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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[_] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 27, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 333-04261
AmeriKing, Inc.
(Exact name of registrant as specified in its charter)
Delaware 36-3970707
(State or other jurisdiction (I.R.S employer
of incorporation or organization) identification no.)
2215 Enterprise Drive, Suite 1502 60154
Westchester, Illinois (Zip code)
(Address of principal executive
offices)
Registrant's telephone number, including area code 708-947-2150
Securities registered pursuant to Section 12(b) of the Act:
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Title
of
each Name of each exchange on
class which registered
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Securities registered pursuant to Section 12(g) of the Act:
(Title of class)
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K: [X]
The aggregate market value of the voting stock held by non-affiliates (as
defined in Rule 405) of the registrant as of March 17, 2000 was approximately
$47,454.
The number of shares outstanding of each of the registrant's classes of
common stock as of March 17, 2000 was 902,992 of common stock, $.01 par value
per Share (the "Common Stock").
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document have been incorporated by reference into
this Annual Report on Form 10-K.
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Part of Form 10-K
Document Where Incorporated
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AmeriKing, Inc. Part IV
Registration Statement
(Reg. No. 333-04261)
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TABLE OF CONTENTS
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Page
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PART I
Item 1. Business....................................................... 1
Item 2. Properties..................................................... 10
Item 3. Legal Proceedings.............................................. 10
Item 4. Submission of Matters to a Vote of Security Holders............ 10
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.................................................... 11
Item 6. Selected Financial Data........................................ 11
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................ 13
Item 7a. Quantitative and Qualitative Disclosures About Market Risk..... 17
Item 8. Financial Statements and Supplementary Data.................... 18
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................. 33
PART III
Item 10. Directors and Executive Officers of the Registrant............. 33
Item 11. Executive Compensation......................................... 36
Item 12. Security Ownership of Certain Beneficial Owners and
Management............................................................. 39
Item 13. Certain Relationships and Related Transactions................. 40
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-
K...................................................................... 42
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I
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PART I
Certain statements in this Form 10-K may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties, and other factors which may cause the actual results,
performance, or achievements of AmeriKing, Inc. ("AmeriKing" or the "Company")
to be materially different from any future results, performance, or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: general economic and business
conditions; competition; success of operating initiatives; development and
operating costs; advertising and promotional efforts; brand awareness; adverse
publicity; acceptance of new product offerings; availability, locations, and
terms of sites for store development; changes in business strategy or
development plans; quality of management; availability, terms, and deployment
of capital; business abilities and judgment of personnel; availability of
qualified personnel; food, labor, and employee benefit costs; changes in, or
the failure to comply with, governmental regulations; regional weather
conditions; construction schedules; and other factors referenced in this Form
10-K.
Item 1. Business
Recent Developments
On March 8, 2000, the Company signed a letter of intent to purchase 5
restaurants in the Chicago Metropolitan area for approximately $3.0 million
excluding transaction fees and acquisition related expenditures.
General
AmeriKing is the largest independent Burger King franchisee in the United
States with 355 restaurants as of December 27, 1999, located primarily in
twelve Midwestern and Southern states. The Company was formed in 1994 by a
group consisting of independent Burger King franchisees, former Burger King
Corporation ("BKC") executives and The Jordan Company. Since inception, the
Company has acquired 327 Burger King restaurants, developed 45 new
restaurants, sold 10 restaurants, and closed 7 restaurants.
AmeriKing, Inc. and its wholly owned subsidiary, National Restaurant
Enterprises, Inc., which has four subsidiaries, were organized as Delaware
corporations and incorporated on August 17, 1994. AmeriKing's principal
executive offices are located at 2215 Enterprise Drive, Suite 1502,
Westchester, Illinois, 60154. Its telephone number is (708) 947-2150.
Burger King Corporation
Overview. According to information publicly filed by Diageo PLC, the parent
corporation of BKC, BKC is the second largest quick-service hamburger
restaurant franchisor in the world, with system-wide restaurant sales of $10.9
billion for its fiscal year ended June 30, 1999. There are more than 10,800
Burger King restaurants worldwide, of which over 92% are operated by
approximately 1,500 independent franchisee groups. 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(R)" service, flame-broiling, generous portions and
competitive prices. Each of the Company's restaurants 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(R) sandwich. The Whopper(R) is a large, flame-broiled hamburger on a
toasted bun garnished with combinations of lettuce, onions, pickles, tomatoes,
ketchup 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,
shakes, desserts, soft drinks, milk and coffee. In addition, promotional menu
items are introduced periodically for limited times.
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The Company's 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.
The Company participates in a variety of Burger King programs designed to
increase restaurant revenues and profitability. In 1999, BKC implemented
several promotions aimed at children including Teletubbies(R), Wild Wild
West(R) and Pokemon(R). In addition, BKC introduced several new menu items
including the Frozen Coke(R) and Chicken Club, which also achieved great
success and popularity.
Restaurant Configurations. The Company's 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 that 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,
approximately 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 45 years. BKC currently has an annual advertising and
promotional budget of over $400 million 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 typically required to contribute 4.0% of monthly gross sales
from restaurant operations to a BKC advertising fund. These 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. In addition, the Company
supplements BKC's current annual advertising budget and promotional activities
through local marketing initiatives. These initiatives are typically funded
through an additional investment of approximately 1% of gross sales.
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 eleven regions (Chicago,
Virginia, Colorado, Texas, Tennessee, Cincinnati, Charlotte, Raleigh,
Milwaukee, Northern Wisconsin and Springfield, IL), the Company has a regional
managing director who is responsible for all of the operations of the
Company's restaurants within his/her assigned region. Each of these managing
directors must be approved by BKC. Supporting the managing directors are the
directors of operations who, in turn, supervise several district managers (who
directly supervise six to eight restaurants each). The district managers are
responsible for direct oversight of the day-to-day operations of the Company's
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 BKC's
restaurant operating guidelines and restaurant profitability. Senior
management believes that the Company's larger size and regional
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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 BKC 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.
Management Information System. The Company's customized management
information system, REMACs, 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
integrated management information system, typically installed in its
restaurants within 30 to 60 days of acquisition, transmits data on a daily
basis to Company headquarters. This information is available by 6:00 AM the
following day and can be accessed by district managers on a remote basis using
a laptop computer. The Company's sophisticated management information system,
typically not affordable by smaller Burger King franchisees and other smaller
quick-service restaurant chains, provides management with the ability to
identify and quickly capitalize on restaurant sales enhancement and profit
opportunities. The Company utilizes its management information system to: (i)
minimize shrinkage and control labor costs; (ii) monitor point-of-sale order
taking; (iii) effectively manage inventory; and (iv) quickly integrate
accounting systems following acquisitions. Customized exception reporting is
used to focus operations on high priority issues and opportunities. The
Company also utilizes the system 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. In addition, the system enables the Company to analyze various
promotional programs using product mix information.
Franchise Agreements
Each of the Company's Burger King restaurants is a party to a BKC franchise
agreement. The BKC franchise agreement does 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 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 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
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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 December 27, 1999, 88 of the
Company's current 355 franchise agreements with BKC, which contributed $93.6
million in restaurant sales in fiscal 1999, are scheduled to expire.
The Company intends to expand its operations of Burger King restaurants
through both new restaurant development and acquisitions. Pursuant to current
BKC policies and procedures applicable to the Company, BKC's approval is
required for the development of new Burger King restaurants by the Company and
the acquisition of Burger King restaurants by the Company from other Burger
King franchisees. BKC's consent to such renewals, acquisitions or development
may be withheld at BKC's sole discretion.
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. 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 the BKC franchise agreements, BKC may terminate all the
franchise agreements with the Company's subsidiary franchisees or the
applicable subsidiary franchisee if, as applicable, any person serving on the
board of directors of the Company or the applicable subsidiary franchisee is:
(i) an employee of BKC, (ii) an owner (subject to certain exceptions), board
member or principal or employee of any business that is then approved by BKC
as a supplier to the Burger King system or (iii) an owner (subject to certain
exceptions), board member or principal or employee of any hamburger restaurant
business other than the Burger King restaurant business.
Obligations to Burger King Corporation
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 1999,
the Company paid BKC an aggregate of $13.3 million in royalty fees and $15.2
million in advertising contributions.
Beginning July 1, 2000 and running through June 30, 2003, any newly
developed restaurant or newly successored restaurant will be subject to a
$50,000 one-time franchise fee and a 4.0% royalty fee for a period of ten
years. At that time, the royalty fee will be increased to 4.5% for the
remainder of the franchise term. Beginning July 1, 2003, any newly developed
restaurant or newly successored restaurant will be subject to a $50,000 one-
time franchise fee and a 4.5% royalty fee for the full franchise term. The
monthly advertising contribution is expected to remain at 4.0%.
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BKC is the lessor on approximately 34.2% of the Company's currently leased
properties, primarily as a result of the Company's initial acquisition of
Burger King restaurants from BKC. The Company guarantees all of the
obligations of its subsidiaries under these leases. Under certain lease
agreements with BKC affiliates, the Company's subsidiaries made rent payments
aggregating $12.6 million during fiscal 1999. In connection with the execution
of the lease agreements, the Company guaranteed the payment and performance
obligations of each of its subsidiaries. In addition, the Company has agreed
to guarantee the payment and performance obligations under each of the
franchise agreements between BKC and its subsidiary franchisees.
As required by BKC regulations, the Company's obligations under the Senior
Notes (as defined), the Senior Preferred Stock (as defined) and, if issued,
the Exchange Debentures (as defined) will be subject to an intercreditor
agreement pursuant to which the Company's obligations in respect of such
securities are subject to the prior payment in full of all indebtedness,
liabilities and other obligations of the Company and its subsidiaries to BKC
under the BKC franchise agreements, BKC leases and any other indebtedness of
the Company and its subsidiaries to BKC.
Advertising and Promotion
The Company supplements BKC's current annual advertising budget and
promotional activities by contributing approximately 1% of its gross sales to
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 various professional sports
teams and athletes, Nickelodeon, NASCAR, and several colleges and
universities, 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 1999, the Company spent
approximately $5.7 million 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 that 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 AmeriServe
Food Distribution, Inc. ("AmeriServe").
AmeriServe filed for protection under Chapter 11 of the U.S. bankruptcy code
on January 31, 2000 resulting in minimal service disruptions to Company owned
restaurants. AmeriServe continues to be the Company's primary distributor with
interim financing being provided by Burger King and Tricon Global Restaurants,
Inc. RSI is currently researching other distributors in the event that
AmeriServe is unable to adequately serve the Company's needs.
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,
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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 AmeriServe 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.
Business Strategy
The Company's business strategy is to continue to increase revenues,
restaurant contribution and earnings before interest, taxes, depreciation and
amortization. The Company's strategy is based on the following elements:
Develop New Burger King Restaurants in Existing Markets. The Company seeks
to develop new Burger King restaurants in existing markets where it has
established a significant presence, enabling the Company to enhance its
operating leverage and increase overall margins and profitability. 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. Furthermore, management believes the Company's new
restaurant development risk is substantially reduced due to: (i) the proven
success of the Burger King concept; (ii) the predictability of development
costs and restaurant profitability compared to that of newer restaurant
concepts; and (iii) management's extensive experience within the Burger King
system. The Company currently leases all but one of its properties, minimizing
its cost to develop new restaurants.
To date, the Company has developed 45 new restaurants. 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
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on a per location basis. The Company's primary resource is its internal
development department, comprised of professionals with extensive site
selection and development experience.
Pursue Strategic Acquisitions of Burger King Restaurants. The Company
intends to selectively pursue strategic acquisitions in the highly fragmented,
growing Burger King system. Since 1994, the Company has successfully completed
327 restaurant acquisitions for an aggregate purchase price of approximately
$255.2 million. The Company evaluates each prospective acquisition using a set
of stringent criteria, including the potential for future fill-in acquisitions
and new restaurant development in targeted markets and the overall
attractiveness of market demographics. The Company seeks to enter new
geographic markets through acquisitions that provide the critical mass
necessary to realize operating efficiencies. Of the Company's 27 franchisee
acquisitions through December 27, 1999, 10 have been large, regional
operations, each consisting of more than ten restaurants. AmeriKing seeks to
augment new market acquisitions with fill-in acquisitions, which enable the
Company to: (i) achieve greater restaurant penetration within existing
markets; (ii) capitalize on its significant operating leverage; and (iii)
increase operating margins and profitability. The Company continually engages
in discussions with Burger King franchisees, including with respect to the
potential acquisition of the business or assets of such franchisees.
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.
The Company's fill-in acquisitions typically involve smaller, local
operations in areas in, or contiguous to, the Company's existing operations.
An example of a typical fill-in acquisition is the Company's acquisition in
April 1999 of 9 additional restaurants in Chicago. An example of a larger
fill-in acquisition is the Company's acquisition in December 1998 of 13
additional restaurants in the Cincinnati market.
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The table below summarizes each of the Company's acquisitions, representing
327 restaurants, since its inception.
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Number of
Acquisition Restaurants Type of
Date State Acquired Seller
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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
June 1997 North Carolina 26 Franchisee
August 1997 Illinois 2 Franchisee
September 1997 North Carolina 30 Franchisee
October 1997 Wisconsin 5 Franchisee
February 1998 Illinois 2 Franchisee
April 1998 Ohio 3 Franchisee
June 1998 Tennessee 3 Franchisee
October 1998 Illinois 9 Franchisee
December 1998 Wisconsin 3 Franchisee
December 1998 Kentucky/Ohio 5 Franchisee
December 1998 Wisconsin 5 Franchisee
December 1998 Ohio 13 Franchisee
February 1999 Illinois 2 Franchisee
February 1999 Wisconsin and Michigan 30 Franchisee
April 1999 North Carolina 3 BKC
April 1999 Virginia 1 Franchisee
April 1999 Illinois 9 Franchisee
June 1999 Georgia 1 Franchisee
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Achieve Operating Efficiencies. The Company's large number of restaurants,
centralized management structure and advanced management information systems
enable the Company to: (i) tightly control restaurant and corporate level
costs; (ii) capture economies of scale by leveraging its existing corporate
overhead structure; and (iii) continuously monitor point-of-sale data to more
efficiently manage its restaurant operations. The Company has experienced both
restaurant-level and corporate-level savings as a result of its size and
related bargaining power, particularly with respect to food and paper
purchasing and distribution, restaurant maintenance services and general
liability insurance.
Capitalize on Strong Support from Burger King Corporation. The Company
believes that it realizes significant benefits from its affiliation with BKC
as a result of: (i) the widespread recognition of the Burger King name and
products; (ii) BKC's management of the proven, successful Burger King concept,
including new product development, quality assurance and strategic planning;
(iii) the size and market penetration of BKC's approximate $400 million annual
advertising and promotional budget; and (iv) the expected continued growth of
the Burger King system.
Leverage Sophisticated Management Information System. The Company's
customized integrated management information system, REMACs, typically not
affordable by smaller Burger King franchisees and other smaller quick-service
restaurant chains, provides management with the ability to identify and
quickly capitalize on restaurant sales enhancement and profit opportunities.
The Company utilizes its management
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information system to: (i) minimize shrinkage and control labor costs; (ii)
efficiently schedule labor; (iii) effectively manage inventory; (iv) analyze
product mix and various promotional programs using point-of-sale information;
and (v) quickly integrate accounting systems following acquisitions.
Consistently Provide High Quality Products and Superior Customer Service. 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 individual restaurant management. Most of
these managers receive significant incentive compensation based on compliance
with Burger King's restaurant operating guidelines and restaurant
profitability.
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 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 of the
Company's current markets and is the Company's largest competitor. According
to publicly available information, as of December 31, 1999, the McDonald's
system was comprised of more than 25,000 restaurants, which generated total
system-wide sales of approximately $38.5 billion. The Company believes that
product quality and taste, name recognition, convenience of location, speed of
service, menu variety, 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
development and acquisition 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.
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
9
<PAGE>
wage and increases in the minimum wage, including those recently enacted by
the U.S. Government, 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.
Employees
As of December 27, 1999, the Company employed 1233 full-time salaried
employees and approximately 15,836 full-time and part-time hourly employees.
Of the Company's full-time salaried employees, 72 are involved in overseeing
restaurant operations, 1039 are involved in the management of individual
restaurants, and the remainder is 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.
Item 2. Properties
The Company currently operates all but one of its restaurants on locations
where it leases either the entire facility or just the land. BKC is the lessor
on approximately 34.2% 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 an
annual percentage rent based on gross sales.
The Company's headquarters are located in approximately 37,900 square feet
of leased office space in Westchester, Illinois. The term of the present lease
expires on April 30, 2003. The Company believes that its existing central
office provides sufficient space to support its expected expansion over the
next several years.
Item 3. Legal Proceedings
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.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the security holders of the Company
during the fiscal year ended December 27, 1999.
10
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
There is no established trading market for the Company's common equity.
Item 6. Selected Financial Data
The following table sets forth certain historical financial and operating
data for the Company. The data presented for the Company for the 1995, 1996,
1997, 1998 and 1999 fiscal years are derived from the Company's audited
financial statements. The Selected Consolidated Financial Information should
be read in conjunction with (i) Item 7--Management's Discussion and Analysis
of Financial Condition and Results of Operations and (ii) Item 8--the audited
Consolidated Financial Statements of the Company and the notes thereto.
