SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended December 26, 1999

[_] 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 ...........

AFC ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)

Minnesota 58-2016606
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)

Six Concourse Parkway, Suite 1700
Atlanta, Georgia 30328-5352
(Address of principal executive offices) (Zip Code)

(770) 391-9500
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12 (b) of the Exchange Act: None
Securities registered pursuant to Section 12 (g) of the Exchange Act: None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Not applicable.

The aggregate market value of the common stock of AFC Enterprises, Inc. held by
non-affiliates of AFC Enterprises, Inc. is not applicable as the common stock of
AFC Enterprises, Inc. is privately held.

As of March 27, 2000, there were 39,443,398 shares of the registrant's Common
Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The exhibit index is contained in Part IV herein on page 55.

AFC Enterprises, Inc.

INDEX TO FORM 10-K

PART I

Item 1. Business................................................ 1
Item 2. Properties.............................................. 19
Item 3. Legal Proceedings....................................... 22
Item 4. Submission of Matters to a Vote of Security Holders..... 22

PART II

Item 5. Market for Registrant's Common Equity and Related
Stockholders Matters.................................. 23
Item 6. Selected Consolidated Financial Data.................... 24
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 27
Item 8. Consolidated Financial Statements and Supplementary Data 39
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................... 39

PART III

Item 10. Directors and Executive Officers of the Registrant...... 40
Item 11. Executive Compensation.................................. 44
Item 12. Security Ownership of Certain Beneficial Owners
and Management........................................ 52
Item 13. Certain Relationships and Related Transactions.......... 53

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K................................................ 55

Part I.

Item 1. BUSINESS.

This Annual Report on Form 10-K contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities and Exchange Act of 1934, as amended. Such forward-
looking statements relate to our plans, objectives and expectations for future
operations. In light of the risks and uncertainties inherent in any discussion
of our expected future performance or operations, the inclusion of forward-
looking statements in this report should not be regarded as a representation by
us or any other person that these will be realized. Such performance could be
materially affected by a number of potential risks and uncertainties, including
without limitation, changes in consumer and demographic trends, increases in
food and labor costs, our ability to franchise new units, the level of
competition in the industry, currency, political and economic factors affecting
our international operations and increased government regulations requiring
substantial capital expenditures.

General

We (sometimes referred to as the "Company") are a Minnesota corporation and
together with our 100% owned subsidiaries are principally engaged in the
operation, development and franchising of quick-service restaurants, bakeries
and cafes ("QSRs") under the primary trade names of Popeyes Chicken & Biscuits
("Popeyes"), Churchs Chicken ("Churchs"), Cinnabon Bakeries ("Cinnabon") and
Seattle's Best Coffee and Torrefazione Italia ("Seattle Coffee"). We operate
and franchise others to operate 3,374 restaurants, bakeries and cafes in 46
states, the District of Columbia and 24 foreign countries. Our system-wide
sales in fiscal year 1999 totaled approximately $2.1 billion. Our total
restaurants, bakeries and cafes by brand as of December 26, 1999 were as
follows:

Domestic International
--------------------- ---------------------
Company- Company-
Operated Franchised Operated Franchised Total
-------- ---------- -------- ---------- -----

Popeyes............ 175 990 - 231 1,396
Churchs............ 494 684 - 314 1,492
Cinnabon........... 195 166 - 27 388
Seattle Coffee..... 73 17 3 5 98
--- ----- - --- -----
Total......... 937 1,857 3 577 3,374
=== ===== = === =====

We are also engaged in the business of selling premium brand coffees
through wholesale and retail distribution channels. In addition, we have a
small manufacturing plant that produces gas fryers and other custom-fabricated
restaurant equipment for sale to our Company-operated and franchised restaurants
and bakeries and to other foodservice operators.

Our principal executive offices are located at Six Concourse Parkway, Suite
1700, Atlanta, Georgia 30328-5352 and our telephone number is (770) 391-9500.

Brand Profiles

We franchise and operate restaurants, bakeries and cafes catering to
different segments of the QSR industry. We also operate a wholesale coffee
business within Seattle Coffee in which we roast and blend specialty coffees
sold to various retailers.

Popeyes Chicken & Biscuits(R). Our Popeyes brand was founded in New
Orleans, Louisiana in 1972 and is the market leader in the Cajun segment of the
QSR industry. With 1,396 restaurants worldwide, Popeyes was the second largest
quick-service chicken restaurant chain in 1999, measured by system-wide sales
which were approximately $1.1 billion. Popeyes specialty menu item is fresh,
hand-battered, bone-in fried chicken sold in two flavors--New Orleans Spicy(R)
and Louisiana Mild(R). Popeyes chicken is complemented with a wide assortment
of signature Cajun cuisine side dishes, including red beans and rice, Cajun
rice, Cajun fries and fresh buttermilk biscuits. Popeyes is positioned as a
premium fried chicken for customers who seek its full flavor and specialty blend
of seasonings and spices. Popeyes is also known for its unique items that
complement its core menu, including its Louisiana Legends menu of jambalaya,
crawfish etoufee' and chicken and seafood gumbo. Popeyes spicy fried chicken
and other Cajun menu offerings have also proven to be popular in Far East
countries. Popeyes restaurants are generally found in urban areas in
traditional stand-alone and in-line locations, as well as in non-traditional
formats such as convenience stores, airports and other travel centers.

In 1999, Popeyes put into test two new Cajun cuisine restaurant concepts.
The first was Cajun Kitchen, a quick casual dining concept, and the second was
Cajun cafe, a mall food court concept.

Churchs Chicken(R). Our Churchs brand, founded in San Antonio, Texas in
1952, is one of the United States oldest QSR chains and as of December 26, 1999
had 1,492 restaurants worldwide, making Churchs the second largest quick-service
chicken restaurant chain, measured by number of outlets. System-wide sales for
fiscal year 1999 were approximately $811 million. Churchs restaurants focus on
serving traditional Southern fried chicken in a simple, no frills restaurant
setting. Churchs menu items also include other Southern specialties including
fried okra, coleslaw, mashed potatoes and gravy, corn on the cob, jalapeno
peppers and honey butter biscuits. Churchs is positioned as a value-oriented
brand, providing simple, traditional meals to price conscious consumers.
Churchs restaurants are traditionally found in urban areas where their
reputation as a "neighborhood" restaurant has been established. With its small
footprint and a simple operating system, Churchs is rapidly expanding into non-
traditional formats such as convenience stores, grocery stores and co-branded
locations. Internationally, Churchs has been very popular in the Far East and
Puerto Rico, operating under the brand name Texas Chicken(R) in the Far East.

Cinnabon(R). Founded in Seattle, Washington in 1985, our Cinnabon brand is
the leading cinnamon roll bakery retailer in North America. As of December 26,
1999,

Cinnabon had 388 bakeries. System-wide sales for fiscal year 1999 were
approximately $152.4 million. Located in high traffic shopping malls, airports,
train stations, travel plazas and supermarkets, Cinnabon bakeries serve fresh
cinnamon rolls made with Indonesian cinnamon and topped with a sweet, rich cream
cheese-based frosting. Cinnabon has built a reputation for offering fresh,
aromatic, oven-hot cinnamon rolls at affordable prices. The Classic Cinnabon
Roll laid the foundation for Cinnabon's high standards and commitment to quality
and freshness. Some of our new product offerings include the Caramel
Pecanbon(R), the Berrybon(R) and the Caramel Frosted Applebon(TM). In addition
to the cinnamon roll related products, we offer a variety of proprietary
beverages including the Mochalatta Chill(R) and Vareva(R) Orange Juice and we
serve Seattle's Best Coffee(R) in 195 bakeries.

Seattle Coffee. Our Seattle Coffee Company subsidiary was created as a
result of combining Seattle's Best Coffee, Inc. and Torrefazione Italia, Inc. in
May 1994. Currently, we have more than 5,000 wholesale accounts, and we have 98
cafes in the Seattle Coffee system.

Seattle's Best Coffee ("SBC") is one of the oldest brands in the specialty
coffee business in the United States. Founded in 1969, the first retail cafe
was opened in 1983 in Bellevue Square, a regional mall, and management adopted a
strategy of using retail stores to promote the brand name and drive wholesale
sales. This strategy has remained basically unchanged to the present. SBC
markets several "coffee house blends" under names such as Seattle's Best
Blend(R), Post Alley Blend(R), Saturday's Blend, Grand Central Blend and Henry's
Blend. Each blend has a unique flavor profile, allowing SBC to meet a full
range of taste preferences.

In late 1999, we franchised three Seattle Coffee cafes in Hartsfield
Airport, Atlanta, Georgia, which are currently in operation. In March 2000, we
executed an agreement to franchise two cafes in the Greater Pittsburgh
International Airport, Pittsburgh, Pennsylvania, and we are currently in
negotiations with prospective franchisees for several other major airport
locations, but franchise agreements have not yet been executed. We plan to
pursue these types of franchise relationships within major airports in the
future when and if opportunities arise. We believe major airport venues provide
our Seattle Coffee brand with both wholesale and retail opportunities and
increase brand awareness due to the heavy consumer traffic in such facilities.

Our Torrefazione Italia ("TI") brand was founded in 1986. Like SBC, TI has
opened retail locations to support and build brand awareness for its primary
business of wholesaling premium brand coffees. TI presents a classic Italian
coffee experience. TI coffees are positioned at the highest end of the quality
and price range and are marketed with an Italian image, with blend names such as
Venezia, Milano, Perugia and Napoli. The Italian heritage is enhanced by
serving TI coffees in hand-painted ceramics imported from Deruta, Italy. The TI
cafes project the brand's European flavor and are designed to accommodate those
who are on-the-go as well as those who wish to relax and sip their coffee while
listening to classic music.

Wholesale Operations

Seattle Coffee. We roast and blend specialty coffees in our 30,000 square
foot automated roasting facility on Vashon Island, near Seattle. We believe
that our roasting and packaging facility may be one of the most technically
advanced in the U.S., for its capacity. We select our coffee beans from the
best quality Arabica beans, which come from the finest growing regions of the
world.

Our wholesale coffee sales are made primarily to other food service
retailers and supermarkets. Food service wholesale sales are targeted to food
service providers, such as hotel chains, fine restaurants, specialty coffee
retailers, espresso carts, delis, and theaters, among others. Some of our major
wholesale accounts include multi-market retailers such as Books-A-Million, Eddie
Bauer, Mrs. Fields Cookies, Dave and Busters, Aramark and Alaska Airlines.

Our SBC coffee is distributed to supermarkets throughout the Pacific
Northwest and other parts of the country. The brand has achieved a high degree
of penetration in the Pacific Northwest with settings in most major
supermarkets, including QFC, Safeway and others. We initiated the entry of TI
coffee into supermarkets in late 1995 and our brand is now carried in selected
high-end chains and independents in Western Washington and Oregon. The
prospects for growth in the supermarket channel appear to be significant. We
believe that the increasing presence of our brands in retail cafes and key food
service accounts around the country will, in turn, stimulate opportunities for
long-term growth of bean sales through supermarkets. We operate 14 regional
wholesale offices throughout the U.S. and one in Canada.

Manufacturing Operations

Ultrafryer Systems. Our manufacturing division, called Ultrafryer, is a
manufacturer of restaurant equipment and is located in San Antonio, Texas.
Ultrafryer's focus is to provide equipment for our Company-operated and
franchised restaurants and bakeries domestically and internationally, as well as
other QSR customers. Our main product is the Ultrafryer(TM) gas fryer.

Restaurant Locations

As of December 26, 1999, our 3,374 system-wide restaurants, bakeries and
cafes were located in 46 states, the District of Columbia and 24 foreign
countries.

Popeyes. Popeyes restaurants are located in 41 states, the District of
Columbia and 16 foreign countries. Our 175 Company-operated Popeyes restaurants
are located in the states of Texas, Louisiana, Georgia, North Carolina and South
Carolina. Over 70% of our 990 domestic franchised Popeyes restaurants are
located in the states of Texas, Louisiana, Florida, California, Illinois,
Maryland, Mississippi, Virginia and Georgia. Over 65% of our 231 international
franchised Popeyes restaurants are located in Korea.

Churchs. Churchs restaurants are located in 30 states and nine foreign
countries. Our 494 Company-operated Churchs restaurants are concentrated
primarily in the states of Texas, Louisiana, Georgia, Oklahoma, Alabama,
Florida, Mississippi and Arizona. Almost 65% of our 684 domestic franchised
Churchs restaurants are located in Texas, California, Louisiana, Georgia,
Florida, Michigan, New York and Illinois. Over 95% of our 314 international
franchised Churchs restaurants are in Canada, Puerto Rico, Indonesia, Taiwan,
Mexico and the Philippines.

Cinnabon. Cinnabon bakeries are located in 41 states and eight foreign
countries. Our 195 Company-operated Cinnabon bakeries are concentrated
primarily in the states of California, Washington, Florida, Illinois, Ohio,
Texas, Massachusetts, Michigan, Wisconsin and Pennsylvania. Our 166 domestic
franchised Cinnabon bakeries are concentrated primarily in the states of
Minnesota, Massachusetts, Illinois, Arizona, California, Nevada, New Jersey,
Ohio and New York. Our 27 international franchised Cinnabon restaurants are
located in Canada, Mexico, United Kingdom, Philippines, Japan, Thailand,
Venezuela and Saudi Arabia.

Seattle Coffee. Our coffee cafes are located in thirteen states and three
foreign countries. Our domestic 73 Company-operated cafes are located primarily
in the states of Washington, Oregon, California and Illinois. There are three
Company-operated cafes in Canada. Our 17 domestic franchised cafes are located
primarily in Washington, Georgia and Oregon. We have five international
franchised cafes in Saudi Arabia and Japan.

Strategy

Global Strategy. In order to grow revenues and profits, our global
strategy is to (i) increase franchise ownership and development of restaurants,
bakeries and cafes, (ii) increase the multiple-channel distribution of our
specialty coffee products, penetrating both at-home and away-from-home
consumption, (iii) deliver world class service and support to our franchisees by
capitalizing on our size, state-of-the-art technology and leadership position,
(iv) promote franchise development of traditional and non-traditional formats in
new and existing markets, (v) provide new and existing franchisees with
investment opportunities in high value/high growth branded concepts, (vi)
expand wholesale and retail channels of distribution for our specialty coffees
and (vii) consolidating our collective purchasing power with our franchisees to
negotiate favorable terms and reduce operating costs.

Franchisor of Choice(R). We have adopted the Franchisor of Choice(R) global
strategy, which we will implement by (i) promoting our distinctly positioned
brands, (ii) developing multi-unit development territories, (iii) providing high
quality service and support to our franchisees, (iv) providing our franchisees
with alternative formats in innovative market settings, (v) eliminating barriers
to growth for existing and new franchisees through new financial and real estate
support mechanisms and (vi) providing on-site support including site selection,
construction expertise, multi-national supply and distribution, marketing,
operations and training.

Increase Domestic Franchised Restaurants, Bakeries and Cafes. We believe
that significant opportunities exist to increase the number of domestic
franchised

restaurants, bakeries and cafes operated by new and existing franchisees and
that growth through franchising can provide us with significantly increased
revenue with relatively low levels of capital expenditures by us. We intend to
target unit growth in markets where we have or can achieve sufficient
penetration to justify television advertising because sales at restaurants,
bakeries and cafes in our media efficient markets are generally 5% to 10% higher
than sales in non-media efficient markets. We already have franchise commitments
to develop domestic units totaling 934 at December 26, 1999 versus 211 at the
beginning of 1993. Over the same period, our domestic franchised restaurants,
bakeries and cafes have increased from approximately 990 to 1,857. Our domestic
franchised unit openings during fiscal year 1999 were:

Fiscal Year
1999
-----------

Popeyes......... 100
Churchs......... 72
Cinnabon........ 30
Seattle Coffee.. 6
---
Total.......... 208
===

Increase International Franchised Restaurants, Bakeries and Cafes. We
believe that international expansion is an attractive growth opportunity due to
(i) advantageous per unit economics, resulting largely from higher average unit
volumes, lower food and/or labor costs and less QSR competition abroad, (ii)
foreign economies with an expanding group of QSR consumers and (iii) well
established markets for quick-service restaurants, bakeries and cafes in a
substantial number of countries around the world. Our international operations
have increased from 172 franchised restaurants in 14 foreign countries at the
beginning of 1993, to 577 franchised units in 24 foreign countries at December
26, 1999. Additionally, commitments to develop international franchised units
have risen from 161 at the beginning of 1993, to 1,049 at December 26, 1999.
Our international franchised unit openings during fiscal year 1999 were:

Fiscal Year
1999
-----------

Popeyes......... 41
Churchs......... 39
Cinnabon........ 11
Seattle Coffee.. 4
--
Total.......... 95
==

Increase Specialty Coffee Wholesale Business. Our goal is to develop
Seattle's Best Coffee and Torrefazione Italia into nationally recognized brand
names in the premium segment of the specialty coffee industry. Quality
restaurants, hotels, offices, specialty retailers, clubs, universities and other
places where people consume food and beverages are potential outlets for
specialty coffee. Supermarkets will remain the dominant source of coffee for
home consumption and specialty coffee's share of this

market is expanding rapidly. We anticipate significant growth in specialty
coffee distribution through retail, wholesale food service and grocery over the
next few years.

Capitalize on Additional Growth Opportunities. We intend to aggressively
pursue selected growth opportunities by (i) expanding our existing brands to new
domestic and international markets, (ii) continuing the development of new
points of distribution, (iii) expanding the channels of distribution for our
specialty coffees and (iv) acquiring additional branded concepts to provide
franchisees with a broad range of investment opportunities, thereby generating a
larger and more diversified stream of franchise revenues to us. These
initiatives include the following:

. Non-Traditional Formats. In response to new marketing opportunities
and consumer demand, we intend to continue the expansion of the number
and type of non-traditional formats from which we sell products. In
addition to the traditional stand-alone models, we have franchised and
opened restaurants, bakeries and cafes within community shopping
plazas, convenience stores, mall food courts, airports and other
transportation centers and grocery stores.

. Co-Branding Initiatives. We intend to selectively enter into co-
branding arrangements in which our brands share facilities with other
QSRs. We believe that co-branding represents a revenue growth
opportunity that provides brand awareness in new markets and faster
opening times (because our units are constructed within existing QSR
facilities), together with reduced costs of entry and lower ongoing
capital expenditures. We have entered into several such arrangements
including franchising Churchs restaurants in 83 Harvey's hamburger
restaurants in Canada and in 93 White Castle hamburger restaurants
throughout the Midwest, Southeast and Northeast United States.

