AFC ENTERPRISES INC, S-1, 2000-12-22

AFC ENTERPRISES INC
S-1, 2000-12-22
EATING PLACES

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<PAGE>

As filed with the Securities and Exchange Commission on December 22, 2000
Registration No. 333-
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--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933

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AFC ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
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Minnesota 5812 58-2016606
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
Six Concourse Parkway, Suite 1700
Atlanta, Georgia 30328-5352
(770) 391-9500
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
GERALD J. WILKINS
Executive Vice President
and Chief Financial Officer
Six Concourse Parkway, Suite 1700
Atlanta, Georgia 30328-5352
(770) 391-9500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

----------------
Copies to:

THOMAS M. CLEARY SAMUEL N. FRANKEL JEFFREY M. STEIN
Riordan & McKinzie Executive Vice President, King & Spalding
300 South Grand Avenue General Counsel and 191 Peachtree Street
Suite 2900 Secretary Atlanta, Georgia 30303-
Los Angeles, California Six Concourse Parkway 1763
90071 Suite 1700 (404) 572-4600
(213) 629-4824 Atlanta, Georgia 30328-5352
(770) 391-9500
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed
Maximum Amount of
Title of Each Class of Offering Registration
Securities to be Registered Price(1) Fee
--------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value $.01 per share............... $100,000,000 $25,000
</TABLE>
--------------------------------------------------------------------------------
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) of the Securities Act.
----------------

The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

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--------------------------------------------------------------------------------
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be +
+changed. These securities may not be sold until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+preliminary prospectus is not an offer to sell nor does it seek an offer to +
+buy these securities in any jurisdiction where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion. Dated December 22, 2000.

[LOGO OF AFC ENTERPRISES]

Common Stock

-----------

This is an initial public offering of shares of common stock of AFC
Enterprises, Inc. AFC Enterprises is offering shares of the shares to be
sold in the offering. The selling shareholders identified in this prospectus
are offering an additional shares. AFC Enterprises will not receive any of
the proceeds from the sale of the shares sold by the selling shareholders.

Prior to this offering, there has been no public market for the common stock.
It is currently estimated that the initial public offering price per share will
be between $ and $ . Application has been made for quotation of the
common stock on the Nasdaq National Market under the symbol "AFCE".

See "Risk Factors" beginning on page 9 to read about factors you should
consider before buying shares of the common stock.

-----------

Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.

-----------

<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price................................... $ $
Underwriting discount........................................... $ $
Proceeds, before expenses, to AFC Enterprises................... $ $
Proceeds, before expenses, to the selling shareholders.......... $ $
</TABLE>

To the extent that the underwriters sell more than shares of common stock,
the underwriters have the option to purchase up to an additional shares
from the selling shareholders at the initial public offering price less the
underwriting discount.

-----------

The underwriters expect to deliver the shares against payment in New York,
New York on , 2001.

Goldman, Sachs & Co. Credit Suisse First Boston

-----------

Prospectus dated , 2000.
<PAGE>

[Description of inside front cover]
<PAGE>

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus, including "Risk Factors" and our
consolidated financial statements, carefully before making an investment
decision.

Our Business

We operate, develop and franchise quick service restaurants, bakeries and
cafes, or QSRs, primarily under the trade names Popeyes(R) Chicken & Biscuits,
Church's Chicken(TM), Cinnabon(R), Seattle's Best Coffee(R) and Torrefazione
Italia(R). Our brands enjoy a long history of operations. Popeyes was founded
in 1972, Church's in 1952, Cinnabon in 1985, Seattle's Best Coffee in 1970 and
Torrefazione Italia in 1986. Our brands also enjoy strong market positions in
their respective categories. Popeyes and Church's together constitute the
second-largest chicken QSR concept in the world. Cinnabon is the world-wide
leader in the QSR cinnamon roll bakery category, and Seattle's Best Coffee is a
leading alternative to the market leader in the specialty coffee category. As
of October 1, 2000, we operated and franchised 3,540 restaurants, bakeries and
cafes in 46 states, the District of Columbia and 26 foreign countries. We also
sell our premium specialty coffees through wholesale and retail distribution
channels under our Seattle's Best Coffee and Torrefazione Italia brands (which
we refer to collectively as Seattle Coffee). Our system-wide sales in 1999
totaled approximately $2.1 billion.

We commenced operations in November 1992 following the reorganization of our
predecessor, which operated and franchised Popeyes and Church's restaurants. In
connection with the reorganization, a new management team headed by Frank J.
Belatti and Dick R. Holbrook assumed control of our operations. From November
1992 through 1995, we focused on improving the quality and appeal of our brands
through a number of measures, including re-imaging a significant number of our
Popeyes and Church's restaurants, enhancing the profitability of our company-
operated restaurants, improving our franchisee support systems and services,
and increasing the number of our franchised restaurants. In April 1996, after
demonstrating our ability to improve operations, we received a $70.0 million
equity investment from Freeman Spogli & Co. and PENMAN Partners. This
investment enabled us to re-image additional restaurants, penetrate existing
markets and develop new markets, and to reduce our indebtedness. We refinanced
our indebtedness in 1997, and acquired Seattle Coffee Company and Cinnabon
International, Inc. in 1998.

From 1995 to 1999, our management team engineered a dramatic improvement in
our overall performance. From the beginning of 1995 to the end of 1999, the
number of our franchised units increased from 1,355 to 2,434, and outstanding
franchise development commitments increased from 1,047 to 1,983. In each of
1995 through 1999, comparable system-wide domestic restaurant sales increased
for each of Popeyes and Church's. From 1995 to 1999, we also increased total
system-wide sales at a compound annual rate of 11.3%, franchising revenue at a
compound annual rate of 13.4%, EBITDA at a compound annual rate of 21.1%, and
EBITDA margin from 11.4% to 15.9%.

1
<PAGE>

Company Strengths

In addition to possessing the leading market positions described above, our
strengths include the following:

High Brand Awareness and Crave Appeal(TM). Because of our high level of
brand awareness and the unique taste profiles and positioning of our products,
which we refer to as their crave appeal, we have developed a loyal base of
existing customers and are uniquely positioned to attract new customers.

Efficient QSR Support System. Our centralized corporate management
structure, management information systems and purchasing cooperatives enable us
to tightly control unit and corporate-level costs, capture economies of scale
and react more quickly to trends developing in our businesses.

Model for Growth. We have developed the operating systems and support
services needed to facilitate future growth in new geographic territories and
within existing markets. We employ a site identification and new unit
development process that enables us to identify and obtain favorable sites and
to efficiently open new units. We plan to open over 900 franchised restaurants,
bakeries and cafes, both domestically and internationally, during the next two
years.

Experienced Management Team. Our management team has overseen a period of
strong operating performance and increased unit growth since 1992. Our eight
senior executives have an average of more than 20 years of experience in the
restaurant and franchising industries.

Strategy

Building on these strengths, we are pursuing the following strategies:

Be the Franchisor of Choice(R). Our primary objective is to be the
recognized leader in offering quality franchising opportunities to existing and
potential franchisees. We believe that by offering attractive investment
opportunities, together with exceptional franchisee support systems and
services, potential franchisees will prefer to partner with us, rather than
with other franchisors, making us the Franchisor of Choice.

Promote Our Uniquely Positioned Brands. We recently implemented a new re-
imaging program that is designed to update and enhance the image of our
uniquely positioned brands. We believe that by periodically updating the image
of our brands, we will increase consumer awareness and sales. We plan to have
all of our restaurants, bakeries and cafes re-imaged by the end of 2003, and
will require that our franchisees complete re-images of their units in
accordance with the terms of their franchise agreements.

Expand Our Penetration in New Geographic Territories and Within Existing
Markets, and Develop New Channels of Distribution. Currently, the markets for
our Popeyes, Church's, Cinnabon and Seattle Coffee brands are substantially
underpenetrated. We are increasing the number of restaurants, bakeries and
cafes in traditional formats in both new geographic territories and within
existing markets. We are also expanding the number and type of non-traditional
formats for our units, and are aggressively expanding the wholesale
distribution of our Seattle Coffee brands.

2
<PAGE>

Expand Internationally. We believe that we have the opportunity to establish
a leading market position, or further strengthen our existing market position,
in a number of countries, due to the appeal of our highly recognizable American
brands, as well as a lack of significant competition for our brands in these
international markets.

Acquire Additional Brands. Using our knowledge, experience, franchisee
relationships and support systems and services, we plan to acquire, develop and
expand additional branded concepts. Our objective is to acquire brands that are
highly recognizable and uniquely positioned in their markets, possess strong
growth characteristics, are well-suited to franchising, and offer attractive
returns on investment.

General

Our principal executive offices are located at Six Concourse Parkway, Suite
1700, Atlanta, Georgia 30328-5352, and our telephone number is (770) 391-9500.
Our website is located at "www.afc-online.com". Information contained on our
website is not a part of this prospectus.

AFC Enterprises(R), Popeyes(R) Chicken & Biscuits, Church's Chicken(TM),
Cinnabon(R), Seattle's Best Coffee(R) and Torrefazione Italia(R), each of the
logos for our respective brands and Franchisor of Choice(R), are registered or
pending trademarks of AFC Enterprises. We also have a number of other
registered marks, service marks, trademarks and trade names, and trademark
applications, related to our brands' products, services and concepts, and other
phrases that we use throughout this prospectus, including Crave Appeal(TM). All
other registered marks, service marks, trademarks and trade names referred to
in this prospectus are the property of their respective owners.

3
<PAGE>

The Offering

<TABLE>
<S> <C>
Common stock offered by us........ shares

Common stock offered by the
selling shareholders............. shares

Common stock outstanding after shares
this offering....................

Use of proceeds................... We intend to use the net proceeds from this
offering to repay outstanding bank debt,
and for general corporate purposes,
including financing our re-imaging program.

Proposed Nasdaq National Market AFCE
symbol...........................
</TABLE>

The number of shares of our common stock that will be outstanding after this
offering is based on our shares of common stock outstanding as of October 1,
2000, and excludes:

. 6,172,726 shares subject to options at a weighted average exercise price
of $4.38 per share; and

. 169,843 shares subject to warrants at a weighted average exercise price
of $4.19 per share.

In addition, on January 1, 2001, we will grant options to purchase an
aggregate of 885,797 shares of our common stock, at a price per share of
$10.00, to key employees and a director.

----------------

Except as otherwise indicated, all information in this prospectus assumes no
exercise of the underwriters' over-allotment option.

4
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL DATA

The following tables present our summary consolidated financial data. The
data presented in these tables is from "Selected Consolidated Financial Data"
and our consolidated financial statements and the notes to those statements
that are included elsewhere in this prospectus. You should read those sections
and the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for a further explanation of the
financial data summarized here. The historical financial information may not
be indicative of our future performance.

Other Financial Data:
EBITDA(3)............... $ 72,857 $ 86,632 $111,209 $ 77,879 $ 91,086
EBITDA margin........... 15.4% 14.5% 15.9% 14.7% 16.7%
Cash capital
expenditures........... $ 42,136 $ 38,135 $ 55,808 $ 37,249 $ 32,385
</TABLE>

The following table presents a summary of our consolidated balance sheet as
of October 1, 2000:

. on an actual basis; and

. on an as adjusted basis to reflect our sale of shares of common
stock at an assumed initial public offering price of $ per share
after deducting underwriting discounts and commissions and estimated
offering expenses, and the repayment of $ million in bank debt.

<TABLE>
<CAPTION>
October 1, 2000
-----------------
As
Actual Adjusted
-------- --------
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents, net of bank overdrafts............. $ 775 $
Total assets.................................................. 536,265
Total debt and capital lease obligations...................... 323,775
Total shareholders' equity.................................... 119,771
</TABLE>

5
<PAGE>

(1) Net income for the forty weeks ended October 1, 2000 was impacted
favorably by a net decrease in general and administrative expenses of $1.6
million (pre-tax) primarily related to the reversal of an environmental
reserve. The impact of the reversal was partially offset by an increase in
expenses at Seattle Coffee related to one-time, nonrecurring personnel and
concept development expenses.
(2) For 1997, basic and diluted earnings per share is calculated based on net
income attributable to common stock of $8.8 million due to preferred stock
dividends and accretion of $2.2 million that lowered net income
attributable to common stock.
(3) EBITDA represents income from operations plus depreciation and
amortization, adjusted for non-cash items related to gains/losses on asset
dispositions and write-downs, and compensation expense related to stock
option activity. EBITDA is not a measure of performance under generally
accepted accounting principles, and should not be considered as a
substitute for net income, cash flows from operating activities and other
income or cash flow statement data prepared in accordance with generally
accepted accounting principles, or as a measure of profitability or
liquidity. We have included information concerning EBITDA as one measure
of our cash flow and historical ability to service debt. We believe
investors find this information useful. EBITDA as defined may not be
comparable to similarly-titled measures reported by other companies.

6
<PAGE>

SUMMARY SYSTEM-WIDE DATA

The following table presents financial and operating data for the
restaurants, bakeries and cafes that we operate or franchise. The data
presented in this table is unaudited. Sales information for franchised units is
reported by franchisees or, in some cases, estimated by us based on other data.

<TABLE>
<CAPTION>
Fiscal Year Ended Forty Weeks Ended
-------------------------------------- ---------------------
December 28, December 27, December 26, October 3, October 1,
1997 1998 1999 1999 2000
------------ ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
System-wide sales
(000s):
Popeyes................ $ 853,078 $ 954,305 $1,068,574 $ 817,352 $ 931,246
Church's............... 723,988 755,074 810,471 621,152 663,593
Cinnabon(1)............ -- 41,738 152,421 110,953 128,078
Seattle Coffee
retail(1)............. -- 24,887 32,587 23,023 34,266
Seattle Coffee
wholesale(1).......... -- 36,411 50,368 36,518 40,531
---------- ---------- ---------- ---------- ----------
Total................. $1,577,066 $1,812,415 $2,114,421 $1,608,998 $1,797,714
========== ========== ========== ========== ==========
System-wide unit
openings(2):
Popeyes................ 137 198 151 98 93
Church's............... 132 87 133 101 76
Cinnabon............... -- 6 46 29 42
Seattle Coffee retail.. -- 18 27 20 31
---------- ---------- ---------- ---------- ----------
Total................. 269 309 357 248 242
System-wide units open
(end of period):
Popeyes................ 1,131 1,292 1,396 1,358 1,464
Company-operated...... 119 171 175 176 166
Franchised............ 1,012 1,121 1,221 1,182 1,298
Church's............... 1,356 1,399 1,492 1,477 1,534
Company-operated...... 480 491 494 500 476
Franchised............ 876 908 998 977 1,058
Cinnabon............... -- 369 388 375 417
Company-operated...... -- 212 195 193 194
Franchised............ -- 157 193 182 223
Seattle Coffee retail.. -- 71 98 90 125
Company-operated...... -- 59 76 73 72
Franchised............ -- 12 22 17 53

Total company-
operated............ 599 933 940 942 908
Total franchised..... 1,888 2,198 2,434 2,358 2,632
---------- ---------- ---------- ---------- ----------
Total system-wide.... 2,487 3,131 3,374 3,300 3,540

System-wide percentage
change in comparable
unit sales(3):
Domestic:
Popeyes.............. 3.6% 5.2% 4.4% 5.5% 3.8%
Church's............. 4.0% 4.6% 1.1% 1.3% 0.8%
Cinnabon............. -- -- 2.4% 3.3% 3.5%
Seattle Coffee
retail.............. -- -- 3.3% 3.3% 0.0%
International:
Popeyes.............. 1.3% (13.3)% (4.8)% (4.1)% 2.2%
Church's............. 2.6% (1.5)% (2.7)% (1.8)% (1.7)%
Cinnabon............. -- -- 11.5% -- 5.6%
Seattle Coffee
retail.............. -- -- -- -- --
Total commitments
outstanding (end of
period)(4):............ 1,550 1,602 1,983 1,865 2,299
</TABLE>

7
<PAGE>

(1) System-wide sales for Cinnabon and Seattle Coffee in 1998 include only
those sales generated after October 15, 1998 and March 18, 1998, their
respective dates of acquisition.
(2) System-wide unit openings include company and franchised unit openings. Of
the 242 system-wide unit openings for the forty weeks ended October 1,
2000, six were company unit openings and 236 were franchised unit openings.
Of the 248 system-wide unit openings for the forty weeks ended October 1,
1999, 43 were company unit openings and 205 were franchised unit openings.
(3) Restaurants, bakeries and cafes are included in the computation of
comparable sales after they have been open 12 months for all periods prior
to 2000, and 15 months for 2000. Prior year sales figures used to calculate
comparable sales include sales from our Cinnabon and Seattle Coffee brands
prior to our acquisition of these two businesses in 1998.
(4) Commitments represent obligations to open franchised restaurants, bakeries
and cafes under executed development agreements. Of the total commitments
outstanding as of October 1, 2000, 1,671 related to our Popeyes and
Church's brands, 398 related to our Cinnabon brand, and 230 related to our
Seattle Coffee brands.

8
<PAGE>

RISK FACTORS

You should carefully consider the following risks and other information in
this prospectus before deciding to invest in shares of our common stock. If any
of the following risks and uncertainties actually occur, our business,
financial condition or operating results could be materially and adversely
affected. In this event, the trading price of our common stock could decline,
and you may lose part or all of your investment.

Risks Related to Our Business and the Foodservice Industry

If the cost of chicken or green coffee beans increases, our cost of sales will
increase and our operating results could be adversely affected.

The principal food products used by our company-operated and franchised
restaurants and cafes are chicken and green coffee beans. Any material increase
in the costs of these food products could adversely affect our operating
results. In particular, for 1998 and 1999, approximately 50% and 47% of the
cost of sales for our company-operated chicken restaurants were attributable to
the purchase of fresh chicken. Our cost of sales is significantly affected by
increases in the cost of chicken, which can result from a number of factors,
including seasonality, increases in the cost of grain, disease and other
factors that affect availability, and greater international demand for domestic
chicken products. Because our purchasing agreements for fresh chicken allow the
prices that we pay for chicken to fluctuate, a rise in the prices of chicken
products could expose us to cost increases. In addition, the supply and prices
of green coffee beans are volatile. Although most coffee beans trade in the
commodity market, the prices of the coffee beans of the quality that we use
tend to trade on a negotiated basis at a premium above the commodity market
prices. The supply and prices of coffee beans can be affected by many factors,
including the weather and political and economic conditions in producing
countries. If we fail to anticipate and react to increasing food costs by
adjusting our purchasing practices, our cost of sales may increase and our
operating results could be adversely affected.

If we face labor shortages or increased labor costs, our growth and operating
results could be adversely affected.

Labor is a primary component in the cost of operating our restaurants,
bakeries and cafes. As of October 1, 2000, we employed approximately 13,000
hourly-paid employees in our company-operated units. If we face labor shortages
or increased labor costs because of increased competition for employees, higher
employee turnover rates or increases in the federal minimum wage or other
employee benefits costs (including costs associated with health insurance
coverage), our operating expenses could increase and our growth could be
adversely affected. Our success depends in part upon our and our franchisees'
ability to attract, motivate and retain a sufficient number of qualified
employees, including restaurant, bakery and cafe managers, kitchen staff and
servers, necessary to keep pace with our expansion schedule. The number of
qualified individuals needed to fill these positions is in short supply in some
areas. Although we have not yet experienced any significant problems in
recruiting or retaining employees, any future inability to recruit and retain
sufficient individuals may delay the planned openings of new units. Competition
for qualified employees could also require us to pay higher wages to attract a
sufficient number of employees.

9
<PAGE>

If we are unable to franchise a sufficient number of restaurants, bakeries and
cafes, our growth strategy could fail.

As of October 1, 2000, we franchised 2,004 Popeyes, Church's, Cinnabon and
Seattle Coffee units domestically and 628 units internationally. Our growth
strategy is significantly dependent on increasing the number of our franchised
restaurants, bakeries and cafes, both through sales of new franchises and sales
of existing company-operated units to new and existing franchisees. If we are
unable to franchise a sufficient number of restaurants, bakeries and cafes, our
growth strategy could fail.

Our ability to successfully franchise additional restaurants, bakeries and
cafes will depend on various factors, including the availability of suitable
sites, the negotiation of acceptable leases or purchase terms for new
locations, permitting and regulatory compliance, the ability to meet
construction schedules, the financial and other capabilities of our
franchisees, our ability to manage this anticipated expansion, and general
economic and business conditions. Many of the foregoing factors are beyond the
control of our franchisees. Further, there can be no assurance that our
franchisees will successfully develop or operate their units in a manner
consistent with our concepts and standards, or will have the business abilities
or access to financial resources necessary to open the units required by their
agreements. Historically, there have been many instances in which Church's and
Popeyes franchisees have not fulfilled their obligations under their
development agreements to open new units.

Because our operating results are closely tied to the success of our
franchisees, the failure of one or more of these franchisees could adversely
affect our operating results.

Our operating results are increasingly dependent on our franchisees and, in
some cases, certain franchisees that operate a large number of our restaurants
and bakeries. How well our franchisees operate their units is outside of our
direct control. Any failure of these franchisees to operate their franchises
successfully could adversely affect our operating results. From the beginning
of 1995 to October 1, 2000, the number of our franchised units increased from
1,355 to 2,632. We currently have over 500 franchisees. In addition, one of our
domestic franchisees currently operates over 150 Popeyes restaurants, another
domestic franchisee currently operates approximately 100 Church's restaurants,
and another domestic franchisee currently operates over 50 Cinnabon bakeries.
In addition, each of our international franchisees is generally responsible for
the development of significantly more restaurants, bakeries and cafes than our
domestic franchisees. As a result, our international operations are more
closely tied to the success of a smaller number of franchisees than our
domestic operations. There can be no assurance that our domestic and
international franchisees will operate their franchises successfully.

Our expansion into new markets may present additional risks that could
adversely affect the success of our new units, and the failure of a significant
number of these units could adversely affect our operating results.

We expect to enter into new geographic markets in which we have no prior
operating or franchising experience. We face challenges in entering new
markets, including consumers' lack of awareness of our brands, difficulties in
hiring personnel, and problems due to our unfamiliarity with local real estate
markets and demographics. New markets may also have different competitive
conditions, consumer tastes and discretionary spending patterns than our
existing markets. Any failure on our part to recognize or respond to these
differences may adversely affect the success of our new units. The failure of a
significant number of the units that we open in new markets could adversely
affect our operating results.

10
<PAGE>

Changes in consumer preferences and demographic trends, as well as concerns
about food quality, could result in a loss of customers and reduce our
revenues.

Foodservice businesses are often affected by changes in consumer tastes,
national, regional and local economic conditions, discretionary spending
priorities, demographic trends, traffic patterns and the type, number and
location of competing restaurants. We and our franchisees are, from time to
time, the subject of complaints or litigation from guests alleging illness,
injury or other food quality, health or operational concern. Adverse publicity
resulting from these allegations may harm the reputation of our and our
franchisees' restaurants, bakeries or cafes, regardless of whether the
allegations are valid, we are found liable or those concerns relate only to a
single unit or a limited number of units. Moreover, complaints, litigation or
adverse publicity experienced by one or more of our franchisees could also
adversely affect our business as a whole. If we are unable to adapt to changes
in consumer preferences and trends, or we have adverse publicity due to any of
these concerns, we may lose customers and our revenues may decline.

If we are unable to compete successfully against other companies in the
foodservice industry or to develop new products that appeal to consumer
preferences, we could lose customers and our revenues may decline.

The foodservice industry, and particularly the QSR segment, is intensely
competitive with respect to price, quality, brand recognition, service and
location. If we are unable to compete successfully against other foodservice
providers, we could lose customers and our revenues may decline. We compete
against other QSRs, including chicken, hamburger, pizza, Mexican and sandwich
restaurants, other purveyors of carry out food and convenience dining
establishments, including national restaurant chains. Many of our competitors
possess substantially greater financial, marketing, personnel and other
resources than we do. There can be no assurance that consumers will continue to
regard our products favorably, that we will be able to develop new products
that appeal to consumer preferences, or that we will be able to continue to
compete successfully in the QSR industry. In addition, KFC, our primary
competitor in the chicken segment of the QSR industry, has far more units,
greater brand recognition and greater financial resources, all of which may
affect our ability to compete.

Our Cinnabon bakeries compete directly with national chains located in malls
and transportation centers such as Auntie Anne's, The Great American Cookie
Company, T.J. Cinnamon's and Mrs. Fields, as well as numerous regional and
local companies. Our Cinnabon bakeries also compete indirectly with other QSRs,
traditional bakeries, donut shops, ice cream and frozen yogurt shops and
pretzel and cookie companies.

Our Seattle Coffee brands compete directly with specialty coffees sold at
retail through supermarkets, specialty retailers, and a growing number of
specialty coffee cafes. Seattle Coffee also competes directly with all
restaurant and beverage outlets that serve coffee, including Starbucks, and a
growing number of espresso kiosks, carts, and coffee cafes. Starbucks has far
more units, greater brand recognition and greater financial resources, all of
which may affect our ability to compete with Starbucks. Our Seattle Coffee
brands compete indirectly with all other coffees on the market, including those
marketed and sold by companies such as Kraft Foods, Procter & Gamble and
Nestle.

Our quarterly results and comparable unit sales may fluctuate significantly and
could fall below the expectations of securities analysts and investors, which
could cause the market price of our common stock to decline.

Our quarterly operating results and comparable unit sales have fluctuated in
the past and may fluctuate significantly in the future as a result of a variety
of factors, many of which are outside of our control. If our quarterly results
or comparable unit sales fluctuate or fall below the expectations of securities
analysts and investors, the market price of our common stock could decline. Our
business is subject to seasonal fluctuations which may cause our operating
results to vary significantly

11
<PAGE>

depending upon the region of the U.S. in which a particular unit is located, as
well as the time of year and the weather. For example, inclement weather may
reduce the volume of consumer traffic at QSRs, and may impair the ability of
our system-wide units to achieve normal operating results for short periods of
time. In particular, our Cinnabon bakeries and Seattle Coffee cafes have
traditionally experienced the strongest operating results during the holiday
shopping season between Thanksgiving and Christmas. Consequently, any factors
that cause reduced traffic at our Cinnabon bakeries and Seattle Coffee cafes
during this period would have a greater effect because of this seasonality.

Factors that may cause our quarterly results and comparable unit sales to
fluctuate include the following:

. the disposition of company-operated restaurants;

. the opening of new restaurants, bakeries and cafes by us or our
franchisees;

. increases in labor costs;

. increases in the cost of food products;

. the ability of our franchisees to meet their future commitments under
development agreements;

. consumer concerns about food quality;

. the level of competition from existing or new competitors in the
chicken, cinnamon roll and specialty coffee QSR industries; and

. economic conditions generally, and in each of the markets in which we or
our franchisees are located.

Accordingly, results for any one quarter are not indicative of the results
to be expected for any other quarter or for the full year, and comparable unit
sales for any future period may decrease.

We are subject to extensive government regulation, and our failure to comply
with existing regulations or increased regulations could adversely affect our
business and operating results.

We are subject to numerous federal, state, local and foreign government laws
and regulations, including those relating to:

. the preparation and sale of food;

. building and zoning requirements;

. environmental protection;

. minimum wage, overtime and other labor requirements;

. compliance with the Americans with Disabilities Act; and

. working and safety conditions.

If we fail to comply with existing or future regulations, we may be subject
to governmental or judicial fines or sanctions. In addition, our capital
expenses could increase due to remediation measures that may be required if we
are found to be noncompliant with any of these laws or regulations.

We are also subject to regulation by the Federal Trade Commission and to
state and foreign laws that govern the offer, sale and termination of
franchises and the refusal to renew franchises.

12
<PAGE>

The failure to comply with these regulations in any jurisdiction or to obtain
required approvals could result in a ban or temporary suspension on future
franchise sales or require us to make a recission offer to franchisees, any of
which could adversely affect our business and operating results.

If our senior management left us, our operating results could be adversely
affected, and we may not be able to attract and retain additional qualified
management personnel.

We are dependent on the experience and industry knowledge of Frank J.
Belatti, our Chairman of the Board and Chief Executive Officer, Dick R.
Holbrook, our President and Chief Operating Officer, Gerald J. Wilkins, our
Executive Vice President and Chief Financial Officer, and other members of our
senior management. If for any reason our senior executives do not continue to
be active in management, our operating results could be adversely affected.
Additionally, we cannot assure you that we will be able to attract and retain
additional qualified senior executives as needed in the future. We have entered
into employment agreements with each of Messrs. Belatti, Holbrook and Wilkins.
However, these agreements do not ensure their continued employment with us.

We continue to increase the size of our franchisee system, and this growth may
place a significant strain on our resources.

The continued growth of our franchisee system will require the
implementation of enhanced business support systems, management information
systems and additional management, franchise support and financial resources.
Failure to implement these systems and secure these resources could have a
material adverse affect on our operating results. There can be no assurance
that we will be able to manage our expanding franchisee system effectively.

Shortages or interruptions in the supply or delivery of fresh food products
could adversely affect our operating results.

We and our franchisees are dependent on frequent deliveries of fresh food
products that meet our specifications. Shortages or interruptions in the supply
of fresh food products caused by unanticipated demand, problems in production
or distribution, inclement weather or other conditions could adversely affect
the availability, quality and cost of ingredients, which would adversely affect
our operating results.

Bonuses that may be payable pursuant to our Long-Term Employee Success Plan
could have a material adverse affect on our earnings for the fiscal quarter and
year in which the bonuses are paid, and could adversely affect our compliance
with the covenants and restrictions contained in our bank credit facility and
senior subordinated notes indenture.

The payment of bonuses that may be required under our Long-Term Employee
Success Plan, whether in cash or stock, may have a material adverse effect on
our earnings per share for the fiscal quarter and year in which the bonuses are
paid, and could adversely affect our compliance with the

13
<PAGE>

covenants and restrictions contained in our bank credit facility and senior
subordinated notes indenture. Further, we may not have sufficient cash
resources to pay these bonuses in cash at the time they become payable, which
would cause us to pay all or a portion of the bonuses using shares of our
common stock. Assuming that the financial performance standards were achieved
as of the date of this prospectus, we estimate that we would be obligated to
pay bonuses with an aggregate value of approximately $75.0 million. If neither
of our financial performance standards has been achieved by December 28, 2003,
the plan and our obligation to make any payments under the plan would
terminate.

Currency, economic, political and other risks associated with our international
operations could adversely affect our operating results.

As of October 1, 2000, we had three company-operated cafes and a wholesale
coffee distribution center in Canada, and had 628 franchised restaurants,
bakeries and cafes in 26 foreign countries, including a significant number of
franchised restaurants in Asia. Our revenues from foreign franchisees consist
of royalties and other fees payable in U.S. dollars. In particular, the
royalties are based on a percentage of net sales generated by our foreign
franchisees' operations. Consequently, our revenues from international
franchisees are exposed to the potentially adverse effects of our franchisees'
operations, currency exchange rates, local economic conditions, political
instability and other risks associated with doing business in foreign
countries.

We intend to expand our international franchise operations significantly
over the next several years. In particular, we may participate in international
joint ventures that will operate a number of our restaurants, bakeries and
cafes. These joint ventures could increase our exposure to the risks associated
with doing business in foreign countries, including limits on the repatriation
of cash and the risk of asset expropriation. We expect that the portion of our
revenues generated from international operations will increase in the future,
thus increasing our exposure to changes in foreign economic conditions and
currency fluctuations.

We may not be able to adequately protect our intellectual property, which could
harm the value of our brands and branded products and adversely affect our
business.

We depend in large part on our brands and branded products and believe that
they are very important to the conduct of our business. We rely on a
combination of trademarks, copyrights, service marks, trade secrets and similar
intellectual property rights to protect our brands and branded products. The
success of our expansion strategy depends on our continued ability to use our
existing trademarks and service marks in order to increase brand awareness and
further develop our branded products in both domestic and international
markets. We also use our trademarks and other intellectual property on the
Internet. If our efforts to protect our intellectual property are not adequate,
or if any third party misappropriates or infringes on our intellectual
property, either in print or on the Internet, the value of our brands may be
harmed, which could have a material adverse effect on our business, including
the failure of our brands and branded products to achieve and maintain market
acceptance.

We franchise our restaurants, bakeries and cafes to various franchisees.
While we try to ensure that the quality of our brands and branded products is
maintained by all of our franchisees, we cannot assure you that these
franchisees will not take actions that adversely affect the value of our
intellectual property or reputation.

We have registered certain trademarks and have other trademark registrations
pending in the U.S. and foreign jurisdictions. The trademarks that we currently
use have not been registered in all of the countries in which we do business
and may never be registered in all of these countries. We cannot assure you
that we will be able to adequately protect our trademarks or that our use of
these trademarks will not result in liability for trademark infringement,
trademark dilution or unfair competition.

14
<PAGE>

We cannot assure you that all of the steps we have taken to protect our
intellectual property in the U.S. and foreign countries will be adequate. In
addition, the laws of some foreign countries do not protect intellectual
property rights to the same extent as the laws of the U.S. Further, through
acquisitions of third parties, we may acquire brands and related trademarks
that are subject to the same risks as the brands and trademarks we currently
own.

If we open new restaurants, bakeries and cafes that are near existing units,
the operating results of the existing units may decline, and the newly opened
units may not be successful.

As part of our growth strategy, we intend to open new restaurants, bakeries
and cafes in our existing markets. Since we typically draw customers from a
relatively small radius around each of our units, the operating results and
comparable unit sales for existing restaurants, bakeries and cafes that are
near the area in which a new unit opens may decline, and the new unit itself
may not be successful, due to the close proximity of other units and market
saturation.

Because many of our properties were used as retail gas stations in the past, we
may incur substantial liabilities for remediation of environmental
contamination at our properties.

Approximately 150 of our owned and leased properties are known or suspected
to have been used by prior owners or operators as retail gas stations, and a
few of these properties may have been used for other environmentally sensitive
purposes. Many of these properties previously contained underground storage
tanks, and some of these properties may currently contain abandoned underground
storage tanks. It is possible that petroleum products and other contaminants
may have been released at these properties into the soil or groundwater. Under
applicable federal and state environmental laws, we, as the current owner or
operator of these sites, may be jointly and severally liable for the costs of
investigation and remediation of any contamination, as well as any other
environmental conditions at our properties that are unrelated to underground
storage tanks. If we are found liable for the costs of remediation of
contamination at any of these properties, our operating expenses would likely
increase and our operating results would be materially adversely affected. We
have obtained insurance coverage that we believe will be adequate to cover any
potential environmental remediation liabilities. However, there can be no
assurance that the actual costs of any potential remediation liabilities will
not materially exceed the amount of our policy limits.

Our bank credit facility and senior subordinated notes indenture may limit our
ability to expand our business, and our ability to comply with the covenants,
tests and restrictions contained in these agreements may be affected by events
that are beyond our control.

Our bank credit facility and senior subordinated notes indenture contain
financial and other covenants requiring us, among other things, to maintain
financial ratios and meet financial tests, restricting our ability to incur
indebtedness, engage in mergers, acquisitions or reorganizations, pay
dividends, and create or allow liens, and restricting the amount of capital
expenditures that we may incur in any fiscal year. Additionally, our bank
credit facility must be repaid completely in June 2004, and our senior
subordinated notes are due in May 2007. The restrictive covenants in our bank
credit facility or indenture may limit our ability to expand our business, and
our ability to comply with these provisions and to repay or refinance our bank
credit facility or indenture may be affected by events beyond our control. A
failure to make any required payment under our bank credit facility or
indenture or to comply with any of the financial and operating covenants
included in the bank credit facility and indenture would result in an event of
default, permitting the lenders to accelerate the maturity of the indebtedness.
This acceleration could also result in the acceleration of other indebtedness
that we may have outstanding at that time.

15
<PAGE>

Risks Related to Our Offering

Our stock price may be volatile, and you could lose all or part of your
investment.

Prior to this offering, you could not buy or sell our common stock in the
public market. An active public market for our common stock may not develop or
be sustained after this offering. The market for initial public offerings has
been extremely volatile. The following factors could cause the price of our
common stock in the public market to fluctuate significantly from the price you
will pay in this offering:

. variations in our quarterly operating results;

. changes in market valuations of companies in the foodservice industry;

. fluctuations in stock market prices and volumes;

. issuances of common stock or other securities in the future;

. the addition or departure of key personnel; and

. announcements by us or our competitors of new product offerings,
acquisitions or joint ventures.

Volatility in the market price of our common stock may prevent investors
from being able to sell their common stock at or above our initial public
offering price. In the past, class action litigation has often been brought
against companies following periods of volatility in the market price of those
companies' common stock. We may become involved in this type of litigation in
the future. Litigation is often expensive and diverts management's attention
and company resources and could have a material adverse effect on our business
and operating results.

The sale of a substantial number of shares of our common stock after this
offering may cause the market price of our common stock to decline.

If our existing shareholders sell shares of common stock in the public
market following this offering, including shares issued upon the exercise of
outstanding options and warrants, or if the market perceives that these sales
could occur, the market price of our common stock could decline. These sales
also might make it more difficult for us to sell equity or equity-related
securities in the future at a time and price that we deem appropriate, or to
use equity as consideration for future acquisitions.

Upon completion of this offering, we will have outstanding shares of
common stock, assuming no exercise of the underwriters' over-allotment option
and no exercise of outstanding options or warrants. Of these shares, the
shares to be sold in the offering will be freely tradable. Of the remaining
shares, shares and an additional shares issuable upon exercise of
outstanding options are subject to lock-up agreements in which the holders of
the shares have agreed not to sell any shares for a period of 180 days after
the date of this prospectus without the prior written consent of the
underwriters. These shares generally will be available for sale after the end
of the lock-up period.

We have also entered into two registration rights agreements that obligate
us to register for public resale an aggregate of 30,638,977 shares of common
stock, at the option of the shareholders who are parties to those agreements,
at any time after April 11, 2001 with respect to one of those agreements, and
six months from the date of the closing of this offering with respect to the
other agreement. If, upon the expiration of the lock up agreements, all or a
portion of these shareholders exercise their right to require us to register
their shares for resale and sell shares of common stock in the public market,
the market price of our common stock could decline.

16
<PAGE>

Freeman Spogli & Co. will continue to have substantial control over us after
this offering, and could limit your ability to influence the outcome of matters
requiring shareholder approval.

After the offering, Freeman Spogli & Co. will beneficially own 21,212,421
shares, or %, of our outstanding common stock. Freeman Spogli & Co.'s
ownership of our common stock could have the effect of delaying or preventing a
change of control of us or could discourage a potential acquiror from obtaining
control of us, either of which could have an adverse effect on the market price
of our common stock or prevent you from realizing a gain on the sale of your
shares of common stock. Freeman Spogli & Co. would also be able to
significantly influence the election of directors to our board. Six of the 11
members of our board of directors will be representatives of Freeman Spogli &
Co. immediately after the offering.

Provisions in our articles of incorporation, bylaws and Minnesota law have
anti-takeover effects that could prevent a change in control that could be
beneficial to our shareholders, which could depress the market price of our
common stock.

Our articles of incorporation, bylaws and Minnesota corporate law contain
provisions that could delay, defer or prevent a change in control of us or our
management that could be beneficial to our shareholders. These provisions could
also discourage proxy contests and make it more difficult for you and other
shareholders to elect directors and take other corporate actions. As a result,
these provisions could limit the price that investors are willing to pay in the
future for shares of our common stock. These provisions might also discourage a
potential acquisition proposal or tender offer, even if the acquisition
proposal or tender offer is at a price above the then current market price for
our common stock. These provisions:

. authorize our board of directors to issue "blank check" preferred stock
and to determine the powers, preferences and privileges of those shares
without prior shareholder approval;

. limit the right of our shareholders to call a special meeting of
shareholders; and

. impose procedural and other requirements that could make it difficult
for shareholders to effect some corporate actions.

In addition, our board of directors is considering whether to create a
holding company structure, whereby we would become a wholly-owned subsidiary of
a Delaware corporation. If we determine to create this structure, we will seek
shareholder approval authorizing the structure at our first shareholder meeting
following this offering. As a result, provisions of Delaware corporate law
would govern your rights with respect to your shares of our common stock. These
positions might limit or reduce the price that investors are willing to pay in
the future for shares of our common stock, because certain provisions of
Delaware law also could delay, deter or prevent a change in control that could
be beneficial to our shareholders or make it more difficult for shareholders to
take certain actions. See "Description of Capital Stock--Contemplated
Reorganization under Delaware Law" for a further description of our
contemplated reorganization.

You will experience immediate and substantial dilution in the net tangible book
value of the common stock you purchase.

The initial public offering price of our common stock is substantially
higher than the net tangible book value per outstanding share of common stock.
You will incur immediate and substantial dilution of $ per share in the net
tangible book value of our common stock from the initial public offering price
of $ . This means that if we were to be liquidated immediately after the
offering, there may be no assets available for distribution to you after
satisfaction of all of our obligations to creditors. Additional dilution will
occur upon the exercise of outstanding options and warrants.

17
<PAGE>

FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve risk and
uncertainties. These statements relate to our future plans, objectives,
expectations and intentions. These statements may be identified by the use of
words such as "expects", "anticipates", "intends", "plans" and similar
expressions. Our actual results could differ materially from those discussed in
these statements. Factors that could contribute to these differences include
those discussed under "Risk Factors" and elsewhere in this prospectus. The
cautionary statements made in this prospectus should be read as being
applicable to all forward-looking statements wherever they appear in this
prospectus.

18
<PAGE>

USE OF PROCEEDS

We estimate that the net proceeds from the sale of the shares of common
stock offered by us at an assumed initial public offering price of $ per
share, after deducting estimated underwriting discounts and commissions and
estimated offering expenses, will be approximately $ million. We will not
receive any proceeds from the sale of shares by the selling shareholders.

Pursuant to the terms of our bank credit facility, we are currently required
to use the net proceeds from the offering to repay amounts outstanding under
our term loans and acquisition facility on a pro rata basis. Notwithstanding
the foregoing, if, after application of the proceeds from this offering, we
have a leverage ratio of 2.5 to 1 or lower, we may use 50% of the proceeds to
repurchase a portion of our senior subordinated notes. In addition, we are
currently negotiating an amendment to our bank credit facility that would
enable us to use a portion of the proceeds for general corporate purposes.
These purposes would include expenditures required for our new re-imaging
program. No assurances can be given that we will be able to obtain this
amendment.

As of October 1, 2000, total amounts outstanding under our bank credit
facility included: Tranche A term loan--$26.7 million due in installments
through June 30, 2002; Tranche B term loan--$72.5 million due in installments
through June 30, 2004; acquisition facility--$62.0 million due in installments
through January 30, 2002; and revolving line of credit--$5.0 million due June
30, 2002. The term loans, the acquisition facility and the revolving credit
facility bear interest at rates that are tied to U.S. and European short-term
floating interest rates, plus a margin that depends on our leverage ratio.

DIVIDEND POLICY

We have never declared or paid cash dividends on our common stock. We do not
currently intend to pay any dividends. Our bank credit facility and senior
subordinated notes indenture currently prohibit us from declaring or paying any
cash dividends or other distributions on any shares of our capital stock. Any
payments of cash dividends in the future will be at the discretion of our board
of directors and will depend upon our results of operations, earnings, capital
requirements, contractual restrictions contained in our bank credit facility
and senior subordinated notes indenture, or other agreements, and other factors
deemed relevant by our board of directors.

19
<PAGE>

CAPITALIZATION

The following table sets forth our capitalization as of October 1, 2000:

. on an actual basis; and

. on an as adjusted basis to reflect the sale of shares of common stock
at an assumed initial public offering price of $ per share after
deducting underwriting discounts and commissions and estimated offering
expenses and the repayment of $ million in bank debt.

You should read the information below with "Use of Proceeds", "Selected
Consolidated Financial Data", "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements and the notes to those statements that are included elsewhere in
this prospectus.