<TABLE>
<CAPTION>
The Company
------------------------------------------------
Fiscal Fiscal Fiscal Fiscal Fiscal
1995 1996 1997(4) 1998(4) 1999
-------- -------- -------- -------- --------
(Dollars in thousands, except per share
amounts)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Restaurant sales............. $139,572 $203,753 $234,546 $307,488 $395,901
Restaurant operating
expenses:
Cost of sales.............. 44,798 66,071 76,119 95,920 126,300
Restaurant labor and
related costs............. 34,526 50,874 60,278 78,326 103,173
Depreciation and
amortization.............. 4,927 7,386 8,760 11,568 15,818
Occupancy and other
restaurant operating
expense................... 38,930 55,836 65,951 83,825 107,593
-------- -------- -------- -------- --------
Total restaurant
operating expenses...... 123,181 180,167 211,108 269,639 352,884
General and administrative
expenses.................... 5,176 7,370 9,497 13,886 16,836
Other operating expenses..... 863 3,679 2,292 3,063 3,006
-------- -------- -------- -------- --------
Operating income............. 10,352 12,537 11,649 20,900 23,175
Other expense:
Interest expense........... (8,323) (11,983) (13,320) (16,275) (20,470)
Other expense, net......... (302) (5,052) (728) (868) (553)
-------- -------- -------- -------- --------
Total other expense...... (8,625) (17,035) (14,048) (17,143) (21,023)
-------- -------- -------- -------- --------
Income (loss) before
extraordinary item and
provision (benefit) for
income taxes................ 1,727 (4,498) (2,399) 3,757 2,152
Provision (benefit) for
income taxes................ 825 (1,556) (365) 1,944 1,335
-------- -------- -------- -------- --------
Income (loss) before
extraordinary item.......... 902 (2,942) (2,034) 1,813 817
Extraordinary item--loss from
early extinguishment of
Debt........................ (5,055)
-------- -------- -------- -------- --------
Net income (loss)............ $ 902 $ (7,997) $ (2,034) $ 1,813 $ 817
======== ======== ======== ======== ========
Preferred stock
dividends(1)................ $ 450 $ 450 $ 450 $ 558 $ 585
Senior preferred stock
dividends(1)................ 303 4,112 4,678 5,325
Amortization of senior
preferred stock issuance
costs....................... 10 129 110 119
-------- -------- -------- -------- --------
Income (loss) available to
common stockholders......... $ 452 $ (8,760) $ (6,725) $ (3,533) $ (5,212)
======== ======== ======== ======== ========
Weighted average number of
common shares outstanding
(in thousands)--basic....... 863 866 900 903 903
Weighted average number of
common shares outstanding
(in thousands)--diluted..... 970 866 900 903 903
Net income (loss) per common
share--basic................ $ 0.52 $ (10.12) $ (7.47) $ (3.91) $ (5.77)
======== ======== ======== ======== ========
Net income (loss) per common
share--diluted.............. $ 0.47 $ (10.12) $ (7.47) $ (3.91) $ (5.77)
======== ======== ======== ======== ========
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
The Company
--------------------------------------------
Fiscal Fiscal Fiscal Fiscal Fiscal
1995 1996 1997(4) 1998(4) 1999
------- ------- ------- ------- -------
(Dollars in thousands, except per share
amounts)
<S> <C> <C> <C> <C> <C>
Other Data:
EBITDA(2)............... $16,142 $23,602 $23,232 $36,168 $42,736
======= ======= ======= ======= =======
Capital expenditures:
Existing restaurants.. $ 1,416 $ 2,424 $ 3,913 $ 2,380 $ 3,697
New restaurant
development.......... 696 3,219 6,066 7,900 5,752
Other................. 1,609 2,655 2,528 548 1,932
------- ------- ------- ------- -------
Total capital
expenditures....... $ 3,721 $ 8,298 $12,507 $10,828 $11,381
======= ======= ======= ======= =======
Selected Operating Data:
Ratio of earnings to
fixed charges(3)....... 1.1x 1.2x 1.1x
Ratio of earnings to
fixed charges and
preferred stock
dividends(3)........... 1.1x 1.2x 1.1x
Restaurants open at end
of period.............. 140 184 242 286 355
Comparable restaurant
sales percentage....... 2.0% 2.0% (1.0)% 4.5% (3.3)%
</TABLE>
<TABLE>
<CAPTION>
The Company
-------------------------
December 28, December 27,
1998 1999
------------ ------------
(Dollars in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............................. $ 10,591 $ 14,754
Total assets.......................................... 238,719 285,293
Total debt and capitalized leases..................... 176,589 221,079
Senior Preferred Stock................................ 39,093 44,418
Total stockholders' equity (deficit) ................. (8,816) (13,443)
</TABLE>
- --------
(1) As of December 27, 1999, the Company has declared no dividends on its
Class A1 Preferred Stock, Class A2 Preferred Stock or Class B Preferred
Stock (collectively the "Preferred Stock"). During fiscal 1999, the
Company declared stock dividends of 212,993 shares of its 13% Senior
Exchangeable Preferred Stock, due 2008 (the "Senior Preferred Stock"). In
addition, the Company has declared no cash dividends on its Common Stock.
(2) EBITDA (as defined) represents operating income plus depreciation and
amortization of goodwill and franchise agreements, pre-opening costs and
other operating expenses. EBITDA is included because the Cash Flow
Coverage Ratio (each as defined in the Indenture and the Exchange
Debenture Indenture) is calculated on a similar basis. See the
Consolidated Statements of Operations of the Company and the related notes
to the Consolidated Financial Statements thereto included herein.
(3) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings before income taxes, plus fixed charges.
Fixed charges consist of interest expense on all indebtedness and
capitalized interest, amortization of deferred financing costs and rental
expense on operating leases, representing that portion of rental expense
deemed by the Company to be attributable to interest. For fiscal 1997 and
1996, earnings were insufficient to cover fixed charges by approximately
$2.4 million and $4.5 million, respectively. For fiscal 1997 and 1996,
earnings were insufficient to cover fixed charges and preferred stock
dividends by approximately $2.4 million and $4.5 million, respectively.
(4) Certain information in the consolidated financial statements for fiscal
1998 and prior have been reclassified to conform with the current
reporting format.
12
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
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 ten), as well as sales of promotional products at
the Company's restaurants. Historically, merchandise sales have contributed
less than 3.8% to restaurant sales. Promotional products, which account for
the majority of merchandise sales, are generally sold at or near the Company's
costs.
EBITDA represents operating income plus depreciation and amortization of
goodwill and franchise agreements, pre-opening costs and other operating
expenses. While EBITDA should not be construed as a substitute for operating
income or a better indicator of liquidity than cash flow from operating
activities, which are determined in accordance with generally accepted
accounting principles, EBITDA is included to provide additional information
with respect to the ability of the Company to meet its future debt service,
capital expenditure and working capital requirements. In addition, management
believes that certain investors find EBITDA to be a useful tool for measuring
the ability of the Company to service its debt. EBITDA is not necessarily a
measure of the Company's ability to fund its cash needs. See the Consolidated
Statements of Cash Flows of the Company and the related notes to the
Consolidated Financial Statements included herein.
The Company includes in the comparable restaurant sales analysis discussed
below only those restaurants that have been in operation for a minimum of
twelve months. For a restaurant not operating for the entire prior annual
period, the sales for the interim period in the prior year are compared to
that for the comparable interim period in the indicated year.
The discussion below of the Company's operating performance for the fiscal
years 1999, 1998, and 1997 should be read in conjunction with Item 6--Selected
Financial Data contained herein.
Fiscal 1999 Compared to Fiscal 1998
Restaurant Sales. Total sales increased $88.4 million or 28.8% during fiscal
1999 to $395.9 million from $307.5 million during fiscal 1998, due primarily
to the inclusion of the 59 and 30 restaurants purchased in 1999 and 1998,
respectively. In addition, the Company developed 10 and 17 restaurants in 1999
and 1998, respectively. Newly acquired restaurants accounted for $80.4 million
of the total increase in restaurant sales, while new restaurant development
accounted for $18.2 million of the increase in sales. Sales at the
345 comparable restaurants owned by the Company at the end of fiscal 1999
decreased 3.3% primarily due to a decrease in customer traffic as BKC's
national marketing calendar did not generate incremental traffic versus that
of the prior year. Additionally, customer traffic was negatively affected by
severe winter storms in the first quarter, as well as, several hurricanes
which hit North Carolina and Virginia in the third quarter.
Restaurant Operating Expenses. Total restaurant operating expenses increased
$83.3 million, or 30.9% during fiscal 1999, to $352.9 million from $269.6
million during during fiscal 1998. This increase was due primarily to the
inclusion of the 59 and 30 restaurants purchased in 1999 and 1998,
respectively, as well as, the 10 and 17 restaurants that were developed by the
Company in 1999and 1998, respectively. As a percentage of sales, restaurant
operating expenses increased 1.4%, to 89.1% during fiscal 1999 from 87.7%
during fiscal 1998.
Cost of sales increased $30.4 million during fiscal 1999, and increased as a
percent of sales to 31.9% in fiscal 1999 compared to 31.2% in 1998. Cost of
food sales increased $25.6 million during fiscal 1999, and increased 0.1% as a
percentage of sales to 28.7% during fiscal 1999 from 28.6% during fiscal 1998.
The increase in cost of food sales is the result of the inclusion of the 59
and 30 restaurants purchased in 1999 and 1998, respectively, as well as, the
10 and 17 restaurants that were developed by the Company in 1999 and 1998,
respectively. Cost of non-food sales increased $4.8 million during fiscal
1999, and increased 0.6% as a percentage of sales to 3.2% during fiscal 1999
from 2.6% during fiscal 1998. The change in cost of non-food sales is due to
increased sales associated with the successful "Wild Wild West" and "Pokemon"
promotions
13
<PAGE>
and the demands for the promotional items. The percentage increase in cost of
non-food sales is a direct result of the increase in non-food sales. Non-food
promotional items, typically designed to drive new customers into the
restaurants, are sold at or near cost.
Restaurant labor and related costs increased $24.9 million during fiscal
1999, and increased 0.6% as a percentage of sales to 26.1% during fiscal 1999
from 25.5% during fiscal 1998. The increase in restaurant labor and related
costs was primarily due to an increase in the number of stores in 1999
compared to 1998. The percentage increase is the result of lower average store
sales volumes on the fixed component of salaries and health insurance costs.
Depreciation and amortization increased $4.2 million during fiscal 1999, to
$15.8 million from $11.6 million during fiscal 1998. As a percentage of sales,
depreciation and amortization expense increased 0.2% to 4.0% during fiscal
1999 from 3.8% during fiscal 1998. The increase was due primarily to the
increase in goodwill amortization related to newly acquired restaurants.
Occupancy and other restaurant operating expenses increased $23.8 million
during fiscal 1999 and decreased 0.1% as a percentage of sales to 27.2% during
fiscal 1999 from 27.3% during fiscal 1998. Occupancy expense increased $7.9
million during fiscal 1999 but decreased 0.3% as a percentage of sales to
10.0% in 1999 from 10.3% in 1998. The dollar increase in occupancy expense is
due to the inclusion of newly acquired and developed restaurants. Other
restaurant operating expenses, including advertising and royalties, increased
$15.9 million during fiscal 1999 and increased 0.2% as a percentage of sales
to 17.2% during fiscal 1999 from 17.0% during fiscal 1998. The percentage
increase is primarily due to an increase in the local marketing investment
percentage in certain markets, increased utility costs due to an unseasonably
warm fall, and higher repair and maintenance expenses. In addition, the
Company recorded pre-opening costs relative to new restaurant developments in
other expense which were $0.7 million and $0.6 million for 1999 and 1998,
respectively.
General and Administrative Expenses. General and administrative expenses
increased $2.9 million during fiscal 1999 and decreased 0.2% as a percent of
sales to 4.3% during fiscal 1999 from 4.5% during fiscal 1998. The increase in
general and administrative expenses is due to staff increases and related
costs associated with the newly acquired and developed restaurants partially
offset by lower incentive compensation costs.
Other Operating Expenses. Other operating expenses decreased $0.1 million
during fiscal 1999 to $3.0 million from $3.1 million in 1998. The decrease in
other operating expenses is due to a lower provision for impairment of long-
lived assets, partially offset by higher depreciation expense.
Other Expense. Other expense increased $3.9 million during fiscal 1999 to
$21.0 million from $17.1 million in 1998. The increase in other expense is due
to higher interest expense related to the increase in the line of credit due
to the 1999 acquisitions, as well as, an increase in interest rates.
EBITDA. Earnings before interest, taxes, depreciation, and amortization
increased $6.5 million or 18.0% to $42.7 million for fiscal 1999 from $36.2
million for fiscal 1998. As a percentage of restaurant sales, EBITDA decreased
1.0%, to 10.8% for fiscal 1999 from 11.8% for fiscal 1998.
Fiscal 1998 Compared to Fiscal 1997
Restaurant Sales. Total sales increased $73.0 million or 31.1% during fiscal
1998 to $307.5 million from $234.5 million during fiscal 1997, due primarily
to the inclusion of the 30 and 63 restaurants purchased in 1998 and 1997,
respectively. In addition, the Company developed 17 restaurants and closed 3
restaurants in 1998. Newly acquired restaurants accounted for $55.7 million of
the total increase in restaurant sales, while new restaurant development
accounted for $4.9 million of the increase in sales. Total sales were reduced
by $2.3 million due to the restaurants closed during 1998. Sales at the 269
comparable restaurants owned by the Company at the end of fiscal 1998
increased 4.5% primarily due to a increase in customer traffic and an increase
in customer check average. Burger King's domestic system sales were also
increased by the rebound from the Hudson Beef recall during the third quarter
of fiscal 1997.
14
<PAGE>
Restaurant Operating Expenses. Total restaurant operating expenses increased
$58.5 million, or 27.7% during fiscal 1998, to $269.6 million from $211.1
million during during fiscal 1997, due primarily to the inclusion of the 30
and 63 restaurants purchased in 1998 and 1997, respectively. In addition, the
Company developed 17 restaurants and closed 3 restaurants in 1998. As a
percentage of sales, restaurant operating expenses decreased 2.3%, to 87.7%
during fiscal 1998 from 90.0% during fiscal 1997.
Cost of sales increased $19.8 million during fiscal 1998, but decreased as a
percent of sales to 31.2% in fiscal 1998 compared to 32.4% in 1997. Cost of
food sales increased $18.4 million during fiscal 1998, but decreased 1.0% as a
percentage of sales to 28.6% during fiscal 1998 from 29.6% during fiscal 1997.
The percentage decrease in cost of food sales is primarily the result of a
strong focus on controlling costs as well as a lower level of discounting food
items. Cost of non-food sales increased $1.4 million during fiscal 1998, and
decreased 0.2% as a percentage of sales to 2.6% during fiscal 1998 from 2.8%
during fiscal 1997. The percentage decrease in cost of non-food sales is due
to improved margins at the convenience stores.
Restaurant labor and related costs increased $18.0 million during fiscal
1998, and decreased 0.2% as a percentage of sales to 25.5% during fiscal 1998
from 25.7% during fiscal 1997. The increase in restaurant labor and related
costs was primarily due to an increase in the number of stores as well as an
increase in the Federal minimum wage and group health insurance costs. The
percentage decrease is the result of controlling staffing levels during peak
and non-peak operating times to obtain the most efficient schedules, as well
as leveraging fixed costs off of a higher sales base.
Depreciation and amortization increased $2.8 million during fiscal 1998, to
$11.6 million from $8.8 million during fiscal 1997. As a percentage of sales,
depreciation and amortization expense increased 0.1% to 3.8% during fiscal
1998 from 3.7% during fiscal 1997. The increase was due primarily to the
increase in goodwill amortization related to newly acquired restaurants.
Occupancy and other restaurant operating expenses increased $17.8 million
during fiscal 1998 and decreased 0.8% as a percentage of sales to 27.3% during
fiscal 1998 from 28.1% during fiscal 1997. Occupancy expense increased $7.1
million during fiscal 1998 but decreased 0.1% as a percentage of sales to
10.3% in 1998 from 10.4% in 1997. The dollar increase in occupancy expense is
due to the inclusion of newly acquired and developed restaurants. Other
restaurant operating expenses including advertising and royalties increased
$10.7 million during fiscal 1998 and decreased 0.7% as a percentage of sales
to 17.0% during fiscal 1998 from 17.7% during fiscal 1997. The percentage
decrease is primarily due to a litigation recovery coupled with lower
utilities expenses. In addition, the Company recorded pre-opening costs
relative to new restaurant developments in other expense which were $0.6
million and $0.5 million for 1998 and 1997, respectively.
General and Administrative Expenses. General and administrative expenses
increased $4.4 million during fiscal 1998 and increased 0.5% as a percent of
sales to 4.5% during fiscal 1998 from 4.0% during fiscal 1997. The increase in
general and administrative expenses is due to staff increases and related
costs associated with the newly acquired and developed restaurants and higher
incentive compensation costs.
Other Operating Expenses. Other Operating expenses increased $0.8 million
during fiscal 1998 to $3.1 million from $2.3 million in 1997. The increase in
other operating expenses is due to higher depreciation expense as well as the
fact that 1997 was offset by a $1.8 million gain on the sale of restaurants.
Other Expense. Other expense increased $3.1 million during fiscal 1998 to
$17.1 million from $14.0 million in 1997. The increase in other expense is due
to higher interest expense related to the increase in the line of credit due
to the 1998 acquisitions.
EBITDA. Earnings before interest, taxes, depreciation, and amortization
increased $13.0 million or 55.7% to $36.2 million for fiscal 1998 from $23.2
million for fiscal 1997. As a percentage of restaurant sales, EBITDA increased
1.9%, to 11.8% for fiscal 1998 from 9.9% for fiscal 1997.
15
<PAGE>
Liquidity and Capital Resources
Net cash flows provided by operating activities decreased $6.9 million
during the fiscal year ended December 27, 1999, to $20.1 million, from $27.0
million during the fiscal year ended December 28, 1998. The decrease in net
cash flow is attributable to reduced net income, and general increases in
working capital other than cash, offset by increased depreciation and
amortization.
Net cash flows used by investing activities for the fiscal year ended were
$58.1 million, which included $46.1 million for the acquisition of 59
restaurants in Georgia, Illinois, Michigan, North Carolina, Ohio, Tennessee,
Virginia and Wisconsin. New restaurant development accounted for $5.8 million,
with the remainder going to existing restaurants and corporate infrastructure.
The Amended and Restated Revolving Credit Agreement calls for no principal
amortization and matures in June 2002. The outstanding balance at December 27,
1999 was $71.6 million. In addition, the Company entered into a new Credit
Agreement (the "Acquisition Credit Agreement") with BBNA and other lenders for
$45.0 million. The outstanding balance at December 27, 1999 was $41.2 million.
