UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarter ended December 28, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from __________ to __________
Commission file number 0-17229
DAKA INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-3024178
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Corporate Place, 55 Ferncroft Road, Danvers, MA 01923
(Address of principal executive offices) (Zip Code)
(508) 774-9115
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Number of shares of Common Stock, $.01 par value, outstanding at February 6,
1997: 11,129,058.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DAKA INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
December 28, June 29,
1996 1996
------ ------
(Unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents ....................................................................... $ 13,449 $ 11,708
Accounts receivable, net ........................................................................ 47,704 36,699
Inventories ..................................................................................... 11,000 10,119
Prepaid expenses and other current assets ....................................................... 8,456 5,265
-------- --------
Total current assets .......................................................................... 80,609 63,791
-------- --------
Property and equipment, net ........................................................................ 128,128 124,563
Investments in, and advances to, affiliates ........................................................ 5,000 5,000
Other assets, net .................................................................................. 34,206 32,717
Deferred income taxes .............................................................................. 5,486 5,486
-------- --------
$253,429 $231,557
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable ................................................................................ $ 27,414 $ 17,772
Accrued expenses ................................................................................ 15,570 15,110
Current portion of long-term debt ............................................................... 23,545 1,507
Deferred income taxes ........................................................................... 787 787
-------- --------
Total current liabilities ..................................................................... 67,316 35,176
-------- --------
Long-term debt ..................................................................................... 95,558 98,355
Other long-term liabilities ........................................................................ 12,606 12,978
Minority interests ................................................................................. 1,098 2,181
Commitments and contingencies (Note 3)
Stockholders' equity:
Series A Preferred Stock, $.01 par value, $100 liquidation preference; 1,000,000
shares authorized; 11,912 shares issued and
outstanding at December 28, 1996 and June 29, 1996 .............................................. -- --
Common Stock, $.01 par value; 30,000,000 shares authorized;
11,129,058 and 11,120,900 shares issued and outstanding at
December 28, 1996 and June 29, 1996, respectively ............................................... 111 111
Capital in excess of par value ..................................................................... 71,947 71,907
Retained earnings .................................................................................. 4,793 10,849
-------- --------
Total stockholders' equity .................................................................... 76,851 82,867
-------- --------
$253,429 $231,557
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE>
DAKA INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Quarters Ended Six Months Ended
-------------- ----------------
December December December December
28, 1996 30, 1995 28, 1996 30, 1995
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Revenues:
Sales ........................................................... $ 104,597 $ 103,834 $ 194,817 $ 194,084
Management and other fees ....................................... 2,736 4,366 5,053 7,599
--------- --------- --------- ---------
107,333 108,200 199,870 201,683
--------- --------- --------- ---------
Costs and expenses:
Cost of sales and operating expenses ............................ 89,242 87,011 170,389 162,466
Selling, general and administrative expenses .................... 12,010 9,627 22,880 18,757
Depreciation and amortization ................................... 5,561 4,222 10,941 8,141
--------- --------- --------- ---------
106,813 100,860 204,210 189,364
--------- --------- --------- ---------
Income (loss) from operations ...................................... 520 7,340 (4,340) 12,319
Other income (expense):
Interest expense ................................................ 3,110 1,440 5,183 2,861
Interest income ................................................. (92) (96) (205) (200)
--------- --------- --------- ---------
Income (loss) before income taxes and minority interests
(2,498) 5,996 (9,318) 9,658
Income tax expense (benefit) ....................................... (865) 2,357 (3,243) 3,737
Minority interests ................................................. (27) (177) (53) (150)
--------- --------- --------- ---------
Net income (loss) .................................................. (1,606) 3,816 (6,022) 6,071
Preferred Stock dividend 48 -- 48 --
--------- --------- --------- ---------
Net income (loss) available for Common Stockholders ................ $ (1,654) $ 3,816 $ (6,070) $ 6,071
========= ========= ========= =========
Earnings (loss) per share:
Primary ......................................................... $ (0.15) $ 0.38 $ (0.55) $ 0.66
Fully diluted ................................................... $ (0.15) $ 0.35 $ (0.55) $ 0.57
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE>
DAKA INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended December 28, 1996 and December 30, 1995
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
December December
28, 1996 30, 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) .......................................................................... $ (6,022) $ 6,071
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization ........................................................... 11,290 8,268
Loss on sale of property and equipment .................................................. -- 793
Minority interests ...................................................................... (53) (150)
Change in assets and liabilities:
Accounts receivable ..................................................................... (11,005) (15,927)
Inventories ............................................................................. (881) (1,133)
Other assets ............................................................................ (5,154) (4,057)
Accounts payable and accrued expenses ................................................... 10,102 2,000
Other long-term liabilities ............................................................. (372) 878
-------- --------
Net cash used in operating activities ................................................. (2,095) (3,257)
-------- --------
Cash flows from investing activities:
Purchase of property and equipment ......................................................... (21,067) (31,315)
Proceeds from sale of property and equipment ............................................... 488 90
Investments in, and advances to, affiliates ................................................ -- (98)
Sale of marketable securities .............................................................. -- 172
Purchase of ServiceMaster limited partnership interest ..................................... (2,538) --
-------- --------
Net cash used in investing activities: ................................................ (23,117) (31,151)
-------- --------
Cash flows from financing activities:
Increase in line-of-credit ................................................................. 19,150 25,200
Proceeds from credit facilities ............................................................ -- 854
Repayment of long-term debt ................................................................ (1,035) (536)
Proceeds from sale-leaseback facility ...................................................... 8,832 8,250
Other, net ................................................................................. 6 863
-------- --------
Net cash provided by financing activities ............................................. 26,953 34,631
-------- --------
Net increase in cash and cash equivalents ................................................. 1,741 223
Cash and cash equivalents, beginning of period ............................................. 11,708 10,538
-------- --------
Cash and cash equivalents, end of period ................................................... $ 13,449 $ 10,761
======== ========
Supplemental cash flow disclosures:
Interest paid .............................................................................. $ 4,299 $ 2,617
Income taxes (received) paid ............................................................... $ (1,543) $ 4,271
</TABLE>
During the six months ended December 28, 1996 and December 30, 1995 the Company
acquired certain equipment by entering into capital leases aggregating $1,156
and $326, respectively.
See notes to unaudited condensed consolidated financial statements.
<PAGE>
DAKA INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS Six months ended December
28, 1996 and December 30, 1995
(Dollars in thousands, except per share data)
(Unaudited)
1. Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements include
the accounts of DAKA International, Inc. and its majority-controlled
subsidiaries ("DAKA" or the "Company") including Daka, Inc. ("Daka"),
Fuddruckers, Inc. ("Fuddruckers"), Champps Entertainment, Inc. ("CEI" or
"Champps"), The Great Bagel and Coffee Company ("Great Bagel and Coffee") and
Americana Dining Corp. ("ADC"). The accompanying December 30, 1995 unaudited
condensed consolidated financial statements have been restated to reflect the
business combinations accounted for as poolings-of-interests more fully
described in Note 2. Significant intercompany balances and transactions have
been eliminated in consolidation.
The Company is a diversified restaurant company serving customers through a
variety of channels. The Company's Fuddruckers and Champps subsidiaries (CEI and
ADC) operate in casual and upscale restaurant settings, respectively, throughout
the United States and in Canada, Australia and the Middle East. The Company's
Great Bagel and Coffee subsidiary primarily serves coffee, bagels and sandwich
items in a cafe setting in western locations of the United States. Restaurant
operations are conducted through Company-owned and franchised stores. The
Company's Daka subsidiary is a leading contract foodservice management
corporation operating throughout the United States.
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements include all adjustments, consisting of normal recurring
adjustments, necessary for the fair presentation of financial position and
results of operations. The accompanying unaudited condensed consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the fiscal year ended June 29, 1996. The unaudited consolidated
results of operations for the quarter and six months ended December 28, 1996 and
December 30, 1995 are not necessarily indicative of the results that could be
expected for a full year.
Fiscal Year
The Company's fiscal year ends on the Saturday closest to June 30. For purposes
of these notes to the consolidated financial statements, the quarter and six
months ended December 28, 1996 and December 30, 1995 are referred to as 1997 and
1996, respectively.
Classifications
Certain reclassifications have been made to the prior year's financial
statements in order to conform to the 1997 presentation. Such reclassifications
had no effect on previously reported results of operations.
Significant Estimates
In the process of preparing its financial statements, the Company estimates the
appropriate carrying value of certain assets and liabilities which are not
readily apparent from other sources. The primary estimates underlying the
Company's financial statements include allowances for potential bad debts on
accounts and notes receivable, the useful lives and recoverability of its assets
such as property and intangibles, fair values of financial instruments, the
realizable value of its tax assets and accruals for health insurance and other
matters. Management bases its estimates on certain assumptions, which they
believe are reasonable in the circumstances, and while actual results could
differ from those estimates, management does not believe that any change in
those assumptions in the near term would have a material effect on the Company's
financial position or the results of operations.
<PAGE>
Earnings (Loss) Per Share
Primary earnings (loss) per share are computed using the weighted average number
of common and common equivalent shares (dilutive options and warrants)
outstanding. The calculation of fully diluted earnings per share includes the
shares issuable upon conversion of the Preferred Stock which amounted to
approximately 264,700 shares in 1996, and the shares issuable upon conversion of
the 7% Convertible Subordinated Notes (the "Notes") which amounted to 1,003,750
in 1996. Fully diluted earnings per share assumes that the Preferred Stock and
Notes were converted into Common Stock as of the beginning of the fiscal year,
unless they are anti-dilutive, and reflect the elimination of interest expense
related to the Notes, net of the related income tax effect, and the elimination
of dividends related to the Preferred Stock.
The weighted average number of shares used in the computation of earnings (loss)
per share for 1997 and 1996 are as follows:
Quarters Ended Six Months Ended
-------------- ----------------
December December December December
28, 1996 30, 1995 28, 1996 30, 1995
---------- ---------- ---------- ---------
Primary ............... 11,129,058 9,916,136 11,126,536 9,135,627
Fully diluted ......... 11,129,058 11,362,202 11,126,536 11,319,927
Accounting Pronouncements Not Yet Adopted
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," which will be effective for the Company beginning June 30, 1996.
