<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1999
Commission file number 1-7697
------------------------
I.C.H. CORPORATION
Exact name of Registrant as specified in its charter
DELAWARE 43-6069928
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
9255 TOWNE CENTRE DRIVE 92121
SUITE 600 (Zip code)
SAN DIEGO, CALIFORNIA
(Address of principal executive offices)
------------------------
Registrant's telephone number, including area code: (858) 587-8533
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes /X/ No / /
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes /X/ No / /
Number of shares of common stock outstanding on June 30, 1999: 2,858,703
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
-------------
<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets--December 31, 1998
and June 30, 1999.......................................................................... 3
Consolidated Statements of Operations for the Three Months ended
June 30, 1998 and for the Three Months ended June 30, 1999................................. 4
Consolidated Statements of Operations for the Six Months ended
June 30, 1998 and for the Six Months ended June 30, 1999................................... 5
Consolidated Statements of Cash Flows for the Six Months ended
June 30, 1998 and for the Six Months ended June 30, 1999................................... 6
Notes to Consolidated Financial Statements................................................. 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................................. 12
Part II.
Item 5. Other Information.......................................................................... 15
Item 6. Exhibits and Reports on Form 8-K........................................................... 15
Signatures................................................................................. 16
</TABLE>
2
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1998 JUNE 30, 1999
----------------- -------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents..................................................... $ 9,235 $ 8,139
Accounts receivable........................................................... 1,293 922
Inventories................................................................... 2,828 3,023
Deferred income taxes......................................................... 1,137 1,137
Other current assets--net..................................................... 4,473 2,947
-------- -------------
Total current assets........................................................ 18,966 16,168
Property and equipment, net..................................................... 40,141 43,573
Intangible assets, net.......................................................... 47,462 46,563
Other assets.................................................................... 4,326 6,854
Deferred income taxes........................................................... 2,571 2,777
-------- -------------
Total assets................................................................ $ 113,466 $ 115,935
-------- -------------
-------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.............................................................. $ 8,254 $ 7,567
Accrued liabilities........................................................... 12,743 14,319
Current portion of long-term debt............................................. 4,839 2,823
Current portion of capital lease obligations.................................. 589 589
-------- -------------
Total current liabilities................................................... 26,425 25,298
-------- -------------
Non-current liabilities:
Long-term debt................................................................ 63,193 63,734
Long-term capital lease obligations........................................... 2,484 2,190
Other liabilities............................................................. 6,338 7,487
-------- -------------
Total liabilities........................................................... 98,440 98,709
-------- -------------
Stockholders' Equity:
Preferred stock, $0.01 par value; 1,000,000 authorized; none issued and
outstanding
Common stock, $0.01 par value; 19,000,000 authorized; 2,858,703 outstanding... 28 29
Paid-in-capital............................................................... 12,558 12,615
Retained earnings............................................................. 2,440 4,582
-------- -------------
Total stockholders' equity.................................................. 15,026 17,226
-------- -------------
Total liabilities and stockholders' equity.................................. $ 113,466 $ 115,935
-------- -------------
-------- -------------
</TABLE>
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
3
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS--UNAUDITED
(In thousands except share amounts)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
JUNE 30,
--------------------------
<S> <C> <C>
1998 1999
------------ ------------
Revenue and other income:
Restaurant sales................................................................. $ 30,850 $ 61,016
Other............................................................................ 394 68
------------ ------------
31,244 61,084
Cost and expenses:
Restaurant costs and expenses.................................................... 25,402 51,426
General and administrative....................................................... 1,899 3,789
Depreciation and amortization.................................................... 1,327 1,405
Other............................................................................ 299 63
------------ ------------
Operating income................................................................... 2,317 4,401
Interest expense................................................................. 1,439 1,989
------------ ------------
Income before income taxes......................................................... 878 2,412
Provision (benefit) for income taxes............................................. 347 977
------------ ------------
Net income......................................................................... $ 531 $ 1,435
------------ ------------
------------ ------------
Net income per share:
Basic............................................................................ $ .20 $ .51
Diluted.......................................................................... $ .18 $ .41
Weighted-average common shares
Outstanding (see note)
Basic............................................................................ 2,667,000 2,840,000
Diluted.......................................................................... 2,951,000 3,523,000
</TABLE>
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
4
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS--UNAUDITED
(In thousands except share amounts)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
--------------------------
<S> <C> <C>
1998 1999
------------ ------------
Revenue and other income:
Restaurant sales................................................................. $ 59,186 $ 120,736
Other............................................................................ 752 172
------------ ------------
59,938 120,908
Cost and expenses:
Restaurant costs and expenses.................................................... 48,759 103,035
General and administrative....................................................... 3,856 7,415
Depreciation and amortization.................................................... 2,598 2,742
Other............................................................................ 546 125
------------ ------------
Operating income................................................................... 4,179 7,591
Interest expense................................................................. 2,805 3,991
------------ ------------
Income before income taxes......................................................... 1,374 3,600
Provision (benefit) for income taxes............................................. 550 1,458
------------ ------------
Net income......................................................................... $ 824 $ 2,142
------------ ------------
------------ ------------
Net income per share:
Basic............................................................................ $ .32 $ .77
Diluted.......................................................................... $ .30 $ .65
Weighted-average common shares
Outstanding (see note)
Basic............................................................................ 2,608,000 2,782,000
Diluted.......................................................................... 2,793,000 3,275,000
</TABLE>
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
5
<PAGE>
I.C.H. CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--UNAUDITED
(In thousands)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
--------------------
<S> <C> <C>
1998 1999
--------- ---------
Cash flows from operating activities:
Net income..................................................................................... $ 824 $ 2,142
Adjustments to reconcile net income to cash
from operating activities:
Depreciation and amortization.............................................................. 2,598 2,742
Deferred income taxes...................................................................... 147 (206)
Changes in current assets and liabilities:
Accounts receivable........................................................................ 451 (154)
Inventories................................................................................ (166) (195)
Accounts payable and accrued expenses...................................................... 2,416 889
Other, net................................................................................. (830) 225
--------- ---------
Net cash provided by operating activities................................................ 5,440 5,443
--------- ---------
Cash flows from investing activities:
Capital expenditures....................................................................... (4,962) (5,041)
Proceeds from disposition of property and equipment........................................ 718 --
Acquisition of restaurant properties....................................................... (5,387) (1,351)
Other, net................................................................................. 935 1,638
--------- ---------
Net cash provided (used) by investing activities......................................... (8,696) (4,754)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt, net.............................................. 4,325 2,810
Repayment of long-term debt and capital lease obligation................................... (1,443) (4,653)
Other, net................................................................................. 26 58
--------- ---------
Net cash provided (used) by financing activities......................................... 2,908 (1,785)
--------- ---------
Net changes in cash and cash equivalents....................................................... (348) (1,096)
Cash and cash equivalents at beginning of period............................................... 4,418 9,235
--------- ---------
Cash and cash equivalents at end of period..................................................... $ 4,070 $ 8,139
--------- ---------
--------- ---------
</TABLE>
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
6
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
NOTE 1. BUSINESS
ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PREPARATION OF INTERIM FINANCIAL STATEMENTS
The Consolidated Financial Statements of I.C.H. Corporation (the "Company")
and Subsidiaries have been prepared in accordance with the rules and regulations
of the Securities and Exchange Commission ("SEC"). Certain amounts have been
reclassified from previous presentations. These Consolidated Financial
Statements include estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities and the
amounts of revenues and expenses. Actual results could differ from those
estimates. In the opinion of the Company, these statements include all
adjustments necessary for a fair presentation of the results of all interim
periods reported herein. All adjustments are of a normal recurring nature unless
otherwise disclosed. Certain information and footnote disclosures prepared in
accordance with generally accepted accounting principles have been either
condensed or omitted pursuant to SEC rules and regulations. The Company
believes, however, that the disclosures made are adequate for a fair
presentation of results of operations, financial position and cash flows. These
Consolidated Financial Statements should be read in conjunction with the
Consolidated Financial Statements and accompanying notes included in the
Company's latest annual report on Form 10-K.