During the fiscal year ended December 27, 1999, borrowings of $45.2 million
were drawn on the Revolver to fund the acquisitions of 59 restaurants in
Georgia, Illinois, Michigan, North Carolina, Ohio, Tennessee, Virginia and
Wisconsin, and for working capital purposes.
The Company has budgeted approximately $400,000 for the development of each
of its new restaurants. The Company anticipates it will spend approximately an
additional $6.0 to $9.0 million annually for other capital expenditures. The
Company has committed to BKC that for the foreseeable future (i) it will make
capital expenditures on its existing restaurants equal to 1% of its gross
sales and (ii) it will spend an amount equal to 1% of its gross sales on local
advertising. 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.
The Company is structured as a holding company with no independent
operations, as the Company's operations are conducted exclusively through its
wholly owned subsidiaries. The Company's only significant assets are the
capital stock of its subsidiaries. As a holding company, the Company's cash
flow, its ability to meet its debt service requirements and its ability to pay
cash dividends on the Senior Preferred Stock are dependent upon the earnings
of its subsidiaries and their ability to declare dividends or make other
intercompany transfers to the Company. Under the terms of the indenture
pursuant to which the Senior Notes were offered (the "Indenture"), the
Company's subsidiaries may incur certain indebtedness pursuant to agreements
that may restrict the ability of such subsidiaries to make such dividends or
other intercompany transfers necessary to service the Company's obligations,
including its obligations under the Senior Notes, the Senior Preferred Stock
and any 13% Subordinated Exchange Debentures due 2008 (the "Exchange
Debentures") the Company may exchange pursuant to the Indenture. The Indenture
restricts, among other things, the Company's and its Restricted Subsidiaries'
(as defined in the Indenture) ability to pay dividends or make certain other
restricted payments, including the payment of cash dividends on or the
redemption of the Senior Preferred Stock, to incur additional indebtedness, to
encumber or sell assets, to enter into transactions with affiliates, to enter
into certain guarantees of indebtedness, to make restricted investments, to
merge or consolidate with any other entity and to transfer or lease all or
substantially all of their assets. In addition, the Company's Amended and
Restated Credit Agreement (as defined) and Acquisition Credit Agreement (as
defined) with BBNA and other lenders thereto contain other and more
restrictive covenants and prohibit the Company's subsidiaries from declaring
dividends or making other intercompany transfers to the Company in certain
circumstances.
The Company believes that available cash on hand together with its available
credit of $12.2 million under its Amended and Restated Credit Agreement, will
be sufficient to cover its working capital needs, capital expenditures,
planned development and debt service requirements for fiscal 2000.
16
<PAGE>
Income Taxes
The Company completed fiscal 1999 with a net operating loss carry-forward
for tax purposes of approximately $38.6 million. Substantially all of the
Company's acquisitions completed to date have been structured as asset
purchases. As a result, the Company is able to deduct goodwill amortization
expense for income tax purposes over a 15 year period.
Year 2000
The Company has completed substantially all of its review and testing of the
impact of the Year 2000 on the Company's systems as well as its assessment of
supplier responsiveness. As of March 14, 2000, the Company has not experienced
any significant work stoppages or other negative impact on its operations and
does not believe that any future Year 2000 issue will have a material adverse
effect on its financial condition or results of operations. However, it is
impossible to assess the potential consequences in the event of future service
interruptions from existing systems, suppliers or other external sources. The
Company's costs related to the response of Year 2000 and related remediation
were less than $1.0 million.
New Accounting Pronouncements
In February 1998, the FASB issued SFAS 132, "Employees' Disclosures About
Pensions and Other Postretirement Benefits." This Statement revises employers'
disclosures about pension and other postretirement benefit plans. It does not
change the measurement or recognition of those plans. The adoption of this new
standard did not have an effect on the Company's financial statements because
it has no such benefit plans.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. The
Statement will require the Company to recognize all derivatives as either
assets or liabilities in the balance sheet and measure those derivative
instruments at fair value. This Statement will be effective for the Company in
fiscal year 2001. At December 27, 1999, the Company has no derivative
instruments or hedging activities.
Effective at the beginning of fiscal 1999, the Company adopted AICPA
Statement of Position No. 98-1 "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" (SOP 98-1).SOP 98-1 provides guidance
on accounting for the costs of computer software developed or obtained for
internal use. The guidance provided by SOP 98-1 is similar to the accounting
practices of the Company prior to the adoption of SOP 98-1. The Company
capitalized approximately $650,000 as a result of this adoption announcement.
Adoption of SOP 98-1 has not resulted in materially different capitalized
amounts in comparison with past Company practices.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
The Company is subject to market risk associated with fluctuations in
interest rates. Interest rate risk is primarily limited to the Company's
variable rate debt obligations, which totaled $115.8 million at December 27,
1999. Of this balance, the BankBoston revolver comprised $112.8 million
bearing an interest rate calculated at the lesser of BankBoston's base rate or
the Eurodollar rate plus 2.50%, and the 1995 Franchise Acceptance Corporation
("FAC") Note comprised $1.3 million bearing an interest rate of 2.75% above
FAC's program rate, and the 1998 Franchise Acceptance Corporation ("FAC") Note
comprised $1.7 million bearing an interest rate of 2.50% above FAC's program
rate. Assuming a 20% increase in interest rates, the Company would experience
an increase in interest expense of approximately $2.0 million. The Company
does not hold any market risk sensitive financial instruments for trading
purposes.
17
<PAGE>
Item 8. Financial Statements and Supplementary Data
Index To the Consolidated Financial Statements of AmeriKing, Inc. And
Subsidiary
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report............................................. 19
Consolidated Balance Sheets as of December 27, 1999 and December 28,
1998.................................................................... 20
Consolidated Statements of Operations for the fiscal years ended December
27, 1999, December 28, 1998 and December 29, 1997....................... 21
Consolidated Statements of Stockholders' Equity (Deficit) for the fiscal
years ended December 27, 1999, December 28, 1998 and December 29, 1997.. 22
Consolidated Statements of Cash Flows for the fiscal years ended December
27, 1999, December 28, 1998 and December 29, 1997....................... 23
Notes to Consolidated Financial Statements............................... 24
</TABLE>
18
<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. and subsidiary as of December 27, 1999 and December 28, 1998, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the three fiscal years in the period ended December
27, 1999. 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 December 27, 1999 and December 28, 1998, and the results of
their operations and their cash flows for each of the three fiscal years in
the period ended December 27, 1999 in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Chicago, Illinois
March 14, 2000
19
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 27, 1999 and December 28, 1998
<TABLE>
<CAPTION>
December 27, December 28,
1999 1998
------------ ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ........................ $ 14,754,000 $ 10,591,000
Accounts receivable............................... 3,810,000 2,512,000
Inventories....................................... 5,200,000 2,546,000
Prepaid expenses.................................. 1,089,000 465,000
Current portion of deferred income taxes (Note
9)............................................... 81,000 123,000
------------ ------------
Total current assets............................ 24,934,000 16,237,000
PROPERTY AND EQUIPMENT (Note 4)..................... 75,888,000 62,974,000
GOODWILL............................................ 170,917,000 145,327,000
DEFERRED INCOME TAXES (Note 9)...................... 205,000 1,448,000
OTHER ASSETS:
Deferred financing costs.......................... 5,816,000 6,597,000
Franchise agreements.............................. 7,379,000 6,134,000
Other long-term assets............................ 154,000 2,000
------------ ------------
Total other assets.............................. 13,349,000 12,733,000
------------ ------------
TOTAL............................................... $285,293,000 $238,719,000
============ ============
<CAPTION>
LIABILITIES, SENIOR PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and other accrued expenses....... $ 18,473,000 $ 15,930,000
Accrued payroll and related expenses.............. 8,903,000 8,477,000
Accrued taxes payable............................. 4,580,000 3,981,000
Note payable...................................... 255,000 2,657,000
Current portion of long-term debt (Note 5)........ 828,000 753,000
------------ ------------
Total current liabilities....................... 33,039,000 31,798,000
------------ ------------
LONG-TERM DEBT--Less current portion (Note 5)....... 220,251,000 175,836,000
OTHER LONG-TERM LIABILITIES......................... 1,028,000 808,000
------------ ------------
Total liabilities............................... 254,318,000 208,442,000
------------ ------------
SENIOR PREFERRED STOCK (Note 6)..................... 44,418,000 39,093,000
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock................................... 75 75
Common stock...................................... 9,030 9,030
Accumulated deficit............................... (13,452,105) (8,825,105)
------------ ------------
Total stockholders' equity (deficit)............ (13,443,000) (8,816,000)
------------ ------------
TOTAL............................................... $285,293,000 $238,719,000
============ ============
</TABLE>
See notes to consolidated financial statements.
20
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Fiscal Years Ended December 27, 1999, December 28, 1998, and December
29, 1997
<TABLE>
<CAPTION>
Fiscal % of Fiscal % of Fiscal % of
1999 Sales 1998 Sales 1997 Sales
------------ ----- ------------ ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
SALES
Restaurant food sales
...................... $381,013,000 96.2% $297,989,000 96.9% $226,908,000 96.7%
Non-food sales ........ 14,888,000 3.8 9,499,000 3.1 7,638,000 3.3
------------ ----- ------------ ----- ------------ -----
Total sales ........... 395,901,000 100.0 307,488,000 100.0 234,546,000 100.0
RESTAURANT OPERATING
EXPENSES:
Cost of food sales .... 113,517,000 28.7 87,942,000 28.6 69,546,000 29.6
Cost of non-food
sales................. 12,783,000 3.2 7,978,000 2.6 6,573,000 2.8
Restaurant labor and
related costs......... 103,173,000 26.1 78,326,000 25.5 60,278,000 25.7
Occupancy.............. 39,414,000 10.0 31,538,000 10.3 24,384,000 10.4
Depreciation and
amortization of
goodwill and franchise
agreements............ 15,818,000 4.0 11,568,000 3.8 8,760,000 3.7
Advertising............ 21,028,000 5.3 15,858,000 5.2 12,388,000 5.3
Royalties.............. 13,341,000 3.4 10,463,000 3.4 7,949,000 3.4
Other restaurant
operating expenses.... 33,810,000 8.5 25,966,000 8.4 21,230,000 9.1
------------ ----- ------------ ----- ------------ -----
Total restaurant
operating expenses.... 352,884,000 89.1 269,639,000 87.7 211,108,000 90.0
GENERAL AND
ADMINISTRATIVE
EXPENSES............... 16,836,000 4.3 13,886,000 4.5 9,497,000 4.0
OTHER OPERATING
EXPENSES:
Depreciation expense--
office................ 1,138,000 0.3 842,000 0.3 698,000 0.3
(Gain) on sale of
restaurants........... (1,798,000) (0.8)
Provision for
disposition of long-
lived assets (Note
12)................... 980,000 0.2 1,177,000 0.4 2,275,000 1.0
Loss on disposal of
equipment............. 225,000 0.1 394,000 .01 467,000 0.2
Management and
directors' fees....... 663,000 0.1 650,000 0.2 650,000 0.3
------------ ----- ------------ ----- ------------ -----
Total other operating
expenses.............. 3,006,000 0.7 3,063,000 1.0 2,292,000 1.0
------------ ----- ------------ ----- ------------ -----
OPERATING INCOME........ 23,175,000 5.9 20,900,000 6.8 11,649,000 5.0
OTHER INCOME (EXPENSE):
Interest expense....... (20,470,000) (5.2) (16,275,000) (5.3) (13,320,000) (5.7)
Amortization of
deferred costs........ (801,000) (0.2) (963,000) (0.3) (691,000) (0.3)
Other income
(expense)--net........ 248,000 0.1 95,000 0.0 (37,000) (0.0)
------------ ----- ------------ ----- ------------ -----
Total other expense.... (21,023,000) (5.3) (17,143,000) (5.6) (14,048,000) (6.0)
------------ ----- ------------ ----- ------------ -----
INCOME (LOSS) BEFORE
PROVISION (BENEFIT) FOR
INCOME TAXES........... 2,152,000 0.6 3,757,000 1.2 (2,399,000) (1.0)
PROVISION (BENEFIT) FOR
INCOME TAXES........... 1,335,000 0.3 1,944,000 0.6 (365,000) (0.1)
------------ ----- ------------ ----- ------------ -----
NET INCOME (LOSS)....... 817,000 0.3 1,813,000 0.6 (2,034,000) (0.9)
PREFERRED STOCK
DIVIDENDS (cumulative,
Undeclared)............ (585,000) (558,000) (450,000)
SENIOR PREFERRED STOCK
DIVIDENDS.............. (5,325,000) (4,678,000) (4,112,000)
AMORTIZATION OF SENIOR
PREFERRED STOCK
ISSUANCE COSTS......... (119,000) (110,000) (129,000)
------------ ------------ ------------
LOSS AVAILABLE TO COMMON
STOCKHOLDERS........... $ (5,212,000) $ (3,533,000) $ (6,725,000)
============ ============ ============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING--BASIC AND
DILUTED................ 902,992 902,992 900,167
============ ============ ============
NET (LOSS) PER COMMON
SHARE--BASIC AND
DILUTED................ $ (5.77) $ (3.91) $ (7.47)
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
21
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Fiscal Years Ended December 27, 1999, December 28, 1998, and December
29, 1997
<TABLE>
<CAPTION>
Additional Retained
Preferred Common Paid-In Earnings
Stock Stock Capital (Deficit) Total
--------- ------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE--December 30,
1996................... $75 $8,933 $ 7,277,992 $ (6,854,000) $ 433,000
Dividends on senior
preferred stock ..... (4,112,000) (4,112,000)
Amortization of senior
preferred stock
issuance costs ...... (129,000) (129,000)
Recapitalization of
common stock ........ 97 903 1,000
Net loss ............. (2,034,000) (2,034,000)
--- ------ ----------- ------------ ------------
BALANCE--December 29,
1997 75 9,030 3,037,895 (8,888,000) (5,841,000)
Dividends on senior
preferred stock ..... (2,927,895) (1,750,105) (4,678,000)
Amortization of senior
preferred stock
issuance costs ...... (110,000) (110,000)
Net income ........... 1,813,000 1,813,000
--- ------ ----------- ------------ ------------
BALANCE--December 28,
1998 .................. 75 9,030 -- (8,825,105) (8,816,000)
Dividends on senior
preferred stock ..... (5,325,000) (5,325,000)
Amortization of senior
preferred stock
issuance costs ...... (119,000) (119,000)
Net income ........... 817,000 817,000
--- ------ ----------- ------------ ------------
BALANCE--December 27,
1999................... $75 $9,030 $ -- $(13,452,105) $(13,443,000)
=== ====== =========== ============ ============
</TABLE>
See notes to consolidated financial statements.
22
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Fiscal Years Ended December 27, 1999, December 28, 1998, and December
29, 1997
<TABLE>
<CAPTION>
Fiscal 1999 Fiscal 1998 Fiscal 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................... $ 817,000 $ 1,813,000 $(2,034,000)
Adjustments to reconcile net income
(loss) to net cash flows from
operating activities:
Depreciation and amortization ......... 17,758,000 13,373,000 10,149,000
Deferred income taxes ................. 1,285,000 1,893,000 (735,000)
Gain on sale of restaurants ........... (1,798,000)
Provision for disposition of long-lived
assets ............................... 980,000 1,177,000 2,275,000
Loss on disposition of equipment ...... 225,000 394,000 467,000
Changes in:
Accounts receivable ................... (1,298,000) (789,000) (895,000)
Inventories ........................... (2,654,000) (76,000) (803,000)
Prepaid expenses ...................... (756,000) 1,127,000 (254,000)
Accounts payable, accrued expenses and
other long-term liabilities .......... 3,788,000 8,132,000 4,743,000
----------- ----------- -----------
Net cash flows provided by operating
activities .......................... 20,145,000 27,044,000 11,115,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of restaurant franchise
agreements, equipment and goodwill ... (46,070,000) (27,591,000) (60,141,000)
Proceeds from sale of restaurants ..... 8,158,000
Proceeds from sale of property ........ 1,945,000
Cash paid for franchise agreements .... (619,000) (440,000) (434,000)
Cash paid for property and equipment
...................................... (11,381,000) (10,828,000) (12,507,000)
----------- ----------- -----------
Net cash flows used for investing
activities .......................... (58,070,000) (38,859,000) (62,979,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of common stock
options............................... 1,000
Proceeds from short-term debt.......... 2,657,000
Proceeds from long-term debt........... 1,800,000
Cash paid for financing costs.......... (923,000) (848,000)
Advances under line of credit.......... 45,243,000 15,000,000 57,608,000
Payments on line of credit............. (3,000,000) (2,000,000)
Payments on short-term debt............ (2,402,000)
Payments on long-term debt............. (753,000) (586,000) (525,000)
Payments on capital leases............. (74,000) (99,000)
----------- ----------- -----------
Net cash flows provided by financing
activities........................... 42,088,000 14,874,000 54,137,000
NET CHANGE IN CASH AND CASH
EQUIVALENTS............................ 4,163,000 3,059,000 2,273,000
CASH AND CASH EQUIVALENTS--Beginning of
year................................... 10,591,000 7,532,000 5,259,000
----------- ----------- -----------
CASH AND CASH EQUIVALENTS--End of year.. $14,754,000 $10,591,000 $ 7,532,000
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for
interest.............................. $19,352,000 $16,125,000 $12,470,000
=========== =========== ===========
Cash paid during the year for income
taxes................................. $ 100,000 $ 90,000 $
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Senior preferred stock dividends....... $ 5,325,000 $ 4,678,000 $ 4,112,000
Amortization of senior preferred stock
issuance costs ....................... 119,000 110,000 129,000
----------- ----------- -----------
TOTAL................................ $ 5,444,000 $ 4,788,000 $ 4,241,000
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
23
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended December 27, 1999, December 28, 1998, and December
29, 1997
1. Description of Business
AmeriKing, Inc., and its wholly owned subsidiary, National Restaurant
Enterprises, Inc. d/b/a AmeriKing Corporation (the "Company") owns and
operates Burger King restaurants in twelve states.