. New Distribution Channels. We intend to aggressively pursue new and
expanded distribution channels for our premium coffee products. Our
marketing efforts will be aimed at developing key accounts with such
food service providers as airports, espresso carts, quality
restaurants, hotels, independent coffee cafes, delis, theaters,
colleges, corporate offices and general merchandise retailers. Our
marketing efforts will also be aimed at securing wholesale accounts
with larger hotel chains, quality restaurant chains and specialty
retailers doing business in multiple regions or on a national basis.
We believe that significant opportunities exist to expand our
distribution channels into regional and national supermarkets.

. New Branded Concepts. Since 1998, we have identified and acquired
additional high value/high growth brands which we believe will benefit
from our operating efficiency, management experience, state-of-the-art
technology, service commitment to franchisees and shared
administrative

infrastructure. We plan to continue to seek out additional high
value/high growth brands to acquire, operate and franchise in the
future.

Increase Operational Efficiencies and Leverage Information Technology. Our
customized management information systems, typically not affordable by smaller
QSR chains, provide both us and our franchisees with the ability to quickly
capitalize on restaurant sales enhancement and profit opportunities. We utilize
our management information systems to (i) minimize waste and control labor
costs, (ii) effectively manage inventory and (iii) analyze product mix and
various promotional programs using point-of-sale information. In 1998, we
launched AFC Online, an intranet for franchisees that provides operational
support, a restaurant development roadmap, a business planning template,
marketing information and certain other relevant information on a 24 hours a
day, seven days a week basis.

Maintain High Quality Products, Superior Customer Service and Strong
Community Relations. We seek to ensure overall customer satisfaction through
consistency in food quality, service and restaurant appearance. We maintain
rigorous and ongoing quality control procedures over suppliers and distributors
to ensure that our product specifications are maintained. In addition, we have
taken an important leadership role in the neighborhoods and communities we
serve. Through our involvement in Habitat for Humanity, the United Negro
College Fund and the Hispanic Association of Colleges and Universities, among
others, we have established a meaningful presence in the local communities we
serve, while building customer loyalty and brand awareness.

Site Selection

We have an extensive domestic site selection process for the establishment
of new restaurants, bakeries and cafes, commencing with an overall market plan
for each intended area of development, which we compile together with the area
developer, if any. Our Churchs and Popeyes brands emphasize free-standing pad
sites and end-cap locations with ample parking and easy dinner-time access from
high traffic roads. Our Cinnabon and Seattle Coffee brands emphasize mall food
courts, in-line shopping centers, transportation facilities, airports and office
buildings.

International sites are often located in highly concentrated urban areas
and are built with a multi-floor layout to accommodate the scarcity of real
estate and higher percentage of dine-in customers.

Franchise Development

Our global strategy includes the opening of substantially all of our new
restaurants, bakeries and cafes through our franchise programs with new and
existing franchisees. We enjoy strong relationships with our franchisees as a
result of our ongoing efforts to (i) re-invent and refresh our restaurants,
bakeries and cafes by investing capital to re-image and renovate our Company-
operated units in each of our systems, (ii) provide strong operational,
marketing and technological support to our

franchisees, (iii) deliver operating efficiencies and economies of scale to our
franchisees and (iv) promote the expansion of our points of distribution to non-
traditional formats and new markets for our existing brands.

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

International Development Agreements. We also enter into franchise
development agreements with qualified parties to develop restaurants, bakeries
and cafes in locations outside of the United States. We may grant international
development rights in one or more countries or in limited geographic areas
within a particular country. The terms of our international development
agreements are, in most respects, similar to our domestic development
agreements. International development agreements also require a pre-payment of
a portion of the franchise fee for each unit to be developed under the
agreement. International development agreements include additional provisions
necessary to address the multi-national nature of the transaction (including
foreign currency exchange, taxation matters and international dispute resolution
provisions) and are also subject to modifications necessary to comply with
applicable local laws, such as laws relating to technology transfers,
export/import matters and franchising.

Franchise Agreements. Once a site has been approved by us and the property
has been secured by our franchisee, we and our franchisee enter into a franchise
agreement under which our franchisee has the right to operate the specific unit
to be developed at the site. Our current franchise agreements provide for
payment of franchise fees of the following: Churchs franchisees pay $15,000 per
location for free-standing units and $5,000 per location for units opened in
convenience stores or travel plazas; Popeyes franchisees pay $20,000 per
location; Cinnabon franchisees pay $35,000 for the first unit, and $25,000 per
location for any second and third units, and $20,000 for the fourth and more
units developed under a single development agreement; Seattle Coffee franchisees
pay $30,000 per location for the first cafe unit, and $20,000 per location for
additional cafe units developed under the same development agreement, $20,000
per location for the first kiosk unit, and $15,000 for each additional kiosk
unit developed under the same development agreement, and $5,000 for each mobile
cart unit. In addition, our Popeyes and Churchs franchise agreements require
franchisees to pay a

5% royalty on net restaurant sales and a 3% (with respect to Popeyes) and 4%
(with respect to Churchs) national advertising fund contribution (reduced to a
maximum of 1% if a local advertising co-operative is formed). Our Cinnabon
franchise agreements require franchisees to pay a 5% royalty on net restaurant
sales and a 1.5% national advertising fund contribution. Seattle Coffee
franchise agreements currently require the payment to us of a 3% royalty on net
restaurant sales and a 2% national advertising fund contribution. In addition,
our Seattle Coffee franchisees are required to purchase coffee exclusively from
us. Certain of our older franchise and area development agreements provide for
lower royalties and reduced franchise and area development fees. Such older
forms of agreements constitute a decreasing percentage of all franchise
agreements.

All of our franchise agreements require that each restaurant, bakery and
cafe operate in accordance with our operating procedures, adhere to the menu
established by us and meet applicable quality, service and cleanliness
standards. We may terminate the franchise rights of any franchisee who does not
comply with such standards. We are specifically authorized to take accelerated
action if any franchised location presents a health risk. We believe that
maintaining superior food quality, a clean and pleasant environment and
excellent customer service are critical to the reputation and success of our
Popeyes, Churchs, Cinnabon and Seattle Coffee systems and we intend to
aggressively enforce these contractual requirements. Our franchisees may
contest such enforcement, and when necessary, contest our termination of
franchise rights.

The terms of our international franchise agreements are substantially
similar to our domestic franchise agreements, except that these agreements may
be modified to reflect the multi-national nature of the transaction and to
comply with the requirements of applicable local laws. In addition, royalty
rates may differ from domestic franchise agreements due to the number of units
required to be developed by our international franchisees. Our international
franchisees are required to partially pre-pay a franchise fee of up to $45,000
at the time our franchise development agreement is signed, along with a
development fee of up to $10,000 for each unit to be developed.

Turnkey Development. In order to expedite development of our domestic
franchised restaurants, bakeries and cafes, we may build units in certain
markets for the purpose of subsequent sales to qualified franchisees. We have
entered into relationships with several lenders to provide financing to our
qualified franchisees who purchase these turnkey units. In fiscal year 1999, we
sold seven turnkey units.

AFC Loan Guarantee Program. In March 2000, we implemented a program offered
to current franchisees, new franchisees and our restaurant management employees
to open and operate new franchised units, provided they meet certain financial
and operational criteria. We have an agreement with one national lender to
participate in the program and we anticipate entering into agreements with
several other national lenders. Under the AFC Loan Guarantee Program, we will
guarantee up to 20% of each qualified franchisee's loan amount, typically for a
three-year period. Currently, the total amount of funding to franchisees under
this program will not exceed $10.0 million in

total and our overall guarantee will not exceed 10% of the $10.0 million. This
program is available for Popeyes, Churchs and Cinnabon franchisees and the
qualifications vary depending upon the type of franchise development. This
program is intended to accelerate franchise development by assisting franchisees
in obtaining development financing at competitive rates and provide
entrepreneurial opportunities for our restaurant management employees.

Marketing and Community Activity

Our Popeyes, Churchs, Cinnabon and Seattle Coffee products are marketed to
their respective customer bases using a predominantly three-tiered marketing
strategy consisting of electronic media, print media and signage and point-of-
purchase materials at our restaurants, bakeries and cafes. Each of our brands
offers consumers at least one new program each month to maintain consumer
product interest. New product introductions and "limited time only" promotional
items also play major sales building roles and create regular repeat customers.

We and our franchisees contribute to a national advertising fund to pay for
the development of marketing materials. We and our franchisees also contribute
to local advertising funds to support programs in our local markets. For the
fiscal year ended December 26, 1999, we contributed approximately $25.2 million
to these various advertising funds.

We are also heavily involved in community activities and support programs
that often have an educational theme. Through the AFC Foundation, Inc., a non-
profit foundation, we have sponsored and helped construct 200 homes worldwide
through Habitat for Humanity, a non-profit sponsor of housing construction for
the poor. In addition, we support the United Negro College Fund and the
Hispanic Association of Colleges and Universities with promotional fund-raisers.
We also sponsor Adopt-A-School programs.

Competition

Our industry, and particularly the quick service restaurant segment, is
intensely competitive with respect to price, quality, name recognition, service
and location. Other QSR competitors include chicken, hamburger, pizza, Mexican,
sandwich, Chinese food QSRs, other purveyors of carryout food and convenience
dining establishments, including national restaurant chains. Numerous well-
established QSR competitors possess substantially greater financial, marketing,
personnel and other resources than we do. In addition, the QSR industry is
characterized by the frequent introduction of new products, accompanied by
substantial promotional campaigns. We must respond to various factors affecting
the restaurant industry, including changes in consumer preferences, tastes and
eating habits, demographic trends and traffic patterns, increases in food and
labor costs, competitive pricing and national, regional and local economic
conditions. In recent years, a number of companies in the QSR industry have
introduced products, including non-fried chicken products, which were developed
to capitalize on a

growing consumer preference for food products which are, or are perceived to be,
healthful, nutritious, low in calories and low in fat content. It can be
expected that we will be subject to increasing competition from companies whose
products or marketing strategies address these consumer preferences. There can
be no assurance that consumers will continue to regard our products favorably,
as compared to such competitive products, or that we will be able to continue to
compete successfully in the QSR marketplace. In addition, our chief competitors
in the chicken segment of the QSR industry, KFC(R), and in the specialty coffee
business, Starbucks(R), are larger, better capitalized and have greater access
to financing at favorable rates, all of which may affect our competitive
abilities.

Our Cinnabon bakeries compete with other QSR's, bagel bakeries and
traditional bakeries in the bagel and cinnamon roll business. While national
chains such as Einstein/Noah Bagels, New World Coffee-Manhattan Bagel and others
compete directly with us for the sale of bakery products, there are few direct
competitors in cinnamon rolls. Cinnabon is the leader in the cinnamon roll
segment of the QSR business and is the only national cinnamon roll retailer in
North America.

Our whole bean coffees compete directly with specialty coffees sold at
retail through supermarkets, specialty retailers, and a growing number of
specialty coffee stores. Our coffee beverages compete directly with all
restaurant and beverage outlets that serve coffee and a growing number of
espresso kiosks, carts, and coffee cafes. Both our whole bean coffees and our
coffee beverages compete indirectly with all other coffees on the market,
including specialty retail companies such as Starbucks, and conventional coffee
companies such as Kraft Foods, Procter & Gamble, and Nestle.

Suppliers

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

Supply Contracts. In addition, our Company-operated restaurants and
bakeries are obligated to serve certain Coca-Cola(R) and Dr Pepper(R) beverages
exclusively. We also have a long-term agreement with Diversified Foods and
Seasonings, Inc. ("Diversified") under which we are required to purchase for our
Popeyes restaurants certain proprietary products made exclusively by
Diversified. We have designated Diversified as the sole supplier of certain
proprietary products for the Popeyes system. Diversified sells these products
to our approved distributors who in turn sell them to our franchised and
Company-operated Popeyes restaurants. In our fiscal year ended December 26,
1999, the Popeyes system purchased approximately $37.8 million of proprietary
products made by Diversified. Our Popeyes and Churchs systems also purchase
fresh chicken from 14 suppliers who service us from 33 plant locations.

With respect to our wholesale coffee operations, our principal raw material
is green coffee beans. We typically enter into supply contracts to purchase a
pre-determined quantity of green coffee beans at a fixed price per pound. These
contracts usually cover periods up to a year as negotiated with the individual
supplier. At March 27, 2000, we had commitments to purchase green coffee beans
at a total cost of approximately $12.5 million. The contract terms cover a
period from January 2000 to December 2000. We purchase 50% of our green coffee
beans from two suppliers and purchase the remaining 50% from 15 other suppliers.
To the extent the two major suppliers cannot meet our coffee orders, we have the
option of ordering our coffee from the other fifteen suppliers.

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

SCC Cafes. Our Company-operated and franchised cafes purchase all of their
coffee from our wholesale distribution centers and their non-coffee food and
supply items from Unisource Worldwide, Inc., a large food service supply
distributor.

Trademarks and Licenses

We own a number of trademarks and service marks that have been registered
with the United States Patent and Trademark Office, including the marks
"Popeyes", "Popeyes Chicken & Biscuits", "Churchs", "Cinnabon World Famous
Cinnamon Roll", "Seattle's Best Coffee", "Torrefazione Italia", "Ultrafryer" and
each brand's logo utilized by us and our franchisees in virtually all
restaurants, bakeries and cafes domestically. We have trademark registrations
for a number of additional marks, including "Gotta Love It"(R), "Day of
Dreams"(R), "Love That Chicken From Popeyes"(R), "New Age of Opportunity"(R) and
"Franchisor of Choice"(R). In addition, we have registered or made application
to register the marks (or, in certain cases, the marks in connection with
additional words or graphics) in approximately 150 foreign countries, although
there can be no assurance that any mark is registrable in every country
registration is sought. We consider our intellectual property rights to be
important to our business and actively defend and enforce them.

Formula Agreement. In connection with our Popeyes brand, we have a
perpetual formula licensing agreement with Alvin C. Copeland, the founder of
Popeyes, the former owner of the Popeyes and Churchs restaurant systems, and the
owner of Diversified Foods and Seasonings, Inc., under which we have the
worldwide exclusive rights to the Popeyes spicy fried chicken recipe and certain
other ingredients used in Popeyes products. The agreement provides that we pay
Mr. Copeland monthly royalty payments of $254,166 until March 2029.

King Features Agreements. We have several agreements with The Hearst
Corporation, King Features Syndicate Division under which we have the exclusive
right to use the image and likeness of the cartoon character "Popeye" (and
certain companion characters such as "Olive Oyl") in connection with Popeyes
restaurants worldwide. Under these agreements, we are obligated to pay to King
Features a royalty of one-tenth of one percent on the first $1 billion of
Popeyes cumulative, annual system-wide sales and one twentieth of one percent on
the next $2 billion of such annual sales. The annual royalties are capped at
$2.0 million for the year under the agreement. The King Features agreements
automatically renew annually.

Year 2000 Issues

In the process of customizing our management information systems, we
established procedures to ensure that our new systems were year 2000 compliant.
In addition, we formalized a plan to analyze all of our financial and operating
computer systems to ensure that any problems would be eliminated before the
beginning of the year 2000. This plan included analysis of our supplier
systems, and to the extent possible the systems used by our vendors and others
that are needed for the proper functioning of our business. We completed the
analysis and corrective phases of the plan in 1999. We did not encounter any
significant issues related to the Year 2000 rollover. As such, we believe that
we have resolved substantially all of the potential year 2000 issues. See
"Item 7. Management's Discussion and Analysis - Year 2000".

Expansion; Dependence on Franchisees and Developers

Our global strategy will depend heavily on our ability to grow our
franchise base of operations. At December 26, 1999, we franchised 1,857
restaurants, bakeries and cafes domestically and 577 restaurants, bakeries and
cafes internationally. Our success is dependent upon our franchisees and the
manner in which they develop and operate restaurants, bakeries and cafes. As
we expand we will also need to find new franchisees who are capable of
successfully developing and operating these units. The opening and success of
franchised restaurants, bakeries and cafes will depend on various other factors,
including the availability of suitable sites, the negotiation of acceptable
lease or purchase terms for new locations, permitting and regulatory compliance,
the ability to meet construction schedules, the financial and other capabilities
of our franchisees and developers, our ability to manage this anticipated
expansion and hire and train personnel, and general economic and business
conditions. Not all of the foregoing factors are within our control or the
control of our franchisees or developers.

International Operations

As of December 26, 1999, we franchised 577 restaurants, bakeries and cafes
to franchisees in 24 foreign countries and plan to expand our foreign
franchising program significantly in the future. We currently operate three
coffee cafes and a wholesale coffee distribution center located in Canada. We
do not currently operate any other units outside of the U.S. Included in our
revenues are foreign franchise royalties and other fees that are based, in part,
on sales generated by our foreign franchised restaurants, bakeries and cafes,
including a significant number of franchised restaurants in Asia. Currently, we
have limited exposure to changes in international economic conditions and
currency fluctuations. We have not historically maintained any hedges against
foreign currency fluctuations, although we did enter into a foreign currency
hedging agreement in 1999 with respect to the Korean Won. Our losses during the
past three years related to foreign currency fluctuations have not been material
to our results of operations. For fiscal years 1999, 1998 and 1997, royalties
and other revenues from foreign franchisees represented 1.7%, 1.9% and 2.4%,
respectively, of our total revenues.

Food Service Industry

Food service businesses are often affected by changes in consumer tastes,
national, regional and local economic conditions, demographic trends, traffic
patterns and the type, number and location of competing restaurants, bakeries
and cafes. Multi-unit food service chains such as Popeyes, Churchs, Cinnabon
and Seattle Coffee can also be adversely affected by publicity resulting from
food quality, illness, injury or other health concerns or operating issues
stemming from just one restaurant or a limited number of restaurants.
Dependence on frequent deliveries of fresh food products also subjects food
service businesses such as ours to the risk that shortages or interruptions in
supply caused by adverse weather or other conditions could adversely affect the

availability, quality and cost of ingredients. In addition, material changes
in, or the failure by us or our franchisees to comply with, applicable federal,
state and local government regulations, and such factors as inflation, increased
food, labor and employee benefits costs, such as federally-mandated increases in
the minimum wage, regional weather conditions and the unavailability of
experienced management and hourly employees may also adversely affect the food
service industry in general and our results of operations and financial
condition in particular.

Fluctuations in Cost of Chicken

The principal raw material for our Popeyes and Churchs systems is fresh
chicken. For fiscal years ended December 26, 1999 and December 27, 1998,
approximately 47% and 50%, respectively of Popeyes' and Churchs' restaurant
cost of sales was attributable to the purchase of fresh chicken. As a result, we
are significantly affected by increases in the cost of chicken, which can be
affected by, among other factors, the cost of grain, the price for other
alternative domestic meats and overseas demand for chicken products. Due to
extremely competitive conditions in the QSR industry, with respect to increases
in raw material costs such as chicken, we have generally not been able to raise
retail prices sufficiently to pass all such increased costs to the consumer.