ORGANIZATION
I.C.H. Corporation is the post-reorganization successor to ICH Corporation
("Old ICH"). Old ICH, together with its subsidiaries, filed voluntary petitions
for relief under Chapter 11 on October 10, 1995. The Company's plan of
reorganization (the "Reorganization Plan") was confirmed February 7, 1997 and
became effective on February 19, 1997 (the "Effective Date"). Until its
acquisition of Sybra, Inc., the Company had no significant business operations.
On the Effective Date, all of the outstanding equity securities ("Old ICH
Common Stock" and "Old ICH Preferred Stock", collectively the "Old ICH Stock")
of Old ICH were canceled. Holders of Old ICH Stock had two years from the
Effective Date in which to exchange their canceled shares for the Company's
common stock. Generally, holders of the canceled Old ICH shares were entitled to
receive 0.0269 shares of the Company's common stock for each share of Old ICH
Common Stock and 0.2 shares of the Company's common stock for each share of Old
ICH Preferred Stock. 2,549,281 shares of the Company's Common Stock were issued
in exchange for Old ICH Stock during the two year conversion period which ended
on February 19, 1999.
BUSINESS AND PRESENTATION
The accompanying Consolidated Financial Statements labeled "Company" include
the accounts of the Company and its wholly-owned subsidiaries, principally
Sybra, Inc. ("Sybra") and Lyon's of California, Inc. ("Lyon's"). All significant
inter-company accounts and transactions have been eliminated.
SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR. The Company operates on a calendar year basis. Sybra, however,
uses a 52/53 week fiscal year ending on the last Saturday of the year and Lyon's
uses a 52/53 week fiscal year ending on the last
7
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
NOTE 1. BUSINESS (CONTINUED)
Sunday of the year. Accordingly, the accompanying financial statements include
Sybra's results for the periods ended June 27, 1998 and July 3, 1999 and Lyon's
results for the period ended July 4, 1999.
CASH AND CASH EQUIVALENTS. The Company considers all highly liquid
investments with an original maturity of three months or less when purchased to
be cash equivalents.
FOOD AND SUPPLIES INVENTORIES. Food and supplies inventories are stated at
the lower of cost or market. Cost is determined using the first-in, first-out
(FIFO) method.
PROPERTY AND EQUIPMENT. Property and equipment is stated at cost less
accumulated depreciation and amortization. Normal repairs and maintenance costs
are expensed as incurred. Depreciation is being recorded on a straight-line
basis over the following estimated useful lives:
<TABLE>
<S> <C>
Buildings........................................................ 40 years
5-10
Restaurant equipment............................................. years
</TABLE>
Buildings under capitalized leases and leasehold improvements are amortized on a
straight-line basis over the lesser of the lease term or the estimated useful
lives of the assets.
INTANGIBLES. Franchise agreements with Arby's require the Company to pay a
franchise fee for each new restaurant developed and DE MINIMIS renewal fees for
franchises that have expired. Each franchise agreement provides the Company the
right to operate an Arby's restaurant for a period of 20 years and is renewable
by the Company, subject to certain conditions, for varying terms of up to 20
years. Franchise fees are capitalized and amortized using the straight-line
method over 40 years.
Acquired royalty rights, representing the fair value of royalty rates of
acquired franchises, are capitalized and amortized on a straight-line basis over
20 years or the remaining life of the franchise agreement, whichever is less.
Equity in operating leases, representing the estimated fair value of base
rental rates, less the actual rental obligation, is amortized on a straight-line
basis over 20 years or the remaining life of the lease including option periods,
whichever is less.
Goodwill is amortized using the straight-line method over 40 years. At each
balance sheet date, the Company evaluates the realizability of goodwill based
upon expectations of operating income for the restaurants as a group. The
Company believes that no material impairment of goodwill exists at June 30,
1999.
INCOME TAXES. Deferred income taxes are computed using the liability
method, which provides that deferred tax assets and liabilities are recorded
based on the differences between the tax bases of assets and liabilities and
their carrying amounts for financial reporting purposes.
ADVERTISING EXPENSES. All advertising costs are expensed as incurred.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses in the financial statements and in the
disclosure of contingent assets and liabilities. While actual results could
differ from those estimates, management believes that actual results will not be
materially different from amounts provided in the accompanying consolidated
financial statements.
8
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
NOTE 1. BUSINESS (CONTINUED)
EARNINGS PER SHARE. In 1997, the Company adopted SFAS No. 128, "Earnings
Per Share," which requires presentation of both basic and diluted earnings per
share. Basic net income per share is computed based on the weighted-average
number of common shares outstanding during the year (see Note 4).
SEGMENT REPORTING. The Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 131 Disclosures about Segments of an Enterprise and
Related Information during the year ended December 31, 1998. This Statement
supersedes substantially all the reporting requirements previously required
under SFAS No. 14 Financial Reporting for Business Segments of an Enterprise and
establishes standards for reporting information about operating segments and
requires certain disclosures about products and services, geographic areas and
major customers. Under SFAS No. 131, the determination of segments to be
reported in the financial statements is to be consistent with the manner in
which management organizes and evaluates the internal organization to make
operating decisions and assess performance. This statement also allows a company
to aggregate similar segments for reporting purposes. Management has determined
that its operating units can be aggregated into one segment. Additionally, as
the Company operates restaurants within the U.S. and no customer accounts for
more than 10% of sales, no segment disclosures have been included in the
accompanying notes to the consolidated financial statements.