<TABLE>
<CAPTION>
October 1, 2000
------------------
As
Actual Adjusted
-------- --------
(in thousands)
<S> <C> <C>
Cash and cash equivalents, net of bank overdrafts........... $ 775 $
======== =====
Current debt:
Bank debt, including bank credit facility................. 16,058
Current maturities of long-term debt and capital lease
obligations.............................................. 13,209
Long-term debt:
Bank credit facility...................................... 141,450
Senior subordinated notes................................. 150,000
Capital lease obligations and other long-term debt........ 3,058
Shareholders' equity (deficit):
Preferred stock, $.01 par value; authorized--2,500,000
shares; no shares issued and outstanding................. -- --
Common stock $.01 par value; authorized--50,000,000
shares; issued and outstanding--39,508,153 shares,
actual; issued and outstanding-- shares, as
adjusted................................................. 395
Capital in excess of par value.............................. 154,827
Notes receivable--officers.................................. (7,547)
Treasury stock.............................................. (213)
Accumulated deficit......................................... (27,691)
-------- -----
Shareholder's equity...................................... 119,771
-------- -----
Total capitalization.................................... $443,546 $
======== =====
</TABLE>

The number of shares outstanding as of October 1, 2000 excludes the
following:

. 6,172,726 shares subject to options at a weighted average exercise price
of $4.38 per share;

. 169,843 shares subject to warrants at a weighted average exercise price
of $4.19 per share; and

. 326,771 additional shares that are reserved for future issuance under
our stock option plans.

In addition, on December 7, 2000, we reserved an additional 4,000,000 shares
for future issuance under our 1996 Nonqualified Stock Option Plan. The number
of shares outstanding as of October 1, 2000 also excludes options to purchase
an aggregate of 885,797 shares of our common stock, at a price per share of
$10.00, that we will grant to key employees and a director on January 1, 2001.

20
<PAGE>

DILUTION

Our net tangible book value as of October 1, 2000 was a deficit of
approximately $(75.4) million or $(1.91) per share. Net tangible book value per
share represents the amount of our total tangible assets reduced by the amount
of our total liabilities and divided by the total number of shares of our
common stock outstanding.

Dilution in net tangible book value per share represents the difference
between the amount per share paid by purchasers of shares of common stock in
this offering and the net tangible book value per share of common stock
immediately after the completion of this offering. After giving effect to the
sale of shares of common stock offered by us at an assumed initial public
offering price of $ per share, and after deducting the underwriting
discounts and commissions and estimated offering expenses payable by us, our as
adjusted net tangible book value as of October 1, 2000 would have been
approximately $ million, or $ per share of common stock. This represents an
immediate increase in net tangible book value of $ per share to existing
shareholders and immediate dilution of $ per share to new investors
purchasing common stock in this offering. The following table illustrates this
dilution on a per share basis:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share......................... $
Net tangible book value per share before the offering................. $
Increase per share attributable to new investors......................
---
As adjusted net tangible book value per share after the offering......
---
Dilution per share to new investors..................................... $
===
</TABLE>

The table below summarizes:

. the number of shares of common stock purchased from us, the total
consideration paid to us and the average price per share paid to us by
existing shareholders as of October 1, 2000;

. the number of shares of common stock that may be purchased, and total
consideration payable to us, by option and warrant holders upon the
exercise of options or warrants outstanding as of October 1, 2000, and
the average price per share; and

. the number of shares to be purchased and the total consideration to be
paid by new investors purchasing shares of common stock in this
offering.

<TABLE>
<CAPTION>
Shares Total
Purchased Consideration Average
-------------- -------------- Price Per
Number Percent Amount Percent Share
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders................... % $ % $
Option and warrant holders..............
New investors........................... % %
--- --- ---- ---
Totals.................................. % $ %
=== === ==== ===
</TABLE>

The preceding tables assume no exercise of the underwriters' over-allotment
option and exclude stock options or warrants granted after October 1, 2000. To
the extent any of these additional options and warrants are exercised, there
will be further dilution to new investors.

21
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The following tables present our consolidated selected financial data. The
selected historical consolidated statement of operations data for each of the
years ended, and the selected historical consolidated balance sheet data as of,
December 31, 1995, December 29, 1996, December 28, 1997, December 27, 1998 and
December 26, 1999, have been derived from our audited consolidated financial
statements, some of which are included elsewhere in this prospectus. Those
consolidated financial statements and the notes to those statements have been
audited by Arthur Andersen LLP, independent public accountants. The selected
consolidated statement of operations data for the forty week periods ended
October 3, 1999 and October 1, 2000, and the selected consolidated balance
sheet data as of October 1, 2000 are derived from our unaudited consolidated
financial statements, which are included in this prospectus. In the opinion of
management, the unaudited consolidated financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary to
present the data for those periods fairly. Operating results for interim
periods are not necessarily indicative of results for the full fiscal year.

You should read the selected consolidated financial data set forth below in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and the
notes to those statements that are included elsewhere in this prospectus.

Costs and expenses:
Restaurant cost of
sales.................. $139,286 $142,199 $131,332 $155,165 $167,979 $129,167 $123,115
Restaurant operating
expenses............... 214,703 211,290 197,227 245,161 288,249 221,086 223,228
Wholesale cost of
sales.................. -- -- -- 19,064 24,371 17,929 19,942
Wholesale operating
expenses............... -- -- -- 8,070 12,310 9,087 11,601
General and
administrative(2)...... 77,459 75,543 77,048 85,691 96,546 77,701 76,614
Executive compensation
award(3)............... 10,647 -- -- -- -- -- --
Depreciation and
amortization(4)........ 28,329 30,516 33,244 45,162 42,126 33,473 31,770
Charges for restaurant
closings, excluding
Pine Tree.............. 688 1,304 479 311 835 -- --
Charges for Pine Tree
restaurant
closings(5)............ -- -- -- 8,547 3,600 -- --
Software write-offs..... -- -- -- 5,000 3,830 -- --
Loss (gain) on sale of
fixed assets from AFDC
transaction............ -- -- (5,319) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total costs and
expenses.............. $471,112 $460,852 $434,011 $572,171 $639,846 $488,443 $486,270
-------- -------- -------- -------- -------- -------- --------
Income from continuing
operations............. $ 11,831 $ 28,741 $ 39,600 $ 25,783 $ 58,170 $ 42,834 $ 57,888

Other expenses:

Interest, net........... $ 23,444 $ 15,874 $ 20,645 $ 30,786 $ 34,219 $ 26,043 $ 26,047
-------- -------- -------- -------- -------- -------- --------
Net income (loss) from
continuing operations
before income taxes.... (11,613) 12,867 18,955 (5,003) 23,951 16,791 31,841
Income tax expense
(benefit).............. (2,923) 5,105 8,276 (1,643) 9,922 7,581 13,596
-------- -------- -------- -------- -------- -------- --------
Net income (loss) from
continuing operations.. $ (8,690) $ 7,762 $ 10,679 $ (3,360) $ 14,029 $ 9,210 $ 18,245
</TABLE>

22
<PAGE>

Net income (loss)....... $ (8,827) $ 3,395 $ 11,000 $ (8,646) $ 12,085 $ 7,378 $ 18,193
Preferred stock
dividends and
accretion.............. 7,126 14,804 2,240 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)
attributable to common
stock.................. $(15,953) $(11,409) $ 8,760 $ (8,646) $ 12,085 $ 7,378 $ 18,193
======== ======== ======== ======== ======== ======== ========
Basic earnings (loss)
per share.............. $ (1.60) $ (0.41) $ 0.25 $ (0.24) $ 0.31 $ 0.19 $ 0.46
Weighted average basic
shares outstanding
(000s)................. 10,000 27,536 34,442 36,556 39,346 39,318 39,477
Diluted earnings (loss)
per share.............. $ (1.60) $ (0.39) $ 0.24 $ (0.24) $ 0.28 $ 0.17 $ 0.43
Weighted average diluted
shares outstanding
(000s)................. 10,000 29,292 37,082 36,556 42,629 42,816 42,716

Other Financial Data:
EBITDA(7)............... $ 55,189 $ 64,319 $ 72,857 $ 86,632 $111,209 $ 77,879 $ 91,086
EBITDA margin........... 11.4% 13.1% 15.4% 14.5% 15.9% 14.7% 16.7%
Cash capital
expenditures........... $ 24,996 $ 33,951 $ 42,136 $ 38,135 $ 55,808 $ 37,249 $ 32,385

Cash flows provided by
(used in):
Operating activities.... $ 28,031 $ 47,801 $ 53,959 $ 45,193 $ 57,289 $ 35,684 $ 46,894
Investing activities.... (20,114) (29,388) (37,226) (187,943) (49,908) (32,718) (23,582)
Financing activities.... (10,721) (12,806) (2,985) 126,852 (1,951) (6,533) (31,128)
</TABLE>

<TABLE>
<CAPTION>
December 31, December 29, December 28, December 27, December 26, October 1,
1995 1996 1997 1998 1999 2000
------------ ------------ ------------ ------------ ------------ ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data:
Cash and cash
equivalents, net of
bank overdrafts........ $ 5,526 $ 8,404 $ 23,257 $ 10,818 $ 3,280 $ 775
Total assets............ 328,645 339,668 380,002 556,465 561,889 536,265
Total debt and capital
lease obligations...... 204,025 151,793 243,882 360,711 348,091 323,775
Mandatorily redeemable
preferred stock........ 46,468 59,956 -- -- -- --
Total shareholders'
equity (deficit)....... (21,665) 37,902 48,459 87,917 100,799 119,771
</TABLE>
-------
(1) Throughout this prospectus, our fiscal years ended December 31, 1995,
December 29, 1996, December 28, 1997, December 27, 1998 and December 26,
1999 are referred to as years 1995, 1996, 1997, 1998 and 1999,
respectively. Our fiscal year consists of 52 or 53 weeks and ends on the
last Sunday in December of each year. Fiscal year 1995 included 53 weeks.
All other years shown are 52 weeks. The periods ended October 3, 1999 and
October 1, 2000 both consist of 40 weeks.
(2) General and administrative expenses for the forty weeks ended October 1,
2000 were impacted favorably by a net decrease in expenses of $1.6 million
(pre-tax) primarily related to the reversal of an environmental reserve.
The impact of the reversal was partially offset by an increase in expenses
at Seattle Coffee related to one-time, non-recurring personnel and concept
development expenses.
(3) During 1995, the board of directors granted a special award of $10.0
million to our Chief Executive Officer and his designees contingent upon
events related to the 1996 investment by Freeman Spogli & Co. The award
became payable upon the closing of the investment. In 1996, we paid this
award with approximately 3.0 million shares of common stock valued at
$3.317 per share, the fair value of our common stock at the date of
issuance. As a result of this investment, certain senior executive officers
became fully vested in stock options resulting in the recognition of
$647,000 of compensation expense in 1995.
(4) As a result of fresh start accounting principles that were used to record
assets acquired and liabilities assumed by us in November 1992 following
the reorganization of our predecessor, our operating results reflect the
amortization of intangible asset value in an amount of $5.7 million per
year.
(5) In 1998, we closed 14 of the former Pine Tree locations that we had
previously converted to company-operated Popeyes restaurants, and we closed
an additional five of the converted Popeyes restaurants in 1999.
(6) In fiscal 1996, we recorded an extraordinary loss of $4.5 million, net of
income taxes, related to the prepayment of debt obligations.
(7) EBITDA represents income from operations plus depreciation and
amortization, adjusted for non-cash items related to gains/losses on asset
dispositions and write-downs, compensation expense related to stock option
activity, and an executive compensation award (for 1995 only). EBITDA is
not a measure of performance under generally accepted accounting
principles, and should not be considered as a substitute for net income,
cash flows from operating activities and other income or cash flow
statement data prepared in accordance with generally accepted accounting
principles, or as a measure of profitability or liquidity. We have included
information concerning EBITDA as one measure of our cash flow and
historical ability to service debt. We believe investors find this
information useful. EBITDA as defined may not be comparable to similarly-
titled measures reported by other companies.

23
<PAGE>

SUMMARY SYSTEM-WIDE DATA

<TABLE>
<CAPTION>
Fiscal Year Ended(1) Forty Weeks Ended
---------------------------------------------------------------- ---------------------
December 31, December 29, December 28, December 27, December 26, October 3, October 1,
1995 1996 1997 1998 1999 1999 2000
------------ ------------ ------------ ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
System-wide sales
(000s):
Popeyes................ $ 710,840 $ 762,108 $ 853,078 $ 954,305 $1,068,574 $ 817,352 $ 931,246
Church's............... 647,746 675,995 723,988 755,074 810,471 621,152 663,593
Cinnabon(1)............ -- -- -- 41,738 152,421 110,953 128,078
Seattle Coffee
retail(1)............. -- -- -- 24,887 32,587 23,023 34,266
Seattle Coffee
wholesale(1).......... -- -- -- 36,411 50,368 36,518 40,531
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total.................. $1,358,586 $1,438,103 $1,577,066 $1,812,415 $2,114,421 $1,608,998 $1,797,714
========== ========== ========== ========== ========== ========== ==========
System-wide unit
openings(2):
Popeyes................ 105 110 137 198 151 98 93
Church's............... 81 117 132 87 133 101 76
Cinnabon............... -- -- -- 6 46 29 42
Seattle Coffee retail.. -- -- -- 18 27 20 31
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total.................. 186 227 269 309 357 248 242
System-wide units open
(end of period):
Popeyes................ 964 1,021 1,131 1,292 1,396 1,358 1,464
Company-operated....... 117 120 119 171 175 176 166
Franchised............. 847 901 1,012 1,121 1,221 1,182 1,298
Church's............... 1,219 1,257 1,356 1,399 1,492 1,477 1,534
Company-operated....... 589 622 480 491 494 500 476
Franchised............. 630 635 876 908 998 977 1,058
Cinnabon............... -- -- -- 369 388 375 417
Company-operated....... -- -- -- 212 195 193 194
Franchised............. -- -- -- 157 193 182 223
Seattle Coffee retail.. -- -- -- 71 98 90 125
Company-operated....... -- -- -- 59 76 73 72
Franchised............. -- -- -- 12 22 17 53

Total company-
operated............ 706 742 599 933 940 942 908
Total franchised..... 1,477 1,536 1,888 2,198 2,434 2,358 2,632
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total system-wide..... 2,183 2,278 2,487 3,131 3,374 3,300 3,540

System-wide percentage
change in comparable
restaurant sales(3):
Domestic:
Popeyes................ 1.1% 0.6% 3.6% 5.2% 4.4% 5.5% 3.8%
Church's............... 4.6% 4.6% 4.0% 4.6% 1.1% 1.3% 0.8%
Cinnabon............... -- -- -- -- 2.4% 3.3% 3.5%
Seattle Coffee
retail................ -- -- -- -- 3.3% 3.3% 0.0%
International:
Popeyes................ 11.6% 4.3% 1.3% (13.3)% (4.8)% (4.1)% 2.2%
Church's............... 0.9% (2.1)% 2.6% (1.5)% (2.7)% (1.8)% (1.7)%
Cinnabon............... -- -- -- -- 11.5% -- 5.6%
Seattle Coffee
retail................ -- -- -- -- -- -- --

Total commitments
outstanding (end of
period)(4)............. 1,083 1,319 1,550 1,602 1,983 1,865 2,299
</TABLE>

24
<PAGE>

25
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results
of operations for the fiscal years ended December 28, 1997, December 27, 1998
and December 26, 1999 and the forty weeks ended October 3, 1999 and October 1,
2000 should be read in conjunction with "Selected Consolidated Financial Data"
and our consolidated financial statements and the notes to those statements
that are included elsewhere in this prospectus. Our discussion contains
forward-looking statements based upon current expectations that involve risks
and uncertainties, such as our plans, objectives, expectations and intentions.
Actual results and the timing of events could differ materially from those
anticipated in these forward-looking statements as a result of a number of
factors, including those set forth under "Risk Factors", "Business" and
elsewhere in this prospectus.

General

We operate, develop and franchise quick service restaurants, bakeries and
cafes, or QSRs, primarily under the trade names Popeyes Chicken & Biscuits,
Church's Chicken, Cinnabon, Seattle's Best Coffee and Torrefazione Italia. As
of October 1, 2000, we operated and franchised 3,540 restaurants, bakeries and
cafes in 46 states, the District of Columbia and 26 foreign countries. We also
sell our premium specialty coffees through wholesale and retail distribution
channels under our Seattle's Best Coffee and Torrefazione Italia brands. Our
system-wide sales in 1999 totaled approximately $2.1 billion.

We commenced operations in November 1992 following the reorganization of our
predecessor, which franchised and operated Popeyes and Church's restaurants. As
a result of the reorganization, we were required to record our assets,
including our franchise rights and goodwill, and our liabilities at their fair
market value, rather than at the historical values used by our predecessor. As
a result, we allocated a value of approximately $115.0 million to these
franchise rights and goodwill. Accordingly, our operating results for all
periods after November 5, 1992, including the operating results contained in
the following discussion and analysis, reflect the amortization of these
intangible assets in an amount of $5.7 million per year.

Acquisitions and Dispositions

AFDC Transaction. In the second quarter of 1997, we sold 100 previously
company-operated Church's restaurants in eight domestic markets, and granted
the rights to operate these restaurants to Atlanta Franchise Development
Company, or AFDC. We received $19.9 million in cash, and a warrant to acquire a
5.0% equity interest in AFDC that has since been redeemed by AFDC for $50,000.
The $19.9 million purchase price included $2.5 million in franchise fees that
were taken into income immediately, and $1.0 million in development fees that
were deferred and then taken into income in 1999.

Chesapeake Bagel Acquisition. On May 5, 1997, we acquired the Chesapeake
Bagel franchise system, including the name, operating system and outstanding
franchise agreements, from The American Bagel Company, and as a result became
the franchisor of 158 Chesapeake Bagel restaurants. The net purchase price was
$11.8 million in cash. Substantially all of the purchase price was allocated to
intangible assets, including franchise rights, trademarks and goodwill.

Pine Tree Acquisition. On February 10, 1998, we acquired from Pine Tree
Foods, Inc. 81 leased restaurant locations, primarily located in North
Carolina, South Carolina and Georgia, for approximately $24.3 million in cash.
In addition, we recorded liabilities of approximately $4.0 million in
connection with the acquisition. Of the purchase price, $23.7 million was
allocated to goodwill. To finance this acquisition, we used existing cash and
borrowed under our existing acquisition facility. We converted 66 of these
locations into company-operated Popeyes restaurants at an additional cost

26
<PAGE>

of $16.0 million, which we borrowed under our acquisition facility, and offered
the remaining 15 leaseholds for sale. We closed 14 of the 66 converted Popeyes
restaurants in 1998, and an additional five in 1999.

Seattle Coffee Company Acquisition. On March 18, 1998, we acquired all of
the stock of Seattle Coffee Company for $68.8 million in cash and shares of our
common stock. We also assumed $4.8 million in debt. Of the purchase price,
$54.5 million was allocated to goodwill, franchise rights and trademarks. We
financed the cash portion of the acquisition using borrowings of $37.6 million
under our acquisition facility. We also issued options and warrants to purchase
additional shares of our common stock in exchange for similar options and
warrants that previously had been issued by Seattle Coffee Company.

Cinnabon Acquisition. On October 15, 1998, we acquired all of the stock of
Cinnabon International, Inc., the parent company of Cinnabon, for $64.0 million
in cash. Of the purchase price, $54.1 was allocated to goodwill. To finance
this acquisition, we borrowed $44.7 million under our bank credit facility,
which was amended to add a $50.0 million Tranche B term loan. We financed the
remaining $19.3 million with the proceeds from the sale of our common stock.

Chesapeake Bagel Divestiture. On August 30, 1999, we sold our Chesapeake
Bagel franchise system to New World Coffee-Manhattan Bagel, Inc. for $2.3
million in cash and a $1.5 million note receivable. As a result, restaurant
sales, franchise revenues, restaurant cost of sales, restaurant operating
expenses, general and administrative expenses and depreciation and amortization
related to Chesapeake's operations have been classified as discontinued
operations in our financial statements. Accordingly, the discussions that
follow include comparisons of our operating results that have been restated to
reflect the continuing operations of our existing brands.

Ultrafryer Divestiture. On June 1, 2000, we sold Ultrafryer, our restaurant
equipment manufacturing division, to an investor group led by Ultrafryer's
chief operating officer for $5.2 million, consisting of a $4.6 million note
receivable and $0.6 million in cash. The sale included all equipment, inventory
and intellectual property held by Ultrafryer, as well as the majority of
accounts receivable outstanding as of June 1, 2000. The buyer also assumed
certain payables outstanding as of June 1, 2000. We are leasing the building
and land used by Ultrafryer to the buyer under a lease that was executed
concurrently with the closing. As a result, manufacturing revenues,
manufacturing operating expenses, general and administrative expenses and
depreciation and amortization related to Ultrafryer's operations have been
classified as discontinued operations in our financial statements. Accordingly,
the discussions that follow include comparisons of our operating results that
have been restated to reflect the continuing operations of our existing brands.

27
<PAGE>

Consolidated Results of Operations

Our consolidated statement of operations data includes non-recurring items
and events that affect comparability with other periods:

. During the second quarter of 1997, we recorded $2.5 million in franchise
fees and a pre-tax $5.3 million gain that were associated with our sale
to AFDC of 100 previously company-operated Church's restaurants.

. In connection with the closure of 14 Popeyes restaurants in 1998 and
five Popeyes restaurants in 1999, that previously had been converted
subsequent to the Pine Tree acquisition, we recorded one-time charges of
$8.5 million in 1998 and $3.6 million in 1999.

. We wrote-off expenses of $5.0 million in 1998 and $3.8 million in 1999
related to our restaurant back office automation system that was under
development, which essentially constituted the entire cost of the
system.

. In 1998, we recorded a $6.8 million write off, in accordance with FAS
121, related to the Chesapeake Bagel franchise value and trademarks. In
August 1999, in connection with the sale of our Chesapeake Bagel
operations, we recorded a loss of $1.7 million, net of taxes.

. General and administrative expenses for the forty weeks ended October 1,
2000 were impacted favorably by the reversal of a $4.4 million reserve
related to certain contingent environmental liabilities, which we
believed was no longer necessary due to the very limited number of
environmental claims that we had experienced since 1993, and our
purchase of a third party environmental insurance policy that provides
coverage for the same potential liabilities. The impact of the reversal
was partially offset by an increase of $2.8 million in general and
administrative expenses at Seattle Coffee related to one-time, non-
recurring personnel and concept development expenses.

. Restaurants, bakeries and cafes are included in the computation of
comparable sales after they have been open 12 months for all periods
prior to 2000, and 15 months for 2000. Prior year sales figures used to
calculate comparable sales include sales from our Cinnabon and Seattle
Coffee brands prior to our acquisition of these two businesses in 1998.

Certain items in the financial statements for periods prior to the forty
weeks ended October 1, 2000 have been reclassified to conform to the current
presentation. These reclassifications had no effect on our reported results of
operations.

28
<PAGE>

The table below presents selected revenues and expenses and other items as a
percentage of total revenues for 1997, 1998 and 1999 and the forty weeks ended
October 3, 1999 and October 1, 2000.

<TABLE>
<CAPTION>
Fiscal Year Ended Forty Weeks Ended
--------------------------------------- ---------------------
December 28, December 27, December 26, October 3, October 1,
1997 1998 1999 1999 2000
------------ ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues:
Restaurant sales........ 85.1% 81.5% 80.3% 80.7% 78.7%
Franchise revenues...... 13.0 10.7 11.1 11.1 12.4
Wholesale revenues...... -- 6.1 7.2 6.9 7.4
Other revenues.......... 1.9 1.7 1.4 1.3 1.5
---------- ---------- ---------- -------- --------
Total revenues........ 100.0% 100.0% 100.0% 100.0% 100.0%
---------- ---------- ---------- -------- --------
Costs and expenses:
Restaurant cost of
sales(1)............... 32.6 31.8 30.0 30.1 28.8
Restaurant operating
expenses(1)............ 48.9 50.3 51.4 51.5 52.1
Wholesale cost of
sales(2)............... -- 52.4 48.4 49.1 49.2
Wholesale operating
expenses(2)............ -- 22.2 24.4 24.9 28.6
General and
administrative......... 16.3 14.3 13.8 14.6 14.1
Depreciation and
amortization........... 7.0 7.6 6.0 6.3 5.8
Charges for restaurant
closings, excluding
Pine Tree.............. 0.1 0.1 0.1 -- --
Charges for Pine Tree
restaurant closings.... -- 1.4 0.5 -- --
Software write-offs..... -- 0.8 0.5 -- --
Loss (gain) on sale of
fixed assets from AFDC
transaction............ (1.1) -- -- -- --
Total costs and
expenses............. 91.6 95.7 91.7 91.9 89.4
---------- ---------- ---------- -------- --------
Income from operations.. 8.4 4.3 8.3 8.1 10.6
Interest expense, net... 4.4 5.1 4.9 4.9 4.8
---------- ---------- ---------- -------- --------
Income (loss) from
continuing operations
before income taxes.... 4.0 (0.8) 3.4 3.2 5.8
Income tax expense
(benefit).............. 1.7 (0.3) 1.4 1.4 2.5
---------- ---------- ---------- -------- --------
Net income (loss) from
continuing operations.. 2.3 (0.5) 2.0 1.8 3.3
Gain (loss) from
discontinued
operations, net of
taxes(3)............... -- (0.9) (0.3) (0.3) --
---------- ---------- ---------- -------- --------
Net income (loss)....... 2.3% (1.4)% 1.7% 1.5% 3.3%
========== ========== ========== ======== ========
</TABLE>

(1) Expressed as a percentage of restaurant sales by company-operated
restaurants, bakeries and cafes.
(2) Expressed as a percentage of wholesale revenues.
(3) Represents the sales of both Ultrafryer and Chesapeake.

29
<PAGE>

Operating Results

System-Wide Sales.

System-wide sales include sales from all restaurants, bakeries and cafes,
whether operated by us or our franchisees, and from coffee wholesale
operations.

Revenues

Our revenues consist primarily of four elements:

. restaurant sales at our company-operated restaurants, bakeries and
cafes;

. revenues from franchising;

. revenues from wholesale operations; and

. other revenues.

Restaurant Sales. Our restaurant sales consist of gross cash register
receipts at our company-operated restaurants, net of sales tax.

Revenues from Franchising. We earn franchise revenues through franchise
agreements, domestic development agreements, and international development
agreements. Our standard franchise agreement provides for the payment of a
royalty fee based on the net restaurant sales of franchisees. We therefore
benefit from increases in franchised restaurant sales. The royalty percentages
vary by franchisee, depending on the franchise agreement and the related brand,
with an average royalty of 4.6% for the forty week period ended October 1,
2000. We record royalties as revenues when sales occur at franchised units. In
addition, we record development fees under domestic and international
development agreements, and fees for the purchase of a franchise, as deferred
revenues when received. We recognize these fees as revenue when the restaurants
for which these fees were paid are opened and all material services or
conditions relating to the fees have been substantially performed or satisfied
by us. As of October 1, 2000, prepaid development and franchise fees are
included on our balance sheet as other liabilities.

Revenues from Wholesale Operations. Our revenues from wholesale operations
consist primarily of sales of premium specialty coffee to our franchisees,
foodservice retailers, office and institutional users, supermarkets and others.

Other Revenues. Our other revenues consist of net rental income from
properties owned or leased by us which we lease or sublease to franchisees and
third parties, and interest income earned on notes receivable from franchisees
and third parties.

Operating Costs and Expenses

Restaurant Cost of Sales. Our restaurant cost of sales consists primarily of
food, beverage and food ingredients costs. They also include the costs of
napkins, cups, straws, plates, take-out bags and boxes. The primary elements
affecting our chicken restaurant cost of sales are chicken prices, which are
affected by seasonality and are normally higher during the summer months, when
demand for chicken is at its peak. The primary elements affecting our bakery
and cafe costs of sales are flour and Indonesian cinnamon, and green coffee
beans. Other factors such as sales volume, our menu pricing, product mix and
promotional activities can also materially affect the level of our restaurant
cost of sales.

Restaurant Operating Expenses. Restaurant operating expenses consist of
personnel expenses, occupancy expenses, marketing expenses and other operating
expenses incurred at the restaurant level.

30
<PAGE>

Wholesale Cost of Sales. Our wholesale cost of sales consists primarily of
the cost of green coffee beans, as well as the costs to roast, blend, warehouse
and distribute our specialty coffee blends.

Wholesale Operating Expenses. Our wholesale operating expenses consist of
personnel expenses, occupancy expenses, and other operating expenses incurred
in connection with our wholesale coffee operations.

General and Administrative Expenses

Our general and administrative expenses consist of personnel expenses,
occupancy expenses and other expenses incurred at the corporate level.
Corporate level expenses are primarily incurred at our offices in Atlanta,
Georgia and Seattle, Washington, and at our support center in San Antonio,
Texas. Additional expenses include those incurred by field personnel located
throughout the U.S.

Depreciation and Amortization Expenses

Depreciation consists primarily of the depreciation of buildings, leasehold
improvements and equipment owned by us, and amortization consists mainly of the
amortization of intangible assets. In addition, as a result of fresh start
accounting principles as prescribed by AICPA Statement of Position 90-7,
Financial Reporting by Entities in Reorganization under the Bankruptcy Code
that were used to record assets acquired and liabilities assumed by us in
November 1992 following the reorganization of our predecessor, our operating
results presented for all periods after November 1992 reflect the amortization
of intangible asset value in accordance with the fresh start accounting
principles in an amount of $5.7 million per year.

Charges for Restaurant Closings

Charges for restaurant closings, including charges for Pine Tree restaurant
closings, include the write-down of restaurant, bakery and cafe assets to net
realizable value, provisions related to future rent obligations for closed
properties, and write-offs of intangible assets identified with the properties.

Comparisons of the Forty Weeks Ended October 1, 2000 and October 3, 1999

System-Wide Sales. System-wide sales increased by $188.7 million, or 11.7%,
to approximately $1.8 billion in the forty weeks ended October 1, 2000 from
approximately $1.6 billion in the same period of 1999. Our system-wide sales
increase was due primarily to new unit growth, an increase in comparable sales
in our domestic markets and certain international franchised markets, and
coffee wholesale revenue growth. The overall increase was partially offset by a
comparable sales decrease in our Church's international markets, specifically
Taiwan and Canada. During the forty weeks ended October 1, 2000, we opened 157
restaurants, bakeries and cafes domestically, and 85 restaurants, bakeries and
cafes in international markets. As of October 1, 2000, there were 3,540 system-
wide units open, as compared with 3,300 as of October 3, 1999.

Company-Operated Unit Sales

Chicken. Company-operated chicken restaurant sales decreased by $3.7
million, or 1.1%, to $354.6 million in the forty weeks ended October 1, 2000
from $358.3 million in the same period of 1999. The decrease was due primarily
to a decrease in the number of company-operated restaurants open during the
forty weeks ended October 1, 2000. Additionally, Church's comparable sales
decreased 0.4%, while Popeyes' comparable sales increased 0.7%. Twenty-nine
company-operated

31
<PAGE>

chicken restaurants were either sold or transferred to franchisees during the
forty weeks ended October 1, 2000. As of October 1, 2000, we had 642 company-
operated chicken restaurants open, as compared with 676 as of October 3, 1999.

Bakery. Company-operated bakery sales increased by $0.4 million, or 0.8%, to
$52.6 million in the forty weeks ended October 1, 2000 from $52.2 million in
the same period of 1999. The increase was due primarily to a 4.1% increase in
comparable sales for the forty-week period ended October 1, 2000, which was
partially offset by a decrease in the number of company-operated bakeries open
during the forty weeks ended October 1, 2000. As of October 1, 2000, we had 194
company-operated bakery units open, as compared with 193 as of October 3, 1999.
However, the average number of company-operated bakeries open in the forty
weeks ended October 1, 2000 was 195, as compared with 203 in the same period of
1999.

Cafe. Company-operated cafe sales increased by $2.5 million, or 13.9%, to
$21.0 million in the forty weeks ended October 1, 2000 from $18.5 million in
the same period of 1999. The increase was due primarily to an increase in the
number of company-operated cafes open during the forty weeks ended October 1,
2000. As of October 1, 2000, we had 72 company-operated cafes open, as compared
with 73 as of October 3, 1999. However, the average number of company-operated
cafes open in the forty weeks ended October 1, 2000 was 74, as compared with 66
in the same period of 1999.

Wholesale Coffee Sales. Wholesale coffee sales increased by $4.0 million, or
11.0%, to $40.5 million in the forty weeks ended October 1, 2000 from $36.5
million in the same period of 1999. The increase was due to growth in the
number of wholesale accounts from 5,604 as of October 3, 1999 to 6,146 as of
October 1, 2000, as well as an increase in sales to existing accounts.

Franchise Royalties and Fees

Chicken. Chicken franchise royalty revenues increased by $6.4 million, or
13.0%, to $55.8 million in the forty weeks ended October 1, 2000 from $49.4
million in the same period of 1999. The increase was due to an increase in
comparable sales and new unit growth. As of October 1, 2000, we had 2,356
domestic and international franchised chicken restaurants open, as compared
with 2,159 as of October 3, 1999. Chicken franchise fee revenue decreased by
$0.3 million, or 5.5%, to $5.3 million in the forty weeks ended October 1, 2000
from $5.6 million in the same period of 1999. The decrease resulted primarily
from a decrease in the number of new units opened during the forty weeks ended
October 1, 2000, when compared with the same period of 1999. We opened 114 new
domestic franchised chicken restaurants in the forty weeks ended October 1,
2000, as compared with 120 in the same period of 1999, and 51 new international
franchised chicken restaurants in the forty weeks ended October 1, 2000, as
compared with 54 in the same period of 1999. The decrease was partially offset
by transfer and extension franchise fees collected during the forty weeks ended
October 1, 2000.

Bakery. Bakery franchise royalty revenues increased by $0.8 million, or
26.9%, to $3.9 million in the forty weeks ended October 1, 2000 from $3.1
million in the same period of 1999. The increase was due primarily to an
increase in comparable sales and new unit growth, primarily in international
markets. As of October 1, 2000, we had 223 domestic and international
franchised bakeries open, as compared with 182 as of October 3, 1999. Bakery
franchise fee revenue increased by $0.5 million, or 290.5%, to $0.7 million in
the forty weeks ended October 1, 2000 from $0.2 million in the same period of
1999. The increase resulted from our opening of 21 new domestic franchised
bakeries in the forty weeks ended October 1, 2000, as compared with 22 in the
same period of 1999, and 19 new international franchised bakeries in the forty
weeks ended October 1, 2000, as compared with four in the same period of 1999.

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Cafe. Cafe royalty revenue increased by $0.6 million, or 149.6%, to $1.0
million for the forty weeks ended October 1, 2000 from $0.4 million in the same
period of 1999. The increase was primarily due to an increase in comparable
sales and new unit growth. As of October 1, 2000, we had 53 franchised cafes
open, as compared with 17 as of October 3, 1999. Cafe franchise fee revenue
increased by $0.4 million, to $0.5 million for the forty weeks ended October 1,
2000 from $0.1 million in the same period of 1999. The increase resulted from
our opening of 16 new domestic franchised cafes in the forty weeks ended
October 1, 2000, as compared with two in the same period of 1999, and 15 new
international franchised cafes in the forty weeks ended October 1, 2000, as
compared with two in the same period of 1999.

Company-Operated Operating Profit

Chicken. Company-operated chicken restaurant operating profit increased by
$2.4 million, or 3.5%, to $71.0 million in the forty weeks ended October 1,
2000 from $68.6 million in the same period of 1999. The increase was due
primarily to a 2.8% reduction in average poultry prices. Company-operated
chicken restaurant operating profit as a percentage of company-operated chicken
restaurant sales was 20.0% in the forty weeks ended October 1, 2000, as
compared with 19.1% in the same period of 1999.

Bakery. Company-operated bakery operating profit increased by $0.4 million,
or 3.9%, to $8.3 million in the forty weeks ended October 1, 2000 from $7.9
million in the same period of 1999. The increase was due primarily to an
increase in comparable sales. Company-operated bakery operating
profit as a percentage of company-operated bakery sales was 15.7% in the forty
weeks ended October 1, 2000, as compared with 15.2% in the same period of 1999.

Cafe. Company-operated cafe operating profit increased by $0.4 million, or
19.4%, to $2.6 million in the forty weeks ended October 1, 2000 from $2.2
million in the same period of 1999. The increase was due primarily to new unit
growth. Company-operated cafe operating profit as a percentage of company-
operated cafe sales was 12.4% in the forty weeks ended October 1, 2000, as
compared with 11.4% in the same period of 1999.

Wholesale Coffee Operating Profit. Wholesale coffee operating profit
decreased by $0.5 million, or 5.4%, to $9.0 million for the forty weeks ended
October 1, 2000 from $9.5 million in the same period of 1999. The decrease was
due primarily to higher distribution costs. Wholesale coffee operating profit
as a percentage of wholesale coffee sales was 22.2% in the forty weeks ended
October 1, 2000, as compared with 26.0% in the same period of 1999.

General and Administrative Expenses. General and administrative expenses
decreased by $1.1 million, or 1.4%, to $76.6 million for the forty weeks ended
October 1, 2000 from $77.7 million in the same period of 1999. The decrease was
due to decreases in our chicken segment's expenses, as well as our corporate
general and administrative expenses. The decrease in our chicken segment's
expenses was due to sales and transfers of company-operated units to
franchisees, because franchised units cost less for us to support. The decrease
in corporate general and administrative expenses was due to the reversal of a
$4.4 million environmental reserve in the forty weeks ended October 1, 2000,
which we believed was no longer necessary due to the very limited number of
environmental claims that we had experienced since 1993, and our purchase of a
third party environmental insurance policy that provides coverage for the same
potential liabilities. The overall decrease in our chicken segment's expenses
and our corporate general and administrative expenses was partially offset by
an increase of $2.8 million in general and administrative expenses at Seattle
Coffee related to one-time, non-recurring personnel and concept development
expenses. General and administrative expenses as a percentage of total revenues
were 14.1% in the forty weeks ended October 1, 2000, as compared with 14.6% in
the same period of 1999.

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Depreciation and Amortization. Depreciation and amortization decreased by
$1.7 million, or 5.1%, to $31.8 million in the forty weeks ended October 1,
2000 from $33.5 million in the same period of 1999. The decrease was primarily
due to the re-estimation of the useful lives of certain buildings, equipment
and leasehold improvements in 1999, which resulted in a $3.0 million decrease
in depreciation expense. The decrease was partially offset by higher
depreciation expense from capital additions of $32.4 million. Depreciation and
amortization as a percentage of total revenues was 5.8% in the forty weeks
ended October 1, 2000, as compared with 6.3% in the same period of 1999.

Income from Continuing Operations. Income from continuing operations
increased by $15.1 million, or 35.1%, to $57.9 million in the forty weeks ended
October 1, 2000 from $42.8 million in the same period of 1999. The increase was
due to new unit growth, wholesale and franchise revenue increases, an increase
in comparable sales, and lower depreciation expenses. The increase was
partially offset by a decrease in company-operated chicken restaurant sales due
to the sale or transfer to franchisees of 29 Church's and Popeyes company-
operated restaurants during the forty weeks ended October 1, 2000.

Interest Expense, Net. Interest expense for the forty weeks ended October 1,
2000 of $26.0 million equaled the amount incurred in the same period of 1999.
Capital lease obligations decreased $0.4 million as a result of a decrease in
interest expense due to amortization. This decrease was offset by a $0.5
million increase in debt cost amortization due to the write-off of debt
issuance costs in connection with repurchases of $17.0 million of our senior
subordinated notes.

Income Taxes. Our effective tax rate for the forty weeks ended October 1,
2000 was 42.7%, as compared with an effective tax rate of 40.7% in the same
period of 1999. Our effective tax rate increased as a result of our reversal in
1999 of certain tax liabilities that we had previously accrued.

Gain (Loss) from Discontinued Operations.

The loss, net of income taxes, from discontinued operations was negligible
in the forty weeks ended October 1, 2000, and was $1.8 million in the same
period of 1999. The loss from discontinued operations in the forty weeks ended
October 3, 1999 reflects the loss incurred on the sale of Chesapeake, net of
income taxes, which was partially offset by income from the operations of
Ultrafryer.

Comparisons of Fiscal Years Ended December 26, 1999 and December 27, 1998

System-Wide Sales. System-wide sales increased by $302.0 million, or 16.7%,
to approximately $2.1 billion in 1999 from approximately $1.8 billion in 1998.
System-wide sales increases in 1999 were due primarily to our acquisitions of
Seattle Coffee and Cinnabon in 1998, new unit growth within our chicken brands,
and an increase in comparable sales in our domestic markets, offset by weaker
foreign currencies (measured on a constant currency basis), primarily in Asia.
In 1999, we opened 262 restaurants, bakeries and cafes domestically, and 95
restaurants, bakeries and cafes in international markets. However,
international system-wide sales did not experience growth in 1999 related to
these new unit openings, due to weaker foreign currencies. As of December 26,
1999, there were 3,374 system-wide units open, as compared with 3,131 as of
December 27, 1998.

Company-Operated Unit Sales

Chicken. Company-operated chicken restaurant sales increased by $18.5
million, or 4.2%, to $462.8 million in 1999 from $444.3 million in 1998. The
increase resulted from the opening of 32 new units and comparable sales
increases within our chicken brands. As of December 26, 1999, we had 669
company-operated chicken restaurants open, as compared with 662 as of December
27, 1998.

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Bakery. Company-operated bakery sales increased by $49.7 million, or 218.4%,
to $72.5 million in 1999 from $22.8 million in 1998. The increase was due
primarily to the full year recognition of revenues from our acquisition of
Cinnabon in October 1998. As of December 26, 1999, we had 195 company-operated
bakery units open, as compared with 212 as of December 27, 1998.

Cafe. Company-operated cafe sales increased by $4.7 million, or 23.3%, to
$25.1 million in 1999 from $20.4 million in 1998. The increase was due
primarily to the full year recognition of revenues from our acquisition of
Seattle Coffee in March 1998. As of December 26, 1999, we had 76 company-
operated cafes open, as compared with 59 as of December 27, 1998.

Wholesale Coffee Sales. Wholesale coffee sales increased by $14.0 million,
or 38.3%, to $50.4 million in 1999 from $36.4 million in 1998. The increase was
due primarily to the full year recognition of revenues resulting from our
acquisition of Seattle Coffee in March 1998.

Franchise Royalties and Fees

Chicken. Chicken franchise royalty revenues increased by $7.9 million, or
13.8%, to $64.8 million in 1999 from $56.9 million in 1998. The increase was
due to an increase in domestic comparable sales and new unit growth. The
increase was partially offset by a decrease in international comparable sales
at both Popeyes and Church's in 1999. As of December 26, 1999, we had 2,219
domestic and international franchised chicken restaurants open, as compared
with 2,029 as of December 27, 1998. Chicken franchise fee revenue increased by
$2.5 million, or 50.8%, to $7.4 million in 1999 from $4.9 million in 1998. The
increase resulted from fees generated as a result of the default by one of our
franchisees under its development agreement, as well as our opening of 172 new
domestic franchises in 1999, as compared with 134 in 1998, and 80 new
international franchises in 1999, as compared with 71 in 1998.

Bakery. Bakery franchise royalty revenues increased by $3.2 million, or
335.1%, to $4.2 million in 1999 from $1.0 million in 1998. The increase was due
primarily to the full year recognition of royalties after our acquisition of
Cinnabon in October 1998, as well as increased unit growth. As of December 26,
1999, we had 193 domestic and international franchised bakeries open, as
compared with 157 as of December 27, 1998. Bakery franchise fee revenue
increased by $0.1 million, or 14.7%, to $0.5 million in 1999 from $0.4 million
in 1998. The increase resulted primarily from our opening of 41 new franchised
bakeries in 1999, as compared with five bakeries in 1998, and was partially
offset by fees that were received in 1998 but did not recur in 1999.

Cafe. Cafe franchise royalty revenues increased by $0.5 million, or 318.1%,
to $0.7 million in 1999 from $0.2 million in 1998. The increase was due
primarily to the full year recognition of royalties after our acquisition of
Seattle Coffee in March 1998, as well as increased unit growth. As of
December 26, 1999, we had 22 domestic and international franchised cafes open,
as compared with 12 as of December 27, 1998. Cafe franchise fee revenue
decreased by $0.6 million, or 84.4%, to $0.1 million in 1999 from $0.7 million
in 1998. The decrease was due primarily to the receipt of $0.7 million in fees
that were received in 1998 but did not recur in 1999, and was partially offset
by the opening of ten new franchised cafes in 1999, as compared with three in
1998.