In order (i) to ensure favorable pricing for our chicken purchases in the
future, (ii) to reduce volatility in chicken prices and (iii) to maintain an
adequate supply of fresh chicken, the Popeyes and Churchs purchasing
cooperatives entered into two types of chicken purchasing contracts with chicken
suppliers in 1999. The first is a grain-based "cost-plus" pricing contract that
provides chicken prices based upon the cost of feed grains, such as corn and
soybean meal, plus certain agreed upon non-feed and processing costs. The other
is a market-priced formula contract based on the "Georgia whole bird market
value". Under this contract, we pay market price plus a premium for the cut
specifications for our restaurants. The market-priced formula contracts are
subject to a "ceiling", or highest price, and a "floor", or lowest price, that
we will pay over the contract term. Both contracts have terms ranging from three
to five years with provisions for certain annual price adjustments as defined in
the contracts. In 2000, we intend to increase our purchase volume in the "cost-
plus" pricing contract, thereby reducing purchases under the market based
contract in order to further reduce our exposure to rising chicken prices should
they occur.

Availability and Cost of Green Coffee Beans

The supply and prices of green coffee beans are volatile. Although most
coffee beans trade in the commodity market, coffee beans of the quality sought
by us generally trade on a negotiated basis at a premium above the commodity
market coffee pricing,

depending upon the supply and demand at the time of purchase. Availability and
price can be affected by many factors in producing countries, including weather
and political and economic conditions.

Insurance

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

Seasonality

We have historically experienced the strongest operating results at our
Popeyes and Churchs restaurants during the summer months while operating results
have been somewhat lower during the winter season. Our Cinnabon bakeries and
Seattle Coffee cafes have traditionally experienced the strongest operating
results during the Christmas holiday shopping season between Thanksgiving and
Christmas. Certain holidays and inclement weather reduce the volume of consumer
traffic at quick-service restaurants and may impair the ability of certain
restaurants to conduct regular operations for short periods of time.

Regulation

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

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

Certain states and the Federal Trade Commission require franchisors such as
us to transmit specified disclosure statements to potential franchisees before
granting a

franchise. Additionally, some states require us to register our franchise
offering documents with the state before we may offer a franchise. We believe
that our Uniform Franchise Offering Circulars (together with any applicable
state versions or supplements) comply with both the Federal Trade Commission
guidelines and all applicable state laws regulating franchising in those states
in which we have offered franchises. We are also subject to various federal,
state and local laws regulating the discharge of pollutants into the
environment. We believe that we conduct our operations in substantial compliance
with applicable environmental laws and regulations as well as other applicable
laws and regulations governing our operations.

Environmental Matters

Approximately 150 of our owned and leased properties are known or suspected
to have been used by prior owners or operators as retail gas stations, and a few
of these properties may have been used for other environmentally sensitive
purposes. Many of these properties previously contained underground storage
tanks ("USTs") and some of these properties may currently contain abandoned
USTs. As a result of the use of oils and solvents typically associated with
automobile repair facilities and gas stations, it is possible that petroleum
products and other contaminants may have been released at these properties into
the soil or groundwater. Under applicable federal and state environmental laws,
we, as the current owner or operator of these sites, may be jointly and
severally liable for the costs of investigation and remediation of any such
contamination if it exists. As a result, after an analysis of our property
portfolio, including testing of soil and groundwater at a representative sample
of our facilities, we believe we have accrued adequate reserves and have
obtained adequate insurance coverage for any environmental remediation
liabilities. We are currently not subject to any administrative or court order
requiring remediation at any of our properties.

Employees and Personnel

As of December 26, 1999, we employed 2,499 full-time salaried employees and
14,511 full-time and part-time hourly employees. Of our full-time salaried
employees, 125 are involved in overseeing restaurant, bakery and cafe
operations, 1,794 are involved in the management of individual restaurants,
bakeries and cafes and all remaining salaried employees are responsible for
corporate administration, franchise administration and business development.
None of our employees are covered by a collective bargaining agreement. We
believe that the dedication of our employees is critical to our success, and
that our relationship with our employees is good.

Item 2. PROPERTIES

We either own or lease the land and buildings for our Company-operated
restaurants, bakeries and cafes. In addition, we own or lease land and
buildings, which we lease or sublease to our franchisees and third parties.
While we expect to continue to lease many of our sites in the future, we also
may purchase the land and/or buildings for restaurants, bakeries and cafes to
the extent acceptable terms are available. The majority of our units are
located in retail community shopping centers and freestanding, heavily traveled
locations.

Restaurants, bakeries and cafes leased to us are typically leased under
"triple net" leases that require us to pay real estate taxes, maintenance costs
and insurance premiums and, in some cases, to pay percentage rent based on sales
in excess of specified amounts. Generally, our leases have initial terms ranging
from 5 to 20 years with options to renew for one or more additional periods. Our
typical leases or subleases to franchisees are triple net to the franchisee,
provide for a minimum rent, based upon prevailing market rental rates, and have
a term that usually coincides with the term of the franchise agreement for the
location, often being 20 years with renewal options. Such leases are typically
cross-defaulted with the corresponding franchise agreement for that site.

The following table sets forth the locations by state of our Company-
operated Popeyes restaurants as of December 26, 1999:

Land
Land and and/or
Building Building
Owned Leased Total
-------- -------- -----

Texas............ 23 40 63
Georgia.......... 3 45 48
Louisiana........ 6 37 43
North Carolina... - 13 13
South Carolina... - 7 7
Illinois......... 1 - 1
-- --- ---
Total Popeyes.. 34 141 175
== === ===

The following table sets forth the locations by state of our Company-
operated Churchs restaurants as of December 26, 1999:

Land
Land and and/or
Building Building
Owned Leased Total
-------- -------- -----

Texas............ 151 98 249
Georgia.......... 35 17 52
Alabama.......... 27 12 39
Louisiana........ 19 18 37
Arizona.......... 19 8 27
Florida.......... 20 2 22
Oklahoma......... 14 2 16
Mississippi...... 10 4 14
Tennessee........ 12 1 13
New Mexico....... 5 2 7
Missouri......... 6 - 6
Arkansas......... 5 1 6
Nevada........... 2 2 4
Kansas........... 2 - 2
--- --- ---
Total Churchs.. 330 164 494
=== === ===

The following table sets forth the locations by state of our Company-
operated Seattle Coffee cafes as of December 26, 1999:

Land
Land and and/or
Building Building
Owned Leased Total
-------- -------- -----

Washington...... - 29 29
California...... - 13 13
Illinois........ - 10 10
Oregon.......... - 6 6
Massachusetts... - 5 5
Georgia......... - 3 3
Maryland........ - 2 2
Texas........... - 2 2
Colorado........ - 1 1
Indiana......... - 1 1
Virginia........ - 1 1
-- -- --
Total SCC.... - 73 73
== == ==

The following table sets forth the locations by state of our Company-
operated Cinnabon bakeries as of December 26, 1999:

Land
Land and and/or
Building Building
Owned Leased Total
-------- -------- -----

California........... - 46 46
Washington........... - 22 22
Illinois............. - 15 15
Florida.............. - 14 14
Ohio................. - 12 12
Texas................ - 10 10
Michigan............. - 9 9
Pennsylvania......... - 7 7
Indiana.............. - 6 6
Massachusetts........ - 6 6
Wisconsin............ - 6 6
New Jersey........... - 5 5
Hawaii............... - 4 4
Maryland............. - 4 4
Nevada............... - 4 4
Oregon............... - 3 3
Virginia............. - 3 3
Georgia.............. - 2 2
Iowa................. - 2 2
Kentucky............. - 2 2
Tennessee............ - 2 2
Alabama.............. - 1 1
Colorado............. - 1 1
Connecticut.......... - 1 1
Delaware............. - 1 1
Kansas............... - 1 1
Missouri............. - 1 1
Montana.............. - 1 1
Nebraska............. - 1 1
New Hampshire........ - 1 1
New York............. - 1 1
South Dakota......... - 1 1
--- --- ---
Total Cinnabon.. - 195 195
=== === ===

Our headquarters are located in approximately 75,000 square feet of leased
office space in Atlanta, Georgia. This lease is subject to extensions through
2013. Popeyes leases another facility in Atlanta, Georgia. This lease is subject
to extensions through 2010. Churchs leases office space in a separate facility
also in Atlanta, Georgia. This lease is subject to extensions through 2011.
Currently, Cinnabon is located in our headquarters location. Seattle Coffee
leases office space in Seattle, Washington and has four distribution facilities
that service our coffee wholesale operations. Two of the distribution centers
are located in the Seattle, Washington area. The other two facilities are
located in Portland, Oregon and Chicago, Illinois. Our accounting and computer
facilities and our Ultrafryer manufacturing
21

facilities are located in San Antonio, Texas and are housed in three buildings
that are located on approximately 16 acres of land that we own. We believe that
our existing headquarters and other leased facilities provide sufficient space
to support our corporate and coffee wholesale operational needs.

Substantially all of our properties and assets are pledged as collateral
against our bank credit facility (See Note 8 to our Consolidated Financial
Statements).

Item 3. LEGAL PROCEEDINGS

While we are a party to a number of pending legal proceedings that have
arisen in the ordinary course of our business, we do not believe that the we are
a party to any pending legal proceeding, the resolution of which would have a
material adverse effect on our financial condition or results of operations.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

Part II.

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

There is no established public trading market for our common stock. As of
March 27, 2000, the number of record holders of our common stock was 94.

We have not declared or paid cash dividends to our shareholders. We
anticipate that all of our earnings in the near future will be retained for the
development and expansion of our business and, therefore, do not anticipate
paying dividends on our common stock in the foreseeable future. Declaration of
dividends on our common stock will depend upon, among other things, levels of
indebtedness, future earnings, our operating and financial condition, our
capital requirements and general business conditions. The agreements governing
our indebtedness contain provisions, which restrict our ability to pay dividends
on our common stock.

In connection with the acquisition of SCC on March 18, 1998, we issued
70,141 shares of AFC Common Stock to former SCC shareholders on March 18, 1999
pursuant to a contingent earn-out provision defined in the acquisition
agreement. We issued all of these unregistered securities under the limited
offering exemption under Rule 506 of Regulation D.

Item 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth our selected historical consolidated
financial information for the periods and the dates indicated. The balance
sheet data and statement of operations data for the years ended December 31,
1995, December 29, 1996, December 28, 1997 December 27, 1998 and December 26,
1999 set forth below have been derived from our financial statements of, which
have been audited by Arthur Andersen LLP, independent public accountants. This
selected historical consolidated financial information should be read in
conjunction with, and is qualified in its entirety by (i) "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
(ii) our audited Consolidated Financial Statements and the notes thereto, each
of which is included elsewhere in this report.

Year Ended(1)
------------------------------------------------------------------------
December 26, December 27, December 28, December 29, December 31,
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------

Revenues:
Restaurant sales............. $559,512 $487,441 $403,182 $430,280 $426,707
Franchise revenues........... 77,463 64,211 61,716 51,336 47,916
Wholesale revenues........... 51,643 36,411 - - -
Manufacturing revenues....... 9,076 7,561 7,647 8,222 9,969
Other revenues............... 9,448 9,935 8,766 8,005 8,320
-------- -------- -------- -------- --------
Total revenues............ 707,142 605,559 481,311 497,843 492,912

Costs and expenses:
Restaurant cost of sales..... 167,659 155,165 131,332 142,199 139,286
Restaurant operating
expenses.................... 287,519 244,651 197,232 211,275 214,703
Wholesale cost of sales...... 24,693 19,064 - - -
Wholesale operating
expenses.................... 13,104 8,070 - - -
Manufacturing cost of sales.. 8,048 5,802 6,381 7,201 9,180
General and administrative... 96,475 86,784 77,492 76,071 78,095
Executive compensation
award (2)................... - - - - 10,647
Depreciation and
amortization................ 42,352 45,478 33,532 30,904 28,665
Charges for restaurant
closings.................... 4,435 8,858 479 1,304 688
Provision for software
write-offs.................. 3,830 5,000 - - -
Gain on sale of fixed assets
from AFDC transaction....... - - (5,319) - -
-------- -------- -------- -------- --------
Total costs and expenses.. 648,115 578,872 441,129 468,954 481,264
-------- -------- -------- -------- --------
Income from operations.......... 59,027 26,687 40,182 28,889 11,648

Other expenses:.................
Interest, net................ 34,219 30,786 20,645 15,875 23,444
-------- -------- -------- -------- --------

Income (loss) from continuing
operations before income
taxes......................... 24,808 (4,099) 19,537 13,014 (11,796)
Income tax expense
(benefit).................. 10,293 (1,346) 8,530 5,163 (2,969)
-------- -------- -------- -------- --------
Net income (loss) from
continuing operations......... 14,515 (2,753) 11,007 7,851 (8,827)

Discontinued segment:

Loss from operations of
Chesapeake Bagel Bakery
(net of income tax)......... 688 5,893 7 - -
Loss on sale of Chesapeake
Bagel Bakery (net of income
tax)........................ 1,742 - - - -
-------- -------- -------- -------- --------
Net loss from discontinued
segment....................... 2,430 5,893 7 - -

Extraordinary loss, net of
taxes (3).................. - - - (4,456) -
-------- -------- -------- -------- --------
Net income (loss).............. 12,085 (8,646) 11,000 3,395 (8,827)

8% Preferred Stock dividends... - - - 1,316 4,555
10% Preferred Stock dividends
payable in kind............... - - 2,240 3,956 -
Accelerated accretion of 8%
Preferred Stock discount upon
retirement.................... - - - 8,719 -
Accretion of 8% Preferred
Stock discount................ - - - 813 2,571
-------- -------- -------- -------- --------
Net income (loss) attributable
to common stock............... $ 12,085 $ (8,646) $ 8,760 $(11,409) $(15,953)
======== ======== ======== ======== ========

Other Financial Data:

EBITDA, as defined (4)......... $ 113,009 $ 87,037 $ 74,017 $ 64,866 $ 55,342

EBITDA margin (5).............. 15.9 % 14.3 % 15.3 % 13.0 % 11.2 %

Cash flows provided by
(used in):
Operating activities........ 55,227 45,537 52,515 47,801 28,031
Investing activities........ (47,846) (188,287) (35,782) (29,388) (20,114)
Financing activities........ (1,951) 126,852 (2,985) (12,806) (10,721)
Cash capital
expenditures(6)
Maintenance capital
expenditures............. $ 7,903 $ 6,059 $ 7,756 $ 6,010 $ 5,483
Re-images and renovation.. 7,766 2,679 13,356 15,342 15,502
New restaurant
development............. 24,771 13,749 4,588 3,215 2,272
Wholesale operations...... 2,154 1,400 - - -
Other..................... 12,376 13,965 16,436 9,384 1,739
---------- ---------- ---------- ----------- ----------
Total cash capital
expenditures........... $ 54,970 $ 37,852 $ 42,136 $ 33,951 $ 24,996
========== ========== ========== =========== ==========

Ratio of earnings to fixed
charges (7).................. 1.48 % - 1.64 % 1.29 % -

Balance Sheet Data:
Total assets................. $ 561,889 $ 556,465 $ 380,002 $ 339,668 $ 328,645
Total debt and capital lease
obligations................. 348,091 360,711 243,882 151,793 204,025
Mandatorily redeemable
preferred stock............. - - - 59,956 46,468
Total shareholders equity
(deficit)................... 100,799 87,917 48,459 37,902 (21,665)

Restaurant, Bakery and
Cafe Data (unaudited) (8):
System-wide sales
(in thousands):
Popeyes................... $1,068,574 $ 954,305 $ 853,078 $ 762,108 $ 710,840
Churchs................... 810,471 755,074 723,988 675,996 647,746
Cinnabon.................. 152,421 41,738 - - -
Seattle Coffee............ 31,660 24,887 - - -
---------- ---------- ---------- ---------- ----------
Total.................. $2,063,126 $1,776,004 $1,577,066 $1,438,104 $1,358,586
========== ========== ========== ========== ==========

System-wide units:
Popeyes................... 1,396 1,292 1,131 1,021 964
Churchs................... 1,492 1,399 1,356 1,257 1,219
Cinnabon.................. 388 369 - - -
Seattle Coffee............ 98 71 - - -
---------- ---------- ---------- ---------- ----------
Total.................. 3,374 3,131 2,487 2,278 2,183
========== ========== ========== ========== ==========

System-wide percentage change
in comparable restaurant
sales:
Popeyes domestic.......... 4.4 % 5.2 % 3.6 % 0.5 % 1.2 %
Churchs domestic.......... 1.1 % 4.6 % 4.0 % 4.6 % 4.6 %
Cinnabon domestic (9)..... 2.4 % - - - -
Seattle Coffee
domestic (9)............. 3.3 % - - - -
Popeyes international..... (4.8)% (13.3)% 1.3 % 4.3 % 11.6 %
Churchs international..... (2.7)% (1.5)% 2.6 % (2.1)% 0.9 %
Cinnabon
international (9)........ 11.5 % - - - -

Total commitments outstanding,
end of period (10)............. 1,983 1,602 1,550 1,319 1,083

(1) The company has a 52/53-week fiscal year ending on the last Sunday in
December, which normally consists of 13 four-week periods. The fiscal year
ended December 31, 1995 included 53 weeks of operations.

(2) During 1995, the Board of Directors granted a special award of $10.0
million to the CEO of the Company and his designees contingent upon the
happening of certain events related to a recapitalization of the Company.
See "Item 11. Executive Compensation -- Note (2)." The award became payable
at the time of the Recapitalization. This award was paid in 1996 in
approximately 3.0 million shares of the Company's common stock valued at
$3.317 per share, the market value of the Company's common stock at the
date of issuance. As a result of the Recapitalization, certain

senior executive officers became fully vested in certain stock options
pursuant to the terms of the 1992 Stock Option Plan resulting in
recognition of $647,000 of compensation expense in 1995.

(3) The extraordinary loss recorded in fiscal 1996 represents the loss
associated with the prepayment of certain debt obligations of the Company,
net of related income tax effects.

(4) EBITDA is defined as income from operations plus depreciation and
amortization; adjusted for non-cash items related to gains/losses on asset
dispositions and write-downs, compensation expense related to stock option
activity, the executive compensation award (see Note 2 above) and non-cash
officer notes receivable items related to the executive compensation award.
EBITDA, as defined, should not be construed as a substitute for income from
operations or as a better indicator of liquidity than cash flow from
operating activities, which is determined in accordance with generally
accepted accounting principles. EBITDA, as defined, is included herein to
provide additional information with respect to the ability of the Company
to meet its future debt service, capital expenditure and working capital
requirements. In addition, management believes that certain investors find
EBITDA, as defined, to be a useful tool for measuring the ability of the
Company to service its debt. EBITDA, as defined, is not necessarily a
measure of the Company's ability to fund its cash needs. See the
Consolidated Statements of Cash Flows of the Company and the related Notes
to the Consolidated Financial Statements thereto attached.

(5) EBITDA margin represents EBITDA, as defined, divided by total revenues.