SFAS No. 123 requires expanded disclosures of stock-based compensation
arrangements with employees and encourages (but does not require) compensation
cost to be measured based on the fair value of the equity instrument awarded.
Companies are permitted, however, to continue to apply APB Opinion No. 25, which
recognizes compensation cost based on the intrinsic value of the equity
instrument awarded. The Company will continue to apply APB Opinion No. 25 to its
stock-based compensation awards to employees and will disclose the required pro
forma effect on results from operations and earnings per share.
2. Merger with Champps Entertainment, Inc. and The Great Bagel and Coffee
Company
In February 1996, CEI Acquisition, Corp., a wholly-owned subsidiary of DAKA,
merged with Champps whereupon Champps became a wholly-owned subsidiary of DAKA.
In April 1996, the Company also merged with The Great Bagel and Coffee Company
("Great Bagel and Coffee") whereupon Great Bagel and Coffee became a
wholly-owned subsidiary of DAKA (collectively the "Mergers").
The Mergers have been accounted for as poolings-of-interests and, accordingly,
the Company's previously issued condensed financial statements have been
restated to include the accounts of Champps and Great Bagel and Coffee for all
periods presented.
<PAGE>
3. Commitments and Contingencies
Leases
In January, 1997, Fuddruckers obtained a commitment for a $7,500 sale-leaseback
financing facility from Franchise Finance Corporation of America ("FFCA").
Pursuant to the terms of the facility, Fuddruckers may sell and lease back from
FFCA up to six Fuddruckers restaurants to be constructed, in which Fuddruckers
has an ownership interest in the real estate and pay a commitment fee of 1.5% of
the sale price of each property sold to FFCA. The sale price is limited to the
lesser of 80% of the fair market value of the property or $1,250. The unused
commitment expires on January 30, 1998. The leases provide for a fixed minimum
rent plus additional rent based on a percentage of sales and provide for an
initial lease term of 20 years with two 5-year renewal options exercisable at
the option of Fuddruckers. The terms and conditions of the sale-leaseback are
such that they do not meet the criteria for treatment as capital leases under
SFAS No. 13 - "Accounting for Leases."
Put/Call Agreement
In fiscal 1995, Daka, through a newly formed 80.01% owned limited partnership,
Daka Restaurants, L.P. ("DRLP"), acquired certain educational foodservice and
corporate dining contracts from ServiceMaster Management Services L.P.
("SMMSLP").
In connection with the acquisition by DRLP, the Company and SMMSLP entered into
a Put/Call Agreement whereby SMMSLP was permitted to require the Company to
purchase its 19.99% limited partnership interest in DRLP anytime during the
ten-year term of the partnership for a purchase price equal to $2,600, adjusted
for SMMSLP's portion of any net undistributed earnings/losses of DRLP. On July
13, 1996, SMMSLP exercised its Put right pursuant to the provisions of the
Put/Call Agreement. In October 1996, the Company paid $2,538 to SMMSLP for its
19.99% limited partnership interest in DRLP.
Litigation
On October 18, 1996, a purported class action lawsuit was filed in the United
States District Court for the District of Massachusetts on behalf of persons who
acquired the Company's stock between October 30, 1995 and September 9, 1996
(Venturino et al. V. DAKA International, Inc. And William H. Baumhauer, Civil
Action No. 96-12109-GAO). The complaint alleges violations of federal and state
securities laws by, among other things, allegedly misrepresenting and/or
omitting material information concerning the results and prospects of
Fuddruckers during that period and seeks compensatory damages and reasonable
costs and expenses, including counsel fees. Counsel for the plaintiffs have
informed the Company that they intend to amend the complaint and the parties
have agreed to extend the time to answer or otherwise respond to the complaint
until 45 days after receipt of an amended complaint. Based on the original
complaint, the Company believes that the case is without merit and intends to
defend itself vigorously. The Company has not yet received the proposed amended
complaint and therefore cannot comment on how the plaintiffs allegations may
change.
The Company is also engaged in various other legal actions arising in the
ordinary course of business. The Company believes, based upon consultation with
legal counsel, that the ultimate outcome will not have a material adverse effect
on the Company's financial condition, results of operations or liquidity.
Letters of Credit
As of December 28, 1996, the Company has approximately $5 million of outstanding
letters of credit. The outstanding letters of credit reduce the Company's
borrowing capacity under its line-of-credit agreement (see Note 4 of Notes to
Unaudited Condensed Consolidated Financial Statements).
<PAGE>
4. Debt
On October 15, 1996, the Company amended its revolving line-of-credit agreement
(the "October Agreement"), principally to decrease the Company's borrowing limit
from $150 million to $125 million, change the maturity date to October 1, 1997,
restrict restaurant expansion and capital expenditures and amend certain loan
covenants. Borrowing rates were increased to a 3% margin and a 1.75% margin on
fixed basis and variable basis borrowings, respectively, and the commitment fee
increased to .50% per annum on the unused portion.
At December 28, 1996, the Company was not in compliance with the net income,
debt service, minimum tangible net worth, fixed charge coverage, interest
coverage and capital expenditure covenants. On February 7, 1997, the Company
obtained a waiver of noncompliance related to such covenants from its lenders
and renegotiated certain terms and conditions of the October Agreement (the
"February Agreement"). Under the February Agreement, the Company's borrowing
limit was reduced to $115 million, the maturity date was extended to January 2,
1998, and its loan covenants amended. The February Agreement requires the
Company to repay principal balances as follows:
Date Amount
---- ------
May 31, 1997 $ 5.0 million
June 30, 1997 10.0 million
July 31, 1997 0.5 million
August 31, 1997 0.5 million
September 30, 1997 0.5 million
October 31, 1997 1.0 million
November 30, 1997 2.5 million
December 31, 1997 5.0 million
--------------
$ 25.0 million
==============
Accordingly, the Company has classified approximately $22 million of outstanding
borrowings as current in the balance sheet as of December 28, 1996. At December
28, 1996, the Company had available borrowings under the February Agreement of
approximately $2.9 million.
<PAGE>
5. Segment Information
The Company operates in the contract foodservice management and restaurant
industries. The table below presents selected results of operations for the
Company's businesses for the quarter and six months ended December 28, 1996 and
December 30, 1995, respectively.
<TABLE>
<CAPTION>
Quarters Ended Six Months Ended
-------------- ----------------
December December December December
28, 1996 30, 1995 28, 1996 30, 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Sales from profit and loss contracts .................................... $ 56,041 $ 61,266 $ 96,690 $110,104
Management and other fees ............................................... 1,429 1,512 2,382 2,582
Restaurant sales - Fuddruckers .......................................... 33,175 31,202 68,120 64,730
Franchising income - Fuddruckers ........................................ 948 2,609 1,855 4,581
Restaurant sales - Champps .............................................. 14,067 10,728 27,547 18,021
Franchising income - Champps ............................................ 148 157 265 264
Unit sales - Specialty Concepts ......................................... 1,314 638 2,460 1,229
Franchising income - Specialty Concepts 211 88 551 172
-------- -------- -------- --------
Total revenues ........................................................ $107,333 $108,200 $199,870 $201,683
======== ======== ======== ========
Foodservice:
Sales from profit and loss contracts .................................... $ 56,041 $ 61,266 $ 96,690 $110,104
Operating expenses:
Labor costs ........................................................... 18,035 19,619 32,785 36,253
Product costs ......................................................... 20,787 22,795 35,920 40,011
Other operating expenses .............................................. 7,404 8,416 14,170 16,033
Depreciation and amortization ......................................... 1,429 1,384 2,727 2,673
-------- -------- -------- --------
Income from profit and loss contracts ................................... 8,386 9,052 11,088 15,134
Management and other fees ............................................... 1,429 1,512 2,382 2,582
-------- -------- -------- --------
Income from foodservice operations ...................................... 9,815 10,564 13,470 17,716
-------- -------- -------- --------
Fuddruckers:
Sales from restaurant operations ........................................ 33,175 31,202 68,120 64,730
Operating expenses:
Labor costs ........................................................... 10,195 8,976 21,024 18,240
Product costs ......................................................... 9,168 8,837 19,093 18,128
Other operating expenses .............................................. 10,626 8,790 21,403 17,736
Depreciation and amortization ......................................... 2,390 1,762 4,701 3,649
-------- -------- -------- --------
Income from restaurant operations ....................................... 796 2,837 1,899 6,977
Franchising income - Fuddruckers ........................................ 948 2,609 1,855 4,581
-------- -------- -------- --------
Income from restaurant and franchising operations ....................... 1,744 5,446 3,754 11,558
-------- -------- -------- --------
Champps:
Sales from restaurant operations ........................................ 14,067 10,728 27,547 18,021
Operating expenses:
Labor costs ........................................................... 4,536 3,660 9,098 5,914
Product costs ......................................................... 4,012 3,094 7,992 5,158
Other operating expenses .............................................. 3,287 2,339 6,461 4,046
Depreciation and amortization ......................................... 1,095 828 2,325 1,367
-------- -------- -------- --------
Income from restaurant operations ....................................... 1,137 807 1,671 1,536
Franchising income - Champps 148 157 265 264
-------- -------- -------- --------
Income from restaurant and franchising operations ....................... 1,285 964 1,936 1,800
-------- -------- -------- --------
<PAGE>
Specialty Concepts:
Sales from unit operations ...................................... 1,314 638 2,460 1,229
Operating expenses:
Labor costs ................................................... 567 136 1,057 266
Product costs ................................................. 278 261 708 519
Other operating expenses ...................................... 347 88 678 162
Depreciation and amortization ................................. 167 29 285 50
-------- ------- ------- -------
Income (loss) from unit operations ............................... (45) 124 (268) 232
Franchising income - Specialty Concepts ......................... 211 88 551 172
-------- ------- ------- -------
Income from unit and franchising operations ..................... 166 212 283 404
-------- ------- ------- -------
Income from operations before selling,
general and administrative expenses .............................. 13,010 17,186 19,443 31,478
-------- -------- -------- --------
Selling, general and administrative expenses (1):
Foodservice ..................................................... 2,093 2,027 4,186 4,310
Fuddruckers ..................................................... 4,160 3,280 7,244 6,115
Champps ......................................................... 851 978 1,881 1,733
Specialty Concepts .............................................. 596 110 1,221 180
Corporate ....................................................... 4,790 3,451 9,251 6,821
-------- -------- -------- -------
Total ......................................................... 12,490 9,846 23,783 19,159
-------- -------- -------- -------
Operating income (loss) ............................................ 520 7,340 (4,340) 12,319
Interest expense ................................................... 3,110 1,440 5,183 2,861
Interest income .................................................... (92) (96) (205) (200)
-------- -------- -------- --------
Income (loss) before income taxes and minority interests
(2,498) 5,996 (9,318) 9,658
Income tax expense (benefit) ....................................... (865) 2,357 (3,243) 3,737
Minority interests ................................................. (27) (177) (53) (150)
-------- -------- -------- --------
Net income (loss) .................................................. (1,606) 3,816 (6,022) 6,071
Preferred Stock dividend ........................................... 48 -- 48 --
-------- -------- -------- --------
Net income (loss) available for common
stockholders ..................................................... $ (1,654) $ 3,816 $ (6,070) $ 6,071
======== ======== ======== ========
</TABLE>
(1) Includes depreciation expense of $480, $219, $903 and $402 for the quarters
and six months ended December 28, 1996 and December 30, 1995, respectively.