NOTE 2. ACQUISITION
LYON'S
On December 14, 1998, the Company acquired substantially all of the assets
of Lyon's restaurants for $22,600. The Company incurred $16,500 in acquisition
indebtedness and paid the remainder of the purchase price with cash and a $600
note payable to the seller. The Company also issued 125,000 warrants to purchase
shares of the Company's common stock at $.01 per share to USRP (Finance), LLC as
part of the financing of the Lyon's acquisition. The acquisition was recorded
under the purchase method of accounting.
The purchase price was allocated to identifiable tangible and intangible
assets and liabilities based on their estimated fair values, with the excess of
the purchase price over the fair value of such net assets acquired reflected as
goodwill, as follows:
<TABLE>
<S> <C>
Current assets and liabilities, net................................................ $ 1,409
Other intangibles, excluding goodwill.............................................. 2,057
Goodwill........................................................................... 7,734
Tangible assets.................................................................... 11,400
---------
Purchase price..................................................................... $ 22,600
---------
---------
</TABLE>
9
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
NOTE 3. LONG-TERM DEBT
Long-term debt consists of the following as of:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 JUNE 30, 1999
----------------- -------------
<S> <C> <C>
Term loan, 10.63%, payable monthly through 2012................................. $ 32,319 $ 31,415
Loan, 14.40%.................................................................... 9,000 7,764
Acquisition indebtedness due in 1999............................................ 2,000 801
Term loan, 12.75% payable monthly through February 1, 2011...................... 16,500 16,237
Other........................................................................... 8,213 10,340
------- -------------
68,032 66,557
Less: current portion........................................................... 4,839 2,823
------- -------------
Total........................................................................... $ 63,193 $ 63,734
------- -------------
------- -------------
</TABLE>
The term loan bearing interest at 10.63% has a weighted-average remaining
maturity of 10.5 years and is collateralized by substantially all of the
restaurant equipment owned by Sybra. The loan agreement contains covenants which
require, among other things, the maintenance of a minimum fixed charge coverage
ratio, restrictions that limit the payment of dividends, and other provisions
and restrictive covenants. As of June 30, 1999, the Company was in compliance
with all such covenants.
As an element of certain sale/leaseback transactions completed by the
Company, Sybra received $9,000 as a loan. The loan element of the transaction
carries an interest rate of approximately 14.40% and may be repaid at any time
without penalty. If not repaid in full earlier than December 31, 1999, the loan
amortizes over 20 years. The Company currently intends on refinancing this loan
prior to fiscal 2000, although no assurances can be given.
On December 14, 1998, the Company entered into a term loan agreement for the
acquisition of Lyon's Restaurants with USRP (Finance), LLC. The 12.75% term loan
matures in 12 years and is collateralized by substantially all of the assets of
Lyon's. The agreement contains covenants which require, among other things, the
maintenance of a minimum fixed charge ratio and other provisions and restrictive
covenants. As of June 30, 1999, the Company was in compliance with all such
covenants.
The Company also has sixteen separate notes for the financing of equipment
used in restaurants with remaining principal balances ranging from $150 to $785,
interest rates ranging from 8.52% to 10.11% and with an average remaining
maturity of 6 years. These loans are collateralized by equipment.
At June 30, 1999, long-term debt had a fair value that approximates the
carrying value.
10
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
NOTE 4. EQUITY AND EARNINGS PER COMMON SHARE
Basic earnings per share is computed by dividing net income available to
common shareholders by the weighted-average number of common shares outstanding
during each period. Diluted computations include dilutive common share
equivalents.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
<S> <C> <C>
1998 1999
--------- ---------
Income for computation of basic earnings per share and diluted earnings per share............... $ 824 $ 2,142
--------- ---------
--------- ---------
Weighted-average shares for computation of basic earnings per share............................. 2,608 2,782
Incremental shares on assumed issuance and repurchase of stock options.......................... 185 493
--------- ---------
Weighted-average shares for computation of diluted earnings per share........................... 2,793 3,275
--------- ---------
--------- ---------
Basic earnings per share........................................................................ $ 0.32 $ 0.77
--------- ---------
--------- ---------
Diluted earnings per share...................................................................... $ 0.30 $ 0.65
--------- ---------
--------- ---------
</TABLE>
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain information discussed below may constitute forward-looking
statements within the meaning of the federal securities laws. Although the
Company believes that the expectations reflected in such forward-looking
statements are based upon reasonable assumptions, it can give no assurance that
its expectations will be achieved. Forward-looking information is subject to
certain risks, trends and uncertainties that could cause actual results to
differ materially from projected results. Among those risks, trends and
uncertainties are the general economic climate, costs of food and labor,
consumer demand, interest rate levels, the availability of financing and other
risks associated with the acquisition, development and operation of new and
existing restaurants. Unless otherwise indicated all amounts are in thousands,
except share amounts.
GENERAL
The Company conducts its restaurant operations principally through two
wholly-owned subsidiaries, Sybra, Inc. and Lyon's of California, Inc.
Restaurant costs and expenses include all direct costs, including direct
labor, occupancy costs, advertising expenses, royalty payments, expenditures for
repairs and maintenance, and workers' compensation, casualty and general
liability insurance costs. Advertising fees paid by the Company's Sybra
subsidiary to the AFA Service Corporation, a non-profit association of Arby's
restaurant operators, to develop and prepare advertising materials and to
undertake marketing research, are equal to 0.7% of restaurant sales. In
addition, the Company operates its restaurants pursuant to licenses which
require the Company to pay Arby's, Inc. a royalty based upon percentages of its
restaurant sales (presently an aggregate of approximately 3.1% of the Company's
restaurant sales). The royalty rate for new restaurants (currently 4%) will
result in an increase in the Company's aggregate royalty rate as new Arby's
restaurants are opened.
General and administrative expenses consist of corporate and regional office
expenses, including executive and administrative compensation, office expenses,
travel and professional fees.