(6) Capital expenditures (excluding expenditures funded through capital leases,
and fixed assets in connection with the acquisitions of Seattle Coffee,
Cinnabon and Pinetree and not reduced by the cash proceeds received from
the sale of fixed assets) have been segregated into the following
categories to provide additional information:
. Maintenance capital expenditures-represents day to day expenditures
related to restaurant equipment replacements and general restaurant
capital improvements.
. Re-images and renovation-represents significant restaurant renovations
and upgrades pursuant to the Company's re-imaging and renovation
activities.
. New restaurant development-represents new Company-operated restaurant
construction and development.
. Wholesale operations-represents capital expenditures related to our
Seattle Coffee wholesale operations.
. Other-represents capital expenditures at various corporate offices and
new restaurant equipment such as fryers and security systems.

(7) The Company had a deficiency of earnings to fixed charges for the fiscal
years December 31, 1995 and December 27, 1998 of approximately $12,284,000
and $13,139,000, respectively. Earnings consist of income (loss) before
taxes, plus fixed charges (excluding capitalized interest). Fixed charges
consist of interest expense, amortization of debt issuance cost and debt
discount, preferred stock dividend requirements and accretion (including
related tax effects), and one-third of rent expense on operating leases
considered representative of the interest factor attributable to rent
expense.

(8) Represents sales for all franchised and Company-operated restaurants,
bakeries and cafes. Sales information for franchised restaurants is as
reported by franchisees or, in some instances, estimated by the Company
based on other data, and is unaudited.

(9) Prior year sales figures used to calculate comparable sales include sales
from Cinnabon and Seattle Coffee prior to our acquisition of these two
brands in 1998.

(10) Commitments represent commitments to open franchised restaurants, bakeries
and cafes, as set forth in development agreements. On a historical basis,
a number of such commitments have not resulted in unit openings. There can
be no assurance that parties to development agreements will open their
respective number of units.

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

This Annual Report on Form 10-K contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities and Exchange Act of 1934, as amended. Such
forward-looking statements relate to our plans, objectives and expectations for
future operations. In light of the risks and uncertainties inherent in any
discussion of our expected future performance or operations, the inclusion of
forward-looking statements in this report should not be regarded as a
representation by us or any other person that these will be realized. Such
performance could be materially affected by a number of factors, including
without limitation those factors set forth in the "Item 1. Business" section in
this filing.

Chesapeake Bagel Divestiture

On July 26, 1999, we entered into a definitive agreement to sell our
Chesapeake Bagel franchise rights and system to New World Coffee-Manhattan
Bagel, Inc. for $3.8 million. The sale closed on August 30, 1999. As a result,
restaurant sales, franchise revenues, restaurant cost of sales, restaurant
operating expenses, general and administrative expenses and depreciation and
amortization related to Chesapeake's operations have been classified as
discontinued operations in our financial statements. Chesapeake's operations
were included in our bakery segment prior to the sale. Accordingly, the
discussions that follow have been restated to reflect the continuing operations
of our existing brands.

Consolidated Results of Operations

The following table presents selected revenues and expenses as a percentage
of total revenues for our consolidated statements of operations for the fiscal
years ended December 26, 1999, December 27, 1998 and December 28, 1997.

Percentage Results of Operations

Year Ended
--------------------------------------
December 26, December 27, December 28,
1999 1998 1997
------------ ------------ ------------

Revenues:
Restaurant sales........................ 79.1% 80.5 % 83.8 %
Franchise revenues...................... 11.0 10.6 12.8
Wholesale revenues...................... 7.3 6.0 -
Manufacturing revenues.................. 1.3 1.3 1.6
Other revenues.......................... 1.3 1.6 1.8
----- ----- -----
Total revenues......................... 100.0% 100.0 % 100.0 %
----- ----- -----

Costs and expenses:
Restaurant cost of sales (1)............ 30.0% 31.8 % 32.6 %
Restaurant operating expenses (1)....... 51.4 50.2 48.9
Wholesale cost of sales (2)............. 47.9 52.2 -
Wholesale operating expenses (2)........ 25.4 22.0 -
Manufacturing cost of sales (3)......... 87.9 76.3 84.2
General and administrative.............. 13.6 14.3 16.1
Depreciation and amortization........... 6.0 7.5 7.0
Charges for restaurant closings......... 0.6 1.5 0.1
Provision for software write-offs....... 0.5 0.8 -
Gain on sale of fixed assets from
AFDC transaction....................... - - (1.1)
Total costs and expenses............... 91.7 95.6 91.6

Income from operations................... 8.3 4.4 8.4

Interest expense, net.................... 4.8 5.1 4.3

Income (loss) from continuing
operations before income taxes.......... 3.5 (0.7) 4.1

Income tax expense (benefit)............. 1.4 (0.2) 1.8

Net income (loss) from
continuing operations................... 2.1 (0.5) 2.3

Loss on discontinued operations, net of
taxes, (4).......................... 0.3 1.0 -

Net income (loss)........................ 1.8% (1.5)% 2.3 %

(1) Expressed as a percentage of restaurant sales by Company-operated
restaurants, bakeries and cafes.
(2) Expressed as a percentage of wholesale revenues.
(3) Expressed as a percentage of manufacturing revenues.
(4) Represents Chesapeake's operations.

Selected Consolidated Financial Data

The following table sets forth certain financial information and other
restaurant, bakery and cafe data relating to our Company-operated and franchised
restaurants, bakeries and cafes (as reported to us by our franchisees) for the
fiscal years ended December 26, 1999, December 27, 1998 and December 28, 1997:

Year Ended
-------------------------------------------------------------------------
December 26, December 27, % Change December 28, % Change
1999 1998 1998 - 1999 1997 1997 - 1998
------------ ------------ ----------- ------------ -----------
(dollars in millions)

EBITDA, as defined (1)......................... $ 113.0 $ 87.0 29.8 % $ 74.0 17.6 %

EBITDA margin.................................. 15.9 % 14.3 % 11.5 15.3 % (6.7)

Capital Expenditures........................... 55.2 (2) 41.5 (2) 33.0 62.9 (34.0)

Restaurant, bakery and cafe data (unaudited):

System-wide sales (3):
Popeyes..................................... $1,068.6 $ 954.3 12.0 % $ 853.0 11.9 %
Churchs..................................... 810.5 755.1 7.3 724.0 4.3
Cinnabon.................................... 152.4 41.7 N/A - N/A
Seattle Coffee.............................. 31.7 24.9 N/A - N/A
-------- -------- --------
Total.................................... $2,063.2 $1,776.0 16.2 % $1,577.1 12.6 %
======== ======== ========

System-wide unit openings (3):
Popeyes..................................... 151 198 (23.7)% 137 44.5 %
Churchs..................................... 133 87 52.9 132 (34.1)
Cinnabon.................................... 46 6 N/A - N/A
Seattle Coffee.............................. 27 18 N/A - N/A
-------- -------- --------
Total.................................... 357 309 15.5 % 269 14.9 %
======== ======== ========

System-wide units open, end of period:
Popeyes..................................... 1,396 1,292 8.1 1,131 14.2 %
Churchs..................................... 1,492 1,399 6.7 1,356 3.2
Cinnabon.................................... 388 369 5.1 - N/A
Seattle Coffee.............................. 98 71 36.6 - N/A
-------- -------- --------
Total.................................... 3,374 3,131 7.8 % 2,487 25.9 %
======== ======== ========

System-wide percentage change in comparable
restaurant sales:
Popeyes domestic............................ 4.4 % 5.2% 3.6 %
Churchs domestic............................ 1.1 4.6 4.0
Cinnabon domestic (4)....................... 2.4 - -
Seattle Coffee domestic (4)................. 3.3 - -
Popeyes international....................... (4.8) (13.3) 1.3
Churchs international....................... (2.7) (1.5) 2.6
Cinnabon international (4).................. 11.5 - -

(1) EBITDA is defined as income from operations plus depreciation and
amortization; adjusted for items related to gains/losses on asset
dispositions and write-downs and compensation expense related to stock
option activity.
(2) Excludes fixed assets added in connection with the Seattle Coffee, Cinnabon
and Pinetree acquisitions and capital expenditures made to convert the
Pinetree restaurants to Popeyes Company-operated restaurants and not
reduced for cash proceeds received from the sale of fixed assets.
(3) Prior year system-wide sales figures and unit openings for Cinnabon and
Seattle Coffee are not comparable since these acquisitions occurred during
1998.
(4) Prior year sales figures used to calculate comparable sales include sales
from Cinnabon and Seattle Coffee prior to our acquisition of these two
brands in 1998.

Certain items relating to prior periods have been reclassified to conform with
current presentation.

Sales

System-wide Sales. System-wide sales include sales from all restaurants,
bakeries and cafes, whether operated by us or our franchisees. System-wide
sales increases in 1999 ($287.2 million) and 1998 ($199.0 million) were
primarily due to our acquisitions of Seattle Coffee Company and Cinnabon
International in 1998, new unit growth within our chicken brands and positive
comparable sales growth in our domestic markets, offset by weaker foreign
currencies (measured on a constant currency basis) concentrated in Asia.
Domestically, we opened 208 restaurants, bakeries and cafes in 1999 and 138
restaurants, bakeries and cafes in 1998. We opened 95 restaurants, bakeries and
cafes in 1999 in international markets, however, international system-wide sales
did not experience growth in 1999 related to the new unit openings due to weaker
foreign currencies.

Restaurant Sales. Restaurant sales include sales from our Company-operated
restaurants, bakeries and cafes. The chicken segment includes both our Popeyes
and Churchs brands. The bakery segment includes our Cinnabon brand, and the
coffee segment is comprised of our Seattle Coffee brand's operations.

Chicken

1999 sales at our Company-operated chicken restaurants of $462.8 million
increased $18.5 million and 1998 sales of $444.3 million also grew by $41.1
million. The increased revenue growth in 1999 was due to new restaurant growth
(32 units) and comparable sales increases within our chicken brands. 1998 sales
grew at a higher rate mainly due to a higher number of restaurant openings (80
restaurants) and higher comparable sales increases. In 1998, we acquired all of
the restaurant properties operated by Pinetree Foods, Inc. and during the first
and second quarters of 1998 we converted these properties into 66 Popeyes
Company-operated restaurants. Sales generated by these restaurants alone during
1998 were $32.9 million.

Bakery

Sales at our Company-operated Cinnabon bakeries increased $49.8 million in
1999. Sales growth was primarily due to the full year recognition of revenues
from our acquisition of Cinnabon in October 1998. Sales generated by Cinnabon
bakeries from our acquisition date to our 1998 year end were $22.8 million.

Coffee

Sales from our Company-operated cafes increased $4.7 million in 1999. Our
1999 sales growth was mainly due to the full year recognition of revenues from
our

acquisition of Seattle Coffee Company in March 1998 and a 17 unit increase in
1999. Sales generated by our SCC cafes from the date of acquisition to our 1998
year end were $20.4 million.

Franchise Revenues. Franchise revenues include royalties and franchise fees
received from restaurants, bakeries and cafes operated by our franchisees.
Royalties are based on a percent of sales, while franchise fees represent
initial fixed fees depending on the type of franchise and location. Franchise
fees are recorded as revenue when the respective franchised restaurant, bakery
or cafe opens or the development agreement is terminated due to a franchisee
default. For segment purposes, we have segregated our franchised operations
between domestic and international operations.

Chicken

1999 domestic royalty revenue from our franchised chicken restaurants of
$60.8 million increased $6.6 million and 1998 royalty revenue of $51.4 million
increased as well by $6.1 million. Both the 1999 and 1998 growth in royalty
revenue was driven by positive comparable sales and new unit expansion within
our franchise community. We opened 172 domestic franchised restaurants in 1999
and 134 restaurants in 1998.

Domestic franchise fee revenue grew by $2.9 million in 1999, but decreased
in 1998 by $4.2 million. 1999 franchise fee revenue increased primarily due to
the opening of 172 domestic franchised chicken restaurants which exceeded 1998
openings by 38 restaurants and $1.3 million in franchise fees resulting from the
transfer of 100-units from one franchisee to another franchisee and the
termination of a development agreement. The revenue decrease in 1998 stemmed
from two large franchise transactions in 1997 that produced $3.7 million in
franchise fee revenue, which was not matched in 1998. Additionally, domestic
franchise restaurant openings during 1998 were 134 versus 170 in 1997.

Bakery

Royalty revenue from our franchised Cinnabon bakeries increased by $3.0
million in 1999. The 1999 royalty revenue hike was primarily due to our
acquisition of Cinnabon in October 1998 and 30 domestic franchised bakery
openings in 1999. Royalty revenues in 1998 were $1.0 million from the date of
acquisition to our 1998 year end.

International

Over 90% of our international operations are comprised of franchised
Popeyes and Churchs chicken restaurants. International franchise royalty
revenue increased $1.5 million in 1999 and decreased $1.4 million in 1998. Our
1999 increase in royalty revenue was attributable to an increase in restaurants
in international markets. In 1998, royalty revenues were down, despite an
increase in the number of international franchised restaurants, primarily due to
the depressed economies in Southeast Asia

causing a decrease in comparable sales as well as the impact from the
depreciating Southeast Asian currencies in converting foreign currency-based
royalties to US dollars.

In 1999, franchise fee revenue decreased $1.2 million resulting from a
decrease of $1.5 million in territorial fees that did not reoccur. The 1999
decrease was offset by a $0.3 million increase in franchise fee revenue due to
the opening of 95 units in 1999 versus 71 unit openings in 1998. 1998 franchise
fee revenue grew by $0.8 million primarily due to amounts recorded in connection
with the development of international Cinnabon bakeries and Seattle Coffee cafes
in the Middle East.

Wholesale Revenues. Our wholesale revenues consist of sales of premium
brand coffee from our Seattle Coffee roasting and distribution operations to
food service retailers and supermarkets. 1999 wholesale revenues increased by
$15.2 million mainly due to the full year recognition of revenues resulting from
our acquisition of Seattle Coffee in March 1998. Our 1998 wholesale revenues
were $36.4 million from the date of acquisition to our year ended 1998.

Operating Profit

Company-operated Operating Profit. Company-operated operating profit is equal
to Company-operated restaurant, bakery and cafe sales less related operating
costs of these restaurants, bakeries and cafes.

Chicken

Our chicken Company-operated operating profit increased $8.9 million or 11.1%
in 1999 and $3.4 million or 4.5% in 1998. Our 1999 operating profit growth
resulted from increased comparable sales and a 4.6% drop in average poultry
prices. In 1998, a 4.0% rise in comparable sales caused an increase in our
operating profit, which was offset by a 2.8% increase in poultry prices.

Company-operated chicken restaurant operating profit as a percent of
restaurant sales was 19.1% in 1999, 17.9% in 1998 and 18.9% in 1997.

Bakery

Our 1999 operating profit at our Company-operated Cinnabon bakeries grew by
$8.3 million. The increase was primarily due to the full year recognition of
operating profit resulting from our acquisition of Cinnabon International in
October 1998. Operating profit reported at our Cinnabon bakeries from our
acquisition date to our 1998 year end was $5.2 million.

Coffee

1999 operating profit at our Company-operated Seattle Coffee cafes slightly
increased by $0.8 million. The increase in operating profit resulted from the
full year recognition of operating profit after our acquisition of Seattle
Coffee Company in March 1998.

Wholesale Coffee Operating Profit. Wholesale coffee operating profit is the
differences between coffee sales generated from our Seattle Coffee brands to
wholesale accounts and the related operating costs of our wholesale operations,
which includes the cost of coffee beans and the direct overhead used to roast,
blend and distribute specialty coffee blends.

Coffee

Our wholesale coffee operating profit of $13.8 million in 1999 grew by $4.6
million or 49.3%. The increase was mainly due to the full year recognition of
operating profit after our acquisition of Seattle Coffee Company in March 1998.
Our 1998 wholesale coffee operating profit from the date of acquisition to our
1998 year end was $9.3 million.

Expenses

General and Administrative Expenses. General and administrative expenses
increased $9.7 million or 11.2% in 1999 and $9.3 million or 12.0% during 1998.
The increase in both 1999 and 1998 was primarily attributable to general and
administrative expenses incurred in our Seattle Coffee and Cinnabon operations,
both acquired in 1998. In 1999, Seattle Coffee and Cinnabon accounted for $7.0
million of the total increase in general and administrative expenses, and our
chicken brands added another $4.9 million to these expenses. Decreases in our
general liability insurance expense and reimbursement of 1999 marketing expenses
offset the increases in general and administrative expenses. In 1998, Seattle
Coffee and Cinnabon accounted for $8.9 million of the overall increase in
general and administrative expenses, due to our acquisitions of these brands in
1998, and our chicken brands contributed $5.3 million to the increase in general
and administrative expenses. A 12% decrease in corporate expenses offset the
1998 increase in general and administration expenses. As a percentage of total
revenues, general and administrative expenses were 13.6% in 1999, 14.3% in 1998
and 16.1% in 1997.

Depreciation and Amortization. Depreciation and amortization decreased by
$3.1 million in 1999 and increased by $12.0 million in 1998. In 1999, we re-
estimated the useful lives of certain buildings, equipment and leasehold
improvements increasing some and decreasing others. In some cases the lives
were not adjusted. The 1999 impact of our change in depreciable lives resulted
in a decrease of $7.5 million. The decrease was offset by added depreciation and
amortization from our Seattle Coffee, Cinnabon and Pinetree Foods acquisitions
in 1998. The $12.0 million increase in depreciation and amortization expense in
1998 was primarily attributable to our acquisitions of Seattle Coffee, Cinnabon
and Pinetree Foods. Depreciation and amortization as a percentage of total
revenues was 6.0% in 1999 7.5% in 1998 and 7.0% in 1997.

Charges for Restaurant Closings. Charges for restaurant closings include
write-downs of restaurant, bakery and cafe assets to net realizable value,
provisions related to future rent obligations for closed properties and write-
offs of intangible assets identified with the properties. Charges for
restaurant closings decreased by $4.5 million in 1999, but increased by $8.4
million in 1998 to $8.5 million. 1999 charges of $4.4 million resulted from the
closure of seven Churchs restaurants and five Popeyes restaurants. The increase
in 1998 charges primarily resulted from the closure of 14 Popeyes restaurants.

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

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

Income from Operations. Excluding charges for restaurant closings,
software write-offs and the AFDC gain, income from operations increased $26.6
million or 65.5% in 1999 and $5.2 million or 14.7% in 1998. The 1999 growth in
income from operations was due to the full year recognition of revenues and
expenses resulting from our 1998 acquisitions of Seattle Coffee and Cinnabon,
positive comparable sales and lower depreciation expense. Our chicken brands
contributed $12.9 million or 20.0% to the increase in income from operations.
The 1998 growth rate was primarily due to our 1998 acquisitions and a 12%
decrease in corporate general and administrative expenses offset by a decrease
in income from operations from our chicken brands of 10% (driven by start-up
costs related to our Pinetree Foods, Inc. acquisition).