<PAGE>
ITEM 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
RESULTS OF OPERATIONS
Certain Factors Affecting Future Operating Results
This Form 10-Q contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Such statements involve certain risks and uncertainties that could
cause actual results to differ materially from those in the forward-looking
statements including uncertainties regarding the effectiveness of initiatives to
lower selling, general and administrative expenses and to improve operations
within the core businesses. Certain factors which may cause such a difference
include, but are not limited to, the following: the impact of increased
competition in the bidding process for foodservice contracts against competitors
with significant financial resources and market share; the exercise by
foodservice clients of their right to terminate contracts which typically
provide for termination upon 30 to 60 days notice; the impact of increasing
competition in the casual and upscale casual dining segment of the restaurant
industry; changes in general economic conditions which impact consumer spending
for restaurant occasions; adverse weather conditions; competition among
restaurant companies for attractive sites and unforeseen events which increase
the cost to develop and/or delay the development and opening of new restaurants;
increases in the cost of product, labor and other resources necessary to operate
both the restaurants and the foodservice facilities; unforeseen difficulties in
integrating acquired businesses; the amount and rate of growth of general and
administrative expenses associated with building a strengthened corporate
infrastructure to support operations; the availability and terms of financing
for the Company and any changes to that financing; the revaluation of any of the
Company's assets (and related expenses); and the amount of, and any changes to,
tax rates.
Summary
The Company recorded a net loss for the quarter ended December 28, 1996, of
$(1.6) million, or $(0.15) per share, compared with net income of $3.8 million,
or $0.35 per share, for the same period last year. The Company also reported a
net loss of $(6.0) million, or $(0.55) per share, for the first six months of
fiscal 1997 compared with net income of $6.1 million, or $0.57 per share (on a
fully diluted basis), for the first six months of fiscal 1996.
Total revenues for the quarter and six months ended December 28, 1996, decreased
approximately 1.0% to $107.3 million and $199.9 million, respectively, compared
with $108.2 million and $201.7 million, respectively, in the same periods last
year.
Operating margins for the quarter and the first six months of fiscal 1997,
compared with the prior year, were primarily impacted by lower sales in the
foodservice segment, continued declines in comparable restaurant sales in the
Fuddruckers segment, lower Fuddruckers franchise revenues, and higher selling,
general and administrative expenses.
The results of the prior year second quarter and six months results have been
restated to reflect the Company's merger with Champps Entertainment, Inc. and
The Great Bagel and Coffee Company, which were accounted for as
poolings-of-interests.
At December 28, 1996, the Company was not in compliance with its net income,
debt service, minimum tangible net worth, fixed charge coverage and interest
coverage covenants. On February 7, 1997, the Company obtained a waiver of
noncompliance related to such covenants from its lender, and renegotiated
certain terms and conditions of its existing line-of-credit facility (see
Financial Condition and Liquidity and Note 4 of Notes to Unaudited Condensed
Consolidated Financial Statements). The Company expects that compliance with its
existing loan agreement will be maintained during the remaining terms of such
agreement.
<PAGE>
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased approximately $2.6
million and $4.6 million to $12.5 million and $23.8 million for the quarter and
six months ended December 28, 1996, respectively. These increases primarily
reflect the impact of costs associated with the terminated venture with Kmart,
increased marketing costs for Fuddruckers, higher overhead, including severance
costs, associated with the Specialty Concepts segment and ongoing investment in
divisional infrastructures. Higher depreciation and amortization costs
associated with the Company's continued investment in new information systems
have also contributed to the overall increase in selling, general and
administrative expenses in fiscal 1997. Selling, general and administrative
expenses expressed as a percentage of managed volume, which includes managed
volume in the foodservice business as well as sales at Company-owned
Fuddruckers, Champps and Specialty Concepts locations, increased to 9.3% and
9.8% for the quarter and six months ended December 28, 1996, respectively,
compared with 7.3% and 7.8% for the same periods last year. The Company expects
to lower the level of selling, general and administrative expenses over the
balance of fiscal 1997 as its near-term expansion plans have moderated and the
effect of certain events described herein are not expected to continue to impact
operations.
Interest Expense
Interest expense increased approximately $1.7 million and $2.3 million to $3.1
million and $5.2 million during the quarter and six months ended December 28,
1996, respectively, compared with $1.4 million and $2.9 million a year ago.
These increases reflect higher levels of borrowings in the current year and
higher borrowing rates and costs associated with the Company's October 1996
amended and restated credit agreement. The Company has used the line-of-credit
to finance capital expenditures and working capital requirements for new and
existing Company-owned restaurants, foodservice client facilities and corporate
infrastructure.
Income Taxes
The Company's effective tax benefit rate was approximately 35.0% for the quarter
and six months ended December 28, 1996, compared with an effective tax expense
rate of approximately 39.0% for the comparable periods last year. The current
year tax rate primarily reflects the impact of certain state tax losses incurred
by the Company on which the Company has established a valuation allowance.
Earnings (Loss) Per Share
Primary and fully diluted earnings per share decreased significantly for the
quarter and six months ended December 28, 1996 compared with the same periods
last year. The decrease in primary and fully diluted earnings per share was
attributable to the significant losses incurred in fiscal 1997.
<PAGE>
The following tables set forth, for the periods presented, certain financial
information for the Company's business segments. For further information
relating to the businesses, see Note 5 of Notes to Unaudited Condensed
Consolidated Financial Statements.
Foodservice
<TABLE>
<CAPTION>
Quarters Ended Six Months Ended
-------------- ----------------
December December December December
28, 1996 30, 1995 28, 1996 30, 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Managed volume:
Management fee contracts .............. $ 29,552 $ 30,760 $ 48,851 $ 52,131
Profit and loss contracts ............. 56,041 61,266 96,690 110,104
--------- --------- --------- ---------
Total managed volume ................ $ 85,593 $ 92,026 $ 145,541 $ 162,235
========= ========= ========= =========
Sales from profit and loss contracts ..... 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Labor costs ........................... (32.2) (32.0) (33.9) (32.9)
Product costs ......................... (37.1) (37.2) (37.1) (36.4)
Other operating expenses .............. (13.2) (13.7) (14.7) (14.6)
Depreciation and amortization ......... (2.5) (2.3) (2.8) (2.4)
--------- --------- --------- ---------
Income from profit and loss contracts .... 15.0% 14.8% 11.5% 13.7%
========= ========= ========= =========
Income from profit and loss contracts .... $ 8,386 $ 9,052 $ 11,088 $ 15,134
Management and other fees ............... 1,429 1,512 2,382 2,582
--------- --------- --------- ---------
Income from foodservice operations ..... $ 9,815 $ 10,564 $ 13,470 $ 17,716
========= ========= ========= =========
</TABLE>
Daka conducts its operations on the basis of two types of foodservice contracts
with its clients. The first type is a management fee contract pursuant to which
a client pays Daka a negotiated fee for overseeing and administering its
foodservice operations and reimburses Daka for all costs incurred in providing
such service. Management fee contracts are prevalent where companies subsidize
foodservice as part of the benefits provided to employees and in elementary and
secondary schools. The second type of contract is a profit and loss contract
whereby Daka assumes the risk of profit or loss from the foodservice operations.
While Daka manages the total sales volume attributable to both contract types,
generally accepted accounting principles require that Daka recognize sales and
expenses from profit and loss contracts, but only the management fee amount
derived from management fee contracts as earned. Consequently, Daka does not
recognize sales and related costs of sales with respect to management fee
contracts.
Managed volume in the foodservice segment decreased approximately $6.4 million,
or 7.0%, to $85.6 million for the quarter ended December 28, 1996 compared with
$92.0 million in the comparable quarter of 1996. For the six months ended
December 28, 1996, managed volume decreased approximately $16.7 million, or
10.3%, to $145.5 million compared with $162.2 million in 1996. The decrease in
managed volume reflects the impact of no foodservice acquisitions by the Company
in fiscal 1996 or fiscal 1997 and a lower contract retention rate experienced in
fiscal 1996 offset, in part, by improved retention rates in the first six months
of fiscal 1997 and higher location foodservice sales volumes.
Income from foodservice operations decreased 7.1% to $9.8 million for the
quarter ended December 28, 1996 as compared with $10.6 million in the comparable
quarter of 1996. Operating margins as a percentage of sales increased 0.2%
resulting from lower operating expenses offset, in part, by higher labor,
depreciation and amortization expenses expressed as a percentage of sales in the
second quarter. Income from foodservice operations for the six months ended
December 28, 1996 decreased 24.0% to $13.5 million compared with $17.7 million
for the comparable period last year. Operating margins as a percentage of sales
for the first six months of fiscal 1997 decreased 2.2% primarily reflecting the
impact of higher labor and product costs experienced in the first quarter of
fiscal 1997.