During fiscal 1997, the Company, in a series of transactions, acquired 63
Burger King restaurants in Illinois, North Carolina and Wisconsin (the "1997
Acquisitions") for $55.4 million in cash, excluding transaction fees and
expenses. In addition, the Company sold ten restaurants to a third party
franchisee for $8.2 million and closed four restaurants. Also, the Company
developed nine Burger King restaurants in fiscal 1997, primarily in the
Chicago and Chattanooga metropolitan areas.
During fiscal 1998, the Company, in a series of transactions, acquired 30
Burger King restaurants in Illinois, Kentucky, Ohio, Tennessee and Wisconsin
(the "1998 Acquisitions") for $23.8 million in cash, excluding transaction
fees and expenses. In addition, the Company closed three restaurants, one in
Illinois, one in Virginia and one in Ohio. Also, the Company developed 17
Burger King restaurants in Illinois, Kentucky, North Carolina, Ohio,
Tennessee, Texas and Virginia.
During fiscal 1999, the Company, in a series of transactions, acquired 59
Burger King restaurants in Illinois, Ohio, Tennessee, Wisconsin, North
Carolina and Virginia (the "1999 Acquisitions") for $40.5 million in cash,
excluding transaction fees and expenses. In addition, the Company developed 10
Burger King restaurants in Illinois, Kentucky, North Carolina, Ohio, Tennessee
and Wisconsin.
The Company is the largest independent Burger King franchisee in the United
States, operating 355 Burger King restaurants as of December 27, 1999.
Management of the Company considers it to have one reportable segment, the
operation of franchised restaurants in the United States, and assesses
performance on a single segment basis.
2. Basis of Presentation and Summary of Significant Accounting Policies
Fiscal Year--The Company has a 52/53-week fiscal year that ends on the last
Monday of the calendar year. The 1999, 1998 and 1997 fiscal years ended
December 27, 1999, December 28, 1998 and December 29, 1997, respectively,
included 364 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, Inc. and its wholly owned
subsidiary. 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. The
carrying value of cash and cash equivalents approximates fair value due to the
short maturity of these instruments.
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.
24
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Property and Equipment--Property and equipment are stated at cost. Normal
repairs and maintenance costs are charged to expense as incurred. Depreciation
is being recorded using the straight-line method over the following estimated
useful lives:
<TABLE>
<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 Burger King Corporation
("BKC") require the Company to pay a franchise fee for each new restaurant
developed and for the renewal of franchises that have expired. Franchisee fees
are capitalized and amortized using 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 December 27, 1999 and December 28, 1998 was approximately
$2,229,000 and $1,475,000, respectively.
Goodwill--Goodwill represents the excess of cost over fair value of net
assets acquired in connection with the Company's acquisitions described in
Note 1. Goodwill is amortized over 35 years using the straight-line method.
Accumulated amortization of goodwill as of December 27, 1999 and December 28,
1998 was approximately $17,300,000 and $11,715,000, respectively.
Deferred Costs--Costs incurred by the Company in obtaining its financing for
its acquisitions are being amortized on a straight-line basis over the term of
the related financing. Accumulated amortization as of December 27, 1999 and
December 28, 1998 was approximately $2,620,000 and $1,838,000, respectively,
for deferred financing costs.
Start Up Costs--Effective at the beginning of fiscal 1998, the Company
adopted AICPA Statement of Position No. 98-5 "Start-up Activities" (SOP 98-5).
SOP 98-5 requires companies to expense, as incurred, costs associated with
start-up activities. Previously, the Company amortized such costs over a
twelve month period when a restaurant was brought into service. The effect of
such adoption was to charge to expense $299,000 of such costs in the first
quarter of fiscal 1998.
Reclassifications--Certain information in the consolidated financial
statements for fiscal 1997 and 1998 have been reclassified to conform to the
current reporting format.
New Statements of Financial Accounting Standards--In February 1998, the FASB
issued SFAS 132, "Employees' Disclosures About Pensions and Other
Postretirement Benefits." This Statement revises employers' disclosures about
pension and other postretirement benefit plans. It does not change the
measurement or recognition of those plans. The adoption of this new standard
did not have an effect on the Company's financial statements because it has no
such benefit plans.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. The
Statement will require the Company to recognize all derivatives as either
assets or liabilities in the balance sheet and measure those derivative
instruments at fair value. This Statement will be effective for the Company in
fiscal year 2001. At December 27, 1999, the Company had no derivative
instruments or hedging activities.
Effective at the beginning of fiscal 1999, the Company adopted AICPA
Statement of Position No. 98-1 "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1 provides guidance
on accounting for the costs of computer software developed or obtained for
internal
25
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
use. The guidance provided by SOP 98-1 is similar to the accounting practices
of the Company prior to the adoption of SOP 98-1. The Company capitalized
approximately $650,000 as a result of adopting this pronouncement. Adoption of
SOP 98-1 has not resulted in materially different capitalized amounts in
comparison with past Company practices.
3. Franchise Agreements
In connection with the acquisition and development of Burger King
restaurants, the Company is obligated to enter into franchise agreements with
BKC. The franchise agreements set forth the terms under which the Company is
to operate its Burger King restaurants and obligates the Company 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>
December 27, December
1999 28, 1998
------------ -----------
<S> <C> <C>
Restaurant equipment and furnishings............. $ 76,828,000 $60,568,000
Office furniture and equipment................... 5,412,000 4,300,000
Leasehold improvements........................... 16,899,000 11,628,000
New restaurant development....................... 4,325,000 3,058,000
Buildings........................................ 3,403,000 3,806,000
------------ -----------
Total.......................................... 106,867,000 83,360,000
Less accumulated depreciation.................... 30,979,000 20,386,000
------------ -----------
Property and equipment--net.................... $ 75,888,000 $62,974,000
============ ===========
</TABLE>
5. Long-Term Debt
Debt consists of the following:
<TABLE>
<CAPTION>
December 27, 1999 December 28, 1998
--------------------- ---------------------
Current Long-term Current Long-term
-------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Senior Notes, 10.75%, due 2006.... $100,000,000 $100,000,000
Revolving Credit Facility, at a
variable interest rate, 8.86% at
December 27, 1999, due 2002...... 71,608,000 67,608,000
Acquisition Credit Facility, at a
variable interest rate, 8.60% at
December 27, 1999, due 2002...... 41,243,000 --
Franchise Acceptance Corporation
Limited Note, 9.86%, due 2006.... $527,000 4,116,000 $478,000 4,635,000
Franchise Acceptance Corporation
Limited Note, 8.38%, due 2008.... 128,000 1,546,000 117,000 1,683,000
Franchise Acceptance Corporation
Limited Note, at a variable
interest rate, 8.63% at December
27, 1999, due 2005............... 173,000 1,138,000 158,000 1,310,000
Junior Subordinated Notes, 6.00%,
due 2005......................... 600,000 600,000
-------- ------------ -------- ------------
Total........................... $828,000 $220,251,000 $753,000 $175,836,000
======== ============ ======== ============
</TABLE>
26
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On November 30, 1994, the Company issued junior subordinated notes (the
"Junior Subordinated Notes") in the aggregate principal amount of $600,000 to
an affiliate of BankBoston, N.A. ("BBNA"). The Notes bear interest at 6.00%,
with the entire principal amount due March 2005.
On July 21, 1995, the Company issued a $6.9 million note to BKC (the "BKC
Note"). On July 18, 1996, the BKC Note was replaced with a $6.1 million note
issued to Franchise Acceptance Corporation Limited ("FAC") (the "1996 FAC
Note"). The 1996 FAC Note bears interest at a rate of 9.86% per annum, has
mandatory principal payments and matures July 2006. In connection with the
1996 FAC Note, FAC committed to lend the Company $900,000 under a separate
credit facility (the "FAC Credit Facility") for capital expenditures.
Borrowings under the FAC Credit Facility bear interest at a variable rate with
principle payments due monthly. No amounts were outstanding under the FAC
Credit Facility at December 27, 1999.
On November 29, 1995, the Company issued a $1.9 million note (the "1995 FAC
Note") to FAC. The FAC Note bears interest at 2.75% above FAC's program rate,
has mandatory monthly principal payments and matures December 2005.
On December 3, 1996, the Company issued 10 3/4% senior notes (the "Senior
Notes") due 2006 in the aggregate principal amount of $100.0 million to the
investing public. Interest on the Senior Notes is payable semi-annually in
cash in arrears on June 1 and December 1, commencing June 1, 1997. The Senior
Notes mature on December 1, 2006 and are redeemable, in whole or in part, at
the option of the Company at any time on or after December 1, 2001 at the
redemption prices listed below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2001............................................................ 106.500%
2002............................................................ 104.333
2003............................................................ 102.167
2004 and thereafter............................................. 100.000
</TABLE>
At any time prior to December 1, 1999, the Company may redeem up to 35% of
the original aggregate principal amount of the Senior Notes with the net
proceeds of one or more equity offerings at a redemption price equal to 110%
of the principal amount plus any accrued and unpaid interest to the date of
redemption. Upon the occurrence of a change of control, the Company will be
required, subject to certain conditions, to make an offer to purchase the
Senior Notes at a price equal to 101% of the principal amount plus accrued and
unpaid interest to the date of purchase.
The Senior Notes are senior unsecured obligations of the Company and
pursuant to the terms of the Senior Notes indenture rank pari passu in right
of payment with other senior indebtedness of the Company and senior to
subordinated indebtedness of the Company, and effectively rank junior to
secured indebtedness of the Company and to indebtedness of the Company's
subsidiaries, including borrowings under the Amended and Restated Credit
Agreement.
The Senior Notes Indenture includes covenants that, among other things,
limit payments of dividends and other restricted payments and the incurrence
of additional indebtedness. As of December 27, 1999, the Company was in
compliance with all such covenants.
On June 17, 1997, the Company amended and restated its Credit Agreement (the
"Amended and Restated Revolving Credit Agreement") to provide for an increased
commitment under its revolving credit facility (the "Revolver"). Under the
Amended and Restated Revolving Credit Agreement, BBNA and the other lenders
thereto committed to increase the borrowing capacity of the Revolver from $15
million to $50 million. Pursuant to the terms of the Amended and Restated
Revolving Credit Agreement, the interest rate, amortization schedule
27
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
and maturity of the Revolver were revised. Interest is calculated as the
lesser of the base rate or the Eurodollar rate and is payable, at a minimum,
quarterly. The Amended and Restated Revolving Credit Agreement calls for no
principal amortization and matures in June 2002.
On September 23, 1997, BBNA and the other lenders thereto committed to
increase the borrowing capacity of the Revolver from $50 million to $75
million as permitted under the Amended and Restated Revolving Credit
Agreement.
On July 22, 1998, the Company issued a $1.8 million note (the "1998 FAC
Note") to FAC. The FAC Note bears interest at 2.5% above FAC's program rate,
has mandatory monthly principal payments and matures November 2008.
On December 24, 1998, BBNA and the other lenders thereto committed to
increase the borrowing capacity of the Revolver from $75 million to $80
million as permitted under the Amended and Restated Revolving Credit
Agreement.
On December 24, 1998, the Company entered into a new Credit Agreement (the
"Acquisition Credit Agreement") with BBNA and other lenders for $45.0 million.
Interest is calculated as the lesser of the base rate or the Eurodollar rate
and is payable, at a minimum, quarterly. The Acquisition Credit Agreement
calls for no principal amortization and matures in June 2002.
At December 27, 1999 and December 28, 1998, the Senior Notes had a fair
value of 92.5% and 104.0%, respectively, of their carrying value based on
quoted market prices. The carrying value of the Revolver, the Acquisition
Credit Agreement of 1998 and the 1995 FAC Note approximates the fair value as
the interest rates on these notes are variable and are adjusted, at a minimum,
quarterly. At December 27, 1999 and December 28, 1998, the 1996 FAC Note had a
fair value of 107.8% and 115.3%, respectively, and the Junior Subordinated
Notes had a fair value of 88.0% and 88.9%, respectively, of their carrying
values. The fair value of the 1996 FAC Note and the Junior Subordinated Notes
was calculated using borrowing rates available to the Company under the
Revolver at December 27, 1999 and December 28, 1998.
Aggregate maturities of the Company's long-term debt as of December 27, 1999
are as follows:
<TABLE>
<S> <C>
2000.......................................................... $ 828,000
2001.......................................................... 911,000
2002.......................................................... 113,852,000
2003.......................................................... 1,101,000
2004.......................................................... 1,143,000
Thereafter.................................................... 103,243,000
------------
Total....................................................... $221,079,000
============
</TABLE>
6. Senior Preferred Stock
Concurrent with the Senior Notes offering, the Company offered $30.0 million
of units (the "Units"), consisting of 1.2 million shares of Senior Preferred
Stock and 30,000 shares of Common Stock. The Senior Preferred Stock is
exchangeable, at the option of the Company, into the Company's 13%
Subordinated Exchange Debentures due 2008, subject to the ability of the
Company to incur such indebtedness under the Amended and Restated Credit
Agreement, the Acquisition Credit Agreement and the Indenture. The Company
incurred issuance costs in the amount of $1.2 million related to the issuance
of the Senior Preferred Stock.
28
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Each share of Senior Preferred Stock has a liquidation preference of $25 per
share. Unless declared, dividends on the Senior Preferred Stock will accrue in
each period ending on March 1, June 1, September 1 and December 1 of each year
at a rate of 13% per annum of the liquidation preference. On or before
December 1, 2001, the Company may, at its option, pay dividends in cash or in
additional fully paid and nonassessable shares of Senior Preferred Stock
having an aggregate liquidation preference equal to the amount of such
dividends, subject to certain restrictions under its existing credit agreement
and the Indenture. Thereafter, dividends may be paid in cash only.
During fiscal 1999, the Company declared stock dividends of 212,993 shares
of its 13% Senior Preferred Stock, aggregating $5,325,000. As of December 27,
1999, the Company has accrued senior preferred stock dividends of
approximately $413,000 or 16,526 shares that will be distributed on March 1,
2000. The total number of Senior Preferred Stock shares outstanding at
December 27, 1999 was 1,776,710.
The Senior Preferred Stock may be redeemed at any time on or after December
1, 2001, in whole or in part, at the option of the Company, at the redemption
prices set forth below plus an amount in cash equal to all accumulated and
unpaid dividends (including an amount in cash equal to a prorated dividend for
the period from the dividend payment date immediately prior to the redemption
date to the redemption date), if redeemed during the 12-month period beginning
December 1 of each of the years set forth below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2001............................................................ 106.500%
2002............................................................ 104.333%
2003............................................................ 102.167%
2004 and thereafter............................................. 100.000%
</TABLE>
On December 1, 2008, the Company will be required to redeem, subject to
contractual and other restrictions and to the legal availability of funds, all
outstanding shares of Senior Preferred Stock at a price equal to the then
effective liquidation preference, plus an amount in cash equal to all
accumulated and unpaid dividends, including an amount in cash equal to a
prorated dividend for the period from the dividend payment date immediately
prior to the redemption date to the redemption date.
At December 27, 1999 and December 28, 1998, the Senior Preferred Stock had a
fair value of approximately $30.2 million and $40.6 million, respectively,
based on recent trading activity.
7. 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>
Fiscal 1999 Fiscal 1998 Fiscal 1997
----------- ----------- -----------
<S> <C> <C> <C>
Minimum rentals under operating
leases............................... $32,190,000 $24,222,000 $18,929,000
Contingent rentals.................... 3,694,000 3,714,000 2,221,000
----------- ----------- -----------
Total............................... $35,884,000 $27,936,000 $21,150,000
=========== =========== ===========
</TABLE>
29
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Future minimum lease payments under noncancelable operating leases are as
follows:
<TABLE>
<CAPTION>
Fiscal Year Amount
----------- ------------
<S> <C>
2000.......................................................... $ 34,707,000
2001.......................................................... 33,867,000
2002.......................................................... 32,183,000
2003.......................................................... 30,230,000
2004.......................................................... 27,620,000
Thereafter.................................................... 233,092,000
------------
Total $391,700,000
============
</TABLE>
8. Capital Stock
At December 27, 1999, the Company's authorized capital stock was as follows:
<TABLE>
<CAPTION>
Number of
Number of Shares Voting
Par Value Shares Issued and Rights
Per Share Authorized Outstanding Per Share
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Common Stock................... $0.01 4,000,000 902,992 1
Non-Voting Common Stock........ 0.01 300,000 0 0
--------- ---------
Total common stock........... 4,300,000 902,992
========= =========
Class A1 Preferred Stock....... 0.01 4,425 4,425 0
Class A2 Preferred Stock....... 0.01 1,200 1,200 0
Class B Preferred Stock........ 0.01 1,875 1,875 0
--------- ---------
Total preferred stock........ 7,500 7,500
========= =========
Senior Preferred Stock......... 0.01 2,500,000 1,776,710 0
========= =========
</TABLE>
Class A1, Class A2 and Class B preferred stock pay dividends at 6% per
annum, payable quarterly. To the extent not declared and paid, such dividends
accumulate. Class A1 preferred stock dividends are payable in cash or
additional shares of Class A1 Preferred Stock; Class A2 and Class B Preferred
Stock dividends are payable in cash only.
In 1994, the Company issued warrants to an affiliate of BBNA to purchase
96,998 shares of a separate class of non-voting Common Stock (the "Non-Voting
Common Stock") at an exercise price of $0.01 per share. The warrants are
exercisable at any time and expire the earlier of the date such warrants are
exercised in full or November 30, 2002.
During 1994, the Company granted stock options to purchase 9,702 shares of
Common Stock at $.12 per share in connection with employment agreements with
certain members of the Company's management. All of these options vested
ratably over a two-year period ending September 1, 1996 at which time all
became fully exercisable. The options were exercised in fiscal 1997. The
Company has not issued any additional stock options or warrants as of December
27, 1999.
