants in fiscal
1997. The Company has budgeted approximately $350,000 for the development of
each of these restaurants. The Company anticipates it will spend
approximately an additional $3.0 to $5.0 million annually for other capital
expenditures. The actual amount of the Company's cash requirements for
capital expenditures depends on, among other things, the number of new
restaurants opened or acquired and the costs associated with such restaurants
and the number of franchises subject to renewal and the costs associated with
bringing the related restaurants up to BKC's then-current design
specifications in connection with these franchise renewals. See
"Business--Expansion."
The cost of developing a restaurant (exclusive of land acquisition and
building costs, as the Company leases each of its properties) is
approximately $350,000 (including the $40,000 franchise fee). In order to
increase the number of restaurants to be developed or to fund additional
acquisitions, the Company may require additional debt or equity financing,
which may not be available to the Company or, if available, may not be on
terms acceptable to the Company. Any such equity financing will also be
subject to BKC's consent. See "Risk Factors--BKC Franchise Agreement
Restrictions."
The Company believes that the proceeds from the Offerings, together with
borrowings under the New Credit Facility and the Company's cash on hand, will
be sufficient to cover its working capital, capital expenditures, planned
development and acquisition activities and debt service requirements for the
next 18 months.
INCOME TAXES
The Company completed fiscal 1995 with a net operating loss carry-forward
for tax purposes of approximately $8.7 million.
INFLATION
While inflation can have a significant impact on food, paper, labor and
other operating costs, the Company has historically been able to minimize the
effect of inflation through periodic price increases, and believes it will be
able to offset future inflation with price increases, if necessary.
RECENT ACCOUNTING PRONOUNCEMENTS
New accounting standards have been issued by the Financial Accounting
Standards Board that will apply to the Company in fiscal 1996. Statement of
Financial Accounting Standards No. 121, "Accounting
32
<PAGE>
for the Impairment of Long-Lived Assets," requires a review of long term
tangible and intangible assets (such as property, plant and equipment and
goodwill) for impairment of recorded value and resulting write downs if value
is impaired.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), establishes accounting and disclosure
requirements using a fair value based method of accounting for stock-based
employee compensation plans. Under SFAS 123, the Company may either adopt the
new fair value based method or provide pro forma disclosure of net income
(loss) as if the accounting provisions of SFAS 123 had been adopted. The
Company intends to elect the intrinsic method of accounting for stock-based
employee compensation plans and provide the required pro forma disclosure.
These statements are not expected to have a material effect on the
Company's financial position or results of operations.
EXTRAORDINARY LOSS
Upon the prepayment of the Subordinated Debt and repayment of borrowings
under the Credit Agreement, concurrent with the Offerings, the Company will
record an extraordinary loss of approximately $5.3 million, net of taxes,
reflecting a prepayment penalty, as well as the write-off of deferred
financing costs.
SEASONAL AND QUARTERLY COMPARISONS
The Company's operating results may fluctuate from period to period, as a
result of, among other things, sales associated with each new restaurant, the
costs associated with opening new restaurants, the timing of new restaurant
openings and acquisitions and the timing of new product introduction by BKC
and promotional programs sponsored by the Company. In addition, the Company's
business typically varies with general seasonal trends that are
characteristic of the quick-service restaurant industry. The Company has
historically experienced its strongest operating results during the summer
months (the second and third quarter of its fiscal year), while operating
results are somewhat lower during the winter months (the first and fourth
quarters of its fiscal year). As the Company continues to make acquisitions
and develop new restaurants, quarterly results may fluctuate more
significantly. The following table sets forth by fiscal quarter the Company's
income statement data for fiscal 1995 and the first quarter of fiscal 1996.
<TABLE>
<CAPTION>
1995 1996
------------------------------------------------ ---------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER FIRST QUARTER
--------------- -------------- --------------- -------------- ---------------
(90 DAYS) (91 DAYS) (94 DAYS) (91 DAYS) (91 DAYS)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Restaurant sales .............. $30,967 $35,375 $37,104 $36,126 $43,103
Restaurant operating expenses 28,338 30,989 32,012 31,842 38,862
Restaurant contribution ...... 2,629 4,386 5,092 4,284 4,241
General and administrative
expenses ..................... 1,203 1,359 1,641 1,701 1,932
--------------- -------------- --------------- ------------- ---------------
Operating income .............. 1,426 3,027 3,451 2,583 2,309
Other (expense) ............... (2,123) (2,146) (2,253) (2,238) (2,969)
Provision (benefit) for income
taxes ........................ (333) 421 573 164 (271)
--------------- -------------- --------------- ------------- ---------------
Net income (loss) ............. $ (364) $ 460 $ 625 $ 181 $ (389)
=============== ============== =============== ============= ===============
</TABLE>
33
<PAGE>
BUSINESS
GENERAL
The Company is a leading independent Burger King franchisee, with pro
forma fiscal 1995 restaurant sales of $237.4 million. See "Pro Forma
Consolidated Financial Statements." The Company was formed in 1994 by a group
consisting of former Burger King franchisees, former BKC executives and The
Jordan Company to take advantage of significant acquisition and related new
restaurant development opportunities within the growing Burger King system.
Since its inception, the Company has grown primarily through a series of nine
acquisitions involving the purchase of 175 Burger King restaurants.
Currently, the Company operates 180 Burger King restaurants in the states of
Illinois, Virginia, Indiana, Colorado, Texas, Tennessee, Kentucky, Wisconsin,
Ohio, North Carolina and Georgia.
The Company's senior management has extensive experience in the Burger
King system as either former executives of BKC or as independent Burger King
franchisees. The top four members of the Company's senior management each
have over 10 years of experience, and in some cases more than 20 years of
experience, within the Burger King system in connection with the operation,
acquisition and development of Burger King restaurants. In addition, most of
the Company's regional managing directors, district managers and restaurant
managers have substantial experience within the Burger King system and/or the
quick-service restaurant industry. See "Management--Directors and Executive
Officers."
BUSINESS STRATEGY
The Company's growth strategy consists of two principal components: (i)
strategic acquisitions of multi-restaurant Burger King operations in new and
existing markets and (ii) development of new Burger King restaurants in
markets in which the Company has established a presence. The Company
currently intends to acquire 40 restaurants in the Michigan Acquisition and
plans to develop an additional 16 new restaurants in fiscal 1996 (including
four developed to date, with the remaining 12 in the initial stages of
development) and 34 new restaurants in fiscal 1997.
Growth by Acquisition. Management believes that there are many attractive
acquisition candidates in the $8.4 billion Burger King system because of its
significant size and highly fragmented nature. According to information
publicly filed by GrandMet, BKC's parent corporation, as of September 30,
1995, the Burger King system included more than 8,000 restaurants worldwide,
of which over 90% were operated by approximately 1,500 independent
franchisees. Management believes that, based upon publicly available
information, the five largest franchisees in the Burger King system operate
less than 12% of all domestic Burger King restaurants. In addition, since
September 30, 1991, the number of restaurants in the Burger King system has
grown by approximately 30%. During BKC's fiscal year ended September 30,
1995, a record number of 657 new restaurants were added to the Burger King
system (of which 32 were developed by BKC and 625 were developed by
independent franchisees).
The Company's growth strategy includes new market acquisitions and fill-in
acquisitions within existing markets. New market acquisitions represent new
geographic markets for the Company and typically involve operations with the
critical mass necessary to achieve operating efficiencies and support a
regional operating structure. The Company's key criteria when evaluating new
market acquisitions are the future opportunities for fill-in acquisitions,
potential for new restaurant development in the area, the overall
attractiveness of the market from a demographic perspective and the
acquisition price relative to historical and expected financial performance
of these restaurants. Typically, key operating personnel of acquired
restaurants are retained to oversee the operation with the added benefit of
the Company's sophisticated management information systems and other
corporate resources. Five of the Company's nine acquisitions to date have
been of large, regional operations, each consisting of more than 10
restaurants. Furthermore, the Company intends to use a portion of the net
proceeds from the Offerings for a significant new market acquisition, the
Michigan Acquisition.
The Company's fill-in acquisitions typically involve smaller, local
operations in areas in, or contiguous to, the Company's existing operations.
Fill-in acquisitions allow the Company (i) to achieve greater restaurant
penetration within existing markets; (ii) to increase regional operating
efficiencies (since fill-in
34
<PAGE>
restaurants can be added to a market with few, if any, additions to the
regional operating structure); and (iii) to take advantage of certain
economies of scale. An example of a typical fill-in acquisition is the
Company's acquisition in September 1995 of five additional restaurants in
Denver, Colorado. An example of a larger fill-in acquisition is the Company's
acquisition in November 1994 of 39 additional restaurants in the Chicago
market.
The table below summarizes each of the Company's acquisitions,
representing 175 restaurants, since its inception and the proposed
acquisition of 40 Burger King restaurants in the Michigan Acquisition.
<TABLE>
<CAPTION>
NUMBER OF RESTAURANTS
ACQUISITION DATE STATE ACQUIRED TYPE OF SELLER
- -------------------- ----- --------------------- --------------
<S> <C> <C> <C>
September 1994 Illinois/Indiana 68 BKC
September 1994 Texas/Colorado 11 Management
September 1994 Colorado 3 Management
November 1994 Illinois/Wisconsin 39 Franchisee
September 1995 Colorado 5 Franchisee
October 1995 Illinois 2 BKC
November 1995 Tennessee/Georgia 11 Franchisee
February 1996 Virginia/North Carolina 24 Franchisee
February 1996 Kentucky/Ohio/Indiana 12 Franchisee
Pending Michigan 40 Franchisee
</TABLE>
On May 11, 1996, the Company executed purchase agreements to acquire 40
Burger King restaurants in the Grand Rapids, Michigan area from a franchisee
for an aggregate cash purchase price of $36.5 million. The Company plans to
use a portion of the net proceeds from the Offerings to fund the Michigan
Acquisition. The Michigan Acquisition is conditioned on, among other things,
the consummation of the Offerings, BKC's consent (described below) and
standard closing conditions. As part of the Michigan Acquisition, it is
expected that the seller will enter into (i) a non-competition agreement and
(ii) an agreement to assist the Company in developing additional Burger King
restaurant sites in the Michigan market. It is anticipated that the key
operating personnel of the restaurants acquired in the Michigan Acquisition
will be retained. Pursuant to the terms of BKC's standard franchise
agreements, acquisitions of Burger King restaurants, including those to be
acquired in the Michigan Acquisition, are subject to BKC's consent and right
of first refusal. See "Risk Factors--BKC Franchise Agreement Restrictions."
On June 21, 1996, BKC agreed not to exercise its right of first refusal with
respect to the Michigan Acquisition. Management anticipates receiving BKC's
consent for the Michigan Acquisition prior to the consummation of the
Offerings.
The Michigan Acquisition represents a new market acquisition for the
Company. The 40 restaurants to be acquired constitute approximately 47% of
all Burger King restaurants in the greater Grand Rapids, Michigan market, and
the Company believes that these restaurants provide the critical mass
necessary to achieve operating efficiencies and to support a regional
operating structure within this market. Of the 40 restaurants to be acquired
in the Michigan Acquisition, 37 were open as of December 31, 1995, generating
restaurant sales and cash flow during 1995 of $41.7 million and $4.7 million,
respectively (and $41.7 million and $5.0 million, respectively, on a pro
forma basis. See "Pro Forma Consolidated Financial Statements.") Thirty-one
of those restaurants were open for all of 1995, generating average annual
sales and restaurant cash flow for fiscal 1995 of $1.2 million and $146,000,
respectively (and $1.2 million and $158,000, respectively, on a pro forma
basis. See "Pro Forma Consolidated Financial Statements.") As of April 1,
1996, 38 restaurants were open with the remaining two projected to open in
the third quarter of 1996.
In addition to the Michigan Acquisition, the Company is engaged in various
levels of discussions with numerous independent Burger King franchisees
concerning the acquisition of all or a portion of their operations. In all
cases, these discussions and negotiations are preliminary in nature (no
agreements have been reached) and such discussions may be terminated by
either party at any time. The success of any particular acquisition is
subject to a significant number of factors, including the Company's
completion of its due diligence, successful negotiation of the purchase price
and related definitive documentation, BKC's consent to the proposed franchise
acquisition, BKC not exercising its right of first refusal with respect to
35
<PAGE>
the acquisition, obtaining the necessary governmental permits and approvals
and the ability of the Company to obtain financing as required. No assurances
can be made that the Company will be able to acquire the Burger King
restaurants that are currently the subject of these preliminary discussions
and negotiations or any future Burger King restaurants that the Company may
seek to acquire. See "Risk Factors--Risks of Expansion and Development,"
"--Franchise Agreements" and "Certain Transactions."
Development of New Burger King Restaurants. The Company has and will
continue to target acquisitions in geographic markets which have potential
for substantial new restaurant development as determined by the number and
location of existing Burger King restaurants and competing quick service
restaurants, as well as local market traffic patterns, demographics and other
relevant factors. Management believes that the underpenetration of the Burger
King system relative to other quick-service hamburger concepts provides the
Company with significant new development opportunities. Moreover, management
believes that the proven success of the Burger King concept and the relative
predictability of development costs and restaurant profitability versus that
of newer restaurant concepts and management's extensive experience within the
Burger King system substantially reduces the Company's new restaurant
development risk. For fiscal 1996, the Company has budgeted approximately
$350,000 for the development of each new Burger King restaurant (exclusive of
land acquisition and building costs, as the Company leases each of its
properties). For the 121 restaurants operated by the Company for all of
fiscal 1995, average restaurant sales and average restaurant operating cash
flow were approximately $1.1 million and $173,000, respectively.
Prior to developing a new restaurant, the Company's senior management
conducts an extensive site selection process with significant input from
BKC's development field personnel, including an analysis of projected
development costs and anticipated profitability on a per location basis. The
Company also uses regional and local developers, as well as former Burger
King restaurant owners with significant knowledge of local markets, to assist
in site selection and in reviewing zoning requirements and other regulatory
matters related to the construction of new Burger King restaurants. The
Company must obtain BKC's approval prior to beginning construction of a new
restaurant. Typically, it takes the Company between four and 18 months to
obtain BKC approval and to develop and open a new restaurant.
To date, the Company has developed four new restaurants and has initiated
the development of an additional 12 new restaurants. Developing and opening a
new Burger King restaurant typically requires an initial investment of
approximately $350,000 (not including the cost of the building and related
real estate), of which $40,000 is paid to BKC as a one-time franchise fee and
the balance of which is used to purchase equipment, furniture and fixtures,
point-of-sale systems and signage. The Company currently leases the buildings
and related real estate at each of its restaurant locations.
Improved Operations and Efficiencies. The Company's operating strategy is
to maximize restaurant level and overall profitability. The Company
implements this strategy from a revenue perspective principally by engaging
in activities and undertaking investments designed to expand the Company's
customer base and increase sales volumes. These activities and investments
include (i) seeking to ensure consistent high quality customer experiences;
(ii) regularly reviewing the Company's restaurant properties for revenue
enhancing opportunities (such as improvements in drive-thru efficiencies and
the addition or expansion of children's playground facilities), and, when
appropriate, implementing such opportunities; (iii) upgrading the appearance
of the Company's restaurants; (iv) supplementing BKC's national advertising
and promotions with local advertising and promotions; and (v) using the
Company's sophisticated management information systems to identify sales
growth opportunities. In 1996, the Company, in conjunction with a BKC
system-wide program, plans to implement a program to upgrade the appearance
of selected restaurants. In addition, the Company plans to continue to
actively sponsor local advertising and engage in local promotions. The
Company believes that the large number of restaurants it operates provides it
with certain competitive advantages. Generally, as the number of restaurants
that the Company owns in a particular market increases, the Company has a
greater ability to (i) ensure overall customer satisfaction in that market
through consistency in food quality, service and restaurant appearance and
(ii) coordinate and influence local Burger King advertising and promotional
programs and pricing policies. In addition, the large number of restaurants
that the Company owns and the corresponding professional development
opportunities permit the Company to attract and retain strong regional,
district and restaurant management.
36
<PAGE>
The Company implements its operating strategy from a cost perspective
principally by (i) tightly controlling restaurant and corporate level costs,
(ii) capturing certain economies of scale and (iii) leveraging its corporate
overhead structure. With respect to controlling restaurant level costs, the
Company's principal competitive advantage is its sophisticated management
information systems. The Company's management information systems, typically
not affordable by smaller Burger King franchisees or quick-service
restaurants, allow the Company to: monitor point-of-sale order taking,
control shrinkage, manage inventory and product mix, efficiently schedule
labor and integrate accounting systems. The Company's management information
systems also permit the Company to increase sales revenues by assisting
restaurant managers in optimally scheduling the restaurant work-force during
any particular shift at the restaurant work stations for which they are best
qualified.
The Company believes that the large number of restaurants that it
operates, combined with its sophisticated management information systems,
provide it with significant advantages over many other quick-service
restaurant operators, particularly with respect to market consistency and
cost control. Areas where the Company has experienced both restaurant-level
and corporate-level savings as a result of its size and related bargaining
power include food and paper purchasing and distribution, restaurant
maintenance services and general liability insurance. In addition, as the
Company acquires and develops additional Burger King restaurants, management
believes that it will be able to leverage its corporate overhead structure by
spreading its relatively fixed general and administrative costs over a
growing number of restaurants.
BURGER KING CORPORATION
Overview. The Company believes that it realizes significant benefits from
its affiliation with BKC as a result of, among other things, the widespread
recognition of the Burger King name and products, the size and market
penetration of BKC's media budget (which was approximately $200 million for
its fiscal year ended September 30, 1995, according to LNA/Arbitron
Multi-Media Service), BKC's overall management of the Burger King concept,
including new product development, quality assurance and strategic planning,
and the continuing growth of the Burger King system. BKC, an operating
subsidiary of GrandMet, was founded in 1954 and is currently the second
largest restaurant franchisor in the world with system-wide restaurant sales
of $8.4 billion for its fiscal year ended September 30, 1995. According to
Technomic, domestic revenues for the quick-service hamburger restaurant
industry totaled approximately $37.6 billion in 1995 and the Burger King
system accounted for approximately 18% of these sales, as compared to 42% for
McDonald's, 11% for Wendy's and 8% for Hardees. As is the case for all Burger
King franchisees, the Company is required to comply with BKC guidelines as to
menu and operations, restaurant configurations and marketing and promotion.
Menu and Operations. The Burger King system philosophy is characterized by
its "Have It Your Way" service, flame-broiling, generous portions and
competitive prices. Each of the Company's Burger King restaurant offers a
standard menu containing a variety of traditional and innovative food items.
Burger King restaurants feature flame-broiled hamburgers, the most popular of
which is The Whopper(Registered Trademark) sandwich. The Whopper is a large,
flame-broiled hamburger on a toasted bun garnished with combinations of
lettuce, onions, pickles, tomatoes and mayonnaise. At present, the standard
menu of all Burger King restaurants consists primarily of hamburgers,
cheeseburgers, chicken sandwiches, fish sandwiches, breakfast items, french
fried potatoes, salads, milkshakes, desserts, soft drinks, milk and coffee.
In addition, promotional menu items are introduced periodically for limited
times.
The Company's Burger King restaurants are typically open seven days per
week with minimum operating hours from 7:00 AM to 11:00 PM. Burger King
restaurants are of distinctive design and are generally located in
high-traffic areas throughout the United States. The Company believes that
convenience of location, speed of service, quality of food and price/value of
food served are the primary competitive advantages of Burger King
restaurants. The Company believes that it will continue to realize
significant benefits from its affiliation with BKC as a result of the
widespread recognition of the Burger King brand, the effectiveness of BKC's
national marketing programs and the overall management of the Burger King
system, including product development, quality assurance and strategic
planning.
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The Company participates in a variety of Burger King programs designed to
increase restaurant revenues and profitability. In October 1993, BKC
implemented the first stages of a nationwide Value Menu Program. The program
consisted of discounted combination meals and menu items designed to give the
consumer greater value while increasing customer traffic and profitability.
BKC has also focused its efforts on a back-to-basics marketing strategy by
eliminating over 30 items from its menu and emphasizing its core hamburgers,
french fries and soft drinks. In addition, as part of its "Bigger, Better
Burgers" campaign, BKC increased its standard hamburger patty size to 2.8
ounces, which is 75% larger than McDonald's current standard size of 1.6
ounces.
Restaurant Configurations. The Company's Burger King restaurants consist
of one of several building types with various layouts, seating capacities and
engineering specifications. BKC's traditional restaurant contains
approximately 2,500 square feet, seats 86 customers and offers interior
design flexibility. BKC also features alternative restaurant formats ranging
in size from 500 to 4,000 square feet and seating capacities ranging up to
over 100 customers. BKC has developed a number of standard and
non-traditional restaurant formats which enable maximum seating capacities
from available square footage in such facilities as airports, hospitals,
college campuses, gas stations and retail shopping centers. Substantially all
of the Company's restaurants are traditional free-standing restaurants with
seating capacities of at least 50 and which contain drive-thru windows.
According to BKC, over 50% of all restaurant sales in the Burger King system
are generated from drive-thru windows.
National Marketing and Promotion. The Burger King brand has been in
existence for over 40 years. As an established franchisor, BKC has
historically made considerable advertising and promotional expenditures to
heighten brand awareness. BKC's advertising campaigns are generally carried
on television, radio and in mass circulation print media (national and
regional newspapers and magazines). BKC franchisees are required to
contribute 4.0% of monthly gross sales from restaurant operations to a BKC
advertising fund, which contributions are generally utilized by BKC for its
advertising and promotional programs and public relations activities. BKC has
also entered into selective partnership arrangements to help promote its
products. Recently, BKC's national promotional partners have included The
Walt Disney Company, the NCAA and the Coca-Cola Company.
QUICK-SERVICE RESTAURANT INDUSTRY
Since the introduction of quick-service restaurants in the mid-1950s, the
percentage of the average family's food budget spent on meals consumed "away
from home" has grown significantly from approximately 25% of the food budget
in 1955 to approximately 46% in 1995, according to the National Restaurant
Association. Concurrently, the quick-service restaurant industry has expanded
to include hamburger, pizza, chicken, Mexican food, ice cream/yogurt, donuts
and various types of sandwiches. The National Restaurant Association
estimates that sales at these quick-service restaurants will reach
approximately $100 billion in 1996, representing an inflation-adjusted growth
rate of 4.2% over 1995. The National Restaurant Association's growth estimate
for the quick-service restaurant industry is slightly more than double the
rate of growth of full-service restaurant sales, which are expected to rise
by an inflation-adjusted rate of 2.0% in 1996. According to Technomic,
revenues from hamburger and related sales, which represented the biggest
share of the quick-service restaurant industry, totaled approximately $37.6
billion in 1995.
The recent growth in the quick-service restaurant segment is attributable
to consumers' desire for value and convenience, such as bundled value meals,
drive-thru windows, carry-out and delivery. In 1995, off-premise services
generated by drive-thru windows, pickup and home delivery comprised 64% of
the quick-service traffic, according to the National Restaurant Association.
COMPANY OPERATIONS
Management Structure. All executive management, finance, marketing and
operations support functions are conducted centrally at the Company's
Westchester, Illinois headquarters. In each of its six regions (Chicago,
Virginia, Colorado, Texas, Tennessee and Cincinnati), the Company has a
regional managing director who is responsible for the operations of all
Company Burger King restaurants within
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the assigned region. Each of these managing directors must be approved by
BKC. Supporting the managing director in Chicago are four directors of
operations (who each oversee an average of 27 restaurants), who supervise 16
district managers (who directly supervise four to eight restaurants each).
The five other managing directors are also supported by district managers.
The district managers are responsible for direct oversight of the day-to-day
operations of the Company's Burger King restaurants. Typically, district
managers have previously served as restaurant managers within the Burger King
system. A typical Company restaurant is staffed with a full-time manager, one
to three assistant managers and full-and part-time hourly employees.
Management Incentives and Retention. Managing directors, directors of
operations, district managers and most restaurant managers are compensated
with a fixed salary plus a bonus based upon the performance of the
restaurants under their supervision. Evaluation criteria include compliance
with Burger King's restaurant operating guidelines and restaurant
profitability. After the consummation of the Offerings, the Company will also
provide its executive officers and employees with long-term incentive
compensation opportunities through the use of stock options. See
"Management--Employee Benefit Plans." In addition, senior management believes
that the Company's larger size and regional focus provide significant
professional development opportunities for the Company's management and
operating personnel not available to smaller franchisees. The Company
believes that its compensation structure and professional development
opportunities are significant advantages in attracting and retaining
qualified management personnel.
Training. The Company maintains a comprehensive training and development
program for all of its personnel. This program emphasizes the Burger King
system-wide operating procedures, food preparation methods and customer
service standards. The management training program features an intensive five
week hands-on restaurant training period, followed by two weeks of classroom
instruction (one week of simulated restaurant management activities and one
week of food sanitation). Special emphasis is placed on quality food
preparation, service standards and total customer satisfaction. Upon
certification, new managers work closely with experienced managers to
solidify their skills and expertise. The Company's existing restaurant
managers regularly participate in the Company's ongoing training efforts,
including classroom programs and in-restaurant programs. In addition, BKC's
training and development programs are also available to the Company.
Improved Technology. The Company utilizes a sophisticated management
information system which provides daily tracking and reporting of customer
traffic counts, sales, average check values, menu item sales, inventory
variances, key labor measures and other detailed information in comparative
form, by individual restaurant and for the Company as a whole. The Company's
management information system, typically installed in its restaurants within
60 to 90 days of acquisition, transmits data on a daily basis to Company
headquarters. This information is available by 6:00 A.M. the following day
and can be accessed by district managers on a remote basis using a laptop
computer. The Company's integrated management information system provides
management with the ability to (i) identify and quickly capitalize on
restaurant sales enhancement and profit opportunities, such as minimizing
shrinkage and controlling labor costs, (ii) monitor point-of-sale order
taking, (iii) effectively manage inventory and (iv) integrate accounting
systems. Customized exception reporting is used to focus operations on high
priority issues and opportunities. The Company also utilizes the system to
analyze various promotional programs using product mix information.
FRANCHISE AGREEMENTS
The Company operates Burger King restaurants through its wholly owned
subsidiaries, each of which is a party to a BKC franchise agreement. These
franchise agreements do not grant any franchisee exclusive rights to a
defined territory; however, the Company, based upon its review of BKC's
Uniform Franchise Offering Circular and its experience with BKC, believes
that BKC generally seeks to ensure that newly granted franchises do not
materially affect the operations of existing Burger King restaurants.
Acceptance as a franchisee is based upon several factors including management
experience, qualifications, financial status and net worth. The franchise
agreements require, among other things, that all restaurants be of
standardized design and operated in a prescribed manner, including
utilization of the standard
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Burger King menu. Most franchise agreements provide for a term of 20 years,
and, at the option of the franchisee and BKC, a renewal (successor) franchise
agreement may be granted by BKC provided that the restaurant meets BKC's
operating standards applicable at that time and the franchisee is not in
default under the relevant franchise agreement. The BKC franchise agreements
are noncancelable except for failure to abide by the terms thereof and in
certain other limited circumstances.
BKC franchise agreements provide for a one-time franchise fee (currently
$40,000), a monthly royalty fee of 3.5% of each restaurant's gross sales and
a monthly advertising contribution of 4.0% of gross sales. During fiscal
1995, the Company paid BKC an aggregate of $4.8 million in royalty fees and
$5.7 million in advertising contributions.
BKC franchise agreements generally are renewable for an additional term
based upon the form of franchise agreement applicable at that time, provided
that the franchisee (i) pays a successor franchise fee equal to the franchise
fee applicable at that time, (ii) has demonstrated an ability to operate the
business consistent with the standards set forth in the franchise agreement,
(iii) agrees to make capital improvements to the subject restaurant to bring
the restaurant up to BKC's image standards applicable at that time and (iv)
is not then currently in default with respect to any other obligations to
BKC, including pursuant to other franchise agreements. The Company, through
its district managers, closely supervises the operation of all of its
restaurants to ensure that operating policies are followed and that the
requirements of the franchise agreements are met. The amount of capital
expenditures that may be required to bring a restaurant up to BKC's current
standards at any given time varies widely depending upon the magnitude of the
required changes and the degree to which the franchisee has made interim
changes to the restaurant. Within five years of April 1, 1996, 26 of the
Company's subsidiaries' current 180 franchise agreements with BKC, which
contributed $26.9 million in restaurant sales in fiscal 1995, are scheduled
to expire. The Company believes that it will satisfy BKC's requirements for
renewal of franchise agreements and, accordingly, that successor franchise
agreements will be granted in due course by BKC upon the expiration of the
franchise agreements.
The Company intends to expand its operations of Burger King restaurants
through both acquisitions and new restaurant development. Pursuant to the BKC
franchise agreements, BKC's approval is required for the renewal of the
Company's subsidiaries' existing franchise agreements. Pursuant to current
BKC policies and procedures applicable to the Company, BKC's approval is
required for the acquisition of Burger King restaurants by the Company from
other Burger King franchisees and the development of new Burger King
restaurants by the Company. BKC's consent to such renewals, acquisitions or
development may be withheld in BKC's sole discretion. See "Risk Factors--BKC
Franchise Agreement Restrictions; Consent to Restaurant Acquisition and
Development and Franchise Renewal; Right of First Refusal" and "Certain
Transactions."
Pursuant to current BKC policies and procedures, the Company and each of
its subsidiaries which is a franchisee is required to obtain BKC's consent
prior to making certain changes to their capital structure and modifications
to their corporate governance documents. In particular, no amendment may be
made to the Company's or the relevant subsidiary franchisee's certificate of
incorporation or bylaws, nor may any resolution be adopted, without first
obtaining BKC's consent, if such amendment or resolution would have any of
the following effects: (i) change the description of the Company or the
relevant subsidiary franchisee's purpose or authorized activities; (ii)
change the designation of, or the procedures for designating, the managing
owner; (iii) change the authority granted to the managing owner; or (iv)
materially alter promises or representations made in a distribution plan
approved by BKC. A distribution plan is a plan approved by BKC prior to
granting a franchise which describes the distribution of the securities of
the Company or the relevant subsidiary franchisee. The franchise agreements
also prohibit the Company's subsidiaries, its managing owners and owners,
including Messrs. Jaro, Osborn and Hubert, from transferring their interests
in the Company's franchise agreements in any way without first obtaining
BKC's consent.
Current BKC policies and procedures also place certain restrictions on the
management structure of the Company and its subsidiary franchisees. For
example, a managing owner and an owner must be named in each franchise
agreement. Under the franchise agreements, as amended in connection with the
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Offerings, Mr. Jaro is named as managing owner and Messrs. Jaro, Osborn and
Hubert are named as owners. The managing owner has the authority to bind the
franchisee in its dealings with BKC and to direct any action necessary to
ensure compliance with the franchise agreements and related documents,
including leases with BKC. In addition, the managing owner is personally
liable to BKC for the franchisee's obligations under such agreements. Also,
each franchise agreement requires that a managing director be designated to
ensure that the day-to-day operation of the relevant franchised restaurant
complies with BKC's standards. BKC has the right to terminate its franchise
agreement with a franchisee if (i) the franchisee or the managing owner is
convicted of a crime punishable by a term of imprisonment in excess of one
year or (ii) the franchisee, the managing owner or a managing director
engages in conduct which reflects unfavorably on the franchisee or Burger
King system generally. Managing owners cannot be replaced without receiving
the consent of BKC. In addition, absent BKC's prior written consent, managing
owners are required to hold a 5% voting interest in a corporate franchise and
to personally guarantee the franchisee's obligations to BKC. Furthermore, no
managing owner or owner may sell, encumber or otherwise transfer any portion
of his equity interest in the Company without first obtaining the consent of
BKC. After the transfer of its equity interest, managing owners remain
personally obligated to BKC under the franchise agreements and any other
agreements between the franchisee and BKC, unless such obligation has been
fully satisfied or waived by BKC.
Pursuant to BKC's franchise agreements, BKC's consent may be required for
certain transfers or issuances by the Company of its equity securities.
Transfers that result in a change of control of the Company in connection
with a public tender offer may also require BKC's consent. If BKC's required
consent is not obtained in connection with any such issuance or transfer of
the Company's equity securities, BKC could terminate its franchise agreements
with the Company's subsidiaries. See "Description of Capital
Stock--Anti-Takeover Effects and the BKC Franchise Agreements," "Certain
Transactions" and "Risk Factors--BKC Consent to Issuance of Securities; Change
of Control."
ADVERTISING AND PROMOTION
The Company believes that one of the major advantages of being a Burger
King franchisee is the marketing support and brand promotion it realizes from
the marketing activities of BKC. In addition to the benefits derived by the
Company from BKC's $200 million advertising budget, the Company supplements
BKC's advertising and promotional activities with local advertising and
promotions, including purchasing additional television, radio and print
advertising and running promotional programs that support national programs
with local tie-ins to other consumer brands. These local tie-ins have
included cross promotions with the Colorado Rockies, Fannie May Candies and
Northwestern University, among others. Other promotional programs include
coupons and price discounts, which are tailored by the Company to appeal to
its customer base depending on demographics and other factors, thereby
creating flexible and directed marketing programs. For fiscal 1995, the
Company spent approximately $600,000 on supplemental local advertising and
promotions, and plans to continue its local advertising and promotional
programs at comparable levels in the future.
SUPPLIES AND DISTRIBUTION
The Company is a member of a national purchasing cooperative created by
and for the Burger King system known as Restaurant Services, Inc. ("RSI").
RSI is an independent, member-owned, non-profit cooperative which provides
services on behalf of, and for the benefit of, Burger King restaurant
operators. RSI negotiates the lowest cost for the Burger King system while
improving quality, enhancing competitiveness and ensuring the best possible
value. RSI has the sole and exclusive responsibility for negotiating
purchasing arrangements for the Burger King system with respect to certain
paper goods, restaurant supplies, food and drink products, certain equipment
and many other items mutually agreed to by Burger King franchisees for use in
the Burger King system. The Company uses its purchasing power to negotiate
directly with certain other vendors, as well as each of its distributors, to
obtain favorable pricing and terms for the distribution of its products.
Currently, the Company's primary distributor of foodstuffs and supplies is
ProSource Distribution Services, Inc.
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All BKC-approved suppliers are required by BKC to purchase all foodstuffs
and supplies from BKC-approved manufacturers and purveyors. BKC is
responsible for quality control and supervision of these manufacturers and
purveyors, and BKC monitors all BKC-approved manufacturers and purveyors of
its foodstuffs. BKC regularly visits these manufacturers and purveyors to
observe the preparation of the foodstuffs and conducts various tests to
ensure that only high quality foodstuffs are sold to BKC-approved suppliers,
distributors and franchisees. In addition, BKC coordinates and supervises
audits of approved suppliers and distributors to determine continuing product
specification compliance and to ensure that manufacturing plant and
distribution center standards are met.
The Company believes that reliable alternative sources for virtually all
restaurant supplies are readily available at competitive prices should the
arrangements with ProSource or any other existing supplier or distributor
change.
QUALITY ASSURANCE
The Company's operations are focused on achieving a high level of customer
satisfaction, with speed, accuracy and quality of service closely monitored.
The Company's senior management and restaurant management staff are
principally responsible for ensuring compliance with the Company's and BKC's
operating procedures. The Company and BKC have uniform operating standards
and specifications relating to the quality, preparation and selection of menu
items, maintenance and cleanliness of the premises and employee conduct.
Detailed reports from the Company's own management information system and
surveys conducted by the Company or BKC are tabulated and distributed to
management on a regular basis to help maintain compliance. In addition to
customer satisfaction, these reports track comparable sales and customer
counts, labor and food costs, inventory levels, waste losses and cash
balances.
All Burger King franchisees operate subject to a comprehensive regimen of
quality assurance standards set by BKC, as well as standards set by Federal,
state and local governmental laws and regulations. These standards include
food preparation rules regarding, among other things, minimum cooking times
and temperatures, sanitation and cleanliness. In addition, BKC has set
maximum time standards for holding unsold prepared food. For example,
sandwiches and french fries are required to be discarded after ten minutes
and seven minutes following preparation, respectively. The "conveyor belt"
cooking system utilized in all Burger King restaurants, which is calibrated
to carry hamburgers through the flame broiler at regulated speeds, is one of
the safest cooking systems among major quick-service restaurants and helps to
ensure that the standardized minimum times and temperatures for cooking are
met.
The Company closely supervises the operation of all of its restaurants to
help ensure that standards and policies are followed and that product
quality, customer service and cleanliness of the restaurants are maintained.
In addition, BKC may conduct unscheduled inspections of Burger King
restaurants throughout the nationwide system.
COMPETITION
The restaurant industry is intensely competitive with respect to price,
service, location and food quality. The industry is mature and competition
can be expected to increase. The Company's Burger King restaurants compete
with a large number of national and regional restaurant chains, as well as
locally-owned restaurants offering low-priced and medium-priced food.
Convenience stores, grocery stores, delicatessens, food counters, cafeterias
and other purveyors of moderately priced and quickly prepared foods also
compete with the Company. In the Company's markets, McDonald's, Wendy's and
Hardees provide the most significant competition.
McDonald's operates more restaurants than the Company in all but one of
the Company's current markets and is the Company's largest competitor.
According to publicly available information, as of December 31, 1995, the
McDonald's system comprised 18,380 restaurants and total system-wide revenues
for McDonald's for the year ended December 31, 1995 were $29.9 billion. The
Company believes that product quality and taste, name recognition,
convenience of location, speed of service, menu variety,
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price, and ambiance are the most important competitive factors in the
quick-service restaurant industry and that its Burger King restaurants
effectively compete in each category.
The Company faces competition in its expansion plans. Potential Burger
King acquisition and development competitors include BKC, which has exercised
its right of first refusal with respect to previously proposed restaurant
sales, controls the areas in which new Burger King restaurant sites can be
developed and may impose, as a condition to its consent to any proposed
acquisition or development opportunity, conditions, limitations or other
restrictions on the Company and its activities. Other potential competitors
in acquiring and developing Burger King restaurants include other investors
and existing Burger King franchisees. The Company also competes with other
quick-service restaurant operators and developers for the most desirable site
locations. See "Business--Strategy."