<PAGE>
Fuddruckers
<TABLE>
<CAPTION>
Quarters Ended Six Months Ended
-------------- ----------------
December December December December
28, 1996 30, 1995 28, 1996 30, 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Restaurant sales ................................ $ 33,175 $ 31,202 $ 68,120 $ 64,730
========= ========= ========= =========
Sales from Fuddruckers-owned restaurants ........ 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Labor costs .................................. (30.7) (28.8) (30.9) (28.2)
Product costs ................................ (27.7) (28.3) (28.0) (28.0)
Other operating expenses ..................... (32.0) (28.2) (31.4) (27.4)
Depreciation and amortization ................ (7.2) (5.6) (6.9) (5.6)
Income from restaurant operations ............... 2.4% 9.1% 2.8% 10.8%
========= ========= ========= =========
Income from restaurant operations ............... $ 796 $ 2,837 $ 1,899 $ 6,977
Franchising income .............................. 2,609 1,855 4,581
948
Income from restaurant and franchising operations $ 1,744 $ 5,446 $ 3,754 $ 11,558
========= ========= ========= =========
Number of restaurants (end of period):
Fuddruckers-owned 121 102
Franchised 78 76
--------- ---------
Total restaurants 199 178
========= =========
</TABLE>
Sales in Fuddruckers-owned restaurants increased approximately $2.0 million, or
6.3%, to $33.2 million for the quarter ended December 28, 1996 compared with
$31.2 million for the comparable period last year. For the first six months of
fiscal 1997, sales increased approximately $3.4 million, or 5.2%, to $68.1
million compared with $64.7 million for the comparable period last year. These
increases reflect the net addition of 19 new Fuddruckers-owned restaurants in
the first six months of fiscal 1996 offset primarily by an 8.3% and 9.4% decline
in comparable restaurant sales for the quarter and first six months of fiscal
1997, respectively, and lower per restaurant average sales volumes within the
Fuddruckers segment compared to last year.
Income from restaurant operations for the quarter decreased approximately $2.0
million, or 71.9%, to $0.8 million compared with $2.8 million a year ago. Income
from operations for the first six months of fiscal 1997 decreased approximately
$5.1 million, or 72.8%, to $1.9 million compared with $7.0 million a year ago.
Operating margins continue to be negatively impacted by poor sales levels and
higher depreciation and amortization expenses associated with new store openings
offset, in part, by the impact of new menu changes and a 3% price increase
effective in early December, 1996.
Franchise income decreased approximately $1.7 million and $2.7 million for the
quarter and six months ended December 28, 1996, respectively. These decreases
are primarily related to slower international expansion by the Company in the
current year. Royalty income from domestic franchised restaurants remained
consistent for the quarter and first six months of fiscal 1997 compared to last
year.
<PAGE>
Champps
<TABLE>
<CAPTION>
Quarters Ended Six Months Ended
-------------- ----------------
December December December December
28, 1996 30, 1995 28, 1996 30, 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Restaurant sales ................................ $ 14,067 $ 10,728 $ 27,547 $ 18,021
========= ========= ========= =========
Sales from Champps-owned restaurants ............ 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Labor costs .................................. (32.2) (34.1) (33.0) (32.8)
Product costs ................................ (28.5) (28.9) (29.0) (28.6)
Other operating expenses ..................... (23.4) (21.8) (23.5) (22.5)
Depreciation and amortization ................ (7.8) (7.7) (8.4) (7.6)
--------- --------- --------- ---------
Income from restaurant operations ............... 8.1% 7.5% 6.1% 8.5%
========= ========= ========= =========
Income from restaurant operations ............... $ 1,137 $ 807 $ 1,671 $ 1,536
Franchising income .............................. 148 157 265 264
--------- --------- --------- ---------
Income from restaurant and franchising
operations ..................................... $ 1,285 $ 964 $ 1,936 $ 1,800
========= ========= ========= =========
Number of restaurants (end of period):
Champps-owned ................................ 11 9
Franchised ................................... 10 9
--------- ---------
Total restaurants .......................... 21 18
========= =========
</TABLE>
Sales in Champps-owned restaurants increased approximately $3.3 million, or
31.1%, to $14.1 million for the quarter ended December 28, 1996, compared with
$10.7 million a year ago. For the first six months of fiscal 1997, sales
increased approximately $9.5 million, or 52.9%, to $27.5 million compared with
$18.0 million a year ago. These increases reflect the addition of six new
Champps-owned restaurants in fiscal 1996, one new Champps-owned restaurant in
the second quarter of fiscal 1997, positive quarterly increases in comparable
restaurant sales and higher per restaurant average sales volumes for the first
six months of fiscal 1997.
Income from restaurant operations for the quarter increased approximately $0.3
million, or 40.9%, to $1.1 million compared with $0.8 million a year ago. Income
from operations for the first six months of fiscal 1997 increased approximately
$0.2 million, or 8.8%, to $1.7 million compared with $1.5 million a year ago.
Operating margins have been directly impacted by the increase in comparable
restaurant sales and improved product and labor costs offset, in part, by higher
depreciation and amortization expenses associated with new store openings and
pre-opening costs. Franchise income for the quarter and six months ended
December 28, 1996 remained consistent with last year.
<PAGE>
Specialty Concepts
<TABLE>
<CAPTION>
Quarters Ended Six Months Ended
-------------- ----------------
December December December December
28, 1996 30, 1995 28, 1996 30, 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Unit sales ...................................... $ 1,314 $ 638 $ 2,460 $ 1,229
======== ======== ======== ========
Sales from unit operations ...................... 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Labor costs .................................. (43.1) (21.3) (43.0) (21.6)
Product costs ................................ (21.2) (40.9) (28.8) (42.2)
Other operating expenses ..................... (26.4) (13.8) (27.5) (13.2)
Depreciation and amortization ................... (12.7) (4.6) (11.6) (4.1)
-------- -------- -------- --------
Income from unit operations ..................... (3.4)% 19.4% (10.9)% 18.9%
======== ======== ======== ========
Income (loss) from unit operations ............. $ (45) $ 124 $ (268) $ 232
Franchising income ............................. 211 88 551 172
-------- -------- -------- --------
Income from unit and franchising operations .... $ 166 $ 212 $ 283 $ 404
======== ======== ======== ========
</TABLE>
Sales in Specialty Concepts units increased approximately $0.7 million and $1.2
million to $1.3 million and $2.5 million for the quarter and the six months
ended December 28, 1996, respectively, compared with $0.6 million and $1.2
million for the comparable quarter and six months last year. These increases
reflect the continued expansion of operations in nontraditional foodservice
venues. Operating results within the Specialty Concepts segment remained
unprofitable in fiscal 1997 due to higher operating costs in the Fudd Cafe units
and the development and construction of the Company's "Leo's Deli" concept.
Prior year quarterly and six months results, which were immaterial for reporting
purposes in fiscal 1996, except for Great Bagel and Coffee, were combined within
the foodservice and Fuddruckers operations. At December 28, 1996, Specialty
Concepts consisted of seven Fudd Cafes, five Company-owned and over 28
franchised Great Bagel and Coffee units and over 400 French Quarter Coffee
locations.
FINANCIAL CONDITION AND LIQUIDITY
Working capital amounted to $13.3 million at December 28, 1996, a decrease of
$15.3 million compared to working capital of $28.6 million at June 29, 1996. The
decrease in working capital is principally due to the change in current
maturities of its long-term debt offset, in part, by working capital provided by
increases in accounts payable. Capital expenditures were funded primarily
through the Company's line-of-credit and approximately $8.8 million of proceeds
from its sale-leaseback facilities for Fuddruckers and Champps restaurants.
On October 15, 1996, the Company renegotiated certain terms and conditions of
its credit agreement (the "October Agreement"), including (i) decreasing the
Company's borrowing limit from $150 million to $125 million, (ii) changing the
maturity date to October 1, 1997, (iii) increasing the interest rate on
borrowings, (iv) restricting capital expenditures, and (v) the addition of
financial covenants which are restrictive to the Company's business activities.
<PAGE>
At December 28, 1996, the Company was not in compliance with the net income,
debt service, minimum tangible net worth, fixed charge coverage, interest
coverage and capital expenditures covenants contained in the October Agreement.
On February 7, 1997, the Company obtained a waiver of noncompliance related to
such covenants from its lenders and renegotiated certain terms and conditions of
the October Agreement (the "February Agreement"). Under the February Agreement,
the Company's borrowing limit was reduced to $115 million, the maturity date was
extended to January 2, 1998, and its loan covenants amended. The February
Agreement requires the Company to repay principal balances as follows:
Date Amount
---- ------
May 31, 1997 $ 5.0 million
June 30, 1997 10.0 million
July 31, 1997 0.5 million
August 31, 1997 0.5 million
September 30, 1997 0.5 million
October 31, 1997 1.0 million
November 30, 1997 2.5 million
December 31, 1997 5.0 million
--------------
$ 25.0 million
==============
Accordingly, the Company has classified approximately $22 million of outstanding
borrowings as current in the balance sheet as of December 28, 1996. At December
28, 1996, the Company had available borrowings under the February Agreement of
approximately $2.9 million.
In January 1997, the Company obtained $7.5 million of sale-leaseback financing
for the construction of up to six new Fuddruckers restaurants. Any unused
commitment expires on January 30, 1998. At December 28, 1996, $40 million of
sale-leaseback financing was also available for the construction of up to twenty
new Champps restaurants.
At December 28, 1996, the Company had three new Fuddruckers-owned restaurants
under construction which are expected to open in the third quarter of fiscal
1997. The Company also had two new Champps-owned restaurants under construction
and three restaurants under development which are expected to open in fiscal
1997 and the first half of fiscal 1998, respectively. There are no further
restaurant expansion or development efforts planned by the Company. The Company
will continue to make improvements at existing restaurants and facilities of its
foodservice clients, and will continue to invest in improved data processing
systems, pursuant to the terms and conditions of its February Agreement.