RESULTS OF OPERATIONS
The following table sets forth, with respect to the Company and for the
periods indicated, the percentage of total revenues represented by certain
expense and income items.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
<S> <C> <C> <C> <C>
1998 1999 1998 1999
--------- --------- --------- ---------
Revenues........................................................................ 100.0% 100.0% 100.0% 100.0%
Expenses
Restaurant costs & expenses................................................... 81.3% 84.2% 81.3% 85.2%
General & administrative...................................................... 6.1% 6.2% 6.4% 6.1%
Depreciation & amortization................................................... 4.2% 2.3% 4.3% 2.3%
Other......................................................................... 1.0% 0.1% 1.0% 0.1%
--------- --------- --------- ---------
Operating income................................................................ 7.4% 7.2% 7.0% 6.3%
Interest expense................................................................ 4.6% 3.3% 4.7% 3.3%
--------- --------- --------- ---------
Income (loss) before taxes...................................................... 2.8% 3.9% 2.3% 3.0%
Income tax (benefit) expense.................................................... 1.1% 1.6% 0.9% 1.2%
--------- --------- --------- ---------
Net income (loss)............................................................... 1.7% 2.3% 1.4% 1.8%
--------- --------- --------- ---------
</TABLE>
12
<PAGE>
COMPARISON OF THE QUARTER ENDED JUNE 30, 1999 AND THE QUARTER ENDED JUNE 30,
1998.
Revenues--Revenues were $61.1 million for the second quarter of FY 1999 as
compared to $31.2 million for the same period of FY 1998, an increase of $29.8
million or 96%. Sybra's sales for the three month period ended June 30, 1999
were $35.8 million, an increase of $4.8 million or 16% over the prior year
comparable period, primarily as a result of a same store sales increase of 3.8%
for the period, sales from new store openings and store acquisitions. Sales from
the Company's Lyon's restaurants for the three month period ended June 30, 1999
were $25.3 million.
Restaurant Costs & Expenses--Restaurant costs and expenses were $51.4
million, or 84.2% of sales, for the second quarter of FY 1999 as compared to
$25.4, or 81.3% of sales for the same period of FY 1998, an increase of $26.0
million. Restaurant costs and expenses at Sybra were $28.7 million, or 80.4% of
sales for the three month period ending June 30, 1999, as compared to $25.4
million, or 82.3% of sales for the prior period. Restaurant costs and expenses
at Lyon's were $22.7 million, or 89.6% of sales for the three months ending June
30, 1999. As a percent of sales, costs increased due to the mix of higher costs
as a result of the Lyon's restaurants.
General and Administrative--General and administrative costs and expenses
were $3.8 million, or 6.2% of sales, for the second quarter of FY 1999 as
compared to $1.9 million, or 6.1% of sales for the same period of FY 1998, an
increase of $1.9 million as a result of costs and expenses related to the Lyon's
acquisition and increased expenses associated with business development and real
estate operations necessary to achieve new store development requirements.
Depreciation and Amortization--Depreciation and amortization expense was
$1.4 million, or 2.3% of sales in the second quarter of FY 1999 as compared to
$1.3 million, or 4.2% of sales in the same period of FY 1998.
Interest Expense--Interest expense was $2.0 million in the second quarter of
FY 1999 as compared to $1.4 million in the same period of FY 1998, an increase
of $550 primarily related to interest expense associated with debt incurred for
the Lyon's acquisition.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1999 AND THE SIX MONTHS ENDED
JUNE 30, 1998.
Revenues--Revenues were $120.9 million for the six months ended June 30,
1999 as compared to $59.9 million for the same period of FY 1998, an increase of
$61.0 million or 102%. Sybra's sales for the six months ended June 30, 1999 were
$70.4 million, an increase of $11.1 million or 19% over the prior year
comparable period, primarily as a result of a same store sales increase of 4.4%
for the period, sales from new store openings and store acquisitions. Sales from
the Company's Lyon's restaurants for the six months ended June 30, 1999 were
$50.5 million.
Restaurant Costs & Expenses--Restaurant costs and expenses were $103.0
million, or 85.2% of sales, for the six months ended June 30, 1999 as compared
to $48.8 million, or 81.3% of sales for the same period of FY 1998, an increase
of $54.3 million. Restaurant costs and expenses at Sybra were $57.3 million, or
81.5% of sales for the six months ended June 30, 1999, as compared to $48.8
million, or 82.2% of sales for the prior period. Restaurant costs and expenses
at Lyon's were $45.7 million, or 90.6%, of sales for the six months ended June
30, 1999. As a percent of sales, costs increased due to the mix of higher costs
as a result of the Lyon's restaurants.
General and Administrative--General and administrative costs and expenses
were $7.4 million, or 6.1% of sales, for the six months ended June 30, 1999 as
compared to $3.9 million, or 6.4% of sales for the same period of FY 1998, an
increase of $3.6 million as a result of costs and expenses related to the Lyon's
acquisition and increased expenses associated with business development and real
estate operations necessary to achieve new store development requirements.
Depreciation and Amortization--Depreciation and amortization expense was
$2.7 million, or 2.3% of sales for the six months ended June 30, 1999 as
compared to $2.6 million, or 4.3% of sales in the same period of FY 1998.
13
<PAGE>
Interest Expense--Interest expense was $4.0 million for the six months ended
June 30, 1999 as compared to $2.8 million in the same period of FY 1998, an
increase of $1.2 million primarily related to interest expense associated with
debt incurred for the Lyon's acquisition.
IMPACT OF THE YEAR 2000 ISSUES
The Company has completed its assessment of internal systems and has
concluded that its hardware and software are Year 2000 compliant. The Company
has concluded that it will not be necessary to replace retail point of sale
hardware in its Arby's or Lyon's restaurants in order to ensure Year 2000
compliance. Based on information available at this time, management believes
that the remaining costs of implementing the Company's Year 2000 readiness
program will not be material.
Communication with respect to Year 2000 issues with the Company's customers
and suppliers is ongoing. While not expected, the Company may experience delays
in receipt of product, which could adversely affect sales and earnings. The
Company cannot currently estimate to what extent future operating results might
be adversely affected by the possible failure of these third parties to
successfully address their Year 2000 issues. However, the Company's program
includes actions designed to identify and minimize, where possible, any third
party exposures.
Costs to implement the program are based on management's estimates, which
were derived utilizing numerous assumptions related to future events. There can
be no guarantee that additional costs will not be incurred, or that the
objective of the program will be achieved. However, the Company continues to
monitor activities related to the program designed to ensure Year 2000
readiness. The need for contingency plans will be reviewed throughout 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary liquidity needs arise from debt service on
indebtedness incurred in connection with the Sybra acquisition, the Lyon's
acquisition and the funding of capital expenditures primarily for new store
openings. As of June 30, 1999, the Company had outstanding indebtedness for
borrowed money of $31.42 million under a term facility with Atherton Capital
Incorporated (the "Atherton Loan") and $16.2 million under a term facility with
USRP (Finance) LLC (the "USRP Loan"). The Atherton Loan has a weighted-average
remaining maturity of 10.5 years, bears interest at 10.63%, requires monthly
payments of principal and interest, is collateralized by substantially all of
the restaurant equipment owned by Sybra and imposes certain financial
restrictions and covenants. The USRP Loan has a weighted average maturity of 12
years and a weighted average interest rate of 12.75%, requires monthly payments
of principal and interest, is collateralized by substantially all of the assets
owned by Lyon's and imposes certain financial restrictions and covenants.