GOVERNMENT REGULATION
The Company is subject to various Federal, state and local laws affecting
its business, including various health, sanitation, fire and safety
standards. Newly constructed or remodeled restaurants are subject to state
and local building code and zoning requirements. In connection with the
remodeling and alteration of the Company's Burger King restaurants, the
Company may be required to expend funds to meet certain Federal, state and
local regulations, including regulations requiring that remodeled or altered
restaurants be accessible to persons with disabilities. The Company is also
subject to Federal and state environmental regulations, although such
regulations have not had a material effect on the Company's operations taken
as a whole. Difficulties or failures in obtaining the required licenses or
approvals could delay or prevent the opening of a new restaurant in a
particular area.
The Company is also subject to the Fair Labor Standards Act and various
state laws governing such matters as minimum wage requirements, overtime and
other working conditions and citizenship requirements. A significant number
of the Company's food service personnel are paid at rates related to the
Federal minimum wage and increases in the minimum wage, including proposals
currently before Congress, would increase the Company's labor costs.
The Company is also subject to various local, state and Federal laws
regulating the discharge of pollutants into the environment. The Company
believes that it conducts its operations in substantial compliance with
applicable environmental laws and regulations. In an effort to prevent and,
if necessary, to correct environment problems, the Company conducts
environmental audits of proposed restaurant sites in order to determine
whether there is any evidence of contamination prior to purchasing or
entering into a lease with respect to such restaurant.
The Company believes that it conducts its operations in substantial
compliance with applicable laws and regulations governing its operations.
PROPERTIES
As of the date of this Prospectus, the Company operated all of its
restaurants on locations where it leases the land and the buildings. BKC is
the lessor on approximately 60% of such properties, primarily as a result of
the Company's initial acquisition of Burger King restaurants from BKC. Most
of the Company's leases are coterminous with the related franchise agreements
and require the Company to pay property taxes, insurance, maintenance and
other operating costs of the properties. Generally, the terms of the leases
require lease payments equal to the greater of a fixed minimum annual rent or
8.5% of annual gross sales. The Company believes that it generally will be
able to renew all of its restaurant leases at commercially reasonable rates
as they expire.
Within five years of April 1, 1996, 23 of the Company's 180 current
restaurant leases are due to expire. The Company believes that it will be
able to renew expiring leases at reasonable rates in the future. During
fiscal 1995, the Company renewed each of its three leases expiring during
such fiscal year on terms generally consistent with those of the expiring
leases.
The Company's headquarters are located in an approximately 16,000 square
foot leased office space in Westchester, Illinois. The term of the present
lease expires on September 30, 1998. The Company believes that its existing
central office provides sufficient space to support its expected expansion
over the next several years.
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EMPLOYEES
As of April 1, 1996, the Company employed 631 full-time salaried employees
and approximately 5,400 full-time and part-time hourly employees. Of the
Company's full-time employees, 37 are involved in overseeing restaurant
operations, 528 are involved in the management of individual restaurants, and
the remainder are responsible for corporate administration. None of the
Company's employees are covered by a collective bargaining agreement. The
Company believes that the dedication of its employees is critical to its
success, and that its relations with its employees are good.
LITIGATION
The Company is not a party to any pending legal proceeding the resolution
of which, the management of the Company believes, would have a material
adverse effect on the Company's results of operations or financial condition,
nor to any other pending legal proceedings other than ordinary, routine
litigation incidental to its business.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth the names and ages of the Company's directors and
executive officers and the positions they will hold upon the consummation of
the Offerings:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
- ----------------------- ----- -------------------------------------------------
MANAGING OWNER, CHAIRMAN AND CHIEF EXECUTIVE
<S> <C> <C>
Lawrence E. Jaro ....... 52 Officer
William C. Osborn ...... 47 Vice Chairman and Director
Gary W. Hubert ......... 44 Chief Operating Officer and Director
Joel D. Aaseby ......... 37 Chief Financial Officer and Corporate Secretary
Scott E. Vasatka ....... 43 Vice President-Human Resources
A. Richard Caputo, Jr. 30 Vice President and Director
Thomas H. Quinn ........ 49 Director
John W. Jordan, II .... 48 Director
David W. Zalaznick .... 42 Director
</TABLE>
Set forth below is a brief description of the business experience of each
director and executive officer of the Company.
MR. JARO has served as the Company's Managing Owner, Chief Executive
Officer and as a Director since the Company's inception, and currently serves
as its Chairman. Mr. Jaro has over 15 years of experience as a Burger King
restaurant franchisee. Prior to joining the Company, Mr. Jaro was the
President and Chief Executive Officer of Jaro Enterprises, Inc., an operator
of 12 Burger King restaurants in Colorado and Texas.
MR. OSBORN has previously served as one of the Company's Managing Owners
and currently serves as a Director. Mr. Osborn also served as the Company's
President until May 10, 1996 at which time he was appointed the Company's
Vice Chairman. Mr. Osborn has over 10 years of experience as a Burger King
restaurant franchisee as well as a franchisee of other restaurant concepts.
Prior to joining the Company, Mr. Osborn owned and operated three Burger King
restaurants in Colorado.
MR. HUBERT has served as the Company's Senior Vice President and as a
Director since the Company's inception, and currently serves as Chief
Operating Officer. Mr. Hubert has over 20 years of experience with BKC in
restaurant operations and franchise management. Prior to joining the Company,
Mr. Hubert was a Vice President with BKC in both the Franchise and Corporate
Operations divisions and served as the Area Operations Manager for BKC's
Chicago region from 1985 to 1989.
MR. AASEBY has served as the Company's Vice President--Finance and
Corporate Secretary since the Company's inception, and currently serves as
Chief Financial Officer. Mr. Aaseby has over 21 years of experience with BKC
in various finance, accounting and operations positions, including Midwest
Sector Controller from 1989 to 1994.
MR. VASATKA has served as the Company's Vice President-Human Resources
since the Company's inception. Mr. Vasatka has over 26 years of experience in
the restaurant industry. Prior to joining the Company, Mr. Vasatka was
employed by Davgar Restaurants from 1969 until 1994, and held various senior
management positions including District Manager, Director of Training and
Division President.
MR. CAPUTO has served as a Vice President and Director of the Company
since its inception. Mr. Caputo is a partner of The Jordan Company, which he
has been associated with since 1990. Mr. Caputo is also a director of Jackson
Products, Inc. as well as other privately held companies.
MR. QUINN has served as a Director of the Company since its inception.
Since 1988, Mr. Quinn has been President, Chief Operating Officer and a
director of Jordan Industries, Inc., a diversified industrial holding
company. Mr. Quinn is also the Chairman of the Board and Chief Executive
Officer of American Safety Razor Company and Welcome Home, Inc. as well as
other privately held companies.
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MR. JORDAN has served as a Director of the Company since its inception.
Mr. Jordan is a managing partner of The Jordan Company, a private merchant
banking firm which he founded in 1982. Mr. Jordan is also a director of
Jordan Industries, Inc., American Safety Razor Company, Jackson Products,
Inc., Carmike Cinemas, Inc., NEWFLO Corporation, Welcome Home, Inc. and
Apparel Ventures, Inc. as well as other privately held companies.
MR. ZALAZNICK has served as a Director of the Company since its inception.
Since 1982, Mr. Zalaznick has been a managing partner of The Jordan Company.
Mr. Zalaznick is also a director of Jordan Industries, Inc., Carmike Cinemas,
Inc., American Safety Razor Company, Jackson Products, Inc., Marisa
Christina, Inc., NEWFLO Corporation and Apparel Ventures, Inc. as well as
other privately held companies.
Each of the Company's directors was nominated to the Board of Directors
pursuant to the Stockholders Agreement (as hereinafter defined), which
required the stockholders named therein to vote for such nominees.
Simultaneously with the closing of the Offerings, and pursuant to the
Recapitalization Agreement, certain provisions of the Stockholders Agreement,
including the agreement to nominate certain members to the Board of
Directors, will be terminated. See "Description of Capital Stock--The
Recapitalization."
Prior to the consummation of the Offerings, the Company intends to
increase the number of members of the Board of Directors from seven to nine
and will appoint two independent directors (the "Independent Directors")
within 90 days after the consummation of the Offerings to fill the new
positions on the Board of Directors.
Effective simultaneously with the closing of the Offerings, the Board of
Directors intends to establish (i) an executive committee with Messrs.
Caputo, Jaro, Jordan, and Quinn serving as the members thereof, (ii) an audit
committee with Mr. Caputo and the Independent Directors serving as the
members thereof, and (iii) a compensation committee with Mr. Quinn and the
Independent Directors serving as the members thereof (the "Compensation
Committee").
In 1983, Mr. Jaro, along with his former employers, E.F. Hutton & Company,
Inc. and Bache Halsey Stuart, Shields Incorporated, were defendants in an
action alleging various claims involving the improper handling of an
individual's securities account from 1978 to 1981. In 1986, an arbitration
panel found in favor of the defendants on all counts; however, for procedural
reasons, the arbitration decision was vacated and the plaintiff was granted a
jury trial in state court. In 1991, a jury awarded the plaintiff an aggregate
of $266,500 (of which $121,800 was allocated to Mr. Jaro) plus pre-judgment
interest and costs. The Company understands that although Mr. Jaro and the
employer co-defendants believed that they had a strong legal basis to appeal
the judgment, they chose not to appeal due to the relatively small amount of
the damages awarded and the substantial time and expense that would result
from continued appeals and litigation. In 1993, Smith Barney Inc. acquired
the domestic retail brokerage business of Shearson Lehman Brothers Inc.,
which had, in turn, acquired E.F. Hutton & Company, Inc. in 1987.
BOARD OF DIRECTORS
Liability Limitation. The Certificate of Incorporation provides that a
director of the Company shall not be personally liable to it or its
stockholders for monetary damages to the fullest extent permitted by Delaware
Corporation Law. In accordance with Delaware Corporation Law, the Certificate
of Incorporation does not eliminate or limit the liability of a director for
acts or omissions that involve intentional misconduct by a director or a
knowing violation of law by a director for voting or assenting to an unlawful
distribution, or for any transaction from which the director will personally
receive a benefit in money, property, or services to which the director is
not legally entitled. Delaware Corporation Law does not affect the
availability of equitable remedies such as an injunction or rescission based
upon a director's breach of his duty of care. Any amendment to these
provisions of the Delaware Corporation Law will automatically be incorporated
by reference into the Certificate of Incorporation and the Bylaws, without
any vote on the part of its stockholders, unless otherwise required.
Indemnification Agreements. Simultaneously with the consummation of the
Offerings, the Company and each of its directors will enter into
indemnification agreements. The indemnification agreements
46
<PAGE>
will provide that the Company will indemnify the directors against certain
liabilities (including settlements) and expenses actually and reasonably
incurred by them in connection with any threatened or pending legal action,
proceeding or investigation (other than actions brought by or in the right of
the Company) to which any of them is, or is threatened to be, made a party by
reason of their status as a director, officer or agent of the Company, or
serving at the request of the Company in any other capacity for or on behalf
of the Company; provided that (i) such director acted in good faith and in a
manner not opposed to the best interest of the Company, (ii) with respect to
any criminal proceedings, such director had no reasonable cause to believe
his or her conduct was unlawful, (iii) such director is not finally adjudged
to be liable for negligence or misconduct in the performance of his or her
duty to the Company, unless the court views in light of the circumstances the
director is nevertheless entitled to indemnification, and (iv) the
indemnification does not relate to any liability arising under Section 16(b)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
the rules or regulations promulgated thereunder. With respect to any action
brought by or in the right of the Company, directors may also be indemnified,
to the extent not prohibited by applicable laws or as determined by a court
of competent jurisdiction, against costs and expenses actually and reasonably
incurred by them in connection with such action if they acted in good faith
and in the best interests of the Company.
Director Compensation. After the consummation of the Offerings, directors
who are not employees of the Company will receive $10,000 per year for
serving as a director of the Company. In addition, the Company reimburses
directors for their travel and other expenses incurred in connection with
attending meetings of the Board of Directors. The Independent Directors will
receive certain options under the Incentive Plan. See "--Employee Benefit
Plans."
COMPENSATION COMMITTEE INTERLOCK AND INSIDER PARTICIPATION
Prior to the consummation of the Offerings, the Board of Directors did not
maintain a Compensation Committee. During fiscal 1995, however, Messrs.
Caputo, Jaro, Jordan and Quinn participated in deliberations of the Board of
Directors concerning executive officer compensation. See "Certain
Transactions."
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth a summary of certain information regarding
compensation paid or accrued by the Company during fiscal 1995 to each of the
Company's chief executive officer and other executive officers whose total
annual salary and bonus exceeded $100,000 during such period (collectively,
the "Named Executives").
47
<PAGE>
FISCAL 1995 SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------------------------------
FISCAL OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) COMPENSATION
- --------------------------- -------- ---------- --------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Lawrence E. Jaro
Managing Owner and Chief
Executive Officer ......... 1995 $215,000 $64,500 $0 $0
William C. Osborn
Managing Owner and President 1995 215,000 64,500 0 10,000(3)
Gary W. Hubert
Chief Operating Officer
and
Senior Vice President .... 1995 215,000 64,500 0 0
Joel D. Aaseby
Chief Financial Officer
and
Corporate Secretary ....... 1995 110,000 32,000 0 0
Scott E. Vasatka
Vice President--
Human Resources ........... 1995 105,000 31,000 0 0
</TABLE>
- -------------------
(1) The Company provides bonus compensation based on an individual's
achievement of certain specified objectives, including achieving the
Company's stated earnings before interest, taxes, depreciation and
amortization. Employees are eligible to receive from 10% to 60% of their
annual compensation as a bonus. After the consummation of the Offerings,
bonuses paid to executive officers will be determined by the Compensation
Committee of the Board of Directors.
(2) No executive named in the table above received any Other Annual
Compensation in an amount in excess of either $50,000 or 10% of Salary
and Bonus reported for him in the two preceding columns.
(3) Represents the amount of life insurance premiums paid by the Company on
the life of Mr. Osborn with death benefits designated by Mr. Osborn.
Option Exercises in Fiscal 1995 and Fiscal Year-end Values
The following table shows stock options exercised by each of the Named
Executives during fiscal 1995, including the aggregate value of gains on the
date of exercise. In addition, this table includes the number of shares
covered by both exercisable and non-exercisable stock options as of fiscal
year-end, and the values for unexercised options. Except as listed in the
table, no other Named Executive exercised any Company stock options or
beneficially owned unexercised Company stock options.
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON
STOCK
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
JANUARY 1, 1996 AT JANUARY 1, 1996(1)
----------------------------- ------------------------------
EXERCISABLE UNEXERCISABLE(2) EXERCISABLE UNEXERCISABLE
------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
SCOTT E. VASATKA 17,756 17,756 $266,059 $266,059
</TABLE>
(1) Based on the difference between an initial public offering price of
$15.00 per share (the midpoint of the range set forth on the cover of
this Prospectus) and the option exercise price of $0.016 per share. The
above valuation may not reflect the actual value of unexercised options
as the value of unexercised options will fluctuate with market activity.
(2) In connection with the Stock Option Exercises, the vesting schedule for
these options will be amended to become immediately exerciseable
simultaneously with the consummation of the Offerings. See "Management
--Employee Benefit Plans."
48
<PAGE>
RETIREMENT AND 401(K) PLANS
Starting August 1, 1996, the Company will offer to all its employees the
option to participate in its newly created 401(k) plan, upon fulfillment of
certain requirements. The Company will have the option, but not the
obligation, to match contributions made by its employees under the 401(k)
plan. In addition, the Company will provide disability insurance to certain
key executives. The insurance will cover all salary payments to the
executives during the entire period of disability.
EMPLOYMENT AGREEMENTS
Effective September 1, 1994, Enterprises entered into an employment
agreement with Lawrence E. Jaro (the "Jaro Employment Agreement"). Pursuant
to the terms of the Jaro Employment Agreement, Mr. Jaro agreed to serve as
Chief Executive Officer and Co-Managing Owner of the Company and Enterprises
for a five-year period ending on August 31, 1999 with automatic one-year
renewals thereafter, provided that neither Mr. Jaro nor Enterprises has
provided the other with a notice of termination 120 days prior to the
expiration date of the Jaro Employment Agreement. Mr. Jaro also agreed not to
compete against Enterprises throughout the term of his employment and for one
year thereafter, and not to disclose any confidential information during and
after the term of his employment. In exchange for his services and covenants,
Enterprises agreed to compensate Mr. Jaro with a base salary of $215,000 per
annum (subject to an annual cost of living adjustment), an automobile
allowance of $800 per month and reimbursement of up to $6,000 per annum for
automobile-related costs. In the event Mr. Jaro no longer provides services
to Enterprises due to (i) his death or physical or mental disability or (ii)
his dismissal without Cause (as defined in the Jaro Employment Agreement) or
as a result of a material reduction in his authority, then Mr. Jaro is
entitled to receive his base compensation from the date of his termination
through the first anniversary of such termination or through the remaining
term of his employment agreement, respectively.
Effective September 1, 1994, Enterprises entered into an employment
agreement with William C. Osborn (the "Osborn Employment Agreement").
Pursuant to the terms of the Osborn Employment Agreement, Mr. Osborn agreed
to serve as President and Co-Managing Owner of the Company and Enterprises
for a five-year period ending on August 31, 1999 with automatic one-year
renewals thereafter, provided that neither Mr. Osborn nor Enterprises has
provided the other with a notice of termination 120 days prior to the
expiration date of the Osborn Employment Agreement. Mr. Osborn also agreed
not to compete against Enterprises throughout the term of his employment and
for one year thereafter, and not to disclose any confidential information
during and after the term of his employment. In exchange for his services and
covenants, Enterprises agreed to compensate Mr. Osborn with a base salary of
$215,000 per annum (subject to an annual cost of living adjustment), an
automobile allowance of $800 per month and reimbursement of up to $6,000 per
annum for automobile-related costs. In the event Mr. Osborn no longer
provides services to Enterprises due to (i) his death or physical or mental
disability or (ii) his dismissal without Cause (as defined in the Osborn
Employment Agreement) or as a result of a material reduction in his
authority, then Mr. Osborn is entitled to receive his base compensation from
the date of his termination through the first anniversary of such termination
or through the remaining term of his employment agreement, respectively.
Effective May 10, 1996, the Company and Mr. Osborn agreed that Mr. Osborn
would resign as President to become Vice Chairman of the Company.
Effective September 1, 1994, Enterprises entered into an employment
agreement with Gary W. Hubert (the "Hubert Employment Agreement"). Pursuant
to the terms of the Hubert Employment Agreement, Mr. Hubert agreed to serve
as Senior Vice President and Managing Director of the Company and Enterprises
for a five-year period ending on August 31, 1999 with automatic one-year
renewals thereafter, provided that neither Mr. Hubert nor Enterprises has
provided the other with notice of termination 120 days prior to the
expiration of the Hubert Employment Agreement. Mr. Hubert also agreed not to
compete against Enterprises throughout the term of his employment and for one
year thereafter, and not to disclose any confidential information during and
after the term of his employment. In exchange for his services and covenants,
Enterprises agreed to compensate Mr. Hubert with a base salary of $215,000
per annum (subject to an annual cost of living adjustment), an automobile
allowance of $800 per month and reimbursement of up to $6,000 per annum for
automobile-related costs. In the
49
<PAGE>
event Mr. Hubert no longer provides services to Enterprises due to (i) his
death or physical or mental disability or (ii) his dismissal without Cause
(as defined in the Hubert Employment Agreement) or as a result of a material
reduction in his authority, then Mr. Hubert is entitled to receive his base
compensation from the date of his termination through the first anniversary
of such termination or through the remaining term of his employment
agreement, respectively.
Effective September 1, 1994, Enterprises entered into an employment
agreement with Joel D. Aaseby (the "Aaseby Employment Agreement"). Pursuant
to the terms of the Aaseby Employment Agreement, Mr. Aaseby agreed to serve
as Vice President--Finance of Enterprises for a five-year period ending on
August 31, 1999 with automatic one-year renewals thereafter, provided that
neither Mr. Aaseby nor Enterprises has provided the other with notice of
termination 120 days prior to the expiration of the Aaseby Employment
Agreement. Mr. Aaseby also agreed not to compete with Enterprises throughout
the term of his employment and for one year thereafter, and not to disclose
any confidential information during and after the term of his employment. In
exchange for his services and covenants, Enterprises agreed to compensate Mr.
Aaseby with a base salary of $110,000 per annum (subject to an annual cost of
living adjustment), an automobile allowance of $500 per month and
reimbursement of up to $6,000 per annum for automobile-related costs. In the
event Mr. Aaseby no longer provides services to Enterprises due to (i) his
death or physical or mental disability or (ii) his dismissal without Cause
(as defined in the Aaseby Employment Agreement) or as a result of a material
reduction in his authority, then Mr. Aaseby is entitled to receive his base
compensation from the date of his termination through the first anniversary
of such termination or through the remaining term of his employment
agreement, respectively.
Effective September 1, 1994, Enterprises entered into an employment
agreement with Scott E. Vasatka (the "Vasatka Employment Agreement").
Pursuant to the terms of the Vasatka Employment Agreement, Mr. Vasatka agreed
to serve as Vice President--Human Resources of Enterprises for a five-year
period ending on August 31, 1999 with automatic one-year renewals thereafter,
provided that neither Mr. Vasatka nor Enterprises has provided the other with
notice of termination 120 days prior to the expiration of the Vasatka
Employment Agreement. Mr. Vasatka also agreed not to compete against
Enterprises throughout the term of his employment and for one year
thereafter, and not to disclose any confidential information during and after
the term of his employment. In exchange for his services and covenants,
Enterprises agreed to compensate Mr. Vasatka with a base salary of $105,000
per annum (subject to an annual cost of living adjustment), an automobile
allowance of $500 per month and reimbursement of up to $6,000 per annum for
automobile-related costs. In the event Mr. Vasatka no longer provides
services to Enterprises due to (i) his death or physical or mental disability
or (ii) his dismissal without Cause (as defined in the Vasatka Employment
Agreement) or as a result of a material reduction in his authority, then Mr.
Vasatka is entitled to receive his base compensation from the date of his
termination through the first anniversary of such termination or through the
remaining term of his employment agreement, respectively.
Effective simultaneously with the closing of the Offerings, the Company
intends to enter into new employment agreements with each of Messrs. Jaro,
Osborn, Hubert, Aaseby and Vasatka (collectively, the "New Employment
Agreements"). The New Employment Agreements will be substantially similar to
each executive's existing employment agreement, except that pursuant to the
terms of the New Employment Agreements: (i) each executive will be entitled
to an initial annual base compensation of $300,000, $225,000, $225,000,
$150,000 and $125,000, respectively, (ii) each executive may receive an
annual bonus set by the Compensation Committee of up to 70%, 0%, 60%, 50% and
50% of such executive's base compensation, respectively, and (iii) each
executive's contractual term of employment will be five years from the
consummation of the Offerings (other than Mr. Osborn's, which will be three
years), subject to automatic one-year renewals thereafter (other than Mr.
Osborn's New Employment Agreement).
EMPLOYEE BENEFIT PLANS
Subject to the approval of the Company's existing stockholders, the Company
has adopted the following stock option plan to provide incentives to attract
and retain qualified directors and employees.
50
<PAGE>
Long Term Incentive Plan. Under the Company's 1996 Long Term Incentive
Plan ("Incentive Plan"), options, stock appreciation rights ("SARs") and stock
awards may be granted to key executive and managerial employees for the purpose
of attracting and motivating such employees of the Company. The maximum number
of shares of Common Stock reserved for issuance under the Incentive Plan is
680,000 shares, and individual key employees of the Company will be limited to a
maximum of 200,000 shares of Common Stock per annum under the Incentive Plan.
The number of shares reserved for issuance and the limit on number of shares
granted to individual employees are subject to adjustment for certain events
such as stock splits, stock dividends and capital reorganizations.
The Incentive Plan will be administered by the Compensation Committee. The
Compensation Committee, which will be comprised of certain non-employee
members of the Board of Directors, will determine which key employees will be
granted stock options, SARs and stock awards, the number of shares to be
granted with respect to each and the terms and conditions under which such
grants may be exercised.
The Incentive Plan will provide for the grant of options to purchase
shares that are either "qualified", that is, those that satisfy the
requirements of Section 422 of the Code for incentive stock options, or
"non-qualified", that is, those that are not intended to satisfy the
requirements of Section 422 of the Code, as well as SARs on such options.
SARs may be granted in tandem or otherwise in connection with the options, or
may be granted as free-standing awards. Under the Incentive Plan, options
will be exercisable at not less than the market price of the Common Stock at the
time of the grant, (or not less than 110% of fair market value in the case of
incentive stock options if the option holder is a greater than 10% shareholder).
SARs are the right to receive, in cash or shares of Common Stock, the excess of
fair market value of a specified number of shares of Common Stock at the time of
exercise over a specified price not less than 100% of the fair market value of
the Common Stock when the SAR is granted, or if granted in tandem with an
option, the option exercise price. Options and SARs become exercisable in
accordance with the terms and conditions established by the Compensation
Committee, including conditions relating to length of employment or achievement
of performance standards. Generally, options and SARs may not be exercised by a
participant in the Incentive Plan until the participant has completed at least
one year of continuous service with the Company after the grant date.
Under the Company's Incentive Plan, shares of Common Stock
(subject to adjustment for certain events such as stock splits, stock
dividends and capital reorganizations) have been allocated to be granted for
the purpose of attracting and retaining experienced and knowledgeable
non-employee directors (the "Outside Directors Options"). Upon becoming
members of the Board of Directors, each of the directors who are not currently
directors of the Company and are not employees of the Company or any of its
subsidiaries ("Eligible Directors") will receive options to purchase up to 5,000
shares of Common Stock (subject to certain adjustments for Eligible Directors
who join the Company or meet the eligibility criteria under the Incentive Plan
during a plan year).
The Outside Directors Options will expire on the earlier of (i) the tenth
anniversary of the grant date and (ii) the first anniversary of the Eligible
Director's termination of service by reason of death or disability. If an
Eligible Director's termination of service is for reasons other than death or
disability, the Eligible Director forfeits the options granted during the
plan year.
The Company intends to file immediately after the offerings a
registration statement on Form S-8 to register under the Securities Act the
shares Common Stock reserved for issuance under the Incentive Plan.
Existing Stock Options. In connection with their employment by the
Company, on September 1, 1994, the Company granted each of Messrs. Stahurski
and Vasatka options to purchase 35,512 shares of Common Stock, pursuant to
separate option agreements which are not part of the Employee Benefit Plans.
These options vest at a rate of 50% per year, and will be amended upon the
consummation of the Offerings to allow for the immediate exercise of the
options.
The Company intends to file immediately after the Offerings a registration
statement on Form S-8 to register under the Securities Act the shares of
Common Stock reserved for issuance under each of the option agreements issued
to Messrs. Stahurski and Vasatka.
51
<PAGE>
PRINCIPAL STOCKHOLDERS
The table below sets forth as of June 30, 1996, certain information prior
to and after the Offerings regarding beneficial ownership of Common Stock
held by (i) each director and each of the Named Executives who own shares of
Common Stock, (ii) all directors and executive officers of the Company as a
group and (iii) each person known by the Company to own beneficially more
than 5% of the Common Stock. Each individual or entity named has sole
investment and voting power with respect to shares of Common Stock indicated
as beneficially owned by them, except where otherwise noted.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO THE
OFFERINGS(1) PERCENTAGE OF
----------------------------- BENEFICIAL OWNERSHIP
NUMBER PERCENTAGE AFTER THE OFFERINGS (1)
---------------- ------------ -------------------------
<S> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:
Lawrence E. Jaro .............................. 1,435,011(2) 22.7% 11.7%(3)
William C. Osborn ............................. 593,655(4) 9.4 4.6
Gary W. Hubert ................................ 213,008 3.4 1.7
Joel D. Aaseby ................................ 71,024 1.1 0.6
Thomas H. Quinn(5) ............................ 212,980 3.4 1.7
John W. Jordan ................................ 2,083,066(6) 33.0 16.2
A. Richard Caputo, Jr.(7) ..................... 92,295 1.5 0.7
David W. Zalaznick ............................ 2,083,066(8) 33.0 16.2
Scott E. Vasatka .............................. 35,512(9) 0.6 0.3
All directors and executive officers as a
group
(9 persons) .................................. 5,016,783(10) 78.9 39.6
OTHER PRINCIPAL STOCKHOLDERS:
MCIT PLC ...................................... 1,802,834 28.5% 14.2%
Leucadia Investors, Inc.(11) .................. 450,708 7.1 3.5
BancBoston Investments Inc. ................... 709,987(12) 10.1 5.3
PMI Mezzanine Fund, L.P. ...................... 453,188(13) 6.7 0(14)
</TABLE>
- -----------------
(1) Calculated pursuant to Rule 13d-3(d) under the Exchange Act. Under Rule
13d-3(d), shares not outstanding which are subject to options, warrants,
rights or conversion privileges exercisable within 60 days are deemed
outstanding for the purpose of calculating the number and percentage
owned by such person, but not deemed outstanding for the purpose of
calculating the percentage owned by each other person listed. As of June
30, 1996, the Company had 6,318,989 shares of Common Stock issued and
outstanding. The table gives effect to the Recapitalization and for
purposes of beneficial ownership after the Offerings, the Preferred Stock
Merger. See "Description of Capital Stock--The Recapitalization" and
"--Non-Voting Common Stock."
(2) Includes 1,222,003 shares of Common Stock beneficially owned by various
affiliates of Mr. Jaro. Mr. Jaro's address is c/o the Company, 2215
Enterprise Drive, Suite 1502, Westchester, Illinois 60154.
(3) Includes 70,000 shares of Common Stock Mr. Jaro will receive in
connection with the Preferred Stock Merger.
(4) Includes 380,647 shares of Common Stock beneficially owned by various
affiliates of Mr. Osborn. Mr. Osborn's address is c/o the Company, 2215
Enterprise Drive, Suite 1502, Westchester, Illinois 60154.
(5) Mr. Quinn is President and Chief Operating Officer of Jordan Industries,
Inc., a company affiliated with The Jordan Company, an entity with which
Messrs. Caputo, Jordan and Zalaznick are also affiliated.
(6) Includes 280,232 shares of Common Stock held by John W. Jordan II
Revocable Trust, of which Mr. Jordan is trustee and 1,802,834 shares of
Common Stock held by MCIT which is advised by Jordan
52
<PAGE>
Zalaznick Advisors, Inc. ("JZAI"), an entity controlled by Messrs. Jordan
and Zalaznick. Mr. Jordan's address is c/o The Jordan Company, 9 West
57th Street, New York, New York 10019.
(7) Mr. Caputo is a partner of The Jordan Company, an entity with which
Messrs. Jordan and Zalaznick are also affiliated.
(8) Includes 1,802,834 shares of Common Stock held by MCIT which is advised
by JZAI, an entity controlled by Messrs. Jordan and Zalaznick. Mr.
Zalaznick's address is c/o The Jordan Company, 9 West 57th Street, New
York, New York 10019.
(9) The terms of the option will be amended in connection with the Stock
Option Exercises to permit exercise upon consummation of the Offerings.
See "Management--Employee Benefit Plans."
(10) Includes all shares owned directly or beneficially by directors and
executive officers, including shares beneficially owned by affiliates of
Messrs. Jaro and Osborn.
(11) The principal address of Leucadia is 315 Park Avenue South, New York,
New York 10010.
(12) Represents immediately exercisable warrants to purchase 709,987 shares
of Non-Voting Common Stock (as hereinafter defined). The principal
address of BancBoston is 100 Federal Street, Boston, Massachusetts
02110. See "Description of Capital Stock--Non-Voting Common Stock."
(13) Represents immediately exercisable warrants to purchase 453,188 shares
of Common Stock. The address of PMI Mezzanine Fund, L.P. ("PMI") is 610
Newport Center Drive, Suite 1100, Newport Beach, California 92660.
(14) Upon the consummation of the Offerings, all of the warrants held by PMI
to purchase shares of Common Stock will be cancelled.
53
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summarizes certain provisions of the Certificate of
Incorporation, the Bylaws and the Stockholders Agreement (as hereinafter
defined), in each case after giving effect to the Recapitalization (described
below). Such summaries do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, all of the provisions of the
Certificate of Incorporation, the Bylaws and the Stockholders Agreement,
including the definitions therein of certain terms, copies of which have been
filed as exhibits to the Registration Statement of which this Prospectus is a
part.
GENERAL
The Board of Directors and the Company's stockholders have approved,
subject to the closing of the Offerings, the adoption of the Certificate of
Incorporation and Bylaws. The Certificate of Incorporation will provide for,
among other things, the authorization of 25,000,000 shares of Common Stock,
2,000,000 shares of non-voting common stock (the "Non-Voting Common Stock"),
and 1,000,000 shares of serial Preferred Stock.
THE RECAPITALIZATION
The Company's capital structure as reflected in its historical
consolidated financial statements consists of four classes of common stock
(Classes A, B, C and D) (the "Original Common Stock") and four classes of
Original Preferred Stock (Special Voting Preferred Stock and Classes A(1, A(2
and B Preferred Stock). The Company eliminated the Special Voting Preferred
Stock in February 1996. The various classes of common stock and preferred
stock differ principally in respect of voting, dividend and liquidation
rights.
The Company and its stockholders have entered into a recapitalization
agreement (the "Recapitalization Agreement"). Pursuant to the
Recapitalization Agreement, upon the consummation of the Offerings, the
Certificate of Incorporation, the Bylaws and the stockholders agreement,
dated September 1, 1994, between the Company and all of its stockholders
prior to the Offerings (the "Stockholders Agreement") will be amended and
restated so that, among other things, (i) each share of Original Common Stock
(other than the Class B Common Stock) will be converted into a share of
Common Stock and the Company will effect a stock split resulting in the
stockholders prior to the Offerings receiving 6,318.86 shares of Common Stock
for each share of Original Common Stock (other than the Class B Common Stock)
originally owned; (ii) each share of Class B Common Stock will be converted
into a share of Non-Voting Common Stock and the Company will effect a stock
split resulting in the holders of Class B Common Stock prior to the Offerings
receiving 6,318.86 shares of Non-Voting Common Stock for each share of Class
B Common Stock originally owned; (iii) the outstanding classes of Original
Preferred Stock (other than those included in the Preferred Stock Merger)
will be redeemed with a portion of the net proceeds from the Offerings; and
(iv) the stockholders of the Company prior to the Offerings and the Company
will enter into an amended Stockholders Agreement pursuant to which such
stockholders (other than PMI) will continue to be entitled to incidental
registration rights and certain stockholders will be entitled to demand
registration rights with respect of the Common Stock described under
"--Registration Rights."
After giving effect to the Recapitalization and the redemption or
cancellation of the outstanding shares of Original Preferred Stock (including
pursuant to the Preferred Stock Merger), but not giving effect to the
Offerings, the Company will have outstanding 6,470,013 shares of Common Stock
(assuming the exercise of outstanding options which will be exercised upon
consummation of the Offerings), 709,987 shares of Non-Voting Common Stock,
and no shares of Preferred Stock. See "Use of Proceeds" and "Principal
Stockholders."
COMMON STOCK
Following the Offerings, 13,600,000 shares of Common Stock will be issued
and outstanding. All of the issued and outstanding shares of Common Stock
are, and upon the consummation of the Offerings the shares of Common Stock
offered hereby will be, fully paid and non-assessable. Each holder of shares
of Common Stock (other than the Non-Voting Common Stock) is entitled to one
vote per share on all
54
<PAGE>
matters to be voted on by stockholders. The holders of Common Stock are
entitled to dividends and other distributions if, as and when declared by the
Board of Directors out of assets legally available therefor, subject to the
rights of the Lenders and the restrictions, if any, imposed by other
indebtedness outstanding from time to time. See "Dividend Policy."
Upon the liquidation, dissolution or winding up of the Company, the
holders of shares of Common Stock would be entitled to share ratably in the
distribution of all of the Company's assets remaining available for
distribution after satisfaction of all its liabilities and the payment of the
liquidation preference of any outstanding shares of Preferred Stock. The
holders of Common Stock have no preemptive or other subscription rights to
purchase shares of stock of the Company, nor are such holders entitled to the
benefits of any sinking fund provisions. As of June 30, 1996, there were 29
beneficial owners of Common Stock.
NON-VOTING COMMON STOCK
Immediately prior to the consummation of the Offerings, the Company
authorized 2,000,000 shares of Non-Voting Common Stock for issuance. The
Company intends to issue shares of Non-Voting Common Stock to stockholders
that are not permitted by law or under applicable regulation to own or
control voting equity securities. The Non-Voting Common Stock is identical to
the Common Stock in all respects except voting and conversion rights. The
holders of Non-Voting Common Stock have no right to vote. Upon transfer to an
entity not restricted from holding voting common stock, each share of
Non-Voting Common Stock may be converted into an equal number of shares of
Common Stock, entitling the holders thereof to voting rights. The Non-Voting
Common Stock will not be listed on the Nasdaq National Market or any other
exchange. Upon the close of the Offerings, BancBoston will be the only holder
of Non-Voting Common Stock.
PREFERRED STOCK
The Certificate of Incorporation will authorize the Board of Directors to
create and issue one or more series of Preferred Stock and determine the
rights and preferences of each series, to the extent permitted by the
Certificate of Incorporation and applicable law. Among other rights, the
Board of Directors may determine, without the further vote or action by the
Company's stockholders, (i) the number of shares constituting the series and
the distinctive designation of the series; (ii) the dividend rate on the
shares of the series, whether dividends will be cumulative and, if so, from
which date or dates, and the relative rights of priority, if any, of payment
of dividends on shares of the series; (iii) whether the series shall have
voting rights, in addition to the voting rights provided by law and, if so,
the terms of such voting rights; (iv) whether the series shall have
conversion privileges, and, if so, the terms and conditions of such
conversion, including provision for adjustment of the conversion rate in such
events as the Board of Directors shall determine; (v) whether or not the
shares of that series shall be redeemable or exchangeable and, if so, the
terms and conditions of such redemption or exchange, as the case may be,
including the date or dates upon or after which they shall be redeemable or
exchangeable, as the case may be, and the amount per share payable in case of
redemption, which amount may vary under different conditions and at different
redemption dates; (vi) whether the series shall have a sinking fund for the
redemption or purchase of shares of that series and, if so, the terms and
amount of such sinking fund and (vii) the rights of the shares of the series
in the event of voluntary or involuntary liquidation, dissolution or winding
up of the Company and the relative rights or priority, if any, of payment of
shares of the series. Except for any difference so provided by the Board of
Directors, the shares of all series of Preferred Stock will rank on a parity
with respect to the payment of dividends and the distribution of assets upon
liquidation.