Management believes that the curtailment of restaurant expansion, improved cash
flows from operations, existing cash balances and working capital, available
sale-leaseback financing and equipment financing will provide sufficient
liquidity to meet its obligations, fund capital expenditures and service debt
requirements as outlined in the February Agreement.
<PAGE>
PART II - OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
11 Computation Regarding Per Share Earnings
10.25 First Amendment Agreement, dated as of February 7, 1997, among DAKA
International, Inc. Subsidiary Guarantors, The Chase Manhattan Bank,
N.A., Fleet National Bank, Mellon Bank, N.A. and The First National
Bank of Boston.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended
December 28, 1996.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DAKA INTERNATIONAL, INC.
(Registrant)
By: /s/William H. Baumhauer
-----------------------------------
William H. Baumhauer
Chief Executive Officer
(Principal Financial and Principal
Accounting Officer)
Date: February 10, 1997
Exhibit 11
DAKA INTERNATIONAL, INC.
STATEMENT REGARDING COMPUTATION OF PER
SHARE EARNINGS Quarters and six months ended
December 28, 1996 and December 30, 1995
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Quarters Ended Six Months Ended
-------------- ----------------
December December December December
28, 1996 30, 1995 28, 1996 30, 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Primary:
Net income (loss) ............................................................ $ (1,606) $ 3,816 $ (6,022) $ 6,071
-------- -------- -------- -------
Net income (loss) available to common stockholders ........................... $ (1,654) $ 3,816 $ (6,070) $ 6,071
======== ======== ======== =======
Weighted average number of common shares outstanding ......................... 11,129 9,546 11,127 8,788
Additional shares assuming conversion of stock options ....................... -- 370 -- 348
-------- -------- -------- -------
Average common shares outstanding and equivalents ............................ 11,129 9,916 11,127 9,136
======== ======== ======== =======
Primary earnings (loss) per share:
Net income (loss) ............................................................ $ (0.15) $ 0.38 $ (0.55) $ 0.66
======== ======== ======== =======
Fully Diluted:
Net income (loss) available to common stockholders ........................... $ (1,654) $ 3,816 $ (6,070) $ 6,071
Dividend on Preferred Stock .................................................. -- -- -- --
Interest expense on Convertible Notes, after tax effect ...................... -- 143 -- 359
-------- -------- -------- -------
$ (1,654) $ 3,959 $ (6,070) $ 6,430
======== ======== ======== =======
Weighted average number of common shares outstanding ......................... 11,129 9,546 11,127 8,788
Weighted average number of shares related to notes converted, prior to
conversion ................................................................ -- 177 -- 316
Weighted average number of shares related to Preferred Stock, prior to
conversion ................................................................ -- -- -- 599
Additional shares issuable upon conversion of Preferred Stock ................ -- 265 -- 265
Additional shares issuable upon conversion of Notes .......................... -- 1,004 -- 1,004
Additional shares issuable upon conversion of stock options .................. -- 370 -- 348
-------- -------- -------- -------
11,129 11,362 11,127 11,320
======== ======== ======== =======
Fully diluted earnings (loss) per share:
Net income (loss) ............................................................ $ (0.15) $ 0.35 $ (0.55) $ 0.57
======== ======== ======== =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000840826
<NAME> DAKA INTERNATIONAL, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-28-1997
<PERIOD-END> DEC-28-1996
<CASH> 13,449
<SECURITIES> 0
<RECEIVABLES> 48,152
<ALLOWANCES> 448
<INVENTORY> 11,000
<CURRENT-ASSETS> 80,609
<PP&E> 170,683
<DEPRECIATION> 42,555
<TOTAL-ASSETS> 253,429
<CURRENT-LIABILITIES> 67,316
<BONDS> 95,558
0
0
<COMMON> 111
<OTHER-SE> 76,740
<TOTAL-LIABILITY-AND-EQUITY> 253,429
<SALES> 194,817
<TOTAL-REVENUES> 199,870
<CGS> 170,389
<TOTAL-COSTS> 170,389
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,183
<INCOME-PRETAX> (9,318)
<INCOME-TAX> (3,243)
<INCOME-CONTINUING> (6,070)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,070)
<EPS-PRIMARY> (0.55)
<EPS-DILUTED> (0.55)
</TABLE>
FIRST AMENDMENT AGREEMENT
dated as of February 7, 1997
among
DAKA INTERNATIONAL, INC.
SUBSIDIARY GUARANTORS
THE BANKS SIGNATORY HERETO
and
THE CHASE MANHATTAN BANK
as Agent
<PAGE>
FIRST AMENDMENT AGREEMENT
FIRST AMENDMENT AGREEMENT (this "Agreement") dated as of February 7,
1997 among DAKA INTERNATIONAL, INC., a corporation organized under the laws of
Delaware (the "Borrower"); each of the Subsidiaries of the Borrower which is a
signatory hereto (collectively the "Subsidiary Guarantors" and, together with
the Borrower, the "Obligors"); each of the banks which is a signatory hereto
(collectively the "Banks"); and THE CHASE MANHATTAN BANK, a bank organized under
the laws of New York, as agent for the Banks (in such capacity, together with
its successors in such capacity, the "Agent").
WHEREAS, the Borrower, the Subsidiary Guarantors, the Banks and the
Agent have entered into that certain Third Amended and Restated Credit Agreement
dated as of October 15, 1996 (as in effect prior to the effectiveness of this
Agreement, the "Existing Credit Agreement," and, as amended by this Agreement,
the "Amended Credit Agreement") pursuant to which the Banks have extended credit
to the Obligors evidenced by certain Promissory Notes dated October 15, 1996
issued by the Borrower and guarantied by the Subsidiary Guarantors;
WHEREAS, the Obligors hereby acknowledge that certain Defaults and
Events of Default have occurred under the Existing Credit Agreement;
WHEREAS, the Borrower, the Subsidiary Guarantors, the Banks and the
Agent have agreed to enter into this Agreement to provide for, among other
things, a decrease in the aggregate Commitments to $120,000,000, the
modification of certain covenants and definitions contained in the Existing
Credit Agreement and waivers of certain Defaults and Events of Default; and
WHEREAS, the Facility Documents, as amended and supplemented by this
Agreement (including, without limitation, this Agreement, the Amended Credit
Agreement and the Mortgages) and as each may be amended or supplemented from
time to time, are referred to herein as the "Amended Facility Documents".
NOW THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1. AMENDMENTS TO EXISTING AGREEMENTS.
Section 1.01. Amendments to Existing Credit Agreement. Each of the
Obligors and, subject to the satisfaction of the conditions set forth in Article
3, the Agent and the Banks hereby consents and agrees to the amendments to the
Existing Credit Agreement set forth below:
1
<PAGE>
(a) The definition of "Consolidated Net Income" in Section
1.01 of the Existing Credit Agreement is hereby amended and restated in its
entirety to read as follows:
"Consolidated Net Income" means, with respect to any fiscal
period, net income (or loss) for the Consolidated Entities for such
fiscal period (but in any event excluding the sum of (i) noncash
charges taken during such fiscal period in accordance with Statement of
Financial Accounting Standard No. 121 in connection with charges for
impairments to the carrying value of certain restaurant and foodservice
contract assets, write down of goodwill, reacquired franchise rights,
investments and other assets plus (ii) noncash charges relating to
accounting changes requiring the write-down of pre-opening restaurant
costs, to the extent that the sum of such noncash charges under clauses
(i) and (ii) for the period from June 30, 1996 does not exceed
$4,000,000), as determined on a consolidated basis in accordance with
GAAP.
(b) The definition of "Interest Coverage Ratio" in Section
1.01 of the Existing Credit Agreement is hereby amended and restated in its
entirety to read as follows:
"Interest Coverage Ratio" means, at any date of determination
thereof, the ratio of (a) the result of (i) Consolidated EBIT for the
most recently ended fiscal period, plus (ii) the aggregate amount of
depreciation and amortization expense, to the extent such aggregate
amount was deducted from Consolidated EBIT for such fiscal period,
minus (iii) the aggregate amount of Capital Expenditures of the
Consolidated Entities incurred during such fiscal period to (b)
Consolidated Interest Expense for such fiscal period.
(c) The definition of "Letter of Credit Availability" in
Section 1.01 of the Existing Credit Agreement is hereby amended and restated in
its entirety to read as follows:
"Letter of Credit Availability" means, at any date of
determination thereof, the amount by which (a) $5,000,000 exceeds (b)
the aggregate amount of the Letter of Credit Obligations at such date
(including all Letter of Credit Obligations under Letters of Credit not
then issued as to which a request has been made under Section 3.02),
subject to the limitations contained in Section 5.05 of that certain
First Amendment Agreement dated as of February 7, 1997 among the
Obligors, the Banks and the Agent.
2
<PAGE>
(d) The definition of "Termination Date" in Section 1.01 of
the Existing Credit Agreement is hereby amended to substitute "January 2, 1998"
in place of "October 1, 1997".
(e) The first two sentences of Section 2.01(a) of the Existing
Credit Agreement are hereby amended and restated in their entirety to read as
follows:
Subject to the terms and conditions of this Agreement, each of
the Banks severally agrees to make loans (the "Loans") to the Borrower
from time to time from and including the date hereof to and including
the Termination Date, up to but not exceeding in the aggregate
principal amount at any one time outstanding, the amount of its Loan
Commitment. The aggregate Loan Commitments shall be reduced by (i)
$5,000,000 on May 31, 1997, (ii) $10,000,000 on June 30, 1997, (iii)
$500,000 on each of July 31, 1997, August 31, 1997 and September 30,
1997, (iv) $1,000,000 on October 31, 1997, (v) $2,500,000 on November
30, 1997 and (vi) $5,000,000 on December 31, 1997, each such reduction
to be apportioned ratably among the Banks in accordance with their Pro
Rata Shares.