Company-Operated Operating Profit

Chicken. Company-operated chicken restaurant operating profit increased by
$8.9 million, or 11.5%, to $87.5 million in 1999 from $78.6 million in 1998.
The increase was due to increases in comparable sales and a 4.6% reduction in
average poultry prices. Company-operated chicken restaurant operating profit as
a percentage of company-operated chicken restaurant sales was 18.9% in 1999, as
compared with 17.7% in 1998.

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Bakery. Company-operated bakery operating profit increased by $8.3 million,
or 159.4%, to $13.5 million in 1999 from $5.2 million in 1998. The increase was
due primarily to the full year recognition of operating profit resulting from
our acquisition of Cinnabon in October 1998. Company-operated bakery operating
profit as a percentage of company-operated bakery sales was 18.6% in 1999, as
compared with 22.8% in 1998. The decrease as a percentage of sales in 1999 was
due to the seasonality of Cinnabon, which generates higher operating profit
during the Thanksgiving and Christmas shopping seasons, and had limited
operations in 1998 due to its acquisition in October of that year.

Cafe. Company-operated cafe operating profit decreased by $0.2 million, or
6.1%, to $3.1 million in 1999 from $3.3 million in 1998. Company-operated cafe
operating profit as a percentage of company-operated cafe sales was 12.1% in
1999, as compared with 16.4% in 1998. The decrease as a percentage of sales in
1999 was due to an increase in 1999 in the number of openings of new cafes,
which generally take a period of time to mature in their operations, as well as
the failure of certain of these cafes to meet anticipated performance levels in
1999.

Wholesale Coffee Operating Profit. Wholesale coffee operating profit
increased by $4.4 million, or 47.5%, to $13.7 million in 1999 from $9.3 million
in 1998. The increase was due primarily to the full year recognition of
operating profit from our acquisition of Seattle Coffee in March 1998.
Wholesale coffee operating profit as a percentage of wholesale coffee sales was
27.2% in 1999, as compared with 25.5% in 1998.

General and Administration Expenses. General and administrative expenses
increased by $10.8 million, or 12.7%, to $96.5 million in 1999 from $85.7
million in 1998. The increase was due primarily to the inclusion of a full year
of general and administrative expenses incurred at Seattle Coffee and Cinnabon,
which we acquired in 1998. In 1999, Seattle Coffee and Cinnabon accounted for
$9.3 million of the total increase in general and administrative expenses, and
our chicken brands contributed an additional $4.5 million. This increase was
partially offset by decreases in our general liability insurance expense, as
well as the reimbursement of marketing expenses incurred by us in the last half
of 1999. General and administrative expenses as a percentage of total revenues
were 13.8% in 1999, as compared with 14.3% in 1998.

Depreciation and Amortization. Depreciation and amortization decreased by
$3.1 million, or 6.7%, to $42.1 million in 1999 from $45.2 million in 1998. In
1999, we re-estimated the useful lives of certain buildings, equipment and
leasehold improvements, increasing some and decreasing others. In some cases,
the lives were not adjusted. In 1999, the impact of our change in the estimated
useful lives of these assets resulted in a decrease in depreciation and
amortization of $7.5 million. The decrease was offset by added depreciation and
amortization from our Seattle Coffee, Cinnabon and Pine Tree acquisitions.
Depreciation and amortization as a percentage of total revenues was 6.0% in
1999, as compared with 7.6% in 1998.

Charges for Restaurant Closings. Charges for restaurant, bakery and cafe
closings, other than charges for Pine Tree restaurant closings, increased by
$0.5 million, or 168.5%, to $0.8 million in 1999 from $0.3 million in 1998. The
increase resulted from the closure of nine Church's restaurants in 1999, as
compared with five Church's restaurants in 1998.

Charges for Pine Tree Restaurant Closings. Charges for Pine Tree restaurant
closings decreased by $4.9 million, or 57.9%, to $3.6 million in 1999 from $8.5
million in 1998. These charges resulted from the closure of 14 of the 66 Pine
Tree restaurants that previously had been converted to Popeyes restaurants in
1998, and the closure of an additional five of these restaurants in 1999.

Software Write-Offs. We wrote-off expenses of $3.8 million in 1999 and $5.0
million in 1998 that related to our restaurant back office automation system
that was under development. The expenses incurred in 1999 and 1998 constituted
the entire cost of the system.

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Income from Continuing Operations. Excluding charges for restaurant
closings, charges for our Pine Tree restaurant closings, and software write-
offs, income from continuing operations increased by $26.8 million, or 67.6%,
to $66.4 million in 1999 from $39.6 million in 1998. The increase was due to
the full year recognition of revenues and expenses resulting from our
acquisitions of Seattle Coffee and Cinnabon, an increase in comparable sales
and lower depreciation expense. Our chicken brands contributed $14.5 million,
or 20.7%, to the increase in income from continuing operations.

Interest Expense, Net. Interest expense, net of capitalized interest,
increased by $3.4 million, or 11.2%, to $34.2 million in 1999 from $30.8
million in 1998. The increase was due to higher levels of average debt incurred
in connection with our Pine Tree, Seattle Coffee and Cinnabon acquisitions in
1998, as well as higher effective interest rates.

Income Taxes. Our effective tax rate for 1999 was 40.7%, as compared with an
effective tax rate benefit of 32.8% in 1998. The effective tax rate benefit of
32.8% in 1998 was less than the U.S. statutory rate as a result of the
nondeductible amortization of goodwill.

Gain (Loss) from Discontinued Operations. The loss, net of income taxes,
from discontinued operations decreased by $3.4 million, or 63.2%, to $1.9
million in 1999 from $5.3 million in 1998. The loss reflects the operating
results of Chesapeake's operations, as well as the loss on the sale of
Chesapeake, and income from Ultrafryer's operations. The loss from discontinued
operations in 1998 includes a $4.6 million write-down, net of income taxes, of
Chesapeake's intangible assets. In 1999, we incurred a loss of $1.7 million on
the sale of Chesapeake, net of income taxes.

Comparisons of Fiscal Years Ended December 27, 1998 and December 28, 1997

System-Wide Sales. System-wide sales increased by $235.4 million, or 14.9%,
to approximately $1.8 billion in 1998 from approximately $1.6 billion in 1997.
The increase was primarily due to our acquisitions of Seattle Coffee and
Cinnabon in 1998, new unit growth within our chicken brands and an increase in
comparable sales in our domestic markets. The overall increase was partially
offset by a comparable sales decrease in both our Popeyes and Church's
international markets in 1998. In 1998, we opened 235 restaurants, bakeries and
cafes domestically, and 74 restaurants, bakeries and cafes in international
markets. As of December 27, 1998, there were 3,131 system-wide units open, as
compared with 2,487 as of December 28, 1997.

Company-Operated Unit Sales

Chicken. Company-operated chicken restaurant sales increased by $41.1
million, or 10.2%, to $444.3 million in 1998 from $403.2 million in 1997. The
increase was due to new restaurant growth, primarily resulting from the
acquisition of the Pine Tree locations, and comparable sales increases within
our chicken brands. In 1998, we acquired 81 of the restaurant properties
operated by Pine Tree, and during the first and second fiscal quarters of 1998,
converted 66 of these properties into company-operated Popeyes restaurants.
Sales from these 66 restaurants were $32.9 million in 1998. As of December 27,
1998, we had 662 company-operated chicken restaurants open, as compared with
599 as of December 28, 1997.

Bakery. Company-operated bakery sales from the date of our acquisition of
Cinnabon to our 1998 year end were $22.8 million.

Cafe. Company-operated cafe sales from the date of our acquisition of
Seattle Coffee to our 1998 year end were $20.4 million.

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Wholesale Coffee Sales. Wholesale coffee sales from the date of our
acquisition of Seattle Coffee to our 1998 year end were $36.4 million.

Franchise Royalties and Fees

Chicken. Chicken franchise royalty revenues increased by $4.7 million, or
9.1%, to $56.9 million in 1998 from $52.2 million in 1997. The increase
resulted from an increase in comparable sales and new unit growth. The increase
was partially offset as a result of the depressed economies in Southeast Asia
that caused a decrease in international comparable sales, as well as the impact
from the depreciating Southeast Asian currencies in converting foreign
currency-based royalties to U.S. dollars. As of December 27, 1998, there were
2,029 domestic and international franchised chicken restaurants open, as
compared with 1,888 as of December 28, 1997. Chicken franchise fee revenue
decreased by $4.6 million, or 47.9%, to $4.9 million in 1998 from $9.5 million
in 1997. The decrease resulted from the absence in 1998 of $3.7 million in fees
that resulted from two large franchise transactions in 1997, as well as the
opening of fewer franchised chicken restaurants in 1998 when compared with
1997. We opened 134 new domestic franchise restaurants during 1998, as compared
with 170 in 1997, and 71 new international franchise restaurants during 1998,
as compared with 91 in 1997.

Bakery. Bakery franchise royalty and fee revenue from the date of our
acquisition of Cinnabon to our 1998 year end were $1.4 million.

Cafe. Cafe franchise royalty and fee revenue from the date of our
acquisition of Seattle Coffee to our 1998 year end were $0.9 million.

Company-Operated Operating Profit

Chicken. Company-operated chicken restaurant operating profit increased by
$4.0 million, or 5.3%, to $78.6 million in 1998 from $74.6 million in 1997. The
increase was due to an increase in comparable sales, but was offset by a 2.8%
increase in average poultry prices. Company-operated chicken restaurant
operating profit as a percentage of company-operated restaurant sales was 17.7%
in 1998, as compared with 18.5% in 1997. The decrease as a percentage of sales
resulted from start-up expenses incurred in connection with our acquisition of
the Pine Tree properties.

Bakery. Company-operated bakery operating profit from the date of our
acquisition of Cinnabon to our 1998 year end was $5.2 million. Company-operated
bakery operating profit as a percentage of company-operated bakery sales was
22.8% in 1998.

Cafe. Company-operated cafe operating profit from the date of our
acquisition of Seattle Coffee to our 1998 year end was $3.3 million. Company-
operated cafe operating profit as a percentage of company-operated cafe sales
was 16.4% in 1998.

Wholesale Coffee Operating Profit. Wholesale coffee operating profit from
the date of our acquisition of Seattle Coffee to our 1998 year end was $9.3
million. Wholesale coffee operating profit as a percentage of wholesale coffee
sales was 25.5% in 1998.

General and Administration Expenses. General and administrative expenses
increased by $8.7 million, or 11.2%, to $85.7 million in 1998 from $77.0
million in 1997. The increase was due primarily to general and administrative
expenses incurred as a result of our 1998 acquisitions of Seattle Coffee and
Cinnabon. In 1998, Seattle Coffee and Cinnabon accounted for $9.1 million of
the total increase in general and administrative expenses. General and
administrative expenses as a percentage of total revenues were 14.3% in 1998,
as compared with 16.3% in 1997.

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Depreciation and Amortization. Depreciation and amortization increased by
$12.0 million, or 35.8%, to $45.2 million in 1998 from $33.2 million in 1997.
The increase was due primarily to our acquisitions of Seattle Coffee, Cinnabon
and Pine Tree. Depreciation and amortization as a percentage of total revenues
was 7.6% in 1998, as compared with 7.0% in 1997.

Charges for Restaurant Closings. Charges for restaurant, bakery and cafe
closings, other than charges for Pine Tree restaurant closings, decreased by
$0.2 million, or 35.1%, to $0.3 million in 1998 from $0.5 million in 1997.
These charges resulted from the closure of three Church's restaurants in 1998,
as compared with the closure of four Church's restaurants in 1997.

Charges for Pine Tree Restaurant Closings. Charges for Pine Tree restaurant
closings were $8.5 million in 1998, and resulted from the closure of 14 Pine
Tree restaurants that previously had been converted to Popeyes restaurants.

Software Write-offs. We wrote off expenses of $5.0 million in 1998 that
related to our restaurant back office automation system that was under
development.

Gain on Sale of Assets from AFDC Transaction. During 1997, we recorded a
$5.3 million pre-tax gain associated with the sale of 100 company-operated
restaurants to AFDC.

Income from Continuing Operations. Excluding charges for restaurant
closings, charges for our Pine Tree restaurant closings, software write-offs
and the gain associated with the sale of assets to AFDC, income from continuing
operations increased by $4.8 million, or 14.0%, to $39.6 million in 1998 from
$34.8 million in 1997. The increase was due primarily to our 1998 acquisitions
of Seattle Coffee and Cinnabon and a decrease in corporate general and
administrative expenses, offset by a decrease in income from continuing
operations from our chicken brands as a result of start-up expenses related to
our Pine Tree acquisition.

Interest Expense, Net. Interest expense, net of capitalized interest,
increased by $10.2 million, or 49.1%, to $30.8 million in 1998 from $20.6
million in 1997. The increase was due to higher levels of average debt
outstanding and higher effective interest rates. The increase in average debt
outstanding was primarily attributable to the refinancing transaction completed
during the second fiscal quarter of 1997, borrowings made under our acquisition
and revolving credit facilities during 1998 in connection with the acquisition
of Pine Tree and Seattle Coffee, and borrowings made under our Tranche B term
loan in connection with the acquisition of Cinnabon. The refinancing
transaction also led to higher effective interest rates during 1998.

Income Taxes. Our effective tax rate benefit for 1998 was 32.8%, as compared
with an effective tax rate of 43.6% in 1997. The effective tax rate benefit of
32.8% in 1998 was less than the U.S. statutory rate as a result of the
nondeductible amortization of goodwill.

Gain (Loss) from Discontinued Operations. The loss, net of income taxes,
from discontinued operations was $5.3 million in 1998. We had a gain, net of
income taxes, of $0.3 million in 1997 from Ultrafryer's operations. The loss
from discontinued operations in 1998 reflects the operating results of
Chesapeake's operations, the loss on the sale of Chesapeake, and income from
Ultrafryer's operations.

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Liquidity and Capital Resources

We have financed our business activities primarily with funds generated from
operating activities, proceeds from the issuance of our senior subordinated
notes, and borrowings under our bank credit facility.

For the forty weeks ended October 1, 2000, net cash provided by operating
activities was $46.9 million. Net cash provided by operating activities for
1997, 1998 and 1999 was $54.0 million, $45.2 million and $57.3 million,
respectively. Available cash and cash equivalents, net of bank overdrafts, as
of December 28, 1997, December 27, 1998 and December 26, 1999, was
$23.3 million, $10.8 million and $3.3 million, respectively. The decrease in
available cash and cash equivalents, net of bank overdrafts, in 1999 was due
primarily to the timing of accounts payable payments made at year end 1999, as
compared with year end 1998. The decrease in available cash and cash
equivalents, net of bank overdrafts, in 1998 was primarily due to the
acquisitions of Pine Tree, Seattle Coffee and Cinnabon. As of October 1, 2000,
our cash and cash equivalents, net of bank overdrafts, was $0.8 million.

For the forty weeks ended October 1, 2000, net cash used in investing
activities was $23.6 million. Net cash used in investing activities in 1997,
1998 and 1999 was $37.2 million, $187.9 million and $49.9 million,
respectively. In 1999, we invested $55.8 million in property and equipment and
$3.8 million in connection with our turnkey development program. In 1998, we
used $44.0 million in net cash in connection with our acquisition of Seattle
Coffee and $67.5 million in net cash in connection with our acquisition of
Cinnabon. In 1997, we invested $42.1 million in property and equipment and
$14.1 million in connection with our acquisition of Chesapeake Bagel, which
included $11.8 million in cash and the recording of $1.9 million in deferred
revenues and $0.4 million of other costs. We also received $19.9 million in
proceeds from the sale of 100 company-operated Church's restaurants to AFDC.

Net cash used in financing activities for the forty weeks ended October 1,
2000 was $31.1 million. Net cash used in financing activities in 1999 was $2.0
million, and net cash provided by financing activities in 1998 was $126.9
million. In 1999, we made principal payments of approximately $10.4 million on
our term loans, and repurchased approximately $8.0 million of senior
subordinated notes. In addition, we amended our bank credit facility and
borrowed an additional $25.0 million pursuant to a Tranche B term loan. We
repaid $6.0 million under our acquisition facility and $7.0 million under our
revolving credit facility in 1999.

In 1998, we financed our acquisition of Cinnabon by adding a $50.0 million
Tranche B term loan to our bank credit facility. We also borrowed $68.0 million
under our acquisition facility and $7.0 million under our revolving credit
facility to finance our acquisition of Pine Tree and Seattle Coffee. In
addition, we also received $19.3 million in net proceeds from the sale of
common stock to assist us in financing our acquisition of Cinnabon.

Capital Expenditures

Our capital expenditures consist of re-imaging activities, new unit
construction and development, equipment replacements, maintenance and general
capital improvements, capital expenditures related to our Seattle Coffee
wholesale operations, the purchase of new restaurant, bakery and cafe
equipment, and improvements at various corporate offices. In particular,
capital expenditures related to re-imaging activities consist of significant
restaurant, bakery and cafe renovations, upgrades and improvements, which on a
per restaurant basis typically cost between $70,000 and $150,000.

During the forty weeks ended October 1, 2000, we invested $32.4 million in
various capital projects, including $7.0 million in new restaurant, bakery and
cafe locations, $10.5 million in our re-imaging program, $1.6 million in our
Seattle Coffee wholesale operations, $2.7 million in new

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management information systems, $9.2 million in other capital assets to
maintain, replace and extend the lives of restaurant, bakery and cafe equipment
and facilities, and $1.4 million to complete other corporate projects.

During 1999, we invested $55.8 million in various capital projects,
including $24.6 million in new restaurant, bakery and cafe locations, $7.8
million in our re-imaging program, $2.1 million in our Seattle Coffee wholesale
operations, $3.6 million in new management information systems, $8.7 million in
other capital assets to maintain, replace and extend the lives of restaurant,
bakery and cafe equipment and facilities, and $9.0 million to complete other
corporate projects. Compared with 1998, our capital expenditures in 1999
increased $17.7 million.

Substantially all of our capital expenditures have been financed using cash
provided from normal operating activities and borrowings under our bank credit
facility.

In 2000, we plan to invest approximately $39.0 million in capital
expenditures. We estimate $13.1 million will be used for growth initiatives,
re-imaging and remodeling existing restaurants, bakeries and cafes, $13.1
million will be used for maintaining, replacing and extending the lives of
restaurant, bakery and cafe equipment and facilities, $4.9 million will be used
in our Seattle Coffee wholesale operations, and the remaining $7.9 million will
be used to complete other corporate projects.

In 2001, we plan to invest approximately $42.0 million in capital
expenditures. We estimate $16.4 million will be used for growth initiatives,
re-imaging existing restaurants, bakeries and cafes, $11.4 million will be used
for maintaining, replacing and extending the lives of restaurant, bakery and
cafe equipment and facilities, $4.4 million will be used in our Seattle Coffee
wholesale operations, and the remaining $9.8 million will be used to complete
other corporate projects. We intend to finance these investments using cash
from operations and borrowings under our bank credit facility. In addition, we
may finance a portion of our re-imaging activities in 2001 using the proceeds
from the sale of company-operated units to franchisees from time to time.

Over the next several years, we plan to sell a significant number of our
company-operated units to new and existing franchisees who commit to develop
additional units in order to fully penetrate a particular market or markets. We
will use the proceeds from the sale of these units to accelerate our planned
re-imaging activities, finance the construction and development of additional
restaurant, bakery and cafe units within our model markets from time to time,
and reduce our outstanding indebtedness.

Based upon our current level of operations and anticipated growth, we
believe that available cash provided from operating activities, together with
available borrowings under our bank credit facility and proceeds obtained from
the sale of company-operated restaurants, bakeries and cafes to franchisees
from time to time, will be adequate to meet our anticipated future requirements
for working capital, capital expenditures and scheduled payments under our
senior subordinated notes and our bank credit facility for the next 18 months.

Long Term Debt

Bank Credit Facility. In May 1997, we entered into a credit agreement with
Goldman Sachs Credit Partners L.P., Canadian Imperial Bank of Commerce and
certain other lenders, which consists of a $50.0 million, five-year Tranche A
term loan, a $25.0 million revolving credit facility and a $100.0 million
acquisition facility. Under the terms of the bank credit facility, we may also
obtain letters of credit. The Tranche A term loan and the acquisition facility
are due in installments through June 30, 2002. The Tranche A term loan, the
acquisition facility and the revolving credit facility bear interest at our
election at either a defined base rate plus an applicable margin, or LIBOR plus
an applicable margin. The interest rate margins are based on financial leverage
ratios, and may

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fluctuate because of a change in these ratios. The margins are currently 0.625%
for the defined base rate and 1.625% for the LIBOR rate. We pay yearly
commitment fees on the unused portions of our revolving credit facility and
acquisition facility in an amount ranging from 0.25% to 0.50% of the unused
amounts, based on certain financial ratios, as well as a customary annual
agent's fee. We also pay fees of 1.625% of amounts outstanding under letters of
credit issued under the bank credit facility, plus standard issuance and
administrative charges.

In connection with the acquisition of Cinnabon, we amended our bank credit
facility to add a $50.0 million Tranche B term loan due in installments through
June 30, 2004. In October 1999, we further amended our bank credit facility to
add an additional $25.0 million to the borrowing capacity under our Tranche B
term loan. At our election, the Tranche B term loans bear interest at a defined
base rate plus an applicable margin or LIBOR plus an applicable margin. The
interest rate margins are based on financial leverage ratios, and may fluctuate
because of a change in these ratios. The margins are currently 1.50% for the
defined base rate and 2.50% for the LIBOR rate.

Principal repayments under the term loans are due in quarterly installments
of $0.1 million beginning December 31, 1998 and increase to $5.6 million
beginning on September 30, 2002. As of October 1, 2000, total amounts
outstanding under our bank credit facility included: Tranche A term loan--$26.7
million due in installments through June 30, 2002; Tranche B term loan--$72.5
million due in installments through June 30, 2004; acquisition facility--$62.0
million due in installments through January 30, 2002; and revolving line of
credit--$5.0 million due June 30, 2002.

The bank credit facility contains financial and other covenants, including
covenants requiring us to maintain various financial ratios, restricting our
ability to incur indebtedness or to create or suffer to exist various liens,
and restricting the amount of capital expenditures that we may incur. The bank
credit facility also restricts our ability to engage in mergers or
acquisitions, sell assets, enter into leases or make junior payments, including
cash dividends. As of the date of this prospectus, we were in compliance with
all required covenants. The bank credit facility is secured by a first priority
security interest in substantially all of our assets. Our subsidiaries are
required to guarantee our obligations under the bank credit facility.

Amounts repaid or prepaid under the Tranche A and Tranche B term loans may
not be re-borrowed. Amounts repaid or prepaid under the acquisition facility
may be re-borrowed for acquisitions through May 21, 2001. Amounts repaid or
prepaid under the revolving credit facility may be re-borrowed through June 30,
2002.

Upon our receipt of proceeds from the sale of assets or certain other
events, we generally are required to prepay the term loans, acquisition
facility and revolving credit facility, unless such proceeds are reinvested in
certain assets. In particular, upon the receipt of the net proceeds from this
offering, our bank credit facility currently requires us to pay the Tranche A
and Tranche B term loans and the acquisition facility on a pro rata basis.
Notwithstanding the foregoing, if, after application of the proceeds from this
offering, we have a leverage ratio of 2.5 to 1 or lower, we may use 50% of the
proceeds to repurchase a portion of our senior subordinated notes. In addition,
we are currently negotiating an amendment to our bank credit facility that
would enable us to use a portion of the proceeds for general corporate
purposes. These purposes would include expenditures required for our new re-
imaging program. No assurances can be given that we will be able to obtain this
amendment.

Senior Subordinated Notes. In May 1997, we completed an offering of $175.0
million of 10.25% senior subordinated notes due May 2007. Interest is payable
on May 15 and November 15 of each year. The senior subordinated notes are
redeemable prior to May 15, 2002 in whole, but not in part, at our option, upon
the occurrence of a change of control, at a redemption price of 100% plus an
additional make-whole premium. After May 15, 2002, we may redeem the senior
subordinated notes

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in whole or in part at any time prior to maturity at the applicable redemption
prices, plus accrued and unpaid interest, if any.

The senior subordinated notes restrict us from incurring additional non-
permitted indebtedness, engaging in certain mergers or consolidations, paying
cash dividends, making certain restricted payments or investments (including
certain stock repurchases), granting certain liens or permitting subsidiaries
to incur guarantees of indebtedness. Upon the occurence of a change in control,
each holder of the notes may require us to repurchase all or a portion of the
notes of the holder at 101% of the principal amount of the notes, plus accrued
and unpaid interest, if any. As of the date of this prospectus, we were in
compliance with all required covenants. The senior subordinated notes are
unsecured and are subordinate in right of payment to all existing and future
senior indebtedness.

During the fourth fiscal quarter of 1999, we repurchased $8.0 million of our
senior subordinated notes at a slight discount using proceeds from our Tranche
B term loan. During the first fiscal quarter of 2000, we repurchased $5.0
million of our senior subordinated notes at a slight premium. In the second
fiscal quarter of 2000, we repurchased an additional $12.0 million of our
senior subordinated notes at a slight discount. These repurchases were financed
with cash from operations. From time to time, we may repurchase more of our
senior subordinated notes in the open market.

Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency Exchange Rate Risk

We are exposed to market risk from changes in interest rates on debt and
changes in commodity prices. In addition, a portion of our receivables are
denominated in foreign currency, which exposes us to exchange rate movements.
Prior to 1999, we had not utilized hedging contracts to manage our exposure to
foreign currency rate fluctuations because we determined the market risk
associated with international receivables was not significant. However, since
1999 we have entered into hedging contracts with respect to the Korean Won to
reduce our exposure to future foreign currency rate fluctuations.

Interest Rate Risk

Our net exposure to interest rate risk consists of our senior subordinated
notes and borrowings under our bank credit facility. Our senior subordinated
notes bear interest at a fixed rate of 10.25%. The aggregate balance
outstanding under our senior subordinated notes as of October 1, 2000 was
$150.0 million. Should interest rates increase or decrease, the estimated fair
value of these notes would decrease or increase, respectively. As of December
26, 1999, the fair value of our senior subordinated notes exceeded the carrying
amount by approximately $0.8 million. As of October 1, 2000, the fair value of
our senior subordinated notes equaled the carrying amount. Our bank credit
facility has borrowings made pursuant to it that bear interest rates that are
benchmarked to U.S. and European short-term floating-rate interest rates. The
balances outstanding under our credit facility as of December 26, 1999 and
October 1, 2000 totaled $171.2 million and $168.0 million, respectively. The
impact on our annual results of operations of a hypothetical one-point interest
rate change on the outstanding balances under our credit facility would be
approximately $1.7 million.

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Chicken Market Risk

Our cost of sales is significantly affected by increases in the cost of
chicken, which can result from a number of factors, including seasonality,
increases in the cost of grain, disease and other factors that affect
availability, and greater international demand for domestic chicken products.
In order to ensure favorable pricing for our chicken purchases in the future,
reduce volatility in chicken prices, and maintain an adequate supply of fresh
chicken, our purchasing cooperative has entered into two types of chicken
purchasing contracts with chicken suppliers. The first is a grain-based "cost-
plus" pricing contract that utilizes prices that are based upon the cost of
feed grains, such as corn and soybean meal, plus certain agreed upon non-feed
and processing costs. The other is a market-priced formula contract based on
the "Georgia whole bird market value". Under this contract, we and our
franchisees pay the market price plus a premium for the cut specifications for
our restaurants. The market-priced contracts have maximum and minimum prices
that we and our franchisees will pay for chicken during the term of the
contract. Both contracts have terms ranging from three to five years with
provisions for certain annual price adjustments. In 1998 and 1999,
approximately 50% of and 47% of the cost of sales for Popeyes and Church's was
attributable to the purchase of fresh chicken. In 2000, we have increased our
purchase volume under the cost-plus pricing contracts, and reduced purchases
under the market-based contracts, in order to further reduce our exposure to
rising chicken prices.

Coffee Bean Market Risk

Our principal raw material in our Seattle Coffee operations is green coffee
beans. The supply and prices of green coffee beans are volatile. Although most
coffee beans trade in the commodity market, the prices of the coffee beans of
the quality that we use tend to trade on a negotiated basis at a premium above
the commodity market prices. The supply and prices of coffee beans can be
affected by many factors, including weather, political and economic conditions
in producing countries. We typically enter into supply contracts to purchase a
pre-determined quantity of green coffee beans at a fixed price per pound. These
contracts usually cover periods up to a year, as negotiated with the individual
supplier. As of October 1, 2000, we had commitments to purchase green coffee
beans at a total cost of approximately $10.6 million, which we anticipate will
satisfy most of our green coffee bean requirements through December 2001.

Long-Term Employee Success Plan

Under our Long-Term Employee Success Plan, if our common stock is publicly
traded and the average stock price per share is at least $31.00 for a period of
20 consecutive trading days, or our earnings per share for any of the years
2000, 2001, 2002 or 2003 is at least $2.25, bonuses become payable to all
employees hired before January 1, 2003 who have been actively employed through
the last day of the period in which we attain either of these financial
performance standards. Employee payouts range from 10% to 110% of the
individual employee's base salary at the time either of the standards is met.
The percentage is based upon the individual employee's original date of hire,
and can amount to as much as 110% for an employee whose date of hire was prior
to January 1, 1998. The bonuses are payable in shares of our common stock or,
to the extent an employee is eligible, deferred compensation, and may be paid
in cash if an employee elects to receive a cash payment and our board of
directors agrees to pay the bonus in cash. If neither of our financial
performance standards has been achieved by December 28, 2003, the plan and our
obligation to make any payments under the plan would terminate.

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indenture. Further, we may not have sufficient cash resources to pay these
bonuses in cash at the time they become payable, which would cause us to pay
all or a portion of the bonuses using shares of our common stock. Assuming that
the financial performance standards were achieved as of the date of this
prospectus, we estimate that we would be obligated to pay bonuses with an
aggregate value of approximately $75.0 million. However, assuming that our
historical employee turnover and retention rates continue, and that either of
the financial performance standards was achieved as of December 28, 2003, we
estimate that we would only be obligated to pay bonuses with an aggregate value
of approximately $45.0 million.

Extra Week in 2000

Our fiscal year calendar, which ends on the last Sunday of each year,
results in a fifty-third week every five or six years. Fiscal year 2000 will
include a fifty-third week in the fourth quarter. This additional week will
have a favorable effect on our operating results for 2000.

Year 2000

We adopted a Year 2000 plan to prepare our information technology systems
and non-information technology systems for the Year 2000 issue. We have not
experienced any significant Year 2000 failures either internally or from our
vendors and suppliers or our franchise community. There can be no certainty
that failures or problems related to Year 2000 might not develop in the future,
but we do not believe any such failures or problems are reasonably likely to
materially disrupt our business.

Through October 1, 2000, we incurred approximately $1.0 million in Year 2000
costs, which was funded using cash from operations. These costs consisted
primarily of fees paid to outside consultants who helped develop a strategy to
assess our Year 2000 issues and completed this assessment. We do not anticipate
incurring more costs associated with Year 2000 problems.

Impact of Inflation

We believe that, over time, we generally have been able to pass along
inflationary increases in our costs through increased prices of our menu items,
and the effects of inflation on our net income historically have not been, and
are not expected to be, materially adverse. Due to competitive pressures,
however, increases in prices of menu items often lag inflationary increases in
costs.

Seasonality

Our Cinnabon bakeries and Seattle Coffee cafes have traditionally
experienced the strongest operating results during the holiday shopping season
between Thanksgiving and Christmas. Any factors that cause reduced traffic at
our Cinnabon bakeries and Seattle Coffee cafes during this period would impair
their ability to achieve normal operating results.

Tax Matters

In January 2000, the IRS concluded an audit of our 1996 return without
making any material adjustments to our taxable income as originally reported.
The statute of limitations remains open with respect to income tax returns that
we have filed for the fiscal years 1997 forward. Consequently, we could be
audited for any of these additional fiscal years. Presently, we do not believe
that we have any tax matters that could materially affect our financial
statements.

In connection with our Cinnabon acquisition, we acquired net operating loss
carryforwards of $13.4 million and tax credit carryforwards of $1.8 million.
The utilization of these tax carryforwards is restricted under the Internal
Revenue Code. Consequently, the deferred tax asset related to these items has
been offset partially in our balance sheet with a valuation allowance of $7.1
million. Accordingly, the balance sheet does not reflect a net deferred tax
asset for these tax carryforwards.

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Recent Accounting Pronouncements

In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities", was issued.
This statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, collectively referred to as derivatives, and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. As issued, this statement was to become effective
for financial statements for periods beginning after June 15, 1999. However, in
June 1999, Statement of Financial Accounting Standard No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date
of FASB Statement No. 133" was issued. As a result, the statement became
effective beginning after June 15, 2000. In June 2000, Statement of Financial
Accounting Standard No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities" was issued. This statement amends the accounting
and reporting standards of FASB Statement No. 133 for certain derivative
instruments and certain hedging activities. We do not believe the
implementation of FASB Statement No. 133 or FASB Statement No. 138 will have a
material effect on our consolidated financial statements.

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BUSINESS

Overview

We operate, develop and franchise quick service restaurants, bakeries and
cafes, or QSRs, primarily under the trade names Popeyes Chicken & Biscuits,
Church's Chicken, Cinnabon, Seattle's Best Coffee and Torrefazione Italia.
Popeyes and Church's together constitute the second-largest chicken QSR concept
in the world, based on system-wide units and sales. Our Cinnabon brand is the
world-wide leader in the QSR cinnamon roll bakery category. Seattle's Best
Coffee is a leading alternative to the current market leader in the specialty
coffee category, based upon its number of wholesale accounts and its expanding
retail cafe presence. As of October 1, 2000, we operated and franchised 3,540
restaurants, bakeries and cafes in 46 states, the District of Columbia and 26
foreign countries. We also sell our premium specialty coffees through wholesale
and retail distribution channels under our Seattle Coffee brands. Our system-
wide sales in 1999 totaled approximately $2.1 billion.

Our primary objective is to be the Franchisor of Choice -- the recognized
leader in offering quality franchising opportunities to existing and potential
franchisees. We believe that we can achieve this by continuing to offer our
franchisees investment opportunities in highly recognizable brands that are
uniquely positioned in their categories, possess strong growth characteristics,
and offer attractive returns on investment, together with exceptional
franchisee support systems and services. We plan to increase the number of our
restaurants, bakeries and cafes primarily through the development of new
franchised units, and to convert a significant number of our company-operated
units to franchised units. We believe that this focus on franchising can
provide us with higher profit margins and greater returns on investment, while
significantly reducing the capital required by us to operate and grow our
brands. We have already increased our total number of franchised units from
1,477 as of December 31, 1995 to 2,632 as of October 1, 2000, representing a
78% increase.

Background

We commenced operations in November 1992 following the reorganization of our
predecessor, which operated and franchised Popeyes and Church's restaurants. A
new management team headed by Frank J. Belatti, the former President and Chief
Operating Officer of Hospitality Franchise Systems, Inc., or HFS, and prior to
that, of Arby's, Inc., assumed control of our operations. From November 1992
through 1995, we focused on improving the quality and appeal of our brands
through a number of measures, including re-imaging a significant number of our
Popeyes and Church's restaurants, enhancing the profitability of our company-
operated restaurants, improving our franchisee support systems and services,
and increasing the number of our franchised restaurants. As a result of these
initiatives, EBITDA increased from $35.3 million (after adjusting for non-
recurring reorganization expenses) in 1992 to $55.2 million in 1995,
representing a compound annual growth rate of 16.1%. In addition, from the end
of 1992 to the end of 1995, the number of our franchised restaurants increased
from 1,162 to 1,477, and outstanding franchise development commitments
increased from 372 to 1,083.

In April 1996, Freeman Spogli & Co., a private equity investment firm,
acquired a controlling interest in us, and PENMAN Partners, an African-American
controlled investment firm, simultaneously made an equity investment. We used
the $70.0 million of proceeds from these investments to re-image additional
Popeyes and Church's restaurants, further penetrate existing markets and
develop new markets through the construction of new units, and reduce our
indebtedness. In 1997, we refinanced our indebtedness by issuing senior
subordinated notes and entering into a new bank credit facility. We used the
proceeds from our senior subordinated notes offering to redeem preferred stock
that previously had been issued to our lenders in our 1992 reorganization. The
availability of funds under our new bank credit facility, and the remaining
proceeds from the issuance of our senior

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subordinated notes, together with our improved operating performance and the
improvement of our franchising support systems and services, positioned us to
acquire additional brands.

We acquired Seattle Coffee Company in March 1998, and Cinnabon International
in October 1998. We acquired these two businesses because we believed that they
held the opportunity for exceptional worldwide growth, were well-suited for
franchising, consisted of complementary products that were sold in similar
markets and venues, and could benefit from our operating efficiency, management
experience and franchisee support systems. During the last two years, we
reactivated the franchising programs for our Cinnabon and Seattle Coffee
brands. We also replaced Seattle Coffee's distribution facility and added
roasting and packaging equipment. Additionally, we remodeled a number of units,
and updated the menus and improved the management team for each brand. During
this same period, we continued to promote our Popeyes and Church's brands and
to improve our franchisee support systems and services. As a result of these
more recent efforts, combined with our history of improving our Popeyes and
Church's brands, we believe that we are now well-positioned to further expand
our existing portfolio of brands and to acquire new branded concepts.

From the beginning of 1995 to the end of 1999, our management team
engineered a dramatic improvement in our overall performance, including the
following:

. Growth in total system-wide sales at a compound annual rate of 11.3% and
franchising revenue at a compound annual rate of 13.4%;

. An increase in comparable system-wide domestic restaurant sales for
Popeyes and Church's in each year;

. Growth in market share from 15.4% to 19.2% for our chicken brands;

. An increase in the number of franchised units from 1,355 to 2,434 and in
outstanding franchise development commitments from 1,047 to 1,983;

. An increase in the number of international franchised units from 346 in
18 foreign countries to 577 in 24 foreign countries; and

. Growth in EBITDA at a compound annual rate of 21.1%, and an improvement
in EBITDA margin from 11.4% to 15.9%.

Company Strengths

High Brand Awareness and Crave Appeal(TM). We have established a high level
of awareness for each of our brands with both franchisees and consumers. Over
Popeyes' 28 years of operation and Church's 48 years of operation, these
restaurants have become two of the most highly recognized brand names in the
QSR industry. Popeyes has achieved its unique market position by focusing on
its Cajun culinary and cultural heritage, while we believe Church's is the
established market leader in value-oriented fried chicken meals for price
conscious consumers. Cinnabon has established an unusually high level of brand
awareness. This is attributable to the high traffic locations where our
bakeries are located, such as airports and malls, as well as Cinnabon's
reputation for fresh, aromatic, oven-hot cinnamon rolls. Seattle's Best Coffee
is one of the oldest, and we believe one of the most recognized, brands in the
specialty coffee business. Torrefazione Italia's classic coffees have an
established position in the emerging market for ultra-premium coffees. We
believe that our products have a competitive advantage because of their unique
taste and positioning within their respective categories. Because of the high
level of brand awareness and the unique taste profiles and positioning of our
products, which we refer to as their crave appeal, we have developed a loyal
base of existing customers and are uniquely positioned to attract new
customers.

Leading Market Positions. We are the second largest operator and franchisor
of chicken QSRs in the world, with 2,998 Popeyes and Church's restaurants
located in the U.S. and 22 foreign

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countries as of October 1, 2000. For the twelve months ended June 1, 2000, the
Popeyes QSR system generated 11.8% of all sales in the domestic chicken QSR
category, while the Church's QSR system generated 7.8% of all sales in that
category, in each case according to Restaurant Trends, an independent research
organization. On a combined basis, we have a market share of 19.6% in the
chicken QSR category. Cinnabon is the world-wide leader in the QSR cinnamon
roll bakery category, with 371 bakeries in 40 states and 46 bakeries in 11
foreign countries as of October 1, 2000. Based on market related information
reported in the July 2000 issue of Restaurants & Institutions Magazine,
Cinnabon held an 8.4% share of the estimated $2.3 billion other snack market,
which consists of cookies, pretzels, cinnamon rolls, smoothies/juices and other
sweet snacks sold primarily in shopping mall and travel venues. Finally,
Seattle Coffee is a leading alternative to the current market leader in
specialty coffee, based upon its number of wholesale accounts and its expanding
retail cafe presence. As of October 1, 2000, the Seattle Coffee system
consisted of 125 cafes in 16 states and five foreign countries, and had over
6,000 wholesale accounts.

Efficient QSR Support System. We have developed an efficient infrastructure
to support our company-operated and franchised units. Our centralized corporate
management structure and ongoing implementation of new management information
systems enable us to tightly control unit and corporate-level costs, capture
economies of scale and react more quickly to trends developing in our
businesses. In particular, through our cooperatives, we and our franchisees
have experienced substantial savings as a result of our size and collective
bargaining power, particularly with respect to food, beverage and paper goods,
and our marketing programs. These operational efficiencies have contributed to
the improvement of our EBITDA margin from 11.4% in 1995 to 15.9% in 1999.

Attractive Investment Opportunities for Franchisees. We offer our
franchisees investment opportunities in highly recognizable brands that are
uniquely positioned in their categories, possess strong growth characteristics
and offer attractive returns on investment. We provide franchisees strong
operational, marketing and technological support systems and services,
innovative new products, periodic re-imaging designs, and economies of scale
achieved through our systems' collective purchasing power. In addition, we
provide our franchisees with excellent opportunities to develop additional
units through both traditional and non-traditional formats and venues. We
believe that these opportunities have led not only to growth in the number of
franchised units from 1,477 at year end 1995 to 2,632 as of October 1, 2000,
representing a compound annual growth rate of 12.3%, but also an increase in
the number of franchise development commitments from 1,083 at year end 1995 to
2,299 as of October 1, 2000, representing a compound annual growth rate of
16.3%. We also believe that the attractiveness of these opportunities is
evidenced by the number of our franchisees and the number of units that these
franchisees operate. We currently have over 500 domestic and international
franchisees. Of these franchisees, 42 currently operate more than ten of our
restaurants, bakeries and cafes.

Model for Growth. Our brands have had a track record of significant growth,
and we believe that they have strong potential for continued growth, both
domestically and internationally. We have developed the operating systems and
support services needed to facilitate future growth in new geographic
territories and within existing markets, and a site identification and unit
development process that enables us to identify and obtain favorable sites and
to efficiently open new units. Our growth will also be supported by industry
growth trends, as the QSR industry is expected to grow at a compound annual
growth rate of 5.9% through 2004, and the chicken QSR category is expected to
grow at a compound annual rate of 6.0% through 2004, each according to
Technomic, an independent research organization. Our domestic growth, both in
new geographic territories and within existing markets, will also be supported
by positive growth trends in the demographics of our current customer base.
Based on the success of our Cinnabon and Seattle Coffee brands in Japan and
certain other foreign countries, despite a relatively low existing market
penetration, we believe

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that the growth opportunities for these two brands internationally are
particularly strong. We plan to open over 900 franchised restaurants, bakeries
and cafes, both domestically and internationally, during the next two years.

Experienced Management Team. Our management team, led by Frank J. Belatti,
Dick R. Holbrook and Gerald J. Wilkins, has overseen a period of strong
operating performance and increased unit growth. Mr. Belatti and Mr. Holbrook
each has substantial experience in the restaurant and franchising industries.
Mr. Wilkins has substantial management experience in the franchising of
restaurants and in managing the financial operations of other business
enterprises. Our eight senior executives have an average of more than 20 years
of experience in the restaurant and franchising industries, and enjoy an
excellent reputation. Members of our management team possess diverse skills
that include brand marketing, restaurant operations, product and concept
development and franchising development and operations.

Strategy

Our primary objective is to be the Franchisor of Choice -- the recognized
leader in offering quality franchising opportunities to existing and potential
franchisees. We also will continue to promote brand awareness of our existing
portfolio of brands, increase market penetration of our existing brands
domestically and internationally, primarily by franchising additional units,
and we will acquire additional branded concepts. The following are the key
elements of this strategy:

Be the Franchisor of Choice (R). Currently, we offer franchisees investment
opportunities in highly recognizable brands that are uniquely positioned in
their categories, possess strong growth characteristics, and offer attractive
returns on investment, together with exceptional franchisee support systems and
services. We intend to be the recognized leader in offering these
opportunities. We believe that, as a result of this strategy, franchisees will
prefer to partner with us, rather than with other franchisors, making us the
Franchisor of Choice.