REGISTRATION RIGHTS
In connection with their prior acquisitions of securities of the Company,
the Jordan Investors (as defined) (other than MCIT), BancBoston and PMI have
been granted by the Company demand and incidental registration rights. All
other stockholders of the Company prior to the Offerings have been granted
incidental registration rights.
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In general, each of (i) the holders of a majority of shares of Common
Stock held by the Jordan Investors (other than MCIT) and (ii) BancBoston have
the right to cause the Company to register their holdings of Common Stock
under the Securities Act (such right being referred to as a "demand
registration right"), subject to certain exceptions. At any time after
September 1, 1999, the holders of a majority of shares of Common Stock held
by PMI will also be entitled to substantially comparable demand registration
rights as the Jordan Investors and BancBoston, subject to certain exceptions.
All stockholders of the Company prior to the Offerings are each entitled, if
the Company determines to file a registration statement covering any of its
securities under the Securities Act, other than a registration statement on
Form S-4 or Form S-8, to require the Company to use its best efforts to
include a requested amount of their shares of Common Stock in the Company's
registered offering (such right being referred to as an "incidental
registration right"), subject to certain limitations. The number of shares of
Common Stock registered pursuant to a demand or incidental registration may
be reduced pursuant to a specified formula if the managing underwriter
determines that market conditions require a limitation on the number of such
shares registered.
The Company is required to bear all registration expenses in connection
with each demand and incidental registration and has agreed to indemnify the
holders of demand and incidental registration rights against, and provide
contribution with respect to, certain liabilities under the Securities Act in
connection with incidental and demand registrations. All holders of demand
and incidental registration rights have agreed not to exercise their
registration rights with respect to the Offerings and for a period of 180
days after the date of this Prospectus. All stockholders of the Company prior
to the Offerings are entitled to incidental registration rights with respect
to 7,180,000 shares of Common Stock and certain stockholders of the Company
are entitled to demand registration rights with respect to 2,913,437 shares
of Common Stock (assuming the consummation of the Preferred Stock Merger, the
exercise of all outstanding options and warrants and the conversion of the
Non-Voting Common Stock into Common Stock). See "Principal Stockholders" and
"Shares Eligible for Future Sale."
As a result of the cancellation of the related warrants to acquire such
shares in connection with the Offerings, PMI will no longer have demand or
incidental registration rights with respect to 453,189 shares of Common
Stock.
CERTIFICATE OF INCORPORATION AND BYLAWS
The rights of the Company's stockholders are governed by the Delaware
Corporation Law, the Certificate of Incorporation, and the Bylaws. Certain
provisions of the Certificate of Incorporation and the Bylaws, which are
summarized below, may discourage or make more difficult a takeover attempt
that a stockholder might consider in its best interest. Such provisions may
also adversely affect the prevailing market price for the Common Stock.
Preferred Stock. The Board of Directors will have the authority, without
action by the Company's stockholders, to fix the rights, privileges and
preferences of, and to issue up to 1,000,000 shares of, Preferred Stock. The
issuance of such Preferred Stock may have the effect of delaying, deferring
or preventing a change in control of the Company without further action by
the stockholders and may adversely affect the voting and other rights of the
holders of the Common Stock, including the loss of voting control to others.
Following the closing of the Offerings, there will be no shares of Preferred
Stock issued and outstanding and the Company currently has no plans to issue
any shares of Preferred Stock.
No Stockholder Action by Written Consent; Special Meetings. The
Certificate of Incorporation and Bylaws will prohibit stockholders from
taking action by written consent in lieu of an annual or special meeting. In
addition, special meetings of stockholders may be called only by the Chairman
of the Board, the President, or a majority of the Board of Directors. Special
meetings may not be called by stockholders.
Advance Notice Requirements for Stockholder Proposals. The Bylaws will
establish advance notice procedures with regard to stockholder proposals.
These procedures provide that the notice of stockholder proposals must be
received by the Company no later than (i) with respect to an annual meeting
of stockholders, 60 days prior to the anniversary date of the immediately
preceding annual meeting of stockholders and (ii) with respect to a special
meeting of stockholders, no later than the close of business
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on the tenth day following the date on which notice of such meeting is first
sent or given to stockholders. Each stockholder proposal must set forth
certain information as specified in the Bylaws.
ANTI-TAKEOVER EFFECTS OF THE BKC FRANCHISE AGREEMENTS
Current BKC policies and procedures require the Company and each of its
subsidiaries which is a franchisee to seek BKC consent prior to making
certain changes to their capital structure and modifications to their
corporate governance documents. Pursuant to the BKC franchise agreements,
BKC's consent may be required for certain transfers or issuances by the
Company of its equity securities and for transfers of the Company's equity
securities that result in a change of control of the Company in connection
with a public tender offer. If BKC's required consent was not obtained in
connection with any such issuance or transfer of the Company's equity
securities, BKC could terminate its franchise agreements with the Company's
subsidiaries, which would have a material adverse effect on the Company's
financial condition and results of operations. In addition, the Company's
financial flexibility and ability to issue equity securities in connection
with acquiring future Burger King restaurants could be limited by BKC. Any
such limitations would affect the Company's growth strategy and could have a
material adverse effect on the Company's financial condition and results of
operations.
NASDAQ NATIONAL MARKET LISTING
The Common Stock has been approved for listing on the Nasdaq National
Market under the trading symbol "AKNG," subject to official notice of
issuance.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Harris Trust
Company of New York.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a summary of important terms of certain indebtedness of
the Company. For more complete information regarding such indebtedness,
reference is made to the definitive agreements and instruments setting forth
the terms of such indebtedness, copies of which have been filed as exhibits
to the Registration Statement of which this Prospectus is a part and which
are incorporated by reference herein.
CREDIT AGREEMENT
The Credit Agreement provides for up to $100.0 million of senior secured
indebtedness, consisting of two term loans of $45.0 million ("Term Loan A")
and $40.0 million ("Term Loan B" and, together with the Term Loan A, the
"Term Loans"), and $15.0 million of Revolving Loans (the Revolving Loans,
together with the Term Loans, the "Loans"). Subject to certain restrictions,
Enterprises may use the commitments under of the Revolving Loans for the
issuance of documentary or standby letters of credit.
Term Loan A and the Revolving Loans bear interest at a rate of the lower
of either FNBB's annual rate of interest (the "Base Rate") plus 1.5% or the
Eurodollar Rate (as defined in the Credit Agreement) plus 2.75%, and mature
on January 31, 2002. The interest rates for Term Loan A and the Revolving
Loans are subject to downward adjustment based on a debt service ratio of
Enterprises on specified dates. As of April 1, 1996, the outstanding
principal balance under the Revolving Loans was $4.0 million. Term Loan B
bears interest at a rate of the lower of either the Base Rate plus 2% or the
Eurodollar Rate plus 3.25%, and matures on January 31, 2004. Interest on
Loans utilizing the Base Rate is payable quarterly in arrears and interest on
Loans utilizing the Eurodollar Rate is payable at the end of each respective
interest period. Enterprises is required to repay the principal amount on the
Term Loans in consecutive quarterly installments pursuant to payment
schedules specified in the Credit Agreement. In addition, Enterprises is
required to make annual prepayments on the principal amount of the Term Loans
based on Consolidated Excess Cash Flow (as defined in the Credit Agreement).
Due to various amendments to the Credit Agreement and as a result of
Enterprises' various acquisitions, Enterprises has not been required to
prepay any amounts under the Term Loans based on Consolidated Excess Cash
Flow since entering into the Credit Agreement.
Borrowings under the Credit Agreement are secured by a first priority
security interest in all present and future acquired tangible assets of
Enterprises and certain of its subsidiaries (other than real estate and the
franchise agreements) and Enterprises' repayment obligations are guaranteed
by certain of its subsidiaries and the Company.
The Credit Agreement contains certain customary covenants with respect to,
among other things: (i) maintenance by Enterprises and its subsidiaries of
prescribed ratios of cash flow to total debt service and cash flow to total
interest expense (each as determined in the Credit Agreement); (ii)
maintenance by Enterprises and its subsidiaries of minimum levels of cash
flow (as determined); and (iii) restrictions on indebtedness, distributions,
investments, liens, sales and leasebacks, mergers, consolidations,
acquisitions, sales and dispositions of assets, capital expenditures, and
restaurant development. As of April 1, 1996, the Company was in compliance
with all such covenants and restrictions.
The Term Loans may be prepaid without penalty, in full or in part, at any
time at the option of Enterprises.
NEW CREDIT FACILITY
The New Credit Facility will provide for up to $150.0 million of senior
secured indebtedness, consisting of a term loan of $75.0 million (the "New
Term Loan"), an acquisition loan of $50.0 million (the "Acquisition Loan")
and $25.0 million of revolving loans (the "New Revolving Loans"). Subject to
certain restrictions, Enterprises may use the commitments under the New
Revolving Loans for the issuance of documentary or standby letters of credit.
Each of the New Term Loan, which together with a portion of the net
proceeds of the Offerings will replace Term Loan A and Term B, and the New
Revolving Loans, which will replace the Revolving Loans, will bear interest
upon the consummation of the Offerings at a rate the lower of either FNBB's
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annual rate of interest (the "Base Rate") plus an applicable margin or the
Eurodollar Rate (as defined in the New Credit Facility) plus an applicable
margin. The applicable margin for Base Rate loans ranges from .25% to 1.00%
and the applicable margin for Eurodollar Rate loans ranges from 1.50% to
2.25%. Each of the Base Rate loans and Eurodollar Rate loans is subject to
periodic adjustments based upon a leverage ratio of Enterprises on specified
dates. The Company anticipates that its New Term Loan and New Revolving Loans
will be priced at 1.625% above the Eurodollar Rate at closing.
The Acquisition Loan, which will finance certain Permitted Acquisitions
(as defined in the New Credit Facility), will also bear interest at a rate
equal to the lower of either the Base Rate plus an applicable margin or the
Eurodollar Rate plus an applicable margin. The applicable margin for the
Acquisition Loan is the same as for the New Term Loan and New Revolving Loans
and is subject to the same periodic adjustments as the New Term Loan and New
Revolving Loans.
Borrowings under the New Credit Facility will be secured by a first
priority security interest in all present and future acquired assets of
Enterprises and certain of the subsidiaries (other than real estate and the
franchise agreements) and Enterprises' repayment obligations will be
guaranteed by certain of its subsidiaries and the Company.
The other terms and provisions of the New Credit Facility will be
substantially similar to the Credit Agreement.
SENIOR SUBORDINATED NOTES
On February 7, 1996, the Company, Enterprises, and PMI entered into a note
purchase agreement (the "Senior Note Purchase Agreement") for the purchase by
PMI of $15.0 million aggregate principal amount of Senior Subordinated Notes
(collectively, the "Senior Subordinated Notes"). The Senior Subordinated
Notes are general, unsecured obligations of Enterprises and are guaranteed by
certain subsidiaries of Enterprises. The Senior Subordinated Notes mature on
January 31, 2005, without a prepayment schedule, and bear interest at a rate
of 12.5% per annum, payable quarterly in arrears.
The Senior Subordinated Notes are subordinated in right of payment to the
loans under the Credit Agreement. The Senior Subordinated Notes may, at the
election of the Company, be prepaid in whole or in part, at any time, subject
to a specified prepayment premium. Upon (i) a Change of Control (as defined
in the Senior Note Purchase Agreement), (ii) a merger, reorganization, or
consolidation involving the Company or Enterprises, (iii) the sale or
disposition of all or substantially all of the assets of the Company,
Enterprises, and their subsidiaries, taken as a whole, (iv) the occurrence of
one or more events that give rise to a mandatory prepayment obligation with
respect to other indebtedness of the Company, or (v) the occurrence of a
public offering in which shares of Common Stock are being registered for sale
by holders other than the Company or PMI (or its designated transferee),
Enterprises, at the option of the holders of a majority of the Senior
Subordinated Notes, may be required to prepay the Senior Subordinated Notes
subject to a specified prepayment premium.
The Senior Note Purchase Agreement contains certain financial and negative
covenants which, among other things, require the maintenance of certain
financial ratios and restrict the ability of the Company and Enterprises to
incur indebtedness, make investments, incur liens, enter into sales and
leasebacks, enter into transactions with affiliates, enter into mergers,
guarantee other indebtedness, consolidate or dispose of assets and make
capital expenditures. The Senior Note Purchase Agreement also restricts the
ability of Enterprises to distribute money to the Company. As of April 1,
1996, the Company was in compliance with all such covenants and restrictions.
Assuming net proceeds of the Offerings of $87.8 million at an assumed
initial public offering price of $15 per share (the mid-point of the price
range set forth on the cover of this Prospectus) and proceeds from borrowings
under the New Credit Facility of $82.6 million, the Company intends to use
$19.1 million of such total proceeds to prepay the Senior Subordinated Notes
in full (including a prepayment penalty of approximately $4.1 million). The
Company intends to amend the Senior Note Purchase Agreement in connection
with the Offering to cancel all of the outstanding warrants currently held by
PMI. See "Use of Proceeds."
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SUBORDINATED NOTES
On February 7, 1996, the Company and MCIT entered into an amended and
restated purchase agreement (the "Subordinated Note Purchase Agreement")
which related to the prior purchase by MCIT of $11.0 million aggregate
principal amount of Subordinated Notes (collectively, the "Subordinated
Notes") and certain shares of capital stock of the Company. The Subordinated
Notes are general, unsecured obligations of the Company. The Subordinated
Notes mature on August 31, 2005, without a prepayment schedule, and bear
interest at a rate of 12.75% per annum, payable semi-annually in arrears.
The Subordinated Notes are subordinated to the Company's guarantee
obligations in respect of borrowings under the Credit Agreement. Subject to
their subordination terms, the Company may at its option prepay the
Subordinated Notes, in whole or in part; however, the Company is required to
prepay all Subordinated Notes upon a Change of Control (as defined in the
Subordinated Note Purchase Agreement). The Company is not subject to a
prepayment premium upon a voluntary or mandatory prepayment of the
Subordinated Notes.
The Subordinated Note Purchase Agreement contains negative covenants,
similar to those contained in the Senior Note Purchase Agreement, and
financial maintenance covenants.
Assuming net proceeds of the Offerings of $87.8 million at an assumed
initial public offering price of $15 per share (the mid-point of the price
range set forth on the cover of this Prospectus) and proceeds from borrowings
under the New Credit Facility of $82.6 million, the Company intends to use
$11.0 million of such total proceeds to prepay the Subordinated Notes in
full. See "Use of Proceeds."
SELLER NOTES
In connection with the acquisition of certain Burger King restaurants from
Messrs. Jaro and Osborn in September 1994, the Company issued promissory
notes to entities controlled by Messrs. Jaro and Osborn in the aggregate
principal amount of $4.4 million (collectively and as amended and restated,
the "Seller Notes"). The Seller Notes are junior in right of payment to the
Senior Subordinated Notes and the Company's guarantee obligations in respect
of borrowings under the Credit Agreement and bear interest at a rate of
12.75% per annum, payable semi-annually in arrears. The Seller Notes have a
scheduled maturity of August 31, 2004.
The Company may prepay the Seller Notes only under certain specified
limited conditions and is required to prepay the Seller Notes in full without
a prepayment premium upon the occurrence of specified events, including upon
(i) an acceleration of the Subordinated Notes, (ii) a default by the Company
in the payment of any principal on a Seller Note, (iii) the commencement of a
bankruptcy proceeding by the Company or certain of its subsidiaries or (iv) a
Change of Control (which is defined to have the same meaning as set forth in
the Subordinated Note Purchase Agreement).
Assuming net proceeds of the Offerings of $87.8 million at an assumed
initial public offering price of $15 per share (the mid-point of the price
range set forth on the cover of this Prospectus) and proceeds from borrowings
under the New Credit Facility of $82.6 million, the Company intends to use
$4.4 million of such total proceeds to prepay the Seller Notes in full. See
"Use of Proceeds."
BBI NOTES
In connection with the acquisition of certain Burger King restaurants from
Sheldon Friedman and affiliates in November 1994, the Company issued
promissory notes to BancBoston in the aggregate principal amount of $600,000
(collectively, the "BBI Notes"). The BBI Notes are junior in right of payment
to the Senior Subordinated Notes, the Company's guarantee obligations in
respect of borrowings under the Credit Agreement, the Subordinated Notes and
the Seller Notes and bear interest at a rate of 6% per annum, payable
quarterly in arrears. The BBI Notes have a scheduled maturity date of March
31, 2005.
The Company may at its option prepay the BBI Notes, in whole or in part.
The Company is required to prepay all BBI Notes upon a Change of Control
(which is defined to have the same meaning as set forth
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in the Subordinated Note Purchase Agreement). The Company is not subject to a
prepayment premium upon a voluntary or mandatory prepayment of the BBI Notes.
Assuming net proceeds of the Offerings of $87.8 million at an assumed
initial public offering price of $15 per share (the mid-point of the price
range set forth on the cover of this Prospectus) and proceeds from borrowings
under the New Credit Facility of $82.6 million, the Company intends to use
$600,000 of such total net proceeds to prepay the BBI Notes in full. See "Use
of Proceeds."
BKC NOTE
In connection with the acquisition of certain Burger King restaurants from
the stockholders of QSC, Inc. and Ro-Lank, Inc., AmeriKing Tennessee
Corporation I ("ATCI"), a wholly owned subsidiary of Enterprises, issued a
Secured Promissory Note (the "BKC Note") to BKC in the principal amount of
$6.9 million. The BKC Note bears interest at a rate of 9.75% per annum,
payable monthly in arrears, and is secured by a pledge of all of the
outstanding capital stock of ATCI.
Pursuant to the terms of the BKC Note, on February 7, 1996 ATCI paid down
$816,702 of the principal from the proceeds of the sale of the building and
underlying real estate of one of its Burger King restaurants. ATCI may at its
option prepay the BKC Note, in whole or in part, and may be required to
prepay the BKC Note upon an Event of Default (as defined therein). Events of
Default under the BKC Note include, among other things, failure to make
required payments or failure by ATCI to meet BKC franchise agreement
requirements.
Borrowings under the BKC Note are secured by a pledge by Enterprises of
all of the issued and outstanding capital stock of ATCI.
The BKC Note matures on July 19, 1996 and is expected to be refinanced on
a long term basis.
FAC NOTE
In connection with the acquisition of certain Burger King restaurants from
Daniel White and affiliate, AmeriKing Colorado Corporation I ("ACCI"), a
wholly owned subsidiary of Enterprises, issued a Promissory Note to Franchise
Acceptance Corporation Limited (the "FAC Note") in the principal amount of
$1.87 million. Franchise Acceptance Corporation Limited is an affiliate of
BKC. The FAC Note bears an interest rate of the Program Rate (as defined
therein) plus 2.75% per annum, payable monthly in arrears. The FAC Note
matures on January 25, 2006 and requires ACCI to make monthly principal
payments of $15,541.67 (1/120 of the original principal amount) starting
January 25, 1996 for each month up to maturity.
ACCI may at its option, subject to certain restrictions, prepay the FAC
Note, in whole or in part. However, ACCI is required to continue its monthly
principal payments following any partial voluntary prepayment. In addition,
ACCI is required to pay the FAC Note in full following any Event of Default
(as defined therein). Events of Default under the FAC Note include, among
other things, failure to make required payments or failure by ACCI to meet
BKC franchise agreement requirements.
Borrowings under the FAC Note are secured by a security interest in all
present and future restaurant-related assets of ACCI.
The FAC Note is expected to remain outstanding after consummation of the
Offerings.
CERTAIN TRANSACTIONS
Subordinated Debt Holders. PMI, MCIT, affiliates of Messrs. Jaro and
Osborn and BancBoston are the holders of Senior Subordinated Notes,
Subordinated Notes, Seller Notes and the BBI Notes, respectively. The Senior
Subordinated Notes bear interest at a rate of 12.5% per annum, payable
quarterly in arrears, the Subordinated Notes and Seller Notes bear interest
at a rate of 12.75% per annum, payable semi-annually in arrears, and the BBI
Notes bear interest at a rate of 6% per annum, payable quarterly in arrears.
For the three-month period ended April 1, 1996, the Company accrued $286,000
of interest expense to PMI under the Senior Subordinated Notes and during
fiscal 1995, the Company paid to MCIT,
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the holders of the Seller Notes and BancBoston approximately $1.4 million,
$560,000 and $36,000 as interest expense under the Subordinated Notes, the
Seller Notes and the BBI Notes, respectively. Simultaneously with the
consummation of the Offerings, the Company will use approximately $35.1
million from the net proceeds of the Offerings to prepay the principal amount
under each of the Senior Subordinated Notes, the Subordinated Notes, the
Seller Notes and the BBI Notes (including the prepayment penalty of
approximately $4.1 million to PMI as the holder of the Senior Subordinated
Notes). PMI, MCIT, and BancBoston are principal stockholders of the Company.
Mr. Jaro is the Company's Chairman, Chief Executive Officer, managing owner
and a principal stockholder and Mr. Osborn is the Company's Vice Chairman,
director and a principal stockholder. See "Use of Proceeds" and "Description
of Certain Indebtedness."
The Jordan Company. On September 1, 1994, the Company and Enterprises
entered into a consulting agreement with an affiliate of The Jordan Company
(the "TJC Consulting Agreement"). Under the TJC Consulting Agreement, the
Company retained an affiliate of The Jordan Company to render consulting
services to it regarding the Company and its subsidiaries, their financial
and business affairs and their relationships with their lenders and
stockholders, and the operation and expansion of their business. The TJC
Consulting Agreement expires on September 1, 2004, but is automatically
renewed for successive one-year terms, unless either party provides written
notice of termination 60 days prior to the scheduled renewal date. Prior to
the consummation of the Offerings, the TJC Consulting Agreement provided for
an annual consulting fee payable on a quarterly basis equal to the higher of
(i) $500,000 or (ii) 2.5% of the Company's cash flow (as determined in the
TJC Consulting Agreement). In addition, the TJC Consulting Agreement provided
for payment to the affiliate of The Jordan Company of (i) an investment
banking and sponsorship fee of up to 2% of the purchase price of certain
acquisitions or sales involving the Company, Enterprises or any of their
subsidiaries and (ii) a financial consulting fee of up to 1% of any debt,
equity or other financing arranged by the Company with the assistance of TJC.
During fiscal 1995 and the three months ended April 1, 1996, the Company paid
consulting fees to the affiliate of The Jordan Company of $477,609 and
$104,000, respectively, pursuant to the terms of the TJC Consulting
Agreement. In connection with the acquisition on February 7, 1996 by certain
subsidiaries of Enterprises of an aggregate of 36 Burger King restaurant
franchises located in the States of Indiana, Kentucky, Ohio, Virginia and
North Carolina, the Company paid to the affiliate of The Jordan Company an
investment banking fee of $1.0 million and paid fees totalling $300,000 to
certain members of the Company's senior management. In connection with the
consummation of the Offerings, the Company intends to amend and restate the
TJC Consulting Agreement to extend the expiration date to December 31, 2006
(subject to the same annual renewal provisions under the current agreement)
and to provide for (i) an annual consulting fee of $300,000 payable on a
quarterly basis, (ii) an investment banking and sponsorship fee of up to 1%
of the purchase price of certain acquisitions or sales greater than $5
million involving the Company, Enterprises or any of their subsidiaries and
(iii) a financial consulting fee of up to .5% of any debt, equity or other
financing arranged by the Company with the assistance of an affiliate of The
Jordan Company. If the Michigan Acquisition and related financings are
consummated by the Company, the Company will pay to the affiliate of The
Jordan Company an investment banking fee of $1.0 million pursuant to the
terms of the amended and restated TJC Consulting Agreement. The Company
believes that the terms of the TJC Consulting Agreement are comparable to the
terms that it would obtain from non-affiliated parties for comparable
services. Messrs. Jordan, Zalaznick and Caputo are partners of The Jordan
Company.
Original Preferred Stockholders. Simultaneously with the consummation of
the Offerings, the Company will (i) redeem certain of the issued and
outstanding shares of Original Preferred Stock for cash and (ii) acquire the
remaining shares of Original Preferred Stock with shares of Common Stock and
cash pursuant to the Preferred Stock Merger (as described below). BancBoston,
MCIT, affiliates of The Jordan Company and affiliates of Messrs. Jaro and
Osborn are the holders of all of the issued and outstanding shares of
Original Preferred Stock.
The Company will pay in cash to each of BancBoston, MCIT and affiliates of
The Jordan Company approximately $2.1 million, $3.8 million and $547,000,
respectively, as payment for their shares of Original Preferred Stock and all
accrued and unpaid dividends due thereon. In addition, BancBoston, MCIT,
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Leucadia Investors, Inc. and affiliates of The Jordan Company will receive
790,987 shares of Non-Voting Common Stock (assuming the exercise of
BancBoston's warrants), 1,802,834 shares of Common Stock, 450,708 shares of
Common Stock and 1,161,230 shares of Common Stock, respectively, attributable
to the shares of Original Common Stock held by each.
Simultaneously with the consummation of the Offerings certain corporations
affiliated with Messrs. Jaro and Osborn will be merged with and into the
Company, with the Company being the surviving entity (the "Preferred Stock
Merger"). In connection with the Preferred Stock Merger, (i) Mr. Jaro and a
minority shareholder will receive 80,000 shares of Common Stock and a cash
payment of approximately $136,000 attributable to the shares of Original
Preferred Stock held by the corporations affiliated with Mr. Jaro (of which
Mr. Jaro will receive 70,000 shares and $116,000) and (ii) Mr. Osborn will
receive a cash payment of approximately $416,000 attributable to the shares
of Original Preferred Stock held by the corporations affiliated with Mr.
Osborn. The $136,000 cash payment to Mr. Jaro and the minority shareholder in
connection with the Preferred Stock Merger will be adjusted downward or
upward to the extent that the initial public offering price (before
underwriting commissions or expenses) is greater than $15 per share or less
than $15 per share, respectively. In addition, Messrs. Jaro and Osborn will
receive 1,239,500 and 593,655 shares, respectively, of Common Stock
attributable to the shares of Original Common Stock held by Messrs. Jaro and
Osborn and corporations affiliated with Messrs. Jaro and Osborn,
respectively. Messrs. Jaro and Osborn have agreed to indemnify the Company
from any liability to the Company resulting from the Preferred Stock Merger.
See "Use of Proceeds" and "Description of Capital Stock--The
Recapitalization."
Burger King Corporation. In connection with certain of its previous
acquisitions of Burger King restaurants, the Company and its subsidiaries
have entered into certain agreements with BKC as a precondition to receiving
BKC approval of the acquisition. As part of its purchase agreement with BKC,
dated September 1, 1994, Enterprises committed to expend up to $2.25 million
by September 1, 1997 to upgrade the 68 Burger King restaurants it acquired.
As part of its November 21, 1995 acquisition of 11 Burger King restaurants,
the Company and ATCI agreed to (i) renew the Company's commitment, initially
made in connection with its November 30, 1994 acquisition, to sell up to 10
Burger King restaurants to a franchisee to be designated by BKC and (ii)
expend approximately $1.65 million by November 21, 1997 to upgrade certain of
the 11 Burger King restaurants so acquired. The commitment by ATCI to upgrade
the restaurants is subject to certain capital expenditures to be made by BKC.
As part of its acquisitions of 36 Burger King restaurants on February 7,
1996, the Company and ATCI (i) renewed the Company's commitment to sell up to
10 Burger King restaurants to a franchisee to be designated and (ii) agreed
to make the capital expenditures necessary to bring each of the Burger King
restaurants operated by the Company and its subsidiaries into compliance with
BKC current repair and maintenance standards by September 7, 1997.
In connection with the Offerings, the Company will be required to enter
into an agreement with BKC pursuant to which the Company will, among other
things, indemnify BKC for any claims against BKC arising out of the
Offerings.
Members of the Board of Directors. Enterprises leases the land and
buildings for two Burger King restaurants under noncancelable operating
leases from an entity which is owned by Mr. Jaro. The leases expire in March
2006 and January 2007, respectively, and require total monthly rental
payments of $20,600. For the year ended January 1, 1996 and for the three
month period ended April 1, 1996, the Company recorded rent expense of
$248,000 and $62,000, respectively, under these leases.
Pursuant to the provisions of BKC's franchise agreements, Messrs. Jaro,
Osborn and Hubert, as managing owners and owners, have guaranteed the
obligations of the Company and its subsidiaries under each franchise
agreement and each lease agreement in which BKC is the lessor. In addition,
Messrs. Jaro, Osborn and Hubert have personally guaranteed all obligations of
ATCI under the BKC Note. The Company intends to seek BKC's consent to
terminate the personal guarantees of Messrs. Jaro, Osborn and Hubert under
each of the franchise agreements, lease agreements and the BKC Note.
In connection with the September 1994 purchase of the Management
Restaurants, the Company (i) entered into a $700,000 revolving loan agreement
with Mr. Jaro whereby the Company loaned funds to
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Mr. Jaro and (ii) deferred payment in full of the purchase price for one of
the Management Restaurants sold to the Company by a corporation controlled by
Mr. Jaro. Effective upon the consummation of the Offerings, the Company
intends to cancel the outstanding balance of the revolving loan to Mr. Jaro
in exchange for Mr. Jaro's cancellation of the outstanding balance of the
deferred purchase price for the restaurant.
Upon the consummation of the Offerings, the Company will enter into
indemnification agreements with each member of the Board of Directors whereby
the Company will agree, subject to certain exceptions, to indemnify and hold
harmless each director from liabilities incurred as a result of such person's
status as a director of the Company. See "Management--Board of Directors."
The Company has adopted a policy, which will be effective simultaneously
with the consummation of the Offerings, to provide that future transactions
between the Company and its officers, directors and other affiliates must (i)
be approved by a majority of the members of the Board of Directors and by a
majority of the disinterested members of the Board of Directors and (ii) be
on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
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SHARES ELIGIBLE FOR FUTURE SALE
Immediately following the Offerings, there will be 13,600,000 shares of
Common Stock issued and outstanding (assuming the exercise of all currently
outstanding options and warrants and the conversion of the Non-Voting Common
Stock into Common Stock). Of such shares, only the 6,420,000 shares of Common
Stock to be sold in the Offerings will be immediately eligible for sale in
the public market, except for any of such shares owned at any time by an
"affiliate" of the Company within the meaning of Rule 144 under the
Securities Act. The remaining 7,180,000 outstanding shares are "restricted
securities" within the meaning of Rule 144 and may not be publicly resold,
except in compliance with the registration requirements of the Securities Act
or pursuant to an exemption from registration, including that provided by
Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned "restricted" shares
for at least two years, including a person who may be deemed an affiliate of
the Company, is entitled to sell within any three-month period a number of
shares of Common Stock that does not exceed the greater of 1% of the
then-outstanding shares of Common Stock of the Company, or the average weekly
trading volume of Common Stock on the Nasdaq National Market during the four
calendar weeks preceding the date on which notice of the sale is filed with
the Commission. Sales under Rule 144 are subject to certain restrictions
relating to manner of sale, notice and the availability of current public
information about the Company. A person who is not an "affiliate" of the
Company at any time during the 90 days preceding a sale, and who has
beneficially owned shares for at least three years, would be entitled to sell
such shares immediately following the Offerings under Rule 144(k) without
regard to the volume limitations, manner of sale provisions or notice or
other requirements of Rule 144. In addition, any employee, director or
officer of, or consultant to, the Company who purchased his shares pursuant
to a written compensatory plan or contract may be entitled to rely on the
resale provisions of Rule 701 under the Securities Act, which permit
non-affiliates to sell their Rule 701 shares without having to comply with
the public information, holding period, volume limitation or notice
provisions of Rule 144, and permit affiliates to sell their Rule 701 shares
without having to comply with Rule 144's holding period restrictions, in each
case commencing 90 days after the date of this Prospectus.
Each of (i) the Company and each of its executive officers and directors
and (ii) each holder of capital stock of the Company immediately prior to the
Offerings (including holders of options and warrants exercisable into shares
of Common Stock) have agreed that, for a period of 180 days after the date of
this Prospectus, they will not, without the prior written consent of Smith
Barney Inc., offer, sell, contract to sell or otherwise dispose of any Common
Stock or securities convertible, exercisable or exchangeable for Common Stock
or grant any options or warrants to purchase Common Stock, subject to certain
exceptions. Upon expiration of the 180-day period, 7,180,000 shares of Common
Stock (assuming the exercise of all currently outstanding options and
warrants and the conversion of the Non-Voting Common Stock into Common Stock)
will be eligible for immediate resale without restriction under the
Securities Act, subject to certain volume, timing and other requirements of
Rule 144 promulgated under the Securities Act.
All stockholders of the Company prior to the Offerings are entitled to
incidental registration rights with respect to 7,180,000 shares of Common
Stock (assuming the consummation of the Preferred Stock Merger, the exercise
of all currently outstanding options and warrants and the conversion of the
Non-Voting Common Stock into Common Stock) and certain stockholders of the
Company are entitled to demand registration rights with respect to 2,913,437
shares of Common Stock. All stockholders with registration rights have agreed
not to exercise such rights with respect to the Offerings and for a period of
180 days after the date of this Prospectus. However, after the expiration of
the 180 day period, such holders may choose to exercise their demand
registration rights, which could result in a large number of shares being
sold in the public market. See "Description of Capital Stock--Registration
Rights."
The Company intends to file immediately following the Offerings
registration statements on Form S-8 to register under the Securities Act an
aggregate of 680,000 shares of Common Stock reserved for
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issuance pursuant to the exercise of stock options granted under the
Incentive Plan and the Outside Directors' Plan. The stock registered under
such registration statements will thereafter be available for sale in the
public market upon vesting of such options, subject to the resale limitations
of Rule 144 applicable to "affiliates" of the Company.
Prior to the date of this Prospectus, there has been no public market for
the Common Stock. Trading of the Common Stock on the Nasdaq National Market
is expected to commence following the completion of the Offerings. No
prediction can be made as to the effect, if any, that future sales of shares,
or the availability of shares for future sale, will have on the market price
of the Common Stock prevailing from time to time. Sales of substantial
amounts of Common Stock, or the perception that such sales could occur, could
adversely affect the prevailing market price of the Common Stock.
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CERTAIN U.S. TAX CONSEQUENCES TO NON-U.S. STOCKHOLDERS
The following is a general discussion of certain Federal tax consequences
of the ownership and disposition of a share of Common Stock by the beneficial
owner of such shares that is not a U.S. person for U.S. Federal income tax
purposes (a "non-U.S. holder"). For purposes of this discussion, a "U.S.
person" means a citizen or resident of the United States, a corporation or
partnership created or organized in the United States or under the law of the
United States or of any State or political subdivision of the foregoing, or
any estate or trust whose income is includible in gross income for U.S.
Federal income tax purposes regardless of its source. This discussion does
not deal with all aspects of U.S. Federal income and estate taxation that may
be relevant to non-U.S. holders in light of their particular circumstances,
and does not address state, local or non-U.S. tax considerations.
Furthermore, the following discussion is based on current provisions of the
U.S. Internal Revenue Code of 1986, as amended (the "Code"), the regulations
promulgated thereunder and administrative and judicial interpretations as of
the date hereof, all of which are subject to change, possibly with
retroactive effect. Treasury regulations were recently proposed that would,
if adopted in their present form, revise in certain respects the rules
applicable to non-U.S. holders of Common Stock (the "Proposed Regulations").
The Proposed Regulations are generally proposed to be effective with respect
to payments made after December 31, 1997. It is not certain whether, or in
what form, the Proposed Regulations will be adopted as final regulations.
Each prospective investor is urged to consult its own tax adviser with
respect to the U.S. Federal, state and local consequences of owning and
disposing of a share of Common Stock, as well as any tax consequences arising
under the laws of any other taxing jurisdiction.
U.S. INCOME AND ESTATE TAX CONSEQUENCES
It is not currently contemplated that the Company will pay dividends on
the Common Stock in the foreseeable future. If the Company were to pay a
dividend in the future, such a dividend paid to a non-U.S. holder would be
subject to U.S. withholding tax at a 30% rate, or if applicable, a lower
treaty rate, unless the dividend is effectively connected with the conduct of
a trade or business in the United States by a non-U.S. holder (and, if
certain tax treaties apply, is attributable to a United States permanent
establishment maintained by such non-U.S. holder). A dividend that is
effectively connected with the conduct of a trade or business in the United
States by the non-U.S. holder (and, if certain tax treaties apply, is
attributable to a United States permanent establishment maintained by such
non-U.S. holder) will be exempt from the withholding tax described above and
subject instead (i) to the U.S. Federal income tax on net income that applies
to U.S. persons and (ii) with respect to corporate holders under certain
circumstances, a 30% (or, if applicable, lower treaty rate) branch profits
tax that in general is imposed on its "effectively connected earnings and
profits" (within the meaning of the Code) for the taxable year, as adjusted
for certain items.
Under current Treasury Regulations, dividends paid to an address in a
foreign country are presumed to be paid to a resident of that country (unless
the payor has knowledge to the contrary) for purposes of the withholding
discussed above and, under the current interpretation of the Treasury
Regulations, for purposes of determining the applicability of a tax treaty
rate. Under the Proposed Regulations, however, a non-U.S. holder of Common
Stock who wishes to claim the benefit of an applicable treaty rate would be
required to satisfy applicable certification and other requirements. In the
case of a foreign partnership, the certification requirement would generally
be applied to the partners of the partnership. In addition, the Proposed
Regulations would also require the partnership to provide certain
information, including a United States taxpayer identification number, and
would provide look-through rules for tiered partnerships. A non-U.S. holder
that is eligible for a reduced rate of U.S. withholding tax pursuant to an
income tax treaty may obtain a refund of any excess amounts withheld by
filing an appropriate claim for refund with the Internal Revenue Service (the
"IRS").
Under current law, a non-U.S. holder generally will not be subject to U.S.