(f) Section 8.15 of the Existing Credit Agreement is hereby
amended and restated in its entirety to read as follows:
Section 8.15. Capital Expenditures. Make or commit to make any
Capital Expenditure if the aggregate amount of the Capital Expenditures
of the Consolidated Entities incurred (a) during each fiscal quarter of
the Borrower would exceed (i) if such fiscal quarter ends on March 29,
1997, $8,000,000, (ii) if such fiscal quarter ends on June 28, 1997,
$8,000,000, (iii) if such fiscal quarter ends on September 27, 1997,
$3,500,000 or (iv) if such fiscal quarter ends on December 31, 1997,
$2,800,000; provided that any amount permitted in a fiscal quarter that
is not expended in such fiscal quarter may be carried over and expended
in subsequent fiscal quarters in addition to the amount permitted in
each such subsequent fiscal quarter; and (b) during the fiscal period
from December 29, 1996 through the end of each fiscal quarter of the
Borrower would exceed (i) if such fiscal quarter ends on June 28, 1997,
$15,500,000, (ii) if such fiscal quarter ends on September 27, 1997,
$18,100,000 or (iii) if such fiscal quarter ends on December 31, 1997,
$20,000,000.
(g) Section 8.16 of the Existing Credit Agreement is hereby
amended and restated in its entirety to read as follows:
3
<PAGE>
Section 8.16. Rental Expense. Create, incur, assume or suffer to exist
any obligation as lessee for the rental or hire of any Property, except:
(a) leases existing on February 7, 1997 and any extensions or
renewals thereof;
(b) leases of "Fuddruckers" restaurants located in
Superstition Springs, Arizona, Thornton, Colorado and Layton, Utah under the
FFCA Sale-Leaseback Transaction; and
(c) leases of "Champps" restaurants located in Schaumburg,
Illinois, San Antonio, Texas and Detroit, Michigan under the AEI Sale- Leaseback
Transaction and leases of equipment located therein and equipment located in
"Champps" restaurants located in Fort Lauderdale, Florida and Columbus, Ohio
from Carlton Financial;
(d) leases by Daka, Inc. relating to the operation of its food
service business entered into in the ordinary course of business; and
(e) leases of miscellaneous personal Property, provided that
the aggregate amount of rentals relating to such leases does not exceed $100,000
in any fiscal year of the Borrower.
(h) Article 8 of the Existing Credit Agreement is hereby
amended to add new Section 8.18 to read as follows:
"Section 8.18. New Construction. Enter into any construction contract
after February 7, 1997 without the prior written consent of the Required Banks."
(i) Article 9 of the Existing Credit Agreement is hereby
amended and restated to read as follows:
ARTICLE 9. FINANCIAL COVENANTS.
So long as any Obligation shall remain unpaid, any Letter of
Credit shall remain outstanding or any Bank shall have any Commitment
under this Agreement, each of the Obligors jointly and severally
covenants that:
Section 9.01. Net Income. As determined as of the end of each fiscal
quarter of the Borrower, Consolidated Net Income (a) for such
4
<PAGE>
fiscal quarter shall be not less than (i) if such fiscal quarter ends
on March 29, 1997, ($1,250,000), (ii) if such fiscal quarter ends on
June 28, 1997, ($1,600,000), (iii) if such fiscal quarter ends on
September 27, 1997, ($3,000,000) or (iv) if such fiscal quarter ends on
December 31, 1997, $0 and (b) irregardless of whether the Borrower is
in compliance with clause (a), for the fiscal period from December 29,
1996 through the end of such fiscal quarter shall be not less than
($3,800,000).
Section 9.02. Leverage Ratio. As determined as of the end of each fiscal
month of the Borrower, the Leverage Ratio shall be not greater than (a) if such
month is January, February, March, April or May, 2.60 to 1.00, (b) if such month
is June, July, August, September, October or November, 2.50 to 1.00 or (c) if
such month is December, 2.25 to 1.00.
Section 9.03. Minimum Tangible Net Worth. At all times, Consolidated
Tangible Net Worth shall not be less than (a) if such time is on or after
January 25, 1997 and before April 26, 1997, $54,500,000, (b) if such time is on
or after April 26, 1997 and before July 26, 1997, $53,000,000 or (c) if such
time is on or after July 26, 1997, $52,000,000.
Section 9.04. Fixed Charge Coverage Ratio. As determined as of the end
of each fiscal quarter of the Borrower, the Fixed Charge Coverage Ratio for such
fiscal quarter shall be not less than (a) if such fiscal quarter ends on March
29, 1997, .80 to 1.00, (b) if such fiscal quarter ends on June 28, 1997, .70 to
1.00, (c) if such fiscal quarter ends on September 27, 1997, .50 to 1.00 or (d)
if such fiscal quarter ends on December 31, 1997, .90 to 1.00.
Section 9.05. Interest Coverage Ratio. As determined as of the end of
each fiscal quarter of the Borrower, the Interest Coverage Ratio (a) for such
fiscal quarter shall be not less than (i) if such fiscal quarter ends on March
29, 1997, (.30) to 1.00, (ii) if such fiscal quarter ends on June 28, 1997,
(.34) to 1.00, (iii) if such fiscal quarter ends on September 27, 1997, .19 to
1.00 or (iv) if such fiscal quarter ends on December 31, 1997, 2.33 to 1.00 and
(b) for the fiscal period from December 29, 1996 through the end of such fiscal
quarter shall be not less than (i) if such fiscal quarter ends on March 29,
1997, (.30) to 1.00, (ii) if such fiscal quarter ends on June 28, 1997, (.24) to
1.00, (iii) if such fiscal quarter ends on September 27, 1997, (.09) to 1.00 or
(iv) if such fiscal quarter ends on December 31, 1997, .57 to 1.00.
5
<PAGE>
(j) Schedules I-IV of the Existing Credit Agreement are hereby
amended and restated as set forth in Schedules I-IV hereto.
Section 1.02. Amendments to Security Agreement. Each of the Obligors
and, subject to the satisfaction of the conditions set forth in Article 3, the
Agent and the Banks hereby consents and agrees that Schedule A to the Security
Agreement is hereby amended and restated as set forth in Schedule V hereto.
Section 1.03. Amendments to Pledge Agreement. Each of the Obligors and,
subject to the satisfaction of the conditions set forth in Article 3, the Agent
and the Banks hereby consents and agrees that Schedule A to the Pledge Agreement
is hereby amended and restated as set forth in Schedule VI hereto.
ARTICLE 2. REPRESENTATIONS AND WARRANTIES.
Each of the Obligors hereby represents and warrants that as of the
Effective Date:
Section 2.01. Existing Representations and Warranties. Each of the
representations and warranties contained in Article 6 of the Existing Credit
Agreement, in Article 3 of the Security Agreement, in Article 3 of the Trademark
Security Agreement and in Article 3 of the Pledge Agreement are true and
correct.
Section 2.02. No Defaults. Except for the Defaults and Events of
Default specifically waived under Article 4, no event has occurred and no
condition exists which would constitute a Default or an Event of Default under
the Facility Documents, and no event has occurred and no condition exists which
would constitute a Default or an Event of Default under the Amended Facility
Documents.
Section 2.03. Corporate Power and Authority; No Conflicts. The
execution, delivery and performance by each of the Obligors of the Amended
Facility Documents to which it is a party have been duly authorized by all
necessary corporate, partnership or limited liability company action and do not
and will not: (a) require any consent or approval of its stockholders, partners
or members; (b) contravene its organizational documents; (c) violate any
provision of, or require any filing (other than the filing of the financing
statements contemplated by the Security Agreement and the filing of the
Mortgages and the Trademark Security Agreement), registration, consent or
approval under, any law, rule, regulation (including, without limitation,
Regulation U), order, writ, judgment, injunction, decree, determination or award
presently in effect having applicability to any Consolidated Entity; (d) result
in a breach of or constitute a default or require any consent under any
indenture or loan or credit agreement or any other agreement, lease or
instrument to which any
6
<PAGE>
Consolidated Entity is a party or by which it or its properties may be bound or
affected if such breach, default or failure to obtain consent could reasonably
be expected to have a Material Adverse Effect; (e) result in, or require, the
creation or imposition of any Lien (other than as created under the Security
Documents), upon or with respect to any of the properties now owned or hereafter
acquired by any Consolidated Entity; or (f) cause any Consolidated Entity to be
in default under any such law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award or any such indenture, agreement,
lease or instrument if such default could reasonably be expected to have a
Material Adverse Effect.
Section 2.04. Legally Enforceable Agreements. Each Amended Facility
Document to which any Obligor is a party has been duly executed and delivered by
such Obligor. Each Amended Facility Document to which any Obligor is a party is
a legal, valid and binding obligation of such Obligor enforceable against such
Obligor in accordance with its terms, except to the extent that such enforcement
may be limited by applicable bankruptcy, insolvency and other similar laws
affecting creditors' rights generally.
Section 2.05. Financial Statements. The consolidated balance sheet of
the Consolidated Entities as at June 29, 1996, and the related consolidated and
consolidating (by business segment) income statements and consolidated
statements of cash flows and changes in stockholders' equity of the Consolidated
Entities for the fiscal year then ended, and the accompanying footnotes,
together with the unqualified opinion on the consolidated statements of Deloitte
& Touche, independent certified public accountants, and the interim draft
consolidated balance sheet of the Consolidated Entities as at December 28, 1996,
and the related draft consolidated and consolidating (by business segment)
income statements and consolidated statements of cash flows and changes in
stockholders' equity of the Consolidated Entities for the six months then ended,
copies of which have been furnished to each of the Banks, are complete and
correct and fairly present the financial condition of the Consolidated Entities
at such dates and the results of the operations of the Consolidated Entities for
the periods covered by such statements, all in accordance with GAAP consistently
applied. There are no liabilities of any Consolidated Entity, fixed or
contingent, which are material but are not reflected in the financial statements
or in the notes thereto and which would be required to be recorded in such
financial statements or notes in accordance with GAAP, other than liabilities
arising in the ordinary course of business since December 28, 1996. No
information, exhibit or report furnished by any Consolidated Entity to the Banks
in connection with the negotiation of this Agreement contained any material
misstatement of fact or omitted to state a material fact or any fact necessary
to make the statements contained therein not materially misleading. Since
December 28, 1996, there has been no change which could reasonably be expected
to have a Material Adverse Effect.