Net Interest Expense. Interest expense, net of capitalized interest,
increased $3.5 million in 1999 and $10.1 million in 1998. The 1999 increase in
interest expense was due to higher levels of average debt and higher interest
rates. In addition, we increased usage on our revolving line of credit in 1999.
The 1998 increase in interest expense was due to higher levels of average debt
outstanding and higher effective interest rates during 1998 as compared with
1997. The increase in average debt outstanding was primarily attributable to
the refinancing transaction completed during the second quarter of 1997,
borrowings made under our acquisition and revolving loan facilities during 1998
and borrowings made under our Tranche B term loan. The refinancing transaction
also led to higher effective interest rates during 1998.

Income Taxes. Our effective tax rate for 1999 was 40.7% compared with an
effective tax rate of 32.8% in 1998 and an effective tax rate of 43.6% in 1997.
Our effective tax rate for 1999 increased due to a full year recognition of non-
deductible amortization expense related to our 1998 acquisitions partially
offset by job tax credits.

Loss from Discontinued Operations. The loss from discontinued operations
reflects the operating results of Chesapeake Bagel's operations as well as the
loss on the

sale of Chesapeake. The loss from operations, net of income taxes, was $0.7
million in 1999 and $5.9 million in 1998. The 1998 loss from operations includes
a $4.6 million write-down (net of income taxes) of Chesapeake's intangible
asset. In 1999, we incurred a loss of $1.7 million on the sale of Chesapeake,
net of income taxes.

Liquidity and Capital Resources

Cash for Operations

We finance our business activities primarily with funds generated from
operating activities, proceeds from the sale of shares of common stock, proceeds
from long-term debt and a revolving line of credit.

Net cash provided by operating activities for the years ended December 26,
1999, December 27, 1998 and December 28, 1997 was $55.2 million, $45.5 million
and $52.5 million, respectively. Available cash and cash equivalents, net of
bank overdrafts, as of December 26, 1999 was $3.3 million, compared to $10.8
million at December 27, 1998 and $23.3 million at December 28, 1997. The
decrease in available cash and cash equivalents, net of bank overdrafts, in 1999
was primarily due to the timing of accounts payable payments made at year end
1999 versus year end 1998. The decrease in available cash and cash equivalents,
net of bank overdrafts in 1998 was primarily due to the acquisitions of Pinetree
Foods, Inc. and Seattle Coffee Company.

Additionally, we meet our short-term needs using our revolving line of
credit. Typically, we maintain a low current ratio, .66 at year end 1999 and
.63 at year end 1998.

Based upon our current level of operations and anticipated growth, we
believe that available cash flow, together with the available borrowings under
our Senior Secured Credit Facility and other sources of liquidity, will be
adequate to meet our anticipated future requirements for working capital,
capital expenditures and scheduled payments under our Senior Subordinated Notes
and our Senior Secured Credit Facility.

Capital Expenditures

During our fiscal year ended 1999, we invested $55.2 million in various
capital projects including $24.8 million in new restaurant, bakery and cafe
locations; $7.8 million in our re-imaging and renovation program; $2.1 million
in our Seattle Coffee wholesale operations; $3.6 million in new management
information systems; $7.9 million in other capital assets to update, replace and
extend the lives of restaurant, bakery and cafe equipment and facilities; and
$9.0 million to complete other corporate projects. Essentially all capital
expenditures were financed through cash flows provided from normal operating
activities and internal funds. Compared to 1998, our capital expenditures in
1999 increased $13.7 million.

In fiscal year 2000, we plan to invest approximately $40.0 million in
capital expenditures. We intend to fund these investments with cash from
operations. We estimate $14.3 million will be used for re-imaging and
rebuilding existing restaurants, bakeries and cafes; $12.1 million will be used
for updating, replacing and extending the lives of restaurant, bakery and cafe
equipment and facilities; $4.5 million will be used in our Seattle Coffee
wholesale operations; and the remaining $9.1 million will be used for corporate
and other matters.

Repurchase of Subordinated Notes

During the fourth quarter of 1999, we repurchased $8.0 million of our
Senior Subordinated Notes at a slight discount. From time to time, we may
repurchase more of the Senior Subordinated Notes on the open market.

Quantitative and Qualitative Disclosures About Market Risk

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

Our net exposure to interest rate risk consists of our Senior Subordinated
Notes and borrowings under our 1997 Credit Facility. Our Senior Subordinated
Notes bear interest at a fixed rate of 10.25%. The aggregate balance
outstanding under our Senior Subordinated Notes as of December 26, 1999 was
$167.0 million. Should interest rates increase or decrease, the estimated fair
value of these notes would decrease or increase, respectively. As of December
26, 1999, the fair value of our Senior Subordinated Notes exceeded the carrying
amount by approximately $0.8 million. Our 1997 Credit Facility has borrowings
made pursuant to it that bear interest rates that are benchmarked to US and
European short-term floating-rate interest rates. The balances outstanding under
our 1997 Credit Facility as of December 26, 1999 totaled $171.2 million. The
impact on our annual results of operations of a hypothetical one-point interest
rate change on the outstanding balances under our 1997 Credit Facility would be
approximately $1.7 million. This assumes no change in the amount or composition
of the debt at December 26, 1999.

We entered into two types of chicken purchasing contracts with our
suppliers in 1999. One is a grain-based "cost-plus" pricing arrangement that is
based upon the cost of feed grains, such as corn and soybean meal, plus certain
agreed upon non-feed and processing costs. The other is a market-priced formula
contract based on the Georgia whole bird market value, under which we pay market
plus a premium for the cut specifications for our restaurants. The market-priced
formula contracts are subject to a "ceiling", or highest price, and a "floor",
or lowest price, that we will pay over the contract term. Both contracts have
terms ranging from three to five
36

years with provisions for certain annual price adjustments as defined in the
contracts. In 2000, we intend to increase our purchases under such cost-plus
contracts, and reduce purchases under the market-based contracts in order to
further reduce our exposure to rising chicken prices should they occur.

With respect to our wholesale coffee operations, our principal raw material
is green coffee beans. We typically enter into supply contracts to purchase a
pre-determined quantity of green coffee beans at a fixed price per pound. These
contracts usually cover periods up to a year as negotiated with the individual
supplier. At March 27, 2000, we had commitments to purchase green coffee beans
at a total cost of approximately $12.5 million which we anticipate will satisfy
most of our green coffee bean requirements for 2000. The contract terms cover a
period from January 2000 to December 2000.

Year 2000

We rely to a large extent on computer technology to carry out our day-to-
day operations. We worked throughout 1998 and 1999 to resolve the potential
impact of the Year 2000 on the processing of date-sensitive information by our
information technology ("IT") systems and non-IT systems that are reliant on
computer technology. The Year 2000 problem is the result of computer programs
being written using two digits (rather than four) to define the applicable year.
Any of our programs that have time-sensitive software may have recognized a date
using "00" as the year 1900 rather than the year 2000. This problem could have
resulted in a system failure or miscalculations causing disruptions of
operations, including, but not limited to, a temporary inability to process
transactions or engage in our normal business activities.

We adopted a Year 2000 assessment plan that included five phases: 1)
inventory 2) assess 3) remediate 4) test and 5) maintain. We completed this
assessment prior to December 31, 1999. Additionally, we implemented a Franchise
Awareness Program and Vendor/Supplier Letter Program. We initiated
communications with our significant suppliers and vendors and our franchisee
community in an effort to determine the extent to which our business was
vulnerable to the failure by these third parties to remediate their Year 2000
problems. We were not informed of any material risks associated with the Year
2000 problem with respect to these entities. Lastly, we devised a contingency
plan should our Year 2000 testing procedures fail to mitigate significant Year
2000 issues within our IT and non-IT systems.

As of March 27, 2000, we have not experienced any significant Year 2000
failures either internally or from our vendors and suppliers or franchise
community. There can be no certainty that failures or problems related to Year
2000 might not develop in the future, but we do not believe any such failures or
problems are reasonably likely to materially disrupt our business.

To date, we have incurred approximately $1.0 million in Year 2000 costs,
which were funded through operating cash flows. These costs primarily related
to fees paid to

outside consultants who helped develop a strategy to assess our Year 2000
issues. We initially estimated that the total costs of addressing the Year 2000
issue would approximate $0.9 million. We do not anticipate incurring more costs
associated with Year 2000 problems.

Impact of Inflation

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

Seasonality

We have historically experienced the strongest operating results at Popeyes
and Churchs restaurants during the summer months while operating results have
been somewhat lower during the winter season. Cinnabon bakeries and Seattle
Coffee cafes have traditionally experienced the strongest operating results
during the Christmas holiday shopping season between Thanksgiving and Christmas.
Certain holidays and inclement weather reduce the volume of consumer traffic at
quick-service restaurants and may impair the ability of certain restaurants to
conduct regular operations for short periods of time.

Recently Issued Accounting Pronouncements

In June 1999, Statement of Financial Accounting Standard No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133" was issued. The statement is
effective for all quarters of fiscal years beginning after June 15, 2000. This
statement primarily defers the effective date of FASB Statement No. 133 from
June 15, 1999 to June 15, 2000. FASB Statement No. 133 establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It
requires recognition of all derivatives as either assets or liabilities in the
financial statements at fair value. We do not believe the implementation of FASB
Statement No. 133, if applicable, will have a material effect on our
consolidated financial statements.

Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

We have included our consolidated financial statements and supplementary
financial information required by this item immediately following Part IV of
this report and hereby incorporate by reference the relevant portions of those
statements and information into this Item 8.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

No disagreements between us and our accountants have occurred within the
24-month period prior to the date of our most recent consolidated financial
statements.

PART III.

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The directors, executive officers and senior management of AFC are listed
below.

Name Age Position
---- --- --------

Frank J. Belatti 52 Chairman, Chief Executive Officer and
Director

Dick R. Holbrook 47 President, Chief Operating Officer and
Director

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

Gerald J. Wilkins 42 Chief Financial Officer

Hala Moddelmog 44 President of Churchs Chicken

Jon Luther 56 President of Popeyes Chicken & Biscuits

Gregg A. Kaplan 43 President of Cinnabon

Mark J. Doran 36 Director

Paul Farrar 65 Director

Matt L. Figel 40 Director

Peter Starrett 52 Director

Kelvin J. Pennington 41 Director

John M. Roth 41 Director

Ronald P. Spogli 51 Director

William M. Wardlaw 53 Director

Frank J. Belatti, Chairman, Chief Executive Officer and Director: Mr.
Belatti has served as the Chairman, Chief Executive Officer and a director of
AFC since it commenced operations in November 1992 following the reorganization
of its predecessor. Prior to joining AFC, from 1990 to 1992, Mr. Belatti was
employed by Hospitality Franchise Systems, Inc., the franchisor for Ramada and
Howard Johnson hotels ("HFS"), as its President and Chief Operating Officer.
From 1989 to 1990, Mr. Belatti was President and Chief Operating Officer of
Arby's, Inc. ("Arby's") and from 1985 to 1989 he served as the Executive Vice
President of Marketing at Arby's. From 1986 to 1990, Mr. Belatti also served as
President of Arby's Franchise Association Service Corporation ("AFA"), which
created and developed the marketing programs and new product development for the
Arby's system. Mr. Belatti received the 1999

Entrepreneur Award from the International Franchise Association, the 1999
Trailblazer Award from the Women's Foodservice Forum, the 1998 Equal Opportunity
Award from the Atlanta Urban League, the 1997 Golden Chain Award for excellence
in foodservice management and the 1996 International Foodservice Management
Association Silver Plate award for excellence and achievement in the food-
service industry. He also received the NAACP's Walter White Award and the
President's Award for private sector initiatives. Mr. Belatti also serves as
Chairman of the AFC Foundation, Inc., as well as a member of the Boards of
Directors for The Hank Aaron Chasing the Dream Foundation, Inc., The Schenck
School, the Carter Center, The Tandy Corporation and The Atlanta Urban League.
Mr. Belatti is also a member of the Executive Steering Committee for Habitat for
Humanity.

Dick R. Holbrook, President, Chief Operating Officer and Director: Mr.
Holbrook joined AFC in November 1992 as Executive Vice President and Chief
Operating Officer and assumed the role of President and Chief Operating Officer
in August 1995. He has been a director of AFC since 1995. From 1991 to 1992,
Mr. Holbrook served as Executive Vice President of Franchise Operations of HFS.
From 1972 to 1991, Mr. Holbrook served in various management positions with
Arby's, starting as a crew member and working his way up to Assistant Restaurant
Manager, Restaurant Manager, District Manager, Regional Director of Operations,
Vice President of Operations Development and Training and Senior Vice President
of Franchise Operations. Mr. Holbrook is a member of the Board of Directors of
the AFC Foundation, Inc.

Samuel N. Frankel, Executive Vice President, Secretary, General Counsel and
Director: Mr. Frankel has served as Executive Vice President since 1996, and as
Secretary and General Counsel of AFC as well as a director of AFC since 1992.
Prior to 1996, Mr. Frankel spent 25 years with Frankel, Hardwick, Tanenbaum &
Fink, P.C., an Atlanta, Georgia law firm specializing in commercial transactions
and business law, including franchising, licensing and distributorship
relationships. Mr. Frankel is a member of the Board of Directors of Colonial
Bank, Hank Aaron Enterprises, Inc., and The Hank Aaron Chasing the Dream
Foundation, Inc.

Gerald J. Wilkins, Chief Financial Officer: Mr. Wilkins has served as the
Chief Financial Officer of AFC since 1995. From 1993 to 1995, Mr. Wilkins was
Vice President of International Business Planning at KFC International in
Louisville, Kentucky. Mr. Wilkins also served in senior management positions
with General Electric Corporation from 1985 to 1993, including Assistant
Treasurer of GE Capital Corporation from 1989 to 1992. He has also worked with
AT&T Corporation and Peat Marwick, Mitchell & Co.

Hala Moddelmog, President of Churchs Chicken. Ms. Moddelmog has served as
President of Churchs Chicken since 1996. From 1993 to 1996, Ms. Moddelmog was
Vice President of Marketing and then Senior Vice President/General Manager for
the Churchs brand. From 1990 to 1993, Ms. Moddelmog was Vice President of
Product Marketing and Strategic Planning at AFA in Atlanta. Prior to joining
AFA, Ms. Moddelmog was a

marketing manager for BellSouth Services in Atlanta from 1989 to 1990. Ms.
Moddelmog is a member of the Board of Directors of the AFC Foundation, Inc.

Jon Luther, President of Popeyes Chicken & Biscuits: Mr. Luther has served
as President of Popeyes Chicken & Biscuits since 1997. Prior to joining AFC, Mr.
Luther was President of CA One Services, Inc., a subsidiary of Delaware North
Enterprises, Inc. in Buffalo, New York from 1992 to 1997. Mr. Luther is a
member of the Board of Directors of the AFC Foundation, Inc.

Gregg A. Kaplan, President of Cinnabon: Mr. Kaplan assumed the position as
President of Cinnabon in August 1999. He served as President of the Bakery Cafe
Group, which included Cinnabon, from March 1998 to July 1999. He served as Vice
President of Strategic Development with the Company from June 1996 to March
1998. Mr. Kaplan formerly served as Senior Vice President of Marketing with
Shoney's, Inc. Mr. Kaplan joined Shoney's, Inc. in December 1990. From January
1989 to December 1990, Mr. Kaplan served as Vice President of Marketing with
Rally's Inc. From 1983 to 1988, Mr. Kaplan was the Director of Marketing at
Wendy's International. Mr. Kaplan is a member of the Board of Directors of the
International Franchise Association and the AFC Foundation. He is also a member
of the Board of Govenors for the "International Certified Franchise Executive
Program".

Mark J. Doran, Director: Mr. Doran joined FS&Co. in 1988 and became a
general partner in March 1998. Previously, Mr. Doran was employed in the high
yield department of Kidder, Peabody & Co. Incorporated. Mr. Doran became a
director of AFC in April 1996.

Paul Farrar, Director: Mr. Farrar served as a Senior Vice President of
Canadian Imperial Bank of Commerce in Toronto, Canada from 1986 to 1993 and has
been retired since then. Mr. Farrar became a director of AFC in 1992. Mr. Farrar
also serves as the Chairman of the Board of Directors for Canadian Airlines
Corporation and is a member of the Boards of Directors for Consumers Packaging,
Inc., Anchor Glass Container Corporation, Adelaide Capital Corp., and Pendaries
Petroleum, Ltd.

Matt L. Figel, Director: Mr. Figel founded Doramar Capital, a private
investment firm, in January 1997. From October 1986 to December 1996, Mr. Figel
was employed by FS&Co. Mr. Figel became a director of AFC in April 1996.

Peter Starrett, Director: Mr. Starrett founded Peter Starrett Associates, a
retail advisory firm, in August 1998. From 1990 to 1998, Mr. Starrett was the
President of Warner Bros. Studio Stores Worldwide. Previously, he held senior
executive positions at both Federated Department Stores and May Department
Stores. Mr. Starrett also serves on the Boards of Directors of Guitar Center,
Inc. Petco Animal Supplies, Inc., The Pantry, Inc., Advance Auto Parts,
Inc., Galyan's Trading Company, Inc., Sur La Table, Inc., PartsAmerica.com and
Miadora.com.

Kelvin J. Pennington, Director: Mr. Pennington has served as Managing
General Partner of PENMAN Asset Management, L.P., the general partner of PENMAN
Private Equity and Mezzanine Fund, L.P., in Chicago, Illinois since 1992. Mr.
Pennington became a director of AFC in May 1996. Mr. Pennington also serves as a
member of the

Boards of Directors for Liberty Service Corporation, MainStreet Healthcare
Corporation and HTD Corporation.

John M. Roth, Director: Mr. Roth joined FS&Co. in March 1988 and became a
general partner in March 1993. From 1984 to 1988, Mr. Roth was employed by
Kidder, Peabody & Co. Incorporated, his most recent position being a Vice
President in the Merger and Acquisition Group. Mr. Roth became a director of AFC
in April 1996 and is also a member of the Boards of Directors of EnviroSource,
Inc. and Advance Holding Corporation.

Ronald P. Spogli, Director: Mr. Spogli is a founding partner of FS&Co. He
became a director of AFC in April 1996. Mr. Spogli is the Chairman of the
Executive Committee and a director of EnviroSource, Inc. and also serves on the
Boards of Directors of Advance Holding Corporation, Century Maintenance Supply
and Hudson Respiratory Care, Inc.

William M. Wardlaw, Director: Mr. Wardlaw joined FS&Co. in March 1988 and
became a general partner in January 1991. From 1984 to 1988, Mr. Wardlaw was a
principal of the law firm of Riordan & McKinzie. Mr. Wardlaw became a director
of AFC in April 1996.