Federal income tax on any gain recognized on a sale or other disposition of a
share of Common Stock unless (i) the Company is or has been during the
five-year period ending on the date of disposition a "United States real
property holding corporation" for U.S. Federal income tax purposes (which the
Company does not believe that it has been or is currently and does not
anticipate becoming), (ii) the gain is effectively connected with the conduct
of a trade or business within the United States of the non-U.S. holder and,
if certain tax treaties apply, is attributable to a United States permanent
establishment maintained by the non-U.S. holder, (iii) the gain is not
described in clause (ii) above, the non-U.S. holder is an individual who
holds the share as a capital asset, is present in the United States for 183
days or more in the taxable year of the disposition and either (a) such
individual has a "tax home" (as defined for U.S. Federal income tax purposes)
in the
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United States or (b) the gain is attributable to an office or other fixed
place of business maintained in the United States by such individual, or (iv)
the non-U.S. holder is subject to tax pursuant to the Code provisions
applicable to certain U.S. expatriates. In the case of a non-U.S. holder that
is described under clause (ii) above, its gain will be subject to the U.S.
Federal income tax on net income that applies to U.S. persons and, in
addition, if such non-U.S. holder is a foreign corporation, it may be subject
to the branch profits tax as described in the preceding paragraph. An
individual non-U.S. holder that is described under clause (iii) above will be
subject to a flat 30% tax on the gain derived from the sale, which may be
offset by U.S. capital losses (notwithstanding the fact that he or she is not
considered a resident of the United States). Thus, individual non-U.S.
holders who have spent 183 days or more in the United States in the taxable
year in which they contemplate a sale of the Common Stock are urged to
consult their tax advisers as to the tax consequences of such sale.
Shares of Common Stock owned at the time of his or her death by an
individual non-U.S. holder who is treated as a U.S. resident at such time for
U.S. Federal estate tax purposes will be includible in his or her gross
estate for U.S. Federal estate tax purposes unless an applicable estate tax
treaty provides otherwise.
BACK-UP WITHHOLDING AND INFORMATION REPORTING
Dividends
Except as provided below, the Company must report annually to the IRS and
to each non-U.S. holder the amount of dividends paid to and the tax withheld
with respect to such holder. These information reporting requirements apply
regardless of whether withholding was reduced or eliminated by an applicable
tax treaty. Copies of these information returns may also be available under
the provisions of a specific treaty or agreement with the tax authorities in
the country in which the non-U.S. holder resides. In general, backup
withholding at a rate of 31% and additional information reporting will apply
to dividends paid on shares of Common Stock to holders that are not "exempt
recipients" and that fail to provide in the manner required certain
identifying information (such as the holder's name, address and taxpayer
identification number). Generally, individuals are not exempt recipients,
whereas corporations and certain other entities generally are exempt
recipients. However, dividends that are subject to U.S. withholding tax at
the 30% statutory rate or at a reduced tax treaty rate are exempt from backup
withholding of U.S. Federal income tax and such additional information
reporting.
Broker Sales
If a non-U.S. holder sells shares of Common Stock through a U.S. office of
a U.S. or foreign broker, the broker is required to file an information
return and is required to withhold 31% of the sale proceeds unless the
non-U.S. holder is an exempt recipient or has provided the broker with the
information and statements, under penalties of perjury, necessary to
establish an exemption from backup withholding. If payment of the proceeds of
the sale of a share by a non-U.S. holder is made to or through the foreign
office of a broker, that broker will not be required to backup withhold or,
except as provided in the next sentence, to file information returns. In the
case of proceeds from a sale of a share by a non-U.S. holder paid to or
through the foreign office of a U.S. broker or a foreign office of a foreign
broker that is (i) a controlled foreign corporation for U.S. tax purposes or
(ii) a person 50% or more of whose gross income for the three-year period
ending with the close of the taxable year preceding the year of payment (or
for the part of that period that the broker has been in existence) is
effectively connected with the conduct of a trade or business within the
United States (a "Foreign U.S. Connected Broker"), information reporting is
required unless the broker has documentary evidence in its files that the
payee is not a U.S. person and certain other conditions are met, or the payee
otherwise establishes an exemption.
Refunds
Any amounts withheld under the backup withholding rules from a payment to
a non-U.S. holder may be refunded or credited against the non-U.S. holder's
U.S. Federal income tax liability, provided that the required information is
furnished to the IRS.
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UNDERWRITING
Under the terms and subject to the conditions stated in the U.S.
Underwriting Agreement, each of the underwriters of the U.S. Offering named
below (the "U.S. Underwriters"), for whom Smith Barney Inc., PaineWebber
Incorporated and EVEREN Securities, Inc. are acting as the representatives
(the "Representatives"), has severally agreed to purchase, and the Company
has agreed to sell to each U.S. Underwriter, the number of shares of Common
Stock set forth opposite the name of such U.S. Underwriter below:
<TABLE>
<CAPTION>
U.S. UNDERWRITERS NUMBER OF SHARES
----------------- ----------------
<S> <C>
Smith Barney Inc. .......
PaineWebber Incorporated
EVEREN Securities, Inc.
Total ................. 5,136,000
</TABLE>
Under the terms and subject to the conditions contained in the
International Underwriting Agreement, each of the managers of the concurrent
International Offering named below (the "Managers"), for whom Smith Barney
Inc., PaineWebber International (U.K.) Ltd., and EVEREN Securities, Inc. are
acting as lead managers (the "Lead Managers"), has severally agreed to
purchase, and the Company has agreed to sell to each Manager, the number of
shares of Common Stock set forth opposite the name of such Manager below:
<TABLE>
<CAPTION>
MANAGERS NUMBER OF SHARES
-------- ----------------
<S> <C>
Smith Barney Inc. ....................
PaineWebber International (U.K.) Ltd.
EVEREN Securities, Inc. ..............
Total .............................. 1,284,000
</TABLE>
Each of the U.S. Underwriting Agreement and the International Underwriting
Agreement provides that the obligations of the several U.S. Underwriters and
several Managers to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by
counsel and to certain other conditions. The U.S. Underwriters and the
Managers are obligated to take and pay for all shares of Common Stock offered
hereby (other than those covered by the over-allotment option described
below) if any such shares are taken.
The U.S. Underwriters and the Managers (collectively, the "Underwriters")
initially propose to offer part of the shares offered hereby directly to the
public at the public offering price set forth on the cover page of this
Prospectus and part of the shares offered hereby to certain dealers at a
price which represents a concession not in excess of $ per share under the
public offering price. The U.S. Underwriters and Managers may allow, and such
dealers may reallow, a concession not in excess of $ per share to other
U.S. Underwriters or Managers, respectively, or to certain other dealers.
After the initial public offering, the public offering price and such
concessions may be changed by the Underwriters.
The Representatives and Managers have advised the Company that they do not
intend to confirm sales to accounts over which they exercise discretionary
authority.
The Company has granted the Underwriters an option, exercisable at any
time and from time to time during a 30-day period from the date of this
Prospectus, to purchase up to an aggregate of 963,000 additional shares of
Common Stock at the public offering price set forth on the cover page hereof
less underwriting commissions. The U.S. Underwriters may exercise such option
to purchase additional shares solely for the purpose of covering
over-allotments, if any, incurred in connection with the sales of the shares
of Common Stock offered hereby. To the extent such option is exercised, each
U.S. Underwriter will be obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional shares as the
number of shares set forth opposite each U.S. Underwriter's name in the
preceding Underwriters table bears to the total number of shares of Common
Stock offered by the U.S. Underwriters hereby.
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The Company and the U.S. Underwriters and the Managers have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
Each of (i) the Company and each of its executive officers and directors
and (ii) each holder of capital stock of the Company immediately prior to the
Offerings (including holders of warrants exercisable into shares of Common
Stock) have agreed that, for a period of 180 days after the date of this
Prospectus, they will not, without the prior written consent of Smith Barney
Inc., offer, sell, contract to sell or otherwise dispose of any Common Stock
or securities convertible or exercisable or exchangeable for Common Stock or
grant any options or warrants to purchase Common Stock, subject to certain
exceptions.
At the Company's request, the U.S. Underwriters and the Managers have
reserved up to 321,000 shares of Common Stock (the "Directed Shares") for
sale at the public offering price to persons who are directors, officers or
employees of, or are otherwise associated with, the Company and who have
advised the Company of their desire to participate in its future growth. The
number of shares of Common Stock available for sale to the general public
will be reduced to the extent of sales of Directed Shares to any of the
persons for whom they have been reserved. Any shares not so purchased will be
offered by the U.S. Underwriters and the Managers on the same basis as all
other shares offered hereby.
The U.S. Underwriters and the Managers have entered into an Agreement
Between U.S. Underwriters and Managers pursuant to which each U.S.
Underwriter has agreed that, as part of the distribution of the shares
offered in the U.S. Offering, (i) it is not purchasing any such shares for
the account of anyone other than a U.S. or Canadian Person and (ii) it has
not offered or sold, and will not offer, sell, resell or deliver, directly or
indirectly, any of such shares or distribute any prospectus relating to the
U.S. Offering outside the United States or Canada or to anyone other than a
U.S. or Canadian Person. In addition, each Manager has agreed that as part of
the distribution of the shares offered in the International Offering: (i) it
is not purchasing any such shares for the account of any U.S. or Canadian
Person and (ii) it has not offered or sold, and will not offer, sell, resell
or deliver, directly or indirectly, any of such shares or distribute any
prospectus relating to the International Offering in the United States or
Canada or to any U.S. or Canadian Person. Each Manager has also agreed that
it will offer to sell shares only in compliance with all relevant
requirements of any applicable laws.
The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the U.S. Underwriting Agreement, the
International Underwriting Agreement and the Agreement Between U.S.
Underwriters and Managers, including: (i) certain purchases and sales between
the U.S. Underwriters and the Managers, (ii) certain offers, sales, resales,
deliveries or distributions to or through investment advisors or other
persons exercising investment discretion, (iii) purchases, offers or sales by
a U.S. Underwriter who is also acting as Manager or by a Manager who is also
acting as a U.S. Underwriter and (iv) other transactions specifically
approved by the Representatives and the Lead Managers. As used herein, "U.S.
or Canadian Person" means any resident or national of the United States or
Canada, any corporation, partnership or other entity created or organized in
or under the laws of the United States or Canada or any estate or trust the
income of which is subject to U.S. or Canadian income taxation regardless of
the source of its income (other than the foreign branch of any U.S. or
Canadian Person), and includes any U.S. or Canadian branch of a person other
than a U.S. or Canadian Person.
Any offer of shares in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the relevant province of Canada
in which such offer is made.
Each Manager has represented and agreed that (i) it has not offered or
sold and will not offer or sell in the United Kingdom, by means of any
document, any shares other than to persons whose ordinary business it is to
buy or sell shares or debentures, whether as principal or agent or in
circumstances which do not constitute an offer to the public within the
meaning of the Public Offering of Securities Regulation 1995, (ii) it has
complied and will comply with all applicable provisions of the Financial
Services Act 1986 with respect to anything done by it in relation to the
shares in, from, or otherwise involving, the United Kingdom and (iii) it has
only issued or passed on and will only issue or pass on to any person in the
United
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Kingdom any document received by it in connection with the issue of the
shares if that person is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1995 or is a person to whom the document may otherwise lawfully be issued or
passed on.
No action has been or will be taken in any jurisdiction by the Company,
the U.S. Underwriters or the Managers that would permit any offering to the
general public of the Common Stock offered hereby in any jurisdiction other
than the United States.
Purchasers of the Common Stock offered hereby may be required to pay stamp
taxes and other charges in accordance with the laws and practices of the
country of purchase in addition to the offering price set forth on the cover
page hereof.
Pursuant to the Agreement Between U.S. Underwriters and Managers, sales
may be made between the U.S. Underwriters and the Managers of such number of
shares of Common Stock as may be mutually agreed. The price of any shares so
sold shall be the public offering price as then in effect for Common Stock
being sold by the U.S. Underwriters and the Managers, less all or any part of
the selling concession, unless otherwise determined by mutual agreement. To
the extent that there are sales between the U.S. Underwriters and the
Managers pursuant to the Agreement Between U.S. Underwriters and Managers,
the number of shares initially available for sale by the U.S. Underwriters
and by the Managers may be more or less than the number of shares appearing
on the front cover of this Prospectus.
Prior to the Offerings, there has been no public market for the Common
Stock. The initial public offering price of the shares was negotiated between
the Company and the Representatives. Among the factors considered in
determining such price were the history of and prospects for the Company's
business and the industry in which it competes, an assessment of the
Company's management and the present state of the Company's development, the
past and present revenues and earnings of the Company, the prospects for
growth of the Company's revenues and earnings, the current state of the
economy in the United States and the current level of economic activity in
the industry in which the Company competes and in related or comparable
industries, and currently prevailing conditions in the securities markets,
including current market valuations of publicly traded companies which are
comparable to the Company.
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LEGAL MATTERS
Certain legal matters with respect to the legality of the Common Stock
offered hereby will be passed upon for the Company by Mayer, Brown & Platt,
New York, New York. Mayer, Brown & Platt also represents The Jordan Company
and its affiliates from time to time in connection with its various
acquisitions and divestitures. Certain legal matters relating to the
Offerings will be passed upon for the U.S. Underwriters and the Managers by
Cravath, Swaine & Moore, New York, New York.
EXPERTS
The consolidated financial statements of the Company as of January 1, 1996
and December 31, 1994 and for the periods then ended and the historical
schedules of restaurant contribution for each of the periods from January 1,
1993 to the earlier of the date of purchase by the Company or December 31,
1995, appearing in this Prospectus and Registration Statement have been
audited by Deloitte & Touche LLP, independent certified public accountants,
as set forth in their reports thereon appearing elsewhere herein, and are
included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement on Form
S-1 (the "Registration Statement") under the Securities Act, with respect to
the shares of Common Stock offered hereby. For the purposes hereof, the term
"Registration Statement" means the original Registration Statement and any
and all amendments thereto. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and
such Common Stock, reference is hereby made to such Registration Statement,
which can be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Regional Offices of the Commission
at Seven World Trade Center, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material also can be obtained from the Public Reference Section of the
Commission, Washington, D.C. 20549 at prescribed rates.
Statements contained in this Prospectus as to the contents of any contract
or other document are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent accountants and with
quarterly reports containing updated summary financial information for each
of the first three quarters of each fiscal year.
-------------------
72
<PAGE>
NEITHER BKC NOR ANY OF ITS SUBSIDIARIES, AFFILIATES, OFFICERS, DIRECTORS,
AGENTS, EMPLOYEES, ACCOUNTANTS OR ATTORNEYS ARE IN ANY WAY PARTICIPATING IN,
APPROVING OR ENDORSING THESE OFFERINGS OF SECURITIES, ANY OF THE UNDERWRITING
OR ACCOUNTING PROCEDURES USED IN THE OFFERINGS, OR ANY REPRESENTATIONS MADE
IN CONNECTION WITH THE COMPANY. THE GRANT BY BKC OF ANY FRANCHISE OR OTHER
RIGHTS TO THE COMPANY IS NOT INTENDED AS, AND SHOULD NOT BE INTERPRETED AS,
AN EXPRESS OR IMPLIED APPROVAL, ENDORSEMENT OR ADOPTION OF ANY STATEMENT
REGARDING ACTUAL OR PROJECTED FINANCIAL OR OTHER PERFORMANCE WHICH MAY BE
CONTAINED IN THE COMPANY'S OFFERING MATERIALS. ALL FINANCIAL AND OTHER
PROJECTIONS HAVE BEEN PREPARED BY, AND ARE THE SOLE RESPONSIBILITY OF, THE
COMPANY.
ANY REVIEW BY BKC OF THE OFFERING MATERIALS OR THE INFORMATION INCLUDED
THEREIN HAS BEEN CONDUCTED SOLELY FOR THE BENEFIT OF BKC TO DETERMINE
CONFORMANCE WITH BKC'S INTERNAL POLICIES, AND NOT TO BENEFIT OR PROTECT ANY
OTHER PERSON. NO INVESTOR SHOULD INTERPRET SUCH REVIEW BY BKC AS AN APPROVAL,
ENDORSEMENT, ACCEPTANCE OR ADOPTION OF ANY REPRESENTATION, WARRANTY, COVENANT
OR PROJECTION CONTAINED IN THE MATERIALS REVIEWED.
THE ENFORCEMENT OR WAIVER OF ANY OBLIGATION OF THE COMPANY UNDER ANY
AGREEMENT BETWEEN THE COMPANY AND BKC OR BKC'S AFFILIATES IS A MATTER OF
BKC'S OR BKC'S AFFILIATES' SOLE DISCRETION. NO INVESTOR SHOULD RELY ON ANY
REPRESENTATION, ASSUMPTION OR BELIEF THAT BKC OR BKC'S AFFILIATES WILL
ENFORCE OR WAIVE PARTICULAR OBLIGATIONS OF THE COMPANY UNDER SUCH AGREEMENTS.
73
<PAGE>
AMERIKING, INC.
(formerly named NRE Holdings, Inc.)
Index to the Consolidated Financial Statements
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Independent Auditors' Report ................................................................. F-2
Consolidated Balance Sheets as of April 1, 1996 (unaudited), January 1, 1996 and December 31,
1994 ........................................................................................ F-3
Consolidated Statements of Operations for the period January 1, 1995 to January 1, 1996 and
the period August 17, 1994 (date of incorporation) to December 31, 1994 ..................... F-4
Consolidated Statements of Operations for the period January 2, 1996 to April 1, 1996 and the
period January 1, 1995 to March 31, 1995 (unaudited) ........................................ F-5
Consolidated Statements of Stockholders' Equity for the period January 2, 1996 to April 1,
1996 (unaudited), the period January 1, 1995 to January 1, 1996 and the period August 17,
1994 (date of incorporation) to December 31, 1994 ........................................... F-6
Consolidated Statements of Cash Flows for the period January 1, 1995 to January 1, 1996 and
the period August 17, 1994 (date of incorporation) to December 31, 1994 ..................... F-7
Consolidated Statements of Cash Flows for the period January 2, 1996 to April 1, 1996 and the
period January 1, 1995 to March 31, 1995 (unaudited) ........................................ F-8
Notes to Consolidated Financial Statements ................................................... F-9
Index to the Historical Schedules of
Restaurant Contribution
INITIAL ACQUISITIONS
Independent Auditors' Report ................................................................ F-18
Historical Schedules of Restaurant Contribution for the BKC Restaurants, Jaro restaurants
and Osborn restaurants for the period January 1, 1994 through September 1, 1994 ........... F-19
Historical Schedules of Restaurant Contribution for the BKC Restaurants, Jaro restaurants
and Osborn restaurants for the year ended December 31, 1993 ................................ F-20
Notes to the Historical Schedules of Restaurant Contribution ................................ F-21
ACQUISITIONS
Independent Auditors' Report ................................................................ F-22
Historical Schedules of Restaurant Contribution for Curtis James Investments, Inc., C&N
Dining, Inc. and Stuart Ray Investments, Inc. for the quarter ended April 1, 1996 or the
period January 1, 1996 through the date of acquisition ..................................... F-23
Historical Schedules of Restaurant Contribution for DMW, Inc., BKC, QSC, Inc. and Ro-Lank,
Inc., Curtis James Investments, Inc., C&N Dining, Inc. and Stuart Ray Investments, Inc. for
the year ended December 31, 1995 or the period January 1, 1995 through date of acquisition F-24
Historical Schedules of Restaurant Contribution for Friedman, QSC, Inc. and Ro-Lank, Inc.,
Curtis James Investments, Inc., C&N Dining, Inc. and Stuart Ray Investments, Inc. for the
year ended December 31, 1994 or the period January 1, 1994 through date of acquisition .... F-25
Historical Schedules of Restaurant Contribution for Friedman, QSC, Inc. and Ro-Lank, Inc.,
Curtis James Investments, Inc., C&N Dining, Inc. and Stuart Ray Investments, Inc. for the
year ended December 31, 1993 ............................................................... F-26
Notes to the Historical Schedules of Restaurant Contribution ................................ F-27
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
AmeriKing, Inc.
Westchester, Illinois
We have audited the accompanying consolidated balance sheets of AmeriKing,
Inc. (formerly NRE Holdings, Inc.) and subsidiary as of January 1, 1996 and
December 31, 1994, and the related consolidated statements of operations,
stockholders' equity and cash flows for the period January 1, 1995 to January
1, 1996 and the period August 17, 1994 (date of incorporation) to December
31, 1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of AmeriKing, Inc. and
subsidiary as of January 1, 1996 and December 31, 1994, and the results of
their operations and their cash flows for the period January 1, 1995 to
January 1, 1996 and the period August 17, 1994 (date of incorporation) to
December 31, 1994 in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
March 12, 1996
Chicago, Illinois
F-2
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
APRIL 1, 1996 (UNAUDITED), JANUARY 1, 1996 AND DECEMBER 31, 1994
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31,
APRIL 1, 1996 1996 1994
-------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................... $ 4,580,000 $ 1,887,000 $ 7,650,000
Accounts receivable .......................... 771,000 1,118,000 134,000
Inventory .................................... 1,236,000 1,009,000 1,001,000
Prepaid expenses ............................. 1,667,000 1,218,000 775,000
-------------- -------------- --------------
Total current assets ........................ 8,254,000 5,232,000 9,560,000
PROPERTY AND EQUIPMENT ........................ 35,172,000 28,457,000 23,471,000
GOODWILL ...................................... 97,326,000 66,847,000 61,739,000
OTHER ASSETS:
Deferred financing costs ..................... 5,531,000 3,096,000 3,509,000
Deferred organization costs .................. 205,000 220,000 272,000
Franchise agreements ......................... 4,270,000 3,384,000 3,239,000
-------------- -------------- --------------
Total other assets .......................... 10,006,000 6,700,000 7,020,000
-------------- -------------- --------------
TOTAL ......................................... $150,758,000 $107,236,000 $101,790,000
============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and other accrued expenses . $ 8,378,000 $ 5,399,000 $ 6,037,000
Accrued payroll .............................. 2,145,000 802,000 1,193,000
Accrued sales tax payable .................... 1,395,000 1,047,000 924,000
Accrued interest payable ..................... 1,505,000 346,000 1,041,000
Current portion of long-term debt (Note 5) .. 12,126,000 10,741,000 3,450,000
Current portion of capital leases (Note 6) .. 105,000 99,000
-------------- -------------- --------------
Total current liabilities ................... 25,654,000 18,434,000 12,645,000
LONG-TERM DEBT --Less current portion (Note 5) 84,812,000 63,094,000 65,050,000
LONG-TERM DEBT --Related Parties (Note 5) .... 31,000,000 16,000,000 16,000,000
OTHER LONG-TERM LIABILITIES (Note 6) ......... 149,000 176,000
DEFERRED INCOME TAXES ......................... 789,000 789,000 254,000
STOCKHOLDERS' EQUITY:
Preferred stock .............................. 75 75 75
Common stock ................................. 10 10 10
Additional paid-in capital ................... 7,599,915 7,599,915 7,599,915
Retained earnings ............................ 754,000 1,143,000 241,000
-------------- -------------- --------------
Total stockholders' equity .................. 8,354,000 8,743,000 7,841,000
-------------- -------------- --------------
TOTAL ......................................... $150,758,000 $107,236,000 $101,790,000
============== ============== ==============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD JANUARY 1, 1995 TO JANUARY 1, 1996 AND
THE PERIOD AUGUST 17, 1994 (DATE OF INCORPORATION) TO DECEMBER 31, 1994
<TABLE>
<CAPTION>
JANUARY 1, AUGUST 17,
1995 TO 1994 TO
JANUARY 1, PERCENTAGE DECEMBER 31, PERCENTAGE
1996 OF SALES 1994 OF SALES
-------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
RESTAURANT SALES .............................. $139,572,000 100.0% $33,931,000 100.0%
RESTAURANT OPERATING EXPENSES:
Cost of sales ................................ 44,798,000 32.1 10,807,000 31.8
Restaurant labor and related costs ........... 34,526,000 24.7 8,647,000 25.5
Occupancy .................................... 15,454,000 11.1 3,768,000 11.1
Depreciation and amortization of goodwill and
franchise agreements ........................ 4,927,000 3.6 1,193,000 3.5
Advertising .................................. 6,330,000 4.5 1,449,000 4.3
Royalties .................................... 4,788,000 3.4 1,162,000 3.4
Other operating expenses ..................... 12,358,000 8.9 2,850,000 8.4
-------------- ------------ -------------- ------------
Total restaurant operating expenses ....... 123,181,000 88.3 29,876,000 88.8
-------------- ------------ -------------- ------------
RESTAURANT CONTRIBUTION ....................... 16,391,000 11.7 4,055,000 12.0
GENERAL AND ADMINISTRATIVE
EXPENSES ..................................... 5,176,000 3.7 1,227,000 3.6
OTHER OPERATING EXPENSES:
Depreciation expense --office ................ 199,000 0.1 15,000 0.1
Management and directors' fees ............... 529,000 0.4 132,000 0.4
-------------- ------------ -------------- ------------
Operating income ........................... 10,487,000 7.5 2,681,000 7.9
OTHER INCOME (EXPENSE):
Interest expense ............................. (6,296,000) (4.4) (1,256,000) (3.7)
Interest expense --related party ............. (2,027,000) (1.5) (669,000) (2.0)
Amortization of deferred costs ............... (511,000) (0.4) (104,000) (0.3)
Other income ................................. 209,000 0.1 16,000 0.1
Other expense ................................ (135,000) (0.1) (236,000) (0.7)
-------------- ------------ -------------- ------------
Total other expense ........................ (8,760,000) (6.3) (2,249,000) (6.6)
-------------- ------------ -------------- ------------
INCOME BEFORE PROVISION FOR INCOME TAXES ..... 1,727,000 1.2 432,000 1.3
PROVISION FOR INCOME TAXES .................... 825,000 0.6 191,000 0.6
-------------- ------------ -------------- ------------
NET INCOME .................................... $ 902,000 0.6% $ 241,000 0.7%
============== ============ ============== ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD JANUARY 2, 1996 TO APRIL 1, 1996 AND
THE PERIOD JANUARY 1, 1995 TO MARCH 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
JANUARY 2 JANUARY 1,
1996 TO 1995 TO
APRIL 1, PERCENTAGE MARCH 31, PERCENTAGE
1996 OF SALES 1995 OF SALES
------------- ------------ ------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
RESTAURANT SALES .............................. $43,103,000 100.0% $30,967,000 100.0%
RESTAURANT OPERATING EXPENSES:
Cost of sales ................................ 14,033,000 32.6 9,938,000 32.1
Restaurant labor and related costs ........... 11,059,000 25.6 8,291,000 26.8
Occupancy .................................... 4,817,000 11.2 3,683,000 11.9
Depreciation and amortization of goodwill and
franchise agreements ........................ 1,669,000 3.9 1,182,000 3.8
Advertising .................................. 2,094,000 4.9 1,324,000 4.3
Royalties .................................... 1,479,000 3.4 1,069,000 3.4
Other operating expenses ..................... 3,711,000 8.6 2,851,000 9.2
------------- ------------ ------------- ------------
Total restaurant operating expenses ....... 38,862,000 90.2 28,338,000 91.5
------------- ------------ ------------- ------------
RESTAURANT CONTRIBUTION ....................... 4,241,000 9.8 2,629,000 8.5
GENERAL AND ADMINISTRATIVE
EXPENSES ..................................... 1,721,000 3.9 1,036,000 3.3
OTHER OPERATING EXPENSES:
Depreciation expense --office ................ 93,000 0.2 48,000 0.2
Management and directors' fees ............... 118,000 0.3 119,000 0.4
------------- ------------ ------------- ------------
Operating income ........................... 2,309,000 5.4 1,426,000 4.6
OTHER INCOME (EXPENSE):
Interest expense ............................. (1,950,000) (4.5) (1,536,000) (4.9)
Interest expense --related party ............. (792,000) (1.9) (500,000) (1.7)
Amortization of deferred costs ............... (224,000) (0.5) (123,000) (0.4)
Other income ................................. 70,000 0.2
Other expense ................................ (3,000) (0.0) (34,000) (0.1)
------------- ------------ ------------- ------------
Total other expense ........................ (2,969,000) (6.9) (2,123,000) (6.9)
------------- ------------ ------------- ------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME
TAXES ........................................ (660,000) (1.5) (697,000) (2.3)
PROVISION FOR INCOME TAXES .................... (271,000) (0.6) (333,000) (1.1)
------------- ------------ ------------- ------------
NET INCOME (LOSS) ............................. $ (389,000) (0.9)% $ (364,000) (1.2)%
============= ============ ============= ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD JANUARY 1, 1995 TO JANUARY 1, 1996 AND
THE PERIOD AUGUST 17, 1994 (DATE OF INCORPORATION) TO DECEMBER 31, 1994; AND
FOR THE PERIOD JANUARY 2, 1996 TO APRIL 1, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED COMMON PAID-IN RETAINED
STOCK STOCK CAPITAL EARNINGS TOTAL
----------- -------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
INITIAL ISSUANCE OF STOCK .......... $56 $10 $5,699,934 $5,700,000
Issuance of preferred stock ...... 19 1,899,981 1,900,000
Net income ........................ $ 241,000 241,000
----------- -------- ------------ ----------- ------------
BALANCE --December 31, 1994 ....... 75 10 7,599,915 241,000 7,841,000
Net income ........................ 902,000 902,000
----------- -------- ------------ ----------- ------------
BALANCE --January 1, 1996 .......... 75 10 7,599,915 1,143,000 8,743,000
Net loss (unaudited) .............. (389,000) (389,000)
----------- -------- ------------ ----------- ------------
BALANCE --April 1, 1996 (unaudited) $75 $10 $7,599,915 $ 754,000 $8,354,000
=========== ======== ============ =========== ============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD JANUARY 1, 1995 TO JANUARY 1, 1996 AND
THE PERIOD AUGUST 17, 1994 (DATE OF INCORPORATION) TO DECEMBER 31, 1994
<TABLE>
<CAPTION>
JANUARY 1, 1995 AUGUST 17, 1994
TO TO
JANUARY 1, 1996 DECEMBER 31, 1994
--------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................ $ 902,000 $ 241,000
Adjustments to reconcile net income to net cash flows from
operating activities:
Depreciation and amortization ............................ 5,637,000 1,311,000
Deferred income taxes .................................... 535,000 171,000
Unrealized loss on property and equipment ................ 135,000
Changes in:
Accounts receivable ..................................... (984,000) (134,000)
Inventory ............................................... (8,000) (1,001,000)
Prepaid expenses ........................................ (443,000) (775,000)
Accounts payable and accrued expenses ................... (1,601,000) 7,845,000
--------------- -----------------
Net cash flows from operating activities ............... 4,173,000 7,658,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of restaurant franchise agreements, equipment and
goodwill ................................................. (11,305,000) (81,671,000)
Cash paid for organization costs .......................... (6,000) (290,000)
Cash paid for franchise agreements ........................ (60,000)
Cash paid for property and equipment ...................... (3,721,000) (597,000)
--------------- -----------------
Net cash flows from investing activities ............... (15,092,000) (82,558,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of preferred stock ............................... 5,900,000
Issuance of common stock .................................. 71,000
Proceeds from short-term debt ............................. 6,920,000
Proceeds from long-term debt .............................. 1,865,000 68,500,000
Proceeds from subordinated debt --related party .......... 11,600,000
Cash paid for financing costs ............................. (135,000) (3,521,000)
Advances under line of credit ............................. 2,000,000 3,500,000
Payments on line of credit ................................ (2,000,000) (3,500,000)
Payments on long-term debt ................................ (3,450,000)
Payments on capital leases ................................ (44,000)
--------------- -----------------
Net cash flows from financing activities ............... 5,156,000 82,550,000
--------------- -----------------
NET CHANGE IN CASH AND CASH EQUIVALENTS .................... (5,763,000) 7,650,000
CASH AND CASH EQUIVALENTS --Beginning of period ........... 7,650,000
--------------- -----------------
CASH AND CASH EQUIVALENTS --End of period .................. $ 1,887,000 $ 7,650,000
=============== =================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest .................. $ 9,018,000 $ 884,000
=============== =================
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
On September 1, 1994, in connection with the purchase of
restaurant franchises from certain members of the
Company's management, the Company issued the following
noncash consideration:
Preferred stock (including additional paid-in capital) .. $ 1,600,000
Common stock (including additional paid-in capital) ..... 29,000
Subordinated debt --related party ........................ 4,400,000
New capital leases ........................................ $ 319,000
--------------- -----------------
TOTAL ...................................................... $ 319,000 $ 6,029,000
=============== =================
On September 1, 1994, in connection with the purchase of
restaurant franchises from Burger King Corporation, the
Company received a purchase price allowance for deferred
maintenance which was recorded as other accrued expenses . $ 1,350,000
=================
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD JANUARY 2, 1996 TO APRIL 1, 1996 AND
THE PERIOD JANUARY 1, 1995 TO MARCH 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
JANUARY 2, 1996 JANUARY 1, 1995
TO TO
APRIL 1, 1996 MARCH 31, 1995
(UNAUDITED) (UNAUDITED)
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................. $ (389,000) $ (364,000)
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation and amortization ........................... 1,986,000 1,353,000
Changes in:
Accounts receivable .................................... 347,000 12,000
Inventory .............................................. (227,000) 40,000
Prepaid expenses ....................................... (449,000) (647,000)
Accounts payable and accrued expenses .................. 5,828,000 (1,297,000)
--------------- ---------------
Net cash flows from operating activities .............. 7,096,000 (903,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of restaurant franchise agreements, equipment
and goodwill ............................................ (39,205,000)
Cash paid for franchise agreements ....................... (81,000)
Cash paid for property and equipment ..................... (1,372,000) (624,000)
Proceeds from disposal of property and equipment ........ 817,000
---------------
Net cash flows from investing activities .............. (39,841,000) (624,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt ............................. 85,000,000
Proceeds from subordinated debt .......................... 15,000,000
Cash paid for financing costs ............................ (2,644,000)
Advances under line of credit ............................ 5,000,000
Payments on line of credit ............................... (1,000,000) (862,000)
Payments on long-term debt ............................... (65,896,000)
Payments on capital leases ............................... (22,000)
--------------- ---------------
Net cash flows from financing activities .............. 35,438,000 (862,000)
--------------- ---------------
NET CHANGE IN CASH AND CASH EQUIVALENTS ................... 2,693,000 (2,389,000)
CASH AND CASH EQUIVALENTS --Beginning of period .......... 1,887,000 7,650,000
--------------- ---------------
CASH AND CASH EQUIVALENTS --End of period ................. $ 4,580,000 $ 5,261,000
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest ................. $ 1,583,000 $ 1,897,000
=============== ===============
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 1, 1995 TO JANUARY 1, 1996 AND
THE PERIOD AUGUST 17, 1994 (DATE OF INCORPORATION) TO DECEMBER 31, 1994; AND
FOR THE PERIOD
JANUARY 2, 1996 TO APRIL 1, 1996 AND THE PERIOD JANUARY 1, 1995 TO MARCH 31,
1995 (UNAUDITED)
1. DESCRIPTION OF BUSINESS
AmeriKing, Inc. (formerly NRE Holdings, Inc.) ("AmeriKing") and its wholly
owned subsidiary, National Restaurant Enterprises, Inc. d/b/a/ AmeriKing
Corporation ("Enterprises") (consolidated, the "Company"), were formed on
August 17, 1994 to acquire and operate Burger King restaurants in five states
(Illinois, Indiana, Colorado, Texas and Wisconsin) and to grow through the
development or acquisition of additional Burger King restaurants in these and
other states.
Effective September 2, 1994, the Company acquired 68 Burger King
restaurants located in the Chicago metropolitan area from Burger King
Corporation ("BKC") for $41,500,000 in cash, and 14 restaurants in Colorado
and Texas from certain members of the Company's current management for
$6,029,000 of subordinated debt and preferred and common stock in the Company
and $1,975,000 in cash, (collectively the "Initial Acquisitions"). Effective
December 1, 1994, Enterprises acquired 39 Burger King restaurants from a
third-party franchisee in Chicago for $37,000,000 in cash.
During 1995, the Company purchased 18 restaurants in Colorado, Illinois,
Tennessee and Georgia for $10,769,000 in cash and opened one restaurant
located in Texas (the "1995 Acquisitions"). As a result of these acquisitions
and developments, the Company is one of the largest independent Burger King
franchisees in the United States, operating 140 restaurants at January 1,
1996.
ORGANIZATIONAL STRUCTURE --Enterprises is a wholly owned subsidiary of
AmeriKing. Enterprises is comprised of the following subsidiaries: AmeriKing
Colorado Corporation I, AmeriKing Illinois Corporation I, AmeriKing Tennessee
Corporation I, and, subsequent to January 1, 1996 (see Note 10), AmeriKing
Cincinnati Corporation I and AmeriKing Virginia Corporation I.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR --In 1995, the Company converted its fiscal year to a
52/53-week fiscal year. Due to this conversion, the 1995 fiscal year ended
January 1, 1996 included 366 days of operating activity. The comparative
fiscal period ended December 31, 1994 included 136 days with 121 days of
operating activity. The period ended April 1, 1996 included 91 days of
operating activity while the comparative period ended March 31, 1995 included
90 days of operating activity.
USE OF ESTIMATES --The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
PRINCIPLES OF CONSOLIDATION --The accompanying consolidated financial
statements include the accounts of AmeriKing and its wholly owned subsidiary,
Enterprises. All significant intercompany accounts and transactions have been
eliminated in consolidation.
CASH EQUIVALENTS --The Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.
INVENTORIES --Inventories consist primarily of restaurant food and
supplies and are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method.
F-9
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 1, 1995 TO JANUARY 1, 1996 AND
THE PERIOD AUGUST 17, 1994 (DATE OF INCORPORATION) TO DECEMBER 31, 1994;
AND FOR THE PERIOD JANUARY 2, 1996 TO APRIL 1, 1996 AND THE PERIOD
JANUARY 1, 1995 TO MARCH 31, 1995 (UNAUDITED) (CONTINUED)
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
PROPERTY AND EQUIPMENT --Property and equipment is stated at cost. Normal
repairs and maintenance cost are expensed as incurred. Depreciation is being
recorded using the straight-line method over the following estimated useful
lives:
<TABLE>
<CAPTION>
<S> <C>
Restaurant equipment and furnishings ... 5-15 years
Office furniture and equipment .......... 5-9 years
Buildings ............................... 40 years
Leasehold improvement ................... Life of lease
</TABLE>
FRANCHISE AGREEMENTS --The franchise agreements with BKC require the
Company's subsidiaries to pay a franchise fee for each restaurant opened.