30
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Income Taxes
The provision (benefit) for income taxes was comprised of the following:
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Federal:
Current................................. $50,000
Deferred................................ 1,027,000 $1,490,000 $(920,000)
State:
Current................................. 51,000 370,000
Deferred................................ 258,000 403,000 185,000
---------- ---------- ----------
Net provision (benefit) for income
taxes................................ $1,335,000 $1,944,000 $(365,000)
========== ========== ==========
</TABLE>
The difference between the recorded income tax provision (benefit) and the
"expected" tax provision (benefit) based on the statutory federal income tax
rate is as follows:
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Computed federal income tax provision
(benefit) at statutory rate............ $ 767,000 $1,277,000 $ (816,000)
State income taxes (net of federal
income tax effect)..................... 170,000 300,000 244,000
Non-deductible expenses................. 69,000 117,000 20,000
Goodwill amortization................... 329,000 250,000 162,000
Other................................... 25,000
---------- ---------- ----------
Net provision (benefit) for income
taxes................................ $1,335,000 $1,944,000 $(365,000)
========== ========== ==========
</TABLE>
As of December 27, 1999, the Company had a net operating loss carry-forward
for income tax purposes of approximately $38.6 million to offset against
future taxable income. The unused portion of the net operating loss will begin
to expire in 2009.
Total deferred tax liabilities and deferred tax assets as of December 27,
1999 and December 28, 1998, and the sources of the differences between
financial accounting and tax bases of the Company's assets and liabilities
which give rise to the deferred tax liabilities and deferred tax assets and
the effects of each, are as follows:
<TABLE>
<CAPTION>
Fiscal 1999 Fiscal 1998
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Depreciation...................................... $18,357,000 $14,814,000
Purchase accounting adjustments................... 875,000 1,005,000
Other............................................. 295,000 245,000
----------- -----------
19,527,000 16,064,000
Deferred tax assets:
Operating loss carry-forwards..................... 15,765,000 15,653,000
Fixed asset reserves.............................. 2,197,000 1,655,000
Other............................................. 1,851,000 327,000
----------- -----------
19,813,000 17,635,000
----------- -----------
Total........................................... $ 286,000 $ 1,571,000
=========== ===========
</TABLE>
31
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Employee Benefit Plans
During fiscal 1996, the Company offered all of its employees the option to
participate in a 401(k) plan, upon fulfillment of certain requirements. The
Company has the option, but not the obligation, to match contributions made by
its employees under the 401(k) plan (the "Plan"). In addition, the Company
provides disability insurance to certain key executives. The insurance covers
all salary payments to the executives during the period of disability. For
fiscal 1999, 1998 and 1997, the Company contributed approximately $80,000,
$75,000 and $66,000, respectively, to the Plan.
11. Related Parties
The Company leased two restaurants under noncancelable operating leases from
an entity that is owned by a member of the Company's management. The leases
required total monthly rental payments of $20,600. During fiscal 1997 the
Company recorded rent expense of $247,000 under these leases. There were no
related party leases in 1999 or 1998.
The Company has entered into a management consulting agreement (the "TJC
Consulting Agreement") with an affiliate of The Jordan Company. Under the
terms of the TJC Consulting Agreement, as amended, the Company was required to
pay the affiliate an annual management fee equal to the higher of: (i)
$600,000 or (ii) 2.5% of the Company's cash flow, as determined in the TJC
Consulting Agreement. During fiscal 1999, 1998 and 1997, the Company recorded
expenses of $600,000 under the amended TJC Consulting Agreement.
In connection with the 1999, 1998 and 1997 acquisitions, the Company paid an
affiliate of The Jordan Company investment banking fees of $671,000, $579,000
and $1,000,000, respectively.
12. Disposition of Long-Lived Assets
In fiscal 1999, 1998 and 1997, the Company recorded a loss of approximately
$1.0 million, $1.2 million and $2.3 million, respectively, for the disposal of
long-lived assets. The fiscal 1999 loss reflects the write-down to estimated
fair market value of three Company-owned restaurants due to a decrease in the
cash flow of these restaurants. The 1998 loss reflects the write-down to
estimated fair market value of two Company-owned restaurants due to a decrease
in the cash flow of these restaurants. Included in the fiscal 1997 loss is the
write-down to estimated fair market value of four Company-owned restaurants
due to a decrease in the cash flow of these restaurants. Also included in the
fiscal 1997 loss are the planned dispositions of two Company-owned restaurants
and the disposal of property and equipment at several restaurants undergoing
major remodeling.
The Company recorded in fiscal 1997 an approximate $1.8 million gain on the
sale of 10 restaurants in the south Chicago suburban area to a third party
franchisee.
13. Legal Proceedings
Various legal proceedings are pending against the Company, many involving
routine litigation incidental to the businesses.
The consequences of these matters are not presently determinable but, in the
opinion of the management of the Company after consulting with legal counsel,
the ultimate liability is not expected to have a material effect on the
results of operations, financial position, liquidity or capital resources of
the Company.
14. Subsequent Event
On March 8, 2000, the Company signed a letter of intent to purchase 5
restaurants in the Chicago Metropolitan area for approximately $3.0 million
excluding transaction fees and acquisition related expenditures.
32
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There have been no changes in accountants during fiscal 1999 or 1998, nor
has there been any disagreement on any matter of accounting principles or
practices or financial disclosure which in either case is required to be
reported pursuant to this Item 9.
PART III
Item 10. Directors and Executive Officers of the Registrant
The following sets forth the names and ages of the Company's directors and
executive officers and the positions they currently hold:
<TABLE>
<CAPTION>
Name Age Postion with Company
- ---- --- --------------------
<S> <C> <C>
Lawrence E. Jaro........ 56 Managing Owner, Chairman and Chief Executive Officer
Gary W. Hubert.......... 47 Chief Operating Officer and Director
Joel D. Aaseby.......... 41 Chief Financial Officer, Corporate Secretary and Director
Scott E. Vasatka........ 46 Executive Vice President--Human Resources
Augustus F. Hothorn..... 47 Executive Vice President--Development
Stewart G. Baily........ 42 Vice President--Chicago Operations
A. Richard Caputo, Jr... 33 Vice President and Director
Kenneth J. Stanecki..... 38 Vice President--Finance and Corporate Treasurer
James C. Hoar........... 40 Vice President--General Counsel
Thomas H. Quinn......... 52 Director
John W. Jordan, II...... 51 Director
David W. Zalaznick...... 45 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 Chief Executive Officer and as a Director since
the Company's inception, and currently serves as its Chairman. Mr. Jaro has
over 20 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. Hubert has served as the Company's Executive Vice President and as a
Director since the Company's inception, and currently serves as Chief
Operating Officer. Mr. Hubert has over 25 years of experience with the Burger
King system 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 Executive Vice President--Finance and
Corporate Secretary since the Company's inception, and currently serves as
Chief Financial Officer and Director. Mr. Aaseby has over 25 years of
experience with the Burger King system in various finance, accounting and
operations positions, including Midwest Sector Controller from 1989 to 1994.
Mr. Vasatka has served as the Company's Executive Vice President--Human
Resources since the Company's inception. Mr. Vasatka has over 30 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. Hothorn has served as the Company's Executive Vice President--
Development since May 1997. Mr. Hothorn has over 19 years of Burger King/Grand
Metropolitan PLC experience. Prior to joining the Company, Mr. Hothorn was
Managing Director, Europe, Middle East, Africa (EMA) with Burger King
33
<PAGE>
Corporation. From January 1991 through August 1994, Mr. Hothorn served as
Senior Vice President Franchising and Real Estate for Pearle Vision (a Grand
Met subsidiary). Prior to that, Mr. Hothorn held a variety of positions with
BKC including Vice President of Asset Management, Vice President of Corporate
Real Estate, Director of Development--San Francisco Region, Real Estate
Manager, and Site Development Engineer.
Mr. Baily has served as the Company's Vice President--Chicago Operations
since February 1997. Mr. Baily has been with the Company since its inception
and has over 25 years of experience as both an employee of Burger King
Corporation and also as a franchisee.
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 GFSI, Inc.,
Jackson Products, Inc. as well as other privately held companies.
Mr. Stanecki has served as the Company's Vice President--Finance and
Corporate Treasurer since June 1998. Mr. Stanecki has been with the Company
since October 1997 and has over 12 years of experience with the Burger King
system in various financial and operational positions.
Mr. Hoar has served as the Company's Vice President--General Counsel since
June 1998. Mr. Hoar has over 12 years of experience with the Burger King
system.
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 Archibald
Candy Company and Welcome Home, Inc. as well as other privately held
companies.
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 that he founded in 1982. Mr. Jordan is also a director of Jordan
Industries, Inc., Archibald Candy Company, GFSI, Inc., Jackson Products, Inc.,
Carmike Cinemas, Inc., 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., Archibald Candy Company, GFSI, Inc., Jackson Products, Inc., Marisa
Christina, Inc. 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, which required the stockholders named
therein to vote for such nominees.
Board of Directors
Liability Limitation. The Company's Certificate of Incorporation (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 Company's Bylaws, without any vote on the
part of its stockholders, unless otherwise required.
34
<PAGE>
Indemnification Agreements. Simultaneously with the consummation of the
Offerings, the Company and each of its directors entered into indemnification
agreements. The indemnification agreements 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 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. Directors who are not employees of the Company
receive $12,500 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.
Compensation Committee Interlock and Insider Participation
The Board of Directors does not maintain a Compensation Committee. During
fiscal 1997, however, Messrs. Caputo, Jaro, Jordan and Quinn participated in
deliberations of the Board of Directors concerning executive officer
compensation.
35
<PAGE>
Item 11. Executive Compensation
Summary Compensation Table
The following table sets forth a summary of certain information regarding
compensation paid or accrued by the Company during the last three fiscal years
to each of the Company's chief executive officer and four most highly
compensated executive officers whose total annual salary and bonus exceeded
$100,000 during such period (collectively, the "Named Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
---------------------------------
Name and Principal Fiscal Other Annual All Other
Position Year Salary Bonus(1) Compensation(2) Compensation
- ------------------ ------ -------- -------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Lawrence E. Jaro........ 1999 $264,000 $436,000 --
Managing Owner and 1998 259,000 75,000
Chief Executive Officer 1997 245,000 235,000
William C. Osborn....... 1999 $158,000
Vice Chairman 1998 225,000 $10,000(3)
1997 221,000 10,000(3)
Gary W. Hubert.......... 1999 $243,000 $181,000 --
Chief Operating
Officer, Executive 1998 238,000 8,000
Vice President and
Director 1997 226,000 60,000
Joel D. Aaseby.......... 1999 $168,000 $127,000 --
Chief Financial
Officer, Corporate 1998 165,000 8,000
Secretary and Director 1997 157,000 80,000
Augustus F. Hothorn..... 1999 $210,000 $109,000 $201,000(4)
Executive Vice
President-- 1998 207,000 8,000 171,000(4)
Development 1997 119,000 25,000
Stewart G. Bailey....... 1999 $169,000 $138,000 --
Vice President-- 1998 139,000 18,000
Chicago Operations 1997 131,000 30,000
</TABLE>
- --------
(1) The Company provides bonus compensation based on an individual's
achievement of certain specified objectives, including achieving the
Company's stated EBITDA target. Employees are eligible to receive from 10%
to 60% of their annual compensation as a bonus or an amount set forth by
the Company's Board of Directors.
(2) No executive named in the table above received any Other Annual
Compensation in an amount in excess of either $50,000 or 10% of salary
and bonus reported for him in the two preceding columns.
(3) Represents the amount of life insurance premiums paid by the Company on
the life of Mr. Osborn with death benefits designated by Mr. Osborn.
(4) Represents amount of deferred compensation payable to Mr. Hothorn for long
term incentives pursuant to his employment agreement.
36
<PAGE>
Option Exercises in Fiscal 1997 and Fiscal Year-end Values
The following table shows stock options exercised by each of the Named
Executives during fiscal 1997, including the aggregate value of gains on the
date of exercise. In addition, this table includes the number of shares
covered by both exercisable and non-exercisable stock options as of fiscal
year-end, and the values for unexercised options. Except as listed in the
table, no other Named Executive exercised any Company stock options or
beneficially owned unexercised Company stock options.
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
Number of Shares of
Common Stock Underlying Value of Unexercised In-
Unexercised Options at The-Money Options at
December 29, 1997 December 29, 1997
Shares Acquired Value ------------------------- -------------------------
Name on Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- --------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Scott E. Vasatka........ 4,851 $ 0 0 $ 0
</TABLE>
Retirement and 401(k) Plans
The Company offers all of its employees the option to participate in a
401(k) plan, upon fulfillment of certain requirements. The Company has the
option, but not the obligation, to match contributions made by its employees
under the 401(k) plan. In addition, the Company provides disability insurance
to certain key executives. The insurance covers all salary payments to the
executives during the entire period of disability.
Employment Agreements
Effective September 1, 1994, the Company 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 for a five-year period
ending on August 31, 1999 with automatic one-year renewals thereafter,
provided that neither Mr. Jaro nor the Company 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 the Company
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, the Company 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 the Company 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, the Company 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 for a five-year
period ending on August 31, 1999 with automatic one-year renewals thereafter,
provided that neither Mr. Hubert nor the Company 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 the
Company 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, the Company 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 event Mr. Hubert no longer provides services to the Company due to: (i)
his death or physical or
37
<PAGE>
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, the Company 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 the Company for a five-year period ending on
August 31, 1999 with automatic one-year renewals thereafter, provided that
neither Mr. Aaseby nor the Company 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 the Company 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, the Company 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 the Company 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, the Company 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 the Company for a five-year period
ending on August 31, 1999 with automatic one-year renewals thereafter,
provided that neither Mr. Vasatka nor the Company 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 the
Company 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, the Company 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 the Company 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 May 19, 1997, the Company entered into an employment agreement
with Augustus F. Hothorn (the "Hothorn Employment Agreement"). Pursuant to the
terms of the Hothorn Employment Agreement, Mr. Hothorn agreed to serve as
Executive Vice President--Development of the Company for a three-year period
ending on May 18, 2000 with automatic one-year renewals thereafter, provided
that neither Mr. Hothorn nor the Company has provided the other with notice of
termination 120 days prior to the expiration of the Hothorn Employment
Agreement. Mr. Hothorn also agreed not to compete against the Company
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, the Company agreed to
compensate Mr. Hothorn with a base salary of $200,000 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. Hothorn no longer provides services to the Company due to: (i)
his death or physical or mental disability or (ii) his dismissal without Cause
(as defined in the Hothorn Employment Agreement) or as a result of a material
reduction in his authority, then Mr. Hothorn 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.
38
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The table below sets forth as of December 28, 1998, certain information
regarding beneficial ownership of Common Stock held by: (i) each director and
each of the Named Executives who own shares of the Company's equity
securities, (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 Company's 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
(1)
------------------
Number Percentage
------- ----------
<S> <C> <C>
Executive Officers and Directors:
Lawrence E. Jaro(2)........................................ 196,051 21.9
Gary W. Hubert............................................. 29,101 3.3
Joel D. Aaseby............................................. 9,703 1.1
Thomas H. Quinn(3) ........................................ 29,096 3.3
John W. Jordan, II(4)...................................... 38,285 4.3
A. Richard Caputo, Jr.(5).................................. 12,609 1.4
David W. Zalaznick(6)...................................... 38,285 4.3
Scott E. Vasatka........................................... 4,851 0.5
All executive officers and directors as a group
(8 persons)(7)............................................ 357,981 39.6
Other Principal Stockholders:
William C. Osborn(8)....................................... 81,105 9.1
JZ Equity Partners PLC ("JZEP")(9)......................... 246,302 27.6
Leucadia Investors, Inc.(10)............................... 61,575 6.9
BankBoston Investments Inc. ("BankBoston")(11)............. 96,998 9.8
</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
December 29, 1997, the Company had 902,992 shares of Common Stock issued
and outstanding.
(2) Includes 166,950 shares of Common Stock beneficially owned by various
affiliates of Mr. Jaro. Mr. Jaro and his affiliates also own 915 shares
of Class A2 Preferred Stock and 305 shares of Class B Preferred Stock.
Mr. Jaro's address is c/o the Company, 2215 Enterprise Drive, Suite 1502,
Westchester, Illinois 60154.
(3) 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.
(4) Includes 38,285 shares of Common Stock held by John W. Jordan II
Revocable Trust, of which Mr. Jordan is trustee. Mr. Jordan also owns
96.25 shares of Class B Preferred Stock. Mr. Jordan's address is c/o The
Jordan Company, 9 West 57th Street, New York, New York 10019.
(5) Mr. Caputo is a partner of The Jordan Company, an entity with which
Messrs. Jordan and Zalaznick are also affiliated.
(6) Mr. Zalaznick also owns 96.25 shares of Class B Preferred Stock. Mr.
Zalaznick's address is c/o The Jordan Company, 9 West 57th Street, New
York, New York 10019.
(7) Includes all shares owned directly or beneficially by directors and
executive officers, including shares beneficially owned by affiliates of
Mr. Jaro.
(8) Includes 52,004 shares of Common Stock beneficially owned by various
affiliates of Mr. Osborn. Mr. Osborn and his affiliates also own 285
shares of Class A2 Preferred Stock and 95 shares of Class B Preferred
Stock. Mr. Osborn's address is 396 Neptune Avenue, Encinitas, California
92024.
39
<PAGE>
(9) JZEP, formerly MCIT PLC, also owns 3,000 shares of Class A1 Preferred
Stock and 500 shares of Class B Preferred Stock. The principal address of
JZEP is JZ Equity Partners PLC, c/o Jordan/Zalaznick Advisors, Inc., 767
Fifth Avenue, 48th Floor, New York, New York 10153.
(10) Leucadia also owns 125 shares of Class B Preferred Stock. The principal
address of Leucadia is 315 Park Avenue South, New York, New York 10010.
See "Description of Capital Stock--Preferred Stock."
(11) Represents immediately exercisable warrants to purchase 96,998 shares of
Non-Voting Common Stock. BankBoston also owns 1,425 shares of Class A1
Preferred Stock and 475 shares of Class B Preferred Stock. The principal
address of BankBoston is 100 Federal Street, Boston, Massachusetts 02110.
Item 13. Certain Relationships and Related Transactions
The Jordan Company. On September 1, 1994, the Company entered into the TJC
Consulting Agreement with an affiliate of The Jordan Company. The TJC
Consulting Agreement was subsequently amended on February 7, 1996. 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. The TJC Consulting Agreement provides for an annual consulting fee
payable on a quarterly basis not to exceed $600,000 (as determined in the TJC
Consulting Agreement). In addition, the TJC Consulting Agreement provides 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 or any of its subsidiaries and (ii) a financial
consulting fee of up to 1.0% of any debt, equity or other financing arranged
by the Company with the assistance of TJC. During fiscal 1999, 1998 and 1997,
the Company paid consulting fees to the affiliate of The Jordan Company of
approximately $600,000 pursuant to the terms of the TJC Consulting Agreement.