The Company's primary source of liquidity during the year was the operation
of the restaurants owned by its principal operating subsidiaries, Sybra and
Lyon's and debt and lease financing.
In the future, the Company's liquidity and capital resources will primarily
depend on the operations of Sybra and Lyon's which, under the provisions of the
Company's loan agreements would permit, under certain conditions, distributions
and dividends to the Company. Sybra and Lyon's, like most restaurant businesses,
are able to operate with nominal or deficit working capital because all sales
are for cash and inventory turnover is rapid. Renovation and/or remodeling of
existing stores is either funded directly from available cash or, in some
instances, is financed through outside lenders. Construction or acquisition of
new stores is generally, although not always, financed by outside lenders. The
Company believes that it will continue to be able to secure adequate financing
on acceptable terms for new store construction and acquisitions and that cash
generated from operations will be adequate to meet its needs for the foreseeable
future, although no assurances can be given.
Recent Developments
On July 8, 1999, Sybra executed a new loan commitment letter with Fleet
Franchise Finance ("Fleet") to provide up to $15 million of leasehold mortgage
financing for the development of new Arby's
14
<PAGE>
restaurants through December 31, 2000. Under the terms of the commitment letter,
Fleet has agreed to finance 90% of the building costs, 100% of the equipment
costs and up to $40,000 of related "soft" costs incurred in connection with the
construction of the Company's new Arby's restaurants.
CAPITAL LOSS CARRY FORWARD
On April 25, 1997, the Company sold its interest in the stock of Bankers
Multiple Line Insurance Company, which generated a significant tax loss. Due to
limitations pursuant to the Internal Revenue Code and Treasury regulations
thereunder, no deferred tax asset has been recorded for the capital loss carry
forward due to the uncertainty of its existence and realizability.
CAPITAL EXPENDITURES
The Company's capital expenditures were $5.0 million for the six months
ended June 30, 1999 which includes new store development as well as store
maintenance, store remodel and store renovation capital expenditures. The
Company anticipates that Sybra and Lyon's store maintenance, store remodel and
store renovation capital expenditures in 1999 (which excludes new store
development capital expenditures) will approximate $2.5 million and $2.0
million, respectively. The level of capital expenditures for Sybra's new store
development and acquisitions will be dependent upon several factors, including
the number of stores constructed and/or acquired as well as the capital
structure of any such transactions.
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT TITLE
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
3.5 Certificate of Amendment to the Amended and Restated Certificate Of Incorporation of I.C.H. Corporation
dated June 30, 1999.
10.27 Loan Commitment Letter, dated July 8, 1999, between Fleet Franchise Finance and I.C.H. Corporation
27.1 Financial Data Schedule
</TABLE>
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, I.C.H.
Corporation has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: August 13, 1999
<TABLE>
<S> <C> <C>
I.C.H. CORPORATION
By: /s/ JAMES R. ARABIA
-----------------------------------------
James R. Arabia
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
By: /s/ DAVID A. BRAINARD
-----------------------------------------
David A. Brainard
CHIEF FINANCIAL OFFICER
</TABLE>
16
<PAGE>
Exhibit 3.5
CERTIFICATE OF AMENDMENT
TO THE
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
I.C.H. CORPORATION
----------------------------------------
Pursuant to Section 242 of
the General Corporation Law
of the State of Delaware
----------------------------------------
The undersigned corporation, in order to amend its Amended and Restated
Certificate of Incorporation, hereby certifies as follows:
FIRST: The name of the corporation is I.C.H. Corporation.
SECOND: The corporation hereby amends its Amended and Restated
Certificate of Incorporation as follows:
The first paragraph of Article FOURTH of the Amended and Restated
Certificate of Incorporation, relating to the number of authorized shares of
the corporation, is hereby amended to read its entirety as follows:
"FOURTH: The corporation shall be authorized to issue the following shares:
<TABLE>
Class Number of Shares Par Value
----- ---------------- ---------
<S> <C> <C>
Common 19,000,000 $0.01
Preferred 1,000,000 $0.01"
</TABLE>
THIRD: This Amendment to the Amended and Restated Certificate of
Incorporation is being affected pursuant to Sections 242 of the Delaware
General Corporate Law.
<PAGE>
IN WITNESS WHEREOF, we hereunto sign our names and affirm that the
statements made herein are true under the penalties of perjury this 30th day
of June, 1999.
/s/ James R. Arabia
-----------------------------------
James R. Arabia
Chairman of the Board,
Chief Executive Officer & President
ATTEST:
/s/ John A. Bicks
- ----------------------------
John A. Bicks
Secretary
<PAGE>
Exhibit 10.27
[LOGO]
FLEET FRANCHISE FINANCE
One South Wacker Drive
Chicago, IL 60606
July 8, 1999
Mr. James R. Arabia
ICH Corporation
9255 Towne Center Drive, Suite 600
San Diego, CA 92121-3039
Dear Jim:
We are pleased to advise you that Fleet Business Credit Corporation ("FBCC")
hereby commits to make a credit facility in the amount of $15,000,000 (the
"Loan") available to you to finance the development of new Arby's franchise
restaurants for Sybra, Inc. a Michigan Corporation (the "Business" and
"Sybra"). The Loan will be structured as indicated in Term Sheets A,B, and C
attached hereto (the "Termsheets"). The Loan will be cross-collateralized and
cross-defaulted with all other future FBCC loans. The obligations of FBCC
hereunder are subject to the following terms and conditions:
BORROWER: Sybra, Inc. a Michigan Corporation.
GUARANTOR: I.C.H. Corporation.
COLLATERAL: FBCC shall have a first perfected security interest
in all of the personal property of each Arby's
restaurant financed by FBCC, which is located at or
used in connection with the Business, including
goods, inventory, accounts, contract rights and
general intangibles, and a first deed of trust or
first mortgage including landlord consent, assignment
and waiver on Borrower's leasehold interest in the
building of each Arby's franchise restaurant financed
by FBCC.