Amortization is recorded on the straight-line method over the terms of the
related franchise agreements. The franchise agreements generally provide for
a term of 20 years with renewal options upon expiration. Accumulated
amortization as of January 1, 1996 and December 31, 1994 was approximately
$309,000 and $60,000, respectively. Accumulated amortization as of April 1,
1996 was approximately $391,000 (unaudited).
GOODWILL --Goodwill represents the excess of cost over fair value of the
net assets acquired in conjunction with the acquisitions described in Note 1.
Goodwill is being amortized over 35 years using the straight-line method.
Accumulated amortization as of January 1, 1996 and December 31, 1994 was
approximately $2,203,000 and $394,000, respectively. Accumulated amortization
as of April 1, 1996 was approximately $2,829,000 (unaudited).
The Company reviews regularly the operations of its subsidiaries and the
potential for impairment of franchise agreements and goodwill.
DEFERRED COSTS --Costs associated with the organization of the Company and
its subsidiaries have been deferred and are being amortized on a
straight-line basis over five years. Costs incurred by the Company in
obtaining the financing for the acquisitions have been deferred and are being
amortized on a straight-line basis over seven years. Accumulated amortization
as of January 1, 1996 and December 31, 1994 was approximately $76,000 and
$18,000, respectively, for deferred organization costs and approximately
$569,000 and $86,000, respectively, for deferred financing costs. Accumulated
amortization as of April 1, 1996 was approximately $90,000 for deferred
organization costs and approximately $758,000 for deferred financing costs
(unaudited).
RECLASSIFICATIONS --Certain information in the consolidated financial
statements for fiscal 1994 has been reclassified to conform with the current
reporting format.
PRO FORMA OPERATING RESULTS (UNAUDITED) --The following are the pro forma
operating results for the periods ended April 1, 1996, January 1, 1996 and
December 31, 1994 as if the acquisitions by the Company described above had
occurred on August 17, 1994. The pro forma results give effect to changes in
depreciation and amortization resulting from valuing property and franchise
agreements at their estimated fair value and recording the excess of purchase
price over the net assets acquired (000's omitted):
<TABLE>
<CAPTION>
PERIOD ENDED
----------------------------------------
APRIL 1, JANUARY 1, DECEMBER 31,
1996 1996 1994
---------- ------------ --------------
<S> <C> <C> <C>
Net sales .............. $56,851 $153,971 $37,891
Restaurant contribution 5,324 17,752 4,681
</TABLE>
The pro forma results of operations are not necessarily indicative of the
actual operating results that would have occurred had the acquisitions been
consummated at the beginning of the respective periods.
F-10
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 1, 1995 TO JANUARY 1, 1996 AND
THE PERIOD AUGUST 17, 1994 (DATE OF INCORPORATION) TO DECEMBER 31, 1994;
AND FOR THE PERIOD JANUARY 2, 1996 TO APRIL 1, 1996 AND THE PERIOD
JANUARY 1, 1995 TO MARCH 31, 1995 (UNAUDITED) (CONTINUED)
3. FRANCHISE AGREEMENTS
In connection with the purchase of the Burger King restaurants, the
Company's subsidiaries entered into franchise agreements with BKC for the
operation of Burger King restaurants. The franchise agreements provide BKC
with significant rights regarding the business and operations of the
subsidiaries. The franchise agreements with BKC require the subsidiaries to
pay monthly royalty and advertising fees equal to 3.5% and 4.0%,
respectively, of restaurant sales.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
APRIL 1, JANUARY 1, DECEMBER 31,
1996 1996 1994
------------- ------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Restaurant equipment and furnishings $35,647,000 $28,020,000 $23,663,000
Office furniture and equipment ..... 2,491,000 1,941,000 302,000
Leasehold improvements .............. 869,000 756,000 67,000
Land ................................ 423,000
Buildings ........................... 456,000 850,000
New restaurant development .......... 468,000 313,000 98,000
------------- ------------- --------------
Total ............................... 39,931,000 32,303,000 24,130,000
Less accumulated depreciation ...... 4,759,000 3,846,000 659,000
------------- ------------- --------------
Property and equipment --net ....... $35,172,000 $28,457,000 $23,471,000
============= ============= ==============
</TABLE>
The Company included in accumulated depreciation an unrealized loss on
property and equipment of $135,000 due to the forced disposition of a
Company-owned restaurant that will occur in May 1997. Such loss represents
the difference between the salvage value and the book value of the equipment,
decor, landscaping and signs of the restaurant at the date of disposition.
The loss on disposition is included in other expenses on the consolidated
statements of operations.
F-11
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 1, 1995 TO JANUARY 1, 1996 AND
THE PERIOD AUGUST 17, 1994 (DATE OF INCORPORATION) TO DECEMBER 31, 1994; AND
FOR THE PERIOD JANUARY 2, 1996 TO APRIL 1, 1996 AND THE PERIOD
JANUARY 1, 1995 TO MARCH 31, 1995 (UNAUDITED) (CONTINUED)
5. LONG TERM DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
APRIL 1, 1996 JANUARY 1, 1996 DECEMBER 31, 1994
---------------------------- ---------------------------- ---------------------------
CURRENT LONG-TERM CURRENT LONG-TERM CURRENT LONG-TERM
------------- ------------- ------------- ------------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Term Loan A, at a variable interest rate,
8.687% at January 1, 1996, due 2001 ..... $ 1,500,000 $43,500,000 $ 3,500,000 $41,750,000 $3,250,000 $45,250,000
Term Loan B, at a variable interest rate,
9.187% at January 1, 1996, due 2002 ..... 400,000 39,600,000 200,000 19,600,000 200,000 19,800,000
Letter of Credit, at a variable interest
rate, 8.6871, at January 1, 1996,
due 2002 ................................. 4,000,000
Franchise Acceptance Corporation
Limited note, at a variable interest
rate,
8.56% at January 1, 1996, due 2005 ...... 123,000 1,712,000 121,000 1,744,000
Burger King Corporation note,
9.75%, due 1996 .......................... 6,103,000 6,920,000
------------- ------------- ------------- ------------- ------------ -------------
Total ..................................... $12,126,000 $84,812,000 $10,741,000 $63,094,000 $3,450,000 $65,050,000
============= ============= ============= ============= ============ =============
</TABLE>
Debt to related parties consists of the following:
<TABLE>
<CAPTION>
APRIL 1, 1996 JANUARY 1, 1996 DECEMBER 31, 1994
--------------------------- ------------------------ ------------------------
CURRENT LONG-TERM CURRENT LONG-TERM CURRENT LONG-TERM
------------ ------------- --------- ------------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Senior subordinated debentures,
12.75%, due 2004 ..................... $15,400,000 $15,400,000 $15,400,000
Junior subordinated debentures,
6.00%, due 2005 ...................... 600,000 600,000 600,000
Subordinated debenture, 12.5% due 2005 15,000,000
------------ ------------- --------- ------------- --------- -------------
Total ................................. $31,000,000 $16,000,000 $16,000,000
============ ============= ========= ============= ========= =============
</TABLE>
On September 1, 1994, the Company entered into a revolving credit and term
loan agreement with a lender (the "Agent Bank"). On November 30, 1994, the
loan agreement was amended and restated (the "Loan Agreement"). Under the
terms of the Loan Agreement, a consortium of banks led by the Agent Bank (the
"Consortium") provided two term loans, one for $48,500,000 ("Term Loan A")
and one for $20,000,000 ("Term Loan B"), and a $6,000,000 revolving credit
facility to the Company (collectively, the "Loans"). The original proceeds
from the Loans were used to acquire the BKC Restaurants and the Management
Restaurants, and the additional proceeds from the Loans were used to acquire
the Franchise Restaurants (see Note 1). The Loans are secured by all of the
assets of Enterprises and a guaranty from AmeriKing.
Term Loan A and Term Loan B (collectively, the "Term Loans") provide for
quarterly principal payments as provided by the Loan Agreement until final
maturity. Term Loan A matures November 30, 2001. Term Loan B matures November
30, 2002. The Company may prepay the Term Loans, in whole or in part, at any
time, provided such prepayments are at least $500,000 or a larger multiple of
$100,000.
The Term Loans bear interest at the lower of two variable rates which are
determined by reference to either (i) the Agent Bank's prime rate, or (ii)
the adjusted Eurodollar rate as determined by the Agent Bank, plus certain
interest rate spreads as specified in the Loan Agreement.
In connection with the Loan Agreement, the Company entered into a
three-year interest rate cap agreement with the Agent Bank expiring December
29, 1997. Under the terms of this agreement, the maximum Eurodollar rate to
be used in the determination of the interest rates on 40% of the outstanding
principal of the Term Loans is limited to 9% per annum. The Company paid the
Agent Bank $242,000 in
F-12
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 1, 1995 TO JANUARY 1, 1996 AND
THE PERIOD AUGUST 17, 1994 (DATE OF INCORPORATION) TO DECEMBER 31, 1994;
AND FOR THE PERIOD JANUARY 2, 1996 TO APRIL 1, 1996 AND THE PERIOD
JANUARY 1, 1995 TO MARCH 31, 1995 (UNAUDITED) (CONTINUED)
5. LONG TERM DEBT (Continued)
connection with the Loan Agreement, which is being amortized over the term of
the Loan Agreement. Accumulated amortization as of January 1, 1996 was
approximately $81,000. No amortization was recorded prior to December 31,
1994.
Under the Loan Agreement, the revolving line of credit facility provides
for revolving borrowings bearing interest at the lower of two variable rates
which are determined by reference to either (i) the Agent Bank's prime rate,
or (ii) the adjusted Eurodollar rate as determined by the Agent Bank, plus
certain interest rate spreads as specified in the Loan Agreement. All
outstanding principal under the line of credit is due November 30, 2001. No
amounts were outstanding under the revolving credit facility at January 1,
1996 or December 31, 1994.
The Loan Agreement contains, among other provisions, certain covenants for
maintaining defined levels of tangible net worth and various financial
ratios, including debt service coverage and interest coverage. As of January
1, 1996, the Company was in compliance with all such covenants.
On September 1, 1994, the Company issued subordinated notes (the
"Subordinated Notes") to certain stockholders. Such Subordinated Notes bear
interest at a rate of 12.75% per annum and are subordinated to amounts due to
the consortium and to BKC. All principal of the Subordinated Notes is due
August 2005.
On November 30, 1994, the Company issued junior subordinated notes (the
"Junior Subordinated Notes") to the Agent Bank. Such Junior Subordinated
Notes bear interest at a rate of 6% per annum and are subordinated to the
amounts due to the Consortium and the Senior Subordinated Notes. All
principal of the Junior Subordinated Notes is due March 2005.
On November 29, 1995, AmeriKing Colorado Corporation I ("ACCI"), a
wholly-owned subsidiary of the Company, issued a note to Franchise Acceptance
Corporation Limited in connection with its acquisition of five restaurants
located in Colorado. Such note bears interest at the 30-day commercial paper
rate plus 2.75% and is secured by certain assets of ACCI. Principal
installments of the note are due quarterly through December 2005.
On November 21, 1995, AmeriKing Tennessee Corporation I ("ATCI"), a
wholly-owned subsidiary of the Company, issued a note to BKC in connection
with its acquisition of 11 restaurants located in Tennessee and Georgia. Such
note bears interest at a rate of 9.75% per annum and is secured by a pledge
of all capital stock of ATCI. All principal of the note is due May 1996.
On February 7, 1996, the Company amended and restated the Loan Agreement
("the Amended and Restated Loan Agreement"). The Amended and Restated Loan
Agreement provides for an increase of principal of $20 million and $9 million
for the Term Loans and the revolving credit facility, respectively, resulting
in additional borrowing capacity of $29 million. The Amended and Restated
Loan Agreement provides for a principal balance of $45 million for Term Loan
A, $40 million for Term Loan B and $15 million for the revolving credit
facility. Interest on the new agreements remains unchanged from the prior
agreements; however, the new agreements provide for changes to existing and
additional covenants. In addition, beginning in 1996, the Company is required
to make additional principal payments on the Term Loans of 75% of the
Company's consolidated excess cash flow as defined by the Amended and
Restated Loan Agreement.
F-13
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 1, 1995 TO JANUARY 1, 1996 AND
THE PERIOD AUGUST 17, 1994 (DATE OF INCORPORATION) TO DECEMBER 31, 1994; AND
AND FOR THE PERIOD JANUARY 2, 1996 TO APRIL 1, 1996 AND THE PERIOD
JANUARY 1, 1995 TO MARCH 31, 1995 (UNAUDITED) (CONTINUED)
5. LONG TERM DEBT (Continued)
Aggregate maturities of the Company's long-term debt are as follows:
<TABLE>
<CAPTION>
JANUARY 1,
APRIL 1, 1996 1996
-------------- -------------
(UNAUDITED)
<S> <C> <C>
1996 ........ $ 12,126,000 $10,741,000
1997 ........ 4,035,000 5,832,000
1998 ........ 6,048,000 6,944,000
1999 ........ 9,561,000 8,408,000
2000 ........ 11,576,000 11,673,000
Thereafter . 84,592,000 46,237,000
-------------- -------------
Total ....... $127,938,000 $89,835,000
============== =============
</TABLE>
6. LEASES
The Company leases restaurant space under noncancelable operating leases
with remaining lease terms of one to twenty years. In many cases, the leases
provide for rent escalations and for one or more five-year renewal options.
The leases generally require the Company to pay property taxes, insurance,
maintenance and other operating costs of the properties, as well as
contingent rentals based upon a percentage (generally 8.5%) of net sales. In
addition, the Company leases office space, office equipment, restaurant
equipment and vehicles under noncancelable operating leases.
Rent expense amounted to:
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31,
1996 1994
------------- --------------
<S> <C> <C>
Minimum rentals under operating leases $11,072,000 $2,691,000
Contingent rentals .................... 958,000 253,000
------------- --------------
Total ................................. $12,030,000 $2,944,000
============= ==============
</TABLE>
<TABLE>
<CAPTION>
APRIL 1, MARCH 31,
1996 1995
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Minimum rentals under operating leases $3,473,000 $2,705,000
Contingent rentals .................... 332,000 140,000
------------ ------------
Total ................................. $3,805,000 $2,845,000
============ ============
</TABLE>
Future minimum lease payments under noncancelable operating leases are as
follows:
<TABLE>
<CAPTION>
JANUARY 1,
APRIL 1, 1996 1996
-------------- -------------
(UNAUDITED)
<S> <C> <C>
1996 ........ $ 11,631,000 $ 12,229,000
1997 ........ 15,489,000 12,164,000
1998 ........ 15,317,000 11,997,000
1999 ........ 15,075,000 11,748,000
2000 ........ 14,472,000 11,157,000
Thereafter . 132,902,000 93,921,000
-------------- -------------
Total ....... $204,886,000 $153,216,000
-------------- -------------
</TABLE>
F-14
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 1, 1995 TO JANUARY 1, 1996 AND
THE PERIOD AUGUST 17, 1994 (DATE OF INCORPORATION) TO DECEMBER 31, 1994;
AND FOR THE PERIOD JANUARY 2, 1996 TO APRIL 1, 1996 AND THE PERIOD
JANUARY 1, 1995 TO MARCH 31, 1995 (UNAUDITED) (CONTINUED)
6. LEASES (Continued)
Future minimum lease payments under noncancelable capital leases are as
follows:
<TABLE>
<CAPTION>
APRIL 1, JANUARY 1,
1996 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
1996 .............................. $ 99,000 $129,000
1997 .............................. 129,000 129,000
1998 .............................. 66,000 66,000
----------- ------------
Total minimum lease payments ..... 294,000 324,000
Less amount representing interest 40,000 49,000
----------- ------------
Present value of the minimum lease
obligation ....................... $254,000 $275,000
=========== ============
</TABLE>
Payments on capital leases for the period ended April 1, 1996 (unaudited)
and January 1, 1996 were $32,000 and $63,000, respectively; no payments were
made in the period ended December 31, 1994.
7. CAPITAL STOCK
At April 1, 1996 (unaudited), January 1, 1996 and December 31, 1994, the
Company's authorized capital stock was as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES
NUMBER OF ISSUED VOTING
VALUE SHARES AND RIGHTS
PER SHARE AUTHORIZED OUTSTANDING PER SHARE
----------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
Class A Common Stock .......... $0.01 2,000.0 634.0 1
Class B Common Stock .......... 0.01 100.0 0.0 0
Class C Common Stock .......... 0.01 700 0.0 0
Class D Common Stock .......... 0.01 700 366.0 1
------------ -------------
Total common stock ............ 3,500.0 1,000.0
============ =============
Special Voting Preferred Stock $0.01 1.0 1.0 716
Class A1 Preferred Stock ..... 0.01 5,000.0 4,425.0 0
Class A2 Preferred Stock ..... 0.01 2,500.0 1,200.0 0
Class B Preferred Stock ...... 0.01 3,000.0 1,875.0 0
------------ -------------
Total preferred stock ......... 10,501.0 7,501.0
============ =============
</TABLE>
The preferred stock pays dividends at 6% per annum on the total issuance
price of each share, payable quarterly when allowed under the Loan Agreement.
Any preferred dividends not paid when due are cumulative. Any preferred
dividends not paid in cash will be paid in preferred stock.
The Special Voting Preferred Stock was eliminated from the Company's
Certificate of Incorporation on February 7, 1996.
In connection with entering into the original Loan Agreement, the Company
issued warrants to purchase 112.36 shares of Class B Common Stock for an
exercise price of $0.01 per share to an affiliate
F-15
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 1, 1995 TO JANUARY 1, 1996 AND
THE PERIOD AUGUST 17, 1994 (DATE OF INCORPORATION) TO DECEMBER 31, 1994;
AND FOR THE PERIOD JANUARY 2, 1996 TO APRIL 1, 1996 AND THE PERIOD
JANUARY 1, 1995 TO MARCH 31, 1995 (UNAUDITED) (CONTINUED)
7. CAPITAL STOCK (Continued)
of the Agent Bank. The warrants are exercisable at any time and expire the
earlier of (i) the date such warrants are exercised in full, or (ii)
November 30, 2002.
During 1994, the Company granted stock options to purchase 11.24 shares of
Class D Common Stock at $100 per share in connection with employment
agreements with two members of the Company's management. All of these options
vest ratably over a two-year period ending September 1, 1996 at which time
all become exercisable. The options expire at the earlier of (i) 90 to 180
days after separation of the employee from the Company, or (ii) December 31,
2004. At January 1, 1996, all of these options remained outstanding; fifty
percent (50%) of such options were currently excercisable as of September,
1995.
The Company has never declared or paid dividends on its capital stock, as
stipulated by the Loan Agreement.
8. INCOME TAXES
The components of the income tax provision are as follows:
<TABLE>
<CAPTION>
APRIL 1, MARCH 31, JANUARY 1, DECEMBER 31,
1996 1995 1996 1994
---------- ----------- ------------ --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current --state .. $290,000 $ 20,000 $290,000 $ 20,000
Deferred --federal 535,000 171,000 535,000 171,000
---------- ----------- ------------ --------------
Total ............. $825,000 $191,000 $825,000 $191,000
========== =========== ============ ==============
</TABLE>
The Company's assumed effective tax rate on pretax income for the periods
ended January 1, 1996 and December 31, 1994 differs from the U.S. federal
statutory rate of 35% primarily due to state taxes and nondeductible
expenses.
The deferred tax liability at January 1, 1996 and December 31, 1994
results primarily from the use of accelerated depreciation methods for income
tax purposes and differences between the financial reporting basis and the
tax basis of the Company's assets, reduced by the tax benefit of the net
operating loss carry-forward.
On September 1, 1994, the Company acquired the assets of the restaurants
from the Predecessors in a transaction which involved a partial carry-over of
basis for income tax purposes. The Company recorded goodwill and a long-term
deferred income tax liability since the income tax basis of the restaurants
acquired from the Predecessors is lower than the financial reporting basis of
such assets.
The Company has a net operating loss carry-forward for tax purposes at
January 1, 1996 of approximately $8,735,000 which carry-forward will expire
in 2009.
9. RELATED PARTIES
At January 1, 1996, the Company has Subordinated Notes payable to certain
stockholders totaling $15,400,000 (see Note 5). During the periods ended
January 1, 1996 and December 31, 1994 the Company recorded interest expense
on the Subordinated Notes totaling $1,982,000 and $660,000, respectively.
During the periods ended April 1, 1996 and March 31, 1995, the Company
recorded interest expense on the Subordinated Notes totaling $496,000 and
$491,000, respectively, unaudited.
The Company leases two restaurants under noncancelable operating leases
from an entity which is owned by a member of the Company's management. The
leases expire in March 2006 and January 2007,
F-16
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 1, 1995 TO JANUARY 1, 1996 AND
THE PERIOD AUGUST 17, 1994 (DATE OF INCORPORATION) TO DECEMBER 31, 1994;
AND FOR THE PERIOD JANUARY 2, 1996 TO APRIL 1, 1996 AND THE PERIOD
JANUARY 1, 1995 TO MARCH 31, 1995 (UNAUDITED) (CONTINUED)
9. RELATED PARTIES (Continued)
respectively, and require total monthly rental payments of $20,600. During the
periods ended January 1, 1996 and December 31, 1994, the Company recorded rent
expense of $248,000 and $82,000, respectively, under these leases. During the
periods ended April 1, 1996 and March 31, 1995, the Company recorded rent
expense of $62,000 under those leases (unaudited).
The Company has entered into a management consulting agreement with an
affiliate of a stockholder. Under the terms of the agreement, the Company is
required to pay the consultant an annual management fee equal to the higher
of (i) $300,000, or (ii) 0.35% of food sales. During the periods ended
January 1, 1996 and December 31, 1994, the Company recorded expense of
$479,000 and $116,000, respectively, under this agreement. On February 7,
1996, the Company amended the management consulting agreement changing the
annual management fee calculation to the higher of $500,000 or 2.5% of
EBITDA. During the periods ended April 1, 1996 and March 31, 1995, the
Company recorded expense of $104,000 and $106,000 respectively, under this
agreement (unaudited).
10. SUBSEQUENT EVENTS
ISSUANCE OF SUBORDINATED NOTES --On February 7, 1996, the Company's
subsidiary issued Senior Subordinated Notes of $15.0 million to PMI Mezzanine
Fund, L.P. ("PMI"). Such Subordinated Notes bear interest at a rate of 12.5%
per annum and are subordinated to amounts due to the Agent Bank and its
consortium and certain amounts due BKC. All principal of the subordinated
notes is due January 31, 2005. The Subordinated Note Agreement contains,
among other provisions, certain covenants for maintaining defined levels of
tangible net worth and various financial ratios, including debt service
coverage and interest coverage. Concurrent with the issuance of the
Subordinated Notes, the Company issued common stock purchase warrants for the
purchase of shares of Class C Common Stock to PMI.
ACQUISITION OF RESTAURANTS --Concurrent with the refinancing on February
7, 1996 (see Note 5) and issuance of Senior Subordinated Notes, the Company
acquired 36 Burger King restaurants located in Virginia, North Carolina,
Kentucky, Indiana and Ohio. The purchase price aggregated $36.9 million for
the 36 restaurants and $4.1 million for transaction fees and expenses. The
acquisitions were financed through net borrowings of $20.0 million under Term
Loans A and B, $5.0 million under the revolving credit facility and $15.0
million from the Senior Subordinated Notes and warrants issued to PMI. The
acquisitions will be accounted for using the purchase method. The excess of
the purchase price over the acquired tangible and intangible net assets, when
determined, will be allocated to goodwill and amortized on a straight-line
basis over 35 years. In addition, concurrent with the acquisitions, the
Company entered into operating leases on all 36 properties.
* * * * * *
F-17
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
AmeriKing, Inc.
Westchester, Illinois
We have audited the Historical Schedules of Restaurant Contribution (the
"Schedules") of the restaurants purchased by National Restaurant Enterprises,
Inc., a wholly-owned subsidiary of AmeriKing, Inc. (formerly NRE Holdings,
Inc.), from Burger King Corporation ("BKC") and from entities owned or
controlled by Lawrence E. Jaro ("Jaro") and William C. Osborn ("Osborn") for
the period January 1, 1994 through September 1, 1994 and the year ended
December 31, 1993. These schedules are the responsibility of the management
of the entities from whom the restaurants were acquired. Our responsibility
is to express an opinion on these schedules 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 Schedules are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Schedules. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the
Schedules. We believe that our audits provide a reasonable basis for our
opinion.
The accompanying Schedules were prepared for the purpose of complying with
the rules and regulations of the Securities and Exchange Commission (for
inclusion in the registration statement on Form S-1 of AmeriKing, Inc.) as
described in Note 2 and are not intended to be a complete presentation of the
earnings of the restaurants purchased from BKC, Jaro and Osborn.
In our opinion, the Schedules referred to above present fairly, in all
material respects, the restaurant contribution for the restaurants purchased
by National Restaurant Enterprises, Inc. from BKC, Jaro and Osborn for the
period January 1, 1994 through September 1, 1994 and the year ended December
31, 1993, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
October 10, 1995
Chicago, Illinois
F-18
<PAGE>
HISTORICAL SCHEDULES OF RESTAURANT CONTRIBUTION
FOR THE PERIOD JANUARY 1, 1994 THROUGH SEPTEMBER 1, 1994
<TABLE>
<CAPTION>
BKC JARO OSBORN
RESTAURANTS RESTAURANTS RESTAURANTS TOTAL
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
RESTAURANT SALES ..................... $47,762,000 $7,400,000 $1,558,000 $56,720,000
RESTAURANT OPERATING EXPENSES:
Cost of sales ....................... 15,589,000 2,534,000 479,000 18,602,000
Restaurant labor and related costs . 13,253,000 1,849,000 427,000 15,529,000
Occupancy ........................... 6,211,000 843,000 152,000 7,206,000
Depreciation and amortization of
franchise agreements ............... 1,161,000 179,000 26,000 1,366,000
Advertising ......................... 2,091,000 386,000 94,000 2,571,000
Royalties ........................... 1,642,000 254,000 54,000 1,950,000
Other operating expenses ............ 5,310,000 673,000 144,000 6,127,000
------------- ------------- ------------- -------------
Total restaurant operating expenses 45,257,000 6,718,000 1,376,000 53,351,000
------------- ------------- ------------- -------------
RESTAURANT CONTRIBUTION .............. $ 2,505,000 $ 682,000 $ 182,000 $ 3,369,000
============= ============= ============= =============
</TABLE>
See notes to historical schedules of restaurant contribution.
F-19
<PAGE>
HISTORICAL SCHEDULES OF RESTAURANT CONTRIBUTION
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
BKC JARO OSBORN
RESTAURANTS RESTAURANTS RESTAURANTS TOTAL
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
RESTAURANT SALES ..................... $70,667,000 $10,115,000 $2,113,000 $82,895,000
RESTAURANT OPERATING EXPENSES:
Cost of sales ....................... 21,844,000 3,344,000 644,000 25,832,000
Restaurant labor and related costs . 18,921,000 2,510,000 567,000 21,998,000
Occupancy ........................... 9,063,000 1,221,000 216,000 10,500,000
Depreciation and amortization of ...
franchise agreements ............... 1,722,000 292,000 48,000 2,062,000
Advertising ......................... 3,711,000 567,000 117,000 4,395,000
Royalties ........................... 2,434,000 348,000 73,000 2,855,000
Other operating expenses ............ 7,568,000 884,000 203,000 8,655,000
------------- ------------- ------------- -------------
Total restaurant operating expenses 65,263,000 9,166,000 1,868,000 76,297,000
------------- ------------- ------------- -------------
RESTAURANT CONTRIBUTION .............. $ 5,404,000 $ 949,000 $ 245,000 $ 6,598,000
============= ============= ============= =============
</TABLE>
See notes to historical schedules of restaurant contribution.
F-20
<PAGE>
NOTES TO THE HISTORICAL SCHEDULES OF
RESTAURANT CONTRIBUTION
FOR THE PERIOD JANUARY 1, 1994 THROUGH SEPTEMBER 1, 1994
AND THE YEAR ENDED DECEMBER 31, 1993
1. DESCRIPTION OF BUSINESS
AmeriKing, Inc. (formerly NRE Holdings, Inc.) ("AmeriKing") and its
wholly-owned subsidiary, National Restaurant Enterprises, Inc. d/b/a
AmeriKing Corporation (consolidated, the "Company"), were formed on August
17, 1994 to acquire and operate Burger King restaurants in five states
(Illinois, Indiana, Colorado, Texas and Wisconsin) and grow through the
development and acquisition of additional Burger King restaurants in these
and other states.
Effective September 2, 1994, the Company acquired 68 Burger King
restaurants located in the Chicago metropolitan area from Burger King
Corporation ("BKC") for $41,500,000 in cash, and 14 Burger King restaurants
in Colorado and Texas from entities owned or controlled by Lawrence E. Jaro
("Jaro") and William C. Osborn ("Osborn"), who are members of the Company's
current management, for $6,029,000 of subordinated debt and preferred and
common stock of AmeriKing and $1,975,000 in cash.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Historical Schedules of Restaurant Contribution (the "Schedules"),
include operations of the acquired restaurants for the periods prior to their
purchase by the Company, and have been prepared pursuant to Article 3 of
Regulation S-X, Section 210.3-02(a).
SALES --Sales consist primarily of food and premium sales.
COST OF SALES --Costs of sales consist primarily of restaurant and food
supplies, determined using the first-in, first-out (FIFO) method of inventory
valuation.
RESTAURANT LABOR AND RELATED COSTS --Restaurant labor and related costs
include managers' salaries, hourly wages and related payroll taxes and
benefits.
OCCUPANCY --Occupancy costs consist of rents, licenses and permits, real
estate taxes and common area maintenance.
DEPRECIATION AND AMORTIZATION OF FRANCHISE AGREEMENTS --Depreciation is
recorded using accelerated methods permissible under generally accepted
accounting principles over the following useful lives:
<TABLE>
<CAPTION>
<S> <C>
Building improvements ............................10-20 years
Furniture, fixtures and restaurant equipment .... 5-10 years
</TABLE>
The franchise agreements with BKC require the Predecessors to pay a
franchise fee for each restaurant opened. Amortization is recorded on the
straight-line method over the terms of the related franchise agreements. The
franchise agreements generally provide for a term of 20 years with renewal
options upon expiration.
ADVERTISING --Under the franchise agreements with BKC, monthly advertising
fees are to be paid at 4% of restaurant food sales.
ROYALTIES --Under the franchise agreements with BKC, monthly royalties are
to be paid at 3.5% of restaurant food sales.
OTHER OPERATING EXPENSES --Other operating expenses include utilities,
repairs and maintenance, cleaning, security, uniforms, workmen's compensation
and training expenses.
The Schedules of Restaurant Contribution do not include amounts relative
to general and administrative expenses, such as supervisory management and
overhead expenses. As the individual acquisitions primarily represented
acquisitions of a portion of a larger business (or, in other words, carve-out
acquisitions), any attempted allocation of such expenses would be assumption
driven. As a result, such expenses have been excluded from the statement of
restaurant contribution.
F-21
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
AmeriKing, Inc.
Westchester, Illinois
We have audited the Historical Schedules of Restaurant Contribution (the
"Schedules") of the restaurants purchased by National Restaurant Enterprises,
Inc., a wholly-owned subsidiary of AmeriKing, Inc. (formerly NRE Holdings,
Inc.,) ("AmeriKing") from Sheldon T. Friedman ("Friedman"), QSC, Inc. and
Ro-Lank, Inc., Curtis James Investments, Inc., C&N Dining, Inc. and Stuart
Ray Investments, Inc. (collectively, the "Entities") for the periods
indicated in the accompanying Schedules. These Schedules are the
responsibility of the Entities' management. Our responsibility is to express
an opinion on these Schedules 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 Schedules are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Schedules. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the
Schedules. We believe that our audits provide a reasonable basis for our
opinion.
The accompanying Schedules were prepared for the purpose of complying with
the rules and regulations of the Securities and Exchange Commission (for
inclusion in the registration statement on Form S-1 of AmeriKing) as
described in Note 2 and are not intended to be a complete presentation of the
Entities' restaurant earnings.
In our opinion, the Schedules referred to above present fairly, in all
material respects, the restaurant contribution for the restaurants purchased
by National Restaurant Enterprises, Inc. for the periods indicated in the
accompanying Schedules, in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
May 8, 1996
Chicago, Illinois
F-22
<PAGE>
HISTORICAL SCHEDULES OF RESTAURANT CONTRIBUTION
<TABLE>
<CAPTION>
CURTIS JAMES STUART RAY
INVESTMENTS, INC. C&N DINING, INC. INVESTMENTS, INC.
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
JANUARY 1, 1996 JANUARY 1, 1996 JANUARY 1, 1996
THROUGH FEBRUARY THROUGH FEBRUARY THROUGH APRIL 1,
6, 1996 6, 1996 1996
----------------- ---------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
RESTAURANT SALES ...................................... $1,372,000 $2,082,000 $10,294,000
RESTAURANT OPERATING EXPENSES:
Cost of sales ........................................ 458,000 663,000 3,344,000
Restaurant labor and related costs ................... 395,000 543,000 2,841,000
Occupancy ............................................ 129,000 392,000 1,369,000
Depreciation and amortization of franchise agreements 32,000 12,000 222,000
Advertising .......................................... 66,000 97,000 423,000
Royalties ............................................ 47,000 72,000 355,000
Other operating expenses ............................. 123,000 243,000 818,000
----------------- ---------------- -----------------
Total restaurant operating expenses ................. 1,250,000 2,022,000 9,372,000
----------------- ---------------- -----------------
RESTAURANT CONTRIBUTION ............................... $ 122,000 $ 60,000 $ 922,000
================= ================ =================
</TABLE>
See notes to historical schedules of restaurant contribution.
F-23
<PAGE>
HISTORICAL SCHEDULES OF RESTAURANT CONTRIBUTION
<TABLE>
<CAPTION>
QSC, INC. AND
RO-LANK, INC. FOR
DMW, INC. FOR THE BKC FOR THE THE PERIOD
PERIOD JANUARY 1, PERIOD JANUARY JANUARY 1, 1995
1995 THROUGH 1, 1995 THROUGH THROUGH NOVEMBER
SEPTEMBER 12, 1995 OCTOBER 24, 1995 20, 1995
------------------ ---------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
RESTAURANT SALES .................... $2,814,000 $1,324,000 $10,261,000
RESTAURANT OPERATING EXPENSES:
Cost of sales ...................... 942,000 543,000 3,361,000
Restaurant labor and related costs 739,000 486,000 2,812,000
Occupancy .......................... 272,000 34,000 959,000
Depreciation and amortization of
franchise agreements .............. 71,000 0 250,000
Advertising ........................ 173,000 46,000 490,000
Royalties .......................... 97,000 40,000 352,000
Other operating expenses ........... 220,000 179,000 972,000
------------------ ---------------- -----------------
Total restaurant operating
expenses ......................... 2,514,000 1,328,000 9,196,000
------------------ ---------------- -----------------
RESTAURANT CONTRIBUTION ............. $ 300,000 $ (4,000) $ 1,065,000
================== ================ =================
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
CURTIS JAMES STUART RAY
INVESTMENTS, INC. C&N DINING, INC. INVESTMENTS, INC.
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1995 DECEMBER 31, 1995
------------------ ------------------ ------------------
<S> <C> <C> <C>
RESTAURANT SALES .................... $14,766,000 $26,955,000 $41,697,000
RESTAURANT OPERATING EXPENSES:
Cost of sales ...................... 4,753,000 8,363,000 13,450,000
Restaurant labor and related costs 4,100,000 6,154,000 12,239,000
Occupancy .......................... 1,369,000 4,274,000 4,855,000
Depreciation and amortization of
franchise agreements .............. 353,000 83,000 926,000
Advertising ........................ 616,000 1,159,000 1,819,000
Royalties .......................... 509,000 926,000 1,438,000
Other operating expenses ........... 1,276,000 2,264,000 3,220,000
------------------ ------------------ ------------------
Total restaurant operating
expenses ......................... 12,976,000 23,223,000 37,947,000
------------------ ------------------ ------------------
RESTAURANT CONTRIBUTION ............. $ 1,790,000 $ 3,732,000 $ 3,750,000
================== ================== ==================
</TABLE>
See notes to historical schedules of restaurant contribution.
F-24
<PAGE>
HISTORICAL SCHEDULES OF RESTAURANT CONTRIBUTION
<TABLE>
<CAPTION>
FRIEDMAN FOR THE QSC, INC. AND CURTIS JAMES
PERIOD JANUARY 1, RO-LANK, INC. FOR INVESTMENTS, INC.
1994 THROUGH THE YEAR ENDED FOR THE YEAR ENDED
NOVEMBER 30, 1994 DECEMBER 31, 1994 DECEMBER 31, 1994
----------------- ------------------ ------------------
<S> <C> <C> <C>
RESTAURANT SALES .................... $43,494,000 $10,627,000 $13,242,000
RESTAURANT OPERATING EXPENSES:
Cost of sales ...................... 14,133,000 3,451,000 4,203,000
Restaurant labor and related costs 10,733,000 2,810,000 3,664,000
Occupancy .......................... 3,607,000 903,000 1,234,000
Depreciation and amortization of
franchise agreements .............. 4,294,000 257,000 221,000
Advertising ........................ 2,166,000 475,000 538,000
Royalties .......................... 1,499,000 365,000 457,000
Other operating expenses ........... 3,486,000 1,002,000 1,261,000
----------------- ------------------ ------------------
Total restaurant operating
expenses ......................... 39,918,000 9,263,000 11,578,000
----------------- ------------------ ------------------
RESTAURANT CONTRIBUTION ............. $ 3,576,000 $ 1,364,000 $ 1,664,000
================= ================== ==================
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
STUART RAY
C&N DINING, INC. INVESTMENTS, INC.
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1994
------------------ ------------------
<S> <C> <C>
RESTAURANT SALES .................... $23,918,000 $36,968,000
RESTAURANT OPERATING EXPENSES:
Cost of sales ...................... 7,221,000 11,866,000
Restaurant labor and related costs 5,428,000 10,199,000
Occupancy .......................... 3,991,000 4,416,000
Depreciation and amortization of
franchise agreements .............. 40,000 776,000
Advertising ........................ 1,027,000 1,839,000
Royalties .......................... 822,000 1,275,000
Other operating expenses ........... 2,048,000 3,019,000
------------------ ------------------
Total restaurant operating
expenses ......................... 20,577,000 33,390,000
------------------ ------------------
RESTAURANT CONTRIBUTION ............. $ 3,341,000 $ 3,578,000
================== ==================
</TABLE>
See notes to historical schedules of restaurant contribution.