In connection with the 1999 acquisitions by the Company of an aggregate of
56 Burger King restaurant franchises, the Company paid to the affiliate of The
Jordan Company an investment banking fee of $671,250. In connection with the
1998 Acquisition Credit Agreement, the Company incurred a $578,500 refinancing
fee for The Jordan Company. In connection with the acquisitions on June 26,
1997 and September 30, 1997 by the Company of an aggregate of 56 Burger King
restaurant franchises located in the State of North Carolina, the Company paid
to the affiliate of The Jordan Company an investment banking fee of $1.0. The
Company believes that the terms of the TJC Consulting Agreement are comparable
to the terms that it would obtain from disinterested third parties for
comparable services. Messrs. Jordan, Zalaznick and Caputo are partners of The
Jordan Company.
Burger King Corporation. In connection with the Offerings, the Company has
committed to BKC that, without BKC's prior written consent, (i) it will not
pay cash dividends on the Senior Preferred Stock on or prior to December 1,
2001 and (ii) it will not pay cash dividends to holders of Common Stock until
the Senior Notes are repaid in full and the Senior Preferred Stock is redeemed
or otherwise retired. The Company has committed to BKC that for the
foreseeable future (i) it will make capital expenditures on its existing
restaurants equal to 1% of its gross sales and (ii) it will spend an amount
equal to 1% of its gross sales on local advertising.
Members of the Board of Directors. The Company leased the land and buildings
for two Burger King restaurants under noncancelable operating leases from an
entity that is owned by Mr. Jaro. The leases required total monthly rental
payments of $20,600. For the fiscal year ended December 29, 1997, the Company
recorded rent expense of $247,000 under these leases. The Company believed
that the terms of these leases were comparable to the terms it would have
obtained from disinterested third parties for comparable sites.
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.
40
<PAGE>
The Company has adopted a policy 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.
41
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Financial Statements Included in Item 8
See "Index to Financial Statements of AmeriKing, Inc. and Subsidiary" set
forth in Item 8, "Financial Statements and Supplementary Data."
Schedules Omitted As Not Required or Inapplicable
Schedule I--Condensed financial information of registrant
Schedule II--Valuation and qualifying accounts
Schedule III--Real estate and accumulated depreciation
Schedule IV--Mortgage loans on real estate
Schedule V--Supplemental Information Concerning Property--Casualty Insurance
Operations
Exhibits
A list of exhibits included as part of this Form 10-K or incorporated by
reference is set forth in the Index to Exhibits. Included in the Index to
Exhibits are the following exhibits which constitute management contracts or
compensatory plans or arrangements.
1.TJC Consulting Agreement
2.Jaro Employment Agreement
3. Hubert Employment Agreement
4.Aaseby Employment Agreement
5.Vasatka Employment Agreement
6.Hothorn Employment Agreement
Reports on Form 8-K
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Westchester, State of Illinois, on March 25, 1999.
AmeriKing, Inc.
*
By: _________________________________
Lawrence E. Jaro
Managing Owner, Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this amended registration statement has been signed by the following
persons in the capacities indicated on the 25th day of March, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
* Managing Owner, Chairman and Chief
___________________________________________ Executive Officer (Principal Executive
Lawrence E. Jaro Officer)
* Director and Chief Operating Officer
___________________________________________
Gary W. Hubert
* Chief Financial Officer and Corporate
___________________________________________ Secretary (Principal Financial and
Joel D. Aaseby Accounting Officer)
* Director and Vice President
___________________________________________
A. Richard Caputo, Jr.
* Director
___________________________________________
Thomas H. Quinn
* Director
___________________________________________
John W. Jordan II
* Director
___________________________________________
David W. Zalaznick
</TABLE>
/s/ A. Richard Caputo, Jr.
By: _________________________________
A. Richard Caputo, Jr.
As Attorney-in-Fact
No copies of any annual report or proxy with respect to any meeting of
security-holders have been sent to the Company's security-holders.
43
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
------- ----------- ------------
<C> <S> <C>
1.1 FORM OF UNDERWRITING AGREEMENT FOR NOTES OFFERING.... *
1.2 FORM OF UNDERWRITING AGREEMENT FOR UNITS OFFERING.... *
2.1++ PURCHASE AND SALE AGREEMENT, DATED SEPTEMBER 1, 1994,
BETWEEN BURGER KING CORPORATION ("BKC") AND NATIONAL
RESTAURANT ENTERPRISES, INC. ("ENTERPRISES") (Filed
as exhibit 2.1 to AmeriKing's Registration Statement
(No. 333-04261) and incorporated herein by refer-
ence)................................................ *
2.2++ PURCHASE AND SALE AGREEMENT, DATED SEPTEMBER 1, 1994,
BETWEEN JARO ENTERPRISES, INC. AND AMERIKING, INC.
(FORMERLY KNOWN AS NRE HOLDINGS, INC.) ("AMERIKING")
(Filed as exhibit 2.2 to AmeriKing's Registration
Statement (No. 333-04261) and incorporated herein by
reference)........................................... *
2.3++ PURCHASE AND SALE AGREEMENT, DATED SEPTEMBER 1, 1994,
BETWEEN JARO RESTAURANTS, INC. AND AMERIKING (Filed
as exhibit 2.3 to AmeriKing's Registration Statement
(No. 333-04261) and incorporated herein by refer-
ence)................................................ *
2.4++ PURCHASE AND SALE AGREEMENT, DATED SEPTEMBER 1, 1994,
BETWEEN TABOR RESTAURANTS ASSOCIATES, INC. AND
AMERIKING (Filed as exhibit 2.4 to AmeriKing's
Registration Statement (No. 333-04261) and
incorporated herein by reference).................... *
2.5++ PURCHASE AND SALE AGREEMENT, DATED SEPTEMBER, 1,
1994, BETWEEN JB RESTAURANTS, INC. AND AMERIKING
(Filed as exhibit 2.5 to AmeriKing's Registration
Statement (No. 333-04261) and incorporated herein by
reference)........................................... *
2.6++ PURCHASE AND SALE AGREEMENT, DATED SEPTEMBER 1, 1994,
BETWEEN CASTLEKING, INC. AND AMERIKING (Filed as ex-
hibit 2.6 to AmeriKing's Registration Statement (No.
333-04261) and incorporated herein by reference)..... *
2.7++ PURCHASE AND SALE AGREEMENT, DATED SEPTEMBER 1, 1994,
BETWEEN OSBURGER, INC. AND AMERIKING (Filed as ex-
hibit 2.7 to AmeriKing's Registration Statement (No.
333-04261) and incorporated herein by reference)..... *
2.8++ PURCHASE AND SALE AGREEMENT, DATED SEPTEMBER 1, 1994,
BETWEEN WHITE-OSBORN RESTAURANTS, INC. AND AMERIKING
(Filed as exhibit 2.8 to AmeriKing's Registration
Statement (No. 333-04261) and incorporated herein by
reference)........................................... *
2.9++ PURCHASE AND SALE AGREEMENT, DATED NOVEMBER 30, 1994,
BY AND AMONG SHELDON T. FRIEDMAN, BNB LAND VENTURE,
INC. AND ENTERPRISES (Filed as exhibit 2.9 to
AmeriKing's Registration Statement (No. 333-04261)
and incorporated herein by reference)................ *
2.10++ ASSET PURCHASE AGREEMENT, DATED JULY 5, 1995, BY AND
AMONG DMW, INC., DANIEL L. WHITE AND AMERIKING COLO-
RADO CORPORATION I (Filed as exhibit 2.10 to
AmeriKing's Registration Statement (No. 333-04261)
and incorporated herein by reference)................ *
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 (Filed as exhibit 2.11 to AmeriKing's Registration
Statement (No. 333-04261) and incorporated herein by
reference)........................................... *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
------- ----------- ------------
<C> <S> <C>
2.12++ PURCHASE AGREEMENT, DATED NOVEMBER 21, 1995, BY AND
AMONG QSC, INC., THE SHAREHOLDERS OF QSC, INC. AND
AMERIKING TENNESSEE CORPORATION I (Filed as exhibit
2.12 to AmeriKing's Registration Statement (No. 333-
04261) and incorporated herein by reference)......... *
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 (Filed as
exhibit 2.13 to AmeriKing's Registration Statement
(No. 333-04261) and incorporated herein by refer-
ence)................................................ *
2.14++ PURCHASE AND SALE AGREEMENT, DATED NOVEMBER 30, 1995,
BY AND AMONG C&N DINING, INC. AND AFFILIATES AND
AMERIKING VIRGINIA CORPORATION I (Filed as exhibit
2.14 to AmeriKing's Registration Statement (No. 333-
04261) and incorporated herein by reference)......... *
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
(Filed as exhibit 2.15 to AmeriKing's Registration
Statement (No. 333-04261) and incorporated herein by
reference)........................................... *
2.16++ ASSET PURCHASE AGREEMENT, DATED FEBRUARY 7, 1996,
BETWEEN THIRTY-FORTY, INC. AND AMERIKING CINCINNATI
CORPORATION I (Filed as exhibit 2.16 to AmeriKing's
Registration Statement (No. 333-04261) and
incorporated herein by reference).................... *
2.17++ ASSET PURCHASE AGREEMENT, DATED FEBRUARY 7, 1996,
BETWEEN HOUSTON, INC. AND AMERIKING CINCINNATI
CORPORATION I (Filed as exhibit 2.17 to AmeriKing's
Registration Statement (No. 333-04261) and
incorporated herein by reference).................... *
2.18++ ASSET PURCHASE AGREEMENT, DATED FEBRUARY 7, 1996,
BETWEEN FIFTH & RACE, INC. AND AMERIKING CINCINNATI
CORPORATION I (Filed as exhibit 2.18 to AmeriKing's
Registration Statement (No. 333-04261) and
incorporated herein by reference..................... *
2.19 ASSET PURCHASE AGREEMENT among F&P ENTERPRISES, INC.,
THE SHAREHOLDERS OF F&P ENTERPRISES, INC. and NA-
TIONAL RESTAURANT ENTERPRISES, INC. (Filed as exhibit
2.19 to AmeriKing's Form 10-Q for the quarter ended
March 31, 1997 and incorporated herein by reference.. *
2.20 AMENDMENT NO. 1 TO THE ASSET PURCHASE AGREEMENT among
F&P ENTERPRISES, INC., THE SHAREHOLDERS OF F&P ENTER-
PRISES, INC. and NATIONAL RESTAURANT ENTERPRISES,
INC. (Filed as exhibit 2.20 to AmeriKing's Form 10-Q
for the quarter ended March 31, 1997 and incorporated
herein by reference.................................. *
2.21 ASSET PURCHASE AGREEMENT among NORTH FOODS, INC., THE
SHAREHOLDERS OF NORTH FOODS, INC. and NATIONAL RES-
TAURANT ENTERPRISES, INC. (Filed as exhibit 2.21 to
AmeriKing's Form 10-Q for the quarter ended March 31,
1997 and incorporated herein by reference............ *
2.22 ASSET PURCHASE AGREEMENT among NORTH FOODS, INC., THE
SHAREHOLDERS OF NORTH FOODS, INC. and NATIONAL RES-
TAURANT ENTERPRISES, INC. (Filed as exhibit 2.22 to
AmeriKing's Form 10-Q for the quarter ended March 31,
1997 and incorporated herein by reference............ *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
------- ----------- ------------
<C> <S> <C>
2.23 AMENDMENT NO. 2 TO THE ASSET PURCHASE AGREEMENT dated
June 16, 1997 among F&P ENTERPRISES, INC., THE
SHAREHOLDERS OF F&P ENTERPRISES, INC. AND NATIONAL
RESTAURANT ENTERPRISES, INC. (Filed as exhibit 2.23
to AmeriKing's Current Report on Form 8-K filed on
July 14, 1997 and incorporated herein by reference).. *
2.24 AMENDMENT NO. 3 TO THE ASSET PURCHASE AGREEMENT dated
June 16, 1997 among F&P ENTERPRISES, INC., THE
SHAREHOLDERS OF F&P ENTERPRISES, INC. AND NATIONAL
RESTAURANT ENTERPRISES, INC. (Filed as exhibit 2.24
to AmeriKing's Current Report on Form 8-K filed on
July 14, 1997 and incorporated herein by reference).. *
2.25 AMENDMENT NO. 2 TO THE ASSET PURCHASE AGREEMENT dated
June 16, 1997 among NORTH FOODS, INC., THE SHAREHOLD-
ERS OF NORTH FOODS, INC. AND NATIONAL RESTAURANT EN-
TERPRISES, INC. (Filed as exhibit 2.25 to AmeriKing's
Current Report on Form 8-K filed on July 14, 1997 and
incorporated herein by reference).................... *
2.26 AMENDMENT NO. 3 TO THE ASSET PURCHASE AGREEMENT dated
June 16, 1997 among NORTH FOODS, INC., THE SHAREHOLD-
ERS OF NORTH FOODS, INC. AND NATIONAL RESTAURANT EN-
TERPRISES, INC. (Filed as exhibit 2.26 to AmeriKing's
Current Report on Form 8-K filed on July 14, 1997 and
incorporated herein by reference).................... *
2.27 REAL ESTATE PURCHASE AGREEMENT dated March 7, 1997
among T&B LEASING, THOMAS FICKLING AND WILLIAM PREN-
TICE (the "PARTNERS"), AND CASTLE PROPERTIES, LLC.
(Filed as exhibit 2.27 to AmeriKing's Current Report
on Form 8-K filed on July 14, 1997 and incorporated
herein by reference)................................. *
2.28 AMENDMENT NO. 1 TO THE REAL ESTATE PURCHASE AGREEMENT
dated April 8, 1997 among T&B LEASING, THOMAS
FICKLING AND WILLIAM PRENTICE (the "PARTNERS") AND
CASTLE PROPERTIES, LLC. (Filed as exhibit 2.28 to
AmeriKing's Current Report on Form 8-K filed on July
14, 1997 and incorporated herein by reference)....... *
2.29 AMENDMENT NO. 2 TO THE REAL ESTATE PURCHASE AGREEMENT
dated June 16, 1997 among T&B LEASING, THOMAS
FICKLING AND WILLIAM PRENTICE (the "PARTNERS"), CAS-
TLE PROPERTIES, LLC AND NATIONAL RESTAURANT ENTER-
PRISES, INC. (Filed as exhibit 2.29 to AmeriKing's
Current Report on Form 8-K filed on July 14, 1997 and
incorporated herein by reference).................... *
2.30 AMENDMENT NO. 3 TO THE REAL ESTATE PURCHASE AGREEMENT
dated June 16, 1997 among T&B LEASING, THOMAS
FICKLING AND WILLIAM PRENTICE, INVESTORS TITLE EX-
CHANGE CORPORATION, AND NATIONAL RESTAURANT ENTER-
PRISES, INC. (Filed as exhibit 2.30 to AmeriKing's
Current Report on Form 8-K filed on July 14, 1997 and
incorporated herein by reference).................... *
2.31 REAL ESTATE PURCHASE AGREEMENT dated March 7, 1997
among W&W INVESTMENTS LIMITED PARTNERSHIP, THOMAS
FICKLING AND WILLIAM PRENTICE (the "GENERAL PART-
NERS"), AND CASTLE PROPERTIES, LLC. (Filed as exhibit
2.31 to AmeriKing's Current Report on Form 8-K filed
on July 14, 1997 and incorporated herein by refer-
ence)................................................ *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
------- ----------- ------------
<C> <S> <C>
2.32 AMENDMENT NO. 1 TO THE REAL ESTATE PURCHASE AGREEMENT
dated April 8, 1997 among W&W INVESTMENTS LIMITED
PARTNERSHIP, THOMAS FICKLING AND WILLIAM PRENTICE
(the "PARTNERS") AND CASTLE PROPERTIES, LLC. (Filed
as exhibit 2.32 to AmeriKing's Current Report on Form
8-K filed on July 14, 1997 and incorporated herein by
reference)........................................... *
2.33 AMENDMENT NO. 2 TO THE REAL ESTATE PURCHASE AGREEMENT
dated June 16, 1997 among W&W INVESTMENT LIMITED
PARTNERSHIP, THOMAS FICKLING AND WILLIAM PRENTICE
(the "GENERAL PARTNERS"), CASTLE PROPERTIES, LLC AND
NATIONAL RESTAURANT ENTERPRISES, INC. (Filed as ex-
hibit 2.33 to AmeriKing's Current Report on Form 8-K
filed on July 14, 1997 and incorporated herein by
reference)........................................... *
2.34 STOCK PURCHASE AGREEMENT DATED JULY 22, 1997 among
THE SHAREHOLDERS OF B&J RESTAURANTS, INC., and NA-
TIONAL RESTAURANT ENTERPRISES, INC. (Filed as exhibit
2.34 to AmeriKing's Form 10-Q for the quarter ended
June 30, 1997)....................................... *
3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF
AMERIKING (Filed as exhibit 3.1 to AmeriKing's
Registration Statement (No. 333-04261) and
incorporated herein by reference).................... *
3.2 AMENDED AND RESTATED BYLAWS OF AMERIKING (Filed as
exhibit 3.2 to AmeriKing's Registration Statement
(No. 333-04261) and incorporated herein by refer-
ence)................................................ *
4.1 STOCKHOLDERS AGREEMENT, DATED SEPTEMBER 1, 1994, BY
AND AMONG AMERIKING AND THE STOCKHOLDERS APPEARING ON
THE SIGNATURE PAGES THERETO (Filed as exhibit 4.1 to
AmeriKing's Registration Statement (No. 333-04261)
and incorporated herein by reference)................ *
4.2 CONSENT AND AMENDMENT NO. 1 TO STOCKHOLDERS AGREE-
MENT, DATED NOVEMBER 30, 1994, BY AND AMONG AMERIKING
AND THE STOCKHOLDERS APPEARING ON THE SIGNATURE PAGES
THERETO (Filed as exhibit 4.2 to AmeriKing's Regis-
tration Statement (No. 333-04261) and incorporated
herein by reference)................................. *
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 (Filed as exhibit 4.3 to
AmeriKing's Registration Statement (No. 333-04261)
and incorporated herein by reference)................ *
4.4 AMENDED AND RESTATED STOCKHOLDERS AGREEMENT BY AND
AMONG AMERIKING AND THE STOCKHOLDERS APPEARING ON THE
SIGNATURE PAGES THERETO (Filed as exhibit 4.4 to
AmeriKing's Form 10-K for the year ended December 30,
1996 and incorporated herein by reference)........... *
4.5 MANAGEMENT SUBSCRIPTION AGREEMENT, DATED SEPTEMBER 1,
1994, BY AND AMONG AMERIKING, TABOR RESTAURANT ASSO-
CIATES, INC., JARO ENTERPRISES, INC., JARO RESTAU-
RANTS, INC., JB RESTAURANTS, INC., CASTLEKING, INC.,
WHITE-OSBORN RESTAURANTS, INC., OSBURGER, INC., LAW-
RENCE JARO, WILLIAM OSBORN, GARY HUBERT, JOEL AASEBY,
DONALD STAHURSKI AND SCOTT VASATKA (Filed as exhibit
4.5 to AmeriKing's Registration Statement (No. 333-
04261) and incorporated herein by reference)......... *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
------- ----------- ------------
<C> <S> <C>
4.6 STOCK OPTION AGREEMENT, DATED SEPTEMBER 1, 1994, BE-
TWEEN AMERIKING AND SCOTT VASATKA (Filed as exhibit
4.6 to AmeriKing's Registration Statement (No. 333-
04261) and incorporated herein by reference)......... *
4.7 STOCK OPTION AGREEMENT, DATED SEPTEMBER 1, 1994, BE-
TWEEN AMERIKING AND DONALD STAHURSKI (Filed as ex-
hibit 4.7 to AmeriKing's Registration Statement (No.