DUE DILIGENCE: This Commitment Letter is expressly contingent upon
FBCC's satisfactory completion of (a) UCC, tax lien
and judgment searches in all applicable jurisdictions
on the Business, Borrower and Guarantor, and (b)
physical site inspection of at least three (3) of the
Borrower's existing Arby's.
NO MATERIAL CHANGE
OR DEFAULT: There shall not have occurred at any time prior to
the date of funding any material adverse change in the
financial condition of the Borrower, the Guarantor or
the Business, or any event which would constitute an
event of default of the Borrower under any
indebtedness for borrowed money.
1
<PAGE>
FRANCHISE
AGREEMENT: The Borrower must be in good standing with Arby's,
Inc. and all associated franchise agreements of the
Business must be in full force and effect. The
termination of any of the franchise agreements of the
Business shall constitute a default under the Loan.
ASSIGNMENT: This Commitment Letter is not assignable by the
Borrower, by operation of law or otherwise.
INSURANCE: The Borrowers will maintain, and deliver to FBCC,
evidence of liability insurance of at least $5
million per occurrence, and will keep all of the
collateral insured against loss or damage at an
amount equal to the greater of replacement value or
the amount due to FBCC. All insurance companies
providing coverage must be rated A- or better by A.M.
Best Company, and all policies must list the FBCC as
loss payee and include a provision for thirty (30) days
advance notice to FBCC of any termination, cancellation
or alteration in coverage.
DOCUMENTATION: The Borrower shall cause to be executed and delivered
to FBCC such loan documentation as may be required by
FBCC's counsel, in form and substance acceptable to FBCC
and its counsel, including, but not limited to, the
following:
- Notes;
- Loan and Security Agreement covering the
Collateral; Collateral Assignments of tenant
leases/including landlord consents, where
applicable;
- Deeds of Trust;
- UCC Financing Statements; and
- Guaranty of I.C.H. Corporation.
The Borrower shall also deliver such third party
submittals as FBCC may require in form and substance
acceptable to FBCC and its counsel, including, but not
limited to, ALTA surveys, title insurance commitments
and policies (with such endorsements as FBCC may
require), permits, approvals, contracts, purchase
orders, plans and specifications, architects
certificates, construction contracts, flood plain
certifications, and legal opinions.
RELIANCE BY THE
LENDER GROUP: This Commitment Letter has been issued in reliance
upon the accuracy of the information furnished to
FBCC by or on behalf of the Borrower and
notwithstanding any investigation by FBCC, all such
information is deemed to be material.
2
<PAGE>
COMPLIANCE WITH
LAW: If any law or regulation affecting FBCC's entering
into the transactions contemplated hereby shall
impose upon FBCC any obligation, fee, liability, loss
cost, expense or damage which is not contemplated by
this Commitment Letter, the commitment evidenced
hereby hereby may be terminated by FBCC without
liability of any kind or nature.
GOVERNING LAW: This Commitment Letter and the documents executed
pursuant hereto shall be governed in all respects by
the internal laws (as opposed to the conflicts of law
provisions) of the state of Illinois except with
regard to actions (e.g. foreclosure of the lien of
FBCC's mortgage) as to which it is mandatory that the
laws of the state where a property is located shall
govern.
WAIVER OF JURY
TRIAL: The Borrower hereby waives any right to a trial by
jury in any action to enforce or defend any matter
arising from or related to i) this commitment letter,
or ii) any document or agreement evidencing or
relating to the loans.
SUBMISSION TO
JURISDICTION: The Borrower hereby irrevocably submits to the
jurisdiction of any state or federal court located in
Cook County, Illinois over any action or proceeding
to enforce or defend any matter arising out of or
relating to this commitment letter or any other
matter relating to the loan and in connection
therewith waive, to the fullest extent they may do
so, the defense of inconvenient forum to the
maintenance of any such action or proceeding.
The Borrower agrees not to institute any legal action
or proceeding against fbcc or any director, officer,
employee, agent or property of FBCC concerning any
matter arising out of this commitment letter or any
matter relating to the loan in any court other than
one located in Cook County, Illinois.
Nothing in this section shall affect or impair FBCC's
right to serve legal process in any matter permitted
by law, or FBCC's right to bring any action or
proceeding against the Borrower, or the property of
the Borrower, in the courts of any jurisdiction.
ENTIRE AGREEMENT: This Commitment Letter and the Termsheets set forth
the entire agreement of the parties hereto with
respect to the subject matter hereof and supersede
all other prior written or oral understandings with
respect thereto; provided, however, that the
obligations of Borrower with respect to the subject
matter hereof shall survive this Commitment Letter.
No modification or waiver of any of the provisions of
this Commitment Letter shall be effective unless in
writing.
3
<PAGE>
and signed by the parties hereto.
FACILITY
EXPIRATION: FBCC's obligations under this Commitment Letter shall
automatically expire in accordance with the Term
Sheets.
ACCEPTANCE
OF COMMITMENT: This Commitment Letter shall be null and void in the
event an executed copy is not received on or before
July 21, 1999.
FACSIMILE
EXECUTION: This Commitment Letter may be executed in any number
of counterparts, each of which shall be deemed an
original. Facsimile signatures shall be accepted by
the parties hereto as original signatures. After full
execution of this Commitment Letter, each party
agrees to deliver unmodified copies hereof bearing
their original signatures to the other parties.
Please indicate your acceptance of this Commitment Letter by returning an
executed copy hereof and the attached Term Sheets to my attention.
Fleet Business Credit Corporation
By: /s/ Lawrence J. Kancius
-----------------------
Its: -----------------------
Lawrence J. Kancius
Executive Vice President
Accepted this 12th day of July 1999
Sybra, Inc., a
Michigan Corporation
- ---------------------
By: /s/ James R. Arabia, CEO
-----------------------
Its: James R. Arabia, CEO
-----------------------
4
<PAGE>
TERM SHEET A
TERM LOAN FACILITY
FACILITY: $15,000,000 term loan facility ("Term Loans") to
finance Sybra's development of new Arby's franchise
restaurants in 1999/2000, pursuant to Borrower's
development agreement with Arby's Inc. It is our
understanding that each of the new restaurants will
be developed on a building (leasehold) and equipment
basis subject to a land lease.
<TABLE>
<CAPTION>
ADVANCE RATE/ ------------------------------------------------------
AMORTIZATION/TERM: ADVANCE RATE AMORTIZATION TERM
(MONTHS) (MONTHS)
------------------------------------------------------
<S> <C> <C> <C> <C>
Equipment(1) 100% of cost 84 84
------------------------------------------------------
Building(2) 90% of cost 180 180
------------------------------------------------------
Soft Costs $40 per unit(3) 84 84
------------------------------------------------------
</TABLE>
(1) Equipment costs: all invoice costs associated
with furniture, fixtures and equipment including
small wares, point-of-sale terminals, software and
other computer hardware, security systems, signage,
delivery, installation and taxes.