Growth Primarily Through Franchising. As the Franchisor of Choice, we plan
to open new restaurants, bakeries and cafes predominantly through franchising.
According to an Arthur Andersen study published in 1999, sales from total
franchised operations in the U.S. are expected to exceed $1.0 trillion in 2000.
We believe that our focus on franchising can provide us with higher profit
margins and returns on investment, while significantly reducing the capital
required by us to operate our brands. As of October 1, 2000, we had development
commitments from existing and new franchisees to open 2,299 new restaurants,
bakeries and cafes. Substantially all of our new units to be opened over the
next several years will come from these commitments, as well as additional
commitments that we expect to obtain in the future. We also plan to sell a
significant number of our company-operated units over the next several years to
new and existing franchisees who commit to develop additional units within a
particular market or markets in order to fully penetrate their markets.

Model Markets Program. For each of our brands, we will continue to own and
operate units in one or more markets. Our objective is to concentrate on
operating fewer units and in fewer markets overall, in order to focus our
resources on establishing operational and marketing best practices for each of
our brands, thereby creating model markets. The best practices established in
each of these model markets will then be shared with the franchisees of each of
our brands. Additionally, we will use these model markets to further improve
and enhance each of our brands by continuing menu development, product
innovation and testing of new operating systems, equipment, technologies,
venues and facility designs. We believe that the benefits and results from our
model markets

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program will further enhance our relationships with our franchisees by
providing them with greater returns on their investment, while at the same time
optimizing our own returns on investment from our company-operated units.

Promote Our Uniquely Positioned Brands. We continually promote and refresh
the image of our brands in order to increase consumer awareness and increase
sales. We recently have begun to implement a new re-imaging program that is
designed to update the image of our brands. This will reinforce the unique
positioning of our brands and enhance the customer experience. We plan to have
all of our restaurants, bakeries and cafes re-imaged by the end of 2003. Each
of our franchisees is contractually required to similarly re-image its
restaurants, bakeries, and cafes every seven years. The program involves
implementing new logos, packaging, uniforms, menu boards, menu items and trade
dress that we have recently developed in order to emphasize the image of each
brand. At the same time, we will continue to develop and test new products in
order to generate consumer interest, address changing consumer preferences, and
strengthen our brands' positions. For example, Church's will begin offering a
permanent value menu, which is designed to strengthen Church's brand position
of offering simple meals with large portions at low prices. Finally, we plan to
accelerate our three-tiered marketing strategy, which consists of television
and radio advertising, print advertisements and signage, and point-of-purchase
materials.

Expand Our Penetration in New Geographic Territories and Within Existing
Markets, and Develop New Channels of Distribution. Currently, the domestic and
international markets for our brands are substantially underpenetrated. We are
increasing the number of our restaurants, bakeries and cafes in new and
existing markets. In 2001, we plan to franchise and open 200 new Popeyes and
Church's restaurants in the U.S. and 70 new restaurants internationally. We
plan to franchise and open 45 new Cinnabon bakeries and 25 new Seattle Coffee
cafes in the U.S., and 55 new bakeries and 30 new cafes internationally. In
addition, we are expanding the number and type of non-traditional formats in
which our Popeyes and Church's chicken restaurants are located, including
convenience stores, mall food courts, airports and other transportation
centers. We also are aggressively expanding the wholesale distribution of our
Seattle Coffee brands to make them available wherever specialty coffee is sold,
including in regional and national supermarkets, airports, upscale restaurants,
hotels and resorts, cruise lines and corporate offices. Finally, we plan to
serve Seattle's Best Coffee in a substantial number of our Cinnabon bakeries
that do not already serve it, and to offer a selection of Cinnabon products in
the bakery case at Seattle Coffee cafes as complementary crave foods and
beverages. By offering each brand exclusively at the other's bakery or cafe, we
believe we will be able to further penetrate existing markets, open new
markets, increase the demand for both brands' products, and further
differentiate each brand from their competitors.

Expand Internationally. We plan to continue entering into franchise
development agreements with qualified partners to develop restaurants, bakeries
and cafes internationally. We believe that we have the opportunity to establish
or further expand a leading market position in a number of countries, due to
the appeal of our highly recognizable American brands, as well as a lack of
significant competition for our brands in these markets. We also believe that
international development is attractive to foreign investors due to strong per
unit economics resulting largely from higher average unit volumes, lower food
costs, lower labor costs and less QSR competition than we and our franchisees
experience in the U.S. We believe that the demand for premium specialty coffees
in international markets is particularly strong. In addition, a substantial
number of countries around the world have established markets for quick service
restaurants, bakeries and cafes and an expanding group of QSR consumers. Our
international operations have increased from 346 franchised units in 18 foreign
countries at the end of 1995, to 628 franchised units in 26 foreign countries
as of October 1, 2000. Additionally, commitments to develop international
franchised units have increased from 502 at the end of 1995 to 1,005 as of
October 1, 2000.

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Acquire Additional Branded Concepts. We plan to use our knowledge,
experience, franchisee relationships and support systems and services to
acquire, develop and expand additional branded concepts. Our objective is to
acquire brands that are highly recognizable and uniquely positioned in their
markets, possess strong growth characteristics, are well-suited to franchising
and offer attractive returns on investment.

Brand Profiles

Popeyes(R) Chicken & Biscuits. Founded in New Orleans, Louisiana in 1972,
our Popeyes brand is the market leader in the Cajun segment of the QSR
industry. Popeyes' leading position is driven by its signature Cajun fried
chicken. As of October 1, 2000, Popeyes had 1,464 restaurants worldwide. In
1999, Popeyes was the second-largest chicken QSR concept in the world, measured
by system-wide sales, which were approximately $1.1 billion. Popeyes' specialty
menu consists of fresh, hand-battered, bone-in fried chicken available in two
flavors, New Orleans Spicy and Louisiana Mild, and a wide assortment of award-
winning signature Cajun cuisine side dishes, including red beans and rice,
Cajun rice, Cajun fries and buttermilk biscuits. Popeyes is positioned as a
premium fried chicken concept for customers who seek its full flavor and
special blend of seasonings and spices. We are also known for our Popeyes'
Louisiana Legends(TM) portion of the menu that consists of jambalaya, etouffee
and chicken and seafood gumbo served over rice, which complements Popeyes' core
menu items with a collection of one of a kind dishes steeped in Louisiana
heritage. Popeyes' spicy fried chicken and other Cajun menu offerings have also
proven to be popular internationally, particularly in Asia.

We intend to evolve the Popeyes brand into a Cajun restaurant company that
will enable us to shape and lead the growing Cajun food segment of the QSR
industry. We intend to accomplish this by re-imaging all of our company-
operated Popeyes restaurants to our New Orleans Heritage exterior and interior
design over the next three years, and requiring all of our franchisees to re-
image their restaurants similarly in accordance with their franchise
agreements. Popeyes restaurants are generally constructed in traditional stand-
alone and in-line locations, as well as in non-traditional formats such as
airports, malls, food courts, military bases and travel centers.

Popeyes restaurants are located in 42 states, the District of Columbia and
17 foreign countries. Our 166 company-operated Popeyes restaurants are located
in Georgia, Illinois, Louisiana, North Carolina, South Carolina and Texas. Over
70% of our 1,053 domestic franchised Popeyes restaurants are located in
California, Florida, Georgia, Illinois, Louisiana, Maryland, Mississippi, Texas
and Virginia. Over 65% of our 245 international franchised Popeyes restaurants
are located in Korea.

In 1999, Popeyes began testing two new Cajun cuisine restaurant concepts.
The first was Cajun Kitchen, a Popeyes Creation(TM), a quick casual dining
concept, and the second was Cajun Cafe by Popeyes(TM), a mall food court
concept. We have an agreement with Lettuce Entertain You Enterprises under
which it assisted us in developing our Cajun Kitchen concept and operates the
Cajun Kitchen restaurant that is located in the Chicago area. We also operate a
Cajun Cafe in New Orleans, Louisiana, and another in Atlanta, Georgia.

Church's Chicken(TM). Founded in San Antonio, Texas in 1952, our Church's
brand is one of the oldest QSR systems in the U.S. As of October 1, 2000,
Church's had 1,534 restaurants worldwide, making it the second largest chicken
QSR concept in the world, measured by number of units. System-wide sales for
1999 were $811.0 million. Church's restaurants focus on serving traditional
Southern fried chicken in a simple, no-frills restaurant setting. Church's menu
items

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also include other Southern specialties, including fried okra, coleslaw, mashed
potatoes and gravy, corn on the cob, jalapeno peppers and honey butter
biscuits. Church's is positioned as the New Value Leader in the chicken QSR
category, providing simple meals with large portions at low prices for price
conscious consumers. We plan to re-image all of our company-operated Church's
restaurants to more contemporary designs over the next three years, and to
require all of our franchisees to re-image their restaurants similarly in
accordance with their franchise agreements. Church's restaurants are
traditionally found in urban areas where they attempt to establish a reputation
as a neighborhood restaurant. With its small footprint and a simple operating
system, Church's has successfully expanded into non-traditional formats such as
convenience stores, and plans to continue to open additional units in
convenience stores. Church's has been popular internationally, particularly in
Asia and Puerto Rico, operating under the Church's and Texas Chicken(R) brand
names.

Church's restaurants are located in 29 states and ten foreign countries. Our
476 company-operated Church's restaurants are concentrated primarily in
Alabama, Arizona, Florida, Georgia, Louisiana, Mississippi, Oklahoma and Texas.
Over 65% of our 741 domestic franchised Church's restaurants are located in
California, Florida, Georgia, Illinois, Louisiana, Michigan, New York and
Texas. Over 95% of our 317 international franchised Church's restaurants are
located in Canada, Indonesia, Mexico, the Philippines, Puerto Rico and Taiwan.

Cinnabon(R). Founded in Seattle, Washington in 1985, our Cinnabon brand is
the leading cinnamon roll bakery QSR concept in the world. As of October 1,
2000, Cinnabon had 417 bakeries worldwide. System-wide sales for 1999 were
$152.4 million. Cinnabon has built a reputation for serving fresh, aromatic,
oven-hot cinnamon rolls made with Indonesian cinnamon and topped with a sweet,
rich cream cheese-based frosting. The classic Cinnabon roll laid the foundation
for Cinnabon's high standards and commitment to premium fresh products. Some of
Cinnabon's new product offerings include the Caramel Pecanbon(R), Caramel
Frosted Applebon(TM) and CinnabonStix(TM). CinnabonStix is a portable product
that complements Cinnabon's other products and is targeted to on-the-go
consumers. Since its introduction in June 2000, CinnabonStix has driven
significant increases in customer traffic and comparable sales at Cinnabon
bakeries, with CinnabonStix accounting for approximately 9% of sales at the
average unit since its introduction. In addition to baked goods, Cinnabon
offers a variety of proprietary beverages, including the Mochalatta Chill(R), a
mocha-flavored cold coffee beverage, and Seattle's Best Coffee, which is served
in approximately 200 bakeries. We believe that the low ticket, impulse purchase
nature of the business, as well as the small footprint and operationally simple
business model, are attractive features of this brand. Our Cinnabon bakeries
are located in high traffic venues such as shopping malls, airports, train
stations and travel plazas. We plan to re-image all of our company-operated
Cinnabon bakeries over the next three years to our new Heritage exterior and
interior design, and will require all of our franchisees to similarly re-image
their bakeries in accordance with their franchise agreements.

Cinnabon bakeries are located in 40 states and 11 foreign countries. Our 194
company-operated Cinnabon bakeries are concentrated primarily in California,
Florida, Illinois, Massachusetts, Michigan, Ohio, Pennsylvania, Texas,
Washington and Wisconsin. Our 177 domestic franchised Cinnabon bakeries are
concentrated primarily in Arizona, California, Illinois, Massachusetts,
Minnesota, Nevada, New Jersey, New York and Ohio. Our 46 international
franchised Cinnabon bakeries are located primarily in Canada, Japan, Mexico,
the Philippines, Saudi Arabia, Thailand, the United Kingdom and Venezuela. Our
four franchised Cinnabon bakeries in Japan, which have been open from one to 11
months, are generating average weekly sales of $56,755, as compared with
average weekly sales of $7,365 in the U.S.

Seattle Coffee. Seattle Coffee Company was created as a result of combining
Seattle's Best Coffee, Inc. and Torrefazione Italia, Inc. in May 1994. As of
October 1, 2000, we had 125 cafes in the Seattle Coffee system, 107 of which
are Seattle's Best Coffee cafes and 18 of which are

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Torrefazione Italia cafes, and more than 6,000 wholesale accounts. Our coffee
cafes are located in 16 states and five foreign countries.

We roast and blend our Seattle's Best and Torrefazione Italia specialty
coffees in our 30,000 square foot automated roasting facility on Vashon Island,
near Seattle, Washington. We believe that our roasting and packaging facility
may be one of the most technologically advanced in the U.S., and has the
capacity to roast approximately 13 million pounds of green coffee beans per
year. We select our coffee beans from the highest quality Arabica beans, which
come from the finest growing regions of the world. We operate 14 regional
wholesale offices throughout the U.S. and one in Canada.

Seattle's Best Coffee(R). Seattle's Best Coffee is one of the oldest brands
in the domestic specialty coffee business. Seattle's Best Coffee was founded in
1970 and opened its first retail cafe in 1983 in Bellevue Square, a regional
mall located in Seattle, Washington. Management adopted a strategy of using
retail stores to support and build brand awareness in order to drive wholesale
sales. This strategy generally has remained unchanged. Seattle's Best Coffee
markets several coffee house blends under names such as Seattle's Best
Blend(R), Post Alley Blend(R), Saturday's Blend(R), Portside Blend(R) and
Henry's Blend(R). Each blend has a unique flavor, allowing Seattle's Best
Coffee to appeal to a broad range of taste preferences.

Our 69 domestic company-operated Seattle's Best Coffee cafes are located
primarily in Washington, Oregon, California and Illinois. Currently, Seattle's
Best Coffee is also being sold in approximately 200 Cinnabon bakeries. Our 33
domestic franchised cafes are located primarily in Georgia, Oregon, Texas and
Washington. Our 20 international franchised cafes are located primarily in
Japan and Saudi Arabia. Our 11 franchised coffee cafes in Japan, which have
been open from two to 13 months, are generating average weekly sales of
$14,731, as compared with average weekly sales of $6,235 in the U.S. Our
Seattle's Best Coffee cafes are typically located in high traffic venues such
as central business districts and shopping centers. More recently, we have
begun to franchise our Seattle's Best Coffee cafes for operation in airports,
which we believe will provide our Seattle Coffee brand with both wholesale and
retail opportunities, and increase brand awareness due to the heavy customer
traffic at these venues. In addition, we plan to re-image all of our company-
operated Seattle's Best Coffee cafes over the next three years, and to require
all of our franchisees to re-image their cafes similarly in accordance with
their franchise agreements.

Torrefazione Italia(R). Our Torrefazione Italia brand was founded in 1986,
when Umberto Bizarri brought his family's recipes for blending and roasting
traditional coffees from Perugia, Italy to Seattle, Washington. These classic
Italian coffees are known for their full bodied, highly aromatic and intense
flavor. Our Torrefazione Italia brand takes its name from the Italian word
torrefazione, which means "the place where coffee is roasted". Torrefazione
Italia has adopted a strategy of capitalizing on its Italian heritage, and
using its retail locations to support and build brand awareness in order to
drive wholesale sales of its ultra-premium brand coffees. As part of this
strategy, Torrefazione Italia cafes are designed to present consumers with an
Italian coffee experience that we refer to as the Warmth of Italy(TM).
Torrefazione Italia coffees are positioned at the upper end of the quality and
price range, and are marketed to reflect the traditions and blending expertise
of the Bizarri family, with names like Venezia(TM), Milano(TM), Perugia(TM),
and Napoli(TM). We emphasize the Italian experience by serving Torrefazione
Italia coffees at their cafe locations using handpainted ceramic cups imported
from Deruta, Italy. The Torrefazione Italia cafes are designed to accommodate
those who are on-the-go as well as those who wish to relax and sip their coffee
while listening to classical music. Our Torrefazione Italia retail cafes are
located in metropolitan cities such as Chicago, Dallas, Portland, San
Francisco, Seattle and Vancouver, and are located in venues such as urban,
central business districts, office complexes and high-end malls. All of our
Torrefazione Italia cafes will be re-imaged over the next three years to
accommodate additional food products and to strengthen their Italian image.

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Wholesale Coffee Operations

We believe that consumers have a strong interest in purchasing whole bean
specialty coffee for home consumption. According to the 1999 Gallup Survey on
Coffee Consumption, nearly 36% of all coffee drinkers stated that they had
purchased specialty whole bean coffee for home consumption within the past
three months. According to the same survey, 61% of those consumers stated that
they had purchased specialty whole bean coffee most frequently at a supermarket
or grocery store.

Our Seattle's Best and Torrefazione Italia wholesale coffee operations sell
our coffee primarily to supermarkets and other foodservice retailers, including
hotel chains, fine restaurants, specialty coffee retailers, espresso carts and
theaters. Some of our major wholesale accounts include Books-A-Million, Eddie
Bauer, Mrs. Fields Cookies, Hilton Hotels, Royal Caribbean Cruise Lines, Wall
Street Deli, Dave and Busters, Aramark and Alaska Airlines. We believe that the
increasing presence of our specialty coffees in retail cafes and key
foodservice accounts throughout the country will help drive the long term
growth of our coffee bean sales through supermarkets. Our Seattle's Best Coffee
is also distributed to supermarkets throughout the Pacific Northwest and other
parts of the country. This brand has achieved a high degree of penetration in
the Pacific Northwest with settings in most major supermarkets, including QFC,
Safeway and Ralph's. In addition, we successfully introduced Torrefazione
Italia coffee into supermarkets in 1995, and this brand is now carried in
several high-end chains and independent supermarkets in Oregon and western
Washington.

Site Selection

We employ a site identification and new unit development process that
enables us to identify and obtain favorable sites for new domestic restaurants,
bakeries and cafes, commencing with an overall market plan for each intended
area of development, which we develop together with our franchisees. For our
Popeyes and Church's brands, we emphasize free-standing pad sites and end-cap
locations with ample parking and easy dinner-time access from high traffic
roads. For our Cinnabon and Seattle Coffee brands, we emphasize high traffic
venues such as malls, in-line shopping centers, transportation facilities,
central business districts, airports and office buildings. International sites
are often located in densely populated urban areas, and are generally built
with a multi-floor layout because of the scarcity of real estate and the higher
percentage of dine-in customers in international markets.

Franchise Development

Our strategy includes the opening of substantially all of our new
restaurants, bakeries and cafes through our franchise programs with new and
existing franchisees. The following discussion describes the standard
arrangements we enter into with our franchisees.

Domestic Development Agreements. Our domestic franchise development
agreements provide for the development of a specified number of restaurants,
bakeries and cafes within a defined geographic territory in accordance with a
schedule of unit opening dates. These development schedules generally cover
three to five years and typically have benchmarks for the number of
restaurants, bakeries and cafes to be opened and in operation at six-month and
twelve-month intervals. Our Popeyes and Church's franchisees currently pay a
development fee of $10,000 for the first unit to be developed and then a
reduced fee ranging from $2,500 to $7,500 for each additional unit to be
developed under the same development agreement, depending upon the type of
venue. Our Cinnabon franchisees currently pay a development fee of $5,000 per
unit. Our Seattle Best Coffee franchisees currently pay a development fee of
$10,000 for the first unit and $5,000 for each additional unit to be developed
under the same development agreement. These development fees typically are paid
when the development agreement is executed and are non-refundable.

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International Development Agreements. We enter into franchise development
agreements with qualified parties to develop restaurants, bakeries and cafes
outside of the U.S. We may grant international development rights in one or
more countries or in limited geographic areas within a particular country. Our
international franchisees currently pay a development fee of up to $10,000 for
each unit to be developed, generally depending upon the brand. The other terms
of our international development agreements are, in most respects, similar to
those included in our domestic development agreements. However, our
international franchisees are also required to prepay up to $45,000 in
franchise fees at the time their franchise development agreement is signed.
International development agreements also include additional provisions
necessary to address the multinational nature of the transaction, including
foreign currency exchange and taxation matters, as well as international
dispute resolution provisions, and are modified as necessary to comply with
applicable local laws relating to technology transfers, export/import matters
and franchising.

Franchise Agreements. Once we execute a development agreement and approve
the related site, and the property is secured by our franchisee, we and our
franchisee enter into a franchise agreement under which our franchisee has the
right to operate the specific unit to be developed at the site. Our current
franchise agreements provide for payment of the following franchise fees.
Popeyes franchisees pay $20,000 per location. Church's franchisees pay $15,000
per location for free-standing units and $5,000 per location for units opened
in convenience stores or travel plazas. Cinnabon franchisees pay $35,000 for
the first unit, $25,000 per location for any second or third unit and $20,000
for any additional units developed under a single development agreement.
Seattle Coffee franchisees pay $30,000 per location for the first cafe unit,
$20,000 per location for additional cafe units developed under the same
development agreement, $20,000 per location for the first kiosk unit and
$15,000 for each additional kiosk unit developed under the same development
agreement, and $5,000 for each mobile cart unit. In addition, our Popeyes and
Church's franchise agreements generally require franchisees to pay a 5% royalty
on net restaurant sales and a 3%, with respect to Popeyes, and 4%, with respect
to Church's, national advertising fund contribution (reduced to a maximum of 1%
if a local advertising co-operative is formed). Our Cinnabon franchise
agreements generally require franchisees to pay a 5% royalty on net restaurant
sales and a national advertising fund contribution of up to 3% of net sales.
Our Seattle Coffee franchise agreements generally require franchisees to pay a
4% royalty on net restaurant sales and a national advertising fund contribution
of up to 3% of net sales. Our Seattle Coffee franchisees are required to
purchase coffee exclusively from us. Some of our older franchise agreements
provide for lower royalties and advertising fund contributions. These older
agreements constitute a decreasing percentage of our total outstanding
franchise agreements.

All of our franchise agreements require that each franchisee operate its
restaurant, bakery and cafe units in accordance with our defined operating
procedures, adhere to the menu established by us and meet applicable quality,
service, health and cleanliness standards. The agreements also typically
require that each franchisee must re-image its units to the then current image
of the brand every seven years. We may terminate the franchise rights of any
franchisee who does not comply with these standards and requirements. We
believe that maintaining superior food and beverage quality, a clean and
pleasant environment and excellent customer service are critical to the
reputation and success of our Popeyes, Church's, Cinnabon and Seattle Coffee
systems, and we intend to aggressively enforce these contractual requirements.
Our franchisees may contest this enforcement, and when necessary, contest our
termination of franchise rights.

The terms of our international franchise agreements are substantially
similar to those included in our domestic franchise agreements, except that
international franchisees must prepay up to $45,000 in franchise fees at the
time their related franchise development agreement is executed, and these
agreements may be modified to reflect the multi-national nature of the
transaction and to comply with the requirements of applicable local laws. In
addition, royalty rates may differ from those included in domestic franchise
agreements, and generally are slightly lower due to the number of units
required to be developed by our international franchisees.

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Turnkey Development. Since 1998, in order to expedite development of our
domestic franchised restaurants, we have from time to time purchased or leased
sites and built units in certain markets for subsequent resale to qualified
franchisees. In fiscal year 1999, we sold seven turnkey units. As of October 1,
2000, we had sold an additional seven turnkey units.

AFC Loan Guarantee Program. In March 2000, we implemented a program to
assist current franchisees, new franchisees and our managers in obtaining the
financing needed to purchase or develop franchised units at competitive rates,
provided they meet certain financial and operational criteria. Under the
program, we will guarantee up to 20% of each qualified franchisee's loan
amount, typically for a three year period, and generally relating to no more
than one unit per franchisee. This program is available for Popeyes, Church's
and Cinnabon franchisees, and the qualifications vary depending upon the type
of franchise to be developed. We have an agreement with one national lender to
participate in the program, and we anticipate entering into agreements with
several other national lenders in the near future. Under our agreement with our
current lender, the total amount of funding provided to franchisees under this
program is limited to $10.0 million. In the event any of these franchisees
default on their loan obligations, our aggregate liability under the program
will not exceed $1.0 million.

Management Information Systems

In 1998, we launched AFC On-Line(R), a website exclusively for franchisees
that provides operational support, a restaurant development roadmap, a business
planning template, marketing information and other relevant information. The
website allows us to maintain close ties and engage in system-wide
communications with our franchisees.

Marketing

We generally market our Popeyes, Church's, Cinnabon and Seattle Coffee food
and beverage products to customers using a three-tiered marketing strategy
consisting of television and radio advertising, print advertisement and
signage, and point-of-purchase materials. Each of our brands frequently offers
new programs that are intended to generate and maintain consumer interest,
address changing consumer preferences, and enhance the position of our brands.
New product introductions and "limited time only" promotional items also play a
major role in building sales and creating repeat customers.

As part of our marketing strategy, we will continue to develop new and
enhanced advertising campaigns for each of our brands. In particular, we intend
to launch a new media strategy in 2001 for Church's that will be targeted
towards the specific demographics of its customers. The advertising campaign
will also deliver shorter messages more frequently, and closer to the purchase
decision.

Sales at restaurants located in markets in which we utilize television
advertising are generally 5% to 10% higher than the sales generated by
restaurants that are located in other markets. Consequently, we intend to
target growth of our Popeyes and Church's restaurants primarily in markets
where we have or can achieve sufficient unit concentration to justify the
expense of television advertising.

We and our franchisees contribute to a national advertising fund to pay for
the development of marketing materials and also contribute to local advertising
funds to support programs in our local markets. In markets where there is
sufficient unit concentration to effect such savings, we and our franchisees
have experienced significant savings in our marketing programs through our
advertising cooperatives. For the last four years, our Popeyes franchisees have
contributed more to the national advertising fund than they have been required
to contribute under the terms of their respective franchise agreements. In
1999, we contributed approximately $25.2 million to these various advertising
funds.

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Community Activity

We believe strongly in supporting the communities we serve. Through the non-
profit AFC Foundation, Inc., we have sponsored and helped construct more than
300 homes worldwide in conjunction with Habitat for Humanity, a nonprofit
builder of housing for the poor. In addition, each of our brands is involved in
various community support programs. For example, Popeyes is involved in Mr.
Holland's Opus Foundation, which promotes music education. Church's sponsors
summer camp programs through the Boys and Girls Clubs. Cinnabon encourages
reading awareness through its Reading Rewards Program. Seattle Coffee is
involved in saving our water from pollution and contamination through the Water
Keeper's Alliance. We also support the United Negro College Fund and the
Hispanic Association of Colleges and Universities with promotional fund-
raisers, and sponsor Adopt-A-School programs. In 2000, we contributed
approximately $600,000 to these programs in the aggregate, and our and our
franchisees' employees contributed thousands of volunteer hours. Through our
involvement with these programs, we have established a meaningful presence in
the communities we serve while, we believe, building customer loyalty and
positive brand awareness.

New Age of Opportunity(R)

Through our New Age of Opportunity management program we make diversity a
part of our business strategy. We believe the New Age of Opportunity program
gives us an important competitive advantage by providing us with the framework
for turning goodwill into good business by focusing on four areas:

. expanding franchise ownership opportunities for minorities and women;

. cultivating new supplier relationships for minorities and women;

. attracting and developing outstanding employees; and

. enhancing the quality of life for people through meaningful community
service.

Diversity enables us to look at a situation from all angles and provides us
with the capacity to better understand our communities, our employees, our
customers, our suppliers and our businesses, and provides us with the vision to
meet emerging trends with creative ideas. As a testimonial to the success of
this program, women and minorities now constitute over 50% of the total number
of our franchisees.

Suppliers

Our franchisees are generally required to purchase all ingredients,
products, materials, supplies and other items necessary in the operation of
their businesses solely from suppliers who have been approved by us in writing.
These suppliers must demonstrate to our continuing satisfaction the ability to
meet our standards and specifications for these items, and possess adequate
quality controls and capacity to supply our franchisees' needs promptly and
reliably.

Supply Agreements. We have entered into agreements that commit our company-
operated restaurants and bakeries to serve certain Coca-Cola and Dr. Pepper
fountain beverages exclusively. We also have a long-term agreement with
Diversified Foods and Seasonings, Inc., under which we have designated
Diversified as the sole supplier of certain proprietary products for the
Popeyes system. Diversified sells these products to our approved distributors,
who in turn sell them to our franchised and company-operated Popeyes
restaurants. In 1999, the Popeyes system purchased from its distributors
approximately $37.8 million of proprietary products made by Diversified.

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The principal raw material for our Popeyes and Church's systems is fresh
chicken. Our Popeyes and Church's systems purchase fresh chicken from
approximately 14 suppliers who service us from 33 plant locations. In 1998 and
1999, approximately 50% and 47% of the cost of sales for Popeyes and Church's
were attributable to the purchase of fresh chicken. Our cost of sales is
significantly affected by increases in the cost of chicken, which can result
from a number of factors, including increases in the cost of grain, disease and
other factors that affect availability, and greater international demand for
domestic chicken products.

In order to ensure favorable pricing for our chicken purchases in the
future, reduce volatility in chicken prices, and maintain an adequate supply of
fresh chicken, our purchasing cooperative has entered into two types of chicken
purchasing contracts with chicken suppliers. The first is a grain-based "cost-
plus" pricing contract that utilizes prices that are based upon the cost of
feed grains, such as corn and soybean meal, plus certain agreed upon non-feed
and processing costs. The other is a market-priced formula contract based on
the "Georgia whole bird market value". Under this contract, we and our
franchisees pay the market price plus a premium for the cut specifications for
our restaurants. The market-priced contracts have maximum and minimum prices
that we and our franchisees will pay for chicken during the term of the
contract. Both contracts have terms ranging from three to five years, with
provisions for certain annual price adjustments. In 2000, we increased our
purchase volume under the "cost-plus" pricing contracts, thereby reducing
purchases under the market-based contracts, in order to further reduce our
exposure to rising chicken prices.

Our principal raw material in our Seattle Coffee operations is green coffee
beans. We typically enter into supply contracts to purchase a pre-determined
quantity of green coffee beans at a fixed price per pound. These contracts
usually cover periods up to a year, as negotiated with the individual supplier.
We purchase approximately 50% of our green coffee beans from four suppliers and
the remaining 50% from over 12 other suppliers. If the four major suppliers
cannot meet our coffee orders, we have the option of ordering our coffee from
the other suppliers or adding new suppliers. As of October 1, 2000, we had
commitments to purchase green coffee beans at a total cost of approximately
$10.6 million.

The supply and prices of green coffee beans are volatile. Although most
coffee beans trade in the commodity market, the prices of the coffee beans of
the quality that we use tend to trade on a negotiated basis at a premium above
the commodity market prices. The supply and prices of coffee beans can be
affected by many factors, including weather, political and economic conditions
in producing countries.

Purchasing Cooperative. Supplies are generally provided to our franchised
and company-operated restaurants, bakeries and, to a lesser degree, cafes,
pursuant to supply agreements which until recently were negotiated by Popeyes
Operators Purchasing Cooperative Association, Inc. and Church's Operators
Purchasing Association, Inc., each a not-for-profit corporation. These
corporations were created for the purpose of consolidating our purchasing power
collectively with our franchisees in order to negotiate more favorable terms.
In January 2000, our purchasing cooperatives were combined into one purchasing
and logistical service cooperative, Supply Management Services, Inc. Our
purchasing cooperative, which is open to all of our franchisees, is not
obligated to purchase and cannot require its members to purchase any supplies.
Since 1995, our Popeyes and Church's franchise agreements have required that
each franchisee join the purchasing cooperative as a member. Substantially all
of our domestic franchisees purchase through the cooperative.

Through our purchasing cooperatives, we and our franchisees have experienced
substantial savings as a result of our size and related bargaining power,
particularly with respect to food, beverage and paper goods. In the future, we
also expect to experience savings in the procurement of

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additional items such as restaurant supplies, insurance, administrative
services and communications equipment.

Seattle Coffee Cafes. Our company-operated and franchised coffee cafes
purchase their coffee exclusively from us, and their non-coffee food and supply
items either directly from us or from approved suppliers and distributors.

Intellectual Property and Other Proprietary Rights

We own a number of trademarks and service marks that have been registered
with the U.S. Patent and Trademark Office, including the marks "Popeyes",
"Popeyes Chicken & Biscuits", "Church's", "Cinnabon World Famous Cinnamon
Roll", "Seattle's Best Coffee", "Torrefazione Italia" and each brand's logo, as
well as the trademark "Franchisor of Choice". We also have registered
trademarks for a number of additional marks, including "Gotta Love It", "Day of
Dreams", "Love That Chicken From Popeyes" and "New Age of Opportunity". In
addition, we have registered or made application to register one or more of the
marks (or, in certain cases, the marks in connection with additional words or
graphics) in approximately 150 foreign countries, although there can be no
assurance that we can obtain the registration for the marks in every country
where registration has been sought. We consider our intellectual property
rights to be important to our business and actively defend and enforce them.

Formula Agreement. We have a perpetual formula licensing agreement with
Alvin C. Copeland, the founder of Popeyes, the former owner of the Popeyes and
Church's restaurant systems, and the owner of Diversified Food and Seasonings.
Under this agreement, we have the worldwide exclusive rights to the Popeyes
spicy fried chicken recipe and certain other ingredients produced by
Diversified, which are used in Popeyes products. The agreement provides that we
pay Mr. Copeland monthly payments of $254,166 until March 2029.

King Features Agreements. We have several agreements with the King Features
Syndicate Division of The Hearst Corporation under which we have the exclusive
right to use the image and likeness of the cartoon character "Popeye", and
other companion characters such as "Olive Oyl", in connection with Popeyes
restaurants worldwide. Under these agreements, we are obligated to pay to King
Features a royalty of 0.1% on the first $1.0 billion of Popeyes annual system-
wide sales and 0.05% on the next $2.0 billion of annual sales. The total annual
royalties payable under these agreements are capped at $2.0 million per year.
The King Features agreements automatically renew annually, unless we are in
default or we elect not to renew.

Competition

The foodservice industry, and particularly the QSR industry, is intensely
competitive with respect to price, quality, name recognition, service and
location. We compete against other QSRs, including chicken, hamburger, pizza,
Mexican and sandwich restaurants, other purveyors of carryout food and
convenience dining establishments, including national restaurant chains. Many
of our competitors possess substantially greater financial, marketing,
personnel and other resources than we do. In particular, KFC, our primary
competitor in the chicken segment of the QSR industry, has far more units,
greater brand recognition and greater financial resources, all of which may
affect our ability to compete.

Our Cinnabon bakeries compete directly with national chains located in malls
and transportation centers such as Auntie Anne's, The Great American Cookie
Company, T.J. Cinnabon's and Mrs. Fields, as well as numerous regional and
local companies. Our Cinnabon bakeries also compete indirectly with other QSRs,
traditional bakeries, donut shops, ice cream and frozen yogurt shops and
pretzel and cookie companies.

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Our Seattle Coffee brands compete directly with specialty coffees sold at
retail through supermarkets, specialty retailers, and a growing number of
specialty coffee cafes. Seattle Coffee also competes directly with all
restaurant and beverage outlets that serve coffee, including Starbucks, and a
growing number of espresso kiosks, carts and coffee cafes. Starbucks has far
more units, greater brand recognition and greater financial resources than we
do, all of which may affect our ability to compete with Starbucks. Our Seattle
Coffee brands compete indirectly with all other coffees on the market,
including those marketed and sold by companies such as Kraft Foods, Procter &
Gamble and Nestle.

International Operations

As of October 1, 2000, we franchised 628 restaurants, bakeries and cafes in
26 foreign countries, and plan to expand our foreign franchising program
significantly in the future. We currently operate three coffee cafes and a
wholesale coffee distribution center located in Canada. We do not currently
operate any other units outside of the U.S. Foreign franchise royalties and
other fees that are based, in part, on sales generated by our foreign
franchised restaurants, bakeries and cafes, including a significant number of
franchised restaurants in Asia, make up part of our revenues. Currently, we
have limited exposure to changes in international economic conditions and
currency fluctuations. We have not historically maintained any hedges against
foreign currency fluctuations, although since the beginning of 1999, we have
entered into foreign currency hedging agreements with respect to the Korean
Won. Our losses during the past three years related to foreign currency
fluctuations have not been material to our results of operations. For 1997,
1998 and 1999, and for the forty weeks ended October 1, 2000, royalties and
other revenues from foreign franchisees represented 2.6%, 2.0%, 1.7% and 2.1%,
respectively, of our total revenues.

Insurance

We carry property, general liability, business interruption, crime,
directors and officers, employees practices liability, environmental and
workers' compensation insurance policies, which we believe are customary for
businesses of our size and type. Pursuant to the terms of their franchise
agreements, our franchisees are also required to maintain certain minimum
standards of insurance with insurance companies that are satisfactory to us,
including commercial general liability insurance, workers' compensation
insurance, all risk property and casualty insurance and automobile insurance.

Government Regulation

We are subject to various federal, state and local laws affecting our
business, including various health, sanitation, fire and safety standards.
Newly constructed or remodeled restaurants, bakeries and cafes are subject to
state and local building code and zoning requirements. In connection with the
re-imaging and alteration of our restaurants, bakeries and cafes, we may be
required to expend funds to meet certain federal, state and local regulations,
including regulations requiring that remodeled or altered restaurants, bakeries
and cafes be accessible to persons with disabilities. Difficulties or failures
in obtaining the required licenses or approvals could delay or prevent the
opening of new units in particular areas.

We are also subject to the Fair Labor Standards Act and various other laws
governing such matters as minimum wage requirements, overtime and other working
conditions and citizenship requirements. A significant number of our
foodservice personnel are paid at rates related to the federal minimum wage,
and increases in the minimum wage have increased our labor costs.

Many states and the Federal Trade Commission, as well as certain foreign
countries, require franchisors to transmit specified disclosure statements to
potential franchisees before granting a franchise. Additionally, some states
and certain foreign countries require us to register our franchise

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offering documents before we may offer a franchise. We believe that our uniform
franchise offering circulars, together with any applicable state versions or
supplements, comply with both the Federal Trade Commission guidelines and all
applicable state laws regulating franchising in those states in which we have
offered franchises. We also believe that our international disclosure
statements and franchise offering documents comply with the laws of the foreign
countries in which we have offered franchises.

Environmental Matters

We are subject to various federal, state and local laws regulating the
discharge of pollutants into the environment. We believe that we conduct our
operations in substantial compliance with applicable environmental laws and
regulations, as well as other applicable laws and regulations governing our
operations. However, approximately 150 of our owned and leased properties are
known or suspected to have been used by prior owners or operators as retail gas
stations, and a few of these properties may have been used for other
environmentally sensitive purposes. Many of these properties previously
contained underground storage tanks, and some of these properties may currently
contain abandoned underground storage tanks. It is possible that petroleum
products and other contaminants may have been released at these properties into
the soil or groundwater. Under applicable federal and state environmental laws,
we, as the current owner or operator of these sites, may be jointly and
severally liable for the costs of investigation and remediation of any
contamination, as well as any other environmental conditions at our properties
that are unrelated to underground storage tanks. As a result, after an analysis
of our property portfolio and an initial assessment of our properties,
including testing of soil and groundwater at a representative sample of our
facilities, we have obtained insurance coverage that we believe will be
adequate to cover any potential environmental remediation liabilities. We are
currently not subject to any administrative or court order requiring
remediation at any of our properties.

Employees

As of October 1, 2000, we had 12,677 hourly employees working in our
restaurant, bakery and cafe operations. Additionally, we had 1,722 salaried
employees involved in the management of individual restaurants, bakeries and
cafes, and 129 multi-unit managers and field management employees. We had 695
employees responsible for corporate administration, franchise administration
and business development, and 75 employees responsible for coffee roasting and
distribution. None of our employees is covered by a collective bargaining
agreement. We believe that the dedication of our employees is critical to our
success, and that our relationship with our employees is good.

Facilities

We either own or lease the land and buildings for our company-operated
restaurants, bakeries and cafes. In addition, we own or lease land and
buildings, which we lease or sublease to our franchisees and third parties.
While we expect to continue to lease many of our sites in the future, we also
may purchase the land or buildings for restaurants, bakeries and cafes to the
extent acceptable terms are available.

We typically lease our restaurants under "triple net" leases that require us
to pay real estate taxes, maintenance costs and insurance premiums and, in some
cases, percentage rent based on sales in excess of specified amounts. Bakeries
and cafes are typically leased under standard retail lease terms for malls,
community shopping centers and office buildings. Generally, our leases have
initial terms ranging from five to 20 years, with options to renew for one or
more additional periods, although the terms of our leases generally vary
depending on the facility. Our leases or subleases to franchisees are typically
for Popeyes or Church's restaurants and are triple net to the franchisee,

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provide for a minimum rent, based upon prevailing market rental rates, as well
as percentage rent based on sales in excess of specified amounts, and have a
term that usually coincides with the term of the franchise agreement for the
location, often 20 years with renewal options. These leases are typically
cross-defaulted with the corresponding franchise agreement for that site.

The following table sets forth the locations by state of our domestic
company-operated restaurants, bakeries and cafes as of October 1, 2000:

<TABLE>
<CAPTION>
Land and Land and/or
Building Building
Owned Leased Total
-------- ----------- ---------
<S> <C> <C> <C>
Texas......................................... 174 139 313
Georgia....................................... 38 58 96
Louisiana..................................... 25 55 80
California.................................... -- 57 57
Washington.................................... -- 47 47
Alabama....................................... 27 10 37
Florida....................................... 20 15 35
Arizona....................................... 19 8 27
Illinois...................................... 1 23 24
Tennessee..................................... 12 5 17
Oklahoma...................................... 14 1 15
Mississippi................................... 10 4 14
North Carolina................................ -- 13 13
Ohio.......................................... -- 12 12
Massachusetts................................. -- 10 10
Michigan...................................... -- 9 9
Oregon........................................ -- 9 9
Nevada........................................ 2 6 8
Pennsylvania.................................. -- 7 7
Indiana....................................... -- 7 7
New Mexico.................................... 5 2 7
Missouri...................................... 6 1 7
Maryland...................................... -- 6 6
Arkansas...................................... 5 1 6
Colorado...................................... -- 6 6
New Jersey.................................... -- 5 5
Wisconsin..................................... -- 5 5
South Carolina................................ -- 5 5
Hawaii........................................ -- 4 4
Virginia...................................... -- 4 4
Kansas........................................ 2 1 3
Iowa.......................................... -- 2 2
Kentucky...................................... -- 2 2
Delaware...................................... -- 1 1
Montana....................................... -- 1 1
New Hampshire................................. -- 1 1
New York...................................... -- 1 1
--- --- ---
Total....................................... 360 545 905
=== === ===
</TABLE>

Our headquarters is located in approximately 75,000 square feet of leased
office space in Atlanta, Georgia. This lease is subject to extensions through
2013. We lease approximately 30,000

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square feet in another facility located in Atlanta, Georgia that is the
headquarters for our Popeyes brand. This lease is subject to extensions through
2015. We also lease approximately 25,000 square feet of office space in a third
facility located in Atlanta, Georgia that is the headquarters for our Church's
brand. This lease is subject to extensions through 2016. Cinnabon is currently
located in our Atlanta headquarters location. Seattle Coffee leases
approximately 19,000 square feet of office space in Seattle, Washington that
expires in 2001 and has four distribution facilities that service our coffee
wholesale operations. Two of the distribution centers are located in the
Seattle, Washington area and the other two facilities are located in Chicago,
Illinois and Portland, Oregon. We lease approximately 28,500 square feet for
our roasting facility on Vashon Island, near Seattle, Washington. This lease is
subject to extensions through 2018. Our accounting and computer facilities are
located in San Antonio, Texas and are housed in three buildings that are
located on approximately 16 acres of land that we own. We believe that our
existing headquarters and other leased and owned facilities provide sufficient
space to support our corporate and coffee wholesale operational needs.

Legal Proceedings

We are a defendant in various legal proceedings arising in the ordinary
course of our business, including claims resulting from "slip and fall"
accidents, employment-related claims and claims from guests or employees
alleging illness, injury or other food quality, health or operational concerns.
To date, none of these legal proceedings has had a material effect on us and,
as of the date of this prospectus, we are not a party to any legal proceeding
that we believe to be material.