F-25
<PAGE>
HISTORICAL SCHEDULES OF RESTAURANT CONTRIBUTION
<TABLE>
<CAPTION>
QSC, INC. AND CURTIS JAMES
FRIEDMAN FOR THE RO-LANK, INC. FOR INVESTMENTS, INC.
YEAR ENDED THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1993 DECEMBER 31, 1993 DECEMBER 31, 1993
------------------ ------------------ ------------------
<S> <C> <C> <C>
RESTAURANT SALES .................... $33,365,000 $9,035,000 $11,252,000
RESTAURANT OPERATING EXPENSES:
Cost of sales ...................... 10,825,000 2,857,000 3,618,000
Restaurant labor and related costs 8,319,000 2,529,000 3,188,000
Occupancy .......................... 3,037,000 794,000 1,047,000
Depreciation and amortization of
franchise agreements .............. 4,299,000 481,000 226,000
Advertising ........................ 1,870,000 407,000 481,000
Royalties .......................... 1,151,000 310,000 388,000
Other operating expenses ........... 2,686,000 965,000 1,091,000
------------------ ------------------ ------------------
Total restaurant operating
expenses ......................... 32,187,000 8,343,000 10,039,000
------------------ ------------------ ------------------
RESTAURANT CONTRIBUTION ............. $ 1,178,000 $ 692,000 $ 1,213,000
================== ================== ==================
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
STUART RAY
C&N DINING, INC. INVESTMENTS, INC.
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1993 DECEMBER 31, 1993
------------------ ------------------
<S> <C> <C>
RESTAURANT SALES .................... $21,635,000 $34,327,000
RESTAURANT OPERATING EXPENSES:
Cost of sales ...................... 6,440,000 10,923,000
Restaurant labor and related costs 5,129,000 9,703,000
Occupancy .......................... 3,778,000 4,568,000
Depreciation and amortization of
franchise agreements .............. 39,000 959,000
Advertising ........................ 978,000 2,170,000
Royalties .......................... 743,000 1,201,000
Other operating expenses ........... 2,024,000 2,624,000
------------------ ------------------
Total restaurant operating
expenses ......................... 19,131,000 32,148,000
------------------ ------------------
RESTAURANT CONTRIBUTION ............. $ 2,504,000 $ 2,179,000
================== ==================
</TABLE>
See notes to historical schedules of restaurant contribution.
F-26
<PAGE>
NOTES TO THE HISTORICAL SCHEDULES OF
RESTAURANT CONTRIBUTION
1. DESCRIPTION OF BUSINESS
AmeriKing, Inc. (formerly NRE Holdings, Inc.) and its wholly-owned
subsidiary, National Restaurant Enterprises, Inc. d/b/a AmeriKing Corporation
(consolidated, the "Company"), were formed on August 17, 1994 to acquire and
operate Burger King restaurants in five states (Illinois, Indiana, Colorado,
Texas and Wisconsin) and grow through the development and acquisition of
additional Burger King restaurants in these and other states.
Effective December 1, 1994, the Company acquired 39 Burger King
restaurants located in the Chicago metropolitan area from Sheldon T. Friedman
("Friedman") for $37,000,000 in cash.
Effective September 13, 1995, the Company acquired 4 existing and 1
developmental Burger King restaurants located in Colorado from DMW, Inc. for
$2,629,000 in cash. On October 25, 1995, the Company acquired 2 restaurants
located in the Chicago metropolitan area from Burger King Corporation ("BKC")
for nominal consideration. Effective November 21, 1995, the Company acquired
11 Burger King restaurants located in Tennessee and Georgia from QSC, Inc.
and Ro-Lank, Inc. for $8,142,000 in cash.
Effective February 7, 1996, the Company acquired 24 Burger King
restaurants located in Virginia and North Carolina from C&N Dining, Inc. for
$27,469,000 in cash. Concurrent with the C&N Dining acquisition, the Company
acquired 12 restaurants located in the Cincinnati metropolitan area from
Curtis James Investments, Inc. for $9,400,000 in cash. On May 11, 1996, the
Company executed purchase agreements to acquire 40 Burger King restaurants
located in Michigan from Stuart Ray Investments, Inc. for $35,600,000 in
cash.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Historical Schedules of Restaurant Contribution (the "Schedules")
include operations of the acquired restaurants for the periods to the earlier
of the date of purchase by the Company or December 31, 1995, and have been
prepared pursuant to Article 3 of Regulation S-X, Section 210.3-02(a).
SALES --Sales consist primarily of food and premium sales.
COST OF SALES --Costs of sales consist primarily of restaurant and food
supplies, determined using the first-in, first-out (FIFO) method of inventory
valuation.
RESTAURANT LABOR AND RELATED COSTS --Restaurant labor and related costs
include managers' salaries, hourly wages and related payroll taxes and
benefits.
OCCUPANCY --Occupancy costs consist of rents, licenses and permits, real
estate taxes and common area maintenance.
DEPRECIATION AND AMORTIZATION OF FRANCHISE AGREEMENTS --Depreciation is
recorded using accelerated methods permissible under generally accepted
accounting principles over the following useful lives:
<TABLE>
<CAPTION>
<S> <C>
BUILDING IMPROVEMENTS ........................... 10-20 YEARS
FURNITURE, FIXTURES AND RESTAURANT EQUIPMENT ... 5-10 YEARS
</TABLE>
The franchise agreements with BKC require the Entities to pay a franchise
fee for each restaurant opened. Amortization is recorded on the straight-line
method over the terms of the related franchise agreements. The franchise
agreements generally provide for a term of 20 years with renewal options upon
expiration.
ADVERTISING --Under the franchise agreements with BKC, monthly advertising
fees are to be paid at 4% of restaurant food sales.
ROYALTIES --Under the franchise agreements with BKC, monthly royalties are
to be paid at 3.5% of restaurant food sales.
OTHER OPERATING EXPENSES --Other operating expenses include utilities,
repairs and maintenance, cleaning, security, uniforms, workmen's compensation
and training expenses.
GENERAL AND ADMINISTRATIVE EXPENSES (UNAUDITED) --The Schedules of
Restaurant Contribution do not include amounts relative to general and
administrative expenses, such as supervisory management and overhead
expenses. As the individual acquisitions primarily represented acquisitions
of a portion of a larger business (or, in other words, carve-out
acquisitions), any attempted allocation of such expenses
F-27
<PAGE>
would be assumption-driven. As a result, such expenses have been excluded
from the statement of restaurant contribution. Estimates of such expenses for
each of the acquisitions reflected above (except the acquisition of 2
restaurants from BKC in 1995, for which estimates were not available) are as
follows:
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
JANUARY 1 THROUGH JANUARY 1 THROUGH JANUARY 1 THROUGH JANUARY 1 THROUGH
APRIL 1, 1996 OR DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
THROUGH DATE OF OR THROUGH DATE OF OR THROUGH DATE OF OR THROUGH THE DATE
ACQUISITION ACQUISITION ACQUISITION OF ACQUISITION
----------------- ------------------ ------------------ -------------------
<S> <C> <C> <C> <C>
1994 ACQUISITIONS
Friedman .................. $ -- $ -- $ 605,000 $ 652,000
================= ================== ================== ===================
1995 ACQUISITIONS
DMW, Inc. ................. $ -- $ 75,000 $ -- $ --
BKC ....................... -- -- -- --
QSC, Inc. and Ro-Lank, Inc. -- 724,000 756,000 562,000
----------------- ------------------ ------------------ -------------------
Total .................... $ -- $ 799,000 $ 756,000 $ 562,000
================= ================== ================== ===================
1996 ACQUISITIONS
Curtis James .............. $ 81,000 $ 759,000 $ 628,000 $ 540,000
C&N Dining ................ 154,000 1,233,000 1,042,000 864,000
----------------- ------------------ ------------------ -------------------
Total .................... $235,000 $1,992,000 $1,670,000 $1,404,000
================= ================== ================== ===================
PROPOSED ACQUISITION
Stuart Ray ................ $281,000 $1,443,000 $1,294,000 $1,201,000
================= ================== ================== ===================
</TABLE>
* * * * * *
F-28
<PAGE>
=============================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO
WHICH IT RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE
SUCH OFFER IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES
NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Prospectus Summary ................................... 3
Summary Consolidated Financial Information .......... 6
Risk Factors ......................................... 8
Use of Proceeds ...................................... 15
Dividend Policy ...................................... 16
Dilution ............................................. 16
Capitalization ....................................... 17
Pro Forma Consolidated Financial Statements ......... 18
Selected Consolidated Financial Information ......... 25
Management's Discussion and Analysis of Financial
Condition and Results of Operations ................. 27
Business ............................................. 34
Management ........................................... 45
Principal Stockholders ............................... 52
Description of Capital Stock ......................... 54
Description of Certain Indebtedness .................. 58
Certain Transactions ................................. 61
Shares Eligible for Future Sale ...................... 65
Certain U.S. Tax Consequences to Non-U.S.
Stockholders ........................................ 67
Underwriting ......................................... 69
Legal Matters ........................................ 72
Experts .............................................. 72
Available Information ................................ 72
Index to Consolidated Financial Statements .......... F-1
</TABLE>
-------------------
UNTIL , 1996 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERINGS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
=============================================================================
6,420,000 SHARES
[GRAPHIC TO COME]
COMMON STOCK
--------
P R O S P E C T U S
, 1996
--------
SMITH BARNEY INC.
PAINEWEBBER INCORPORATED
EVEREN SECURITIES, INC.
<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.
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
SUBJECT TO COMPLETION, DATED JULY 31, 1996
PROSPECTUS
6,420,000 SHARES
[GRAPHIC TO COME]
COMMON STOCK
------------
All of the shares of common stock (the "Common Stock") of AmeriKing, Inc.
(the "Company") offered hereby are being sold by the Company. Of the
6,420,000 shares of Common Stock offered hereby, a total of 1,284,000 shares
are being offered hereby in an international offering outside the United
States and Canada (the "International Offering") by the Managers (as defined)
and a total of 5,136,000 shares are being offered by the U.S. Underwriters
(as defined) in a concurrent offering in the United States and Canada (the
"U.S. Offering" and, together with the International Offering, the
"Offerings").
Prior to the Offerings, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price will
be between $14.00 and $16.00 per share. See "Underwriting" for information
relating to the factors considered in determining the initial public offering
price. The Common Stock has been approved for trading on the Nasdaq National
Market under the symbol "AKNG," subject to official notice of issuance.
------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN 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>
=============================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- -----------------------------------------------------------------------------
Total (3) $ $ $
=============================================================================
</TABLE>
(1) For information regarding indemnification of the Managers and the U.S.
Underwriters, see "Underwriting."
(2) Before deducting expenses estimated at $ payable by the Company.
(3) The Company has granted the U.S. Underwriters a 30-day option to
purchase up to 963,000 additional shares of Common Stock solely to
cover over-allotments, if any. See "Underwriting." If such option is
exercised in full, the total Price to Public, Underwriting Discounts
and Commissions and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
------------
The shares of Common Stock are being offered by the several Managers named
herein, subject to prior sale, when, as and if accepted by them and subject
to certain conditions. It is expected that certificates for the shares of
Common Stock offered hereby will be available for delivery on or about
, 1996, at the offices of Smith Barney Inc., 333 West 34th Street,
New York, New York 10001.
------------
SMITH BARNEY INC.
PAINEWEBBER INTERNATIONAL
EVEREN SECURITIES, INC.
, 1996
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO
WHICH IT RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE
SUCH OFFER IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES
NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Prospectus Summary ................................... 3
Summary Consolidated Financial Information .......... 6
Risk Factors ......................................... 8
Use of Proceeds ...................................... 15
Dividend Policy ...................................... 16
Dilution ............................................. 16
Capitalization ....................................... 17
Pro Forma Consolidated Financial Statements ......... 18
Selected Consolidated Financial Information ......... 25
Management's Discussion and Analysis of Financial
Condition and Results of Operations ................. 27
Business ............................................. 34
Management ........................................... 45
Principal Stockholders ............................... 52
Description of Capital Stock ......................... 54
Description of Certain Indebtedness .................. 58
Certain Transactions ................................. 61
Shares Eligible for Future Sale ...................... 65
Certain U.S. Tax Consequences to Non-U.S.
Stockholders ........................................ 67
Underwriting ......................................... 69
Legal Matters ........................................ 72
Experts .............................................. 72
Available Information ................................ 72
Index to Consolidated Financial Statements .......... F-1
</TABLE>
---------------
UNTIL , 1996 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERINGS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
6,420,000 SHARES
[GRAPHIC TO COME]
COMMON STOCK
-----------------
P R O S P E C T U S
, 1996
-----------------
SMITH BARNEY INC.
PAINEWEBBER INTERNATIONAL
EVEREN SECURITIES, INC.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the estimated expenses in connection with the
distribution of the securities being registered:
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission Registration Fee .. $ 40,734
NASD Filing Fee ....................................... 12,000
Printing and Engraving Expenses ....................... 150,000
Accounting Fees and Expenses .......................... 300,000
Attorneys' Fees and Expenses .......................... 600,000
Transfer Agent's and Registrar's Fees ................. 20,000
Blue Sky Fees and Expenses (including attorneys' fees) 20,000
NASDAQ Listing Fee .................................... 50,000
Miscellaneous ......................................... 1,047,766
Total ............................................... $2,240,500
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) The Delaware General Corporation Law (Section 145) gives Delaware
corporations broad powers to indemnify their present and former directors and
officers and those of affiliated corporations against expenses incurred in
the defense of any lawsuit to which they are made parties by reason of being
or having been such directors or officers, subject to specified conditions
and exclusions; gives a director or officer who successfully defends an
action the right to be so indemnified; and authorizes the Company to buy
directors' and officers' liability insurance. Such indemnification is not
exclusive of any other rights to which those indemnified may be entitled
under any by-laws, agreement, vote of stockholders or otherwise.
(b) The Amended and Restated Certificate of Incorporation of the Company
requires, and the Amended and Restated By-Laws of the Company provides for,
indemnification of directors, officers, employees and agents to the full
extent permitted by law.
(c) The U.S. Underwriting Agreement and the International Underwriting
Agreement (the forms of which are included as Exhibits 1.1 and 1.2 to this
Registration Statement) provide for the indemnification under certain
circumstances of the Company, its directors and certain of its officers by
the Underwriters.
(d) In accordance with Section 102(b)(7) of the Delaware General
Corporation Law, the Company's Amended and Restated Certificate of
Incorporation provides that directors shall not be personally liable for
monetary damages for breaches of their fiduciary duty as directors except for
(1) breaches of their duty of loyalty to the Company or its stockholders, (2)
acts or omissions not in good faith or which involve intentional misconduct
or knowing violations of law, (3) under Section 174 of the Delaware General
Corporation Law (unlawful payment of dividends or stock purchase or
redemption) or (4) transactions from which a director derives an improper
personal benefit.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since its incorporation in August 1994, the Company has issued the
following securities:
(a) In connection with its acquisition of certain Burger King restaurants
from the Burger King Corporation and affiliates of Lawrence Jaro and William
Osborn on September 1, 1994 and related financing, the Company issued to (i)
the Jordan Investors 285.31 shares of Class A Common Stock, 500 shares of
Class B Preferred Stock and 1 share of Special Voting Preferred Stock (which
was subsequently cancelled), (ii) advisors to the Company 63.4 shares of
Class A Common Stock, (iii) The First National Bank of Boston warrants to
purchase 31.28 shares of Class B Common Stock, (iv) MCIT PLC 285.31 shares of
Class C Common Stock (which were subsequently converted into Class A Common
Stock), 3,000 shares of Class A(1) Preferred Stock and 500 shares of Class B
Preferred Stock, (v) the management of the Company (and affiliates of
II-1
<PAGE>
management) 366.00 shares of Class D Common Stock, 1,200 shares of Class A(2)
Preferred Stock and 400 shares of Class B Preferred Stock, (v) options to
purchase 5.62 shares of Class D Common Stock to each of two executives of the
Company. The Company also issued to MCIT, PLC $11,000,000 aggregate principal
amount of the Company's 12.75% Note due August 31, 2004 and to affiliates of
Management a series of 12.75% Notes each due August 31, 2004 with an
aggregate principal amount of $4,400,000. Exemption from registration was
claimed on the grounds that the issuance of such securities did not involve a
public offering within the meaning of Section 4(2) of the Securities Act of
1933, as amended.
(b) In connection with its acquisition of certain Burger King restaurants
from Shelley Friedman and affiliates on November 30, 1994 and related
financing, the Company issued to (i) BancBoston Capital Inc. warrants to
purchase 81.08 shares of Class B Common Stock, (ii) BancBoston Investments,
Inc. 1,425 shares of Class A(1) Preferred Stock, 475 shares of Class B
Preferred Stock and $600,000 aggregate principal amount of the Company's 6%
Junior Subordinated Note due March 31, 2005. Exemption from registration was
claimed on the grounds that the issuance of such securities did not involve a
public offering within the meaning of Section 4(2) of the Securities Act of
1933, as amended.
(c) In connection with its acquisition of certain Burger King restaurants
from C&N Dining, Inc. and its affiliates Thirty-Forty, Inc., Houston, Inc.
and Fifth & Race, Inc. on February 7, 1996 and related financing, the Company
issued to PMI Mezzanine Fund, L.P. warrants to purchase 71.72 shares of Class
C Common Stock and $15,000,000 in aggregate principal amount of the Company's
12.5% Senior Subordinated Notes due January 31, 2005. Exemption from
registration was claimed on the grounds that the issuance of such securities
did not involve a public offering within the meaning of Section 4(2) of the
Securities Act of 1933, as amended.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
A list of the exhibits included as part of this Registration Statement is
set forth in the Exhibit Index that immediately precedes such exhibits and is
incorporated herein by reference.
(b) Financial Statement Schedules:
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted
because they are not required, are inapplicable or the required information
has already been provided elsewhere in the registration statement.
ITEM 17. UNDERTAKINGS
The undersigned Company hereby undertakes to provide to the U.S.
Underwriters and the Managers at the closings specified in the Underwriting
Agreement and the International Underwriting Agreement, respectively,
certificates in such denominations and registered in such names as required
by the U.S. Underwriters and the Managers to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the Company pursuant to the provisions referred to in Item 14, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by a director, officer or
controlling person of the Company 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 Company 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 Act and will be governed by the final adjudication of such
issue.
The undersigned Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and
II-2
<PAGE>
contained in a form of prospectus filed by the Company pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, 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-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this amended registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Westchester, State of Illinois, on July 31, 1996.
AMERIKING, INC.
By /s/ Lawrence E. Jaro
-----------------------------------
Lawrence E. Jaro
Managing Owner, Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this amended registration statement has been signed by the following persons
in the capacities indicated on the 10th day of July, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ---------------------------- ---------------------------------------------------
<S> <C>
*
- ----------------------------- Managing Owner, Chairman and Chief Executive
Lawrence E. Jaro Officer (Principal Executive Officer)
*
- -----------------------------
William C. Osborn Vice Chairman
*
- -----------------------------
Gary W. Hubert Director and Senior Vice President
*
- ----------------------------- Chief Financial Officer and Corporate Secretary
Joel Aaseby (Principal Financial and Accounting Officer)
*
- -----------------------------
A. Richard Caputo, Jr. Director and Vice President
*
- -----------------------------
Thomas H. Quinn Director
*
- -----------------------------
John W. Jordan II Director
*
- -----------------------------
David W. Zalaznick Director
By: /s/ Lawrence E. Jaro
- -----------------------------
As Attorney-in-Fact
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
------- ----------- -------------
<S> <C> <C>
1.1 Form of U.S. Underwriting Agreement *
1.2 Form of International Underwriting Agreement
2.1++ Purchase and Sale Agreement, dated September 1, 1994, between Burger King
Corporation ("BKC") and National Restaurant Enterprises, Inc. ("Enterprises") *
2.2++ Purchase and Sale Agreement, dated September 1, 1994, between Jaro Enterprises, Inc.
and AmeriKing, Inc. (formerly known as NRE Holdings, Inc.) ("AmeriKing") *
2.3++ Purchase and Sale Agreement, dated September 1, 1994, between Jaro Restaurants, Inc.
and AmeriKing *
2.4++ Purchase and Sale Agreement, dated September 1, 1994, between Tabor Restaurants
Associates, Inc. and AmeriKing *
2.5++ Purchase and Sale Agreement, dated September, 1, 1994, between JB Restaurants, Inc.
and AmeriKing *
2.6++ Purchase and Sale Agreement, dated September 1, 1994, between CastleKing, Inc. and
AmeriKing *
2.7++ Purchase and Sale Agreement, dated September 1, 1994, between Osburger, Inc. and
AmeriKing *
2.8++ Purchase and Sale Agreement, dated September 1, 1994, between White-Osborn
Restaurants, Inc. and AmeriKing *
2.9++ Purchase and Sale Agreement, dated November 30, 1994, by and among Sheldon T.
Friedman, BNB Land Venture, Inc. and Enterprises *
2.10++ Asset Purchase Agreement, dated July 5, 1995, by and among DMW, Inc., Daniel L.
White and AmeriKing Colorado Corporation I *
2.11++ Asset Purchase Agreement, dated July 5, 1995, by and among WSG, Inc., Daniel L.
White, Susan J. Wakeman, George Alaiz, Jr. and AmeriKing Colorado Corporation I *
2.12++ Purchase Agreement, dated November 21, 1995, by and among QSC, Inc., the
shareholders of QSC, Inc. and AmeriKing Tennessee Corporation I *
2.13++ Purchase Agreement, dated November 21, 1995, by and among Ro-Lank, Inc., the
shareholders of Ro-Lank, Inc. and AmeriKing Tennessee Corporation I *
2.14++ Purchase and Sale Agreement, dated November 30, 1995, by and among C&N Dining, Inc.
and affiliates and AmeriKing Virginia Corporation I *
2.15++ Amendment No. 1 to Purchase and Sale Agreement, dated February 7, 1996, by and among
C&N Dining, Inc. and affiliates and AmeriKing Virginia Corporation I *
2.16++ Asset Purchase Agreement, dated February 7, 1996, between Thirty-Forty, Inc. and
AmeriKing Cincinnati Corporation I *
2.17++ Asset Purchase Agreement, dated February 7, 1996, between Houston, Inc. and
AmeriKing Cincinnati Corporation I *
2.18++ Asset Purchase Agreement, dated February 7, 1996, between Fifth & Race, Inc. and
AmeriKing Cincinnati Corporation I *
2.19 Form of Agreement and Plan of Merger, dated , 1996, by and among AmeriKing and
Jaro Enterprises, Inc., Jaro Restaurants, Inc., JB Restaurants, Inc., Castleking,
Inc. and White-Osborn Restaurants, Inc. *
<PAGE>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
------- ----------- -------------
3.1 Amended and Restated Certificate of Incorporation of AmeriKing *
3.2 Amended and Restated Bylaws of AmeriKing *
4.1 Stockholders Agreement, dated September 1, 1994, by and among AmeriKing and the
stockholders appearing on the signature pages thereto *
4.2 Consent and Amendment No. 1 to Stockholders Agreement, dated November 30, 1994, by
and among AmeriKing and the stockholders appearing on the signature pages thereto *
4.3 Consent and Amendment No. 2 to Stockholders Agreement, dated February 7, 1996, by
and among AmeriKing and the stockholders appearing on the signature pages thereto *
4.4 Form of Amended and Restated Stockholders Agreement, dated , 1996, by and among
AmeriKing and the stockholders appearing on the signature pages thereto
4.5 Management Subscription Agreement, dated September 1, 1994, by and among AmeriKing,
Tabor Restaurant Associates, Inc., Jaro Enterprises, Inc., Jaro Restaurants, Inc.,
JB Restaurants, Inc., Castleking, Inc., White-Osborn Restaurants, Inc., Osburger,
Inc., Lawrence Jaro, William Osborn, Gary Hubert, Joel Aaseby, Donald Stahurski and
Scott Vasatka *
4.6 Stock Option Agreement, dated September 1, 1994, between AmeriKing and Scott Vasatka *
4.7 Stock Option Agreement, dated September 1, 1994, between AmeriKing and Donald
Stahurski *
4.8 Warrant Agreement, dated September 1, 1994, between AmeriKing and The First National
Bank of Boston *
4.9 Common Stock Purchase Warrant, dated September 1, 1994, between AmeriKing and
BancBoston Investments Inc. *
4.10 First Amendment to Common Stock Purchase Warrant, dated November 30, 1994 *
4.11 Second Amendment to Common Stock Purchase Warrant, dated February 7, 1996 *
4.12 Amended and Restated Note, dated February 7, 1996, from AmeriKing to MCIT PLC in the
aggregate principal amount of $11,000,000 *
4.13 Amended and Restated Deferred Limited Interest Guaranty, dated February 7, 1996,
from Enterprises to MCIT PLC *
4.14 Amended and Restated Note, dated February 7, 1996, from AmeriKing to Jaro
Enterprises, Inc. in the aggregate principal amount of $1,224,000 *
4.15 Amended and Restated Note, dated February 7, 1996, from AmeriKing to Jaro
Restaurants, Inc. in the aggregate principal amount of $112,000 *
4.16 Amended and Restated Note, dated February 7, 1996, from AmeriKing to JB Restaurants,
Inc. in the aggregate principal amount of $2,019,000 *
4.17 Amended and Restated Note, dated February 7, 1996, from AmeriKing to CastleKing,
Inc. in the aggregate principal amount of $385,769 *
4.18 Amended and Restated Note, dated February 7, 1996, from AmeriKing to White-Osborn
Restaurants, Inc. in the aggregate principal amount of $659,231 *
4.19 Securities Purchase Agreement, dated November 30, 1994, between AmeriKing and
BancBoston Investments, Inc. *
4.20 Common Stock Purchase Warrant, dated November 30, 1994, between AmeriKing and
BancBoston Investments, Inc. *
<PAGE>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
------- ----------- -------------
4.21 Junior Subordinated Note, dated November 30, 1994, from AmeriKing to BancBoston
Investments, Inc. in the aggregate principal amount of $600,000 *
4.22 Secured Promissory Note, dated November 21, 1995, from AmeriKing Tennessee
Corporation I to BKC in the aggregate principal amount of $6,920,700 *
4.23 Amendment to Second Promissory Note, dated May 21, 1996, from AmeriKing Tennessee
Corporation I to BKC in the aggregate principal amount of $6,093,067 *
4.24 Guaranty, dated November 21, 1995, from Lawrence Jaro and William Osborn to BKC *
4.25 Ratification of Guaranty, May 21, 1996, from Lawrence Jaro and William Osborn to BKC *
4.26 Promissory Note, dated November 29, 1995, from AmeriKing Colorado Corporation I to
Franchise Acceptance Corporation Limited in the aggregate principal amount of
$1,865,000 *
4.27 Amendment to Promissory Note, dated December 14, 1995, from AmeriKing Colorado
Corporation I to Franchise Acceptance Corporation Limited *
4.28 Common Stock Purchase Warrant, dated February 7, 1996, from AmeriKing to PMI
Mezzanine Fund, L.P. *
4.29 Senior Subordinated Note, dated February 7, 1996, from Enterprises to PMI Mezzanine
Fund, L.P in the aggregate principal amount of $15,000,000. *
4.30 Subordinated Guaranty, dated February 7, 1996, from AmeriKing Virginia Corporation I
and AmeriKing Cincinnati Corporation I to PMI Mezzanine Fund, L.P. *
4.31 Second Amended and Restated Revolving Credit Note, dated February 7, 1996, from
Enterprises to The First National Bank of Boston, the other lending institutions
listed on Schedule 1 thereto, and The First National Bank of Boston, as agent *
4.32 Second Amended and Restated Term Loan A Note, dated February 7, 1996, from
Enterprises to The First National Bank of Boston, the other lending institutions
listed on Schedule 1 thereto, and The First National Bank of Boston, as agent *
4.33 Second Amended and Restated Term Loan B Note, dated February 7, 1996, from
Enterprises to The First National Bank of Boston, the other lending institutions
listed on Schedule 1 thereto, and The First National Bank of Boston, as agent *
4.34 Limited Guaranty, dated September 1, 1994, from AmeriKing to The First National Bank
of Boston, the other lending institutions listed on Schedule 1 thereto, and The
First National Bank of Boston, as agent *
4.35 Guaranty, dated February 7, 1996, from AmeriKing Virginia Corporation I and
AmeriKing Cincinnati Corporation I to the First National Bank of Boston, the other
lending institutions listed on Schedule 1 thereto, and The First National Bank of
Boston, as agent *
4.36 Unconditional Guaranty of Payment and Performance, dated February 7, 1996, from
Enterprises to FFCA Acquisition Corporation *
4.37 Form of Amendment No. 1 to Common Stock Purchase Warrant, dated , 1996, from
AmeriKing to PMI Mezzanine Fund, L.P. *
4.38 Form of Amendment No. 1 to Option Agreement, dated , 1996, by and among
AmeriKing, Donald Stahurski and Scott Vasatka *
<PAGE>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
------- ----------- -------------
5 Opinion of Mayer, Brown & Platt *
9.1 Jaro Proxy Agreement, dated September 1, 1994, by and among Lawrence Jaro, Tabor
Restaurant Associates, Inc., Jaro Enterprises, Inc., Jaro Restaurants, Inc. and JB
Restaurants, Inc. *
9.2 Osborn Proxy Agreement, dated September 1, 1994, by and among William Osborn,
Castleking, Inc., Osburger, Inc. and White-Osborn, Inc. *
10.1 Second Amended and Restated Revolving Credit and Term Loan Agreement, dated February
7, 1996, by and among AmeriKing, Enterprises, The First National Bank of Boston,
the other lending institutions listed on Schedule 1 thereto, and The First National
Bank of Boston, as agent *
10.2 Security Agreement, dated September 1, 1994, by and among Enterprises and The First
National Bank of Boston, the other lending institutions listed on Schedule 1
thereto, and The First National Bank of Boston, as agent *
10.3 Amendment to Security Agreement, dated February 7, 1996, by and among Enterprises
and The First National Bank of Boston, the other lending institutions listed on
Schedule 1 thereto, and The First National Bank of Boston, as agent *
10.4 Stock Pledge Agreement, dated September 1, 1994, by and among AmeriKing and The
First National Bank of Boston, the other lending institutions listed on Schedule 1
thereto, and The First National Bank of Boston, as agent *
10.5 Amendment to Stock Pledge Agreement, dated February 7, 1996, by and among AmeriKing
and The First National Bank of Boston, the other lending institutions listed on
Schedule 1 thereto, and The First National Bank of Boston, as agent *
10.6 Security Agreement, dated February 7, 1996, by and among AmeriKing Virginia
Corporation I, AmeriKing Cincinnati Corporation I and The First National Bank of
Boston *
10.7 Stock Pledge Agreement, dated February 7, 1996, by and among Enterprises, AmeriKing
Virginia Corporation I, AmeriKing Cincinnati Corporation I and The First National
Bank of Boston *
10.8 Amended and Restated Purchase Agreement, dated February 7, 1996, between AmeriKing
and MCIT PLC *
10.9 Pledge Agreement, dated September 1, 1994, between AmeriKing and MCIT PLC *
10.10 Subordination Agreement, dated September 1, 1994, by and among BKC, MCIT PLC and
AmeriKing *
10.11 Amendment and Consent No. 1 to Securities Purchase Agreement, dated February 7,
1996, between AmeriKing and BancBoston Investments, Inc. *
10.12 Intercreditor Agreement, dated February 7, 1996, by and among BKC, AmeriKing
Virginia Corporation I, AmeriKing Cincinnati Corporation I, Lawrence Jaro, William
Osborn, Gary Hubert, Enterprises, AmeriKing and The First National Bank of Boston *
10.13 Stock Pledge Agreement, dated November 21, 1995, between Enterprises and BKC *
10.14 Ratification of Stock Pledge Agreement, dated May 21, 1996, between Enterprises and
BKC *
10.15 Stock Pledge Agreement, dated November 21, 1995, between Enterprises and The First
National Bank of Boston, the other lending institutions listed on Schedule 1
thereto, and The First National Bank of Boston, as agent *
<PAGE>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
------- ----------- -------------
10.16 Note Purchase Agreement, dated February 7, 1996, by and among AmeriKing, Enterprises
and PMI Mezzanine Fund, L.P. *
10.17 Form of Amendment No. 1 to Note Purchase Agreement, by and among AmeriKing,
Enterprises and PMI Mezzanine Fund, L.P. *
10.18 Subordination Agreement, dated February 7, 1996, by and among AmeriKing,
Enterprises, AmeriKing Virginia Corporation I, AmeriKing Cincinnati Corporation I,
AmeriKing Tennessee Corporation I, AmeriKing Colorado Corporation I, Lawrence Jaro,
William Osborn, Gary Hubert and BKC *
10.19 Sale-Leaseback Agreement, dated February 7, 1996, by and among AmeriKing Virginia
Corporation I, AmeriKing Tennessee Corporation I and FFCA Acquisition Corporation *
10.20 Lease, dated February 7, 1996, by and among AmeriKing Virginia Corporation I,
AmeriKing Tennessee Corporation I and FFCA Acquisition Corporation *
10.21 Form of Franchise Agreement between BKC and Franchisee *
10.22 Schedule of AmeriKing Franchise Agreements *
10.23 Form of Lease Agreement between BKC and Lessee *
10.24 Schedule of AmeriKing Lease Agreements *
10.25 Form of Guarantee, Indemnification and Acknowledgment of BKC Franchise Agreement *
10.26 Form of Guarantee, Indemnification and Acknowledgment of BKC Lease Agreement *
10.27 Capital Expenditure Agreement, dated September 1, 1994, by and among AmeriKing,
Enterprises and BKC *
10.28 Capital Expenditure Agreement, dated November 21, 1995, by and among Enterprises,
AmeriKing Tennessee Corporation I and BKC *
10.29 Letter Agreement, dated February 7, 1996, between Enterprises and BKC *
10.30 Naparlo Development Agreement, dated February 7, 1996, between AmeriKing Virginia
Corporation I and Joseph J. Naparlo *
10.31 Management Consulting Agreement, dated September 1, 1994, by and among TJC
Management Corporation, AmeriKing and Enterprises *
10.32 Amendment No. 1 to Management Consulting Agreement, dated February 7, 1996, by and
among TJC Management Corporation, AmeriKing and Enterprises *
10.33 Intercompany Management Consulting Agreement, dated September 1, 1994 between
Enterprises and AmeriKing *
10.34 Amended and Restated Tax Sharing Agreement, dated February 7, 1996, between
Enterprises and AmeriKing *
10.35 Employment and Non-Interference Agreement, dated September 1, 1994, between Lawrence
Jaro and Enterprises *
10.36 Employment and Non-Interference Agreement, dated September 1, 1994, between William
Osborn and Enterprises *
10.37 Employment and Non-Interference Agreement, dated September 1, 1994, between Gary
Hubert and Enterprises *
10.38 Employment and Non-Interference Agreement, dated September 1, 1994, between Joel
Aaseby and Enterprises *
<PAGE>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
------- ----------- -------------
10.39 Employment and Non-Interference Agreement, dated September 1, 1994, between Scott
Vasatka and Enterprises *
10.40 Form of Amended and Restated TJC Management Consulting Agreement, by and among
AmeriKing, Enterprises and TJC Management Corporation *
10.41 Form of Indemnification Agreement by and among AmeriKing and each of the signatories
to this Registration Statement *
10.42 AmeriKing 1996 Outside Directors' Plan *
10.43 AmeriKing 1996 Long-Term Incentive Plan *
10.44 Lease Agreement for Westchester, Illinois headquarters *
10.45 Form of Recapitalization Agreement among AmeriKing and the stockholders appearing on
the signature pages thereto *
10.46 Form of Third Amended and Restated Revolving Credit and Term Loan Agreement, dated
, 1996, among AmeriKing, Enterprises, The First National Bank of Boston, the
other lending institutions listed thereto and The First National Bank of Boston, as
Agent *
10.47 Form of Employment and Non-Interference Agreement, dated as of , 1996, between
Lawrence Jaro and Enterprises *
10.48 Form of Employment and Non-Interference Agreement, dated as of , 1996, between
William Osborn and Enterprises *
10.49 Form of Employment and Non-Interference Agreement, dated as of , 1996, between
Gary Hubert and Enterprises *
10.50 Form of Employment and Non-Interference Agreement, dated as of , 1996, between
Joel Aaseby and Enterprises *
10.51 Form of Employment and Non-Interference Agreement, dated as of , 1996, between
Scott Vasatka and Enterprises *
21 Subsidiaries of AmeriKing *
23.1 Consent of Mayer, Brown & Platt (included in the Opinion of Mayer, Brown & Platt,
filed as Exhibit 5)
23.2 Consent of Deloitte & Touche
24 Power of Attorney (included on the signature page in Part II of the initial
Registration Statement)
27 Financial Data Schedule *
</TABLE>
- ------------
* Previously filed.
++ The schedules and exhibits to these agreements have not been filed
pursuant to Item 601(b)(2) of Regulation S-K. Such schedules and
exhibits will be filed supplementally upon the request of the
Securities and Exchange Commission.
[Draft--7/25/96]
1,284,000 Shares
AMERIKING, INC.
Common Stock
INTERNATIONAL UNDERWRITING AGREEMENT
------------------------------------
, 1996
SMITH BARNEY INC.
PAINEWEBBER INTERNATIONAL (U.K.) LTD.
EVEREN SECURITIES, INC.
As Representatives of the Several Underwriters
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
AmeriKing, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell an aggregate of 1,284,000 shares of its common
stock, par value $0.01 per share (the "Shares"), to the several Underwriters
named in Schedule I hereto (the "Managers") for whom Smith Barney Inc.,
PaineWebber International (U.K.) Ltd. and EVEREN Securities, Inc. are acting
as representatives (the "Lead Managers"). The Company's common stock, par
value $0.01 per share, including the Shares and the International Shares (as
defined herein), is hereinafter referred to as the "Common Stock."
It is understood that the Company is concurrently entering
into a U.S. Underwriting Agreement, dated the date hereof (the "U.S.