Item 11. EXECUTIVE COMPENSATION

The following table sets forth all compensation awarded to, earned by or
paid to our Chief Executive Officer and our other four most highly compensated
executive officers whose total annual salary and bonus exceeded $100,000 (the
"Named Executive Officers") during the fiscal years ended December 26, 1999,
December 27, 1998 and December 28, 1997.

Annual Compensation
- ---------------------------------- --------------------------------------------------------- All Other
Name and Principal Position Year Salary Bonus(1) Compensation(2)
- ---------------------------------- ----------- ----------------- ------------------- --------------------

Frank J. Belatti 1999 $500,000 500,000 $18,368
Chief Executive Officer 1998 495,386 - 19,560(3)
1997 468,462 660,000 55,860

Dick R. Holbrook 1999 $350,000 240,000 $ 8,435(3)
President and 1998 345,385 - 17,935(3)
Chief Operating Officer 1997 323,077 270,000 21,635

Samuel N. Frankel 1999 $315,000 211,500 $14,495
Executive Vice President, 1998 311,538 - 50,995
Secretary and 1997 294,231 250,000 50,995
General Counsel

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

Hala Moddelmog 1999 $293,654 120,000 $ 3,937(3)
President of Churchs Chicken 1998 266,154 - 2,935(3)
1997 230,001 120,000 2,935(3)

- ------------------
(1) The bonus amount shown for 1999 and 1997 for all Named Executive Officers
other than Mr. Wilkins and Ms. Moddelmog reflect annual payments that were based
solely on Company performance during 1999 and 1997 as determined using
performance objectives established for fiscal years 1999 and 1997. The amounts
shown for Mr. Wilkins and Ms. Moddelmog were largely (but not exclusively) based
on performance objectives established for AFC and individual business segments
for fiscal years 1999 and 1997.

(2) The amounts shown under All Other Compensation reflect life insurance
premiums paid by AFC with respect to split dollar life insurance policies for
the benefit of the Messrs. Belatti, Holbrook and Frankel. AFC also paid $3,816
in life insurance premiums in 1999, 1998 and 1997, respectively, for the split
dollar life insurance policy for the benefit of Mr. Wilkins. AFC also paid
$1,735 in life insurance premiums in 1999, 1998 and 1997 for the split dollar
life insurance policy for the benefit of Ms. Moddelmog.

(3) Includes matching contributions by AFC into the AFC Deferred Compensation
Plan on behalf of Messrs. Holbrook and Wilkins of $1,500 and $2,907,
respectively, in 1999 and $1,200 on behalf of Messrs. Belatti and Holbrook, and
$721 on behalf of Mr. Wilkins in 1998. Includes matching contributions by AFC
into the qualified employee benefit plan under Section 401(k) of the Code on
behalf of Ms. Moddelmog of $2,202, $1,200 and $1,125 for 1999, 1998 and 1997,
respectively.

Employment Agreements

Frank J. Belatti. Mr. Belatti and AFC entered into an employment agreement
on November 5, 1992, as amended, on November 5, 1995 (the "Belatti Agreement").
The Belatti Agreement contains customary employment terms and provides for a
current annual base salary of $500,000, subject to annual adjustment by the
Board of Directors, an annual incentive bonus, stock options, fringe benefits,
participation in all Company-

sponsored benefit plans and such other compensation as may be approved by the
Board of Directors. The term of the Belatti Agreement terminates on November 5,
2003, unless earlier terminated or otherwise renewed, pursuant to the terms
thereof. Pursuant to the terms of the Belatti Agreement, if Mr. Belatti's
employment is terminated without cause or if written notice not to renew his
employment is given by AFC, Mr. Belatti would be entitled to, among other
things, two-and-one-half times his base annual salary, depending on his length
of service at such termination date, and the bonus payable to him for the fiscal
year in which such termination occurs. Under the Belatti Agreement, upon (i) a
change of control of AFC, (ii) a significant reduction in Mr. Belatti's
responsibilities, title or duties or (iii) the relocation of AFC's principal
office more than 45 miles from its current location (except to Atlanta,
Georgia), Mr. Belatti may terminate his employment and would be entitled to
receive, among other things, the same severance pay he would have received had
his employment been terminated by AFC without cause.

Dick R. Holbrook. Mr. Holbrook and AFC entered into an employment
agreement on November 5, 1992, as amended, on November 5, 1995 (the "Holbrook
Agreement"). The Holbrook Agreement contains customary employment terms and
provides for a current annual base salary of $350,000, subject to annual
adjustment by the Board of Directors, an annual incentive bonus, stock options,
fringe benefits, participation in all Company-sponsored benefit plans and such
other compensation as may be approved by the Board of Directors. The term of
the Holbrook Agreement terminates on November 5, 2003, unless earlier terminated
or otherwise renewed, pursuant to the terms thereof. Pursuant to the Holbrook
Agreement, if Mr. Holbrook's employment is terminated without cause or if
written notice not to renew his employment is given by AFC, he would be entitled
to, among other things, two-and-one-half times his base annual salary, depending
on his length of service at such termination date, and the bonus payable to him
for the fiscal year in which such termination occurs. Under the Holbrook
Agreement, upon (i) a change of control of AFC, (ii) a significant reduction in
Mr. Holbrook's responsibilities, title or duties not approved by Mr. Belatti or
(iii) AFC relocates its principal office more than 45 miles from its current
location (except to Atlanta, Georgia), Mr. Holbrook may terminate his employment
and would be entitled to receive, among other things, the same severance pay he
would have received had his employment been terminated by AFC without cause.

Samuel N. Frankel. Mr. Frankel and AFC entered into an employment
agreement on December 5, 1995 (the "Frankel Agreement"). The Frankel Agreement
contains customary employment terms and provides for a base annual salary of
$315,000, subject to annual adjustment by the Board of Directors, and for an
annual incentive bonus. The term of the Frankel Agreement terminates on
December 5, 2003, unless earlier terminated or otherwise renewed pursuant to the
terms thereof. Pursuant to the Frankel Agreement, if Mr. Frankel's employment
is terminated without cause or if written notice not to renew is given by AFC,
he would be entitled to, among other things, two-and-one-half times his base
annual salary, and the bonus payable to him for the fiscal year in which such
termination occurs. Under the Frankel Agreement, upon (i) a change of control
of AFC, (ii) a significant reduction in Mr. Frankel's responsibilities, title or
duties not approved by Mr. Belatti or (iii) the relocation of AFC's principal
office more than 45 miles from its current location (except to Atlanta,
Georgia), Mr. Frankel may

terminate his employment and would be entitled to receive, among other things,
the same severance pay he would receive if he was terminated by AFC without
cause.

Option Plans

1992 Nonqualified Stock Option Plan

Our Board of Directors previously approved the 1992 Nonqualified Stock
Option Plan (the "1992 Option Plan"), which provides for the grant of options to
purchase shares of our common stock to selected officers of AFC. Options under
the 1992 Option Plan are not intended to qualify for treatment as incentive
stock options under Section 422A of the Internal Revenue Code of 1986, as
amended ("Section 422A"). Options under the 1992 Option Plan became exercisable
at various dates beginning on January 1, 1994. If not exercised, options under
the 1992 Option Plan will expire 15 years after their issuance (if not sooner
due to termination of employment). If the employment of an optionee under the
1992 Option Plan is terminated for any reason, we may be required to repurchase
the shares of our common stock acquired by such optionee pursuant to the plan.
Up to 1,808,864 shares of common stock were reserved for issuance under the 1992
Option Plan. Prior to April 1996, options with respect to 669,334, 200,000,
170,000, 35,000 and 35,000 shares of our common stock were issued to Messrs.
Belatti, Holbrook, Frankel, Wilkins and Ms. Moddelmog, respectively, at an
exercise price of $0.10. On April 11, 1996, this exercise price was adjusted to
$0.08 per share and additional options with respect to 196,849, 58,860, 50,000,
10,300 and 10,300 shares of our common stock were issued to Messrs. Belatti,
Holbrook, Frankel, Wilkins and Ms. Moddelmog, respectively, also at an exercise
price of $0.08 per share. As of December 26, 1999, options with respect to
1,612,759 shares of our common stock were outstanding and exercisable under the
1992 Option Plan.

1996 Plan

In 1996, Our Board of Directors approved three stock option plans, which
are described below.

1996 Nonqualified Performance Stock Option Plan--Executive

Three of our senior executives are eligible to participate in our 1996
Nonqualified Performance Stock Option Plan--Executive. Up to 1,507,489 shares
of our common stock may be issued under this plan. Under this plan, our Board
of Directors determines the option price. Options under this plan are not
intended to qualify for treatment as incentive stock options under Section 422A.
This plan is administered by the compensation committee of the Board of
Directors. All options granted under this plan may vest over four to five years
commencing on the first anniversary of the date of grant if we achieve certain
performance goals relating to earnings. On April 26, 1996 we granted options
under this plan with respect to 800,000, 400,000 and 225,000 shares of our
common stock to Messrs. Belatti, Holbrook and Frankel, respectively, at an
exercise price of $3.317 per share. In 1997, AFC granted options with respect to
10,019, 4,517 and 4,517 shares of Common Stock to Messrs. Belatti, Holbrook and
Frankel,

respectively, at an exercise price of $4.95 per share. In 1998, we granted
options with respect to 23,328, 20,000 and 20,000 shares of our common stock to
Messrs. Belatti, Holbrook and Frankel, respectively, at an exercise price of
$7.50 per share.

All options granted under this plan will expire ten years from the date of
grant unless terminated earlier due to certain circumstances. The
exercisability of options under this plan may be accelerated, at the discretion
of the Compensation Committee. Additionally, this plan provides that, at any
time prior to five years after the date of grant of an option, we may elect to
repurchase all or any portion of the shares of our common stock acquired by the
participant by exercises of these options for a period of six months after the
date of termination of the participant's employment. The purchase price for
such repurchased shares shall be their "fair market value" thereof, as
determined by our Board of Directors.

In December 1998, our Board of Directors approved the cancellation of
510,842, 263,428 and 158,428 unvested options under this plan held by Messrs.
Belatti, Holbrook and Frankel, respectively. These options had exercise prices
that ranged from $3.32 per share to $7.50 per share. In connection with the
cancellation, our Board of Directors also approved the grant of 510,842, 263,428
and 158,428 options for Messrs. Belatti, Holbrook and Frankel, respectively at
an exercise price of $7.75 per share, which was the fair value our common stock
determined by our Board of Directors at the date of grant. Additionally,
Messrs. Belatti, Holbrook and Frankel became fully vested in these options on
the grant date. As of December 26, 1999, options with respect to 1,507,489
shares of our common stock were outstanding and exercisable under this plan.

1996 Nonqualified Performance Stock Option Plan--General

Certain other officers and key employees not covered by the Executive
Performance Option Plan are eligible to receive options to purchase our common
stock under our 1996 Nonqualified Performance Stock Option Plan--General. Up to
1,205,806 options to purchase shares of our common stock are issuable under this
plan. Options under this plan are not intended to qualify for treatment as
incentive stock options under Section 422A. Pursuant to this plan, on April 26,
1996, we granted options with respect to 125,000 and 100,000 shares of our
common stock to each of Mr. Wilkins and Ms. Moddelmog, respectively, at an
exercise price of $3.317 per share. In 1997, we granted options with respect
2,377 shares of our common stock to Mr. Wilkins and Ms. Moddelmog at an exercise
price of $4.95 per share. This plan has a number of terms that are
substantially similar to terms found in our Executive Performance Option Plan.
All options granted under this plan may vest over four to five years commencing
on the first anniversary of the date of grant if we achieve certain performance
goals relating to our earnings. Such options expire ten years from the date of
grant unless terminated earlier due to certain circumstances. Additionally,
this plan restricts employees from transferring any shares of our common stock
received on the exercise of the options prior to the fifth anniversary of the
date of the grant, and provides that we will have an option to repurchase any
such shares of common stock if the employee's employment is terminated prior to
the fourth anniversary of the date of grant. Additionally, after the fourth
anniversary of the date of grant, we have a right of first refusal with respect
to any

proposed transfer of such shares of our common stock. Finally, this plan
contains provisions relating to certain "tag-along" and "drag-along" rights
should our majority shareholder find a third-party buyer for all of our common
stock. Such restrictions and rights terminate at the time of an initial public
offering of our common stock. As of December 26, 1999, options to purchase
925,893 shares of our common stock were outstanding under this plan, of which
options to purchase 734,517 shares of our common stock were exercisable.

1996 Nonqualified Stock Option Plan

All of our officers and most of our employees are eligible to receive
options to purchase our common stock under our 1996 Nonqualified Stock Option
Plan. This plan authorizes us to issue up to 1,872,282 options to purchase
shares of our common stock. Options under this plan are not intended to qualify
for treatment as incentive stock options under Section 422A. On April 11, 1996,
options to purchase 90,000, 55,000 and 35,000 shares of our common stock were
granted to Messrs. Belatti, Holbrook and Frankel, respectively, at an exercise
price of $3.317 per share. On April 26, 1996, options to purchase 5,000 shares
of our common stock were granted under this plan to Mr. Wilkins and Ms.
Moddelmog also at an exercise price of $3.317 per share. In 1997, options to
purchase 32,390, 14,963, 14,963, 7,782 and 7,782 shares of our common stock were
granted to Messrs. Belatti, Holbrook, Frankel, Wilkins and Ms. Moddelmog,
respectively, at an exercise price of $4.95 per share. On January 1, 1998,
options to purchase 16,672 and 5,000 shares were granted to Messrs. Belatti and
Holbrook, respectively, at an exercise price of $7.50 per share. Also on
January 1, 1998, options to purchase 15,000 and 20,000 shares were granted to
Mr. Wilkins and Ms. Moddelmog, respectively, at an exercise price of $7.50 per
share. On January 1, 1999, options to purchase 30,000, 25,000, 20,000, 20,000
and 20,000 shares were granted to Messrs. Belatti, Holbrook, Frankel, Wilkins
and Ms. Moddelmog, respectively, at an exercise price of $7.75 per share. This
plan contains many of the same provisions as our 1996 Executive Performance
Option Plan and General Performance Option Plan. All options granted under this
plan vest in 25% increments upon each of the first, second, third and fourth
anniversaries of the date of grant and expire seven years from the date of
grant, unless terminated earlier due to certain circumstances. This plan
includes the same repurchase, stock transfer restrictions, rights of first
refusal and "tag-along" and "drag-along" rights found in the 1996 Nonqualified
Performance Option Plan - General. All such restrictions and rights terminate
at the time of an initial public offering of our common stock. As of December
26, 1999, options with respect to 1,366,964 shares of our common stock were
outstanding under the 1996 Option Plan, of which options to purchase 412,366
shares of our common stock were exercisable.

The following table sets forth information concerning the number and value
of securities underlying unexercised options held by each of the Named Executive
Officers at December 26, 1999.

AFC Option Grants in the Last Fiscal Year

Individual Grants(1) Potential Realizable
-------------------------------------------- Value at Assumed Annual
Number of % of Total Rates of Stock Price
Securities Options Appreciation for Option
Underlying Granted to Exercise Term(2)
Options Employees in or Expiration ---------------------------
Name Granted (#) Fiscal Year Base Price Date 5% 10%
---- ------------ ------------ ------------- ----------- -------- --------

Frank J. Belatti............... 30,000 6.06 $7.75 1/1/09 $128,184 $315,723

Dick R. Holbrook............... 25,000 5.05 $7.75 1/1/09 $106,820 $263,102

Samuel N. Frankel.............. 20,000 4.04 $7.75 1/1/09 $ 85,456 $210,482

Gerald J. Wilkins.............. 20,000 4.04 $7.75 1/1/09 $ 85,456 $210,482

Hala Moddelmog................. 20,000 4.04 $7.75 1/1/09 $ 85,456 $210,482

- -----------
(1) Option grants to the Named Executive Officers set forth in the table were
granted under the 1996 Nonqualified Stock Option Plan.

(2) These columns indicate the hypothetical gains of "option spreads" of the
outstanding options granted, based on assumed annual compound stock appreciation
rates of 5% and 10% over the options' terms. The 5% and 10% assumed rates of
appreciation are mandated by the rules of the Commission and do not represent
AFC's estimate or projection of the future prices or market value of Common
Stock.

The following table sets forth information concerning the number and value
of securities underlying unexercised options held by each of the Named Executive
Officers as of December 26, 1999.

Aggregated Option Exercises in the Last Fiscal Year
and Fiscal Year-End Option Values

Securities Unexercised Value of Unexercised
Underlying Options at In-the-Money Options at
Dec 26, 1999 (#) Dec. 26, 1999 ($)(1)(2)
----------------------------- ---------------------------
Not Not
Exercisable Exercisable Exercisable Exercisable
----------- ----------- ----------- -----------

Frank J. Belatti............................................ 1,787,403 81,199 $9,308,591 $188,814
Dick R. Holbrook............................................ 733,412 49,982 $3,268,763 $107,832
Samuel N. Frankel........................................... 503,302 36,232 $2,478,538 $ 77,851
Gerald J. Wilkins........................................... 158,474 61,985 $ 903,436 $162,729
Hala Moddelmog.............................................. 139,724 60,735 $ 805,714 $140,877

- ----------------
(1) Because there is no established public trading market for Common Stock,
the Board of Directors of AFC must, under certain circumstances, determine the
fair market value of the Common Stock. AFC believes that the fair market value
of the Common Stock was $8.25 per share as of December 26, 1999.

(2) Values for "in-the-money" outstanding options represent the positive spread
between the respective exercise prices of the outstanding options and the fair
market value of the underlying Common Stock of $8.25 per share as described in
Note 1.

1998 SCC Plan

In connection with our acquisition of Seattle Coffee Company ("SCC") in
March 1998, we executed the Substitute Nonqualified Stock Option Plan. This
plan was established to enable us to issue AFC options to former SCC option
holders in order to purchase 100% of SCC's common stock pursuant to the purchase
agreement. This plan authorizes the issuance of approximately 500,000 options
at exercise prices that range from $3.91 to $6.75 per share. We issued
approximately 450,000 options at the closing date of the acquisition to the SCC
option holders. The issuance of the remaining 50,000 is subject to a holdback
provision in the agreement. At December 26, 1999, the weighted-average price
per share was $4.79. The options under this plan vested when issued by us and
expire at various dates through October 31, 2007. At December 26, 1999, the
weighted-average contractual life of these options was 5.7 years. As of
December 26, 1999, 462,756 options were exercisable.