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MANAGEMENT

Executive Officers and Directors

The following table provides information about our executive officers and
directors as of December 15, 2000:

<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<S> <C> <C>
Frank J. Belatti......... 52 Chairman of the Board and Chief Executive
Officer

Dick R. Holbrook......... 48 President, Chief Operating Officer and Director

Samuel N. Frankel........ 62 Executive Vice President, Secretary, General
Counsel and Director

Gerald J. Wilkins........ 42 Executive Vice President and Chief Financial
Officer

Hala Moddelmog........... 44 President of Church's Chicken

Jon Luther............... 57 President of Popeyes Chicken & Biscuits

Gregg A. Kaplan.......... 43 President of Cinnabon

Steven Schickler......... 48 President of Seattle Coffee

Mark J. Doran............ 36 Director

Paul Farrar.............. 66 Director

Matt L. Figel............ 40 Director

Kelvin J. Pennington..... 42 Director

John M. Roth............. 42 Director

Ronald P. Spogli......... 52 Director

Peter Starrett........... 53 Director

William M. Wardlaw....... 53 Director
</TABLE>

Frank J. Belatti has served as Chairman of the Board and Chief Executive
Officer since we commenced operations in November 1992, following the
reorganization of our predecessor. From 1990 to 1992, Mr. Belatti was employed
as President and Chief Operating Officer of HFS, the franchisor of hotels for
Ramada and Howard Johnson. From 1989 to 1990, Mr. Belatti was President and
Chief Operating Officer of Arby's, Inc., and from 1985 to 1989 he served as the
Executive Vice President of Marketing at Arby's. From 1986 to 1990, Mr. Belatti
also served as President of Arby's Franchise Association Service Corporation,
which created and developed the marketing programs and new product development
for the Arby's system. In 1999, Mr. Belatti received the 1999 Entrepreneur
Award from the International Franchise Association. Mr. Belatti serves as a
member of the board of directors of RadioShack Corporation.

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Dick R. Holbrook has served as President and Chief Operating Officer since
August 1995. From November 1992 to July 1995, Mr. Holbrook served as Executive
Vice President and Chief Operating Officer. He has been a director since April
1996. From 1991 to 1992, Mr. Holbrook served as Executive Vice President of
Franchise Operations for HFS. From 1972 to 1991, Mr. Holbrook served in various
management positions with Arby's, most recently as Senior Vice President of
Franchise Operations.

Samuel N. Frankel has served as an Executive Vice President since January
1996, and as Secretary, General Counsel and a director since 1992. Prior to
January 1996, Mr. Frankel spent 25 years with Frankel, Hardwick, Tanenbaum &
Fink, P.C., an Atlanta, Georgia law firm specializing in commercial
transactions and business law, including franchising, licensing and
distributorship relationships.

Gerald J. Wilkins has served as Chief Financial Officer since December 1995
and as an Executive Vice President since December 2000. From 1993 to December
1995, Mr. Wilkins served as Vice President of International Business Planning
at KFC International, Inc. Mr. Wilkins also served in senior management
positions with General Electric Corporation from 1985 to 1993, including
Assistant Treasurer of GE Capital Corporation from 1989 to 1992.

Hala Moddelmog has served as President of Church's Chicken since August
1995. From May 1993 to July 1995, Ms. Moddelmog was Vice President of Marketing
and then Senior Vice President and General Manager for Church's. From 1990 to
1993, Ms. Moddelmog was Vice President of Product Marketing and Strategic
Planning at Arby's Franchise Association Service Corporation.

Jon Luther has served as President of Popeyes Chicken & Biscuits since March
1997. From February 1992 to March 1997, Mr. Luther was President of CA One
Services, Inc., a subsidiary of Delaware North Companies, Inc., a foodservice
company.

Gregg A. Kaplan has served as President of Cinnabon since October 1998. From
March 1998 to September 1998, he served as President of our Bakery Cafe Group,
and from June 1996 to March 1998, served as Vice President of Strategic
Development. From December 1990 to January 1996, Mr. Kaplan served in various
positions at Shoney's, Inc., a restaurant operations company, most recently as
Senior Vice President of Marketing.

Steven Schickler has served as President of Seattle Coffee since November
2000. From December 1998 to October 2000, Mr. Schickler served as the President
and Chief Executive Officer of Frozfruit Company, Inc., a frozen novelty
marketer and manufacturer. From June 1994 to December 1998, Mr. Schickler
served as Chairman of the Board and Chief Executive Officer of Guernsey Bel, a
food ingredients manufacturer. From June 1985 to July 1994, Mr. Schickler
served in a variety of executive positions with Dreyer's Grand Ice Cream.

Mark J. Doran has served as a director since April 1996. Mr. Doran joined
Freeman Spogli & Co. in 1988 and became a general partner of Freeman Spogli &
Co. in 1998. Prior to joining Freeman Spogli & Co., Mr. Doran was employed in
the High Yield Bond Department of Kidder, Peabody & Co. Incorporated. Mr. Doran
also serves as a member of the board of directors of Advance Stores
Incorporated and Century Maintenance Supply, Inc.

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<PAGE>

Paul Farrar has served as a director since November 1992. From 1986 to 1993,
Mr. Farrar served as a Senior Vice President of Canadian Imperial Bank of
Commerce. He has been retired since 1993. Mr. Farrar also served as the
Chairman of the Board of Directors of Canadian Airlines Corporation and is a
member of the boards of directors of Consumers Packaging, Inc., Anchor Glass
Container Corporation, Adelaide Capital Corp. and Pendaries Petroleum, Ltd.

Matt L. Figel has served as a director since April 1996. Mr. Figel founded
Doramar Capital, a private investment firm, in January 1997. From October 1986
to December 1996, Mr. Figel was employed by Freeman Spogli & Co.

Kelvin J. Pennington has served as a director since May 1996. Since 1992,
Mr. Pennington has served as General Partner of PENMAN Asset Management, L.P.,
the general partner of PENMAN Private Equity and Mezzanine Fund, L.P.

John M. Roth has served as a director since April 1996. Mr. Roth joined
Freeman Spogli & Co. in March 1988 and became a general partner in 1993. From
1984 to 1988, Mr. Roth was employed by Kidder, Peabody & Co. Incorporated in
the Mergers and Acquisitions Group. Mr. Roth also serves as a member of the
boards of directors of Advance Stores Incorporated and Envirosource, Inc.

Ronald P. Spogli has served as a director since April 1996. Mr. Spogli is a
founding principal of Freeman Spogli & Co., which he founded in 1983. Mr.
Spogli also serves as a member of the board of directors of Hudson Respiratory
Care, Inc. and as Chairman of the Board of Envirosource, Inc.

Peter Starrett has served as a director since September 1998. In August
1998, Mr. Starrett founded Peter Starrett Associates, a retail advisory firm.
From 1990 to 1998, Mr. Starrett served as the President of Warner Bros. Studio
Stores Worldwide. Previously, he held senior executive positions at both
Federated Department Stores and May Department Stores. Mr. Starrett also serves
on the boards of directors of Guitar Center, Inc., The Pantry, Inc. and Advance
Stores Incorporated.

William M. Wardlaw has served as a director since April 1996. Mr. Wardlaw
joined Freeman Spogli & Co. in 1988 and became a general partner in 1991. From
1984 to 1988, Mr. Wardlaw was Managing Partner of the Los Angeles law firm of
Riordan & McKinzie.

Our board of directors currently consists of 11 members. All directors are
elected to hold office until our next annual meeting of shareholders and until
their successors have been elected. We intend to reconstitute our board of
directors in order to satisfy the requirements for independent directors
contained in the Nasdaq Marketplace Rules prior to or upon completion of this
offering.

Officers are elected at the first board of directors' meeting following the
shareholders' meeting at which the directors are elected and serve at the
discretion of the board of directors. There are no family relationships among
any of our directors or executive officers.

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Board Committees

Prior to or upon completion of this offering, we will establish an audit
committee and a compensation committee. The audit committee will consist solely
of independent directors, and all of the members of the audit and compensation
committees will be non-employee directors. We may establish additional
committees of the board of directors.

Executive Committee

Messrs. Belatti, Frankel, Wardlaw, Roth and Doran currently serve as members
of the executive committee of our board of directors, which is empowered to act
on behalf of the board of directors.

Audit Committee

The audit committee will be responsible for recommending to the board of
directors the appointment of our independent auditors, analyzing the reports
and recommendations of the auditors and reviewing internal audit procedures and
controls.

Compensation Committee

The compensation committee will be responsible for reviewing and
recommending the compensation structure for our officers and directors,
including salaries, participation in incentive compensation, benefit and stock
option plans, and other forms of compensation.

Compensation Committee Interlocks and Insider Participation

Our executive committee currently performs the functions that will be
performed by our compensation committee when it is formed. None of our
executive officers that are members of our board of directors participate in
the approval of matters relating to their compensation, and none of them will
serve as members of the compensation committee upon its creation. None of our
executive officers currently serves on the compensation committee or board of
directors of any other company of which any members of our executive committee
is an executive officer.

Director Compensation

Our directors receive no compensation as directors, except Paul Farrar, who
receives $5,000 for each board of directors' meeting that he attends. Our
directors are reimbursed for reasonable expenses incurred in attending board
meetings.

Employment Agreements

Frank J. Belatti. As of December 8, 2000, we entered into a new employment
agreement with Mr. Belatti that provides for a current annual base salary of
$575,000, an annual incentive bonus that is based on our achievement of certain
performance targets, fringe benefits and participation in our benefit plans.
The initial term of the agreement ends December 7, 2003, but automatically
extends for an additional year following the end of each year of employment,
without further action by us or Mr. Belatti, unless we or Mr. Belatti provide
written notice of non-extension to the other at least one year prior to the end
of that year of employment. If Mr. Belatti's employment is terminated without
cause, Mr. Belatti is entitled to receive, or if we give him written notice
that we will not extend his employment, Mr. Belatti may elect to receive in
lieu of continued employment, among other things, an amount equal to two times
his annual base salary plus two times the target incentive bonus for the fiscal
year in which the termination occurs. In addition, all of his unvested options
would become immediately exercisable. If there is a change of control and
within one year thereafter a significant reduction of or change in Mr.
Belatti's responsibilities, title or duties, Mr. Belatti may terminate his
employment and receive the same severance he would have received upon a
termination without cause.

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<PAGE>

Dick R. Holbrook. As of December 8, 2000, we entered into a new employment
agreement with Mr. Holbrook that provides for a current annual base salary of
$375,000, an annual incentive bonus that is based on our achievement of certain
performance targets, fringe benefits and participation in our benefit plans.
The initial term of the agreement ends on December 7, 2003, but automatically
extends for an additional year following the end of each year of employment,
without further action by us or Mr. Holbrook, unless we or Mr. Holbrook provide
written notice of non-extension to the other at least one year prior to the end
of that year of employment. If Mr. Holbrook's employment is terminated without
cause, Mr. Holbrook is entitled to receive, or if we give him written notice
that we will not extend his employment, Mr. Holbrook may elect to receive in
lieu of continued employment, among other things, an amount equal to two times
his annual base salary plus two times his target incentive bonus for the fiscal
year in which the termination occurs. In addition, all of his unvested options
would become immediately exercisable. If there is a change of control and
within one year thereafter a significant reduction of or change in
Mr. Holbrook's responsibilities, title or duties, Mr. Holbrook may terminate
his employment and receive the same severance he would have received upon a
termination without cause.

Samuel N. Frankel. As of December 4, 1995, we entered into an employment
agreement with Mr. Frankel that, as amended, provides for a current annual base
salary of $330,000, an annual incentive bonus that is based on our achievement
of certain performance targets, fringe benefits and participation in our
benefit plans. The term of the agreement ends on December 5, 2004. If
Mr. Frankel's employment is terminated without cause, Mr. Frankel is entitled
to receive, or if we give him written notice that we will not renew his
employment, Mr. Frankel may elect to receive, among other things, an amount
equal to two-and-one-half times his annual base salary. If there is a change of
control, significant reduction in Mr. Frankel's responsibilities, title or
duties or relocation of our principal office of more than 45 miles, Mr. Frankel
may terminate his employment and receive the same severance he would have
received upon a termination without cause.

Gerald J. Wilkins. As of December 8, 2000, we entered into a new employment
agreement with Mr. Wilkins that provides for a current annual base salary of
$325,000, an annual incentive bonus that is based on our achievement of certain
performance targets, fringe benefits and participation in our benefit plans.
The initial term of the agreement ends on December 7, 2002, but automatically
extends for an additional year following the end of each year of employment,
without further action by us or Mr. Wilkins, unless we or Mr. Wilkins provide
written notice of non-extension to the other at least 30 days prior to the end
of that year of employment. If Mr. Wilkins' employment is terminated without
cause, Mr. Wilkins is entitled to receive an amount equal to his annual base
salary plus the amount of his target incentive bonus for the fiscal year in
which the termination occurs. In addition, all of his unvested options would
become immediately exercisable. If there is a change of control and within one
year thereafter a significant reduction of or change in Mr. Wilkins'
responsibilities or duties, Mr. Wilkins may terminate his employment and
receive the same severance he would have received upon a termination without
cause.

Hala Moddelmog. As of December 8, 2000, we entered into an employment
agreement with Ms. Moddelmog that provides for a current annual base salary of
$324,000, an annual incentive bonus that is based on our achievement of certain
performance targets, fringe benefits and participation in our benefit plans.
The initial term of the agreement ends on December 7, 2002, but automatically
extends for an additional year following the end of each year of employment,
without further action by us or Ms. Moddelmog unless we or Ms. Moddelmog
provide written notice of non-extension to the other at least 30 days prior to
the end of that year of employment. If Ms. Moddelmog's employment is terminated
without cause, Ms. Moddelmog is entitled to receive an amount equal to her
annual base salary plus the amount of her target incentive bonus for the fiscal
year in which the termination occurs. In addition, all of her unvested options
would and become immediately exercisable. If there is a change of control and
within one year thereafter a significant reduction in Ms. Moddelmog's
responsibilities or duties, Ms. Moddelmog may terminate her employment and
receive the same severance she would have received upon a termination without
cause.

69
<PAGE>

Executive Compensation

The following table sets forth the compensation received for services
rendered to us by our Chief Executive Officer and the other four most highly
compensated executive officers whose salary and bonus exceeded $100,000 for
1997, 1998 and 1999. We refer to these individuals as our named executive
officers.

Summary Compensation Table

<TABLE>
<CAPTION>
Annual Compensation
---------------------- All Other
Name and Principal Position Year Salary Bonus(1) Compensation(2)(3)
--------------------------- ---- -------- -------- ------------------
<S> <C> <C> <C> <C>
Frank J. Belatti..................... 1999 $500,000 $500,000 $18,360
Chairman of the Board and Chief 1998 495,386 -- 19,560
Executive Officer 1997 468,462 660,000 55,860

Dick R. Holbrook..................... 1999 350,000 240,000 8,435
President and Chief Operating 1998 345,385 -- 17,935
Officer 1997 323,077 270,000 21,635

Samuel N. Frankel.................... 1999 315,000 211,500 32,745
Executive Vice President, Secretary 1998 311,538 -- 50,995
and General Counsel 1997 294,231 250,000 50,995

Gerald J. Wilkins.................... 1999 293,077 169,500 6,723
Executive Vice President and Chief 1998 259,616 -- 4,537
Financial Officer 1997 214,519 99,850 3,816

Hala Moddelmog....................... 1999 293,654 120,000 3,937
President of Church's Chicken 1998 266,154 -- 2,935
1997 230,001 120,000 2,860
</TABLE>

--------
(1) The bonus amounts shown for 1999 and 1997 for all named executive officers
other than Mr. Wilkins and Ms. Moddelmog reflect annual payments that were
based solely on our performance during 1999 and 1997, as determined using
performance objectives established for 1999 and 1997. The amounts shown for
Mr. Wilkins and Ms. Moddelmog were largely based on the performance
objectives established for 1999 and 1997.
(2) Includes life insurance premiums that we paid for split dollar life
insurance policies for Mr. Belatti in the amounts of $18,360 in 1999 and
1998 and $55,860 in 1997, for Mr. Holbrook in the amount of $6,935 in 1999,
$16,735 in 1998 and $21,635 in 1997, for Mr. Frankel in the amounts of
$32,745 in 1999, $50,995 in 1998 and $50,995 in 1997, for Mr. Wilkins in
the amounts of $3,816 in 1999, 1998 and 1997, and for Ms. Moddelmog in the
amounts of $1,735 in 1999, 1998 and 1997. Also includes amounts that we
credited to accounts under our Deferred Compensation Plan for Mr. Belatti
in the amount of $1,200 in 1998, for Mr. Holbrook in the amounts of $1,500
in 1999 and $1,200 in 1998, and for Mr. Wilkins in the amounts of $2,907 in
1999 and $721 in 1998. Also includes matching contributions that we made
pursuant to our 401(K) Savings Plan for Ms. Moddelmog in the amounts of
$2,202 in 1999, $1,200 in 1998 and $1,125 in 1997.
(3) Does not include options to purchase 50,000, 40,000, 30,000, 30,000 and
25,000 shares of common stock at a purchase price of $8.75 per share that
we granted to Messrs. Belatti, Holbrook, Frankel and Wilkins and Ms.
Moddelmog on May 11, 2000, or options to purchase 90,000, 70,000, 25,000,
60,797 and 45,000 shares of common stock at a purchase price of $10.00 per
share that we will grant to Messrs. Belatti, Holbrook, Frankel and Wilkins
and Ms. Moddelmog on January 1, 2001.

70
<PAGE>

Option Grants in Last Fiscal Year

The following table provides summary information regarding stock options
granted during the year ended December 26, 1999 to each of our named executive
officers. The potential realizable value is calculated assuming that the fair
market value of our common stock appreciates at the indicated annual rate
compounded annually for the entire term of the option, and that the option is
exercised and sold on the last day of its term for the appreciated stock price.
The assumed rates of appreciation are mandated by the rules of the SEC and do
not represent our estimate of the future prices or market value of our common
stock.

Option Grants in the Last Fiscal Year

<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed
Annual Rates of
Number of Percent of Price
Securities Total Options Appreciation for
Underlying Granted to Option Term
Options Employees in Exercise Price Expiration ----------------
Name Granted(1)(2) Fiscal Year per Share Date 5% 10%
---- ------------- ------------- -------------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Frank J. Belatti........ 30,000 6.06% $7.75 1/01/06 $79,072 $179,388
Dick R. Holbrook........ 25,000 5.05 7.75 1/01/06 65,894 149,490
Samuel N. Frankel....... 20,000 4.04 7.75 1/01/06 52,715 119,592
Gerald J. Wilkins....... 20,000 4.04 7.75 1/01/06 52,715 119,592
Hala Moddelmog.......... 20,000 4.04 7.75 1/01/06 52,715 119,592
</TABLE>
--------
(1) Option grants were made under the 1996 Nonqualified Stock Option Plan and
become exercisable in four equal annual increments beginning on January 1,
2000.
(2) Does not include options to purchase 50,000, 40,000, 30,000, 30,000 and
25,000 shares of common stock at a purchase price of $8.75 per share that
we granted to Messrs. Belatti, Holbrook, Frankel and Wilkins and Ms.
Moddelmog on May 11, 2000, or options to purchase 90,000, 70,000, 25,000,
60,797 and 45,000 shares of common stock at a purchase price of $10.00 per
share that we will grant to Messrs. Belatti, Holbrook, Frankel and Wilkins
and Ms. Moddelmog on January 1, 2001.

Fiscal Year-End Option Values

The following table provides summary information as of December 26, 1999
concerning the shares of common stock represented by outstanding stock options
held by each of our named executive officers. No options were exercised by
these officers during the year ended December 26, 1999. The values of
unexercised options at fiscal year end is based upon $8.25 per share, the
assumed fair market value of our common stock at December 26, 1999 as
determined by the board of directors, less the exercise price per share.

Aggregated Year-End Option Table

<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised Options at December In-the-Money Options at
26, 1999(1) December 26, 1999
----------------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
Frank J. Belatti..... 1,787,403 81,199 $9,308,591 $188,814
Dick R. Holbrook..... 733,412 49,982 3,268,763 107,832
Samuel N. Frankel.... 503,302 36,232 2,478,538 77,851
Gerald J. Wilkins.... 158,474 61,985 903,436 162,729
Hala Moddelmog....... 139,724 60,735 805,714 140,877
</TABLE>
--------
(1) Does not include options to purchase 50,000, 40,000, 30,000, 30,000 and
25,000 shares of common stock at a purchase price of $8.75 per share that
we granted to Messrs. Belatti, Holbrook, Frankel and Wilkins and Ms.
Moddelmog on May 11, 2000, or options to purchase 90,000, 70,000, 25,000,
60,797 and 45,000 shares of common stock at a purchase price of $10.00 per
share that we will grant to Messrs. Belatti, Holbrook, Frankel and Wilkins
and Ms. Moddelmog on January 1, 2001.

71
<PAGE>

Option Plans

1992 Stock Option Plan

In 1992, we approved our 1992 Stock Option Plan, which provides for the
grant of nonqualified options to purchase shares of common stock to our
executive officers. The plan authorizes the issuance of options to purchase up
to 1,808,864 shares of common stock. All options granted under the plan expire
15 years after their date of grant, unless earlier terminated. As of October 1,
2000, options to purchase 1,608,617 shares of common stock were outstanding
under the plan, all of which were exercisable, and options to purchase
29,091 shares of common stock were available for future grant.

1996 Nonqualified Performance Stock Option Plan--Executive

In 1996, we approved our 1996 Nonqualified Performance Stock Option Plan--
Executive, which provides for the grant of nonqualified options to purchase
shares of common stock to our officers and key employees. Under the plan, we
have granted options to purchase shares of common stock to certain executive
officers. The plan authorizes the issuance of options to purchase up to
1,507,489 shares of common stock. Most of the options granted under the plan
become exercisable based on our attainment of certain operating performance
criteria, as established by the board of directors. All options expire ten
years after their date of grant, unless earlier terminated. As of October 1,
2000, options to purchase 1,507,489 shares of common stock were outstanding
under the plan, all of which were exercisable, and none were available for
future grant.

1996 Nonqualified Performance Stock Option Plan--General

In 1996, we approved our 1996 Nonqualified Performance Stock Option Plan--
General, which provides for the grant of nonqualified options to purchase
shares of common stock to our officers and key employees. The plan authorizes
the issuance of options to purchase up to 1,205,806 shares of common stock.
Most options granted under the plan become exercisable based on our attainment
of certain operating performance criteria, as established by the board of
directors. All options expire ten years after their date of grant, unless
earlier terminated. As of October 1, 2000, options to purchase 792,591 shares
of common stock were outstanding under the plan, of which options to purchase
614,724 shares were exercisable, and options to purchase 256,718 shares of
common stock were available for future grant.

1996 Nonqualified Stock Option Plan

In 1996, we approved our 1996 Nonqualified Stock Option Plan, which provides
for the grant of nonqualified options to purchase shares of common stock to our
officers and key employees. The plan authorizes the issuance of options to
purchase up to 5,871,373 shares of common stock. As of October 1, 2000, options
to purchase 1,803,013 shares of common stock were outstanding under the plan,
of which options to purchase 719,343 shares were exercisable, and options to
purchase 22,615 shares were available for future grant. On December 7, 2000, we
amended the plan to increase by 4,000,000 shares the authorized number of
shares available for future grant.

Substitute Nonqualified Stock Option Plan

In March 1998, in connection with our acquisition of Seattle Coffee, we
approved our Substitute Nonqualified Stock Option Plan. The plan authorizes the
issuance of options to purchase up to 509,221 shares of our common stock in
substitution for options previously held by former Seattle Coffee option
holders. As of October 1, 2000, options to purchase 461,016 shares of our
common stock were outstanding under the plan, all of which were exercisable,
and options to purchase 18,347 shares of common stock were available for future
grant.

72
<PAGE>

Stock Bonus Plans

In 1996, we approved our 1996 Employee Stock Bonus Plan--Executive and our
1996 Employee Stock Bonus Plan--General, which provide for the award of
restricted shares of common stock to officers, key employees and certain
consultants. The executive bonus plan authorizes the award of up to 2,649,969
shares of common stock. The general bonus plan authorizes the award of up to
364,803 shares of common stock. We have certain repurchase rights for shares
granted under the plans upon the termination of a participant's employment.
These repurchase rights and other restrictions on the shares terminate upon
completion of this offering. No shares of common stock are available for future
grant under either of these plans.

Other Employee Benefit Plans

1994 Supplemental Benefit Plans

In 1994, our board of directors approved our 1994 Supplemental Benefit
Plans, which provide unfunded disability and death benefits, and in some cases
retirement benefits, for selected officers. Death benefits under the plans may
equal up to five times the officer's base compensation at the time of
employment. We have the discretion to increase an employee's death benefits.
Death benefits are funded by split dollar life insurance arrangements. We also
provide participants with disability benefits that are supplemental to those
provided under our basic health care benefit program. Annual retirement
benefits are generally equal to 30% of the participant's average base
compensation for the five years preceding retirement, and are payable in 120
equal monthly installments following the participant's retirement date. The
accumulated benefit obligation relating to these plans was approximately $2.4
million on October 1, 2000. Additionally, we provide post-retirement medical
benefits, including dental coverage, for retirees covered under the plans and
their spouses. These medical benefits begin on the date of retirement and end
after the earlier of 120 months or upon the death of the retiree and their
spouse.

Long-Term Employee Success Plan

The bonuses are payable in shares of our common stock or, to the extent an
employee is eligible, deferred compensation, and may be paid in cash if an
employee elects to receive a cash payment and our board of directors agrees to
pay the bonus in cash. Our board of directors, in its sole discretion, has the
right to adjust these financial performance standards if there has been an
event or series of events that was unanticipated when the plan became effective
in 1999, would have a material effect on our financial performance and would
distort the effectiveness of the initial financial performance standards such
that the standards should be revised. If neither of our financial performance
standards has been achieved by December 28, 2003, the plan and our obligation
to make any payments under the plan would terminate.

73
<PAGE>

covenants and restrictions contained in our bank credit facility and senior
subordinated notes. Further, we may not have sufficient cash resources to pay
these bonuses in cash at the time they become payable, which would cause us to
pay all or a portion of the bonuses using shares of our common stock. Assuming
that the financial performance standards were achieved as of the date of this
prospectus, we estimate that we would be obligated to pay bonuses with an
aggregate value of $75.0 million. However, assuming that our historical
employee turnover and retention rates continue, and that either of the
financial performance standards was achieved as of December 28, 2003, we
estimate that we would only be obligated to pay bonuses with an aggregate value
of approximately $45.0 million.

Deferred Compensation Plan

Effective March 1998, our board of directors adopted our Deferred
Compensation Plan. Under this plan, our senior executives and other highly
compensated employees currently may elect to defer the receipt and taxation of
between 1% and 50% of their annual base salary and up to 100% of their bonus.
We place a participant's deferred compensation in a deferral account, and also
may credit participants' accounts in amounts that we determine at our sole
discretion. The administrative committee for the plan selects investment funds
for purposes of determining the rate of return on amounts deferred under the
plan. Participants select from these investment funds for purposes of
determining the rate of return on their deferral accounts. All amounts deferred
under the plan are invested in variable life insurance policies. Participants
are at all times fully vested in any amount they defer, and become vested in
any amounts that we credit to their deferral account equally over five years.

Indemnification of Directors and Executive Officers and Limitation of Liability

As allowed by the Minnesota Business Corporation Act, we have adopted
provisions in our articles of incorporation that provide that our directors
shall not be personally liable for monetary damages to us or our shareholders
for a breach of fiduciary duty as a director to the full extent that the act
permits the limitation or elimination of the liability of directors.

74
<PAGE>

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors or officers pursuant to the foregoing
provisions, or otherwise, we have been advised that in the opinion of the SEC
this indemnification is against public policy as expressed in the Securities
Act, and is therefore unenforceable. In the event that a claim for
indemnification for these liabilities, other than the payment by us of expenses
incurred or paid by a director or officer in the successful defense of any
action, suit or proceeding, is asserted by a director or officer, we will,
unless in the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question as to
whether this indemnification is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of the issue.

We have entered into indemnification agreements with each of our current
directors to give such directors additional contractual assurances regarding
the scope of their indemnification. The indemnification agreements provide
indemnification to the full extent permitted under Minnesota law, and provide
for the advancement of expenses incurred by a director in connection with the
investigation, defense, settlement or appeal of any action or investigation. If
we reorganize under Delaware law, we will amend these indemnification
agreements to provide indemnification and advancement for expenses to the
fullest extent permitted under Delaware law. In addition, we maintain liability
insurance for our directors and officers as required by their indemnification
agreements.

There is no pending litigation or proceeding involving any of our directors,
officers, employees or other agents as to which indemnification is being
sought, nor are we aware of any pending or threatened litigation that may
result in claims for indemnification by any director, officer, employee or
other agent.

75
<PAGE>

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth information known to us regarding the
beneficial ownership of our common stock as of November 20, 2000, and as
adjusted to reflect the sale of the common stock offered in this offering by:

. each shareholder known by us to own beneficially more than 5% of our
common stock;

. each of our directors;

. our Chief Executive Officer and each of our four other most highly
compensated executive officers whose salary and bonuses exceeded
$100,000 for the year ended December 26, 1999;

. each shareholder selling shares of our common stock in this offering;
and

. all of our directors and executive officers as a group.

Beneficial ownership is determined in accordance with the rules of the SEC.
In computing the number of shares beneficially owned by a person and the
percentage of ownership held by that person, shares of common stock subject to
options held by that person that are currently exercisable or will become
exercisable within 60 days after November 20, 2000 are deemed outstanding,
while these shares are not deemed outstanding for computing percentage
ownership of any other person. Unless otherwise indicated in the footnotes
below, the persons and entities named in the table have sole voting and
investment power with respect to all shares beneficially owned, subject to
community property laws where applicable. The address for those individuals for
which an address is not otherwise indicated is: c/o AFC Enterprises, Inc., Six
Concourse Parkway, Suite 1700, Atlanta, Georgia 30328-5352.

76
<PAGE>

The percentages of common stock beneficially owned are based on 39,459,289
shares of common stock outstanding as of November 20, 2000.

<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Shares to be Sold Owned
Before Offering in the Offering After Offering
--------------------- ----------------- ---------------------
Name Number Percentage Number Percentage Number Percentage
---- ---------- ---------- ------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
5% Shareholders:
Freeman Spogli &
Co.(1)................. 21,212,421 53.8% -- -- 21,212,421 %
Canadian Imperial Bank
of Commerce(2)......... 6,312,724 16.0 -- -- 6,312,724
PENMAN Private Equity
and Mezzanine Fund,
L.P.(3)................ 2,361,954 6.0 -- -- 2,361,954
ML IBK Positions,
Inc.(4)................ 2,050,000 5.2 -- -- 2,050,000
Directors and Executive
Officers:
Frank J. Belatti(5)..... 3,320,936 8.0 -- -- 3,320,936
Dick R. Holbrook(6)..... 1,452,548 3.6 -- -- 1,452,548
Samuel N. Frankel(7).... 1,266,828 3.2 -- -- 1,266,828
Gerald J. Wilkins(8).... 297,849 * -- -- 297,849 *
Hala Moddelmog(9)....... 226,409 * -- -- 226,409 *
Mark J. Doran(12)....... -- -- -- -- -- --
Paul Farrar(10)......... -- -- -- -- -- --
Matt L. Figel(11)....... -- -- -- -- -- --
Kelvin J.
Pennington(3).......... -- -- -- -- -- --
John M. Roth(12)........ -- -- -- -- -- --
Ronald P. Spogli(12).... -- -- -- -- -- --
Peter Starrett(13)...... 44,000 * -- -- 44,000 *
William M. Wardlaw(12).. -- -- -- -- -- --
All directors and
executive officers as a
group (16
persons)(14)........... 30,372,748 70.3 -- -- 30,372,748
</TABLE>
--------
* Less than 1% of the outstanding shares of common stock.
(1) Includes: 18,259,483 shares held of record by FS Equity Partners III,
L.P., 733,583 shares held of record by FS Equity Partners International,
L.P. and 2,219,355 shares held of record by FS Equity Partners IV, L.P.
The business address of Freeman Spogli & Co., FS Equity Partners III, FS
Equity Partners IV and their directors, officers and beneficial owners is
11100 Santa Monica Boulevard, Suite 1900, Los Angeles, California 90025.
The business address of FS Equity Partners International is c/o Paget-
Brown & Company, Ltd., West Winds Building, Third Floor, Grand Cayman,
Cayman Islands, British West Indies.
(2) The business address for Canadian Imperial Bank of Commerce is BCE Place,
Bay Street, P.O. Box 500, Toronto, Ontario MBJ258.
(3) Mr. Pennington, who is a member of the board of directors, is a general
partner of PENMAN Asset Management, L.P., the general partner of PENMAN
Private Equity and Mezzanine Fund, L.P., and as such may be deemed to be
the beneficial owner of the shares held by PENMAN Partners. The business
address of PENMAN Partners, PENMAN Asset Management and Mr. Pennington is
30 North LaSalle Street, Suite 1620, Chicago, Illinois 60602.
(4) The business address of ML IBK Positions, Inc. is c/o Merrill Lynch & Co.,
Inc., Corporate Credit Division, World Financial Center, South Tower, 7th
Floor, New York, New York 10080.
(5) Includes 1,861,934 shares of common stock issuable with respect to options
exercisable within 60 days of November 20, 2000. Also includes 675,010
shares of common stock held by two grantor retained annuity trusts
established by Mr. Belatti.

77
<PAGE>

(6) Includes 779,644 shares of common stock issuable with respect to options
exercisable within 60 days of November 20, 2000.
(7) Includes 537,034 shares of common stock issuable with respect to options
exercisable within 60 days of November 20, 2000.
(8) Includes 214,209 shares of common stock issuable with respect to options
exercisable within 60 days of November 20, 2000.
(9) Includes 191,709 shares of common stock issuable with respect to options
exercisable within 60 days of November 20, 2000.
(10) Mr. Farrar's mailing address is 159 Wimbleton Road, Toronto, Ontario M9A
3S8.
(11) Mr. Figel's business address is c/o Doramar Capital, 300 South Grand
Avenue, Suite 2800, Los Angeles, California 90071.
(12) Messrs. Doran, Roth, Spogli and Wardlaw are limited partners of FS Equity
Partners III, FS Equity Partners International and FS Equity Partners IV
and may be deemed to be the beneficial owners of the shares of common
stock held by FS Equity Partners III, FS Equity Partners International and
FS Equity Partners IV.
(13) Mr. Starrett's business address is c/o Freeman & Spogli & Co.
Incorporated, 11100 Santa Monica Boulevard, Suite 1900, Los Angeles,
California 90025.
(14) Includes 21,212,421 shares of common stock held by affiliates of Freeman
Spogli & Co., 2,361,954 shares of common stock held by PENMAN Partners and
3,766,752 shares of common stock issuable with respect to options granted
to executive officers that are exercisable within 60 days of November 20,
2000.

78
<PAGE>

RELATED-PARTY TRANSACTIONS

Stock Transactions

In 1996, we loaned to Messrs. Belatti, Holbrook, Frankel and Wilkins and Ms.
Moddelmog approximately $2.0 million, $1.0 million, $1.0 million, $22,000 and
$52,000 in order to pay personal withholding income tax liabilities incurred as
a result of executive compensation awards earned in 1995 and that we paid using
shares of our common stock. In 1997, we loaned to Messrs. Belatti, Holbrook and
Frankel an additional $94,000, $45,000 and $45,000 related to these tax
liabilities. Each person issued to us a full recourse promissory note for the
amount borrowed. Each note bears simple interest at a rate of 6.25% per annum,
and principal and interest is due and payable on December 31, 2003. The notes
are secured by the shares awarded to these individuals. As of October 1, 2000,
the outstanding principal balance plus accrued interest due from
Messrs. Belatti, Holbrook, Frankel and Wilkins and Ms. Moddelmog under these
notes was $2,659,070, $1,316,492, $1,316,492, $28,110 and $66,350.

In October 1998, we sold 2,795,703 shares of our common stock to a number of
existing shareholders and option holders at a purchase price of $7.75 per
share. Freeman Spogli & Co. purchased 2,219,355 shares of common stock for a
purchase price of $17.2 million. PENMAN Partners purchased 251,613 shares of
common stock for a purchase price of approximately $2.0 million. Messrs.
Belatti, Holbrook, Frankel and Wilkins purchased 129,033, 12,904, 51,613 and
15,000 shares of common stock for a purchase price of approximately $1.0
million, $100,000, $400,000 and $116,000. Messrs. Belatti, Holbrook, Frankel
and Wilkins borrowed from us $750,000, $75,000, $300,000 and $87,000 to finance
the purchase of a portion of these shares. Each person issued to us a full
recourse promissory note for the amount borrowed. Each note bears simple
interest at a rate of 7.0% per annum, and principal and interest is due and
payable on December 31, 2005. The notes are secured by the shares of common
stock each person purchased in the offering. Within 60 days of this offering,
each person may tender shares of our common stock at their fair market value to
satisfy the outstanding balance on their respective promissory notes. As of
October 1, 2000, the outstanding principal balance plus accrued interest due
from Messrs. Belatti, Holbrook, Frankel and Wilkins under these notes was
$843,361, $84,335, $337,341 and $98,042.

In June 1999, Mr. Wilkins purchased 32,000 shares of common stock from one
of our former employees. We loaned Mr. Wilkins approximately $181,000 to
purchase a portion of these shares. Mr. Wilkins issued to us a full recourse
promissory note for the amount borrowed. The note bears simple interest at a
rate of 7.0% per annum, and principal and interest is due and payable on
December 31, 2005. The note is secured by the shares of common stock purchased
by Mr. Wilkins. As of October 1, 2000, the outstanding principal balance, plus
accrued interest due on the note was approximately $208,544.

In October 1999, Messrs. Frankel and Wilkins purchased 18,181 and 21,940
shares of common stock from one of our former employees. We loaned Messrs.
Frankel and Wilkins approximately $105,000 and $135,000 to purchase a portion
of the shares. Each of Messrs. Frankel and Wilkins issued to us a full recourse
promissory note for the amount borrowed. The notes bear simple interest at a
rate of 7.0% per annum, and principal and interest is due and payable on
December 31, 2005. The notes are secured by the shares of common stock
purchased by Messrs. Frankel and Wilkins. As of October 1, 2000, the
outstanding principal balance plus accrued interest due from Messrs. Frankel
and Wilkins under these notes was $112,364 and $144,481.

Payments to Affiliates

In October 1998, in connection with our stock offering related to our
Cinnabon acquisition, we paid Freeman Spogli & Co. a fee of approximately $1.0
million, $100,000 of which was paid to PENMAN Partners.

79
<PAGE>

DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists of 50,000,000 shares of common stock,
par value $.01 per share, and 2,500,000 shares of preferred stock, par value
$.01 per share.

As of November 20, 2000, there were 39,459,289 shares of common stock
outstanding, which were held by 190 shareholders of record. Based upon the
number of shares outstanding as of November 20, 2000, and giving effect to the
issuance of the shares of common stock offered by us in this offering, there
will be shares of common stock outstanding.

The following description of our capital stock is not complete and is
subject to and qualified in its entirety by our articles of incorporation and
bylaws, which are included as exhibits to the registration statement of which
this prospectus forms a part, and by the provisions of applicable Minnesota
law.

Common Stock

Holders of shares of common stock are entitled to one vote for each share
held of record on all matters on which shareholders are entitled or permitted
to vote. In accordance with Minnesota law, the affirmative vote of a majority
of the outstanding shares entitled to vote at a meeting at which a quorum is
present shall be the act of the shareholders. There is no cumulative voting for
the election of directors. Subject to the prior rights of holders of preferred
stock, the holders of common stock are entitled to receive dividends when and
as declared by the board of directors out of funds legally available for the
payment of dividends. Upon a liquidation, our creditors and any holders of
preferred stock with preferential liquidation rights will be paid before any
distribution to holders of our common stock. The holders of our common stock
would be entitled to receive a pro rata amount per share of any excess
distribution. Holders of common stock have no preemptive or subscription
rights. There are no conversion rights, redemption rights, sinking fund
provisions or fixed dividend rights with respect to the common stock. All
outstanding shares of common stock are fully paid and nonassessable, and the
shares of common stock to be issued upon completion of this offering will be
fully paid and nonassessable.

Preferred Stock

Our articles of incorporation empower our board of directors to issue up to
2,500,000 shares of preferred stock from time to time in one or more series.
The board also may fix the designation, privileges, preferences and rights and
the qualifications, limitations and restrictions of those shares, including
dividend rights, conversion rights, voting rights, redemption rights, terms of
sinking funds, liquidation preferences and the number of shares constituting
any series or the designation of the series. Terms selected could decrease the
amount of earnings and assets available for distribution to holders of common
stock or adversely affect the rights and powers, including voting rights, of
the holders of the common stock without any further vote or action by the
shareholders. The rights of holders of common stock will be subject to, and may
be adversely affected by, the rights of the holders of any preferred shares
that may be issued by us in the future. Additionally, the issuance of preferred
stock may have the effect of decreasing the market price of the common stock
and may adversely affect the voting and other rights of the holders of common
stock. While we have no present intention to issue any shares of preferred
stock, any issuance could have the effect of making it more difficult for a
third party to acquire a majority of our outstanding voting stock.

Stockholders Agreement

According to the terms of a stockholders agreement that we entered into in
1996, at the request of a shareholder who signed the agreement, the other
shareholders must vote their shares of common stock in favor of an amendment to
our articles of incorporation to provide that any shares of common stock of a
requesting shareholder may be converted into a new series of non-voting

80
<PAGE>

common stock. Additionally, the 1996 stockholders agreement prohibits us from
entering into any material transaction with any signatory to the agreement or
its affiliates other than transactions that are on terms no less favorable to
us than those which could have been obtained with a person who is not a
shareholder.

Registration Rights of Shareholders

Freeman Spogli & Co., PENMAN Partners, the other signatories to the 1996
stockholders agreement, including our directors and officers, pursuant to the
1996 stockholders agreement, and the former shareholders of Seattle Coffee,
pursuant to a 1998 stockholders agreement, have registration rights with
respect to approximately 30,638,977 shares of common stock that they hold.
Under these stockholders agreements, these shareholders may require us to
register for resale under the Securities Act their shares of common stock.
These registration rights include the following provisions:

Demand Registration Rights. At any time after the earlier of six months from
the date of the closing of this offering or April 11, 2001, Freeman Spogli &
Co., PENMAN Partners, and the other signatories to the 1996 stockholders
agreement may require us to register for public resale their shares of common
stock, if they hold shares representing at least 10% of the outstanding shares
of common stock then outstanding or shares of common stock representing not
less than $10 million in fair market value as determined by our board of
directors. Additionally, at any time after the earlier of six months from the
date of the closing of this offering or February 2003, the former shareholders
of Seattle Coffee may also require us to register for public resale their
shares of common stock, if they hold shares representing at least 10% of the
outstanding shares of common stock then outstanding or shares of common stock
representing not less than $10 million in fair market value as determined by
our board of directors. We are not obligated to effect more than one demand
registration in any 18-month period under either of our stockholders
agreements. Also, we are not obligated to effect more than one demand
registration for each of Freeman Spogli & Co. and PENMAN Partners, as a group,
the other shareholders who signed the 1996 stockholders agreement, as a group,
or the former shareholders of Seattle Coffee, as a group. If a demand
registration is made at a time when we are planning to file a registration
statement for a primary offering, so long as we file the registration statement
within two months of the demand, we can postpone the demand registration until
the earlier of 120 days from the date of the closing of the primary offering or
six months from the date the demand is made. If a demand registration is made
at a time when the registration would adversely affect a material acquisition
or merger, we may postpone the demand registration for a period of up to 90
days.

Piggyback Registration Rights. All holders of shares with demand
registration rights also have piggyback registration rights. Accordingly, if at
any time after 90 days from this offering we propose to file a registration
statement for our own account or the account of any other holder of our common
stock, we are required to give notice to these shareholders and use our best
efforts to include the requesting shareholders' shares in the registration.

