-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HujmsBprcMv3Z4guMGUXKFCc4tT6oIAKSmOVIoVbVmxMxBIFg2PCBYkCFAM72JkC fcoAkjUQtTl6yg2yQBPb7Q== 0000840826-97-000003.txt : 19970221 0000840826-97-000003.hdr.sgml : 19970221 ACCESSION NUMBER: 0000840826-97-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19961228 FILED AS OF DATE: 19970211 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAKA INTERNATIONAL INC CENTRAL INDEX KEY: 0000840826 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 043024178 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17229 FILM NUMBER: 97524428 BUSINESS ADDRESS: STREET 1: ONE CORPORATE PL STREET 2: 55 FERNCROFT RD CITY: DANVERS STATE: MA ZIP: 01923 BUSINESS PHONE: 5087749115 MAIL ADDRESS: STREET 1: ONE CORPORATE PLACE 55 FERNCROFT RD CITY: DANVERS STATE: MA ZIP: 01923 10-Q 1 QUARTERLY REPORT 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. PART I - FINANCIAL INFORMATION Item 1. Financial Statements DAKA INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data)
December 28, June 29, 1996 1996 ------ ------ (Unaudited) 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 ======== ========
See notes to unaudited condensed consolidated financial statements. DAKA INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited)
Quarters Ended Six Months Ended -------------- ---------------- December December December December 28, 1996 30, 1995 28, 1996 30, 1995 ---------- ---------- ---------- --------- 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
See notes to unaudited condensed consolidated financial statements. DAKA INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Six months ended December 28, 1996 and December 30, 1995 (In thousands) (Unaudited)
December December 28, 1996 30, 1995 ---------- ---------- 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
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. 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. 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. 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). 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. 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.
Quarters Ended Six Months Ended -------------- ---------------- December December December December 28, 1996 30, 1995 28, 1996 30, 1995 -------- -------- -------- -------- 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 -------- -------- -------- -------- 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 ======== ======== ======== ========
(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. 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. 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. 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
Quarters Ended Six Months Ended -------------- ---------------- December December December December 28, 1996 30, 1995 28, 1996 30, 1995 --------- --------- --------- --------- 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 ========= ========= ========= =========
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. Fuddruckers
Quarters Ended Six Months Ended -------------- ---------------- December December December December 28, 1996 30, 1995 28, 1996 30, 1995 --------- --------- --------- --------- 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 ========= =========
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. Champps
Quarters Ended Six Months Ended -------------- ---------------- December December December December 28, 1996 30, 1995 28, 1996 30, 1995 --------- --------- --------- --------- 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 ========= =========
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. Specialty Concepts
Quarters Ended Six Months Ended -------------- ---------------- December December December December 28, 1996 30, 1995 28, 1996 30, 1995 -------- -------- -------- -------- 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 ======== ======== ======== ========
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. 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. 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 EX-11 2 PER SHARE EARNINGS COMPUTATION 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)
Quarters Ended Six Months Ended -------------- ---------------- December December December December 28, 1996 30, 1995 28, 1996 30, 1995 -------- -------- -------- -------- 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 ======== ======== ======== =======
EX-27 3 FINANCIAL DATA SCHEDULE
5 0000840826 DAKA INTERNATIONAL, INC. 1000 6-MOS JUN-28-1997 DEC-28-1996 13,449 0 48,152 448 11,000 80,609 170,683 42,555 253,429 67,316 95,558 0 0 111 76,740 253,429 194,817 199,870 170,389 170,389 0 0 5,183 (9,318) (3,243) (6,070) 0 0 0 (6,070) (0.55) (0.55)
EX-10.25 4 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 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 (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 (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 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 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 (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 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 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 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 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 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 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 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 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] 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] 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] 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] 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] 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] 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] 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] 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] 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 ------------- Total Letter of Credit Commitments $5,000,000.00 -----END PRIVACY-ENHANCED MESSAGE-----