Stock Bonus Plans

Officers, key employees and certain consultants of AFC have received shares
of Common Stock under AFC's 1996 Employee Stock Bonus Plan--Executive (the
"Executive Bonus Plan") and the 1996 Stock Bonus Plan--General (the "General
Bonus Plan"). On April 26, 1996, an aggregate of 2,649,969 shares of Common
Stock were issued under the Executive Bonus Plan and an aggregate of 364,803
shares of Common Stock were issued under the General Bonus Plan at a fair market
value of $3.317 per share. On such date, Messrs. Belatti, Holbrook and Frankel
were issued 1,329,969, 660,000 and 660,000 shares of Common Stock, respectively,
under the Executive Bonus Plan and Mr. Wilkins and Ms. Moddelmog were each
issued 14,700 and 34,700 shares, respectively, of Common Stock under the General
Bonus Plan. Under each such plan, at any time prior to five years after the
date of grant of Common Stock bonuses, AFC has the option, in certain
circumstances, to repurchase all or any portion of the shares of Common Stock
acquired by the plan participant for a period of six months after the date of
termination of the participant's employment. The price for such repurchase will
be the fair market value of the shares as determined by the Board of Directors,
except for termination of employment other than death or disability under the
General Bonus Plan. In such instances, the repurchase price shall be a certain
fraction of the fair market value, depending on the length of employment by such
employee. This repurchase option terminates upon AFC's initial public offering
of Common Stock or a change of control with respect to AFC. In addition, shares
issued under the General Bonus Plan are also subject to the same transfer
restrictions, rights of first refusal and "tag-along" and "drag-along" rights
that are found in the General Option Plan. No further shares are available for
issuance under either the Executive Bonus Plan or the General Bonus Plan.

Other Employee Benefit Plans

Our Board of Directors approved in 1994, a nonqualified retirement,
disability and death benefit plan for certain officers. Retirement benefits
under this plan are unfunded. Annual benefits are equal to 30% of the
participant's average base compensation for the five years preceding retirement.
We also provide post-retirement medical benefits (including dental coverage) for
certain retirees and their spouses. These benefits are payable in 120 equal
monthly installments following the participant's retirement date. Death
benefits under this plan cover certain officers and are up to five times the
officer's base compensation at the time of employment. We have the discretion
to increase the employee's death benefits. Death benefits are funded by split
dollar life insurance arrangements. The accumulated benefit obligation relating
to this plan was approximately $2.1 million on December 26, 1999.

Compensation Committee Interlocks and Insider Participation

Currently, our executive committee of the Board of Directors oversees
compensation matters. Messrs. Belatti and Frankel, two of our Named Officers,
serve on the executive committee but neither Mr. Belatti nor Mr. Frankel
participate in matters regarding his own compensation.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table shows the total number and percentage of the outstanding
shares of our common stock beneficially owned as of March 27, 2000, with respect
to each person (including any "group" as used in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended) we know to have beneficial
ownership of more than 5% of our common stock. We computed the percentage
ownership amounts in accordance with the provisions of Rule 13d-3(d), which
includes as beneficially owned all shares of our common stock which the person
or group has the right to acquire within the next 60 days. The percentages are
based upon 39,443,398 shares outstanding as of March 27, 2000.

Ownership of AFC Common Stock

Shares of Percentage of
Name(1) Common Stock Common Stock
------- ------------ -------------

Freeman Spogli & Co. Incorporated(2)(3)...................... 21,212,421 53.8%
Canadian Imperial Bank of Commerce(4)........................ 6,312,724 16.0%
PENMAN Private Equity and Mezzanine Fund, L.P.(5)............ 2,361,954 6.0%
ML IBK Positions, Inc.(6).................................... 2,050,000 5.2%
Frank J. Belatti(7)(8)....................................... 3,288,671 8.0%
Dick R. Holbrook(7)(9)....................................... 1,431,307 3.6%
Samuel N. Frankel(7)(10)..................................... 1,250,587 3.1%
Gerald J. Wilkins(7)(11)..................................... 254,060 *
Hala Moddelmog(7)(12)........................................ 187,620 *
Mark J. Doran(3)............................................. -- --
Paul Farrar(13).............................................. -- --
Matt L. Figel(14)............................................ -- --
Peter Starrett(3)............................................ 44,000 *
Kelvin J. Pennington(5)...................................... -- --
John M. Roth(3).............................................. -- --
Ronald P. Spogli(3).......................................... -- --
William M. Wardlaw(3)........................................ -- --
Directors and officers as a group (24 persons) (15).......... 30,970,972 71.1%
----------

- ----------
* Less than 1.0% of outstanding shares of Common Stock.

(1) The persons named in this table have sole voting power and investment
power with respect to all shares of Common Stock shown as beneficially owned by
them, subject to community property laws where applicable and the information
contained in this table and these notes.

(2) The shares shown as beneficially owned by FS&Co. are held of record as
follows: 18,259,483 shares owned by FS Equity Partners III, L.P. ("FSEP III") ,
733,583 shares owned by FS Equity Partners International, L.P. ("FSEP
International")and 2,219,355 shares owned by FS Equity Partners IV, L.P. ("FSEP
IV"). FS Capital Partners, L.P. ("FS Capital"), an affiliate of FS&Co., is the
sole general partner of FSEP III. FS Holdings, Inc. ("FSHI") is the sole
general partner of FS Capital. The sole general partner of FSEP International
is FS&Co. International, L.P. ("FS&Co. International"). The sole general
partner of FS&Co. International is FS International Holdings Limited ("FS
International Holdings"), an affiliate of FS&Co. As the general partners of FS
Capital (which is the general partner of FSEP III) and FS&Co. International
(which is the general partner of FSEP International), respectively, FSHI and FS
International Holdings have the sole power to vote and dispose of the shares of
AFC held by each of FSEP III and FSEP International, respectively.

(3) Messrs. Spogli, Roth and Wardlaw, each of whom is a member of the Board,
and Mr. Bradford M. Freeman, Mr. J. Frederick Simmons and Mr. Charles P.
Rullman, Jr. are the sole directors, officers and shareholders of FS&Co., FSHI
and FS International Holdings, and as such may be deemed to be the beneficial
owners of the shares indicated as beneficially owned by FS&Co. Messrs. Doran
and Starrett, each of whom is a member of the Board, are affiliated with FS&Co.
The business address of each of FS&Co. and its general partners, FSHI and its
sole directors, officers and shareholders, FS Capital and FSEP III and Mr.

Starrett is 11100 Santa Monica Boulevard, Suite 1900, Los Angeles, California
90025. The business address of each of FS International Holdings, FS&Co.
International and FSEP International is c/o Paget-Brown & Company, Ltd., West
Winds Building, Third Floor, P.O. Box 1111, Grand Cayman, George Town, Cayman
Islands, B.W.I. The business address of Mr. Doran is 599 Lexington Avenue,
18th Floor, New York, New York 10022.

(4) The business address for Canadian Imperial Bank of Commerce is BCE Place,
Bay Street, P.O. Box 500, Toronto, Ontario MBJ258.

(5) Mr. Pennington, who is a member of the Board, and Mr. Lawrence C. Manson,
Jr. are general partners of PENMAN Asset. Management, L.P. ("PENMAN Asset"), the
general partner of PENMAN Private Equity and Mezzanine Fund, L.P. ("PENMAN
Equity"), and as such may be deemed to be the beneficial owners of the shares
indicated as beneficially owned by PENMAN. The business address of PENMAN
Equity, PENMAN Asset and each of its general partners is 333 West Wacker Drive,
Suite 700, Chicago, Illinois 60606.

(6) The business address of ML IBK Positions, Inc. is c/o Merrill Lynch & Co.,
Inc., Corporate Credit Division, World Financial Center, South Tower, 7th Floor,
New York, New York 10080.

(7) The business address of AFC's executive officers is c/o AFC Enterprises,
Inc., Six Concourse Parkway, Suite 1700, Atlanta, Georgia 30328.

(8) Includes 1,829,669 shares of Common Stock issuable with respect to options
exercisable within 60 days as of March 27, 2000.

(9) Includes 758,403 shares of Common Stock issuable with respect to options
exercisable within 60 days as of March 27, 2000.

(10) Includes 520,793 shares of Common Stock issuable with respect to options
exercisable within 60 days as of March 27, 2000.

(11) Includes 170,420 shares of Common Stock issuable with respect to options
exercisable within 60 days as of March 27, 2000.

(12) Includes 152,920 shares of Common Stock issuable with respect to options
exercisable within 60 days as of March 27, 2000.

(13) Mr. Farrar's mailing address is 159 Wimbleton Road, Toronto, Ontario,
Canada, M9A3S8.

(14) Mr. Figel's business address is c/o Doramar Capital, 300 South Grand
Avenue, Suite 2900, Los Angeles, California 90071.

(15) Includes 21,212,421 shares of Common Stock held by affiliates of FS&Co.,
2,361,954 shares of Common Stock held by an affiliate of PENMAN Equity and
4,143,501 shares of Common Stock issuable with respect to options granted to
certain executive officers that are exercisable within 60 days as of March 27,
2000.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In 1996, Messrs. Belatti, Holbrook, Frankel, Wilkins and Ms. Moddelmog
borrowed approximately $2.0 million, $1.0 million, $1.0 million, $0.1 million
and $0.1 million, respectively, from us to cover certain income tax liabilities
arising as a result of the issuance of shares of our common stock in connection
with a 1996 recapitalization. In 1997, we additionally loaned each of Messrs.
Belatti, Holbrook and Frankel approximately $0.1 million with respect to the
above. Each officer delivered a promissory note to us with respect to the amount
borrowed and each promissory note is due on December 31, 2003 with a simple
interest rate of 6.25% per annum. In connection with these notes, each officer
also entered into a pledge agreement with us whereby each note is secured by the
pledge of shares of our common stock issued to them. At December 26, 1999, the
outstanding principal balances plus accrued interest due from Messrs. Belatti,
Holbrook, Frankel, Wilkins and Ms. Moddelmog was $2,558,021, $1,266,422,
$1,266,422, $27,044 and $63,833, respectively.

In connection with our acquisition of the Cinnabon brand in October 1998,
we issued 2,795,703 shares of our common stock to certain existing "qualified"
shareholders and option holders at a purchase price of $7.75 per share. The
buyers of stock included an affiliate, Freeman Spogli and Co., Inc., which
through other affiliates, is our majority shareholder, and PENMAN Private Equity
and Mezzanine Fund, L.P. Freeman Spogli purchased 2,219,355 shares of Common
Stock for a purchase price of $17.2 million. PENMAN Private Equity and
Mezzanine Fund, L.P. purchased 251,613 shares of Common Stock for a purchase
price of approximately $2.0 million. Messrs. Belatti, Holbrook, Frankel and
Wilkins purchased 129,033, 12,904, 51,613 and 15,000 shares of Common Stock,
respectively, for a purchase price of $1.0 million, $0.1 million, $0.4 million
and $0.1 million, respectively.

Messrs. Belatti, Holbrook, Frankel and Wilkins borrowed $0.8 million, $0.1
million, $0.3 million and $0.1 million, respectively, from us to cover a portion
of the purchase for their shares of common stock. Each one delivered a
promissory note to us with respect to the amount borrowed. The notes bear
interest at 7.0% per annum with principal and interest payable at the end of the
term of the note, which is December 31, 2005. The notes are secured by the
number of shares of common stock purchased by the employees. At December 26,
1999, the outstanding principal balances plus accrued interest due from Messrs.
Belatti, Holbrook, Frankel and Wilkins was approximately $0.8 million, $0.1
million, $0.3 million and $0.1 million, respectively.

In June 1999, Mr. Wilkins purchased 32,000 shares of our common stock from
a former employee. Mr. Wilkins delivered a promissory note to us for $181,000 to
fund the purchase of these shares. The note bears interest at 7.0% per annum
with principal and interest payable at the end of the term of the note, which is
December 31, 2005. The note is secured by the number of shares of common stock
purchased by Mr. Wilkins with the note proceeds. At December 26, 1999, the
outstanding principal balance plus accrued interest due from Mr. Wilkins was
approximately $0.2 million.

In October 1999, Messrs. Frankel and Wilkins purchased 18,181 and 21,940
shares, respectively, of our common stock from us. Messrs. Frankel and Wilkins
delivered promissory notes to us for $104,993 and $135,005, respectively. The
notes bear interest at 7.0% per annum with principal and interest payable at the
end of the term of the note, which is December 31, 2005. The notes are secured
by the number of shares of common stock purchased by the Messrs. Frankel and
Wilkins with the note proceeds. At December 26, 1999, the outstanding principal
balances plus accrued interest due from Messrs. Frankel and Wilkins were
approximately $0.1 million for both notes.

PART IV

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Financial Statements

The following consolidated financial statements of the Company appear
immediately following this Item 14:

Pages
-----

Report of Independent Public Accountants.............................. F-1
Consolidated Balance Sheets as of December 26, 1999 and December
27, 1998........................................................... F-2
Consolidated Statements of Operations for the Years ended December
26, 1999, December 27, 1998 and December 28, 1997.................. F-4
Consolidated Statements of Changes in Shareholders' Equity for
the Years ended December 26, 1999, December 27, 1998 and December
28, 1997........................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December
26, 1999, December 27, 1998 and December 28, 1997.................. F-6
Notes to Consolidated Financial Statements............................ F-8

The Company has omitted all other schedules because the conditions
requiring their filing do not exist or because the required information appears
in the Company's Consolidated Financial Statements, including the notes to those
statements.

(b) Reports on Form 8-K

We filed a Current Report on Form 8-K dated December 23, 1999 under Item 5,
Other Events, to report our change in reporting quarters beginning in the fiscal
year 2000.

The Company has filed the exhibits listed below with this report.

Exhibit
Number Description
------ -----------

3.1 (a) Articles of Incorporation of AFC Enterprises, Inc.
("AFC"), as amended to date.

3.2 (a) Amended and Restated Bylaws of AFC (formerly known as America's
Favorite Chicken Company), as amended to date.

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

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

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

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

4.5 (a) Pledge Agreement, dated as of May 21, 1997, by and between AFC
and CIBC, as Administrative Agent.

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

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

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

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

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

10.3 (a) Form of Popeyes Development Agreement

10.4 (a) Form of Churchs Development Agreement

10.5 (a) Form of Popeyes Franchise Agreement

10.6 (a) Form of Churchs Franchise Agreement

10.7 (a) Formula Agreement dated July 2, 1979 among Alvin C. Copeland,
Gilbert E. Copeland, Mary L. Copeland, Catherine Copeland,
Russell J. Jones, A. Copeland Enterprises, Inc. and Popeyes
Famous Fried Chicken, Inc. (a predecessor of AFC), as amended
to date.

10.8 (a) Supply Agreement dated March 21, 1989 between New Orleans Spice
Company, Inc. and Biscuit Investments, Inc.

10.9 (a) Recipe Royalty Agreement dated March 21, 1989 by and among Alvin
C. Copeland, New Orleans Spice Company, Inc. and Biscuit
Investments, Inc.

10.10 (a) Licensing Agreement dated March 11, 1976 between King Features
Syndicate Division of The Hearst Corporation and A. Copeland
Enterprises, Inc.

10.11 (a) Assignment and Amendment dated January 1, 1981 between
A. Copeland Enterprises, Inc., Popeyes Famous Fried Chicken, Inc.
and King Features Syndicate Division of The Hearst Corporation.

10.12 (a) Popeye License Agreement dated January 1, 1981 between King
Features Syndicate Division of The Hearst Corporation and Popeyes
Famous Fried Chicken, Inc.

10.13 (a) Letter Agreement dated September 17, 1981 between King Features
Syndicate Division of The Hearst Corporation, A. Copeland
Enterprises, Inc. and Popeyes Famous Fried Chicken, Inc.

10.14 (a) License Agreement dated December 19, 1985 by and between King
Features Syndicate, Inc., The Hearst Corporation, Popeyes, Inc.
and A. Copeland Enterprises, Inc.

10.15 (a) Letter Agreement dated July 20, 1987 by and between King Features
Syndicate, Division of The Hearst Corporation, Popeyes, Inc. and
A. Copeland Enterprises, Inc.

10.16 (a) Employment Agreement dated November 5, 1992 between AFC and Frank
J. Belatti, as amended to date.

10.17 (a) Employment Agreement dated as of November 5, 1992 between AFC and
Dick R. Holbrook, as amended to date.

10.18 (a) Employment Agreement dated December 5, 1995 between AFC and
Samuel N. Frankel.

10.19 (a) 1992 Stock Option Plan of AFC (formerly America's Favorite
Chicken Company) effective as of November 5, 1992, as amended
to date.

10.20 (a) 1996 Nonqualified Performance Stock Option Plan (Executive) of
AFC effective as of April 11, 1996.

10.21 (a) 1996 Nonqualified Performance Stock Option Plan (General) of AFC
effective as of April 11, 1996.

10.22 (a) 1996 Nonqualified Stock Option Plan of AFC effective as of April
11, 1996.

10.23 (a) Form of Nonqualified Stock Option Agreement (General) between AFC
and stock option participants.

10.24 (a) Form of Nonqualified Stock Option Agreement (Executive) between
AFC and certain key executives.

10.25 (a) 1996 Employee Stock Bonus Plan (Executive) of AFC effective as of
April 11, 1996.

10.26 (a) 1996 Employee Stock Bonus Plan (General) of AFC effective as of
April 11, 1996.

10.27 (a) Form of Stock Bonus Agreement (Executive) between AFC and certain
executive officers.

10.28 (a) Form of Stock Bonus Agreement (General) between AFC and certain
key officers and employees.

10.29 (a) Form of Secured Promissory Note issued to certain members of
management.

10.30 (a) Form of Stock Pledge Agreement between AFC and certain members of
management.

10.31 (a) AFC 1994 Supplemental Benefit Plan for Executive Officers dated
May 9, 1994.

10.32 (a) AFC 1994 Supplemental Benefit Plan for Senior and Executive Staff
Officers dated April 19, 1994.

10.33 (a) AFC 1994 Supplemental Benefit Plan for Senior Officers/General
Managers dated May 9, 1994.

10.34 (a) AFC 1994 Supplemental Benefit Plan for Designated Officers dated
May 9, 1994.

10.35 (a) Settlement Agreement between Alvin C. Copeland, Diversified Foods
and Seasonings, Inc., Flavorite Laboratories, Inc. and AFC dated
May 27, 1997.

10.36 (a) Form of Indemnification Agreement dated April 11, 1996 by and
between AFC and all directors.

10.37 (b) Credit Agreement dated August 12, 1997, between AFC and Banco
Popular ("Banco Popular") De Puerto Rico for Turnkey Development
program financing.

10.38 (d) Agreement and Plan of Merger among AFC Enterprises, Inc. and
Seattle Coffee Company, all of the Principal Shareholders of
Seattle Coffee Company (collectively "SCC") and AFC Acquisition
Corp (the "Merger Agreement"), as amended to date.

10.39 (e) Agreement and Plan of Merger by and among Cinnabon International,
Inc., AFC Enterprises, Inc. and AFC Franchise Acquisition Corp.,
effective August 13, 1998, as amended to date.