Limitations on Registration. All registration rights are subject to the
right of the managing underwriter to reduce the number of shares included in
the registration if the underwriter determines the success of the offering
would be adversely affected.

Expenses. We are responsible for paying all registration expenses, including
the reasonable expenses of one counsel for the selling holders, other than the
former shareholders of Seattle Coffee, but are not responsible for underwriting
discounts and commissions or the out-of-pocket expenses of the selling holders.

Termination. A shareholder's registration rights for shares of our common
stock terminate when the shares may be sold under Rule 144(k).

81
<PAGE>

Potential Anti-takeover Effect of Minnesota Law, Our Articles of Incorporation
and Bylaws

We are governed by the provisions of Sections 302A.671 and 302A.675 of the
Minnesota Business Corporation Act, which are anti-takeover laws.

Section 302A.671 generally provides that the shares of a corporation
acquired in a "control share acquisition" have no voting rights unless voting
rights are approved in a prescribed manner. A "control share acquisition" is an
acquisition, directly or indirectly, of beneficial ownership of shares that
would, when added to all other shares beneficially owned by the acquiring
person, entitle the acquiring person to have voting power of 20% or more in the
election of directors.

Section 302A.675 generally prohibits an offeror from acquiring shares of a
publicly held Minnesota corporation within two years following the offeror's
last purchase of the corporation's shares pursuant to a takeover offer with
respect to that class, unless the corporation's shareholders are able to sell
their shares to the offeror upon substantially equivalent terms as those
provided in the earlier takeover offer. This statute will not apply if the
acquisition of shares is approved by a committee of all of the disinterested
members of our board of directors before the purchase of any shares by the
offeror pursuant to a takeover offer.

Section 302A.673 prohibits a publicly-held Minnesota corporation from
engaging in a "business combination" with an "interested shareholder" for a
period of four years after the date of the transaction in which the person
became an interested shareholder, unless the business combination is approved
in a prescribed manner or the corporation's articles of incorporation provide
that Section 302A.673 is not applicable to the corporation. Our articles of
incorporation provide that Section 302A.673 shall not apply to us or any of our
shares of capital stock.

Provisions of our articles of incorporation and bylaws may have the effect
of making it more difficult for a third party to acquire control of us, or of
discouraging a third party from attempting to acquire control of us. In
addition, our bylaws allow our board of directors to issue up to 2,500,000
shares of undesignated preferred stock with voting rights or preferences that
could impede the success of any hostile takeover or delay a change in control
or change in our management.

Contemplated Reorganization under Delaware Law

Our board of directors is considering whether to create a holding company
structure, whereby we would become a wholly-owned subsidiary of a Delaware
corporation. If we determine to create this structure, we will seek shareholder
approval authorizing the structure at our first shareholder meeting following
this offering. Since Freeman Spogli & Co. and our management will continue to
own approximately % of our outstanding common stock after the offering, we
believe that we will be able to obtain this approval if needed. As a result of
this reorganization, if it occurs, provisions of Delaware corporate law and our
anticipated certificate of incorporation and bylaws would govern your rights
with respect to your shares of common stock. These provisions might limit or
reduce the price that investors are willing to pay in the future for shares of
our common stock, because some provisions of Delaware law also could delay,
defer or prevent a change in control that could be beneficial to our
shareholders, or make it more difficult for shareholders to take certain
actions.

Listing

We intend to list our common stock on the Nasdaq National Market under the
trading symbol "AFCE".

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is . The
transfer agent's address and telephone number are .

82
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no market for our common stock, and
we cannot predict the effect, if any, that market sales of shares of our common
stock or the availability of shares of our common stock for sale will have on
the market price of our common stock prevailing from time to time.
Nevertheless, sales of substantial amounts of our common stock in the public
market could adversely affect the market price of our common stock and could
impair our future ability to raise capital through the sale of our equity
securities.

Upon completion of this offering, we will have outstanding shares of
common stock, assuming no exercise of the underwriters' overallotment option.
We have reserved 10,499,497 shares of common stock for issuance upon exercise
of options granted or to be granted under our stock option plans, of which
options to purchase 6,172,726 shares are currently outstanding. The grant of
options to purchase shares of common stock under our stock option plans is
conditional on our having available a sufficient number of shares of capital
stock authorized for issuance. We also have reserved 169,834 shares of common
stock for issuance upon the exercise of outstanding warrants.

Excluding the shares of common stock sold in the offering and assuming
no exercise of the underwriters' overallotment option, as of the effective date
of the registration statement, there will be shares of common stock
outstanding, all of which are "restricted securities" under the Securities Act.
The following table indicates approximately when these restricted securities
will be eligible for sale into the public market:

<TABLE>
<CAPTION>
Restricted Securities Eligible for Sale in Public Market
--------------------------------------------------------
<S> <C>
At effective date...................................................... 0
180 days after effective date..........................................
</TABLE>

Approximately shares of common stock that are restricted securities will
become available for sale in the public market beginning 180 days after the
effective date and will be subject to the volume and other resale restrictions
pursuant to Rule 144 because the holders are our affiliates. The general
provisions of Rule 144 are described below.

Lock-Up Agreements

As of , 2000, all officers and directors and certain shareholders
holding an aggregate of approximately shares of our common stock have
entered into lock-up agreements in connection with this offering. These lock-up
agreements provide that these persons will not offer, sell, contract to sell,
grant any option to purchase or otherwise dispose of our common stock or any
securities exercisable for or convertible into our common stock owned by them
for a period of 180 days after the date of this prospectus without the prior
written consent of Goldman, Sachs & Co. Goldman, Sachs & Co. has advised us
that it has no present intention to release any of the shares subject to the
lock-up agreements prior to the expiration of the lock-up period. These lock-up
agreements restrict the transfer of shares of our common stock purchased under
the directed share program in connection with this offering, but do not
restrict the transfer of shares of our common stock in the open market
following the date of this prospectus.

Rule 144

In general, under Rule 144, a person, including each of our "affiliates,"
who has beneficially owned "restricted securities" for at least one year, will
be entitled to sell in any three-month period a number of shares that does not
exceed the greater of:

. 1% of the then outstanding shares of the common stock, approximately
shares immediately after this offering, or

. the average weekly trading volume in our common stock during the four
calendar weeks preceding the filing of a notice of the sale with the
SEC.

83
<PAGE>

Sales pursuant to Rule 144 are subject to requirements relating to manner of
sale, notice and availability of current public information about us. Under
Rule 144(k), a holder of "restricted securities" who is not an affiliate of us
and who has beneficially owned his or her shares for at least two years is
entitled to sell such shares pursuant to Rule 144(k) without regard to the
limitations described above.

Rule 701

In general, any of our employees, consultants or advisors, other than
affiliates, who purchases shares from us in connection with a compensatory
stock purchase plan or option plan or other written agreement in accordance
with Rule 701 of the Securities Act, will be eligible to resell their shares
beginning 90 days after the date of this prospectus, subject only to the manner
of sale restrictions of Rule 144.

Registration Rights Agreement

In addition to rights of sale under Rule 144, several of our officers,
directors and shareholders that hold an aggregate of 30,638,977 shares of
outstanding common stock have registration rights which enable them to require
us to file a registration statement registering their shares for resale to the
public.

Registration of Shares Under Stock Option Plans

We intend to file a registration statement on Form S-8 covering all of the
shares of common stock issuable or reserved for issuance under our stock option
plans as soon as practicable following the date of this prospectus. When
issued, these shares will be freely tradeable in the public market, subject to
Rule 144 volume limitations applicable to affiliates.

84
<PAGE>

UNDERWRITING

AFC Enterprises, the selling shareholders and the underwriters for the
offering named below have entered into an underwriting agreement with respect
to the shares being offered. Subject to conditions in the underwriting
agreement, each underwriter has severally agreed to purchase the number of
shares indicated in the following table. Goldman, Sachs & Co. and Credit Suisse
First Boston Corporation are the representatives of the underwriters.

<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Goldman, Sachs & Co.......................................
Credit Suisse First Boston Corporation....................
---
Total...................................................
===
Total...................................................
===
</TABLE>

If the underwriters sell more shares than the total number in the table
above, the underwriters have an option to buy up to an additional shares
from AFC Enterprises to cover such sales. They may exercise that option for 30
days. If any shares are purchased under this option, the underwriters will
severally purchase shares in approximately the same proportion as set forth in
the table above.

The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters by AFC Enterprises. The amounts are
shown assuming both no exercise and full exercise of the underwriters' option
to purchase additional shares.

<TABLE>
<CAPTION>
Paid by AFC Enterprises
-------------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per share........................................ $ $
Total............................................ $ $
</TABLE>

Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus.
Any shares sold by the underwriters to securities dealers may be sold at a
discount of up to $ per share from the initial public offering price. Any
of these securities dealers may resell any shares purchased from the
underwriters to other brokers or dealers at a discount of up to $ per share
from the initial public offering price. If all the shares are not sold at the
initial public offering price, the representatives may change the offering
price and the other selling terms.

AFC Enterprises, its officers, directors and principal shareholders and the
selling shareholders will agree with the underwriters not to dispose of or
hedge any of their common stock or securities convertible into or exchangeable
for shares of common stock during the period from the date of this prospectus
continuing through the date 180 days after the date of this prospectus, except
with the prior written consent of Goldman, Sachs & Co. This agreement will not
apply to any grants or issuances of securities by AFC Enterprises pursuant to
any of its employee benefit plans. See "Shares Available for Future Sale" for a
discussion of certain transfer restrictions.

Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be negotiated among AFC
Enterprises and the representatives. Among the factors

85
<PAGE>

to be considered in determining the initial public offering price of the
shares, in addition to prevailing market conditions, will be AFC Enterprises'
historical performance, estimates of the business potential and earnings
prospects of AFC Enterprises, an assessment of AFC Enterprises' management and
the consideration of the above factors in relation to market valuation of
companies in related businesses.

AFC Enterprises has applied to list the common stock on the Nasdaq National
Market under the symbol "AFCE".

In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Shorts sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering. Covered
short sales are sales made in an amount not greater than the underwriters'
option to purchase additional shares from AFC Enterprises in the offering. The
underwriters may close out any covered short position by either exercising
their option to purchase additional shares or purchasing shares in the open
market. In determining the source of shares to close out the covered short
position, the underwriters will consider, among other things, the price of
shares available for purchase in the open market as compared to the price at
which they may purchase shares through the overallotment option. Naked short
sales are any sales in excess of such option. The underwriters must close out
any naked short position by purchasing shares in the open market. A naked short
position is more likely to be created if the underwriters are concerned that
there may be downward pressure on the price of the common stock in the open
market after pricing that could adversely affect investors who purchase in the
offering. Stabilizing transactions consist of various bids for or purchases of
common stock made by the underwriters in the open market prior to the
completion of the offering.

The underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to the other underwriters a portion of the
underwriting discount received by it because the representatives have
repurchased shares sold by or for the account of such underwriter in
stabilizing or short covering transactions.

Purchases to cover a short position and stabilizing transactions may have
the effect of preventing or retarding a decline in the market price of the
common stock, and together with the imposition of the penalty bid, may
stabilize, maintain or otherwise affect the market price of the common stock.
As a result, the price of the common stock may be higher than the price that
otherwise might exist in the open market. If these activities are commenced,
they may be discontinued at any time. These transactions may be effected on the
Nasdaq National Market, in the over-the-counter market or otherwise.

At the request of AFC Enterprises, the underwriters are reserving up to
shares of common stock for sale at the initial public offering price to
directors, officers, employees and friends through a directed share program.
The number of shares of common stock available for sale to the general public
in the public offering will be reduced to the extent these persons purchase
these reserved shares. Any shares not purchased will be offered by the
underwriters to the general public on the same basis as the other shares
offered hereby.

The underwriters do not expect sales to discretionary accounts to exceed 5%
of the total number of shares offered.

AFC Enterprises and the selling shareholders each estimate that their share
of the total expenses of the offering, excluding underwriting discounts and
commissions, will be approximately $ and $ , respectively.

AFC Enterprises and the selling shareholders have agreed to indemnify the
several underwriters against certain liabilities, including liabilities under
the Securities Act.

86
<PAGE>

LEGAL MATTERS

The validity of the common stock offered under this prospectus will be
passed upon for us by Riordan & McKinzie, a Professional Law Corporation, Los
Angeles, California, in reliance upon certain matters passed upon by Dorsey &
Whitney, Minneapolis, Minnesota. Principals and employees of Riordan & McKinzie
are partners in partnerships that are limited partners of Freeman Spogli
investment funds that own a majority of our equity interests. Certain legal
matters raised in connection with this offering will be passed upon for the
underwriters by King & Spalding.

EXPERTS

Our audited consolidated financial statements for the years ended December
28, 1997, December 27, 1998 and December 26, 1999 included in this prospectus
and elsewhere in the registration statement have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto and are included herein in reliance upon the authority of said
firm as experts in giving said report.

WHERE YOU CAN FIND MORE INFORMATION ABOUT US

We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the common stock. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits and schedules to the registration statement. For further information
with respect to us and our common stock, we refer you to the registration
statement and the exhibits and schedules filed as a part of the registration
statement. Each statement in this prospectus relating to a contract or document
filed as an exhibit is qualified in all respects by the filed exhibit. You may
read and copy any document we file at the SEC's public reference room in
Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference room. The SEC maintains a website that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC at http://www.sec.gov.

Since 1997, we have filed periodic reports and other information with the
SEC. Upon completion of this offering, we will become subject to the
information and periodic reporting requirements of the Securities and Exchange
Act and will continue to file periodic reports and other information, including
proxy statements, with the SEC. These periodic reports and other information
are and will be available for inspection and copying at the SEC's public
reference rooms and the Web site of the SEC referred to above.

87
<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants.................................. F-2

Consolidated Balance Sheets as of December 27, 1998, December 26, 1999 and
October 1, 2000 (unaudited).............................................. F-3

Consolidated Statements of Operations for the Years Ended December 28,
1997, December 27, 1998 and December 26, 1999 and the Forty Weeks Ended
October 3, 1999 (unaudited) and October 1, 2000 (unaudited).............. F-4

Consolidated Statements of Changes in Shareholders' Equity for the Years
Ended December 28, 1997, December 27, 1998 and December 26, 1999 and the
Forty Weeks Ended October 1, 2000 (unaudited)............................ F-5

Consolidated Statements of Cash Flows for the Years Ended December 28,
1997, December 27, 1998 and December 26, 1999 and the Forty Weeks Ended
October 3, 1999 (unaudited) and October 1, 2000 (unaudited).............. F-6

Notes to Consolidated Financial Statements................................ F-8
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of
AFC Enterprises, Inc.:

We have audited the accompanying consolidated balance sheets of AFC
Enterprises, Inc. (a Minnesota corporation), and subsidiaries (collectively
referred to hereafter as "the Company") as of December 27, 1998, and December
26, 1999, and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for the years ended December 28, 1997,
December 27, 1998, and December 26, 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 auditing standards generally
accepted in the United States. 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, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
27, 1998, and December 26, 1999, and the results of their operations and their
cash flows for the years ended December 28, 1997, December 27, 1998, and
December 26, 1999, in conformity with accounting principles generally accepted
in the United States.

/s/ ARTHUR ANDERSEN LLP
_____________________________________

Atlanta, Georgia
February 18, 2000, except for Note 17,
as to which the date is December 19, 2000

F-2
<PAGE>

AFC ENTERPRISES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except per share data)

<TABLE>
<CAPTION>
12/27/98 12/26/99 10/01/00
-------- -------- -----------
(unaudited)
<S> <C> <C> <C>
Assets:
Current assets:
Cash and cash equivalents..................... $ 17,066 $ 22,496 $ 14,680
Accounts and current notes receivable, net of
reserve...................................... 16,728 19,457 15,037
Income taxes refundable....................... 3,327 453 --
Inventories................................... 13,182 16,781 15,906
Deferred income taxes......................... 4,577 790 800
Prepaid expenses and other.................... 2,344 2,750 3,930
-------- -------- --------
Total current assets......................... 57,224 62,727 50,353
-------- -------- --------
Long-term assets:
Notes receivable, net......................... 4,066 3,436 7,179
Deferred income taxes......................... 4,416 9,132 1,256
Property and equipment, net of accumulated
depreciation and amortization of $115,847,
$139,594, and $154,333 (unaudited),
respectively................................. 263,141 263,282 266,348
Assets under contractual agreement, net....... -- -- 7,732
Other assets.................................. 19,498 18,442 13,704
Franchise value and trade name, net........... 82,913 81,262 76,817
Goodwill, net................................. 122,334 119,231 109,225
Other intangible assets, net.................. 2,873 4,377 3,651
-------- -------- --------
Total long-term assets....................... 499,241 499,162 485,912
-------- -------- --------
Total assets................................. $556,465 $561,889 $536,265
======== ======== ========
Liabilities and Shareholders' Equity:
Current liabilities:
Accounts payable.............................. $ 40,579 $ 32,800 $ 22,034
Bank overdrafts............................... 6,248 19,216 13,905
Current portion of long-term debt............. 8,356 13,111 10,970
Current portion of capital lease obligations.. 6,050 4,523 2,239
Current portion of acquisition line of
credit....................................... -- -- 9,300
Short-term borrowings......................... 7,000 -- 6,758
Accrued interest.............................. 2,863 3,016 6,448
Accrued insurance expenses.................... 4,437 4,820 3,961
Accrued employee compensation................. 5,181 5,495 5,304
Accrued employee benefit expenses............. 3,851 6,455 5,740
Other accrued expenses........................ 6,715 5,534 5,086
-------- -------- --------
Total current liabilities.................... 91,280 94,970 91,745
-------- -------- --------
Long-term liabilities:
Long-term debt, net of current portion........ 262,744 264,185 239,021
Capital lease obligations, net of current
portion...................................... 8,561 4,272 2,787
Acquisition facility.......................... 68,000 62,000 52,700
Other liabilities............................. 37,963 35,663 30,241
-------- -------- --------
Total long-term liabilities.................. 377,268 366,120 324,749
-------- -------- --------
Total liabilities............................ 468,548 461,090 416,494
-------- -------- --------
Commitments and contingencies (Note 14)

Shareholders' Equity:
Common stock ($.01 par value; 50,000,000
shares authorized; 39,232,329, 39,443,398 and
39,508,153 (unaudited) shares issued and
outstanding at period end, respectively)..... 392 394 395
Capital in excess of par value................ 151,632 153,280 154,827
Notes receivable--officers, including accrued
interest..................................... (6,138) (6,991) (7,547)
Treasury stock................................ -- -- (213)
Accumulated deficit........................... (57,969) (45,884) (27,691)
-------- -------- --------
Total shareholders' equity................... 87,917 100,799 119,771
-------- -------- --------
Total liabilities and shareholders' equity... $556,465 $561,889 $536,265
======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE>

AFC ENTERPRISES, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(in thousands, except per share data)

<TABLE>
<CAPTION>
Year Ended 40 Weeks Ended
-------------------------------- -----------------------
12/28/97 12/27/98 12/26/99 10/03/99 10/01/00
---------- ---------- ---------- ----------- -----------
(52 Weeks) (52 Weeks) (52 Weeks) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Restaurant sales....... $403,182 $487,441 $560,440 $428,982 $428,194
Franchise revenues..... 61,716 64,211 77,811 58,763 67,226
Wholesale revenues..... -- 36,411 50,368 36,518 40,531
Other revenues......... 8,713 9,891 9,397 7,014 8,207
-------- -------- -------- -------- --------
Total revenues...... 473,611 597,954 698,016 531,277 544,158
-------- -------- -------- -------- --------
Costs and expenses:
Restaurant cost of
sales................. 131,332 155,165 167,979 129,167 123,115
Restaurant operating
expenses.............. 197,227 245,161 288,249 221,086 223,228
Wholesale cost of
sales................. -- 19,064 24,371 17,929 19,942
Wholesale operating
expenses.............. -- 8,070 12,310 9,087 11,601
General and
administrative........ 77,048 85,691 96,546 77,701 76,614
Depreciation and
amortization.......... 33,244 45,162 42,126 33,473 31,770
Charges for other
restaurant closings
excluding Pine Tree... 479 311 835 -- --
Charges for Pine Tree
restaurant closings... -- 8,547 3,600 -- --
Software write-offs.... -- 5,000 3,830 -- --
Gain on sale of fixed
assets from AFDC
transaction........... (5,319) -- -- -- --
-------- -------- -------- -------- --------
Total costs and
expenses........... 434,011 572,171 639,846 488,443 486,270
-------- -------- -------- -------- --------
Income from continuing
operations............. 39,600 25,783 58,170 42,834 57,888
Other expenses:
Interest, net.......... 20,645 30,786 34,219 26,043 26,047
-------- -------- -------- -------- --------
Net income (loss) from
continuing operations
before income taxes.... 18,955 (5,003) 23,951 16,791 31,841
Income tax expense
(benefit)............. 8,276 (1,643) 9,922 7,581 13,596
-------- -------- -------- -------- --------
Net income (loss) from
continuing operations.. 10,679 (3,360) 14,029 9,210 18,245
Discontinued operations:
Loss from operations of
Chesapeake Bagel, net
of income taxes....... (7) (5,893) (638) (397) --
Loss on sale of
Chesapeake Bagel, net
of income taxes....... -- -- (1,742) (1,742) --
Income (loss) from
operations of
Ultrafryer, net of
income taxes.......... 328 607 436 307 (52)
-------- -------- -------- -------- --------
Net income (loss)....... 11,000 (8,646) 12,085 7,378 18,193
10% Preferred Stock
dividends payable in
kind................... 2,240 -- -- -- --
-------- -------- -------- -------- --------
Net income (loss)
attributable to common
stock.................. $ 8,760 $ (8,646) $ 12,085 $ 7,378 $ 18,193
======== ======== ======== ======== ========
Basic earnings per
common share:
Net income (loss)
attributable to common
stock from continuing
operations............ $ 0.24 $ (0.09) $ 0.36 $ 0.23 $ 0.46
Discontinued
operations............ 0.01 (0.15) (0.05) (0.04) --
-------- -------- -------- -------- --------
Net income (loss)...... $ 0.25 $ (0.24) $ 0.31 $ 0.19 $ 0.46
======== ======== ======== ======== ========
Diluted earnings per
common share:
Net income (loss)
attributable to common
stock from continuing
operations............ $ 0.23 $ (0.09) $ 0.33 $ 0.21 $ 0.43
Discontinued
operations............ 0.01 (0.15) (0.05) (0.04) --
-------- -------- -------- -------- --------
Net income (loss)...... $ 0.24 $ (0.24) $ 0.28 $ 0.17 $ 0.43
======== ======== ======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>

AFC ENTERPRISES, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Shareholders' Equity

(in thousands)

<TABLE>
<CAPTION>
Year Ended 40 Weeks
---------------------------- Ended
12/28/97 12/27/98 12/26/99 10/01/00
-------- -------- -------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Common stock:
Balance at beginning of period...... $ 344 $ 344 $ 392 $ 394
Issuance of common stock............ -- 48 2 1
-------- -------- -------- --------
Balance at end of period............ 344 392 394 395
-------- -------- -------- --------
Capital in excess of par value:
Balance at beginning of period...... 99,482 101,840 151,632 153,280
Issuance of common stock, options
and warrants....................... 6 48,720 183 306
Adjust stock issuance cost accrual
to actual.......................... 135 -- -- --
Compensation expense from stock
options............................ 2,217 1,072 1,465 1,241
-------- -------- -------- --------
Balance at end of period............ 101,840 151,632 153,280 154,827
-------- -------- -------- --------
Notes receivable--officers:
Balance at beginning of period...... (3,841) (4,402) (6,138) (6,991)
Notes receivable additions, net of
discount........................... (202) (1,345) (421) (171)
Notes and interest receivable
payments........................... 22 16 64 26
Interest receivable................. (287) (311) (390) (323)
Amortization of discount............ (94) (96) (106) (88)
-------- -------- -------- --------
Balance at end of period............ (4,402) (6,138) (6,991) (7,547)
-------- -------- -------- --------
Treasury shares:
Balance at beginning of period...... -- -- -- --
Repurchase of common stock at cost.. -- -- -- (213)
-------- -------- -------- --------
Balance at end of period............ -- -- -- (213)
-------- -------- -------- --------
Accumulated deficit:
Balance at beginning of period...... (58,083) (49,323) (57,969) (45,884)
Net income (loss)................... 11,000 (8,646) 12,085 18,193
10% Preferred Stock dividends....... (2,240) -- -- --
-------- -------- -------- --------
Balance at end of period............ (49,323) (57,969) (45,884) (27,691)
-------- -------- -------- --------
Total shareholders' equity........... $ 48,459 $ 87,917 $100,799 $119,771
======== ======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>

AFC ENTERPRISES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(in thousands)

<TABLE>
<CAPTION>
Year Ended 40 Weeks Ended
--------------------------------- -----------------------
12/28/97 12/27/98 12/26/99 10/03/99 10/01/00
---------- ---------- ---------- ----------- -----------
(52 Weeks) (52 Weeks) (52 Weeks) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows provided by
(used in) operating
activities:
Net income (loss)...... $ 11,000 $ (8,646) $ 12,085 $ 7,378 $ 18,193
-------- --------- -------- -------- --------
Adjustments to
reconcile net income
(loss) to net cash
provided by operating
activities:
Depreciation and
amortization.......... 33,803 46,078 42,622 33,935 31,854
Provision for credit
losses................ 1,214 1,063 1,064 632 954
(Gain) loss on
disposition and
retirement of long-
lived assets.......... (2,652) 987 1,259 5,070 506
Charges for restaurant
closings excluding
Pine Tree............. 479 311 835 -- --
Charges for Pine Tree
closings.............. -- 8,547 3,600 -- --
Loss on disposition of
Chesapeake............ -- 7,125 4,789 -- --
Software write-offs.... -- 5,000 3,830 -- --
Amortization of debt
issuance costs........ 886 1,477 1,614 1,240 1,754
Amortization of notes
receivable--officers
discount.............. (94) (96) (106) (81) (88)
Compensation expense
from stock options.... 2,217 1,072 1,465 863 1,121
Deferred tax expense
(benefit)............. 3,863 (7,628) 5,071 2,308 7,866
Change in operating
assets and liabilities:
(Increase) decrease in
accounts receivable... (905) (6,325) (3,751) (1,707) 1,777
(Increase) decrease in
inventories........... (487) (3,565) (3,598) (2,838) (1,631)
(Increase) decrease in
prepaid
expenses/other........ 4,076 (1,546) 2,466 2,319 (728)
(Increase) decrease in
other assets.......... 1,465 (7,025) (510) (693) 611
Increase (decrease) in
accounts payable...... 4,157 14,747 (14,251) (17,981) (11,817)
Increase (decrease) in
accrued expenses...... (3,097) (3,298) 2,599 6,308 1,627
Increase (decrease) in
other liabilities..... (1,966) (3,085) (3,794) (1,069) (5,105)
-------- --------- -------- -------- --------
Total adjustments.... 42,959 53,839 45,204 28,306 28,701
-------- --------- -------- -------- --------
Net cash provided by
operating activities.. 53,959 45,193 57,289 35,684 46,894
-------- --------- -------- -------- --------
Cash flows provided by
(used in) investing
activities:
Proceeds from
disposition of
property
held for sale......... 19,681 479 4,644 2,251 6,419
Investment in property
and equipment......... (42,136) (38,135) (55,808) (37,249) (32,385)
Proceeds from sales of
discontinued
operations............ -- -- 2,312 2,312 550
Investment in
Chesapeake intangible
asset................. (14,116) -- -- -- --
Proceeds from sale of
turnkey development... -- 849 1,696 1,416 3,610
Investments in turnkey
development........... (1,444) (505) (3,758) (2,131) (2,370)
Investment in Pine Tree
intangible and fixed
assets................ -- (41,449) (102) (102) --
Investment in SCC
intangible and fixed
assets................ -- (43,970) (858) (858) --
Investment in CII
intangible and fixed
assets................ -- (67,484) -- -- --
Notes receivable
additions............. (2,657) (359) (1,052) (1,052) --
Payments received on
notes................. 3,446 2,631 3,018 2,695 594
-------- --------- -------- -------- --------
Net cash used in
investing activities.. (37,226) (187,943) (49,908) (32,718) (23,582)
-------- --------- -------- -------- --------
</TABLE>

(continued)

See accompanying notes to consolidated financial statements.

F-6
<PAGE>

AFC ENTERPRISES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Continued)

(in thousands)

<TABLE>
<CAPTION>
Year Ended 40 Weeks Ended
--------------------------------- -----------------------
12/28/97 12/27/98 12/26/99 10/3/99 10/1/00
---------- ---------- ---------- ----------- -----------
(52 Weeks) (52 Weeks) (52 Weeks) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows provided by
(used in) financing
activities:
Principal payments of
long-term debt........ $(128,365) $(5,321) $(10,424) $(10,359) $(10,035)
Proceeds from long-term
debt.................. 50,000 50,000 25,000 -- --
Proceeds from
subordinated notes.... 175,000 -- -- -- --
Net borrowings under
Acquisition line of
credit................ -- 68,000 (6,000) -- --
Net borrowings under
Revolving line of
credit................ -- 7,000 (7,000) 5,612 6,758
Increase (decrease) in
bank overdrafts, net.. (1,105) (3,459) 12,968 4,730 (5,311)
Principal payments for
capital lease
obligations........... (25,182) (7,421) (7,707) (6,219) (4,874)
Principal payments on
senior notes.......... -- -- (8,020) -- (16,980)
Redemption of 10%
preferred stock....... (59,957) -- -- -- --
Notes receivable
additions to
officers.............. (202) -- (421) (181) (171)
Notes and interest
receivable officers-
payments.............. 22 16 64 44 26
Notes receivable
officers-accrued
interest.............. (287) (311) (390) (294) (323)
Issuance of common
stock................. 6 20,350 185 177 52
Stock issuance costs... -- (1,016) -- -- --
Debt issuance costs.... (10,675) (986) (206) (43) (57)
Preferred stock
dividends paid........ (2,240) -- -- -- --
Treasury stock
purchases............. -- -- -- -- (213)
--------- ------- -------- -------- --------
Net cash provided by
(used in) financing
activities............ (2,985) 126,852 (1,951) (6,533) (31,128)
--------- ------- -------- -------- --------
Net increase (decrease)
in cash and cash
equivalents........... 13,748 (15,898) 5,430 (3,567) (7,816)
Cash and cash
equivalents at
beginning of the
period................ 19,216 32,964 17,066 17,066 22,496
--------- ------- -------- -------- --------
Cash and cash
equivalents at end of
the period............ 32,964 17,066 22,496 13,499 14,680
========= ======= ======== ======== ========

Supplemental Disclosure of Cash Flow Information

Cash interest paid (net
of capitalized
amounts).............. $ 19,579 $29,388 $ 33,205 $ 20,283 $ 21,757
Cash paid for income
taxes, net of
refunds............... 6,747 4,064 142 624 4,361

Noncash Investing and Financing Activities

Capital lease and note
payable additions..... $ 20,485 $ 3,899 $ 255 $ 100 $ 12
Issuance of Common
Stock................. -- 28,090 -- -- --
Notes receivable to
officers (See Note
13)................... -- 1,345 -- -- --
Notes receivable--
other................. -- -- 1,900 1,500 4,582
Termination of capital
lease................. -- -- -- -- 1,606
</TABLE>

See accompanying notes to consolidated financial statements.

F-7
<PAGE>

AFC ENTERPRISES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The following notes, insofar as they are applicable to the forty-week
periods ended October 3, 1999 and October 1, 2000, are not audited, except for
the matter discussed in Note 17. In the opinion of management, all adjustments
(consisting of only normal recurring adjustments) have been made to fairly
present the unaudited consolidated financial position, results of operations
and cash flows for the forty-week period ended October 1, 2000, on the same
basis as the audited financial statements. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted as
they relate to these forty-week periods.

1. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of AFC
Enterprises, Inc., a Minnesota corporation, and its wholly-owned subsidiaries,
AFC Properties, Inc. and Seattle Coffee Company ("SCC"), both Georgia
corporations and Cinnabon International, Inc. ("CII"), a Delaware corporation.
All significant intercompany balances and transactions are eliminated in
consolidation. The consolidated entity is referred to herein as "AFC" or "the
Company".

SCC is the parent company of two wholly-owned subsidiaries, Seattle's Best
Coffee, LLC and Torrefazione Italia, LLC, both of which are Washington limited
liability companies. CII is the parent company of one subsidiary, Cinnabon
Inc., a Washington corporation.

Nature of Operations

AFC is primarily a multi-concept quick service restaurant company. The
Company operates and franchises quick service restaurants primarily under the
trade names Popeyes Chicken & Biscuits(R) ("Popeyes") and Church's Chicken(R)
("Church's"). In 1998, the Company acquired SCC, which operates and franchises
cafes under the "Seattle's Best Coffee"(R) and "Torrefazione Italia"(R) brands
(collectively "Seattle Coffee") and operates a wholesale coffee business (See
Note 16). Also in 1998, the Company acquired CII, an operator and franchisor of
retail cinnamon roll bakeries under the Cinnabon(R) ("Cinnabon") trade name
(See Note 16). In 1999, the Company sold its Chesapeake Bagel ("Chesapeake")
franchise rights and system (See Note 17). In 2000, the Company also sold its
Ultrafryer division, a restaurant equipment manufacturing plant that produces
proprietary gas fryers and other custom-fabricated restaurant equipment for
sale to distributors and franchisees (See Note 17).

A substantial portion of the domestic company-operated restaurants, bakeries
and cafes are located in the South and Southwest areas of the U.S. With the
exception of three company-operated SCC cafes in Canada, the Company does not
currently own or operate any restaurants, bakeries and cafes outside of the
U.S. The Company's international franchisees operate primarily in Mexico,
Canada, Puerto Rico and numerous countries in Asia.

Basis of Presentation

The preparation of consolidated 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.
These estimates affect the disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

F-8
<PAGE>

AFC ENTERPRISES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

The Company has a 52/53-week fiscal year ending on the last Sunday in
December. The 1997, 1998 and 1999 fiscal years all consisted of 52 weeks. The
interim periods ended October 3, 1999 and October 1, 2000, each consisted of 40
weeks. Certain items in the prior period consolidated financial statements, and
notes thereto, have been reclassified to conform to the current presentation.

In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
Costs of Start-up Activities" ("SOP 98-5"). SOP 98-5 provides guidance on the
financial reporting of start-up costs and organization costs. It requires costs
of start-up activities and organization costs to be expensed as incurred. SOP
98-5 is effective for financial statements for fiscal years beginning after
December 15, 1998. The Company adopted SOP 98-5 in fiscal year 1999 resulting
in no material effect to the Company's financial position or results of
operations.

In September 2000, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" which
replaced SFAS 125 of the same name. The Statement provides consistent standards
for distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings. The Statement is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring
after March 31, 2001. The Statement is effective for recognition and
reclassification of collateral and for disclosures relating to securitization
transactions and collateral for fiscal years ending after December 15, 2000.
Disclosures for prior comparative financial statements are not required. The
Company is currently not effected by the Statement's requirements.

Cash and Cash Equivalents

The Company considers all money market investment instruments and
certificates of deposit with maturities of three months or less to be cash
equivalents for the purpose of preparing the accompanying consolidated
statements of cash flows.

Bank overdrafts represent checks issued on zero balance bank accounts which
do not have a formal right of offset against the Company's other bank accounts.
These amounts have not yet cleared the bank and are presented as a current
liability in the accompanying consolidated financial statements.

F-9
<PAGE>

AFC ENTERPRISES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

Accounts Receivable

Accounts receivable consists primarily of amounts due from franchisees
related to royalties, rents and miscellaneous equipment sales and foodservice
accounts related to wholesale coffee sales. The accounts receivable balances
are stated net of reserves for doubtful accounts.

A summary of changes in the allowance for doubtful accounts is as follows
(in thousands):

<TABLE>
<CAPTION>
12/27/98 12/26/99 10/01/00
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of period..................... $4,040 $ 4,568 $ 438
Provisions....................................... 1,185 401 1,077
Recoveries and miscellaneous other............... 12 24 27
Write-offs....................................... (669) (4,555) (734)
------ ------- ------
Balance, end of period........................... $4,568 $ 438 $ 808
====== ======= ======
</TABLE>

Included in accounts receivable write-offs for 1999 were $3.2 million for a
Church's franchisee whose contract was terminated for non-payment of fees and
$0.7 million for a number of Chesapeake franchisees, which were fully reserved.

Notes Receivable

Notes receivable consists primarily of notes from franchisees and third
parties to finance acquisitions of certain restaurants or properties from the
Company and to finance certain past due royalties, rents, interest or other
amounts. The Company has also provided financial support to certain franchisees
in converting their restaurants to Popeyes. In connection with the sale of the
Chesapeake franchise system in 1999, the Company received a note receivable
of$1.5 million (See Note 17), which is also included in the notes receivable
balance. The current portion of notes receivable of $0.9 million, $0.6 million
and $0.6 million as of December 27, 1998, December 26, 1999 and October 1,
2000, respectively, is included in accounts and current notes receivable.
Interest rates on the notes range from 6.5% to 12.0%. The notes receivable
balances are stated net of allowances for uncollectibility. The negative
provisions of $0.1 million and $0.1 million as of December 27, 1998 and October
1, 2000 relate to several fully reserved notes that were subsequently
collected.

A summary of changes in the allowance for uncollectible notes is as follows
(in thousands):

<TABLE>
<CAPTION>
12/27/98 12/26/99 10/01/00
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of period...................... $ 584 $ 430 $ 371
Provisions........................................ (122) 663 (123)
Recoveries........................................ 22 32 1
Write-offs........................................ (54) (754) (39)
----- ----- -----
Balance, end of period............................ $ 430 $ 371 $ 210
===== ===== =====
</TABLE>

Inventories

Inventories, consisting primarily of food and beverage items, packaging
materials and restaurant equipment, are stated at the lower of cost (determined
on a first-in, first-out basis) or market.

F-10
<PAGE>

AFC ENTERPRISES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

Property and Equipment

Property and equipment is stated at cost, including capitalized interest and
overhead incurred throughout the construction period for certain assets. The
Company calculates an interest rate factor based on the Company's long-term
debt and applies this factor to its construction work in progress balance each
accounting period to arrive at capitalized interest expense. Capitalized
overhead costs include personnel expenses related to employees directly
involved in the Company's development projects such as new restaurant, bakery
and cafe projects, re-imaging initiatives and other projects of this nature.
Provisions for depreciation and amortization are made principally on a
straight-line basis over the estimated useful lives of the depreciable assets
or, in the case of leases, over the term of the applicable lease including all
lease option periods under contract that management anticipates utilizing, if
shorter. During 1999, the Company re-evaluated the estimated useful lives of
its buildings, equipment and leasehold improvements at its restaurant, bakery
and cafe locations (See Note 18). The ranges of estimated useful lives utilized
in computing depreciation and amortization are as follows:

<TABLE>
<CAPTION>
Asset Classification Number of Years
-------------------- ---------------
<S> <C>
Buildings.................................................. 5--35
Equipment.................................................. 3--15
Leasehold improvements..................................... 3--15
Capital lease buildings and equipment...................... 3--20
</TABLE>

Intangible Assets

Intangible assets consist primarily of franchise value, trade names,
trademarks and goodwill. These assets are being amortized on a straight-line
basis. The estimated useful lives used in computing amortization are as
follows:

<TABLE>
<CAPTION>
Asset Classification Number of Years
-------------------- ---------------
<S> <C>
Franchise value and tradename.............................. 20--40
Goodwill................................................... 20--40
Other...................................................... 10--40
</TABLE>

Long-Lived Assets

Management periodically reviews the performance of restaurant, bakery and
cafe long-lived assets. If it is determined that a restaurant, bakery or cafe
will be closed, a provision is made to adjust the carrying value of the
property and equipment to net realizable values. Property held for sale
includes closed restaurant properties and other corporate property held for
sale, and is recorded at its estimated net realizable value.

The Company periodically reviews the realizability of its long-lived assets.
It is the Company's policy to evaluate (i) operating restaurant, bakery and
cafe properties on a market basis, (ii) other assets, such as assets held for
sale and income producing assets, on an individual property basis and,(iii)
intangible assets based on the cash flows from the underlying operations which
generated the intangible asset. The identifiable cash flows of long-lived
assets are compared to the assets carrying value.

In 1998, the Company recorded a $6.8 million write-down of its Chesapeake
intangible asset. The write-down was based on an analysis of future cash flows
expected to be generated from Chesapeake's operations. The Company did not
incur write-downs in 1997 or 1999.

F-11
<PAGE>

AFC ENTERPRISES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

In 1998 and 1999, the Company closed fourteen and five company-operated
Popeyes restaurants and wrote-off approximately $8.5 million and $3.6 million,
respectively, as a result of the closures. These write-offs are included in
"charges for Pine Tree restaurant closings" in the accompanying consolidated
statements of operations.

AFC wrote-off $5.0 million in 1998 and $3.8 million in 1999 related to AFC's
restaurant back office automation system that was under development, which
essentially constituted the entire cost of the system.

Stock-Based Employee Compensation

The Company accounts for stock options under the intrinsic value method. Had
compensation expense for all of the Company's stock option plans been
determined under the fair value method, the Company's net income (loss) would
have been reduced or increased to the following pro forma amounts (in
thousands):

<TABLE>
<CAPTION>
For 40 For 40
For Year For Year For Year Weeks Weeks
Ended Ended Ended Ended Ended
12/28/97 12/27/98 12/26/99 10/03/99 10/01/00
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net income (loss):
As reported.................. $11,000 $ (8,646) $12,085 $7,378 $18,193
======= ======== ======= ====== =======
Pro forma.................... $11,528 $(10,247) $12,019 $7,321 $18,079
======= ======== ======= ====== =======
</TABLE>

Because the fair value method of accounting has not been applied to options
issued prior to December 15, 1994, the resulting pro forma compensation expense
may not be representative of that to be expected in future years.

The fair value of each option is estimated on the date of grant using the
"minimum value" method with the following weighted-average assumptions used for
grants in 1997, 1998 and 1999: risk-free interest rate of approximately 5.0%;
expected lives of approximately 10 years and 7 years for the 1996 Nonqualified
Performance Stock Option Plan and the 1996 Nonqualified Stock Option Plan,
respectively (See Note 11).

Franchise Revenues

The Company generates revenues from franchising through the following
agreements with its franchisees:

Franchise Agreements. In general, the Company's franchise agreements
provide for the payment of a franchise fee for each opened franchised
restaurant, bakery and cafe. The franchise agreements also generally
require the franchisees to pay the Company a royalty ranging from 3% to 5%
of sales and an advertising fund contribution ranging from 1% to 4% of
sales. Certain older franchise agreements provide for lower royalties and
advertising fund contributions.

Development Agreements. Development agreements provide for the
development of a specified number of restaurants, bakeries and cafes within
a defined geographic territory in accordance with a schedule of opening
dates. Development schedules generally cover three to five years and
typically have benchmarks for the number of restaurants, bakeries and cafes
to

F-12
<PAGE>

AFC ENTERPRISES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

be opened and in operation at six to twelve month intervals. Development
agreement payments are made when the agreement is executed and are
nonrefundable.

Franchise fees and development fees are recorded as deferred revenue when
received and are recognized as revenue when the restaurants, bakeries and
cafes covered by the fees are opened and all material services or conditions
relating to the fees have been substantially performed or satisfied by the
Company. The Company records royalties as revenue when franchised restaurant,
bakery and cafe sales occur.

Wholesale Revenues

Wholesale revenues are generated from the Company's specialty coffee
wholesaling operations.

Other Revenues

The Company's other revenues consist of net rental income from properties
owned and leased by the Company, which are leased or subleased to franchisees
and third parties, and interest income earned on notes receivable from
franchisees and other parties.

Insurance Programs

The Company maintains insurance coverages for general and auto liability,
employee medical and workers' compensation, except for workers' compensation
liabilities in the state of Texas where the Company is self-insured against
such liabilities. In October 1998, the Company converted its insurance
coverages for general and auto liability and workers' compensation, excluding
workers' compensation in the State of Texas, to a "guaranteed cost" insurance
arrangement. Prior to October 1998, the Company was liable for claims on a
per-incident basis up to specified limits. During 2000, the Company secured a
third party insurance policy for environmental coverage.