333-04261) and incorporated herein by reference)..... *
4.8 WARRANT AGREEMENT, DATED SEPTEMBER 1, 1994, BETWEEN
AMERIKING AND THE FIRST NATIONAL BANK OF BOSTON
(Filed as exhibit 4.8 to AmeriKing's Registration
Statement (No. 333-04261) and incorporated herein by
reference)........................................... *
4.9 COMMON STOCK PURCHASE WARRANT, DATED SEPTEMBER 1,
1994, BETWEEN AMERIKING AND BANCBOSTON INVESTMENTS
INC. (Filed as exhibit 4.9 to AmeriKing's Registra-
tion Statement (No. 333-04261) and incorporated
herein by reference)................................. *
4.10 FIRST AMENDMENT TO COMMON STOCK PURCHASE WARRANT,
DATED NOVEMBER 30, 1994 (Filed as exhibit 4.10 to
AmeriKing's Registration Statement (No. 333-04261)
and incorporated herein by reference)................ *
4.11 SECOND AMENDMENT TO COMMON STOCK PURCHASE WARRANT,
DATED FEBRUARY 7, 1996 (Filed as exhibit 4.11 to
AmeriKing's Registration Statement (No. 333-04261)
and incorporated herein by reference)................ *
4.12 AMENDED AND RESTATED NOTE, DATED FEBRUARY 7, 1996,
FROM AMERIKING TO JZ EQUITY PARTNERS PLC (f/n/a MCIT
PLC) IN THE AGGREGATE PRINCIPAL AMOUNT OF$11,000,000
(Filed as exhibit 4.12 to AmeriKing's Registration
Statement (No. 333-04261) and incorporated herein by
reference)........................................... *
4.13 AMENDED AND RESTATED DEFERRED LIMITED INTEREST GUAR-
ANTY, DATED FEBRUARY 7, 1996, FROM ENTERPRISES TO JZ
EQUITY PARTNERS PLC (f/n/a MCIT PLC) (Filed as ex-
hibit 4.13 to AmeriKing's Registration Statement
(No. 333-04261) and incorporated herein by refer-
ence)................................................ *
4.14 AMENDED AND RESTATED NOTE, DATED FEBRUARY 7, 1996,
FROM AMERIKING TO JARO ENTERPRISES, INC. IN THE AG-
GREGATE PRINCIPAL AMOUNT OF $1,224,000 (Filed as ex-
hibit 4.14 to AmeriKing's Registration Statement (No.
333-04261) and incorporated herein by reference)..... *
4.15 AMENDED AND RESTATED NOTE, DATED FEBRUARY 7, 1996,
FROM AMERIKING TO JARO RESTAURANTS, INC. IN THE AG-
GREGATE PRINCIPAL AMOUNT OF $112,000 (Filed as ex-
hibit 4.15 to AmeriKing's Registration Statement (No.
333-04261) and incorporated herein by reference)..... *
4.16 AMENDED AND RESTATED NOTE, DATED FEBRUARY 7, 1996,
FROM AMERIKING TO JB RESTAURANTS, INC. IN THE AGGRE-
GATE PRINCIPAL AMOUNT OF $2,019,000 (Filed as exhibit
4.16 to AmeriKing's Registration Statement (No. 333-
04261) and incorporated herein by reference)......... *
4.17 AMENDED AND RESTATED NOTE, DATED FEBRUARY 7, 1996,
FROM AMERIKING TO CASTLEKING, INC. IN THE AGGREGATE
PRINCIPAL AMOUNT OF $385,769 (Filed as exhibit 4.17
to AmeriKing's Registration Statement (No. 333-04261)
and incorporated herein by reference)................ *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
------- ----------- ------------
<C> <S> <C>
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 (Filed as
exhibit 4.18 to AmeriKing's Registration Statement
(No. 333-04261) and incorporated herein by refer-
ence)................................................ *
4.19 SECURITIES PURCHASE AGREEMENT, DATED NOVEMBER 30,
1994, BETWEEN AMERIKING AND BANCBOSTON INVESTMENTS,
INC. (Filed as exhibit 4.19 to AmeriKing's Registra-
tion Statement (No. 333-04261) and incorporated
herein by reference)................................. *
4.20 COMMON STOCK PURCHASE WARRANT, DATED NOVEMBER 30,
1994, BETWEEN AMERIKING AND BANCBOSTON INVESTMENTS,
INC. (Filed as exhibit 4.20 to AmeriKing's Registra-
tion Statement (No. 333-04261) and incorporated
herein by reference)................................. *
4.21 JUNIOR SUBORDINATED NOTE, DATED NOVEMBER 30, 1994,
FROM AMERIKING TO BANCBOSTON INVESTMENTS, INC. IN THE
AGGREGATE PRINCIPAL AMOUNT OF $600,000 (Filed as ex-
hibit 4.21 to AmeriKing's Registration Statement (No.
333-04261) and incorporated herein by reference)..... *
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 (Filed as
exhibit 4.22 to AmeriKing's Registration Statement
(No. 333-04261) and incorporated herein by refer-
ence)................................................ *
4.23 AMENDMENT TO SECURED PROMISSORY NOTE, DATED MAY 21,
1996, FROM AMERIKING TENNESSEE CORPORATION I TO BKC
IN THE AGGREGATE PRINCIPAL AMOUNT OF $6,093,067
(Filed as exhibit 4.23 to AmeriKing's Registration
Statement (No. 333-04261) and incorporated herein by
reference)........................................... *
4.24 GUARANTY, DATED NOVEMBER 21, 1995, FROM LAWRENCE JARO
AND WILLIAM OSBORN TO BKC (Filed as exhibit 4.24 to
AmeriKing's Registration Statement (No. 333-04261)
and incorporated herein by reference)................ *
4.25 RATIFICATION OF GUARANTY, MAY 21, 1996, FROM LAWRENCE
JARO AND WILLIAM OSBORN TO BKC (Filed as exhibit 4.25
to AmeriKing's Registration Statement (No. 333-04261)
and incorporated herein by reference)................ *
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 (Filed as exhibit 4.26
to AmeriKing's Registration Statement (No. 333-04261)
and incorporated herein byreference)................. *
4.27 AMENDMENT TO PROMISSORY NOTE, DATED DECEMBER 14,
1995, FROM AMERIKING COLORADO CORPORATION I TO FRAN-
CHISE ACCEPTANCE CORPORATION LIMITED (Filed as ex-
hibit 4.27 to AmeriKing's Registration Statement (No.
333-04261) and incorporated herein by reference)..... *
4.28 COMMON STOCK PURCHASE WARRANT, DATED FEBRUARY 7,
1996, FROM AMERIKING TO PMI MEZZANINE FUND, L.P.
(Filed as exhibit 4.28 to AmeriKing's Registration
Statement (No. 333-04261) and incorporated herein by
reference)........................................... *
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. (Filed as
exhibit 4.29 to AmeriKing's Registration Statement
(No. 333-04261) and incorporated herein by refer-
ence)................................................ *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
------- ----------- ------------
<C> <S> <C>
4.30 SUBORDINATED GUARANTY, DATED FEBRUARY 7, 1996, FROM
AMERIKING VIRGINIA CORPORATION I AND AMERIKING CINCIN-
NATI CORPORATION I TO PMI MEZZANINE FUND, L.P. (Filed
as exhibit 4.30 to AmeriKing's Registration Statement
(No. 333-04261) and incorporated herein by refer-
ence)................................................. *
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 (Filed as
exhibit 4.31 to AmeriKing's Registration Statement
(No. 333-04261) and incorporated herein by
reference)............................................ *
4.32 SECOND AMENDED AND RESTATED TERM LOAN A NOTE, DATED
FEBRUARY 7, 1996, FROM ENTERPRISES TO THE FIRST NA-
TIONAL BANK OF BOSTON, THE OTHER LENDING INSTITUTIONS
LISTED ON SCHEDULE 1 THERETO, AND THE FIRST NATIONAL
BANK OF BOSTON, AS AGENT (Filed as exhibit 4.32 to
AmeriKing's Registration Statement (No. 333-04261) and
incorporated herein by reference)..................... *
4.33 SECOND AMENDED AND RESTATED TERM LOAN B NOTE, DATED
FEBRUARY 7, 1996, FROM ENTERPRISES TO THE FIRST NA-
TIONAL BANK OF BOSTON, THE OTHER LENDING INSTITUTIONS
LISTED ON SCHEDULE 1 THERETO, AND THE FIRST NATIONAL
BANK OF BOSTON, AS (Filed as exhibit 4.33 to
AmeriKing's Registration Statement (No. 333-04261) and
incorporated herein by reference)..................... *
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 THERE-
TO, AND THE FIRST NATIONAL BANK OF BOSTON, AS AGENT
(Filed as exhibit 4.34 to AmeriKing's Registration
Statement (No. 333-04261) and incorporated herein by
reference)............................................ *
4.35 GUARANTY, DATED FEBRUARY 7, 1996, FROM AMERIKING VIR-
GINIA CORPORATION I AND AMERIKING CINCINNATI CORPORA-
TION 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 (Filed as
exhibit 4.35 to AmeriKing's Registration Statement
(No. 333-04261) and incorporated herein by refer-
ence)................................................. *
4.36 UNCONDITIONAL GUARANTY OF PAYMENT AND PERFORMANCE,
DATED FEBRUARY 7, 1996, FROM ENTERPRISES TO FFCA AC-
QUISITION CORPORATION (Filed as exhibit 4.36 to
AmeriKing's Registration Statement (No. 333-04261) and
incorporated herein by reference)..................... *
4.37 FORM OF AMENDMENT NO. 1 TO COMMON STOCK PURCHASE WAR-
RANT FROM AMERIKING TO PMI MEZZANINE FUND, L.P........ *
4.38 INDENTURE BETWEEN AMERIKING AND TRUSTEE WITH RESPECT
TO SENIOR NOTES (Filed as exhibit 4.38 to AmeriKing's
Registration Statement (No. 333-04261) and incorpo-
rated herein by reference)............................ *
4.39 FORM OF SENIOR NOTES (ATTACHED TO EXHIBIT 4.38)....... *
4.40 INDENTURE BETWEEN AMERIKING AND TRUSTEE WITH RESPECT
TO EXCHANGE DEBENTURES (Filed as exhibit 4.40 to
AmeriKing's Registration Statement (No. 333-04261) and
incorporated herein by reference)..................... *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
------- ----------- ------------
<C> <S> <C>
4.41 INTENTIONALLY OMITTED................................ *
4.42 FORM OF EXCHANGE DEBENTURES (ATTACHED TO EXHIBIT
4.40)................................................ *
4.43 PROMISSORY NOTE, DATED JULY 18, 1996, FROM AMERIKING
TENNESSEE CORPORATION I TO FRANCHISE ACCEPTANCE COR-
PORATION LIMITED IN THE AGGREGATE PRINCIPAL AMOUNT OF
$6,100,000 (Filed as exhibit 4.43 to AmeriKing's Reg-
istration Statement (No. 333-04261) and incorporated
herein by reference)................................. *
4.44 CERTIFICATE OF DESIGNATION RELATING TO THE SENIOR
PREFERRED STOCK (Filed as exhibit 4.44 to AmeriKing's
Registration Statement (No. 333-04261) and incorpo-
rated herein by reference)........................... *
4.45 PROMISSORY NOTE, DATED JULY 18, 1996, FROM AMERIKING
TENNESSEECORPORATION I TO FRANCHISE ACCEPTANCE CORPO-
RATION LIMITED IN THE AGGREGATE PRINCIPAL AMOUNT OF
$900,000 (Filed as exhibit 4.45 to AmeriKing's Regis-
tration Statement (No. 333-04261) and incorporated
herein by reference)................................. *
4.46 AMENDMENT NO. 1 TO STOCK OPTION AGREEMENT BY AND
AMONG AMERIKING, SCOTT VASATKA AND DONALD STAHURSKI
(Filed as exhibit 4.46 to AmeriKing's Form 10-K for
the year ended December 30, 1996 and incorporated
herein by reference)................................. *
4.47 AMENDMENT NO.1 TO MANAGEMENT SUBSCRIPTION AGREEMENT
(Filed as exhibit 4.47 to AmeriKing's Form 10-K for
the year ended December 30, 1996 and incorporated
herein by reference)................................. *
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. (Filed as exhibit 9.1 to
AmeriKing's Registration Statement (No. 333-04261)
and incorporated herein by reference)................ *
9.2 OSBORN PROXY AGREEMENT, DATED SEPTEMBER 1, 1994, BY
AND AMONG WILLIAM OSBORN, CASTLEKING, INC., OSBURGER,
INC. AND WHITE-OSBORN, INC. (Filed as exhibit 9.2 to
AmeriKing's Registration Statement (No. 333-04261)
and incorporated herein by reference)................ *
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 (Filed as exhibit 10.1 to
AmeriKing's Registration Statement (No. 333-04261)
and incorporated herein by reference)................ *
10.2 SECURITY AGREEMENT, DATED SEPTEMBER 1, 1994, BY AND
AMONG ENTERPRISES AND THE FIRST NATIONAL BANK OF BOS-
TON, THE OTHER LENDING INSTITUTIONS LISTED ON SCHED-
ULE 1 THERETO, AND THE FIRST NATIONAL BANK OF BOSTON,
AS AGENT (Filed as exhibit 10.2 to AmeriKing's Regis-
tration Statement (No. 333-04261) and incorporated
herein by reference)................................. *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
------- ----------- ------------
<C> <S> <C>
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 (Filed as exhibit 10.3 to
AmeriKing's Registration Statement (No. 333-04261)
and incorporated herein by reference)................ *
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 (Filed as exhibit 10.4 to
AmeriKing's Registration Statement (No. 333-04261)
and incorporated herein by reference)................ *
10.5 AMENDMENT TO STOCK PLEDGE AGREEMENT, DATED FEBRUARY
7, 1996, BY AND AMONG AMERIKING AND THE FIRST NA-
TIONAL BANK OF BOSTON, THE OTHER LENDING INSTITUTIONS
LISTED ON SCHEDULE 1 THERETO, AND THE FIRST NATIONAL
BANK OF BOSTON AS AGENT (Filed as exhibit 10.5 to
AmeriKing's Registration Statement (No. 333-04261)
and incorporated herein by reference)................ *
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 (Filed as exhibit 10.6 to AmeriKing's Reg-
istration Statement (No. 333-04261) and incorporated
herein by reference)................................. *
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 (Filed as exhibit 10.7 to
AmeriKing's Registration Statement (No. 333-04261)
and incorporated herein by reference)................ *
10.8 AMENDED AND RESTATED PURCHASE AGREEMENT, DATED FEBRU-
ARY 7, 1996, BETWEEN AMERIKING AND JZ EQUITY PARTNERS
PLC (f/n/a MCIT PLC) (Filed as exhibit 10.8 to
AmeriKing's Registration Statement (No. 333-04261)
and incorporated herein by reference)................ *
10.9 PLEDGE AGREEMENT, DATED SEPTEMBER 1, 1994, BETWEEN
AMERIKING AND JZ EQUITY PARTNERS PLC (f/n/a MCIT PLC)
(Filed as exhibit 10.9 to AmeriKing's Registration
Statement (No. 333-04261) and incorporated herein by
reference)........................................... *
10.10 SUBORDINATION AGREEMENT, DATED SEPTEMBER 1, 1994, BY
AND AMONG BKC, JZ EQUITY PARTNERS PLC (f/n/a MCIT
PLC) AND AMERIKING (Filed as exhibit 10.10 to
AmeriKing's Registration Statement (No. 333-04261)
and incorporated herein by reference)................ *
10.11 AMENDMENT AND CONSENT NO. 1 TO SECURITIES PURCHASE
AGREEMENT, DATED FEBRUARY 7, 1996, BETWEEN AMERIKING
AND BANCBOSTON INVESTMENTS, INC. (Filed as exhibit
10.11 to AmeriKing's Registration Statement (No. 333-
04261) and incorporated herein by reference)......... *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
------- ----------- ------------
<C> <S> <C>
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 (Filed as ex-
hibit 10.12 to AmeriKing's Registration Statement
(No. 333-04261) and incorporated herein by refer-
ence)................................................ *
10.13 STOCK PLEDGE AGREEMENT, DATED NOVEMBER 21, 1995, BE-
TWEEN ENTERPRISES AND BKC (Filed as exhibit 10.13 to
AmeriKing's Registration Statement (No. 333-04261)
and incorporated herein by reference)................ *
10.14 RATIFICATION OF STOCK PLEDGE AGREEMENT, DATED MAY 21,
1996, BETWEEN ENTERPRISES AND BKC (Filed as exhibit
10.14 to AmeriKing's Registration Statement (No. 333-
04261) and incorporated herein by reference)......... *
10.15 STOCK PLEDGE AGREEMENT, DATED NOVEMBER 21, 1995, BE-
TWEEN ENTERPRISES AND THE FIRST NATIONAL BANK OF BOS-
TON, THE OTHER LENDING INSTITUTIONS LISTED ON SCHED-
ULE 1 THERETO, AND THE FIRST NATIONAL BANK OF BOSTON,
AS AGENT (Filed as exhibit 10.15 to AmeriKing's Reg-
istration Statement (No. 333-04261) and incorporated
herein by reference)................................. *
10.16 NOTE PURCHASE AGREEMENT, DATED FEBRUARY 7, 1996, BY
AND AMONG AMERIKING, ENTERPRISES AND PMI MEZZANINE
FUND, L.P. (Filed as exhibit 10.16 to AmeriKing's
Registration Statement (No. 333-04261) and
incorporated herein by reference).................... *
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 (Filed as exhibit 10.18 to AmeriKing's
Registration Statement (No. 333-04261) and
incorporated herein by reference).................... *
10.19 SALE-LEASEBACK AGREEMENT, DATED FEBRUARY 7, 1996, BY
AND AMONG AMERIKING VIRGINIA CORPORATION I, AMERIKING
TENNESSEE CORPORATION I AND FFCA ACQUISITION CORPORA-
TION (Filed as exhibit 10.19 to AmeriKing's Registra-
tion Statement (No. 333-04261) and incorporated
herein by reference)................................. *
10.20 LEASE, DATED FEBRUARY 7, 1996, BY AND AMONG AMERIKING
VIRGINIA CORPORATION I, AMERIKING TENNESSEE CORPORA-
TION I AND FFCA ACQUISITION CORPORATION (Filed as ex-
hibit 10.20 to AmeriKing's Registration Statement
(No. 333-04261) and incorporated herein by refer-
ence)................................................ *
10.21 FORM OF FRANCHISE AGREEMENT BETWEEN BKC AND FRANCHI-
SEE (Filed as exhibit 10.21 to AmeriKing's Registra-
tion Statement (No. 333-04261) and incorporated
herein by reference)................................. *
10.22 SCHEDULE OF AMERIKING FRANCHISE AGREEMENTS (Filed as
exhibit 10.22 to AmeriKing's Registration Statement
(No. 333-04261) and incorporated herein by refer-
ence)................................................ *
10.23 FORM OF LEASE AGREEMENT BETWEEN BKC AND LESSEE (Filed
as exhibit 10.23 to AmeriKing's Registration State-
ment (No. 333-04261) and incorporated herein by ref-
erence).............................................. *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
------- ----------- ------------
<C> <S> <C>
10.24 SCHEDULE OF AMERIKING LEASE AGREEMENTS (Filed as ex-
hibit 10.24 to AmeriKing's Registration Statement (No.