7
<PAGE>
ARTICLE 3. CONDITIONS PRECEDENT.
The effectiveness of this Agreement is subject to the condition
precedent that the Agent shall have received on or before February 7, 1997 (the
"Effective Date") each of the following, in form and substance satisfactory to
the Agent and its counsel:
(a) counterparts of this Agreement executed by each of the
Borrower, the Subsidiary Guarantors, the Banks and the Agent;
(b) sufficient mortgages and leasehold mortgages executed by
Fuddruckers, Inc. or Champps Entertainment, Inc. (the "Mortgages") covering all
of the unencumbered real Property owned by each of the Obligors listed on
Schedule VII hereto but in any event excluding the "Champps" restaurant located
in Denver, Colorado (collectively, the "Mortgaged Properties");
(c) evidence that all actions necessary or appropriate (or, in
any event, as may be requested by the Agent) to create, perfect or protect the
Liens created or purported to be created by the Security Agreement, the
Trademark Security Agreement and the Pledge Agreement have been taken;
(d) certificates of the Secretary or Assistant Secretary of
each of the Obligors, dated the Effective Date, (i) attesting to all corporate
action taken by such Obligor, including resolutions of its Board of Directors
authorizing the execution, delivery and performance of each of the Amended
Facility Documents to which it is a party and each other document to be
delivered pursuant to this Agreement, (ii) certifying the names and true
signatures of the officers of such Obligor authorized to sign the Amended
Facility Documents to which it is a party and the other documents to be
delivered by such Obligor under this Agreement and (iii) verifying that the
organizational documents of such Obligor (other than those of the New Subsidiary
Guarantors which shall be delivered within 30 days of the Effective Date)
attached thereto are true, correct and complete as of the date thereof;
(e) a certificate of a duly authorized officer of each of the
Obligors, dated the Effective Date, stating that the representations and
warranties in Article 2 are true and correct on such date as though made on and
as of such date and that no event has occurred and is continuing which
constitutes a Default or Event of Default;
(f) favorable opinions of (i) Goodwin, Procter & Hoar, outside
counsel for the Obligors, (ii) Wolin, Fuller, Ridley & Miller L.L.P., special
Texas counsel to the Obigors, and (iii) Fredrikson & Byron, P.A., special
Minnesota counsel to the Obligors,
8
<PAGE>
each dated the Effective Date, in substantially the form of Exhibit A and as to
such other matters as the Agent or any Bank may reasonably request; and
(g) evidence that the fees and expenses incurred as of the
Effective Date under Section 6.04 shall have been paid in full.
ARTICLE 4. CERTAIN WAIVERS.
Subject to the satisfaction of the conditions set forth in Article 3
hereof, each of the Agent and the Banks hereby waives the following Defaults or
Events of Default arising from noncompliance by the Borrower (a) with Section
8.15(b) for the fiscal quarter of the Borrower ending on December 28, 1996, (b)
with Section 8.16 for the fiscal quarter of the Borrower ending on December 28,
1996, (c) with Section 9.01 for the fiscal quarter of the Borrower ending on
December 28, 1996, (d) with Section 9.02 for the fiscal months of the Borrower
ending on October 25, 1996, November 23, 1996, December 28, 1996 and January 25,
1997, (e) with Section 9.03 for any time prior to the Effective Date, (f) with
Section 9.04 for the fiscal quarter of the Borrower ending on December 28, 1996
and (g) with Section 9.05 for the fiscal quarter of the Borrower ending on
December 28, 1996. Except for the foregoing waivers, the terms of this Agreement
shall not operate as a waiver by the Agent or any Bank or otherwise prejudice
the rights, remedies or powers of the Agent or any Bank under the Amended Credit
Agreement, the other Amended Facility Documents or applicable law. Except as
expressly provided herein: (x) no terms and provisions of the Facility Documents
are modified or changed by this Agreement; and (y) the terms and provisions of
the Facility Documents shall continue in full force and effect.
ARTICLE 5. CERTAIN COVENANTS.
Section 5.01. Controlled Disbursement System. Each Obligor (other than
Atlantic Restaurant Ventures, Inc.) hereby agrees to maintain its
"concentration" accounts at The First National Bank of Chicago, unless the Agent
shall have notified such Obligor on or after July 1, 1997 to transfer such
"concentration" accounts to The Chase Manhattan Bank, whereupon such
"concentration" accounts shall be transferred within 30 days of such
notification to, and thereafter maintained at, The Chase Manhattan Bank. Each
Obligor (including Atlantic Restaurant Ventures, Inc.) hereby agrees to take all
necessary actions to establish within 60 days, and agrees to establish within 90
days, of the Effective Date and thereafter maintain a disbursement system
pursuant to which each Obligor deposits all cash receipts into an operating
account subject to such disbursement system which receipts are then
automatically transferred no less often then weekly to the "concentration"
accounts of such Obligor or, in the case of Atlantic Restaurant Ventures, Inc.,
of Fuddruckers, Inc. Upon such automatic transfer, the cash held in the
"concentration" accounts of each Obligor in excess of outstanding checks drawn
on such accounts projected to
9
<PAGE>
be cashed prior to the next automatic transfer shall be utilized to prepay the
Loans, subject to the Borrower's right to reborrow in accordance with the terms
of the Amended Credit Agreement. Upon implementation, the Borrower shall cause
The First National Bank of Chicago to agree not to discontinue or modify such
disbursement system without the prior written consent of the Agent or, if The
First National Bank of Chicago shall refuse to so agree, shall immediately take
action to transfer, and in any event within 30 days shall transfer, the
"concentration" accounts to The Chase Manhattan Bank.
Section 5.02. Additional Reporting Requirements. In addition to the
reports required to be delivered under Section 7.08 of the Amended Credit
Agreement, the Borrower hereby agrees to provide (a) within 5 days after the end
of each week, a report listing each "Fuddruckers" and "Champps" restaurant as of
the end of such week, sales for each such restaurant for such week, comparable
results to the corresponding week in the prior fiscal year for each such
restaurant and comparison to the projected results for such week; (b) within 30
days after the end of each month, a report listing each "Fuddruckers" and
"Champps" restaurant as of the end of such month, sales, expense and margin
information for each such restaurant for such month, comparable results to the
corresponding month in the prior fiscal year for each such restaurant and
comparison to the projected results for such month; (c) within 5 days of the end
of such week, a listing of the aggregate amount of accounts payable of the
Consolidated Entities to Alliant Foodservice as of the end of such week; (d)
simultaneously with the delivery of the financial statements referred to in
Section 7.08(g), a summary aged trial balance from the invoice date of the
accounts payable of the Consolidated Entities to Alliant Foodservice and the
average aged trial balance from the due date of all other accounts payable of
the Consolidated Entities; (e) promptly after the receipt thereof, copies of all
correspondence, reports, analyses and other documentation relating to any
proposed recapitalization, reorganization, sale, merger, refinancing or capital
raising activities of any Consolidated Entity; and (f) a calculation of the
"Fixed Charge Coverage Ratio" for each "Fuddruckers" restaurant subject to the
FFCA Sale-Leaseback Transaction and any requested "buy-downs" pursuant thereto.
All reports delivered under Section 7.08 of the Amended Credit Agreement or
hereunder shall be in form and substance satisfactory to the Banks.
Section 5.03. Certain Real Estate Issues. Each of the Agent and the
Banks hereby agrees that the Mortgages on the "Fuddruckers" restaurants located
in Superstition Springs, Arizona, Thornton, Colorado and Layton, Utah (the "SL
Mortgaged Properties") will not be recorded until October 1, 1997 and will only
be recorded to the extent any of such restaurants have not then been sold and
leased back under the FFCA Sale-Leaseback Transaction. The Borrower hereby
agrees to use reasonable and good faith efforts to seek financing with respect
to the Mortgaged Properties (other than the SL Mortgaged Properties), 100% of
the proceeds (net of
10
<PAGE>
taxes and transaction costs) of which shall be utilized to prepay the Loans and
permanently reduce the Loan Commitments (which reductions shall be in excess of
the reductions required under Section 2.01 of the Amended Credit Agreement). The
Banks may (a) engage an environmental consultant to prepare an environmental
site assessment report with respect to each of the Mortgaged Properties and (b)
engage an appraiser to perform an independent appraisal as to each of the
Mortgaged Properties, in each case, upon a Default or Event of Default, at the
cost of the Borrower.
Section 5.04. Consultant. The Borrower hereby agrees to the continued
engagement of Alvarez & Marsal, Inc. to examine the financial condition,
operation, properties, business and prospects of the Consolidated Entities for
the benefit of the Banks at the cost of the Borrower.
Section 5.05. Letter of Credit Availability. The Borrower hereby agrees
to use reasonable and good faith efforts to reduce the face amount of the
Letters of Credit required to be posted to secure obligations in connection with
insurance programs, whereupon any such reduction shall be utilized to
permanently reduce the Letter of Credit Commitments and the Letter of Credit
Availability.
ARTICLE 6. MISCELLANEOUS.
Section 6.01. Defined Terms. The terms used herein and not defined
herein shall have the meanings assigned to such terms in the Amended Credit
Agreement.
Section 6.02. Reaffirmation. Each of the Obligors acknowledges that the
Liens granted to the Agent under the Security Documents in and to the Collateral
secures all of the Obligations, including, without limitation, all liabilities
and obligations under the Loans as herein modified and decreased. All references
to "Secured Obligations" in any Facility Document shall be deemed to include all
liabilities and obligations under the Loans as herein modified and decreased.
Each of the Obligors further acknowledges and reaffirms all of its other
respective obligations and duties under the Amended Facility Documents to which
it is a party.