The Company has established reserves with respect to the programs described
above based on the estimated total losses the Company will experience. The
portion of the reserves for the amount of claims expected to be settled during
the succeeding year are included in accrued expenses in the accompanying
consolidated balance sheets while the balance of the reserves are included in
other liabilities. The Company's insurance reserves are partially
collateralized by letters of credit and/or cash deposits.

International Operations

The Company is exposed, to a limited degree, to changes in international
economic conditions and currency fluctuations due to its international
franchise operations. AFC has not historically maintained any hedges against
foreign currency fluctuations, although the Company did enter into a foreign
currency hedging agreements in 1999 and 2000 with respect to the Korean Won.
Losses recorded by the Company during the past three years related to foreign
currency fluctuations have not been material to the Company's results of
operations. For fiscal years 1997, 1998 and 1999 and for the forty-week
periods ending October 3, 1999 and October 1, 2000, royalties and other
revenues from foreign franchisees represented 2.6%, 2.0%, 1.7%, 1.7% and 2.1%,
respectively, of the Company's total revenues.

F-13
<PAGE>

AFC ENTERPRISES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

2. Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments held by the Company:

Long-term notes receivable: The fair value of long-term notes receivable
approximates the carrying value as management believes the respective interest
rates are commensurate with the credit and interest rate risks involved. In
addition, management maintains reserves for doubtful note receivable accounts
(See Note 1).

Long-term debt: The fair value of the Company's Term Loans, Lines of Credit
and Other Notes (See Note 8) are based on secondary market indicators. Since
these debt instruments are not quoted, estimates are based on each obligation's
characteristics, including remaining maturities, interest rate, credit rating,
collateral, amortization schedule and liquidity. The carrying values
approximate fair value. The fair value of the Company's 10.25% Senior
Subordinated Notes (See Note 8) is based on quoted market prices.

The carrying amount and fair value of the Company's 10.25% Senior
Subordinated Notes at December 27, 1998, December 26, 1999 and October 1, 2000
are as follows (in thousands):

<TABLE>
<CAPTION>
10.25% Senior
Subordinated
Notes
-----------------
Carrying Fair
Value Value
-------- --------
<S> <C> <C>
Value as of 12/27/98..................................... $175,000 $182,000
======== ========
Value as of 12/26/99..................................... $166,980 $167,815
======== ========
Value as of 10/01/00..................................... $150,000 $150,000
======== ========
</TABLE>

3. Inventories

The major components of inventory are as follows (in thousands):

<TABLE>
<CAPTION>
12/27/98 12/26/99
-------- --------
<S> <C> <C>
Food and beverage items, preparation and packaging
materials............................................ $10,269 $12,878
Restaurant equipment.................................. 2,913 3,903
------- -------
$13,182 $16,781
======= =======
</TABLE>

Restaurant equipment includes inventory held by the Company's manufacturing
division (See Note 17) for sale to franchisees and other third parties.

F-14
<PAGE>

AFC ENTERPRISES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

4. Property and Equipment

The major components of property and equipment are as follows (in
thousands):

<TABLE>
<CAPTION>
12/27/98 12/26/99
-------- --------
<S> <C> <C>
Owned properties:
Land.................................................. $ 43,289 $ 44,664
Buildings............................................. 71,827 79,097
Equipment............................................. 146,507 155,545
Leasehold improvements................................ 80,045 83,681
Construction work in process.......................... 8,008 10,785
Properties held for sale.............................. 3,683 1,333
Capital leases:
Buildings............................................. 3,811 3,811
Equipment............................................. 21,818 23,960
-------- --------
378,988 402,876
Less: accumulated depreciation and amortization......... 115,847 139,594
-------- --------
$263,141 $263,282
======== ========
</TABLE>

Depreciation and amortization expense related to property and equipment,
including property and equipment held under capital leases, was approximately
$27.2 million, $35.0 million and $33.0 million for the years ended December 28,
1997, December 27, 1998 and December 26, 1999, respectively.

Properties held for sale consists of land, buildings and equipment currently
not in use by the Company. These assets include both restaurant and corporate
assets.

5. Other Assets

Other assets consist of the following (in thousands):

<TABLE>
<CAPTION>
12/27/98 12/26/99
-------- --------
<S> <C> <C>
Deposits................................................. $ 2,297 $ 2,113
Information technology costs............................. 4,888 4,070
Debt issuance costs, net................................. 9,298 7,891
Real estate development costs............................ 1,602 2,692
Other.................................................... 1,413 1,676
------- -------
$19,498 $18,442
======= =======
</TABLE>

F-15
<PAGE>

AFC ENTERPRISES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

6. Intangible Assets

Intangible assets consist of the following (in thousands):

<TABLE>
<CAPTION>
12/27/98 12/26/99
-------- --------
<S> <C> <C>
Franchise value......................................... $117,278 $110,000
Goodwill................................................ 126,043 125,925
Trade name.............................................. -- 10,800
Other................................................... 7,088 5,485
-------- --------
250,409 252,210
Less: accumulated amortization.......................... 42,289 47,340
-------- --------
$208,120 $204,870
======== ========
</TABLE>

Amortization expense for the years ended December 28, 1997, December 27,
1998 and December 26, 1999, was approximately $6.3 million, $10.6 million and
$9.3 million, respectively.

7. Other Liabilities

A summary of other liabilities is as follows (in thousands):

<TABLE>
<CAPTION>
12/27/98 12/26/99
-------- --------
<S> <C> <C>
Insurance reserves....................................... $ 8,598 $ 4,847
Deferred franchise revenues.............................. 6,472 6,930
Litigation and environmental............................. 6,314 5,874
Other.................................................... 16,579 18,012
------- -------
$37,963 $35,663
======= =======
</TABLE>

The majority of liabilities comprising "other liabilities" are not subject
to a fixed cash payment schedule and are primarily payable upon the occurrence
of specific events, which are not estimable as of December 26, 1999.

8. Long-Term Debt

In May 1997, the Company completed a debt offering of $175.0 million of
Senior Subordinated Notes ("Senior Notes"). The Company also entered into a new
$175.0 million Senior Secured Credit Facility ("1997 Credit Facility") whereby
the Company was provided with a $50.0 million term loan ("Term Loan A"), a
$25.0 million revolving credit facility ("Revolving Facility") and a $100.0
million facility to be used for acquisitions ("Acquisition Facility"). The 1997
Term Loan and the Senior Notes were funded at closing, providing $225.0
million, which was used to repay long-term debt balances under the Company's
existing credit facility, repay and retire the 10% Preferred Stock, repay
certain capital lease obligations, pay fees and expenses associated with the
above described transactions and provide for working capital needs.

In October 1998, the Company amended and restated the 1997 Credit Facility
to include a $50.0 million term loan ("Term Loan B").

In October 1999, the Company amended the 1997 Credit Facility to provide for
a Tranche B Term Loan in the amount of $25.0 million. The $25.0 million
proceeds from this amendment was used to pay down other debt of the Company.

F-16
<PAGE>

AFC ENTERPRISES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

The Company's Term Loans A and B and certain letter of credit facilities
described below were provided by various financial institutions, some of which
are shareholders of the Company.

1997 Credit Facility (As Amended and Restated As of October 1, 1999)

The Term Loan A, the Term Loan B, the Acquisition Facility and the Revolving
Facility (collectively "the 1997 Credit Facility") bear interest, at the
Company's election, at either (i) a defined base rate plus a defined margin or
(ii) LIBOR plus a defined margin, subject to reduction based on the achievement
of certain leverage ratio levels. At December 26, 1999, the interest rates
ranged from 7.385% to 9.375%. The Company is obligated to pay commitment fees
of 0.5% per annum (subject to reduction based on the achievement of certain
leverage ratio levels) on the unused portions of the Acquisition Facility and
the Revolving Facility from time to time, as well as a customary annual agent's
fee. Fees relating to the issuance of letters of credit under the Revolving
Facility will include a fee equal to the then applicable margin over LIBOR plus
a fronting fee of 0.25% per annum (payable to the issuing institution) based on
the face amount of letters of credit, plus standard issuance and administrative
charges.

In addition to the scheduled amortization, the Company is required to make
prepayments under certain conditions, including without limitation, upon
certain asset sales or issuance of debt or equity securities. The Company is
also required to make annual prepayments in an amount equal to a percentage of
excess cash flow (as defined in the 1997 Credit Facility) beginning with fiscal
year 1998. During the fiscal year ended December 27, 1998, there were no
prepayments required of the Company under the agreement. During the fiscal year
ended December 26, 1999 there were $2.3 million in prepayments made under the
agreement.

Term Loans

Term Loan A principal is payable in quarterly installments ranging from $1.0
million to $7.5 million beginning September 1997 and maturing in June 2002.
Interest is paid in one, two, three or six month periods as defined in the 1997
Credit Facility.

Term Loan B principal is payable in quarterly installments ranging from $0.1
million to $33.1 million beginning December 31, 1998 and maturing in June 2004.
Interest is paid in one, two, three or six month periods as defined in the 1997
Credit Facility.

Acquisition Facility

The Company may borrow under the Acquisition Facility at any time during the
period of May 21, 1997 through the fourth anniversary of the closing date.
Amounts outstanding under the Acquisition Facility on the fourth anniversary of
the closing will be converted to a term loan. The Company will be required to
make scheduled annual amortization payments on the term loan portion of the
Acquisition Facility. At December 26, 1999, there was an outstanding balance of
$62.0 million, which if converted to a term loan would result in principal
payment amortization of $15.0 million and $47.0 million in 2001 and 2002,
respectively.

Revolving Facility

Under the terms of the Revolving Facility, the Company may borrow and obtain
letters of credit up to an aggregate of $25.0 million. At December 26, 1999,
there were no outstanding borrowings

F-17
<PAGE>

AFC ENTERPRISES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

and $7.2 million of outstanding letters of credit, leaving unused revolving
credit available for short-term borrowings and letters of credit of $17.8
million.

Other Terms

The 1997 Credit Facility is secured by a first priority security interest in
substantially all of the Company's assets (subject to certain exceptions). Any
future material subsidiaries of the Company will be required to guarantee the
1997 Credit Facility, and the Company will be required to pledge the stock of
such subsidiaries to secure the facility.

The 1997 Credit Facility contains certain financial covenants, including,
but not limited to, covenants related to minimum fixed charge coverage, minimum
cash interest coverage and maximum leverage. In addition, the 1997 Credit
Facility contains other affirmative and negative covenants relating to, among
other things, limitations on capital expenditures, other indebtedness, liens,
investments, guarantees, restricted junior payments (dividends, redemptions and
payments on subordinated debt), mergers and acquisitions, sales of assets,
leases, transactions with affiliates and investments in the Company's deferred
compensation plan. The amendment made to the 1997 Credit Facility in October
15, 1998 included the addition of a Year 2000 covenant that requires that the
Company be Year 2000 compliant. The 1997 Credit Facility contains customary
events of default, including certain changes of control of the Company. At
December 26, 1999, the Company was in compliance with all covenants.

10.25% Senior Notes

The Senior Notes bear interest at 10.25% per annum and interest is payable
on May 15 and November 15 of each year, commencing on November 15, 1997. The
Senior Notes mature on May 15, 2007 and are not redeemable prior to May 15,
2002. On or after such date, the Senior Notes will be subject to redemption, at
the option of the Company, in whole or in part, at any time before maturity.

In the fourth quarter of 1999, the Company repurchased Senior Notes with a
face value of $8.0 million at a slight discount. The repurchase was funded with
proceeds from the supplemental Tranche B Term Loan. The Company expensed
approximately $0.3 million in connection with the repurchase, which represented
the write-off of a portion of unamortized debt issuance costs and lender costs.

The Senior Notes are unsecured and rank subordinate in right of payment to
all existing and future Senior Indebtedness, as defined, of the Company,
including all indebtedness under the 1997 Credit Facility and the Company's
capital lease obligations.

The Senior Notes restrict, among other things, the ability of the Company
and its wholly-owned subsidiaries (a) to incur additional indebtedness and
subsidiary preferred stock, (b) to sell assets and to use the proceeds from
asset sales, (c) to engage in certain transactions with affiliates, and (d) to
pay dividends, make certain investments and make other restricted payments, as
defined, and also require the Company to maintain a certain interest coverage
ratio. At December 26, 1999, the Company was in compliance with all covenants.

F-18
<PAGE>

AFC ENTERPRISES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

Debt Issuance Costs

In connection with the 1997 Credit Facility and the Senior Notes and
subsequent amendments, the Company incurred approximately $10.7 million, $0.9
million and $0.4 million during 1997, 1998 and 1999, respectively, in debt
issuance costs, which were capitalized. These costs are being amortized into
interest expense over a period of 5 to 10 years. Amortization is calculated
using the straight-line method, which approximates the effective interest
method, and the unamortized balance is included in other assets in the
accompanying consolidated balance sheets. During 1997, 1998 and 1999, the
Company amortized as interest expense approximately $0.8 million, $1.4 million
and $1.7 million, respectively.

A summary of the Company's long-term debt is as follows (in thousands):

<TABLE>
<CAPTION>
12/27/98 12/26/99
-------- --------
<S> <C> <C>
Term Loans:
Term Loan A........................................... $ 44,250 $ 35,982
Term Loan B........................................... 50,000 73,205
10.25% Senior Notes..................................... 175,000 166,980
Other notes............................................. 1,850 1,129
-------- --------
271,100 277,296
Less: current maturities.............................. 8,356 13,111
-------- --------
$262,744 $264,185
======== ========
</TABLE>

The following is a schedule of the aggregate maturities of long-term debt as
of December 26, 1999, for each of the succeeding five fiscal years and
thereafter (in thousands):

<TABLE>
<CAPTION>
Year Amount
---- --------
<S> <C>
2000.............................................................. $ 13,111
2001.............................................................. 8,414
2002.............................................................. 23,139
2003.............................................................. 22,109
2004.............................................................. 43,543
Thereafter........................................................ 166,980
--------
$277,296
========
</TABLE>

F-19
<PAGE>

AFC ENTERPRISES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

9. Leases

The Company maintains leases covering restaurant, bakery and cafe land and
building properties, computer software, hardware and other equipment, which
expire on various dates through 2020 and generally require additional payments
for property taxes, insurance and maintenance. Certain leases provide for
rentals based upon a percentage of sales by company-operated restaurants,
bakeries and cafes in addition to the minimum annual rental payments. Future
minimum payments under capital and non-cancelable operating leases, as of
December 26, 1999 are as follows (in thousands):

<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
<S> <C> <C>
2000..................................................... $ 5,306 $ 31,001
2001..................................................... 2,273 28,247
2002..................................................... 532 25,766
2003..................................................... 304 21,749
2004..................................................... 313 18,284
Thereafter............................................... 2,879 45,853
------- --------
Future minimum lease payments.......................... 11,607 $170,900
========
Less: amounts representing interest.................... 2,812
-------
Total obligations under capital leases................. 8,795
Less: current portion.................................. 4,523
-------
Long-term obligations under capital leases............. $ 4,272
=======
</TABLE>

On August 29, 1997, the Company repaid certain capital lease obligations
totaling $16.7 million. The Company used a portion of the proceeds from the
refinancing transaction that took place during the second quarter of 1997 to
repay these capital lease obligations (See Note 8).

Rent expense from operating leases for the fiscal years ended December 28,
1997, December 27, 1998 and December 26, 1999, amounted to $11.0 million, $20.3
million and $32.2 million, respectively, including percentage rents of $0.7
million, $1.3 million and $1.0 million, respectively.

As of December 26, 1999, the Company leases owned restaurant properties with
an aggregate gross value of $27.5 million and a net book value of $15.0 million
and sub-leases other leased properties to franchisees and others. Rental income
from these leases was approximately $7.5 million, $7.9 million and $8.4 million
for the fiscal years ended in 1997, 1998 and 1999, respectively, and was
primarily based upon a percentage of restaurant sales. The lease terms under
these agreements expire on various dates through 2019. Future minimum rentals
receivable under these non-cancelable lease and sub-lease arrangements as of
December 26, 1999 are as follows (in thousands):

<TABLE>
<CAPTION>
Rental Income
-------------
<S> <C>
2000........................................................ $ 5,327
2001........................................................ 4,866
2002........................................................ 4,205
2003........................................................ 3,572
2004........................................................ 2,993
Thereafter.................................................. 14,709
-------
Future minimum rentals.................................... $35,672
=======
</TABLE>

F-20
<PAGE>

AFC ENTERPRISES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

10. Income Taxes

The components of income tax expense (benefit) included in the statements of
operations are as follows (in thousands):

<TABLE>
<CAPTION>
For For For
Year Ended Year Ended Year Ended
12/28/97 12/27/98 12/26/99
---------- ---------- ----------
<S> <C> <C> <C>
Current income tax expense consists of:
Federal............................... $1,557 $ 1,094 $ 443
Foreign............................... 1,804 1,543 2,000
State................................. 1,301 768 791
------ ------- ------
Total................................. 4,662 3,405 3,234
Deferred income tax expense (benefit)... 3,863 (7,628) 5,071
------ ------- ------
Income tax expense (benefit)........ $8,525 $(4,223) $8,305
====== ======= ======
</TABLE>

The Company does not currently own or participate in the ownership of any
material non-U.S. operations. Applicable foreign withholding taxes are
generally deducted from royalties and certain other revenues collected from
international franchisees. Foreign taxes withheld are generally eligible for
credit against the Company's U.S. income tax liabilities.

A reconciliation of the Federal statutory income tax rate to the Company's
effective tax rate is as follows:

<TABLE>
<CAPTION>
For For For
Year Ended Year Ended Year Ended
12/28/97 12/27/98 12/26/99
---------- ---------- ----------
<S> <C> <C> <C>
Statutory Federal income tax expense
(benefit) rate.......................... 35.0% (35.0)% 35.0%
Non-deductible items including goodwill
amortization............................ 2.0 5.3 5.9
State taxes, net of federal benefit...... 4.2 (2.1) 4.9
Benefit of job tax credits............... -- -- (1.1)
Other items, net......................... 2.4 (1.0) (4.0)
---- ----- ----
Effective income tax expense (benefit)
rate.................................. 43.6% (32.8)% 40.7%
==== ===== ====
</TABLE>

F-21
<PAGE>

AFC ENTERPRISES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

Significant components of the Company's net deferred tax asset and net
deferred tax liability were as follows (in thousands):

<TABLE>
<CAPTION>
12/27/98 12/26/99
-------- --------
<S> <C> <C>
Current deferred tax asset (liability):
Payroll accruals......................................... $ 919 $ 258
Allowance for doubtful accounts.......................... 1,903 309
Other accruals........................................... 1,755 223
-------- --------
Total current deferred tax asset....................... 4,577 790
-------- --------
Noncurrent deferred tax asset (liability):
Franchise value and trademarks........................... $(23,939) $(23,700)
Property, plant and equipment............................ 4,476 10,148
Net operating loss carryforwards......................... 7,633 5,766
AMT credit carryforwards................................. 2,467 2,640
General business credit carryforwards.................... 2,369 4,161
Foreign tax credit carryforwards......................... 3,732 3,121
Deferred compensation.................................... 3,165 4,378
Insurance accruals....................................... 5,684 4,479
Litigation/environmental accruals........................ 2,739 2,337
Deferred franchise fee revenue........................... 2,427 2,651
Other items, net......................................... (177) 204
-------- --------
10,576 16,185
Valuation allowance...................................... (6,160) (7,053)
-------- --------
Total noncurrent deferred tax asset (liability)........ 4,416 9,132
-------- --------
Net deferred tax asset................................. $ 8,993 $ 9,922
======== ========
</TABLE>

As of December 27, 1998 and December 26, 1999, the Company had U.S. Net
Operating Losses ("NOLs") of $17.5 million and $13.4 million and tax credit
carryforwards in the amounts of $8.6 million and $9.9 million, respectively.
Certain acquired NOLs and tax credit carryforwards are subject to limitations
under Section 382 and 383 of the Internal Revenue Code of 1986, as amended.
Management has determined that it is more likely than not that the deferred tax
assets attributable to these acquired NOLs and tax credit carryforwards will
not be realized and as such has established a valuation allowance of $6.2
million and $7.1 million for the fiscal years ended December 27, 1998 and
December 26, 1999, respectively. Based on management's assessment, it is more
likely than not that the remaining net deferred tax assets will be realized
through future reversals of existing temporary differences and future taxable
income.

11. Stock Option Plans

The 1992 Stock Option Plan

The 1992 Nonqualified Stock Option Plan authorizes the issuance of options
to purchase approximately 1.8 million shares of the Company's common stock at
$0.08 per share. The options currently granted and outstanding allow certain
officers of the Company to purchase approximately 1.6 million shares of common
stock and are exercisable at various dates beginning January 1, 1994. If not
exercised, the options expire 15 years after the date of issuance. For the
years ended December 28, 1997, December 27, 1998 and December 26, 1999, the
Company did not recognize

F-22
<PAGE>

AFC ENTERPRISES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

any compensation expense related to these options. As of December 26, 1999,
1,612,759 options were exercisable.

The 1996 Nonqualified Performance Stock Option Plan

In April 1996, the Company created the 1996 Nonqualified Performance Stock
Option Plan ("1996 Nonqualified Performance Stock Option Plan"). This plan
authorizes the issuance of approximately 2.7 million options to purchase one
share each of AFC's common stock at prices ranging from $3.317 to $7.75 per
share. At December 26, 1999, the weighted-average exercise price was $5.10 per
share. The options currently granted and outstanding allow certain employees of
the Company to purchase approximately 2.4 million shares of common stock.
Vesting is based upon the Company achieving annual levels of earnings before
interest, taxes, depreciation and amortization over fiscal year periods
beginning with fiscal year 1996 through 1998. In 1999 and ending with fiscal
year 2000, vesting was based on earnings. If not exercised, the options expire
ten years from the date of issuance. At December 26, 1999, the weighted-average
contractual life of these options was 7.5 years. Under this plan, compensation
expense is determined and recorded when the options vest. During the fiscal
years ended December 28, 1997, December 27, 1998 and December 26, 1999, the
Company recorded approximately $2.2 million, $1.1 million and $1.1 million,
respectively, in compensation expense. As of December 26, 1999, 2,242,006
options were exercisable.

In 1998, the Board of Directors approved the cancellation of 932,698
unvested options under this plan held by three of the Company's senior
executives. The cancelled options had exercise prices that ranged from $3.32
per share to $7.50 per share. In connection with the cancellation, the Board
granted to these three individuals 932,698 options with an exercise price of
$7.75 per share, which was the fair value of the Company's common stock at the
date of grant. In addition, the executives became fully vested in these options
upon the grant date. The Company did not recognize compensation expense
regarding the subsequent grant of the 932,698 options since they were issued at
an exercise price that equaled the fair value of the Company's common stock at
the date of grant.

The 1996 Nonqualified Stock Option Plan

In April 1996, the Company created the 1996 Nonqualified Stock Option Plan
("1996 Nonqualified Stock Option Plan"). This plan authorizes the issuance of
approximately 1.9 million options. The Company granted approximately 0.5
million options in 1999 at prices ranging from $7.50 to $8.25 per share which
approximated the fair market value of the Company's common stock at date of
grant. In 1998, the Company granted 0.4 million options at $7.50 per share
which approximated the fair market value of the Company's common stock at the
date of grant. In 1997, the Company granted approximately 0.3 million options
at $4.95 per share, which was the fair market value of the Company's common
stock at the date of grant. The options currently granted and outstanding allow
certain employees of the Company to purchase approximately 1.4 million shares
of common stock, which vest at 25% per year beginning April 1997. If not
exercised, the options expire seven years from the date of issuance. At
December 26, 1999, the weighted-average contractual life of these options was
5.2 years, the weighted-average exercise price per share was $6.24 and 412,366
options were exercisable.

The 1998 SCC Plan

In connection with the SCC acquisition in March 1998, the Company created
the Substitute Nonqualified Stock Option Plan ("1998 SCC Plan"). The 1998 SCC
Plan authorizes the issuance of approximately 500,000 options at exercise
prices that range from $3.91 to $6.75 per share. The

F-23
<PAGE>

AFC ENTERPRISES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

Company issued approximately 450,000 options at the closing date of the
acquisition. The issuance of the remaining 50,000 options are subject to a
reduction of options based on a holdback provision in the acquisition
agreement. Regarding the remaining options to be issued, a determination on the
number of options will be made on or about March 31, 2001, three years from the
closing date of the transaction. At December 26, 1999, the weighted-average
exercise price per share was $4.79. The options vest when issued by the Company
and expire at various dates through October 31, 2007. At December 26, 1999, the
weighted-average contractual life of these options was 5.7 years. As of
December 26, 1999, 462,756 options were exercisable.

Warrants

In connection with the SCC acquisition, the Company authorized the issuance
of 177,942 warrants to the former SCC shareholders to purchase AFC Common Stock
at prices that range from $3.91 to $6.00 per share. The warrants expire on May
4, 2001 and September 30, 2001. At December 26, 1999, 170,626 warrants were
exercisable which had a $4.19 weighted-average exercise price per share and a
weighted-average contractual life of 1.4 years. These warrants were issued in
connection with the acquisition of SCC and the related value placed upon these
warrants was added to the goodwill resulting from this acquisition (See Note
16).

A Summary of Plan Activity

A summary of the status of the Company's four stock option plans and
warrants at December 27, 1998 and December 26, 1999 and changes during the
years is presented in the table and narrative below:

<TABLE>
<CAPTION>
1998 1999
----------------- ----------------
Shares Wtd.Avg. Shares Wtd.Avg.
(000's) Ex.Price (000's) Ex.Price
------- -------- ------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year........ 5,013 $2.36 5,985 $3.66
Granted options and warrants............ 2,021 6.73 495 7.77
Exercised options and warrants.......... (10) 2.62 (160) 1.83
Cancelled options and warrants.......... (1,039) 3.37 (274) 4.37
------ -----
Outstanding at end of year.............. 5,985 3.66 6,046 3.97
====== =====
Exercisable at end of year.............. 4,618 3.34 4,901 3.41
Weighted average fair value of options
and warrants granted (See Note 1)..... $2.36 $2.34
</TABLE>

Approximately 0.5 million, 0.4 million and 0.5 million options were granted
in 1997, 1998 and 1999, respectively, at prices that equaled the fair market
price of the common stock at the grant date.

12. Other Employee Benefit Plans

Pre-Tax Savings and Investment Plan

The Company maintains a qualified employee benefit plan under Section 401(k)
of the Internal Revenue Code for the benefit of employees meeting certain
eligibility requirements. Under the plan, employees may contribute up to 16.0%
of their eligible compensation to the plan on a pre-tax basis up to statutory
limitations. The Company may make both voluntary and matching contributions to
the plan. The Company expensed approximately $0.2 million in each of 1997 and
1998 and $0.3 million during 1999 for its contributions to the plan.

F-24
<PAGE>

AFC ENTERPRISES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

SCC maintains an employee benefit plan under Section 401(k) of the Internal
Revenue Code for the benefit of employees meeting certain eligibility
requirements. The Company expensed approximately $0.2 million in each of 1998
and 1999 for its contributions to the plan.

Subsequent to fiscal year end 1999, the Company integrated all benefit plans
under Section 401(k) of the Internal Revenue Code into one plan. With the
exception of SCC employees who were grandfathered into certain aspects of the
SCC plan, all Company employees are subject to the same contribution and
vesting schedules.

Deferred Compensation Plan

Effective March 1, 1998, the Company established the AFC Deferred
Compensation Plan. The plan is an unfunded, nonqualified deferred compensation
plan that benefits certain designated key management or highly compensated
employees. Under this plan, an employee may defer up to 20% of base salary (50%
as of July 2000) and 100% of any bonus award in increments of 1% on a pre-tax
basis. The Company may make both voluntary and matching contributions to the
plan. The minimum annual deferral is 1%. The funds are invested in variable
life insurance policies that have an aggregate cash surrender value of
approximately $0.9 million at December 26, 1999. All plan assets are subject to
the Company's creditors. The Company expensed approximately $26,000 and $22,000
in 1998 and 1999, respectively, for its matching contributions to the plan. At
December 26, 1999, the Company's liability under the plan was $1.0 million.

Long-Term Success Plan

Effective January 1, 1999, the Company adopted a long-term success plan for
its current and future employees. The plan provides for the potential payout of
a bonus, in cash, AFC common stock or both, contingent upon a) AFC's common
stock, if publicly traded, reaching an average stock price of $31.00 per share
for a period of at least twenty consecutive trading days or, b) AFC's earnings
per share reaching $2.25 for any fiscal year ending on or before December 31,
2003 during the five-year period January 1, 1999 through fiscal year 2003.

Employee payouts range from 10% to 110% of the individual employee's base
salary at the time either benchmark is met. The percentage is based upon the
individual employee's employment date. At December 26, 1999, AFC did not have a
liability recorded in its consolidated financial statements for the bonus
payout. The Company will record a liability for the bonus payout when the
amount is both probable and estimable.

Executive Retirement and Benefit Plans

During 1994, the Company adopted a nonqualified, unfunded retirement,
disability and death benefit plan for certain executive officers. Annual
retirement benefits are equal to 30% of the executive officer's average base
compensation for the five years preceding retirement plus health benefit
coverage and are payable in 120 equal monthly installments following the
executive officer's retirement date. Death benefits are up to five times the
officer's base compensation at the time of employment. The Company has the
discretion to increase the employee's death benefits. Death benefits are funded
by split dollar life insurance arrangements. The accumulated benefit obligation
related to this plan was approximately $1.2 million, $1.5 million and $2.1
million as of December 28, 1997, December 27, 1998 and December 26, 1999,
respectively.

F-25
<PAGE>

AFC ENTERPRISES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

Expense for the retirement plan for the years ended December 28, 1997,
December 27, 1998, and December 26, 1999, was approximately $0.2 million, $0.4
million and $0.4 million, respectively.

The Company's assumptions used in determining the plan cost and liabilities
include a discount rate of 7.5% per annum and a 5% rate of salary progression
in 1997, 1998 and 1999.

The Company also provides post-retirement medical benefits (including dental
coverage) for certain retirees and their spouses. This benefit begins on the
date of retirement and ends after 120 months or upon the death of both parties.
The accumulated post-retirement benefit obligation for the plan as of both
December 27, 1998 and December 26, 1999, was approximately $0.4 million. The
net periodic expense for the medical coverage continuation plan for 1997, 1998
and 1999 was approximately $204,500, $42,000, and $42,000, respectively.

13. Related Party Transactions

In April 1996, the Company loaned certain officers of the Company an
aggregate of $4.5 million to pay personal withholding tax liabilities incurred
as a result of a $10.0 million executive compensation award earned in 1995. The
full recourse note receivable balance, net of any unamortized discount, and
interest receivable balance as of December 27, 1998 and December 26, 1999 are
included as a reduction to shareholders' equity in the accompanying
consolidated balance sheets and consolidated statements of shareholders' equity
as the common stock awarded to the officers secures payment of the individual
notes.

In October 1998, the Company loaned certain officers of the Company an
aggregate of $1.3 million to pay for shares of common stock offered by AFC in
connection with the acquisition of CII. During 1999, AFC loaned two officers of
the Company an aggregate of $0.4 million to pay for shares of common stock
offered by other departing officers. All the individual notes have similar
terms. Each full recourse note bears interest at 7.0% per annum with principal
and interest payable at December 31, 2005. The notes are secured by the shares
purchased by the employees. The note receivable balance and interest receivable
balance as of December 27, 1998 and December 26, 1999 are included as a
reduction to shareholders' equity in the accompanying consolidated balance
sheets and consolidated statements of shareholders' equity.

In connection with the Company's common stock offering related to the
Cinnabon acquisition in 1998, the Company paid stock issuance costs of
approximately $1.0 million to Freeman Spogli & Co., Inc., which through other
affiliates is the Company's majority common shareholder.

14. Commitments and Contingencies

Employment Agreements

Three senior executives and the Company have entered into employment
agreements containing customary employment terms which provide for an annual
base salary of $500,000, $350,000 and $315,000, respectively, subject to annual
adjustment by the Board of Directors, an annual incentive bonus, stock options,
fringe benefits, participation in Company-sponsored benefit plans and such
other compensation as may be approved by the Board of Directors. The terms of
the agreements terminate in 2003, unless earlier terminated or otherwise
renewed, pursuant to the terms thereof. Pursuant to the terms of the
agreements, if employment is terminated without cause or if written notice not
to renew employment is given by the Company, the terminated executive would be
entitled

F-26
<PAGE>

AFC ENTERPRISES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

to, among other things, two-and-one-half times his base annual salary and the
bonus payable to the individual for the fiscal year in which such termination
occurs. Under the agreements, upon (i) a change of control of the Company, (ii)
a significant reduction in the executive's responsibilities, title or duties or
(iii) the relocation of the Company's principal office more than 45 miles from
its current location, the executive may terminate his employment and would be
entitled to receive, among other things, the same severance pay he would have
received had his employment been terminated by the Company without cause.

Supply Contracts

The principal raw material for the Company's Popeyes and Church's systems is
fresh chicken. For fiscal years ended December 27, 1998 and December 26, 1999,
approximately 50% and 47%, respectively of Popeyes' and Church's company-
operated restaurant cost of sales was attributable to the purchase of fresh
chicken. As a result, the Company is significantly affected by increases in the
cost of chicken, which can be affected by, among other factors, the cost of
grain, the price for other alternative domestic meats and international demand
for chicken products.

In order (i) to ensure favorable pricing for the Company's chicken purchases
in the future, (ii) to reduce volatility in chicken prices and (iii) to
maintain an adequate supply of fresh chicken, the Company entered into two
types of chicken purchasing arrangements with its suppliers. The first of these
contracts is a grain-based "cost-plus" pricing arrangement that provides
chicken prices based upon the cost of feed grains, such as corn and soybean
meal, plus certain agreed upon non-feed and processing costs. The other
arrangement is a market-priced formula arrangement based on the "Georgia whole
bird market value". Under this arrangement, AFC pays market price plus a
premium for cut specifications for AFC restaurants. The market-priced formula
contracts are subject to a "ceiling", or highest price, and a "floor", or
lowest price, that the Company will pay over the contract term. Both contracts
have terms ranging from three to five years with provisions for certain annual
price adjustments as defined in the contracts. The Company recognized chicken
cost of sales at the amounts paid under the contracts. For the periods
presented, the Company has not experienced any material losses as a result of
these contracts.

SCC's principal raw material is green coffee beans. The Company typically
enters into supply contracts to purchase a pre-determined quantity of green
coffee beans at a fixed price per pound. These contracts usually cover periods
up to a year as negotiated with the individual supplier. At December 26, 1999,
the Company had commitments to purchase green coffee beans at a total cost of
approximately $6.9 million. The contract terms cover a period from January 2000
to December 2000.

Litigation

The Company has been named as a defendant in various actions arising from
its normal business activities in which damages in various amounts are claimed.
The Company has established reserves in the accompanying consolidated balance
sheets to provide for the defense and settlement of current litigation and
management believes that the ultimate resolution of these matters will not have
a material adverse effect on the financial condition or results of operations
of the Company.

Environmental Matters

Approximately 150 of the Company's owned and leased properties are known or
suspected to have been used by prior owners or operators as retail gas stations
and a few of these properties

F-27
<PAGE>

AFC ENTERPRISES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

may have been used for other environmentally sensitive purposes. Many of these
properties previously contained underground storage tanks ("USTs") and some of
these properties may currently contain abandoned USTs. As a result of the use
of oils and solvents typically associated with automobile repair facilities and
gas stations, it is possible that petroleum products and other contaminants may
have been released at these properties into the soil or groundwater. Under
applicable Federal and state environmental laws, the Company, as the current
owner or operator of these sites, may be jointly and severally liable for the
costs of investigation and remediation of any such contamination. As a result,
after an analysis of its property portfolio, including testing of soil and
groundwater at a representative sample of its facilities, the Company believes
that it has obtained adequate insurance coverage for any potential
environmental pollution and remediation liabilities. The Company is currently
not subject to any administrative or court order requiring remediation at any
of its properties.

Information Technology Outsourcing

In August 1994, the Company entered into an information technology
outsourcing contract with IBM. The contract was amended in June 1999 and
expires July 31, 2004.

Future minimum payments under this contract, exclusive of payments included
in Note 9 as capital lease payments for systems installed as of December 26,
1999, are as follows (in thousands):

<TABLE>
<CAPTION>
Year Amount
---- -------
<S> <C>
2000............................................................... $ 6,278
2001............................................................... 6,695
2002............................................................... 7,511
2003............................................................... 7,730
2004............................................................... 4,238
-------
$32,452
=======
</TABLE>

It is estimated that the remaining payments due under the contract of
approximately $32.5 million will be reflected as restaurant operating or
general and administrative costs and expenses.

Operating expenses of approximately $8.1 million, $10.5 million and $11.2
million related to the outsourcing contract have been included in the
statements of operations for the years ended December 28, 1997, December 27,
1998 and December 26, 1999, respectively.

Formula Agreement

The Company has a formula licensing agreement, as amended (the "Formula
Agreement"), with Alvin C. Copeland, the former owner of the Popeyes and
Church's restaurant systems, and owner of Diversified Foods and Seasonings,
Inc. ("Diversified"), which calls for the worldwide exclusive licensing to the
Popeyes system of the spicy fried chicken formula and certain other ingredients
used in Popeyes products. The Formula Agreement provides for monthly royalty
payments of $237,500 until April 1999 and, thereafter, monthly royalty payments
of $254,166 until March 2029. Total royalty payments were $2.9 million in each
of the fiscal years ended December 28, 1997 and December 27, 1998 and $3.0 for
the fiscal year ended December 26, 1999.

F-28
<PAGE>

AFC ENTERPRISES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

Supply Agreements

The Company has a supply agreement with Diversified under which the Company
is required to purchase certain proprietary products made exclusively by
Diversified. This contract expires in 2029 subject to further renewal.

Supplies are generally provided to franchised and company-operated
restaurants in the Popeyes and Church's systems pursuant to supply agreements
negotiated by Popeyes Operators Purchasing Cooperative Association, Inc.
("POPCA") and Church's Operators Purchasing Association, Inc. ("COPA"),
respectively, each a not-for-profit corporation that was created for the
purpose of consolidating the collective purchasing power of the franchised and
company-operated restaurants and negotiating favorable terms. The purchasing
cooperatives are not obligated to purchase, and do not bind their members to
commitments to purchase, any supplies. Membership in each cooperative is open
to all franchisees. Since 1995, the Company's franchise agreements related to
Popeyes and Church's have required that each franchisee join its respective
purchasing cooperative. All company-operated Popeyes and Church's restaurants
are members of POPCA or COPA, respectively. Substantially all of the Company's
domestic Popeyes and Church's franchisees participate in POPCA or COPA. COPA
also purchases certain ingredients and supplies for Cinnabon franchised and
company-operated bakeries in order to further leverage the collective buying
power of AFC.

Subsequent to December 26, 1999, POPCA and COPA merged their purchasing
power into one unified purchasing cooperative known as Supply Management
Services, Inc., a not-for-profit corporation. All aspects of the aforementioned
POPCA and COPA cooperatives were retained in the merged corporation.

Advertising Funds

In accordance with the Popeyes and Church's franchise agreements,
advertising funds have been established (the "Advertising Funds") whereby the
Company contributes a percentage of sales (generally 5%) to the Advertising
Funds in order to pay for the costs of funding advertising and promotional
activities. In accordance with the franchise agreement, the net assets and
transactions of the Advertising Funds are not commingled with the working
capital of the Company. The net assets and transactions of the Advertising
Funds are, therefore, not included in the accompanying consolidated financial
statements. The Company's contributions to the Advertising Funds are recorded
in restaurant operating expenses in the accompanying consolidated financial
statements.

King Feature Agreements

The Company currently has agreements with The Hearst Corporation, King
Features Syndicate Division ("King Features") under which the Company has the
exclusive license to use the image and likeness of the cartoon character
"Popeye" (and certain companion characters such as "Olive Oyl") in connection
with the operations of Popeyes restaurants worldwide. Under these agreements,
the Company is obligated to pay King Features a royalty of one-tenth of one
percent (0.1%) on the first $1.0 billion of Popeyes cumulative annual system-
wide sales and one-twentieth of one percent (0.05%) on the next $2.0 billion of
such annual sales. Total annual royalties are capped at $2.0 million per year
under the agreement. The King Features agreements automatically renew annually.
Should a payment be required under this licensing agreement, the payment will
be made out of the Advertising Funds described above.

F-29
<PAGE>

AFC ENTERPRISES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

Other Commitments

The Company has guaranteed certain loans and lease obligations approximating
$1.6 million and $1.0 million at December 27, 1998 and December 26, 1999,
respectively.

15. Segment and Geographic Information

The Company operates exclusively in the foodservice and beverage industry.
Substantially all revenues result from the sale of menu products at
restaurants, bakeries and cafes operated by the Company, franchise royalty and
fee income earned from franchised restaurant, bakery and cafe operations and
wholesale revenues from the sale of specialty coffee products. The Company's
reportable segments are based on specific products and services within the
foodservice and beverage industry. In 2000, the Company began aggregating its
domestic and international operations in its reportable segments and, as such,
re-stated the corresponding items of segment information for prior years. The
Company combines Popeyes and Church's domestic operations to form its chicken
segment. The Company previously aggregated the operations of Chesapeake and
Cinnabon to form its bakery segment; however, with the sale of Chesapeake in
the third quarter of 1999 (See Note 17), the bakery segment only includes
Cinnabon's operations. Chesapeake's operations have been classified as
discontinued operations in the accompanying financial statements. The Company's
coffee segment consists of SCC's domestic operations, which includes its
wholesale operations.

Previously, the Company's restaurant equipment manufacturing division,
Ultrafryer, was included in an "other" segment; however, with the sale of
Ultrafryer in the second quarter of 2000 (See Note 17) the "other" segment and
the associated inter-segment revenues have been eliminated. Ultrafryer's
operations have been classified as discontinued operations in the accompanying
financial statements.

The "corporate" component of operating income includes revenues from (1)
interest income from notes receivable and rental revenue from leasing and sub-
leasing agreements with franchisees and third parties, less (2) corporate
general and administrative expenses.

Operating income (loss) primarily represents each segment's earnings before
income taxes, depreciation, amortization, gains/losses on asset dispositions
and write-downs and compensation expense related to stock option activity.

Revenues:

<TABLE>
<CAPTION>
52 Weeks Ended
--------------------------
12/28/97 12/27/98 12/26/99
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Chicken......................................... $465,072 $506,314 $535,162
Coffee.......................................... -- 58,851 77,309
Bakery.......................................... -- 24,187 77,277
Corporate....................................... 8,539 8,602 8,268
-------- -------- --------
Total Revenues................................ $473,611 $597,954 $698,016
======== ======== ========
</TABLE>

F-30
<PAGE>

AFC ENTERPRISES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

<TABLE>
<CAPTION>
40 Weeks Ended
------------------
10/03/99 10/01/00
-------- --------
(in thousands)
(unaudited)
<S> <C> <C> <C>
Chicken............................................. $413,446 $415,767
Coffee.............................................. 56,129 63,121
Bakery.............................................. 55,471 57,221
Corporate........................................... 6,231 8,049
-------- --------
Total Revenues.................................... $531,277 $544,158
======== ========

Operating Income (Loss):

<CAPTION>
52 Weeks Ended
----------------------------
12/28/97 12/27/98 12/26/99
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Chicken.................................... $ 98,141 $ 96,361 $111,109
Coffee..................................... -- 8,273 9,476
Bakery..................................... -- 4,440 8,833
Corporate.................................. (25,284) (22,442) (18,209)
-------- -------- --------
Total Operating Income (Loss)............ 72,857 86,632 111,209
Adjustments to reconcile to income from
operations:
Depreciation and amortization.............. (33,244) (45,162) (42,126)
Compensation expense related to stock
options................................... (2,217) (1,072) (1,465)
Gain/(loss) on other asset write-offs...... 2,204 (14,615) (9,448)
-------- -------- --------
Income from operations................... $ 39,600 $ 25,783 $ 58,170
======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
40 Weeks Ended
------------------
10/03/99 10/01/00
-------- --------
(in thousands)
(unaudited)
<S> <C> <C>
Chicken................................................ $ 84,916 $ 94,231
Coffee................................................. 6,052 4,351
Bakery................................................. 4,267 5,057
Corporate.............................................. (17,356) (12,553)
-------- --------
Total Operating Income (Loss)........................ 77,879 91,086
Adjustments to reconcile to income from operations:
Depreciation and amortization.......................... (33,473) (31,770)
Compensation expense related to stock options.......... (863) (1,121)
Gain/(loss) on other asset write-offs.................. (709) (307)
-------- --------
Income from operations............................... $ 42,834 $ 57,888
======== ========
</TABLE>

F-31
<PAGE>

AFC ENTERPRISES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

Depreciation and Amortization:

<TABLE>
<CAPTION>
52 Weeks Ended
--------------------------
12/29/97 12/27/98 12/26/99
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Chicken......................................... $17,347 $25,022 $25,338
Coffee.......................................... -- 4,429 3,775
Bakery.......................................... -- 1,711 6,321
Corporate....................................... 15,897 14,000 6,692
------- ------- -------
Total Depreciation and Amortization........... $33,244 $45,162 $42,126
======= ======= =======

Significant Non-cash Items:

<CAPTION>
52 Weeks Ended
--------------------------
12/28/97 12/27/98 12/26/99
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Chicken......................................... $ 2,094 $ 9,956 $ 5,416
Coffee.......................................... -- -- 121
Bakery.......................................... -- -- 79
Corporate....................................... 1,021 4,659 3,832
------- ------- -------
Total Significant Non-cash Items.............. $ 3,115 $14,615 $ 9,448
======= ======= =======
</TABLE>

Significant non-cash items include (i) charges for restaurant closings,
including Pine Tree, which are primarily write-offs of tangible and intangible
assets, (ii) losses on the disposition of long-lived assets which includes both
operating and non-operating assets and (iii) software write-offs.