Underwriting Agreement"), providing for the sale of 5,136,000 shares of the
Common Stock by the Company (the "Firm U.S. Shares") (plus an option granted
by the Company to purchase up to an additional 963,000 shares of Common Stock
(the "Additional U.S. Shares") solely for the purpose of covering
over-allotments) through arrangements with certain underwriters in the United
States and Canada (the "U.S. Underwriters"), for whom Smith Barney
<PAGE>
2
Inc., PaineWebber Incorporated and EVEREN Securities, Inc. are acting as
representatives (the "Representatives"). All shares of Common Stock proposed
to be offered to the U.S. Underwriters pursuant to the U.S. Underwriting
Agreement, including the Firm U.S. Shares and the Additional U.S. Shares, are
herein called the "U.S. Shares". The U.S. Shares and the Shares, collectively,
are herein called the "Underwritten Shares."
The Company also understands that the Lead Managers and the
Representatives have entered into an agreement (the "Agreement Between U.S.
Underwriters and Managers") contemplating the coordination of certain
transactions between the Managers and the U.S. Underwriters and that, pursuant
thereto and subject to the conditions set forth therein, the Managers may
purchase from the U.S. Underwriters a portion of the U.S. Shares or sell to
the U.S. Underwriters a portion of the Shares. The Company understands that
any such purchases and sales between the Managers and the U.S. Underwriters
shall be governed by the Agreement Between U.S. Underwriters and Managers and
shall not be governed by the terms of this Agreement or the U.S.
Underwriting Agreement.
The Company wishes to confirm as follows its respective
agreements with you and the other several Managers on whose behalf you are
acting, in connection with the several purchases of the Shares by the
Managers.
1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "Act"), a registration statement on Form S-1, including
prospectuses subject to completion, relating to the Underwritten Shares. The
term "Registration Statement" as used in this Agreement means the registration
statement (including all financial schedules and exhibits), as amended at the
time it becomes effective, and as thereafter amended by post-effective
amendment, and any registration statement and any amendments thereto filed
pursuant to Rule 462(b) of the Act relating to the offering covered by the
initial registration statement (file number 333-04261)(the "Rule 462(b)
Registration Statement"). The term "Prospectuses" as used in this Agreement
means the prospectuses in the forms included in the Registration Statement,
or, if the prospectuses included in the Registration Statement omit
information in reliance on Rule 430A under the Act and such information is
included in
<PAGE>
3
prospectuses filed with the Commission pursuant to Rule 424(b) under the Act,
the term "Prospectuses" as used in this Agreement means the prospectuses in
the forms included in the Registration Statement as supplemented by the
addition of the Rule 430A information contained in the prospectuses filed with
the Commission pursuant to Rule 424(b). The term "Prepricing Prospectuses" as
used in this Agreement means the prospectuses subject to completion in the
forms included in the Registration Statement at the time of the initial filing
of the Registration Statement with the Commission, and as such prospectuses
shall have been amended from time to time prior to the date of the
Prospectuses.
It is understood that two forms of Prepricing Prospectus and
two forms of Prospectus are to be used in connection with the offering and
sale of the Underwritten Shares: a Prepricing Prospectus and a Prospectus
relating to the U.S. Shares that are to be offered and sold in the United
States (as defined herein) or Canada (as defined herein) to U.S. or Canadian
Persons (the "U.S. Prepricing Prospectus" and the "U.S. Prospectus,"
respectively), and a Prepricing Prospectus and a Prospectus relating to the
Shares which are to be offered and sold outside the United States or Canada to
persons other than U.S. or Canadian Persons (the "International Prepricing
Prospectus" and the "International Prospectus," respectively). The U.S.
Prospectus and the International Prospectus are herein collectively called the
"Prospectuses," and the U.S. Pre-pricing Prospectus and the International
Prepricing Prospectus are herein called the "Prepricing Prospectuses." For
purposes of this Agreement: "Rules and Regulations" means the rules and
regulations adopted by the Commission under either the Act or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as applicable; "U.S. or
Canadian Person" means any resident or national of the United States or
Canada, any corporation, partnership or other entity created or organized in
or under the laws of the United States or Canada or any estate or trust the
income of which is subject to United States or Canadian income taxation
regardless of the source of its income (other than the foreign branch of any
U.S. or Canadian Person), and includes any United States or Canadian branch of
a person other than a U.S. or Canadian Person; "United States" means the
United States of America (including the states thereof and the District of
Columbia) and its territories, its possessions and other areas subject to its
jurisdiction; and "Canada" means Canada and its territories, its possessions
and other areas subject to its jurisdiction.
<PAGE>
4
2. AGREEMENTS TO SELL AND PURCHASE. The Company hereby
agrees, subject to all the terms and conditions set forth herein, to issue and
sell to each Manager and, upon the basis of the representations, warranties
and agreements of the Company contained herein and subject to all the terms
and conditions set forth herein, each Manager agrees, severally and not
jointly, to purchase from the Company, at a purchase price of $ [ ] per share
(the "purchase price per share"), the number of Shares set forth opposite the
name of such Manager in Schedule I hereto (or such number of Shares increased
as set forth in Section 10 hereof).
Each Manager represents, warrants, covenants and agrees
that, except as contemplated under Section 2 of the Agreement Between U.S.
Underwriters and Managers dated the date hereof, (i) it is not purchasing any
Shares for the account of any U.S. or Canadian Person, (ii) it has not offered
or sold, and will not offer, sell, resell or deliver, directly or indirectly,
any Shares or distribute any International Prospectus to any U.S. or Canadian
Person, and (iii) any offer of Shares will be made only in compliance with all
relevant requirements of all applicable laws.
3. TERMS OF PUBLIC OFFERING. The Company has been advised by
you that the Managers propose to make a public offering of their respective
portions of the Shares as soon after the Registration Statement and this
Agreement have become effective as in your judgment is advisable and initially
to offer the Shares upon the terms set forth in the International Prospectus.
4. DELIVERY OF THE SHARES AND PAYMENT THEREFOR. Delivery to
the Managers of and payment for the Shares shall be made at the office of
Mayer, Brown & Platt, 1675 Broadway, New York, NY 10019, on [ ], 1996 (the
"Closing Date"). The place of closing for the Shares and the Closing Date may
be varied by agreement between you and the Company.
Certificates for the Shares to be purchased hereunder shall
be registered in such names and in such denominations as you shall request
prior to 9:30 A.M., New York City time, on the second business day preceding
the Closing Date. Such certificates shall be made available to you in New York
City for inspection and packaging not later than 9:30 A.M., New York City
time, on the business day next preceding the Closing Date. The certificates
and stockpowers evidencing the Shares to be purchased hereunder shall be
delivered to you on the Closing Date, against
<PAGE>
5
payment of the purchase price therefor in immediately available funds.
5. AGREEMENTS OF THE COMPANY. The Company agrees with the
several Managers as follows:
(a) If, at the time this Agreement is executed and
delivered, it is necessary for the Registration Statement or a post-effective
amendment thereto to be declared effective before the offering of the Shares
may commence, the Company will endeavor to cause the Registration Statement or
such post-effective amendment to become effective as soon as possible and will
advise you promptly and, if requested by you, will confirm such advice in
writing, when the Registration Statement or such post-effective amendment has
become effective.
(b) The Company will advise you promptly and, if requested
by you, will confirm such advice in writing: (i) of any request by the
Commission for amendment of or a supplement to the Registration Statement, any
Prepricing Prospectuses or the Prospectuses or for additional information;
(ii) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of the suspension of
qualification of the Shares for offering or sale in any jurisdiction or the
initiation of any proceeding for such purpose; and (iii) within the period of
time referred to in paragraph (f) below, of any change in the Company's
condition (financial or other), business, prospects, properties, net worth or
results of operations, or of the happening of any event, including the filing
of any information, documents or reports pursuant to the Exchange Act, that
makes any statement of a material fact made in the Registration Statement or
the Prospectuses (as then amended or supplemented) untrue or which requires
the making of any additions to or changes in the Registration Statement or the
Prospectuses (as then amended or supplemented) in order to state a material
fact required by the Act or the regulations thereunder to be stated therein or
necessary in order to make the statements therein not misleading, or of the
necessity to amend or supplement the Prospectuses (as then amended or
supplemented) to comply with the Act or any other law. If at any time the
Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, the Company will make every reasonable effort to
obtain the withdrawal of such order at the earliest possible time.
<PAGE>
6
(c) The Company will furnish to you, without charge, four
signed copies of the Registration Statement as originally filed with the
Commission and of each amendment thereto, including financial statements and
all exhibits to the Registration Statement, and of any Rule 462(b)
Registration Statement and any amendment thereto, and will also furnish to
you, without charge, such number of conformed copies of the Registration
Statement as originally filed and of each amendment thereto, but without
exhibits, and of any Rule 462(b) Registration Statement and any amendment
thereto, as you may reasonably request.
(d) The Company will not (i) file any amendment to the
Registration Statement, any Rule 462(b) Registration Statement or amendment
thereto, or make any amendment or supplement to the Prospectuses of which you
shall not previously have been advised or to which you shall object in writing
after being so advised or (ii) so long as, in the opinion of counsel for the
Managers, an International Prospectus is required to be delivered in
connection with sales by any Manager or dealer, file any information,
documents or reports pursuant to the Exchange Act, without delivering a copy
of such information, documents or reports to you, as Lead Managers for the
Managers, prior to or concurrently with such filing.
(e) Prior to the execution and delivery of this Agreement,
the Company has delivered to you, without charge, in such quantities as you
have requested, copies of each form of the International Prepricing
Prospectus. The Company consents to the use, in accordance with the provisions
of the Act and with the securities laws of the jurisdictions in which the
Shares are offered by the several Managers and by dealers, prior to the date
of the International Prospectus, of each International Prepricing Prospectus
so furnished by the Company.
(f) As soon after the execution and delivery of this
Agreement as possible and thereafter from time to time for such period as in
the written opinion of counsel for the Managers an International Prospectus is
required by the Act to be delivered in connection with sales by any Manager or
dealer, the Company will expeditiously deliver to each Manager and each
dealer, without charge, as many copies of the International Prospectus (and of
any amendment or supplement thereto) as you may reasonably request. The
Company consents to the use of the International Prospectus (and of any
amendment or supplement thereto) in accordance with the provisions of the Act
and with the securities laws of the jurisdictions in which the Shares are
offered by the
<PAGE>
7
several Managers and by all dealers to whom Shares may be sold, both in
connection with the offering and sale of the Shares and for such period of
time thereafter as the International Prospectus is required by the Act to be
delivered in connection with sales by any Manager or dealer. If during such
period of time any event shall occur that in the judgment of the Company or in
the written opinion of counsel for the Managers is required to be set forth in
the International Prospectus (as then amended or supplemented) or should be
set forth therein in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is
necessary to supplement or amend the International Prospectus to comply with
the Act or any other law, the Company will forthwith prepare and, subject to
the provisions of paragraph (d) above, file with the Commission an appropriate
supplement or amendment thereto and will expeditiously furnish to the Managers
and dealers a reasonable number of copies thereof. In the event that the
Company and you, as Lead Managers for the several Managers, agree that the
International Prospectus should be amended or supplemented, the Company, if
requested by you, will promptly issue a press release announcing or disclosing
the matters to be covered by the proposed amendment or supplement.
(g) The Company will cooperate with you and with counsel for
the Managers in connection with the registration or qualification of the
Shares for offering and sale by the several Managers and by dealers under the
securities laws of such jurisdictions as you may reasonably designate and will
file such consents to service of process or other documents necessary or
appropriate in order to effect such registration or qualification; provided
that in no event shall the Company be obligated to qualify to do business in
any jurisdiction where it is not now so qualified or to take any action that
would subject it to general service of process, other than in suits arising
out of the offering or sale of the Shares, in any jurisdiction where it is not
now so subject.
(h) The Company will make generally available to its
security holders a consolidated earnings statement, which need not be audited,
covering a twelve-month period commencing after the effective date of the
Registration Statement and ending not later than 15 months thereafter, as soon
as reasonably practicable after the end of such period, which consolidated
earnings statement shall satisfy the provisions of Section 11(a) of the Act.
<PAGE>
8
(i) During the period of two years hereafter, the Company
will furnish to you (i) as soon as available, a copy of each report of the
Company mailed to stockholders or filed with the Commission or the Nasdaq
National Market, and (ii) from time to time such other information concerning
the Company as you may request.
(j) If this Agreement shall terminate or shall be terminated
after execution pursuant to any provisions hereof (otherwise than pursuant to
the second paragraph of Section 10 hereof or by notice given by you
terminating this Agreement pursuant to Section 10 or Section 11 hereof) or if
this Agreement shall be terminated by the Managers because of any failure or
refusal on the part of the Company to comply with the terms or fulfill any of
the conditions of this Agreement, the Company agrees to reimburse the Lead
Managers for all reasonable out-of-pocket expenses (including reasonable fees
and expenses of counsel for the Managers) incurred by you in connection
herewith.
(k) The Company will apply the net proceeds from the sale of
the Underwritten Shares to be sold by it hereunder substantially in accordance
with the description set forth in the Prospectuses.
(l) If Rule 430A of the Act is employed, the Company will
timely file the Prospectuses pursuant to Rule 424(b) under the Act and will
advise you of the time and manner of such filing.
(m) For a period of 180 days after the date hereof (the
"Lock-up Period"), the Company will not, without the prior written consent of
Smith Barney Inc., offer, sell, contract to sell or otherwise dispose of any
Common Stock (or any securities convertible into or exercisable or
exchangeable for Common Stock) or grant any options or warrants to purchase
Common Stock, except for (i) the sale of Underwritten Shares to the Managers
pursuant to this Agreement and the U.S. Underwriters pursuant to the U.S.
Underwriting Agreement, (ii) issuances of securities pursuant to the
Recapitalization (as described in the Prospectuses under the caption
"Description of Capital Stock--The Recapitalization") (the "Recapitalization")
, (iii) issuances of Common Stock pursuant to the conversion or exchange of
convertible or exchangeable securities or the exercise of warrants or options,
in each case outstanding on the date hereof, or (iv) grants of employee stock
options pursuant to the terms of a plan in effect on the date hereof or
issuances of Common Stock pursuant to the exercise of
<PAGE>
9
such options. [DISCUSS LANGUAGE FOR RESTAURANT ACQUISITION EXCEPTION]
(n) The Company has furnished or will furnish to you
"lock-up" letters, in the form attached hereto as Annex III, signed by each of
its current officers and directors and each holder of capital stock of the
Company immediately prior to the offerings contemplated hereby (including
holders of options and warrants exercisable into shares of Common Stock).
(o) Except as stated in this Agreement and in the U.S.
Underwriting Agreement and in the Prepricing Prospectuses and Prospectuses,
the Company has not taken, nor will it take, directly or indirectly, any
action designed to or that might reasonably be expected to cause or result in
stabilization or manipulation of the price of the Common Stock to facilitate
the sale or resale of the Underwritten Shares.
(p) The Company will use its best efforts to have the Common
Stock listed, subject to notice of issuance, on the Nasdaq National Market
concurrently with the effectiveness of the registration statement.
(q) The Company shall take or cause to be taken such actions
as are necessary or required to cause the Recapitalization to occur on or
prior to the closing hereunder on the Closing Date.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company represents and warrants to each Manager that:
(a) Each preliminary prospectus included as part of the
registration statement as originally filed or as part of any amendment or
supplement thereto, or filed pursuant to Rule 424 under the Act, complied when
so filed in all material respects with the provisions of the Act. The
Commission has not issued any order preventing or suspending the use of any
Prepricing Prospectus.
(b) The Registration Statement in the form in which it
became or becomes effective and also in such form as it may be when any
post-effective amendment thereto or any Rule 462(b) Registration Statement or
amendment thereto shall become effective and the Prospectuses and any
supplement or amendment thereto when filed with the Commission under Rule
424(b) under the Act, complied or will comply in all material respects with
the provisions of the Act and did not or will not at any such times contain an
<PAGE>
10
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; except that this representation and warranty does not apply to
statements in or omissions from the Registration Statement or the Prospectuses
made in reliance upon and in conformity with information relating to any
Manager or U.S. Underwriter furnished to the Company in writing by a Manager
through the Lead Managers or by a U.S. Underwriter through the Representatives
expressly for use therein.
(c) All the outstanding shares of Common Stock of the
Company have been duly authorized and validly issued, are fully paid and
nonassessable and are free of any preemptive or similar rights, other than the
preemptive or similar rights held by certain holders of the capital stock of
the Company pursuant to the Stockholder's Agreement, dated as of September 1,
1994 (as amended to date, the "Stockholder's Agreement") (which rights have
been waived with respect to the Underwritten Shares); the Underwritten Shares
to be issued and sold by the Company pursuant to this Agreement and the U.S.
Underwriting Agreement have been duly authorized and, when issued and
delivered to the Managers and U.S. Underwriters against payment therefor in
accordance with the terms hereof and thereof, will be validly issued, fully
paid and nonassessable and free of preemptive or similar rights, other than
the preemptive rights held by certain holders of the capital stock of the
Company pursuant to the Stockholder's Agreement (which rights have been waived
with respect to the Underwritten Shares), and the capital stock of the Company
after the Recapitalization will conform to the description thereof in the
Registration Statement and the Prospectuses under the captions "Prospectus
Summary - The Offerings", "Risk Factors - Shares Eligible for Future Sale;
Registration Rights", "Description of Capital Stock" and "Shares Eligible for
Future Sale".
(d) The Company is a corporation duly organized and validly
existing in good standing under the laws of the State of Delaware with full
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Registration Statement and the
Prospectuses, and is duly registered and qualified to conduct its business and
is in good standing in each jurisdiction where the nature of its properties or
the conduct of its business requires such registration or qualification,
except where the failure so to register or qualify does not have a material
adverse effect on the condition (financial or other), business, properties,
net worth or results of operations of the Company and the
<PAGE>
11
Subsidiaries (as hereinafter defined), taken as a whole (a "Material Adverse
Effect").
(e) All the Company's subsidiaries (collectively, the
"Subsidiaries") are listed in an exhibit to the Registration Statement. Each
Subsidiary is a corporation duly organized, validly existing and in good
standing in the jurisdiction of its incorporation, with full corporate power
and authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and the Prospectuses, and
is duly registered and qualified to conduct its business and is in good
standing in each jurisdiction or place where the nature of its properties or
the conduct of its business requires such registration or qualification,
except where the failure so to register or qualify does not have a material
adverse effect on the condition (financial or other), business, properties,
net worth or results of operations of such Subsidiary; all the outstanding
shares of capital stock of each of the Subsidiaries have been duly authorized
and validly issued, are fully paid and nonassessable, and are owned by the
Company directly, or indirectly through one of the other Subsidiaries, free
and clear of any lien, adverse claim, security interest, equity or together
encumbrance.
(f) There are no (i) legal or governmental proceedings
pending or, to the knowledge of the Company, threatened, against the Company
or any of the Subsidiaries or to which the Company or any of the Subsidiaries,
or to which any of their respective properties, is subject that are required
to be described in the Registration Statement or the Prospectuses but are not
described as required, and (ii) agreements, contracts, indentures, leases or
other instruments that are required to be described in the Registration
Statement or the Prospectuses or to be filed as an exhibit to the Registration
Statement that are not described or filed as required by the Act.
(g) Neither the Company nor any of the Subsidiaries is in
(i) violation of its certificate or articles of incorporation or by-laws, or
other organizational documents, (ii) in violation of any law, ordinance,
administrative or governmental rule or regulation applicable to the Company or
any of the Subsidiaries or of any decree of any court or governmental agency
or body having jurisdiction over the Company or any of the Subsidiaries,
except for such violations which, individually or in the aggregate, would not
have a Material Adverse Effect, or (iii) in default in the performance of any
obligation, agreement or condition contained in any bond,
<PAGE>
12
debenture, note or any other evidence of indebtedness or in any material
agreement (including, without limitation, any franchise agreement), indenture,
lease or other instrument to which the Company or any of the Subsidiaries is a
party or by which any of them or any of their respective properties may be
bound, except for such defaults which, individually or in the aggregate, would
not have a Material Adverse Effect, and no condition or state of facts exists,
which with the passage of time or the giving of notice or both, would
constitute such a default.
(h) Neither the offer, issuance, sale and delivery of the
Underwritten Shares, the consummation of the Recapitalization and the
Preferred Stock Merger, the execution, delivery or performance of this
Agreement, the U.S. Underwriting Agreement, the Recapitalization Agreement (as
hereinafter defined), the New Credit Facility (as hereinafter defined), the
PMI Agreement (as hereinafter defined) and the Preferred Stock Merger
Agreement (as hereinafter defined) (this Agreement and such other agreements
being referred to collectively as the "Transaction Agreements") by the Company
nor the consummation by the Company of the transactions contemplated by the
Transaction Agreements (i) requires any consent, approval, authorization or
other order of or registration or filing with, any court, regulatory body,
administrative agency or other governmental body, agency or official (except
such as may be required for the registration of the Shares under the Act and
the Exchange Act, compliance with the securities or Blue Sky laws of various
jurisdictions and the filing of the Company's Amended and Restated Certificate
of Incorporation with the Secretary of State of the State of Delaware in
connection with the Recapitalization, all of which have been or will be
effected in accordance with this Agreement), (ii) conflicts or will conflict
with or constitutes or will constitute a breach of, or a default under, the
amended and restated certificate of incorporation or amended and restated
bylaws, or other organizational documents, of the Company or any of the
Subsidiaries, (iii) conflicts or will conflict with or constitutes or will
constitute a breach of, or a default under, any agreement (including, without
limitation, any franchise agreement), indenture, lease or other instrument to
which the Company or any of the Subsidiaries is a party or by which any of
them or any of their respective properties may be bound, that has not been
waived in writing (including in a Transaction Agreement) by the affected party
thereto, except for such breaches or defaults which would not, individually or
in the aggregate, have a Material Adverse Effect, (iv) violates or will
violate any statute, law, regulation or filing or judgment,
<PAGE>
13
injunction, order or decree applicable to the Company or any of the
Subsidiaries or any of their respective properties, or (v) will result in the
creation or imposition of any liens, charges or encumbrances upon any property
or assets of the Company or any of the Subsidiaries and pursuant to the terms
of any agreement or instrument to which any of them is a party or by which any
of them may be bound or to which any of the property or assets of any of them
is subject, except for any liens, charges or encumbrances specifically
provided for in a Transaction Agreement and except for such liens, charges,
and encumbrances which would not, individually or in the aggregate, have a
Material Adverse Effect.
(i) The accountants, Deloitte & Touche LLP, who have
certified or shall certify the financial statements included in the
Registration Statement and the Prospectuses (or any amendment or supplement
thereto) are independent public accountants as required by the Act.
(j) (i) The Company's historical financial statements,
together with related schedules and notes included in the Registration
Statement and the Prospectuses (and any amendment or supplement thereto),
present fairly, in all material respects, the consolidated financial position,
results of operations, cash flows and changes in stockholders' equity of the
Company and the Subsidiaries, each on the basis stated in the Registration
Statement at the respective dates or for the respective periods to which they
apply; and such statements and related schedules and notes have been prepared
in accordance with generally accepted accounting principles consistently
applied throughout the periods involved, except as disclosed therein; (ii) the
Company's pro forma consolidated financial statements, together with the
related notes included in the Registration Statement and Prospectuses (and any
amendment or supplement thereto), present fairly the information and data set
forth therein, each on the basis stated in the Registration Statement at the
respective dates or for the respective periods to which they apply; and such
pro forma consolidated financial statements and related notes have been
prepared on a basis consistent with such historical financial statements,
except for the pro forma adjustments specified therein, are based on
reasonable assumptions, and comply in all material respects with the
requirements of the Act; (iii) the historical schedules of restaurant
contribution for the restaurants purchased or to be purchased by the Company
in the Michigan Acquisition (as defined and described in the Prospectuses),
together with related notes included in the Registration Statement and the
<PAGE>
14
Prospectuses (and any amendment or supplement thereto), present fairly
restaurant contribution for each Burger King restaurant acquired by the
Company to date or to be acquired in the Michigan Acquisition, each on the
basis stated in the Registration Statement at the respective dates or for the
respective periods to which they apply and such historical schedules and
related notes have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved,
except as disclosed therein; (iv) the notes setting forth the estimated
general and administrative expenses on a historical basis for each Burger King
restaurant acquired by the Company to date or to be acquired in the Michigan
Acquisition, included in the Registration Statement and the Prospectuses (and
any amendment or supplement thereto) as part of the notes to the historical
schedules of restaurant contribution described in clause (iii) above, present
fairly at the respective dates or for the respective periods to which they
apply the Company's estimate of such expenses and such notes have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, except as disclosed
therein; and (v) the other historical and pro forma, financial and statistical
information and data set forth in the Registration Statement and the
Prospectuses (and any amendment or supplement thereto) are accurately
presented and prepared on a basis consistent with the books and records of the
Company and its subsidiaries.
(k) The execution and delivery of, and the performance by
the Company of its obligations under, each of the Transaction Agreements have
been duly and validly authorized by the Company, and each of the Transaction
Agreements has been duly executed and delivered by the Company and constitutes
the valid and legally binding agreement of the Company, enforceable against
the Company in accordance with its terms, except that the enforceability of
the Transaction Agreements may be subject to the effect of (i) any applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws now or
hereafter in effect relating to creditors' rights generally, (ii) the remedy
of specific performance and general principles of equity, including, without
limitation, concepts of materiality, reasonableness, good faith and fair
dealing (regardless of whether considered in a proceeding in equity or at
law), and (iii) securities laws prohibitions and public policy considerations
which, among other things, limit or restrict any agreement relating to
indemnification, contribution or exculpation of costs, expenses or liabilities
incurred by
<PAGE>
15
you in connection with the transactions contemplated by this Agreement and the
U.S. Underwriting Agreement.
(l) Except as disclosed in the Registration Statement and
the Prospectuses (or any amendment or supplement thereto), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectuses (or any amendment or supplement thereto),
neither the Company nor any of the Subsidiaries has incurred any liability or
obligation, direct or contingent, or entered into any transaction, not in the
ordinary course of business, that is material to the Company and the
Subsidiaries taken as a whole, and there has not been any change in the
capital stock of the Company, or material increase in the short-term debt or
long-term debt, of the Company or any of the Subsidiaries, or any development
having or which may reasonably be expected to have, a Material Adverse Effect.
(m) Each of the Company and the Subsidiaries has good title
to all real property and material personal property described in the
Prospectuses as being owned by it, free and clear of all liens, claims,
security interests or other encumbrances except such as are described in the
Registration Statement and the Prospectuses or in a document filed as an
exhibit to the Registration Statement or such as would not materially
adversely affect the continued use of the property in the conduct of the
business as currently conducted and all the property described in the
Prospectuses as being held under lease by each of the Company and the
Subsidiaries is held by it under valid, subsisting and enforceable leases,
except in such instances which, individually or in the aggregate, would not
have a Material Adverse Effect.
(n) The Company has not distributed and, prior to the later
to occur of (i) the Closing Date or the Option Closing Date, if any, and (ii)
completion of the distribution of the Shares, will not distribute any offering
material in connection with the offering and sale of the Shares other than the
Registration Statement, the Prepricing Prospectuses, the Prospectuses or other
materials, if any, permitted by the Act.
(o) The Company and each of the Subsidiaries has such
permits, licenses, franchises and authorizations of governmental or regulatory
authorities ("Permits") as are necessary to own its respective properties and
to conduct its business in the manner described in the Prospectuses, except in
such instances which, individually or in the
<PAGE>
16
aggregate, would not have a Material Adverse Effect, and subject to such
qualifications as may be set forth in the Prospectuses; the Company and each
of the Subsidiaries has fulfilled and performed all its material obligations
with respect to such Permits and no event has occurred that allows, or after
notice or lapse of time would allow, revocation or termination thereof or
results in any other material impairment of the rights of the holder of any
such Permit, subject in each case to such qualification as may be set forth in
the Prospectuses; and, except as described in the Prospectuses, none of such
Permits contains any restriction that is materially burdensome to the Company
or any of the Subsidiaries.
(p) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization;
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only
in accordance with management's general or specific authorization; and (iv)
the recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(q) To the Company's knowledge, neither the Company nor any
of its Subsidiaries nor any employee or agent of the Company or any Subsidiary
has made any payment of funds of the Company or any Subsidiary or received or
retained any funds in violation of any law, rule or regulation, which payment,
receipt or retention of funds is of a character required to be disclosed in
the Prospectuses.
(r) The Company and each of the Subsidiaries have filed all
material tax returns required to be filed, which returns are true, complete
and correct, and neither the Company nor any Subsidiary is in default in the
payment of any taxes which were payable pursuant to said returns or any
assessments with respect thereto, except for such taxes which the Company
and/or one of the Subsidiaries disputes in good faith.
(s) Except as described in the Prospectuses, no holder of
any security of the Company has any right to require registration of shares of
Common Stock or any other security of the Company because of the filing of the
registration statement or consummation of the transactions
<PAGE>
17
contemplated by this Agreement or the U.S. Underwriting Agreement, or
otherwise. No such rights were exercised nor, after the execution of the
lock-up letters described in Section 5(n) hereof, will be exercised in
connection with the sale of the Shares and for a period of 180 days after the
date hereof. Except as described in or contemplated by the Prospectuses, there
are no outstanding options, warrants or other rights calling for the issuance
of, and there are no commitments, agreements, understandings or arrangements
to issue, any shares of Common Stock of the Company or any security
convertible into or exchangeable or exercisable for Common Stock of the
Company.
(t) (i) The Company and each of the Subsidiaries are insured
by insurers of recognized financial responsibility against such losses and
risks and in such amounts as are customary in the businesses in which they are
engaged; (ii) all policies of insurance insuring the Company or any of the
Subsidiaries or their respective businesses, assets, employees, officers and
directors are in full force and effect; (iii) the Company and the Subsidiaries
are in compliance with the terms of such policies and instruments in all
material respects; and (iv) there are no claims by the Company or any of the
Subsidiaries under any such policy or instrument as to which any insurance
company is denying liability or defending under a reservation of rights
clause, except for such instances which, individually or in the aggregate,
would not have a Material Adverse Effect.
(u) The Company is not now and, upon sale of the
Underwritten Shares to be issued and sold in accordance herewith and with the
U.S. Underwriting Agreement and upon application of the net proceeds to the
Company from such sale as described in the Prospectuses under the caption "Use
of Proceeds," will not be an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(v) Except as described in the Prospectuses, the Company and
the Subsidiaries (i) are in compliance with any and all applicable federal,
state and local laws, regulations, rules, ordinances, judgments or decrees
(including those of common law) relating to the protection of human health and
safety, the workplace, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("Environmental Laws"), (ii) have received
all permits, licenses or other approvals required of them under Environmental
Laws to conduct their respective businesses, (iii) are in compliance with all
terms and conditions of any such permit, license or approval and (iv) have not
received any written notice of a claim or violation pursuant to any
<PAGE>
18
Environmental Law except for such noncompliance, failure to receive required
permits, licenses or other approvals, noncompliance with the terms and
conditions of such permits, claims or actions that would not, individually or
in the aggregate, have a Material Adverse Effect. There are no past or present
actions, omissions or conditions regarding the Company, the Subsidiaries or
any real property upon which any of them conduct their respective business
operations that are reasonably likely to form the basis of any claim or
violation against the Company of any of the Subsidiaries (including releases
or discharges of hazardous or toxic substances or wastes) under Environmental
Laws except for such actions, omissions or conditions that would not,
individually or in the aggregate, have a Material Adverse Effect.
(w) The Company has complied with all provisions of Florida
Statutes, [section]517.075, relating to issuers doing business with Cuba.
(x) The Company has entered into the Recapitalization
Agreement (described in the Prospectuses under the caption "Description of
Capital Stock--The Recapitalization") (the "Recapitalization Agreement") and
has taken all actions as are necessary and appropriate to cause the
Recapitalization to occur and all conditions precedent to the consummation of
the Recapitalization, other than (i) the closing of the offerings contemplated
by this Agreement and the U.S. Underwriting Agreement and (ii) any filings
with appropriate governmental entities required to be made to effect the
Recapitalization, have been satisfied.
(y) The Company has an authorized, issued and outstanding
capitalization as set forth in Annex IV and the holders of all capital stock
of the Company, including holders of options, warrants or other rights to
purchase such capital stock is as set forth in Annex IV. [Annex to be provided
by MBP]
(z) The Company has entered into the New Credit Facility (as
defined and described in the Prospectuses) in an aggregate principal amount of
$150,000,000, of which (i) at least $82,608,000 will be available on the
Closing Date to repay borrowings under the Credit Agreement and interest
accrued thereunder and to repay all Subordinated Debt (as defined and
described in the Prospectuses under the caption "Use of Proceeds") (to the
extent not covered by the proceeds from the sale of the Underwritten Shares)
and (ii) at least $[ ] will be available on the Closing Date and thereafter
for general corporate purposes, including the
<PAGE>
19
funding of restaurant acquisitions (including the Michigan Acquisition). All
conditions to the borrowings to be made on the Closing Date (other than the
closing of the offerings contemplated by this Agreement and the U.S.
Underwriting Agreement and the delivery by the Company of a borrowing
certificate in accordance with the terms of the New Credit Facility [and the
delivery of standard closing documentation by the Company]) have been
satisfied.
(aa) The Company has received from Burger King Corporation
("BKC") a Consent and Agreement Letter (the "BKC Consent Letter")
substantially in the form attached hereto as Annex V [ANNEX TO BE PROVIDED BY
MPB--AT A MINIMUM, THE BKC CONSENT LETTER NEEDS TO DEMONSTRATE THAT BKC HAS
GIVEN ALL CONSENTS REQUIRED BY IT TO CONSUMMATE THE TRANSACTIONS CONTEMPLATED
BY THIS AGREEMENT AND THE U.S. UNDERWRITING AGREEMENT, INCLUDING WITHOUT
LIMITATION, ITS CONSENT TO THE ISSUANCE AND SALE BY THE COMPANY OF THE
UNDERWRITTEN SHARES AND THE AMENDMENTS TO THE COMPANY'S AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION AND AMENDED AND RESTATED BYLAWS RELATING THE
RECAPITALIZATION].
(bb) The Company has entered into an agreement (the "PMI
Agreement") with PMI Mezzanine Fund, L.P. ("PMI") pursuant to which it has
agreed to cancel or repurchase warrants covering 71.72 shares of Class C
Common Stock of the Company held by PMI on or prior to the Closing Date and
all conditions precedent to the consummation of such cancellation or
repurchase have been satisfied, other than the closing of the offerings
contemplated by this Agreement and the U.S. Underwriting Agreement.
(cc) The Company has entered into definitive purchase
documentation in connection with the Michigan Acquisition and BKC has (i)
consented in writing to the Michigan Acquisition and (ii) indicated in writing
to the Company that it will not exercise its right of first refusal to
purchase the restaurants subject to the Michigan Acquisition. The Company has
no reason to believe that the Michigan Acquisition will not be consummated or,
if consummated, will be consummated on terms different than those set forth in
the Registration Statement and Prospectuses.
(dd) The Company has entered into a merger agreement (the
"Preferred Stock Merger Agreement") with respect to and has taken all actions
as are necessary and appropriate to cause the Preferred Stock Merger (as
described in the Prospectuses under the caption "Certain Transactions") to
occur and all conditions precedent to the
<PAGE>
20
consummation of the Preferred Stock Merger, other than (i) the closing of the
offerings contemplated by this Agreement and the U.S. Underwriting Agreement
and (ii) any filings with appropriate governmental entities required to effect
the Preferred Stock Merger, have been satisfied.
7. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees
to indemnify and hold harmless each of you and each other Manager and each
person, if any, who controls any Manager within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act from and against any and all
losses, claims, damages, liabilities and expenses (including reasonable costs
of investigation) arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in any International Prepricing
Prospectus or in the Registration Statement or the International Prospectus or
in any amendment or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or expenses arise
out of or are based upon any untrue statement or omission or alleged untrue
statement or omission which has been made therein or omitted therefrom in
reliance upon and in conformity with the information relating to such Manager
or U.S. Underwriter furnished in writing to the Company by or on behalf of any
Manager through you or by or on behalf of any U.S. Underwriter through a
Representative expressly for use in connection therewith; provided, however,
that the indemnification contained in this paragraph (a) with respect to any
International Prepricing Prospectus shall not inure to the benefit of any
Manager (or to the benefit of any person controlling such Manager) on account
of any such loss, claim, damage, liability or expense arising from the sale of
the Shares by such Manager to any person if a copy of the International
Prospectus shall not have been delivered or sent to such person within the
time required by the Act and the regulations thereunder, and the untrue
statement or alleged untrue statement or omission or alleged omission of a
material fact contained in such International Prepricing Prospectus was
corrected in the International Prospectus, provided that the Company has
delivered the International Prospectus to the several Managers in requisite
quantity on a timely basis to permit such delivery or sending. The foregoing
indemnity agreement shall be in addition to any liability which the Company
may otherwise have.
<PAGE>
21
(b) If any action, suit or proceeding shall be brought
against any Manager or any person controlling any Manager in respect of which
indemnity may be sought against the Company, such Manager or such controlling
person shall promptly notify the parties against whom indemnification is being
sought (the "indemnifying parties"), and such indemnifying parties shall
assume the defense thereof, including the employment of counsel and payment of
all fees and expenses. Such Manager or any such controlling person shall have
the right to employ separate counsel in any such action, suit or proceeding
and to participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Manager or such controlling person
unless (i) the indemnifying parties have agreed in writing to pay such fees
and expenses, (ii) the indemnifying parties have failed to assume the defense
and employ counsel, or (iii) the named parties to any such action, suit or
proceeding (including any impleaded parties) include both such Manager or such
controlling person and the indemnifying parties and such Manager or such
controlling person shall have been advised by its counsel in writing that
representation of such indemnified party and any indemnifying party by the
same counsel would be inappropriate under applicable standards of professional
conduct (whether or not such representation by the same counsel has been
proposed) due to actual or potential differing interests between them (in
which case the indemnifying party shall not have the right to assume the
defense of such action, suit or proceeding on behalf of such Manager or such
controlling person). It is understood, however, that the indemnifying parties
shall, in connection with any one such action, suit or proceeding or separate
but substantially similar or related actions, suits or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of only one separate firm of
attorneys (in addition to any local counsel) at any time for all such Managers
and controlling persons not having actual or potential differing interests
with you or among themselves, which firm shall be designated in writing by
Smith Barney Inc., and that all such fees and expenses shall be reimbursed as
they are incurred. The indemnifying parties shall not be liable for any
settlement of any such action, suit or proceeding effected without their
written consent, but if settled with such written consent, or if there be a
final judgment for the plaintiff in any such action, suit or proceeding, the
indemnifying parties agree to indemnify and hold harmless any Manager, to the
extent provided in the preceding paragraph, and any such controlling person
from and against any loss, claim, damage,
<PAGE>
22
liability or expense by reason of such settlement or judgment.