333-04261) and incorporated herein by reference)...... *
10.25 FORM OF GUARANTEE, INDEMNIFICATION AND ACKNOWLEDGEMENT
OF BKC FRANCHISE AGREEMENT (Filed as exhibit 10.25 to
AmeriKing's Registration Statement (No. 333-04261) and
incorporated herein by reference)..................... *
10.26 FORM OF GUARANTEE, INDEMNIFICATION AND ACKNOWLEDGMENT
OF BKC LEASE AGREEMENT (Filed as exhibit 10.26 to
AmeriKing's Registration Statement (No. 333-04261) and
incorporated herein by reference)..................... *
10.27 CAPITAL EXPENDITURE AGREEMENT, DATED SEPTEMBER 1,
1994, BY AND AMONG AMERIKING, ENTERPRISES AND BKC
(Filed as exhibit 10.27 to AmeriKing's Registration
Statement (No. 333-04261) and incorporated herein by
reference)............................................ *
10.28 CAPITAL EXPENDITURE AGREEMENT, DATED NOVEMBER 21,
1995, BY AND AMONG ENTERPRISES, AMERIKING TENNESSEE
CORPORATION I AND BKC (Filed as exhibit 10.28 to
AmeriKing's Registration Statement (No. 333-04261) and
incorporated herein by reference)..................... *
10.29 LETTER AGREEMENT, DATED FEBRUARY 7, 1996, BETWEEN EN-
TERPRISES AND BKC (Filed as exhibit 10.29 to
AmeriKing's Registration Statement (No. 333-04261) and
incorporated herein by reference)..................... *
10.30 NAPARLO DEVELOPMENT AGREEMENT, DATED FEBRUARY 7, 1996,
BETWEEN AMERIKING VIRGINIA CORPORATION I AND JOSEPH J.
NAPARLO (Filed as exhibit 10.30 to AmeriKing's Regis-
tration Statement (No. 333-04261) and incorporated
herein by reference).................................. *
10.31 MANAGEMENT CONSULTING AGREEMENT, DATED SEPTEMBER 1,
1994, BY AND AMONG TJC MANAGEMENT CORPORATION,
AMERIKING AND ENTERPRISES (Filed as exhibit 10.31 to
AmeriKing's Registration Statement (No. 333-04261) and
incorporated herein by reference)..................... *
10.32 INTENTIONALLY OMITTED................................. *
10.33 INTERCOMPANY MANAGEMENT CONSULTING AGREEMENT, DATED
SEPTEMBER 1, 1994 BETWEEN ENTERPRISES AND AMERIKING
(Filed as exhibit 10.33 to AmeriKing's Registration
Statement (No. 333-04261) and incorporated herein by
reference)............................................ *
10.34 AMENDED AND RESTATED TAX SHARING AGREEMENT, DATED FEB-
RUARY 7, 1996, BETWEEN ENTERPRISES AND AMERIKING
(Filed as exhibit 10.34 to AmeriKing's Registration
Statement (No. 333-04261) and incorporated herein by
reference)............................................ *
10.35 EMPLOYMENT AND NON-INTERFERENCE AGREEMENT, DATED SEP-
TEMBER 1, 1994, BETWEEN LAWRENCE JARO AND ENTERPRISES
(Filed as exhibit 10.35 to AmeriKing's Registration
Statement (No. 333-04261) and incorporated herein by
reference)............................................ *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
------- ----------- ------------
<C> <S> <C>
10.36 EMPLOYMENT AND NON-INTERFERENCE AGREEMENT, DATED SEP-
TEMBER 1, 1994, BETWEEN WILLIAM OSBORN AND ENTER-
PRISES (Filed as exhibit 10.36 to AmeriKing's Regis-
tration Statement (No. 333-04261) and incorporated
herein by reference)................................. *
10.37 EMPLOYMENT AND NON-INTERFERENCE AGREEMENT, DATED SEP-
TEMBER 1, 1994, BETWEEN GARY HUBERT AND ENTERPRISES
(Filed as exhibit 10.37 to AmeriKing's Registration
Statement (No. 333-04261) and incorporated herein by
reference)........................................... *
10.38 EMPLOYMENT AND NON-INTERFERENCE AGREEMENT, DATED SEP-
TEMBER 1, 1994, BETWEEN JOEL AASEBY AND ENTERPRISES
(Filed as exhibit 10.38 to AmeriKing's Registration
Statement (No. 333-04261) and incorporated herein by
reference)........................................... *
10.39 EMPLOYMENT AND NON-INTERFERENCE AGREEMENT, DATED SEP-
TEMBER 1, 1994, BETWEEN SCOTT VASATKA AND ENTERPRISES
(Filed as exhibit 10.39 to AmeriKing's Registration
Statement (No. 333-04261) and incorporated herein by
reference)........................................... *
10.40 EMPLOYMENT AND NON-INTERFERENCE AGREEMENT, DATED MAY
1, 1997, BETWEEN AUGUSTUS F. HOTHORN AND NATIONAL
RESTAURANT ENTERPRISES, INC.......................... *
10.41 FORM OF INDEMNIFICATION AGREEMENT BY AND AMONG
AMERIKING AND EACH OF THE SIGNATORIES TO THIS REGIS-
TRATION STATEMENT (Filed as exhibit 10.41 to
AmeriKing's Registration Statement (No. 333-04261)
and incorporated herein by reference)................ *
10.42 INTENTIONALLY OMITTED................................
10.43 INTENTIONALLY OMITTED................................
10.44 LEASE AGREEMENT FOR WESTCHESTER, ILLINOIS HEADQUAR-
TERS (Filed as exhibit 10.44 to AmeriKing's Registra-
tion Statement (No. 333-04261) and incorporated
herein by reference)................................. *
10.45 LOAN AND SECURITY AGREEMENT, DATED NOVEMBER 29, 1995,
BETWEEN AMERIKING COLORADO CORPORATION I AND FRAN-
CHISE ACCEPTANCE CORPORATION LIMITED (Filed as ex-
hibit 10.45 to AmeriKing's Registration Statement
(No. 333-04261) and incorporated herein by refer-
ence)................................................ *
10.46 LOAN AND SECURITY AGREEMENT, DATED JULY 21, 1996, BE-
TWEEN AMERIKING TENNESSEE CORPORATION I AND FRANCHISE
ACCEPTANCE CORPORATION LIMITED (Filed as exhibit
10.46 to AmeriKing's Registration Statement (No. 333-
04261) and incorporated herein by reference)......... *
10.47 FORM OF INTERCREDITOR AGREEMENT BY AND AMONG BKC,
AMERIKING, AND THE TRUSTEE AS REPRESENTATIVE OF THE
HOLDERS OF SENIOR NOTES UNDER THE INDENTURE (ATTACHED
TO EXHIBIT 4.38)..................................... *
10.48 RESTATED EMPLOYMENT AND NON-INTERFERENCE AGREEMENT
BETWEEN WILLIAM OSBORN AND ENTERPRISES (Filed as ex-
hibit 10.48 to AmeriKing's Form 10-K for the year
ended December 30, 1996 and incorporated herein by
reference)........................................... *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
------- ----------- ------------
<C> <S> <C>
10.49 RECAPITALIZATION AGREEMENT AMONG AMERIKING AND THE
STOCKHOLDERS APPEARING ON THE SIGNATURE PAGES THERETO
(Filed as exhibit 10.49 to AmeriKing's Form 10-K for
the year ended December 30, 1996 and incorporated
herein by reference)................................. *
10.50 MEMORANDUM OF UNDERSTANDING BETWEEN BKC AND THE COM-
PANY (Filed as exhibit 10.50 to AmeriKing's Registra-
tion Statement (No. 333-04261) and incorporated
herein by reference)................................. *
10.51 AMENDMENT TO SECOND AMENDED AND RESTATED REVOLVING
CREDIT AND LOAN AGREEMENT, DATED MAY 14, 1996, BY AND
AMONG AMERIKING, ENTERPRISES, THE FIRST NATIONAL BANK
OF BOSTON, THE OTHER LENDING INSTITUTIONS LISTED ON
SCHEDULE I THERETO AND THE FIRST NATIONAL BANK OF
BOSTON, AS AGENT (Filed as exhibit 10.51 to
AmeriKing's Form 10-K for the year ended December 30,
1996 and incorporated herein by reference)........... *
10.52 ASSIGNMENT AND ACCEPTANCE DATED MAY 14, 1996, BY AND
AMONG AMERIKING, ENTERPRISES, THE FIRST NATIONAL BANK
OF BOSTON AND THE OTHER LENDING INSTITUTIONS, LISTED
THERETO AND THE FIRST NATIONAL BANK OF BOSTON, AS
AGENT (Filed as exhibit 10.52 to AmeriKing's Form 10-
K for the year ended December 30, 1996 and incorpo-
rated herein by reference)........................... *
10.53 FORM OF OPERATING AGREEMENT BY AND AMONG BKC,
AMERIKING ENTERPRISES, AMERIKING COLORADO CORPORATION
I, AMERIKING ILLINOIS CORPORATION I, AMERIKING TEN-
NESSEE CORPORATION I, AMERIKING VIRGINIA CORPORATION
I AND AMERIKING CINCINNATI CORPORATION I (Filed as
exhibit 10.53 to AmeriKing's Form 10-K for the year
ended December 30, 1996 and incorporated herein by
reference)........................................... *
10.54 THIRD AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
dated as of June 17, 1997 among NATIONAL RESTAURANT
ENTERPRISES, INC., AMERIKING INC. and BANKBOSTON,
N.A.................................................. *
11++++ STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE......
12++++ STATEMENTS RE: COMPUTATION OF RATIOS.................
21 SUBSIDIARIES OF AMERIKING (Filed as exhibit 10.21 to
AmeriKing's Registration Statement (No. 333-04261)
and incorporated herein by reference)................ *
23.1 CONSENT OF MAYER, BROWN & PLATT (Filed as exhibit
23.1 to AmeriKing's Registration Statement (No. 333-
04261) and incorporated herein by reference)......... *
23.2 CONSENT OF DELOITTE & TOUCHE (Filed as exhibit 23.2
to AmeriKing's Registration Statement (No. 333-04261)
and incorporated herein by reference)................ *
24 POWER OF ATTORNEY.................................... *
25 T-1 FOR EXCHANGE DEBENTURE INDENTURE ................ *
26 T-1 FOR SENIOR NOTE INDENTURE........................ *
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.
++++ Superseding exhibit.
<PAGE>
AMERIKING, INC.
CALCULATION OF EPS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Dec. 29, 1998 to Dec. 30, 1997 to
- -----------------------------------------------------------------------------------------------------------------------------------
Dec. 27, 1999 Dec. 28, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 817,000 1,813,000
Earnings available to stockholders
Dividends
Preferred Stock (585,000) (558,000)
Senior Preferred Stock (5,325,000) (4,678,000)
Amortization of issuance costs (119,000) (110,000)
--------- ----------
Income (loss) before extraordinary item available to common stockholders (5,212,000) (3,533,000)
Extraordinary item - loss from early extinguishment of debt (net of taxes) - -
--------- ----------
Income (loss) available to common stockholders (5,212,000) (3,533,000)
Weighted average number of common shares 902,992 902,992
Dilutive effect of options and warrants - -
--------- ----------
Weighted average number of common shares outstanding - basic 902,992 902,992
Net income (loss) per common share before extraordinary item - basic (5,77) (3,91)
Extraordinary item - basic - -
--------- ----------
Net income (loss) per common share - basic (5,77) (3,91)
Net income (loss) per common share before extraordinary item - diluted (5,77) (3,91)
Extraordinary item - diluted - -
--------- ----------
Net income (loss) per common share - diluted (5,77) (3,91)
Weighted average number of common shares basic:
Original shares 863,290 863,290
Option shares 9,702 9,702
Warrant shares - -
Common stock units 30,000 30,000
--------- ----------
Total 902,992 902,992
Weighted average number of common shares - diluted
Original shares 863,290 863,290
Option shares 9,702 9,702
Warrant shares - -
Common stock units 30,000 30,000
--------- ----------
Total 902,992 902,992
</TABLE>
<PAGE>
EXHIBIT 12
AMERIKING, INC.
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Dec. 29, 1998 to Dec. 30, 1997 to
Dec, 27, 1999 Dec, 28, 1998
------------- -------------
W/O PIK With PIK W/O PIK With PIK
Dividends Dividends Dividends Dividends
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
EARNINGS
Income (loss) before income taxes benefit 2,152,000 2,152,000 3,757,000 3,757,000
Interest expense 20,470,000 20,470,000 16,275,000 16,275,000
Amortization of deffered financing costs 801,000 801,000 963,000 963,000
Portion of rents representative of interest 9,333,000 9,333,000 7,046,000 7,046,000
Preferred stock PIK dividends - 585,000 - 558,000
---------- ---------- ---------- ----------
Total earnings 32,756,000 33,341,000 28,041,000 28,599,000
---------- ---------- ---------- ----------
FIXED CHARGES
Interest expense 20,470,000 20,470,000 16,275,000 16,275,000
Amortization of deffered financing costs 801,000 801,000 963,000 963,000
Portion of rents representative of interest 9,333,000 9,333,000 7,046,000 7,046,000
Preferred stock PIK dividends - 585,000 - 558,000
Total Fixed Charges 30,604,000 31,189,000 24,284,000 24,842,000
---------- ---------- ---------- ----------
RATIO OF EARNINGS TO FIXED CHARGES 1.07 1.07 1.15 1.15
---------- ---------- ---------- ----------
INSUFFICIENT EARNINGS TO COVER FIXED CHARGES N/A N/A N/A N/A
---------- ---------- ---------- ----------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FISCAL
1999 CONSOLIDATED FINANCIAL STATEMENTS OF AMERIKING, INC. AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-27-1999
<PERIOD-START> DEC-29-1998
<PERIOD-END> DEC-27-1999
<CASH> 14,754
<SECURITIES> 0
<RECEIVABLES> 3,810
<ALLOWANCES> 0
<INVENTORY> 5,200
<CURRENT-ASSETS> 24,934
<PP&E> 106,867
<DEPRECIATION> 30,979
<TOTAL-ASSETS> 285,293
<CURRENT-LIABILITIES> 33,039
<BONDS> 100,000
44,418
0
<COMMON> 9
<OTHER-SE> (13,452)
<TOTAL-LIABILITY-AND-EQUITY> 285,293
<SALES> 395,901
<TOTAL-REVENUES> 395,901
<CGS> 126,300
<TOTAL-COSTS> 352,884
<OTHER-EXPENSES> 19,190
<LOSS-PROVISION> 1,205
<INTEREST-EXPENSE> 20,470
<INCOME-PRETAX> 2,152
<INCOME-TAX> 1,335
<INCOME-CONTINUING> 817
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 817
<EPS-BASIC> (5.77)
<EPS-DILUTED> (5.77)
</TABLE>