(2) Building costs: plan development costs including
architectural fees, engineering reports, surveys,
permit/zoning fees, tap fees, impact fees, soils
tests, site plans, building plans, building
permits, sign permits, use fees and transfer
taxes; site development costs; building costs; and
landscaping.
(3) Up to $40M of soft costs not included in
Equipment and Building costs such as franchise
fees, legal costs, loan closing costs, etc.
FACILITY EXPIRY/ The Term Loan Facility shall be available to Borrower
BORROWING through 12/31/00 subject to the following borrowing
CONDITIONS: conditions:
(i) no material events of default occurred or
occurring (including compliance with financial
covenants), and no material adverse change in
business or financial condition of Borrower or
Guarantor, and
(ii) in good standing with franchisor, Arby's Inc.
(iii) each site being funded is open and operating
as a Arby's franchise restaurant, as approved
by Arby's
INTEREST At Borrower's option:
FLOATING RATE: 2.30% PLUS the 30-day LIBOR rate in
the week before funding.
EQUIPMENT FIXED RATE: 3.05% over the average yield
quoted for the seven-year Treasury in the week before
funding.
BUILDING FIXED RATE: 3.35% over the average yield
quoted for the ten-year Treasury in the week before
funding.
5
<PAGE>
DROP LOCK OPTION: After the first year of a Floating Rate loan,
Borrower will have a one time option to convert from
Floating Rate to a Fixed Rate, which will equal the
sum of (a) 2.45% over the average yield of U.S.
Treasuries with a term closest to but not less than
the remaining term of the applicable Term Loan plus
(b) the Swap Spread*, one week before conversion,
upon payment of $2,000.00 per loan.
* the Swap Spread average under $$SWAP index HP
published by Bloomberg, which most closely matches
the remaining term of the Term Loan, but not less
than the remaining term of the Term Loan.
PREPAYMENT: FIXED RATE LOANS: Loans may be prepaid in whole, but
not in part, upon payment of a fee equal to the
greater of A and B:
A. YEAR PREPAYMENT FEE
(% OF OUTSTANDINGS)
1 and 2 3%
3 and 4 2%
5 1%
thereafter 0%
B. The sum of (i) 1% of the prepaid principal (for
the first 5 years only), and (ii) the difference
between (a) the present value of the remaining
payment stream calculated using the yield, at the
time of prepayment, on a Treasury note whose term
matches the remaining term of the loan, and (b) the
present value of the remaining payment stream
calculated using the yield, when the loan was made,
on a Treasury note whose term matches the original
term of the loan. Note that (ii) will not be negative.
FLOATING RATE LOANS: Loans may be prepaid in whole,
but not in part, upon payment of a fee equal to 3%
in years 1 and 2, 2% in years 3 and 4, 1% in year 5,
and 0% thereafter.
CLOSING FEE: 0.50%, payable upon the closing of each Term Loan.
COST: Borrower will pay the costs incurred by FBCC in
completing due diligence and documenting the Term
Loans, including the costs of title insurance,
survey, attorneys, site inspection, lien searches,
UCC filings, mortgage recordings, and mortgage taxes
(if applicable).
GOOD FAITH DEPOSIT: $45,000 has been received and will be applied prorata
to the Closing Fee of the Term Loans and Secured Line
of Credit (if applicable) and the Construction
Facility Fee for each loan. The Good Faith Deposit is
non-refundable.
6
<PAGE>
CERTIFIED REAL ESTATE Not required
APPRAISALS:
ENVIRONMENTAL: We make no environmental inquiries about those sites
where we do not finance land.
COVENANTS: - Affirmative and negative covenants typically used
in such loans.
- Fixed Charge Coverage after Distributions ratio of
greater than or equal to 1.10:1 to be measured
quarterly on a trailing twelve month basis once loan
outstandings with Fleet equal or exceed $7.5 million.
The Borrower may make a written request for a
Distribution once per annum, subject to Fleet's
consent, that would not be included in the Fixed
Charge Coverage after Distributions calculation.
- Debt Incurrence test to be measured when loan
outstandings with FBCC equal or exceed $7.5 million;
if loan outstandings with FBCC are subsequently
reduced down to less than $7.5 million, the Debt
Incurrence test will no longer be measured so long
as: a) no material event of default has occurred or
is occurring, b) Sybra meets a Fixed Charge Coverage
ratio (before Distributions) of 1.20:1 on a TTM
basis, and c) the reduction of outstandings below
$7.5 million is not the Borrower's deliberate and
knowing attempt to avoid the Debt Incurrence test
for a current event which the Borrower knowingly
would not meet or already has been denied additional
indebtedness by FBCC for failure to meet.
FIXED CHARGE COVERAGE RATIO AFTER DISTRIBUTIONS
defined as Adjusted EBITDA minus cash taxes paid
minus Distributions plus operating rent expense
divided by principal, interest and capital lease
payments paid or scheduled to have been paid during
the measurement period PLUS operating rent expenses.
DEBT INCURRENCE TEST:
1) Debt Incurrence test: Borrower's Fixed Charge
Coverage ratio (before Distributions) must be greater
than or equal to 1.20:1 on a proforma basis
utilizing actual TTM figures for EBITDA, debt
service and operating rent expense at the time of
the test, plus the proforma EBITDA, debt service
and operating rent expense related to the
additional indebtedness.
2) Borrower may incur additional indebtedness of any
amount so long as the Debt Incurrence test is met as
measured in increments of $5.0 million of aggregate
additional debt.
3) If additional indebtedness consists of zero coupon
or non-amortizing debt, for purpose of the Debt
Incurrence test, that debt
7
<PAGE>
will be amortized over an amortization period
acceptable to FBCC based on the type of assets
associated with the debt, but in no event longer
than 20 years.
ADJUSTED EBITDA equals the sum of (i) net income
before taxes, (ii) amortization and depreciation,
(iii) total interest expense, (iv) non-cash losses,
and (v) extraordinary losses, minus the sum of (i)
non-cash gains, and (ii) extraordinary gains.
REPORTING: - Quarterly covenant compliance certificate signed by
the Chief Financial Officer or the Chief Executive
Officer.
- Quarterly financial statements of Borrower and
Guarantor within 45 days of each quarter end
- Audited annual statements of Borrower and Guarantor
within 90 days of each fiscal year-end.
CROSS COLLATERAL, All FBCC Loans will cross default and cross
CROSS DEFAULT: collateralize.