(c) Each Manager agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement and any person who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, to the
same extent as the foregoing indemnity from the Company to each Manager, but
only with respect to information relating to such Manager furnished in writing
by or on behalf of such Manager through you expressly for use in the
Registration Statement, the International Prospectus or any International
Prepricing Prospectus, or any amendment or supplement thereto. If any action,
suit or proceeding shall be brought against the Company, any of its directors,
any such officer or any such controlling person based on the Registration
Statement, the International Prospectus or any International Prepricing
Prospectus, or any amendment or supplement thereto, and in respect of which
indemnity may be sought against any Manager pursuant to this paragraph (c),
such Manager shall have the rights and duties given to the Company by
paragraph (b) above (except that if the Company shall have assumed the defense
thereof, such Manager shall not be required to do so, but may employ separate
counsel therein and participate in the defense thereof, but the fees and
expenses of such counsel shall be at such Manager's expense), and the Company,
its directors, any such officer and any such controlling person shall have the
rights and duties given to the Managers by paragraph (b) above. The foregoing
indemnity agreement shall be in addition to any liability which any Manager
may otherwise have.
(d) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party under paragraphs (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages, liabilities or expenses (i)
in such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Managers on the other hand from the
offering of the 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 on the one hand and the Managers on the
other hand in connection with the statements or omissions that
<PAGE>
23
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative benefits received by
the Company on the one hand and the Managers on the other hand shall be deemed
to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by the Managers, in each case
as set forth in the table on the cover page of the International Prospectus.
The relative fault of the Company on the one hand and the Managers on the
other hand shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company on the one hand or by the Managers on the other hand and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
(e) The Company and the Managers agree that it would not be
just and equitable if contribution pursuant to this Section 7 were determined
by a pro rata allocation (even if the Managers were treated as one entity for
such purpose) or by any other method of allocation that does not take account
of the equitable considerations referred to in paragraph (d) above. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages, liabilities and expenses referred to in paragraph (d) above shall be
deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such indemnified party in connection
with investigating any claim or defending any such action, suit or proceeding.
Notwithstanding the provisions of this Section 7, no Manager shall be required
to contribute any amount in excess of the amount by which the total price of
the Shares underwritten by it and distributed to the public exceeds the amount
of any damages which such Manager has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission. 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 Managers' obligations to
contribute pursuant to this Section 7 are several in proportion to the
respective numbers of Shares set forth opposite their names in Schedule I
hereto (or such numbers of Shares increased as set forth in Section 10 hereof)
and not joint.
<PAGE>
24
(f) No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action, suit or proceeding in respect of which any indemnified
party is or could have been a party and indemnity could have been sought
hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such action, suit or proceeding.
(g) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution
under this Section 7 shall be paid by the indemnifying party to the
indemnified party as such losses, claims, damages, liabilities or expenses are
incurred. The indemnity and contribution agreements contained in this Section
7 and the representations and warranties of the Company set forth in this
Agreement shall remain operative and in full force and effect, regardless of
(i) any investigation made by or on behalf of any Manager or any person
controlling any Manager, the Company, its directors or officers or any person
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Manager or any person controlling any Manager, or to the Company, its
directors or officers, or any person controlling the Company, shall be
entitled to the benefits of the indemnity, contribution and reimbursement
agreements contained in this Section 7.
8. Conditions of Managers' Obligations. The several
obligations of the Managers to purchase the Shares hereunder are subject to
the following conditions:
(a) If, at the time this Agreement is executed and
delivered, it is necessary for the Registration Statement or a post-effective
amendment thereto to be declared effective before the offering of the Shares
may commence, the Registration Statement or such post-effective amendment
shall have become effective not later than 5:30 P.M. New York City time, on
the date hereof, or at such later date and time as shall be consented to in
writing by you, and all filings, if any, required by Rules 424 and 430A under
the Act shall have been timely made; no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceeding for that purpose shall have been instituted or, to the knowledge of
the Company or any Manager, threatened by the Commission, and any request of
the Commission for additional information (to be included in the Registration
Statement or the
<PAGE>
25
Prospectuses or otherwise) shall have been complied with to your satisfaction.
(b) Subsequent to the effective date of this Agreement,
there shall not have occurred (i) any change, or any development involving a
prospective change, in or affecting the condition (financial or other),
business, properties, net worth or results of operations of the Company or the
Subsidiaries not contemplated by the Prospectuses, which in your opinion, as
Lead Managers for the several Managers, would materially and adversely affect
the market for the Shares, or (ii) any event or development relating to or
involving the Company or any officer or director of the Company which makes
any statement made in the Prospectuses untrue or which, in the opinion of the
Company and its counsel or the Managers and their counsel, requires the making
of any addition to or change in the Prospectuses in order to state a material
fact required by the Act or any other law to be stated therein or necessary in
order to make the statements therein not misleading, if amending or
supplementing the Prospectuses to reflect such event or development would, in
your opinion, as Lead Managers for the several Managers, materially and
adversely affect the market for the Shares.
(c) You shall have received on the Closing Date, an opinion
of Mayer, Brown & Platt, counsel for the Company and certain Subsidiaries,
dated the Closing Date and addressed to you, as Lead Managers for the several
Managers, in substantially the form attached hereto as Annex I.
(d) You shall have received on the Closing Date, an opinion
of Freeborn & Peters, counsel for certain Subsidiaries, dated the Closing Date
and addressed to you, as Lead Managers for the several Managers, in
substantially the form attached hereto as Annex II.
(e) You shall have received on the Closing Date, an opinion
and a Rule 10b-5 statement of Cravath, Swaine & Moore, counsel for the
Managers, dated the Closing Date and addressed to you, as Lead Managers for
the several Managers, with respect to matters agreed to by you.
(f) You shall have received letters addressed to you, as
Lead Managers for the several Managers, and dated the date hereof and the
Closing Date from Deloitte & Touche LLP, independent certified public
accountants, substantially in the forms heretofore approved by you.
<PAGE>
26
(g) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been taken or, to the knowledge of the Company, shall be
contemplated by the Commission at or prior to the Closing Date; (ii) there
shall not have been any material change in the capital stock of the Company
nor any material increase in the short-term or long-term debt of the Company
(other than in the ordinary course of business) from that set forth or
contemplated in the Registration Statement or the Prospectuses (or any
amendment or Supplement thereto); (iii) there shall not have been, since the
respective dates as of which information is given in the Registration
Statement and the Prospectuses (or any amendment or supplement thereto),
except as may otherwise be stated in the Registration Statement and
Prospectuses (or any amendment or supplement thereto), any material adverse
change in the condition (financial or other), business, prospects, properties,
net worth or results of operations of the Company and the Subsidiaries taken
as a whole; (iv) the Company and the Subsidiaries shall not have any
liabilities or obligations, direct or contingent (whether or not incurred in
the ordinary course of business), that are material to the Company and the
Subsidiaries, taken as a whole, other than those reflected in or contemplated
by the Registration Statement or the Prospectuses (or any amendment or
supplement thereto); and (v) all the representations and warranties of the
Company contained in this Agreement shall be true and correct on and as of the
date hereof and on and as of the Closing Date as if made on and as of the
Closing Date, and you shall have received a certificate, dated the Closing
Date and signed by the chief executive officer and the chief financial officer
of the Company (or such other officers as are acceptable to you), to the
effect set forth in this Section 8(g) and in Section 8(h) hereof.
(h) The Company shall not have failed at or prior to the
Closing Date to have performed or complied with any of its agreements herein
contained and required to be performed or complied with by it hereunder at or
prior to the Closing Date.
(i) The Company shall have furnished or caused to be
furnished to you such further certificates and documents as you shall have
reasonably requested.
(j) The Common Stock shall have been listed or approved for
listing subject to notice of issuance, on the Nasdaq National Market.
<PAGE>
27
(k) The closing under the U.S. Underwriting Agreement shall
have occurred concurrently with the closing hereunder on the Closing Date.
(l) The Company shall have furnished or caused to be
furnished to you an executed Recapitalization Agreement and the consummation
of the Recapitalization shall have occurred concurrently with the closing
hereunder on the Closing Date.
(m) The Company shall have furnished or caused to be
furnished to you the lock-up letters from all officers, directors and current
stockholders of the Company pursuant to Section 5(n) hereto on or prior to the
Closing Date.
(n) The Company shall have furnished or caused to be
furnished to you an executed copy of the BKC Consent Letter on or prior to the
Closing Date.
(o) Concurrent with the Closing hereunder on the Closing
Date, the Company shall have borrowed funds under the New Credit Facility
that, together with the proceeds from the offerings contemplated by this
Agreement and the U.S. Underwriting Agreement, will be sufficient to
consummate the transactions described under the caption "Use of Proceeds" in
the Prospectuses.
(p) The Company shall have furnished or caused to be
furnished to you an executed PMI Agreement and the consummation of the PMI
Claw-back shall have occurred concurrently with the closing hereunder on the
Closing Date.
(q) The Company shall have furnished or caused to be
furnished to you an executed Preferred Stock Merger Agreement and the
consummation of the Preferred Stock Merger shall have occurred concurrently
with the closing hereunder on the Closing Date.
All such opinions, certificates, letters and other documents
will be in compliance with the provisions hereof only if they are reasonably
satisfactory in form and substance to you and your counsel.
Any certificate or document signed by any officer of the
Company and delivered to you, as Lead Managers for the Managers, or to counsel
for the Managers, shall be deemed a representation and warranty by the Company
to each Manager as to the statements made therein.
<PAGE>
28
9. EXPENSES. The Company agrees to pay the following costs and
expenses and all other costs and expenses incident to the performance by the
Company of its obligations hereunder: (i) the preparation, printing or
reproduction, and filing with the Commission of the registration statement
(including financial statements and exhibits thereto), each Prepricing
Prospectus, the Prospectus, and each amendment or supplement to any of them;
(ii) the printing (or reproduction) and delivery (including postage, air
freight charges and charges for counting and packaging) of such copies of the
registration statement, each Prepricing Prospectus, the Prospectus, and all
amendments or supplements to any of them as may be reasonably requested for
use in connection with the offering and sale of the Shares; (iii) the
preparation, printing, authentication, issuance and delivery of certificates
for the Shares, including any stamp taxes, if applicable, in connection with
the original issuance and sale of the Shares; (iv) the reproduction and
delivery of this Agreement, the preliminary and supplemental Blue Sky
Memoranda and all other agreements or documents printed (or reproduced) and
delivered in connection with the offering of the Shares; (v) the registration
of the Shares under the Exchange Act and the listing of the Shares on the
Nasdaq National Market; (vi) the registration or qualification of the Shares
for offer and sale under the securities laws of the several jurisdictions as
provided in Section 5(g) hereof (including the reasonable fees, expenses and
disbursements of counsel for the Managers and U.S. Underwriters relating
thereto); (vii) the filing fees and the fees and expenses of counsel for the
Managers and U.S. Underwriters in connection with any filings required to be
made with the National Association of Securities Dealers, Inc.; (viii) the
transportation and other expenses incurred by or on behalf of representatives
of the Company (which in no event will include the Managers or the U.S.
Underwriters) in connection with presentations to prospective purchasers of
the Shares; and (ix) the fees and expenses of the Company's accountants and
the fees and expenses of counsel (including local and special counsel) for the
Company.
10. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become
effective: (i) upon the execution and delivery hereof by the parties hereto;
or (ii) if, at the time this Agreement is executed and delivered, it is
necessary for the Registration Statement or a post-effective amendment thereto
to be declared effective before the offering of the Shares may commence, when
notification of the effectiveness of the registration statement or such
post-effective amendment has been released by the Commission. Until such time
as this
<PAGE>
29
Agreement shall have become effective, it may be terminated by the Company, by
notifying you, or by you, as Lead Managers for the several Managers, by
notifying the Company.
If any one or more of the Managers shall fail or refuse to
purchase Shares which it or they are obligated to purchase hereunder on the
Closing Date, and the aggregate number of Shares which such defaulting Manager
or Managers are obligated but fail or refuse to purchase is not more than
one-tenth of the aggregate number of Shares which the Managers are obligated
to purchase on the Closing Date, each non-defaulting Manager shall be
obligated, severally, in the proportion which the number of Shares set forth
opposite its name in Schedule I hereto bears to the aggregate number of Shares
set forth opposite the names of all non-defaulting Managers or in such other
proportion as you may specify in accordance with Section 20 of the Master
Agreement Among Underwriters of Smith Barney Inc., to purchase the Shares
which such defaulting Manager or Managers are obligated, but fail or refuse,
to purchase. If any one or more of the Managers shall fail or refuse to
purchase Shares which it or they are obligated to purchase on the Closing Date
and the aggregate number of Shares with respect to which such default occurs
is more than one-tenth of the aggregate number of Shares which the Managers
are obligated to purchase on the Closing Date and arrangements satisfactory to
you and the Company for the purchase of such Shares by one or more
non-defaulting Managers or other party or parties approved by you and the
Company are not made within 36 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Manager or the
Company. In any such case which does not result in termination of this
Agreement, either you or the Company shall have the right to postpone the
Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and the Prospectus or
any other documents or arrangements may be effected. Any action taken under
this paragraph shall not relieve any defaulting Manager from liability in
respect of any such default of any such Manager under this Agreement. The term
"Manager" as used in this Agreement includes, for all purposes of this
Agreement, any party not listed in Schedule I hereto who, with your approval
and the approval of the Company, purchases Shares which a defaulting Manager
is obligated, but fails or refuses, to purchase.
Any notice under this Section 10 may be given by telegram,
telecopy or telephone but shall be subsequently confirmed by letter.
<PAGE>
30
11. TERMINATION OF AGREEMENT. This Agreement shall be subject
to termination in your absolute discretion, without liability on the part of
any Manager to the Company, by notice to the Company, if prior to the Closing
Date (i) trading in securities generally on the New York Stock Exchange, the
American Stock Exchange or the Nasdaq National Market shall have been
suspended or materially limited, (ii) a general moratorium on commercial
banking activities in New York or Illinois shall have been declared by either
federal or state authorities, or (iii) there shall have occurred any outbreak
or escalation of hostilities or other international or domestic calamity,
crisis or change in political, financial or economic conditions, the effect of
which on the financial markets of the United States is such as to make it, in
your judgment, impracticable or inadvisable to commence or continue the
offering of the Shares at the offering price to the public set forth on the
cover page of the International Prospectus or to enforce contracts for the
resale of the Shares by the Managers.
Notice of such termination may be given to the Company by
telegram, telecopy or telephone and shall be subsequently confirmed by letter.
12. INFORMATION FURNISHED BY THE MANAGERS. The statements set
forth in the last paragraph on the cover page, the stabilization legend on the
inside front cover page, and the statements in the first, second, fourth,
fifth, tenth, eleventh, twelfth, thirteenth, fourteenth (except to the extent
that such paragraph relates to actions taken, or to be taken, by the Company)
and sixteenth paragraphs under the caption "Underwriting" in any International
Prepricing Prospectus and in the International Prospectus constitute the only
information furnished by or on behalf of the Managers through you as such
information is referred to in Sections 6(b) and 7 hereof.
13. MISCELLANEOUS. Except as otherwise provided in Sections 5,
10 and 11 hereof, notice given pursuant to any provision of this Agreement
shall be in writing and shall be delivered (i) if to the Company, at the
office of the Company at, AmeriKing, Inc., 2215 Enterprise Drive, Suite 1502,
Westchester, IL 60154, Attention: Lawrence E. Jaro, Chairman, with a copy to
James B. Carlson, Mayer, Brown & Platt, 1675 Broadway, Suite 1900, New York,
NY 10019; or (ii) if to you, as Lead Managers for the several Managers, care
of Smith Barney Inc., 388 Greenwich Street, New York, New York 10013,
Attention: Manager, Investment Banking Division.
<PAGE>
31
This Agreement has been and is made solely for the benefit
of the several Managers, the Company, its directors and officers, and the
other controlling persons referred to in Section 7 hereof and their respective
successors and assigns, to the extent provided herein, and no other person
shall acquire or have any right under or by virtue of this Agreement. Neither
the term "successor" nor the term "successors and assigns" as used in this
Agreement shall include a purchaser from any Manager of any of the Shares in
his status as such purchaser.
14. APPLICABLE LAW; COUNTERPARTS. THIS AGREEMENT SHALL BE
GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WITHIN THE STATE OF NEW YORK.
<PAGE>
32
This Agreement may be signed in various counterparts which
together constitute one and the same instrument. If signed in counterparts,
this Agreement shall not become effective unless at least one counterpart
hereof shall have been executed and delivered on behalf of each party hereto.
Please confirm that the foregoing correctly sets forth the
agreement among the Company and the several Managers.
Very truly yours,
AMERIKING, INC.
By
-----------------------------------
Name:
Title:
Confirmed as of the date first
above mentioned on behalf of
themselves and the other several
Managers named in Schedule I hereto.
SMITH BARNEY INC.
PAINEWEBBER INTERNATIONAL (U.K.) LTD.
EVEREN SECURITIES, INC.
As Lead Managers for the Several Managers
By SMITH BARNEY INC.
By
-------------------------------
Name:
Title:
<PAGE>
33
SCHEDULE I
AMERIKING, INC.
Number of
Manager Shares
- ------- ------
Smith Barney Inc.
PaineWebber International (U.K.) Ltd.
EVEREN Securities, Inc.
[ ]
[ ]
[ ]
-------------
Total ...........
=============
<PAGE>
ANNEX I
Form of Mayer, Brown & Platt Opinion
Pursuant to Section 8(c)
of the International Underwriting Agreement
Capitalized terms used in this opinion, but not otherwise
defined herein, shall have the meanings set forth in the International
Underwriting Agreement.
(i) The Company is a corporation duly incorporated and
validly existing in good standing under the laws of the State of Delaware with
full corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Registration Statement and the
Prospectuses (and any amendment or supplement thereto), and is duly registered
and qualified to conduct its business and is in good standing in each
jurisdiction or place where the nature of its properties or the conduct of its
business requires such registration or qualification, except where the failure
so to register or qualify or be in good standing does not or would not
reasonably be expected to have a Material Adverse Effect;
(ii) Each of National Restaurant Enterprises, Inc., AmeriKing
Virginia Corporation I and AmeriKing Tennessee Corporation I (collectively,
the "Relevant Subsidiaries") is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation,
with full corporate power and authority to own, lease, and operate its
properties and to conduct its business as described in the Registration
Statement and the Prospectuses (and any amendment or supplement thereto); and
all the outstanding shares of capital stock of each of the Relevant
Subsidiaries have been duly authorized and validly issued, are fully paid and
non-assessable, and, are owned by the Company directly, or indirectly through
one of the Subsidiaries, free and clear of any lien, adverse claim, security
interest, equity or other encumbrance;
(iii) After the consummation of the Recapitalization and the
Preferred Stock Merger, the authorized, issued and outstanding capital stock
of the Company will be as set forth in the Prospectuses under the captions
"Prospectus Summary - The Offerings", "Risk Factors - Shares Eligible for
Future Sale; Registration Rights", "Description of Capital Stock" and "Shares
Eligible for Future Sale"; and the authorized capital stock of the Company
conforms in all
<PAGE>
2
material respects as to legal matters to the description thereof contained in
the Prospectuses under the captions "Prospectus Summary - The Offerings",
"Risk Factors - Shares Eligible for Future Sale; Registration Rights",
"Description of Capital Stock" and "Shares Eligible for Future Sale";
(iv) All the shares of capital stock of the Company
outstanding prior to the issuance of the Underwritten Shares to be issued and
sold by the Company pursuant to the International Underwriting Agreement and
the U.S. Underwriting Agreement, have been duly authorized and validly issued,
and are fully paid and nonassessable;
(v) The Underwritten Shares to be issued and sold to the
Managers and U.S. Underwriters by the Company pursuant to the International
Underwriting Agreement and the U.S. Underwriting Agreement have been duly
authorized and, when issued and delivered to the Managers and the U.S.
Underwriters against payment therefor in accordance with the terms of the
International Underwriting Agreement and the U.S. Underwriting Agreement, will
be validly issued, fully paid and nonassessable and, other than the preemptive
or similar rights held by certain holders of the capital stock of the Company
pursuant to the Stockholder's Agreement (which rights have been waived with
respect to the Shares), free of any preemptive or similar rights;
(vi) The form of certificates for the Shares conforms to the
requirements of the Delaware General Corporation Law;
(vii) Based upon telephonic confirmation from the Commission
(a) the Registration Statement and all post-effective amendments, if any, have
become effective under the Act and (b) no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose are pending before or contemplated by the Commission; and any
required filing of the Prospectuses pursuant to Rule 424(b) has been made in
accordance with Rule 424(b);
(viii) The Company has the corporate power and authority to
enter into each of the Transaction
<PAGE>
3
Agreements 1/ and to issue, sell and deliver the Underwritten Shares to be sold
by it to the Managers and the U.S. Underwriters as provided in the
International Underwriting Agreement and the U.S. Underwriting Agreement and
to consummate the Recapitalization and the Preferred Stock Merger and the
other transactions as provided in the Transaction Agreements, and each of the
Transaction Agreements has been duly authorized, executed and delivered by the
Company and is a legal, valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except that (A)
the enforceability of the Transaction Agreements may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws now
or hereafter in effect relating to creditors' rights generally, (B) the remedy
of specific performance and other forms of equitable relief may be subject to
certain equitable defenses and to the discretion of the court before which the
proceedings may be brought and (C) rights to indemnity and contribution under
the International Underwriting Agreement and under the U.S. Underwriting
Agreement may be limited by federal or state securities laws or the public
policy underlying such laws;
(ix) Neither the Company nor any of the Relevant
Subsidiaries is (A) in violation of its respective certificate of
incorporation or bylaws or other organizational documents, or (B) to the best
knowledge of such counsel after reasonable inquiry, is in default in the
performance of any obligation, agreement or condition contained in any bond,
debenture, note or other evidence of indebtedness, except as may be disclosed
in the Prospectuses or which, in the case of clause B, individually or in the
aggregate, would not otherwise have a Material Adverse Effect;
(x) Neither the offer, issuance, sale or delivery of the
Underwritten Shares, the consummation of the Recapitalization and the
Preferred Stock Merger, the execution, delivery or performance of the
Transaction Agreements, compliance by the Company with all provisions of the
Transaction Agreements nor consummation by the Company of
- ----------------
1/ Transaction Agreements includes the U.S. Underwriting Agreement, the
International Underwriting Agreement, the Recapitalization Agreement, the New
Credit Facility, the PMI Agreement and the Preferred Stock Merger Agreement.
<PAGE>
4
the transactions contemplated by the Transaction Agreements (i) conflicts or
will conflict with or constitutes or will constitute a breach of, or a default
under, (x) the amended and restated certificate of incorporation or the
amended and restated bylaws or other organizational documents of the Company
or any of the Relevant Subsidiaries or (y) any agreement (including, without
limitation, any franchise agreement), indenture, lease or other instrument to
which the Company or any of the Relevant Subsidiaries is a party or by which
any of them or any of their respective properties is bound that is an exhibit
to the Registration Statement, or is known to such counsel after reasonable
inquiry, that has not been waived in writing (including in a Transaction
Agreement) by the affected party thereto, except for such conflicts, breaches
or defaults covered by this subsection (y) that would not, individually or in
the aggregate, have a Material Adverse Effect or (ii) will result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any of the Relevant Subsidiaries, except any lien,
charge or encumbrance specifically provided for in a Transaction Agreement and
except for any such lien, charge or encumbrance that would not, individually
or in the aggregate, have a Material Adverse Effect, or (iii) will result in
any violation of any existing rule, law, regulation, ruling (assuming
compliance with all applicable securities and laws), judgment, injunction,
order or decree known to such counsel after reasonable inquiry, and applicable
to the Company, the Relevant Subsidiaries, or any of their respective
properties, except for such violations that would not, individually or in the
aggregate, have a Material Adverse Effect;
(xi) No consent, approval, authorization or other order, or
registration or filing with, any court, regulatory body, administrative agency
or other governmental body, agency, or official is required on the part of the
Company (except as have been obtained under the Act and the Exchange Act or
such as may be required under securities or Blue Sky laws governing the
purchase and distribution of the Underwritten Shares and the filing of the
Company's Amended and Restated Certificate of Incorporation with the Secretary
of State of the State of Delaware in connection with the Recapitalization) for
the valid issuance and sale of the Underwritten Shares to the Managers and the
U.S. Underwriters as contemplated by the International Underwriting Agreement
and the U.S. Underwriting Agreement or the consummation of the
Recapitalization and the
<PAGE>
5
Preferred Stock Merger as contemplated by the Recapitalization Agreement and
the Preferred Stock Merger Agreement, respectively;
(xii) To the best knowledge of such counsel after reasonable
inquiry, (A) other than as described or contemplated in the Prospectuses (or
any supplement thereto), there are no legal or governmental proceedings
pending or threatened against the Company or any of the Relevant Subsidiaries,
or to which the Company or any of the Relevant Subsidiaries, or any of their
respective property, is subject, that are required to be described in the
Registration Statement or Prospectuses (or any amendment or supplement
thereto) and (B) there are no agreements (including, without limitation, any
franchise agreements), contracts, indentures, leases or other instruments that
are required to be described in the Registration Statement or the Prospectuses
(or any amendment or supplement thereto) or to be filed as an exhibit to the
Registration Statement that are not described or filed as required, as the
case may be;
(xiii) To the best knowledge of such counsel after
reasonably inquiry, neither the Company nor any of the Relevant Subsidiaries
is in violation of any law, ordinance, administrative or governmental rule or
regulation applicable to the Company or any of the Relevant Subsidiaries or of
any decree of any court or governmental agency or body having jurisdiction
over the Company or any of the Relevant Subsidiaries that would be required to
be described in the Registration Statement or Prospectuses (or any amendment
or supplement thereto);
(xiv) The statements in the Registration Statement and
Prospectuses under the captions "Risk Factors-BKC Franchise Agreement
Restrictions", "Risk Factors-Leverage and Related Financial and Operating
Restrictions", "Risk Factors-Dependence Upon Senior Management", "Risk
Factors- Anti-Takeover Provisions", Risk Factors-Shares Eligible for Future
Sale; Registration Rights", "Use of Proceeds", "Business-Franchise
Agreements", "Business-Government Regulation", "Management-Directors and
Executive Officers", "Management-Board of Directors", "Management-Employment
Agreements", "Management-Employee Benefit Plans","Description of Capital
Stock", "Description of Certain Indebtedness", "Certain Transactions", "Shares
Eligible for Future Sale" and "Certain U.S. Tax Consequences to Non-U.S.
Stockholders", insofar as they are descriptions of contracts, agreements
(including, without limitation,
<PAGE>
6
franchise agreements) or other legal documents, or refer to statements of law
or legal conclusions, are accurate and present fairly the information required
to be shown;
(xv) Upon delivery of the Underwritten Shares pursuant to
the International Underwriting Agreement and the U.S. Underwriting Agreement
and payment therefor as contemplated therein, the Managers and the U.S.
Underwriters will acquire good title to the Underwritten Shares free and clear
of any lien, claim, security interest, or other encumbrance, restriction on
transfer or other defect in title; and
(xvi) To the best knowledge of such counsel after reasonable
inquiry, except as described in the Prospectuses, (A) there are no outstanding
options, warrants or other rights calling for the issuance of, and such
counsel does not know of any commitment, agreement, understanding or
arrangement to issue, any shares of capital stock of the Company or any
security convertible into or exchangeable or exercisable for capital stock of
the Company and (B) there is no holder of any security of the Company or any
other person who has the right (or if such holder or other person has the
right, such holder or other person has waived such right), contractual or
otherwise, to cause the Company to sell or otherwise issue to them, or to
permit them to underwrite the sale of, the Underwritten Shares or the right to
have any Common Stock or other securities of the Company included in the
Registration Statement or the right (or if such holder or other person has the
right, such holder or other person has waived such right), as a result of the
filing of the registration statement, to require registration under the Act of
any shares of Common Stock or other securities of the Company.
In addition, such counsel shall state that although counsel
has not undertaken, except as otherwise indicated in their opinion, to
determine independently, and does not assume any responsibility for, the
accuracy or completeness of the statements in the Registration Statement,
except insofar as such statements relate to such counsel and except to the
extent set forth in the opinion in paragraph (xiv) above, such counsel has
participated in the preparation of the Registration Statement and the
Prospectuses, including review and discussion of the contents thereof, and
nothing has come to the attention of such counsel that has caused them to
believe that (i) the Registration Statement and the Prospectuses and any
supplements or amendments thereto (except for the financial
<PAGE>
7
statements, schedules, and notes thereto and other financial and statistical
data included therein, as to which such counsel need not express any opinion)
were not appropriately responsive in all material respects to the requirements
of the Act and (ii) the Registration Statement at the time the Registration
Statement became effective, or the Prospectuses, as of their respective dates
and as of the Closing Date or the Option Closing Date, as the case may be,
contained an 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 (it being understood that such counsel need
express no opinion with respect to the financial statements, schedules, and
the notes thereto and other financial and statistical data included in the
Registration Statement or the Prospectuses) or that the Prospectus or any
amendment or supplement to the Prospectuses, as of its respective date, and as
of the Closing Date or the Option Closing Date, as the case may be, contained
any untrue statement of a material fact or omitted 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 (it being understood
that such counsel need express no opinion with respect to the financial
statements, schedules, and the notes thereto and other financial and
statistical data included in the Registration Statement or the Prospectuses).
In rendering their opinion as aforesaid, counsel may rely
upon an opinion or opinions, each dated the Closing Date, of other counsel
retained by them or the Company as to laws of any jurisdiction other than the
United States or the State of New York or the corporation law of the State of
Delaware, provided that (1) each such local counsel is reasonably acceptable
to the Representatives, (2) such reliance is expressly authorized by each
opinion so relied upon and a copy of each such opinion is delivered to the
Lead Managers and is, in form and substance satisfactory to them and their
counsel, and (3) counsel shall state in their opinion that they believe that
they and the Managers are justified in relying thereon.
<PAGE>
ANNEX II
Form of Freeborn & Peters Opinion
Pursuant to Section 8(d)
of the International Underwriting Agreement
Capitalized terms used in this opinion, but not otherwise
defined herein, shall have the meanings set forth in the International
Underwriting Agreement.
(i) Each of AmeriKing Colorado Corporation I, AmeriKing
Cincinnati Corporation I and AmeriKing Illinois Corporation I (collectively,
the "Relevant Subsidiaries") is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation,
with full corporate power and authority to own, lease, and operate its
properties and to conduct its business as described in the Registration
Statement and the Prospectuses (and any amendment or supplement thereto); and
all the outstanding shares of capital stock of each of the Relevant
Subsidiaries have been duly authorized and validly issued, are fully paid and
nonassessable, and, are owned by the Company directly, or indirectly through
one of the Subsidiaries, free and clear of any lien, adverse claim, security
interest, equity or other encumbrance;
(ii) Each of the Relevant Subsidiaries is not (A) in
violation of its respective certificate of incorporation or bylaws or other
organizational documents, or (B) to the best knowledge of such counsel after
reasonable inquiry, is in default in the performance of any obligation,
agreement or condition contained in any bond, debenture, note or other
evidence of indebtedness, except as may be disclosed in the Prospectuses or
which, in the case of clause B, individually or in the aggregate, could not
otherwise reasonably be expected to have a Material Adverse Affect;
(iii) Neither the offer, issuance, sale or delivery of the
Shares, the consummation of the Recapitalization, the execution, delivery or
performance of the Transaction Agreements,1/ compliance by the Company with all
provisions of the Transaction Agreements nor consummation by the
- --------
1/ Transaction Agreements includes the International Underwriting
Agreement, the U.S. Underwriting Agreement, the Recapitalization Agreement,
the New Credit Facility and the PMI Agreement.
<PAGE>
2
Company of the transactions contemplated by the Transaction Agreements
conflicts or will conflict with or constitutes or will constitute a breach of,
or a default under, the certificate of incorporation or bylaws or other
organizational documents of any of the Relevant Subsidiaries or any agreement
(including, without limitation, any franchise agreement), indenture, lease or
other instrument to which any of the Relevant Subsidiaries is a party or by
which any of them or any of their respective properties is bound that is an
exhibit to the Registration Statement, or is known to such counsel after
reasonable inquiry, or will result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of any of the Relevant
Subsidiaries, nor will any such action result in any violation of any existing
rule, law, regulation, ruling (assuming compliance with all applicable state
securities and Blue Sky laws), judgment, injunction, order or decree known to
such counsel after reasonable inquiry, and applicable to the Relevant
Subsidiaries, or any of their respective properties;
(iv) To the best knowledge of such counsel after reasonable
inquiry, (A) other than as described or contemplated in the Prospectuses (or
any supplement thereto), there are no legal or governmental proceedings
pending or threatened against any of the Relevant Subsidiaries, or to which
any of the Relevant Subsidiaries, or any of their respective property, is
subject, that are required to be described in the Registration Statement or
Prospectuses (or any amendment or supplement thereto) and (B) there are no
agreements (including, without limitation, any franchise agreements),
contracts, indentures, leases or other instruments to which a Relevant
Subsidiary is party that are required to be described in the Registration
Statement or the Prospectuses (or any amendment or supplement thereto) or to
be filed as an exhibit to the Registration Statement that are not described or
filed as required, as the case may be; and
(v) To the best knowledge of such counsel after reasonably
inquiry, each of the Relevant Subsidiaries is not in violation of any law,
ordinance, administrative or governmental rule or regulation applicable to it
or of any decree of any court or governmental agency or body having
jurisdiction over it.
<PAGE>
ANNEX III
AMERIKING, INC.
LOCK-UP LETTER
, 1996
SMITH BARNEY INC.
PAINEWEBBER INCORPORATED
EVEREN SECURITIES, INC.
As Representatives of the
Several U.S. Underwriters
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, NY 10013
SMITH BARNEY INC.
PAINEWEBBER INTERNATIONAL (U.K.) LTD.
EVEREN SECURITIES, INC.
As Lead Managers of the Several Managers
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, NY 10013
Dear Sirs:
The undersigned understands that (a) the Representatives of the U.S.
Underwriters and the U.S. Underwriters propose to enter into an underwriting
agreement (the "U.S. Underwriting Agreement") and (b) the Lead Managers of the
Managers and the Managers propose to enter into an underwriting agreement (the
"International Underwriting Agreement"), each providing for the purchase by
you and the U.S. Underwriters and Managers (the "Underwriters") of shares (the
"Shares") of Common Stock, par value $0.01 per share (the "Common stock"), of
AmeriKing, Inc. (the "Company") and that the Underwriters propose to reoffer
the Shares to the public.
In consideration of the execution of the U.S. Underwriting Agreement
by the U.S. Underwriters and the International Underwriting Agreement by the
Managers, and
<PAGE>
2
for other good and valuable consideration, the undersigned hereby irrevocably
agrees that without the prior written consent of Smith Barney Inc. the
undersigned will not (and, except as may be disclosed in the Prospectuses,
will not announce or disclose any intention to) sell, offer to sell, solicit
an offer to buy, contract to sell, grant any option to purchase, or otherwise
transfer or dispose of, any shares of Common Stock, or any securities
convertible into or exercisable or exchangeable for Common Stock, for a period
of 180 days (the "Lock-up Period") after the date of the final Prospectuses
relating to the offering of the Shares to the public by the Underwriters,
except for (i) transfers of securities pursuant to the Recapitalization, (ii)
transfers of Common Stock pursuant to the conversion or exchange of
convertible or exchangeable securities or the exercise of warrants or options,
in each case outstanding on the date hereof, (iii) transfers of shares of
Common Stock to charitable organizations or trusts; provided that any such
charitable organization or trust shall have executed and provided to Smith
Barney Inc. a Lock-up Letter substantially in the form of this letter prior to
such transfer and (iv) transfers to affiliates of the undersigned; provided
that such affiliates shall have executed and provided to Smith Barney Inc. a
Lock-up Letter substantially in the form of this letter prior to such
transfer. In addition, shares of Common Stock purchased by members of the
undersigned's "immediate family" (as such term is defined by Rule 16a-1(e)
under the Securities Exchange Act of 1934, as amended) from the Underwriters
in connection with the public offering will not be attributed to the
undersigned for purposes of this Lock-up Letter. Prior to the expiration of
the Lock-up Period, the undersigned will not announce or disclose any
intention to do anything after the expiration of such period which the
undersigned is prohibited, as provided in the preceding sentence, from doing
during such Lock-up Period. In addition, for the benefit of the Company and
the Underwriters, the undersigned hereby (i) waives any rights the undersigned
may have to cause the Company to register pursuant to the Securities Act of
1933, as amended, shares of Common Stock owned by the undersigned in
connection with the offerings contemplated in the U.S. Underwriting Agreement
and the International Underwriting Agreement and (ii) during the Lock-up
Period, agrees not to exercise any such registration rights and further agrees
that the Company shall not be obligated to register any shares in violation of
the U.S. Underwriting Agreement or the International Underwriting Agreement.
<PAGE>
3
The undersigned agrees that the provisions of this agreement
shall be binding also upon the successors, assigns, heirs and personal
representatives of the undersigned.
In furtherance of the foregoing, the company and Harris Trust
Company of New York, its Transfer Agent, are hereby authorized to decline to
make any transfer of securities if such transfer would constitute a violation
or breach of this letter agreement.
It is understood that, if either the U.S. Underwriting Agreement
or the International Underwriting Agreement does not become effective, or if
either the U.S. Underwriting Agreement or the International Underwriting
Agreement (other than the provisions thereof which survive termination) shall
terminate or be terminated prior to payment for and delivery of the Shares,
you will release us from our obligations under this letter agreement.
Very truly yours,
--------------------------
[Name of Signatory]
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of AmeriKing, Inc.
(formerly NRE Holdings, Inc.) on Form S-1 of our reports dated March 12,
1996, October 10, 1995, and May 18, 1996, appearing in the Prospectus, which
is part of this Registration Statement and to the reference to us under the
headings "Selected Consolidated Financial Information" and "Experts" in such
Prospectus.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
July 31, 1996
Chicago, Illinois