Assets:

<TABLE>
<CAPTION>
12/27/98 12/26/99
-------- --------
(in thousands)
<S> <C> <C>
Chicken.................................................. $296,241 $306,364
Coffee................................................... 82,164 101,981
Bakery................................................... 74,813 75,559
Other.................................................... 5,730 7,533
Corporate................................................ 97,517 70,452
-------- --------
Total Assets........................................... $556,465 $561,889
======== ========
</TABLE>

There were no material changes to the Company's total assets by reportable
segment as of October 1, 2000 from the amounts disclosed for the fiscal year
ended December 26, 1999.

Capital Expenditures:

<TABLE>
<CAPTION>
12/27/98 12/26/99
-------- --------
(in thousands)
<S> <C> <C>
Chicken.................................................. $26,601 $33,770
Coffee................................................... 4,602 13,453
Bakery................................................... 850 3,346
Other.................................................... 140 388
Corporate................................................ 9,332 4,261
------- -------
Total Capital Expenditures............................. $41,525 $55,218
======= =======
</TABLE>

F-32
<PAGE>

AFC ENTERPRISES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

Chesapeake's assets and capital expenditures have been reclassified from
"Bakery" to "Other" for prior year. Not included in the 1998 capital
expenditures is approximately $21.1 million in funds spent in 1998 related to
our 1998 acquisitions. Excluded from 1999 capital expenditures is $0.8 million
in other acquisition items.

16. Acquisitions

Pine Tree Foods, Inc. Acquisition

On February 10, 1998, the Company acquired all of the assets of 81
restaurant properties operated by Pine Tree Foods, Inc. ("Pine Tree") for a
purchase price of approximately $24.3 million. In addition, the Company
recorded liabilities of approximately $4.0 million in connection with the
acquisition. Of the 81 restaurants, 66 were converted to Popeyes company-
operated restaurants, with the remaining restaurants closed concurrently with
the purchase. The restaurants are primarily located in North and South Carolina
and Georgia. The Company funded the purchase price with internal funds and its
Acquisition Facility.

The Pine Tree acquisition was accounted for as a purchase in accordance with
Accounting Principles Board Opinion Number 16, "Accounting for Business
Combinations" ("APB 16"). The unamortized goodwill recorded in connection with
this acquisition was $23.1 and $22.7 million at December 27, 1998 and December
26, 1999, respectively. The Company is amortizing this goodwill on a straight-
line basis over a forty-year period.

Seattle Coffee Company Acquisition

On March 18, 1998, the Company acquired all of Seattle Coffee Company's
common stock for an adjusted purchase price of approximately $68.8 million plus
the assumption of approximately $4.8 million of debt. The Company paid
approximately $37.6 million in cash funded by its Acquisition Facility and
approximately $25.5 million in AFC common stock, resulting in the issuance of
1,837,834 common shares, 440,645 options to purchase common shares and 154,468
warrants to purchase common shares. In addition, the Company established a
payable of approximately $3.8 million and placed 139,914 shares of AFC's common
stock into an escrow account pursuant to a holdback payment provision in the
acquisition agreement. As a result of the transaction, SCC became a wholly-
owned subsidiary of the Company. The transaction included the acquisition of a
roasting and packaging facility, 59 company-operated cafes and 10 franchised
cafes under the Seattle's Best and Torrefazione Italia brands, a wholesale
business including 13 sales offices with more than 5,000 wholesale accounts and
two major distribution centers. The acquisition agreement provided for a
contingent earn-out payable to former SCC shareholders. Actual payment to
former SCC shareholders was contingent upon SCC operations achieving a level of
earnings, as defined in the acquisition agreement, over a 52-week period from
September 29, 1997 to September 27, 1998 (the "Contingency Period"). Based on
SCC's operating results during the Contingency Period that ended on September
27, 1998, the Company paid approximately $0.9 million in cash and issued 70,141
shares of AFC's common stock to former SCC shareholders during the first
quarter of 1999 as a contingent payment pursuant to the agreement. The
contingent earn-out payment was included in the adjusted purchase price.

During 1999, the Company completed an analysis of the fair value and
allocation of its intangible asset acquired from SCC, which resulted in a final
purchase price adjustment to the amounts initially recorded on the acquisition
date. As part of this analysis, $11.3 million was re-allocated from goodwill

F-33
<PAGE>

AFC ENTERPRISES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

to trade name and other intangibles. At December 26, 1999 the unamortized
portion of these intangibles was approximately $10.6 million and $0.5 million,
respectively. These assets are being amortized on a straight-line basis over a
forty-year and twenty-year period, respectively.

The Company accounted for this acquisition as a purchase in accordance with
APB 16. The allocation of the purchase price resulted in the Company recording
goodwill in the approximate amount of $43.2 million, which is being amortized
on a straight-line basis over a forty-year period. At December 27, 1998 and
December 26, 1999, the unamortized goodwill balance was approximately $53.0
million and $41.0 million, respectively.

The following unaudited pro forma results of operations for the fifty-two
weeks ended December 28, 1997 and December 27, 1998, assumes the acquisition of
SCC occurred as of the beginning of the respective periods (in thousands).

<TABLE>
<CAPTION>
52 Weeks 52 Weeks
Ended Ended
12/28/97 12/27/98
-------- --------
<S> <C> <C>
Total revenues......................................... $524,812 $606,501
======== ========
Net income (loss) from continuing operations........... $ 9,865 $ (3,897)
======== ========
Net income (loss)...................................... $ 10,186 $ (9,182)
======== ========
</TABLE>

The 52 weeks ended December 28, 1997 include SCC's operations for the
twelve-month period ended September 28, 1997. The 52 weeks ended December 27,
1998 include SCC's operations for the two-month period ended February 28, 1998
since the Company acquired SCC in March 1998. Pro forma results are not
necessary for the fiscal year ended 1999 since SCC's operations are included in
the consolidated statements for AFC.

These pro forma results have been prepared for comparative purposes only and
include certain adjustments that result in (i) an increase in amortization
expense related to the recording of SCC goodwill, (ii) an increase in interest
expense related to the Acquisition Facility (See Note 8) used to partially fund
the acquisition, (iii) a decrease in interest expense related to SCC debt that
was paid off at the time of the acquisition and (iv) a decrease in amortization
expense related to the write-off of SCC's intangible assets at the time of the
acquisition. These results do not purport to be indicative of the results of
operations which actually would have resulted had the acquisition been in
effect at the beginning of the respective periods or of future results of
operations of the consolidated entities.

Cinnabon International, Inc.

On October 15, 1998, the Company acquired Cinnabon International, Inc.
("CII"), the operator and franchisor of 363 retail cinnamon roll bakeries
operating in 39 states, Canada and Mexico. Two hundred and eleven of the retail
cinnamon roll bakeries were company-operated and were located within the U.S.
In connection with the acquisition, CII became a wholly-owned subsidiary of AFC
through the merger of AFC Franchise Acquisition Corp. into CII (the
"Acquisition").

The Company acquired CII for $64.0 million in cash. The Company obtained
$44.7 million of the cash consideration from its 1997 Credit Facility as
amended and restated (See Note 8). The remaining $19.3 million cash
consideration was funded with the proceeds from the sale of approximately 2.8
million shares of AFC common stock at $7.75 per share to certain "qualified"
investors who are existing AFC shareholders and option holders.

F-34
<PAGE>

AFC ENTERPRISES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

The Company accounted for this acquisition as a purchase in accordance with
APB 16. The allocation of the purchase price resulted in the Company recording
goodwill in the amount of approximately $54.1 million, which is being amortized
on a straight-line basis over a forty-year period. During 1999, the Company
completed an analysis of the fair values of the tangible and intangible assets
acquired from CII. During the fiscal year ended December 26, 1999, the Company
recorded a $9.6 million adjustment to the carrying value of certain fixed
assets, which correspondingly increased goodwill.

In connection with the CII acquisition, the Company developed an exit plan
involving CII's corporate headquarters in Seattle, Washington. The exit plan
included severance, relocation and integration costs. Including the exit plan,
the Company recorded other assets and liabilities resulting in a net $0.6
million purchase price adjustment, which increased goodwill.

The following unaudited pro forma results of operations for the fifty-two
weeks ended December 28, 1997 and December 27, 1998, assumes the acquisition of
CII occurred as of the beginning of the respective periods (in thousands).

<TABLE>
<CAPTION>
52 Weeks 52 Weeks
Ended Ended
12/28/97 12/27/98
-------- --------
<S> <C> <C>
Total revenues......................................... $552,875 $651,893
======== ========
Net income (loss) from continuing operations........... $ 570 $(13,826)
======== ========
Net income (loss)...................................... $ 891 $(19,112)
======== ========
</TABLE>

The 52 weeks ended December 28, 1997 include CII's operations for the
twelve-month period ended March 29, 1998. The 52 weeks ended December 27, 1998
include CII's operations for the nine-month period ended September 27, 1998
since the Company acquired CII in October 1998. Pro forma results are not
necessary for the fiscal year ended 1999 since CII's operations are included in
the consolidated statements for AFC.

These pro forma results have been prepared for comparative purposes only and
include certain adjustments that result in (i) an increase in amortization
expense related to the recording of CII goodwill, (ii) an increase in interest
expense related to the Term Loan B debt (See Note 8) used to partially fund the
acquisition, (iii) a decrease in interest expense related to CII debt that was
paid off at the time of the acquisition and (iv) a decrease in amortization
expense related to the write-off of CII's intangible assets at the time of the
acquisition. These results do not purport to be indicative of the results of
operations which actually would have resulted had the acquisition been in
effect at the beginning of the respective periods or of future results of
operations of the consolidated entities.

17. Divestitures

Chesapeake Bagel

On July 26, 1999, the Company entered into a definitive agreement to sell
its Chesapeake franchise rights and system to New World Coffee-Manhattan Bagel,
Inc. ("Buyer") for $3.8 million. The sale closed on August 30, 1999. The
Company received $2.3 million in cash with the remaining $1.5 million in a note
receivable from the Buyer. The Company recorded a loss of $1.7 million after
tax on the sale. The income tax benefit applied to the loss on the sale was
$1.4 million.

F-35
<PAGE>

AFC ENTERPRISES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

The results of Chesapeake have been classified as discontinued operations in
the accompanying financial statements. The following amounts relate to
Chesapeake's operations for the respective periods (in thousands):

<TABLE>
<CAPTION>
For For For
Year Ended Year Ended Year Ended
12/28/97 12/27/98 12/26/99
---------- ---------- ----------
<S> <C> <C> <C>
Total revenues............................ $2,442 $ 3,533 $2,108
====== ======= ======
Pre-tax loss from operations.............. (12) (8,770) (1,201)
Income tax benefit........................ 5 2,877 563
------ ------- ------
Loss from operations...................... $ (7) $(5,893) $ (638)
====== ======= ======
</TABLE>

Ultrafryer Divestiture

On May 11, 2000, AFC's Board of Directors approved the sale of Ultrafryer,
the Company's restaurant equipment manufacturing division, to an investor group
led by Ultrafryer's chief operating officer. The sale closed on June 1, 2000.
The Company received $550,000 in cash and a $4.6 million note receivable from
the Buyer. The Company's estimated $0.4 million after tax gain on the sale has
been deferred for financial reporting purposes and included in other
liabilities on the balance sheet. The income tax expense applied to the gain on
the sale was $0.2 million.

The results of Ultrafryer have been classified as discontinued operations in
the accompanying financial statements. The following amounts relate to
Ultrafryer's operations for the respective periods (in thousands):

<TABLE>
<CAPTION>
For For For
Year Ended Year Ended Year Ended
12/28/97 12/27/98 12/26/99
---------- ---------- ----------
<S> <C> <C> <C>
Total revenues.......................... $7,700 $7,605 $9,076
====== ====== ======
Income from operations before income
taxes.................................. 582 904 806
Income tax (expense).................... (254) (297) (370)
------ ------ ------
Income from operations, net of income
taxes.................................. $ 328 $ 607 $ 436
====== ====== ======
</TABLE>

<TABLE>
<CAPTION>
For Forty For Forty
Weeks Ended Weeks Ended
10/03/99 10/01/00
----------- -----------
<S> <C> <C>
Total revenues................................... $6,798 $3,372
====== ======
Income (loss) from operations before income
taxes........................................... 560 (91)
Income tax (expense) benefit..................... (253) 39
------ ------
Income (loss) from operations, net of income
taxes........................................... $ 307 $ (52)
====== ======
</TABLE>

F-36
<PAGE>

AFC ENTERPRISES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

18. Change in Accounting Estimate

Church's and Popeyes

During 1999, the Company re-evaluated the estimated useful lives of its
buildings, equipment and leasehold improvements at Church's and Popeyes
company-operated restaurant locations. The Company analyzed historical data
regarding restaurant operations, actual lives of restaurant properties and
property leasing arrangements. Church's began operating in 1952 while Popeyes
initiated their operations in 1972. Based on this analysis, the Company revised
its estimated useful lives for certain fixed asset categories as follows:

1) Buildings--useful life range changed from 7-20 years to 5-35 years.

2) Equipment--useful life range changed from 3-8 years to 3-15 years.

3) Leasehold improvements--the Company will continue to depreciate
leasehold improvements over the lesser of the lease term or the
estimated useful life of the asset; however, the lease term will
include all lease option periods under contract that management
anticipates will be utilized. Previously, the Company only considered
the primary term of the lease in assessing the life of a leasehold
improvement.

This change in accounting estimate resulted in a $5.5 million and a $1.9
million decrease in depreciation expense for the fiscal year ended December 26,
1999 and for the forty week period ended October 1, 2000, respectively,
resulting in a $3.2 million and a $1.1 million after tax increase in net income
for the same periods.

Cinnabon and Seattle Coffee

During 1999, the Company re-evaluated the estimated useful lives of its
equipment and leasehold improvements at Cinnabon bakeries and Seattle Coffee
cafes. The Company analyzed historical data regarding operations and property
leasing arrangements. Based on this analysis, the Company revised its estimated
useful lives for certain fixed asset categories as follows:

1) Equipment--Cinnabon's equipment asset lives were changed from seven
years to eight years. Seattle Coffee equipment asset lives were all set
at eight years prior to the Company's analysis. Pursuant to the
analysis, lives either remained at eight years or were increased to
between ten and fifteen years depending on the type of equipment asset.

2) Leasehold improvements--With respect to Seattle Coffee leasehold
improvements, the Company will continue to depreciate leasehold
improvements over the lesser of the lease term or the estimated useful
life of the asset; however, the lease term will include all lease
option periods under contract that management anticipates will be
utilized. Previously, the Company only considered the primary term of
the lease in assessing the life of a leasehold improvement.

This change in accounting estimate resulted in a $2.0 million and a $1.1
million decrease in depreciation expense for the fiscal year ended December 26,
1999 and for the forty week period ended October 1, 2000, respectively,
resulting in a $1.2 million and a $0.7 million after tax increase in net income
for the same periods.

F-37
<PAGE>

AFC ENTERPRISES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

19. Basic and Diluted Earnings Per Share (unaudited)

The following represents a reconciliation of the Company's basic and diluted
earnings per share as required by the Financial Accounting Standards Board
Statement No. 128, "Earnings per Share" (in thousands):

<TABLE>
<CAPTION>
52 Weeks Ended
----------------------------
12/28/97 12/27/98 12/26/99
-------- -------- --------
<S> <C> <C> <C>
Net income (loss) from continuing operations... $10,679 $(3,360) $14,029
Preferred stock dividend....................... (2,240) -- --
------- ------- -------
Net income (loss) attributable to common stock
from continuing operations.................... 8,439 (3,360) 14,029
Discontinued operations........................ 321 (5,286) (1,944)
------- ------- -------
Net income (loss) attributable to common
stock......................................... $ 8,760 $(8,646) $12,085
======= ======= =======
Denominator for basic earnings per share--
Weighted average shares....................... 34,442 36,556 39,346
Effect of dilutive securities--employee stock
options....................................... 2,640 -- 3,283
------- ------- -------
Denominator for diluted earnings per share--
weighted average shares adjusted for dilutive
securities.................................... 37,082 36,556 42,629
======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
40 Weeks Ended
------------------
10/03/99 10/01/00
-------- --------
<S> <C> <C>
Net income from continuing operations................... $ 9,210 $18,245
Discontinued operations................................. (1,832) (52)
------- -------
Net income attributable to common stock................. $ 7,378 $18,193
======= =======
Denominator for basic earnings per share--Weighted
average shares......................................... 39,318 39,477
Effect of dilutive securities--employee stock options... 3,498 3,239
------- -------
Denominator for diluted earnings per share--weighted
average shares adjusted for dilutive securities........ 42,816 42,716
======= =======
</TABLE>

F-38
<PAGE>

AFC ENTERPRISES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

20. Subsequent Events (unaudited)

Assets Under Contractual Agreement

In the second quarter of 2000, AFC transferred certain long-lived assets to
a company owned by a former AFC employee in exchange for shares of preferred
stock of that company. Concurrent with the transfer of assets, which consisted
of restaurant equipment for twelve Popeyes restaurants, the company became a
Popeyes franchisee. In compliance with certain accounting rules, AFC cannot
remove these assets from its books and records, and as such, AFC has classified
these assets under the category "Assets Under Contractual Agreement" in the
accompanying balance sheet. Consequently, AFC did not record an investment for
the shares of preferred stock received in the transaction. At October 1, 2000,
these assets included the following (in thousands):

<TABLE>
<S> <C>
Equipment, net..................................................... $2,234
Goodwill allocable to assets, net.................................. 5,498
------
Total.............................................................. $7,732
======
</TABLE>

10.25% Senior Notes

During 2000, the Company repurchased Senior Notes with a face value of $17.0
million at a slight discount. The repurchase was funded with internal funds.
The Company expensed approximately $0.5 million in connection with the
repurchase, which represented the write-off of a portion of unamortized debt
issuance costs and lender costs. The Company has not reported this amount as an
extraordinary item in the forty weeks ended October 1, 2000, due to the
relative immateriality to the consolidated statements of operations for the
applicable period.

F-39
<PAGE>

-------------------------------------------------------------------------------
-------------------------------------------------------------------------------

No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You
must not rely on any unauthorized information or representations. This
prospectus is an offer to sell only the shares offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so. The
information contained in this prospectus is current only as of its date.

-----------------

TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 9
Forward-Looking Statements............................................... 18
Use of Proceeds.......................................................... 19
Dividend Policy.......................................................... 19
Capitalization........................................................... 20
Dilution................................................................. 21
Selected Consolidated Financial Data..................................... 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 26
Business................................................................. 47
Management............................................................... 65
Principal and Selling Shareholders....................................... 76
Related-Party Transactions............................................... 79
Description of Capital Stock............................................. 80
Shares Eligible for Future Sale.......................................... 83
Underwriting............................................................. 85
Legal Matters............................................................ 87
Experts.................................................................. 87
Where You Can Find More Information About Us............................. 87
Index to Consolidated Financial Statements............................... F-1
</TABLE>

-----------------

Through and including , 2001 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether
or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a
prospectus when acting as an underwriter and with respect to an unsold
allotment or subscription.

-------------------------------------------------------------------------------
-------------------------------------------------------------------------------

AFC Enterprises, Inc.

Common Stock

-----------------

[LOGO OF AFC ENTERPRISES]

-----------------

Goldman, Sachs & Co.

Credit Suisse First Boston

Representatives of the Underwriters

-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

The following table sets forth the various expenses and costs (other than
underwriting discounts and commissions) expected to be incurred in connection
with the sale and distribution of the securities being registered. All of the
amounts shown are estimated except the registration fee of the SEC and the NASD
filing fee.

<TABLE>
<CAPTION>
Amount to
be Paid by
AFC
Item Enterprises
---- -----------
<S> <C>
SEC registration fee.................................................. $25,000
NASD filing fee....................................................... 10,500
Blue sky fees and expenses............................................ *
Printing and engraving expenses....................................... *
Legal fees and expenses............................................... *
Accounting fees and expenses.......................................... *
Custodian and selling shareholder expenses............................ *
Transfer agent and registrar fees..................................... *
Miscellaneous......................................................... *
-------
Total............................................................... *
=======
</TABLE>
--------
* To be filed by amendment.

Item 14. Indemnification of Directors and Officers

The Registrant's articles of incorporation provide that each of its
directors shall not be personally liable to it or its shareholders for monetary
damages for any breach of fiduciary duty as a director, except for liability
(i) for any breach of the director's duty of loyalty to the Registrant or its
shareholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) under Sections
302A.559 or 80A.23 of the Minnesota Business Corporation Act; (iv) for any
transaction from which the director derived an improper personal benefit; or
(v) for any act or omission occurring prior to the date when the articles of
incorporation became effective.

The Registrant's articles of incorporation also provide that if the
Minnesota Business Corporation Act is amended to authorize any further
limitation of the liability of a director, then the liability of a director is
eliminated or limited to the fullest extent permitted by the amended act.
Further, the Registrant's bylaws provide that it shall indemnify its directors
and officers to the maximum extent permitted by law.

Section 302A.521 of the Minnesota Business Corporation Act requires the
Registrant to indemnify a person made or threatened to be made a party to a
proceeding, by reason of the former or present official capacity of the person
with respect to the Registrant against judgment, penalties, fines, including
without limitation, excise taxes assessed against the person with respect to an
employee benefit plan, settlements, and reasonable expenses, including
attorneys' fees and disbursements, if, with respect to the acts or omissions of
the person complained of in the proceeding, such person (1) has not been
indemnified by another organization or employee benefit plan for the same
judgments, penalties, fines, including without limitation, excise taxes
assessed against the person with respect to an employee benefit plan,
settlements, and reasonable expenses,

II-1
<PAGE>

including attorneys' fees and disbursements, incurred by the person in
connection with the proceeding with respect to the same acts or omissions; (2)
acted in good faith; (3) received no improper personal benefit, and statutory
procedure has been followed in the case of any conflict of interest by a
director; (4) in the case of a criminal proceeding, had no reasonable cause to
believe the conduct was unlawful; and (5) in the case of acts or omissions
occurring in the person's performance in the official capacity of director or,
for a person not a director, in the official capacity of officer, committee
member, employee or agent, reasonably believed that the conduct was in the
best interests of the Registrant, or in the case of performance by a director,
officer, employee or agent of the Registrant as a director, officer, partner,
trustee, employee or agent of another organization or employee benefit plan,
reasonably believed that the conduct was not opposed to the best interests of
the Registrant. In addition, Section 302A.521, subd. 3 requires payment by the
Registrant, upon written request, of reasonable expenses in advance of final
disposition in certain instances. A decision as to required indemnification is
made by a majority of the disinterested board of directors present at a
meeting at which a disinterested quorum is present, or a designated committee
of disinterested directors, by special legal counsel, by the disinterested
shareholders, or by a court.

The Registrant has also entered into indemnification agreements with each
of its directors. The indemnification agreements may require it, among other
things, to indemnify its directors and officers against certain liabilities
that may arise by reason of their status or service as directors or officers
(other than liabilities arising from willful misconduct of a culpable nature),
to advance their expenses incurred as a result of any proceeding against them
as to which they could be indemnified, and to obtain directors' and officers'
insurance if available on reasonable terms.

Reference is also made to Section 8 of the underwriting agreement to be
filed as Exhibit 1.1 hereto, which indemnifies the Registrant's directors and
officers against certain liabilities.

The Registrant carries directors' and officers' liability insurance
covering its directors and officers.

Insofar as indemnification for liabilities under the Securities Act may be
permitted for directors, officers or persons controlling the Registrant
pursuant to the foregoing provisions, it has been informed that, in the
opinion of the SEC, such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.

Item 15. Recent Sales of Unregistered Securities

The following is a summary of the transactions engaged in by the Registrant
during the past three years involving sales of the Registrant's securities
that were not registered under the Securities Act:

From January 1, 1998 through December 31, 1998, the Registrant issued
and sold 10,274 shares of common stock to nine former employees upon the
exercises of options to purchase common stock for exercise prices ranging
from $0.08 to $4.95 per share for an aggregate purchase price of
approximately $27,003.

On March 18, 1998, in connection with an Agreement and Plan of
Reorganization, dated January 23, 1998, among the Registrant, Seattle
Coffee Company, AFC Acquisition Corp., and the other signatories thereto
(the "SCC Agreement"), the Registrant issued and sold 1,977,748 shares of
common stock in exchange for all of the common stock of Seattle Coffee
Company to the former shareholders of Seattle Coffee Company (the "SCC
Shareholders"), warrants to purchase a total of 166,206 shares of common
stock in exchange for warrants to purchase shares of Seattle Coffee Company
to the former warrant holders of Seattle Coffee Company (the "SCC Warrant
Holders"), and options to purchase a total of 474,105 shares of common
stock in exchange for options to purchase shares of Seattle Coffee Company
to the former option holders of Seattle Coffee Company (the "SCC Option
Holders").

II-2
<PAGE>

On October 14, 1998, the Registrant issued and sold 2,795,703 shares of
common stock for an aggregate purchase price of $21,666,698 to employees
and directors of the Registrant, PENMAN Private Equity and Mezzanine Fund,
L.P., FS Equity Partners IV, L.P. and Frederick Paulsell, Jr. In connection
with this common stock offering, the Registrant paid Freeman Spogli & Co. a
fee of $1,000,000, $100,000 of which was paid to PENMAN Partners.

From January 1, 1999 through December 31, 1999, the Registrant issued
and sold 130,568 shares of common stock to 15 former employees upon the
exercises of options to purchase common stock for exercise prices ranging
from $0.08 to $7.50 per share for an aggregate purchase price of
approximately $177,386. From January 1, 1999 through December 31, 1999, the
Registrant issued and sold 9,219 shares of common stock to two former
employees upon net exercises of options to purchase common stock for
exercise prices of $3.91 per share for an aggregate purchase price of
approximately $109,941.

On March 18, 1999, pursuant to the SCC Agreement, the Registrant issued
and sold an additional 70,141 shares of common stock to the SCC
Shareholders, warrants to purchase 5,868 shares of common stock to the SCC
Warrant Holders and options to purchase 16,769 shares of common stock to
the SCC Option Holders, in each case, as contingent consideration.

On May 3, 1999, the Registrant issued and sold 1,448 shares of common
stock for an aggregate purchase price of $5,662 upon the exercises of
warrants to purchase common stock to the SCC Warrant Holders.

From January 1, 2000 through December 19, 2000, the Registrant issued
and sold 16,628 shares of common stock to 19 former employees upon the
exercises of options to purchase shares of common stock for exercise prices
ranging from $0.08 to $7.75 per share for an aggregate purchase price of
approximately $59,604. From January 1, 2000 through December 19, 2000, the
Registrant issued and sold 67,664 shares of common stock to 70 former
employees upon net exercises of options to purchase shares of common stock
for exercise prices ranging from $3.317 to $8.25 per share for an aggregate
purchase price of $510,352.

On October 23, 2000, the Registrant issued and sold 783 shares of common
stock for an aggregate purchase price of $3,062 upon the exercises of
warrants to purchase common stock by the SCC Warrant Holders.

A number of the issuances described above were exempt from registration
under the Securities Act pursuant to Section 4(2) of the Securities Act or
Regulation D promulgated thereunder as a transaction by an issuer not involving
a public offering, where each purchaser was either an accredited investor or a
non-accredited investor (where the aggregate number of such investors did not
exceed 35), with knowledge and experience in financial and business matters
sufficient for evaluating the associated merits and risks (either alone or with
a purchaser representative), each of which represented its intention to acquire
the securities for investment only and not with a view to distribution, and
received or had access to adequate information about the Registrant.
Appropriate

II-3
<PAGE>

legends were affixed to the stock certificates issued in these transactions and
there was no general solicitation or advertising.

As of October 1, 2000, the Registrant had granted options to purchase an
aggregate of 7,568,337 shares of common stock to its directors, officers and
employees, of which 6,172,726 options were outstanding with a weighted average
exercise price of $4.38. At the time these options were issued under the
Registrant's various stock option plans, the Registrant believed that each of
the issuances were exempt from the registration requirements of the Securities
Act of 1933 either by virtue of (i) an exemption provided by Rule 701
promulgated under the Securities Act of 1933 for securities offered under
compensatory benefit plans and contracts, or (ii) a "no-sale" theory under
Section 5 of the Securities Act of 1933, since none of the optionees provided
any consideration for the grants (the sale of the underlying option shares
occurs only when the option is exercised and the purchase price for the shares
is paid to the Registrant).

As of December 31, 1996, the Registrant had granted options to purchase
4,136,412 shares of common stock to 1,086 persons. As a result, the Registrant
may have been required to register as a reporting company under the Securities
and Exchange Act. Since Rule 701 is not available to reporting companies, the
Registrant believes that the Rule 701 exemption may not have been available for
options to purchase shares of common stock that it granted, or the exercise of
such options, subsequent to June 30, 1997, the latest date upon which the
Registrant would have become a reporting company. The Registrant has issued and
sold 52,237 shares of common stock as a result of the exercise of options for
an aggregate purchase price of $260,193 since June 30, 1997. The Registrant
does not intend to allow any additional option exercises until the Registrant
has in effect a registration statement on Form S-8 for the issuance of the
shares of common stock reserved for issuance under its stock option plans.

No underwriter was employed with respect to any sales of securities of the
Registrant in the transactions described above. Except as set forth above, no
commissions or fees were paid with respect to any such sales.

Item 16. Exhibits and Financial Statement Schedules

(a) Exhibits

<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.

3.1(a) Articles of Incorporation of Registrant, as amended.

3.2(a) Amended and Restated Bylaws of Registrant.

4.1(a) Indenture dated as of May 21, 1997 between AFC Enterprises, Inc.
("AFC") and United States Trust of New York, as Trustee, with
respect to the 10 1/4% Senior Subordinated Notes due 2007.

4.2(a) Exchange and Registration Rights Agreement, dated as of May 21,
1997, by and among AFC, Goldman, Sachs & Co., CIBC Wood Gundy
Securities Corp. and Donaldson, Lufkin & Jenrette Securities
Corporation.

4.3(c) Amended and Restated Credit Agreement, dated as of October 15,
1998, among AFC Enterprises, Inc. and Goldman Sachs Credit
Partners L.P., as Syndication Agent and Lead Arranger and the
financial institutions listed therein and Canadian Imperial
Bank of Commerce ("CIBC"), as Administrative Agent.

4.4(a) Security Agreement, dated as of May 21, 1997, by and between AFC
and CIBC, as Administrative Agent.
</TABLE>

II-4
<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
4.5(a) Pledge Agreement, dated as of May 21, 1997, by and between AFC and
CIBC, as Administrative Agent.

4.6(a) Trademark Collateral Security Agreement, dated as of May 21, 1997,
by and between AFC and CIBC, as Administrative Agent.

4.7(a) Collateral Account Agreement, dated as of May 21, 1997, by and
between AFC and CIBC, as Administrative Agent.

4.8(a) Form of Mortgage, Assignment of Rents, Security Agreement and
Fixture Filing, dated as of May 21, 1997, between AFC and CIBC,
as Administrative Agent.

4.9* Form of Registrant's common stock certificate.

5.1* Opinion of Riordan & McKinzie.

5.2* Opinion of Dorsey & Whitney.

10.1(a) Stock Purchase Agreement dated February 23, 1996 among AFC, FS
Equity Partners, L.P. III, and FS Equity Partners International,
L.P.

10.2(a) Stockholders Agreement dated April 11, 1996 among FS Equity
Partners III, L.P. and FS Equity Partners International, L.P.,
CIBC, Pilgrim Prime Rate Trust, Van Kampen American Capital Prime
Rate Income Trust, Senior Debt Portfolio, ML IBK Positions, Inc.,
Frank J. Belatti, Dick R. Holbrook, Samuel N. Frankel
(collectively, the "Shareholders") and AFC.

10.3* Form of Popeyes Development Agreement, as amended.

10.4* Form of Popeyes Franchise Agreement.

10.5* Form of Church's Development Agreement, as amended.

10.6* Form of Church's Franchise Agreement.

10.7(a) Formula Agreement dated July 2, 1979 among Alvin C. Copeland,
Gilbert E. Copeland, Mary L. Copeland, Catherine Copeland,
Russell J. Jones, A. Copeland Enterprises, Inc. and Popeyes
Famous Fried Chicken, Inc., as amended to date.

10.8(a) Supply Agreement dated March 21, 1989 between New Orleans Spice
Company, Inc. and Biscuit Investments, Inc.

10.9(a) Recipe Royalty Agreement dated March 21, 1989 by and among Alvin
C. Copeland, New Orleans Spice Company, Inc. and Biscuit
Investments, Inc.

10.10(a) Licensing Agreement dated March 11, 1976 between King Features
Syndicate Division of The Hearst Corporation and A. Copeland
Enterprises, Inc.

10.11(a) Assignment and Amendment dated January 1, 1981 between A. Copeland
Enterprises, Inc., Popeyes Famous Fried Chicken, Inc. and King
Features Syndicate Division of The Hearst Corporation.

10.12(a) Popeye License Agreement dated January 1, 1981 between King
Features Syndicate Division of The Hearst Corporation and Popeyes
Famous Fried Chicken, Inc.

10.13(a) Letter Agreement dated September 17, 1981 between King Features
Syndicate Division of The Hearst Corporation, A. Copeland
Enterprises, Inc. and Popeyes Famous Fried Chicken, Inc.

10.14(a) License Agreement dated December 19, 1985 by and between King
Features syndicate, Inc., The Hearst Corporation, Popeyes, Inc.
and A. Copeland Enterprises, Inc.
</TABLE>

II-5
<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.15(a) Letter Agreement dated July 20, 1987 by and between King Features
Syndicate, Division of The Hearst Corporation, Popeyes, Inc. and
A. Copeland Enterprises, Inc.

10.16(a) Employment Agreement dated as of December 4, 1995 between AFC and
Samuel N. Frankel, as amended.

10.17(a) 1992 Stock Option Plan of AFC, effective as of November 5, 1992,
as amended to date.

10.18(a) 1996 Nonqualified Performance Stock Option Plan--Executive of
AFC, effective as of April 11, 1996.

10.19(a) 1996 Nonqualified Performance Stock Option Plan--General of AFC,
effective as of April 11, 1996.

10.20(a) 1996 Nonqualified Stock Option Plan of AFC, effective as of April
11, 1996.

10.21(a) Form of Nonqualified Stock Option Agreement--General between AFC
and stock option participants.

10.22(a) Form of Nonqualified Stock Option Agreement--Executive between
AFC and certain key executives.

10.23(a) 1996 Employee Stock Bonus Plan--Executive of AFC effective as of
April 11, 1996.

10.24(a) 1996 Employee Stock Bonus Plan--General of AFC effective as of
April 11, 1996.

10.25(a) Form of Stock Bonus Agreement--Executive between AFC and certain
executive officers.

10.26(a) Form of Stock Bonus Agreement--General between AFC and certain
executive officers.

10.27(a) Form of Secured Promissory Note issued by certain members of
management.

10.28(a) Form of Stock Pledge Agreement between AFC and certain members of
management.

10.29(a) AFC 1994 Supplemental Benefit Plan for Executive Officers dated
May 9, 1994.

10.30(a) AFC 1994 Supplemental Benefit Plan for Senior and Executive Staff
Officer dated April 19, 1994.

10.31(a) AFC 1994 Supplemental Benefit Plan for Senior Officers/General
Manager dated May 9, 1994.

10.32(a) AFC 1994 Supplemental Benefit Plan for Designated Officers dated
May 9, 1994.

10.33(a) Settlement Agreement between Alvin C. Copeland, Diversified Foods
and Seasonings, Inc., Flavorite Laboratories, Inc. and AFC dated
May 29, 1997.

10.34(b) Credit Agreement dated August 12, 1997, between AFC and Banco
Popular De Puerto Rico for Turnkey Development program
financing.

10.35(d) Agreement and Plan of Merger among AFC and Seattle Coffee
Company, all of the Principal Shareholders of Seattle Coffee
Company and AFC Acquisition Corp., as amended to date.

10.36(e),(f) Agreement and Plan of Merger by and among Cinnabon International,
Inc., AFC and AFC Franchise Acquisition Corp., effective August
13, 1998, as amended to date.

10.37(f) Shareholder Agreement by and among AFC Franchise Acquisition
Corp. and other signatories dated as of August 13, 1998.

10.38(c) AFC Deferred Compensation Plan dated January 1, 1998, as amended
to date.
</TABLE>

II-6
<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.39(g) AFC Enterprises, Inc. 1999-2003 Long-Term Employee Success Plan,
effective January 1, 1999.

10.40*+ Supply Agreement dated October 5, 1998 between Church's Operators
Purchasing Association, Inc. and Cagles, Inc.

10.41*+ Supply Agreement dated April 1, 1999 between Church's Operators
Purchasing Association, Inc. and Tyson Foods, Inc.

10.42* Stockholders Agreement dated as of March 18, 1998 among FS Equity
Partners III, L.P., FS Equity Partners International, L.P., the new
shareholders identified therein and AFC.

10.43* Form of Cinnabon's Development Agreement.

10.44* Form of Cinnabon's Franchise Agreement.

10.45* Form of Seattle's Best Coffee Development Agreement, as amended.

10.46* Form of Seattle's Best Coffee Franchise Agreement.

10.47(a) Indemnification Agreement dated April 11, 1996 by and between AFC and
William M. Wardlaw.

10.48(a) Indemnification Agreement dated April 11, 1996 by and between AFC and
Ronald P. Spogli.

10.49(a) Indemnification Agreement dated April 11, 1996 by and between AFC and
John M. Roth.

10.50(a) Indemnification Agreement dated May 1, 1996 by and between AFC and
Kelvin J. Pennington.

10.51(a) Indemnification Agreement dated April 11, 1996 by and between AFC and
Dick R. Holbrook.

10.52(a) Indemnification Agreement dated April 11, 1996 by and between AFC and
Samuel N. Frankel.

10.53(a) Indemnification Agreement dated April 11, 1996 by and between AFC and
Matt L. Figel.

10.54(a) Indemnification Agreement dated July 2, 1996 by and between AFC and
Paul H. Farrar.

10.55(a) Indemnification Agreement dated April 11, 1996 by and between AFC and
Frank J. Belatti.

Indemnification Agreement dated April 11, 1996 by and between AFC and
10.56(a) Mark J. Doran.

10.57* First Amendment to the Amended and Restated Credit Agreement dated as
of October 1, 1999.

10.58* Employment Agreement dated as of December 8, 2000 between AFC and
Frank J. Belatti.

10.59* Employment Agreement dated as of December 8, 2000 between AFC and
Dick R. Holbrook.

10.60* Employment Agreement dated as of December 8, 2000 between AFC and
Gerald J. Wilkins.

10.61* Employment Agreement dated as of December 8, 2000 between AFC and
Hala G. Moddelmog.

21.1 Subsidiaries of AFC.

23.1* Consent of Riordan & McKinzie.
</TABLE>

II-7
<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
23.2* Consent of Dorsey & Whitney.

23.3 Consent of Arthur Andersen LLP.

24.1 Power of Attorney (contained in signature page).

27.1 Financial Data Schedule.
</TABLE>
--------
* To be filed by amendment.

+ Certain portions of this exhibit have been omitted from the copy filed as
part of the registration statement and are the subject of a request for
confidential treatment.

(a) Filed as an exhibit to the Registration Statement of AFC on Form S-4
(Registration No. 33329731) on June 20, 1997 and incorporated by reference
herein.

(b) Filed as an exhibit to the Form 10-Q of AFC for the quarter ended September
7, 1997 on October 21, 1997 and incorporated by reference herein.

(c) Filed as an exhibit to the Form 10-K of AFC for the year ended December 27,
1998 on March 29, 1999 and incorporated by reference herein.

(d) Filed as an exhibit to the Form 10-Q of AFC for the quarter ended March 22,
1998 on May 6, 1998 and incorporated by reference herein.

(e) Filed as an exhibit to the Current Report on Form 8-K of AFC on August 28,
1998 and incorporated by reference herein.

(f) Filed as an exhibit to the Current Report on Form 8-K of AFC on October 29,
1998 and incorporated by reference herein.

(g) Filed as an exhibit to the Form 10-Q of AFC for the quarter ended June 13,
1999 on July 28, 1999 and incorporated by reference herein.

(b) Financial Statement Schedules

We have omitted all other schedules because the conditions requiring their
filing do not exist or because the required information appears in the
Company's consolidated financial statements, including the notes to those
statements.

II-8
<PAGE>

Item 17. Undertakings

1. The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.

2. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.

3. The undersigned Registrant hereby undertakes that:

(a) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(b) For the purpose of determining any liability under the Securities
Act, each posteffective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-9
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of
Georgia, on the 22nd day of December 2000.

AFC ENTERPRISES, INC.

/s/ Frank J. Belatti
By: _________________________________
Frank J. Belatti
Chairman of the Board and
Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Gerald J. Wilkins, Samuel N. Frankel and Mark J.
Doran, and each of them, his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments (including
posteffective amendments) to this registration statement, as well as any
registration statement (or amendment thereto) relating to the offering covered
by this registration statement that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act of 1933, and to file the same, with all
exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature Title(s) Date
--------- -------- ----

<C> <S> <C>
/s/ Frank J. Belatti Chairman of the Board and December 22, 2000
____________________________________ Chief Executive Officer
Frank J. Belatti (Principal Executive
Officer)

/s/ Gerald J. Wilkins Executive Vice President December 22, 2000
____________________________________ and Chief Financial
Gerald J. Wilkins Officer (Principal
Financial and Accounting
Officer)

/s/ Dick R. Holbrook President, Chief Operating December 22, 2000
____________________________________ Officer and Director
Dick R. Holbrook

/s/ Samuel N. Frankel Executive Vice President, December 22, 2000
____________________________________ Secretary, General
Samuel N. Frankel Counsel and Director
</TABLE>

II-10
<PAGE>

<TABLE>
<CAPTION>
Signature Title(s) Date
--------- -------- ----

<C> <S> <C>
/s/ Mark J. Doran Director December 22, 2000
____________________________________
Mark J. Doran

/s/ Paul Farrar Director December 22, 2000
____________________________________
Paul Farrar

/s/ Matt L. Figel Director December 22, 2000
____________________________________
Matt L. Figel

/s/ Kelvin J. Pennington Director December 22, 2000
____________________________________
Kelvin J. Pennington

/s/ John M. Roth Director December 22, 2000
____________________________________
John M. Roth

/s/ Ronald P. Spogli Director December 22, 2000
____________________________________
Ronald P. Spogli

/s/ Peter Starrett Director December 22, 2000
____________________________________
Peter Starrett

/s/ William M. Wardlaw Director December 22, 2000
____________________________________
William M. Wardlaw
</TABLE>

II-11