8
<PAGE>
TERM SHEET B
CONSTRUCTION LINE OF CREDIT
FACILITY: $15,000,000 LINE OF CREDIT ("Construction Facility")
to develop and construct new Arby's franchise
restaurants in 1999/2000, pursuant to Borrower's
development agreement with Arby's Inc.
Not more than $15,000,000 may be outstanding based on
original amounts financed under the Term Loans PLUS
outstandings under the Construction Facility PLUS
outstandings under the Secured Line of Credit. No
More than 4 stores under construction may be financed
by the Construction Loans at any time.
ADVANCE RATE: Borrower will provide 10% of the projected building
costs before borrowing from FBCC. FBCC will finance
100% of the remaining costs of the building,
equipment, and soft costs (in accordance with Term
Sheet A) up to an agreed upon limit.
FACILITY EXPIRY: The Construction Facility shall be available to
Borrower thru 12/31/00 subject to the Borrowing
Conditions, except with respect to (iii), described
in Term Sheet A.
CONVERSION: All advances made with respect to a particular
restaurant must be rapid within six months. The
advances for a particular store will term out with
FBCC, as described in the Term Sheet A, upon the
earlier of 180 days or 60 days after store opening.
SECURITY: Same as Term Sheet A.
INTEREST: FLOATING RATE: 2.85% PLUS the 30-day LIBOR rate in
the week before funding.
CONSTRUCTION FACILITY $2,500.00 for each Arby's restaurant, payable at the
FEE: inception of each restaurant construction loan.
AVAILABILITY: 180 days maximum per project.
SITE INSPECTION: In conjunction with the first or second draw request
from Borrower.
COSTS: Same as Term Sheet A.
CERTIFIED REAL ESTATE Not required.
APPRAISALS
9
<PAGE>
ENVIRONMENTAL: Same as Term Sheet A.
COVENANTS: Same as Term Sheet A.
REPORTING: Same as Term Sheet A, plus at least 30 days prior to
the first construction draw for any particular
project: (i) project budget for each new restaurant,
(ii) first year profit and loss projections, (iv)
evidence of site approval by Arby's Inc.
CROSS COLLATERAL, Same as Term Sheet A.
CROSS DEFAULT:
EXPIRY: Same as Term Sheet A.
LIMITED FOR INITIAL DRAW:
DOCUMENTATION Survey
PROGRAM: Title insurance
Land purchase contact or closing statement
Construction budget
Builder's risk insurance
FOR FINAL DRAW:
Final waiver of liens and title insurance
Certificate of occupancy
DRAW REQUESTS Statement by Borrower that it has expended $---,
together with a comparison to project budget showing
that borrower invested its 10% before FBCC advances any
funds.
CONSTRUCTION DRAWS: Maximum of six per store.
10
<PAGE>
TERM SHEET C
SECURED LINE OF CREDIT
FACILITY: Up to a $15,000,000 Secured Line of Credit to develop
and construct new Arby's franchise restaurants in
1999/2000, pursuant to Borrower's development
agreement with Arby's Inc.
Not more than $15,000,000 may be outstanding based on
original amounts financed under the Term Loans PLUS
outstanding under the Construction Facility PLUS
outstandings under the Secured Line of Credit.
FACILITY EXPIRY: The Secured Line of Credit shall be available to
Borrower for 24 months from closing of the Secured
Line of Credit subject to the Borrowing Conditions,
except with respect to (iii), described in Term Sheet
A, and provided that closing shall occur no later
than 12/31/99.
CONVERSION: Line of Credit outstandings will (a) be paid in full
at Facility Expiry, which may include terming out and
amortizing in accordance with the Terms outlined in
Term Sheet A, less the term of the Secured Line of
Credit, and/or (b) termed out and amortized in
accordance with the terms outlined in Term Sheet A,
upon the completion of each Arby's developed and
funded under the Secured Line of Credit.
ADVANCE RATES: 100% of any cost incurred in developing, constructing
and equipping new Arby's restaurants.
SECURITY: A first perfected security interest in the equipment,
fixtures, personal property; first deed of trust or
first mortgage on Borrower's fee simple interest in
the land and building; and first deed of trust or
first mortgage including landlord consent, assignment
and waiver on Borrower's leasehold interest in the
building of existing Arby's restaurants subject to:
- adequate to fully secure the Secured Line of
Credit on a minimum 85% loan-to-value
- specific Arby's restaurant collateral and the
corresponding value assigned to such collateral is
subject to FBCC's sole discretion
- the loan-to-value will be determined utilizing
FBCC's in-house valuation model and will be based on
the Secured Line of Credit amount chosen by
Borrower, i.e. if Borrower chooses a $7,500,000
Secured Line of Credit, FBCC would require Arby's
restaurant
11
<PAGE>
collateral valued at least $8,800,000, as determined
by FBCC in its sole discretion
INTEREST: FLOATING RATE: 2.85% plus the 30-day LIBOR rate.
CLOSING FEE: 0.50% of the Secured Line of Credit amount, payable
at closing.
COSTS: Same as Term Sheet A
GOOD FAITH DEPOSIT: None in addition to that required in Term Sheet A.
CERTIFIED REAL ESTATE Not required.
APPRAISALS:
ENVIRONMENTAL: Same as Term Sheet A, except for those sites where
land is financed, an environmental questionnaire is
required for each such location and FBCC will obtain
an EDR Transaction Screen report. If there are
environmental issues identified, additional
environmental reports and/or due diligence may be
required.
COVENANTS: Same as Term Sheet A.
REPORTING: Same as Term Sheet A.
CROSS COLLATERAL, Same as Term Sheet A.
CROSS DEFAULT:
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 8,139
<SECURITIES> 0
<RECEIVABLES> 922
<ALLOWANCES> 0
<INVENTORY> 3,023
<CURRENT-ASSETS> 16,168
<PP&E> 50,199
<DEPRECIATION> (6,626)
<TOTAL-ASSETS> 115,935
<CURRENT-LIABILITIES> 25,298
<BONDS> 63,734
0
0
<COMMON> 29
<OTHER-SE> 12,615
<TOTAL-LIABILITY-AND-EQUITY> 115,935
<SALES> 61,016
<TOTAL-REVENUES> 61,084
<CGS> 51,426
<TOTAL-COSTS> 56,620
<OTHER-EXPENSES> 63
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,989
<INCOME-PRETAX> 2,412
<INCOME-TAX> 977
<INCOME-CONTINUING> 1,435
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,435
<EPS-BASIC> .51
<EPS-DILUTED> .41
</TABLE>