Section 6.03. Amendments and Waivers. Any provision of this Agreement
may be amended or modified only by an instrument in writing signed by the
Borrower, the Agent and the Required Banks, or by the Borrower and the Agent
acting with the consent of the Required Banks and any provision of this
Agreement may be waived by the Required Banks or by the Agent acting with the
consent of the Required Banks; except any provision the subject matter of which
the consent of all of the Banks would be necessary under the Facility Documents
shall require the consent of all of the Banks prior to the amendment or waiver
thereof.
11
<PAGE>
Section 6.04. Expenses. The Borrower shall reimburse the Agent on
demand for all reasonable costs, expenses and charges (including, without
limitation, reasonable fees and charges of legal counsel to the Agent and of
Alvarez & Marsal, Inc. and all recording fees, charges and taxes incurred upon
the recordation of the Mortgages) in connection with the preparation of, and any
amendment, supplement, waiver or modification to (in each case, whether or not
consummated), this Agreement, any other Amended Facility Document and any other
documents prepared in connection herewith or therewith. The Borrower shall also
pay to the Agent for the account of the Banks an amendment fee equal to $75,000
to be split among the Banks in accordance with their Pro Rata Shares.
Section 6.05. Notices. Unless the party to be notified otherwise
notifies the other party in writing as provided in this Section, and except as
otherwise provided in this Agreement, notices shall be given to the Agent by
telephone, confirmed by telex, telecopy or other writing, and to the Banks and
to the Obligors by ordinary mail or telecopier addressed to such party at its
address on the signature page of this Agreement. Notices shall be effective: (a)
if given by mail, 72 hours after deposit in the mails with first class postage
prepaid, addressed as aforesaid; and (b) if given by telecopier, when the
telecopy is transmitted to the telecopier number as aforesaid; provided that
notices to the Agent and the Banks shall be effective upon receipt.
Section 6.06. Headings; Parentheticals. The headings and captions
hereunder are for convenience only and shall not affect the interpretation or
construction of this Agreement. All numbers contained herein enclosed by
parentheticals are deemed to reflect losses or the negative of such numbers.
Section 6.07. Severability. The provisions of this Agreement are
intended to be severable. If for any reason any provision of this Agreement
shall be held invalid or unenforceable in whole or in part in any jurisdiction,
such provision shall, as to such jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without in any manner affecting the validity
or enforceability thereof in any other jurisdiction or the remaining provisions
hereof in any jurisdiction.
Section 6.08. Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument, and any party hereto may execute this Agreement by signing any such
counterpart.
Section 6.09. Integration. The Amended Facility Documents set forth the
entire agreement among the parties hereto relating to the transactions
contemplated thereby and supersede any prior oral or written statements or
agreements with respect to such transactions.
12
<PAGE>
SECTION 6.10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
INTERPRETED AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE COMMONWEALTH OF
MASSACHUSETTS.
Section 6.11. New Subsidiary Guarantors. Each of Hospitality Supply,
Inc., a Massachusetts corporation, and Fuddruckers Europe, Inc., a Texas
corporation (collectively, the "New Subsidiary Guarantors") unconditionally and
irrevocably accepts, adheres to, and becomes a party to and bound as a
"Subsidiary Guarantor" under the Existing Credit Agreement and the other
Facility Documents, as fully as if such New Subsidiary Guarantor had been a
signatory to the Existing Credit Agreement and the other Facility Documents as a
"Subsidiary Guarantor". In confirmation (but without limitation) of the
foregoing, each of the New Subsidiary Guarantors hereby unconditionally (a)
agrees to make prompt payment in full when due (whether at stated maturity, by
acceleration or otherwise) of the principal of and interest on all Obligations
and (b) grants, bargains, conveys, assigns, transfers, mortgages, hypothecates,
pledges, confirms and grants a continuing security interest to the Agent in and
to the Collateral.
Section 6.12. Release. Each of the Obligors hereby releases and forever
discharges the Agent and each of the Banks and their respective successors,
assigns, affiliates, directors, employees and agents from all causes of action,
covenants, agreements, damages, claims and demands whatsoever, in law or in
equity, which such Obligor ever had or now has in any way relating to or arising
out of the Existing Credit Agreement, any other Facility Document or any other
document contemplated by or referred to herein or the transactions contemplated
hereby or thereby or the enforcement of any of the terms thereof.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
DAKA INTERNATIONAL, INC.
By/s/Charles W. Redepenning, Jr.
------------------------------
Name:Charles W. Redepenning, Jr.
Title:Sr. Vice President
FUDDRUCKERS, INC.
By/s/Charles W. Redepenning, Jr.
------------------------------
Name:Charles W. Redepenning, Jr.
Title:Sr. Vice President
DAKA, INC.
By/s/Charles W. Redepenning, Jr.
------------------------------
Name:Charles W. Redepenning, Jr.
Title:Sr. Vice President
CASUAL DINING VENTURES, INC.
By/s/Charles W. Redepenning, Jr.
------------------------------
Name:Charles W. Redepenning, Jr.
Title:Sr. Vice President
ATLANTIC RESTAURANT VENTURES,
INC.
By/s/Charles W. Redepenning, Jr.
------------------------------
Name:Charles W. Redepenning, Jr.
Title:Sr. Vice President
[SIGNATURE PAGE TO FIRST AMENDMENT AGREEMENT]
<PAGE>
FRENCH QUARTER COFFEE COMPANY
By/s/Charles W. Redepenning, Jr.
------------------------------
Name:Charles W. Redepenning, Jr.
Title:Sr. Vice President
AMERICANA DINING CORP.
By/s/Charles W. Redepenning, Jr.
------------------------------
Name:Charles W. Redepenning, Jr.
Title:Sr. Vice President
CHAMPPS ENTERTAINMENT OF
EDISON, INC.
By/s/Charles W. Redepenning, Jr.
------------------------------
Name:Charles W. Redepenning, Jr.
Title:Sr. Vice President
CHAMPPS ENTERTAINMENT OF
TEXAS, INC.
By/s/Charles W. Redepenning, Jr.
------------------------------
Name:Charles W. Redepenning, Jr.
Title:Sr. Vice President
[SIGNATURE PAGE TO FIRST AMENDMENT AGREEMENT]
<PAGE>
CHAMPPS AMERICANA, INC.
(Formerly known as Champps
Entertainment of Wayzata, Inc.)
By/s/Charles W. Redepenning, Jr.
------------------------------
Name:Charles W. Redepenning, Jr.
Title:Sr. Vice President
CHAMPPS ENTERTAINMENT, INC.
By/s/Charles W. Redepenning, Jr.
------------------------------
Name:Charles W. Redepenning, Jr.
Title:Sr. Vice President
SPECIALTY CONCEPTS, INC.
By/s/Charles W. Redepenning, Jr.
------------------------------
Name:Charles W. Redepenning, Jr.
Title:Sr. Vice President
THE GREAT BAGEL AND COFFEE
COMPANY
By/s/Charles W. Redepenning, Jr.
------------------------------
Name:Charles W. Redepenning, Jr.
Title:Sr. Vice President
HOSPITALITY SUPPLY, INC.
By/s/Charles W. Redepenning, Jr.
------------------------------
Name:Charles W. Redepenning, Jr.
Title:Sr. Vice President
[SIGNATURE PAGE TO FIRST AMENDMENT AGREEMENT]
<PAGE>
FUDDRUCKERS EUROPE, INC.
By/s/Charles W. Redepenning, Jr.
------------------------------
Name:Charles W. Redepenning, Jr.
Title:Sr. Vice President
Address for Notices:
One Corporate Place
55 Ferncroft Road
Danvers, Massachusetts 01923
Telecopier No.:(508)774-1334
[SIGNATURE PAGE TO FIRST AMENDMENT AGREEMENT]
<PAGE>
AGENT:
THE CHASE MANHATTAN BANK
By /s/Patrick A. Daniello
--------------------------
Name:Patrick A. Daniello
Title:Vice President
Address for Notices:
270 Park Avenue
30th Floor
New York, NY 15258
Attention: Patrick Daniello
[SIGNATURE PAGE TO FIRST AMENDMENT AGREEMENT]
<PAGE>
BANKS:
THE CHASE MANHATTAN BANK
By /s/Patrick A. Daniello
--------------------------
Name:Patrick A. Daniello
Title:Vice President
Lending Office and Address for
Notices:
270 Park Avenue
30th Floor
New York, NY 15258
Attention: Patrick Daniello
[SIGNATURE PAGE TO FIRST AMENDMENT AGREEMENT]
<PAGE>
BANKS:
FLEET NATIONAL BANK
By /s/Edward W. O'Brien
-------------------------------
Name:Edward W. O'Brien
Title:Vice President
Lending Office and Address for
Notices:
40 Westminster Street
Providence, RI 02901
Attention: Edward O'Brien
[SIGNATURE PAGE TO FIRST AMENDMENT AGREEMENT]
<PAGE>
BANKS:
MELLON BANK, N.A.
By /s/Gary A. Saul
-----------------------------------
Name:Gary A. Saul
Title:Vice President
Lending Office and Address for
Notices:
One Mellon Bank Center
Room 4835
Pittsburgh, PA 15258-0001
Attention: Gary A. Saul
[SIGNATURE PAGE TO FIRST AMENDMENT AGREEMENT]
<PAGE>
BANKS:
THE FIRST NATIONAL BANK OF
BOSTON
By /s/Corinne M. Barrett
-------------------------------
Name:Corinne M. Barrett
Title:Vice President
Lending Office and Address for
Notices:
100 Federal Street
Boston, MA 02110
Attention: Corinne Barrett
[SIGNATURE PAGE TO FIRST AMENDMENT AGREEMENT]
<PAGE>
SCHEDULE I
Commitments
Loan Commitments
The Chase Manhattan Bank $57,500,000.00
Fleet National Bank $19,166,666.67
Mellon Bank, N.A. $19,166,666.67
The First National Bank of Boston $19,166,666.66
---------------
Total Loan Commitments $115,000,000.00
Standby Letter of Credit Commitments
The Chase Manhattan Bank $2,500,000.00
Fleet National Bank $833,333.33
Mellon Bank, N.A. $833,333.33
The First National Bank of Boston $833,333.34
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Total Letter of Credit Commitments $5,000,000.00