10.40 (f) Stockholder Agreement by and among AFC Franchise Acquisition
Corp. and other parties signatories dated as of August 13, 1998.

10.41 (c) AFC Deferred Compensation Plan dated January 1, 1998, as amended
to date, as amended to date.

10.42 (g) AFC Enterprises, Inc. 1999 - 2003 Long-Term Employee Success
Plan, effective January 1, 1999.

21.1 (c) Subsidiaries of AFC.

23.2 (f) Consent of Ernst & Young LLP.

27.1 (h) Financial Data Schedule.

- -------------------------
(a) Filed as an exhibit to the Company's Registration Statement on Form S-4
(Registration No. 333-29731) on July 2, 1997 and incorporated by reference
herein.

(b) Filed as an exhibit to the Company's Form 10-Q for the quarter ended
September 7, 1997 on October 21, 1997 and incorporated by reference herein.

(c) Filed as an exhibit to the Company's Form 10-K for the year ended December
27, 1998 on March 29, 1999 and incorporated by reference herein.

(d) Filed as an exhibit to the Company's Form 10-Q for the quarter ended March
22, 1998 on May 6, 1998 and incorporated by reference herein.

(e) Filed as an exhibit to the Company's Current Report on Form 8-K dated
August 13, 1998 and incorporated by reference herein.

(f) Filed as an exhibit to the Company's Current Report on Form 8-K dated
October 15, 1998 and incorporated by reference herein.

(g) Filed as an exhibit to the Company's Form 10-Q for the quarter ended June
13, 1999 on July 28, 1999 and incorporated by reference herein.

(h) Included in this filing.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

AFC Enterprises, Inc.

By: /s/ Frank J. Belatti
--------------------------------
Frank J. Belatti
Chairman of the Board and
Chief Executive Officer

Date: March 27, 2000

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.

Signatures Title Date
---------- ----- ----

/s/ Frank J. Belatti Chairman of the board and March 27, 2000
- --------------------------- Chief Executive Officer
Frank J. Belatti (Principal Executive Officer)

/s/ Gerald J. Wilkins Chief Financial Officer March 27, 2000
- --------------------------- (Principal Financial and
Gerald J. Wilkins Accounting Officer)

/s/ Dick R. Holbrook President, Chief Operating March 27, 2000
- --------------------------- Officer and Director
Dick R. Holbrook

/s/ Samuel N. Frankel Executive Vice President, March 27, 2000
- --------------------------- Secretary, General Counsel
Samuel N. Frankel and Director

/s/ John M. Roth Director March 27, 2000
- ---------------------------
John M. Roth

/s/ Mark J. Doran Director March 27, 2000
- ---------------------------
Mark J. Doran

/s/ Paul Farrar Director March 27, 2000
- ---------------------------
Paul Farrar

/s/ Matt L. Figel Director March 27, 2000
- ---------------------------
Matt L. Figel

/s/ Peter Starrett Director March 27, 2000
- ---------------------------
Peter Starrett

/s/ Kelvin J. Pennington Director March 27, 2000
- ---------------------------
Kelvin J. Pennington

/s/ Ronald P. Spogli Director March 27, 2000
- ---------------------------
Ronald P. Spogli

/s/ William M. Wardlaw Director March 27, 2000
- ---------------------------
William M. Wardlaw

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

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

We have audited the accompanying consolidated balance sheets of AFC Enterprises,
Inc. (a Minnesota corporation) and subsidiaries (collectively referred to
hereafter as "the Company") as of December 26, 1999, and December 27, 1998, and
the related consolidated statements of operations, changes in shareholders'
equity and cash flows for the years ended December 26, 1999, December 27, 1998,
and December 28, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 26,
1999, and December 27, 1998, and the results of their operations and their cash
flows for the years ended December 26, 1999, December 27, 1998, and December 28,
1997, in conformity with generally accepted accounting principles.

/s/ ARTHUR ANDERSEN LLP

Atlanta, Georgia
February 18, 2000

F-1

AFC Enterprises, Inc. and subsidiaries
Consolidated Balance Sheets
As of December 26, 1999 and December 27, 1998
(In thousands, except share amounts)
- --------------------------------------------------------------------------------

1999 1998
-------- --------

Assets:
Current assets:
Cash and cash equivalents.............................. $ 22,496 $ 17,066
Accounts and current notes receivable, net of reserve.. 19,457 16,728
Income taxes refundable................................ 453 3,327
Inventories............................................ 16,781 13,182
Deferred income taxes.................................. 790 4,577
Prepaid expenses and other............................. 2,750 2,344
-------- --------
Total current assets................................ 62,727 57,224
-------- --------

Long-term assets:
Notes receivable, net.................................. 3,436 4,066
Deferred income taxes.................................. 9,132 4,416
Property and equipment, net............................ 263,282 263,141
Other assets........................................... 18,442 19,498
Franchise value and tradename, net..................... 81,262 82,913
Goodwill, net.......................................... 119,231 122,334
Other intangible assets, net........................... 4,377 2,873
-------- --------
Total long-term assets.............................. 499,162 499,241
-------- --------

Total assets................................... $561,889 $556,465
======== ========

Liabilities and Shareholders' Equity:
Current liabilities:
Accounts payable....................................... $ 32,800 $ 40,579
Bank overdrafts........................................ 19,216 6,248
Current portion of long-term debt...................... 13,111 8,356
Current portion of capital lease obligations........... 4,523 6,050
Short-term borrowings.................................. - 7,000
Accrued interest....................................... 3,016 2,863
Accrued insurance expenses............................. 4,820 4,437
Accrued employee compensation.......................... 5,495 5,181
Accrued employee benefit expenses...................... 6,455 3,851
Other accrued expenses................................. 5,534 6,715
-------- --------
Total current liabilities........................... 94,970 91,280
-------- --------

Long-term liabilities:
Long-term debt, net of current portion................. 264,185 262,744
Capital lease obligations, net of current portion...... 4,272 8,561
Acquisition facility................................... 62,000 68,000
Other liabilities...................................... 35,663 37,963
-------- --------
Total long-term liabilities......................... 366,120 377,268
-------- --------

Total liabilities.............................. 461,090 468,548
-------- --------

(Continued)
See accompanying notes to consolidated financial statements.

F-2

AFC Enterprises, Inc. and subsidiaries
Consolidated Balance Sheets (Continued)
As of December 26, 1999 and December 27, 1998
(In thousands, except share amounts)
- --------------------------------------------------------------------------------

1999 1998
--------- ---------

Commitments and contingencies

Shareholders' Equity:
Common stock ($.01 par value; 50,000,000 shares authorized;
39,443,398 and 39,232,329 shares issued and outstanding
at period end, respectively).............................. 394 392
Capital in excess of par value............................... 153,280 151,632
Notes receivable - officers, including accrued interest...... (6,991) (6,138)
Accumulated deficit.......................................... (45,884) (57,969)
-------- --------

Total shareholders' equity................................ 100,799 87,917
-------- --------
Total liabilities and shareholders' equity........... $561,889 $556,465
======== ========

See accompanying notes to consolidated financial statements.

F-3

AFC Enterprises, Inc. and subsidiaries
Consolidated Statements of Operations
For the Years Ended December 26, 1999, December 27, 1998
and December 28, 1997
(In thousands)

- ---------------------------------------------------------------------------------------------------
For For For
Year Ended Year Ended Year Ended
December 26, December 27, December 28,
1999 1998 1997
------------ ------------ ------------
(52 Weeks) (52 Weeks) (52 Weeks)

Revenues:
Restaurant sales.................................... $559,512 $487,441 $403,182
Franchise revenues.................................. 77,463 64,211 61,716
Wholesale revenues.................................. 51,643 36,411 -
Manufacturing revenues.............................. 9,076 7,561 7,647
Other revenues...................................... 9,448 9,935 8,766
-------- -------- --------
Total revenues..................................... 707,142 605,559 481,311
-------- -------- --------

Costs and expenses:
Restaurant cost of sales............................ 167,659 155,165 131,332
Restaurant operating expenses....................... 287,519 244,651 197,232
Wholesale cost of sales............................. 24,693 19,064 -
Wholesale operating expenses........................ 13,104 8,070 -
Manufacturing cost of sales......................... 8,048 5,802 6,381
General and administrative.......................... 96,475 86,784 77,492
Depreciation and amortization....................... 42,352 45,478 33,532
Charges for restaurant closings..................... 4,435 8,858 479
Software write-offs................................. 3,830 5,000 -
Gain on sale of fixed assets from AFDC transaction.. - - (5,319)
-------- -------- --------
Total costs and expenses........................... 648,115 578,872 441,129
-------- -------- --------

Income from operations............................... 59,027 26,687 40,182

Other expenses:
Interest, net....................................... 34,219 30,786 20,645
-------- -------- --------

Income (loss) from continuing operations
before income taxes................................. 24,808 (4,099) 19,537
Income tax expense (benefit)........................ 10,293 (1,346) 8,530
-------- -------- --------
Net income (loss) from continuing operations......... 14,515 (2,753) 11,007
Discontinued Operations:
Loss from operations of Chesapeake Bagel Bakery
(net of income tax benefit)........................ 688 5,893 7
Loss on sale of Chesapeake Bagel Bakery
(net of income tax benefit)........................ 1,742 - -
-------- -------- --------

Net income (loss).................................... 12,085 (8,646) 11,000

10% Preferred Stock dividends payable in kind........ - - 2,240
-------- -------- --------

Net income (loss) attributable to common stock....... $ 12,085 $ (8,646) $ 8,760
======== ======== ========

See accompanying notes to consolidated financial statements.

F-4

AFC Enterprises, Inc. and subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
For the Years Ended December 26, 1999, December 27, 1998
and December 28, 1997
(In thousands)
- --------------------------------------------------------------------------------

For For For
Year Ended Year Ended Year Ended
December 26, December 27, December 28,
1999 1998 1997
------------- ------------- -------------

Common stock:
Balance at beginning of period.............. $ 392 $ 344 $ 344
Issuance of common stock.................... 2 48 -
-------- -------- --------
Balance at end of period.................... 394 392 344
-------- -------- --------

Capital in excess of par value:
Balance at beginning of period.............. 151,632 101,840 99,482
Issuance of common stock, options and
warrants................................... 183 48,720 6
Adjust stock issuance cost accrual to
actual..................................... - - 135
Compensation expense from stock options..... 1,465 1,072 2,217
-------- -------- --------
Balance at end of period.................... 153,280 151,632 101,840
-------- -------- --------

Notes receivable - officers:
Balance at beginning of period.............. (6,138) (4,402) (3,841)
Notes receivable additions, net of discount. (421) (1,345) (202)
Note and interest receivable payments....... 64 16 22
Interest receivable......................... (390) (311) (287)
Amortization of discount.................... (106) (96) (94)
-------- -------- --------
Balance at end of period.................... (6,991) (6,138) (4,402)
-------- -------- --------

Accumulated deficit:
Balance at beginning of period.............. (57,969) (49,323) (58,083)
Net income (loss)........................... 12,085 (8,646) 11,000
10% Preferred Stock dividends............... - - (2,240)
-------- -------- --------
Balance at end of period.................... (45,884) (57,969) (49,323)
-------- -------- --------

Total shareholders' equity................... $100,799 $ 87,917 $ 48,459
======== ======== ========

See accompanying notes to consolidated financial statements.

F-5

AFC Enterprises, Inc. and subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended December 26, 1999, December 27, 1998
and December 28, 1997
(In thousands)
- --------------------------------------------------------------------------------

For For For
Year Ended Year Ended Year Ended
December 26, December 27, December 28,
1999 1998 1997
------------- ------------- -------------
(52 Weeks) (52 Weeks) (52 Weeks)

Cash flows provided by (used in) operating activities:
Net income (loss)......................................... $ 12,085 $ (8,646) $ 11,000
-------- --------- --------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization............................ 42,622 46,078 33,803
Provision for credit losses.............................. 1,064 1,063 1,214
(Gain) loss on disposition and retirement of
long-lived assets..................................... 1,259 987 (2,652)
Charges for restaurant closings.......................... 4,435 8,858 479
Loss on disposition of Chesapeake........................ 4,789 7,125 -
Software write-offs...................................... 3,830 5,000 -
Amortization of debt issuance costs...................... 1,614 1,477 886
Amortization of notes receivable - officers discount..... (106) (96) (94)
Compensation expense from stock options.................. 1,465 1,072 2,217
Deferred tax expense (benefit)........................... 5,071 (7,628) 3,863

Change in operating assets and liabilities:
(Increase) decrease in accounts receivable............... (3,751) (6,325) (905)
(Increase) decrease in inventories....................... (3,598) (3,565) (487)
(Increase) decrease in prepaid expenses/other............ 2,466 (1,546) 4,076
(Increase) decrease in other assets...................... (2,572) (6,681) 21
Increase (decrease) in accounts payable.................. (14,251) 14,747 4,157
Increase (decrease) in accrued expenses.................. 2,599 (3,298) (3,097)
Increase (decrease) in other liabilities................. (3,794) (3,085) (1,966)
-------- --------- --------
Total adjustments..................................... 43,142 54,183 41,515
-------- --------- --------
Net cash provided by operating activities................. 55,227 45,537 52,515
-------- --------- --------

Cash flows provided by (used in) investing activities:
Proceeds from disposition of property held for sale....... 4,644 479 19,681
Investment in property and equipment...................... (55,808) (38,135) (42,136)
Proceeds from sale of Chesapeake.......................... 2,312 - -
Investment in Chesapeake intangible asset................. - - (14,116)
Investment in Pinetree intangible and fixed assets........ (102) (41,449) -
Investment in SCC intangible and fixed assets............. (858) (43,970) -
Investment in CII intangible and fixed assets............. - (67,484) -
Notes receivable additions................................ (1,052) (359) (2,657)
Payments received on notes................................ 3,018 2,631 3,446
-------- --------- --------
Net cash used in investing activities..................... (47,846) (188,287) (35,782)
-------- --------- --------

(Continued)
See accompanying footnotes to consolidated financial statements.

F-6

AFC Enterprises, Inc. and subsidiaries
Consolidated Statements of Cash Flows (Continued)
For the Years Ended December 26, 1999, December 27, 1998
and December 28, 1997
(In thousands)

- ----------------------------------------------------------------------------------------------------
For For For
Year Ended Year Ended Year Ended
December 26, December 27, December 28,
1999 1998 1997
------------ ------------ ------------
(52 Weeks) (52 Weeks) (52 Weeks)

Cash flows provided by (used in) financing activities:
Principal payments of long-term debt................. (10,424) (5,321) (128,365)
Proceeds from long-term debt......................... 25,000 50,000 50,000
Proceeds from subordinated notes..................... - - 175,000
Net borrowings under Acquisition line of credit...... (6,000) 68,000 -
Net borrowings under Revolving line of credit........ (7,000) 7,000 -
Increase (decrease) in bank overdrafts, net.......... 12,968 (3,459) (1,105)
Principal payments for capital lease obligations..... (7,707) (7,421) (25,182)
Principal payments on senior notes................... (8,020) - -
Redemption of 10% preferred stock.................... - - (59,957)
Notes receivable additions to officers............... (421) - (202)
Notes and interest receivable officers-payments...... 64 16 22
Notes receivable officers-accrued interest........... (390) (311) (287)
Issuance of common stock............................. 185 20,350 6
Stock issuance costs................................. - (1,016) -
Debt issuance costs.................................. (206) (986) (10,675)
Preferred stock dividends paid....................... - - (2,240)
-------- -------- ---------
Net cash provided by (used in) financing activities.. (1,951) 126,852 (2,985)
-------- -------- ---------

Net increase (decrease) in cash and cash equivalents.. 5,430 (15,898) 13,748
Cash and cash equivalents at beginning
of the period..................................... 17,066 32,964 19,216
-------- -------- ---------
Cash and cash equivalents at end of the period........ $ 22,496 $ 17,066 $ 32,964
======== ======== =========

Supplemental Disclosure of Cash Flow Information

Cash interest paid (net of capitalized amounts).. $ 33,205 $ 29,388 $ 19,579
Cash paid for income taxes....................... 142 4,064 6,747

Noncash Investing and Financing Activities

Capital lease and note payable additions......... $ 255 $ 3,899 $ 20,485
Issuance of Common Stock......................... - 28,090 -
Notes receivable to officers (See Note 13)....... - 1,345 -
Notes receivable - other......................... 1,900 - -

See accompanying notes to consolidated financial statements.

F-7

AFC Enterprises, Inc. and subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 26, 1999, December 27, 1998
and December 28, 1997

1. Summary of Significant Accounting Policies

Principles of Consolidation

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

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

Nature of Operations

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

F-8

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

Basis of Presentation

The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities. These estimates affect the disclosure of contingent assets
and liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

F-9

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

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

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

Cash and Cash Equivalents

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

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

F-10

Accounts Receivable

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

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

December 26, December 27,
1999 1998
------------ ------------

Balance, beginning of period.. $ 4,568 $4,040
Provisions.................... 401 1,185
Recoveries.................... 24 12
Write-offs.................... (4,555) (669)
------- ------
Balance, end of period........ $ 438 $4,568
======= ======

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

Notes Receivable

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

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

December 26, December 27,
1999 1998
------------ ------------

Balance, beginning of period.. $ 430 $ 584
Provisions.................... 663 (122)
Recoveries.................... 32 22
Write-offs.................... (754) (54)
----- -----
Balance, end of period........ $ 371 $ 430
===== =====

F-11

Inventories

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

Property and Equipment

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

Asset Classification Number of Years
-------------------- ---------------
Buildings.............................. 5 - 35
Equipment.............................. 3 - 15
Leasehold improvements................. 3 - 15
Capital lease buildings and equipment.. 3 - 20

Intangible Assets

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

Asset Classification Number of Years
-------------------- ---------------
Franchise value and tradename.......... 20 - 40
Goodwill............................... 20 - 40
Other.................................. 10 - 40

Long-Lived Assets

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

F-12

sale includes closed restaurant properties and other corporate property
held for sale, and is recorded at its estimated net realizable value.

The Company periodically reviews the realizability of its long-lived
assets as set forth in Statement of Financial Accounting Standards No. 121
("FAS 121"), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of". It is the Company's policy to
evaluate (i) operating restaurant, bakery and cafe properties on a market
basis, (ii) other assets, such as assets held for sale and income producing
assets, on an individual property basis and, (iii) intangible assets based
on the cash flows from the underlying operations which generated the
intangible asset. The identifiable cash flows of long-lived assets are
compared to the assets carrying value.

In 1998, the Company recorded a $6.8 million write-down of its
Chesapeake intangible asset in accordance with FAS 121 accounting. The
write-down was based on an analysis of future cash flows expected to be
generated from Chesapeake's operations. The Company did not incur FAS 121
write-downs in 1999 or 1997.

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

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

Stock-Based Employee Compensation

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

F-13

For For For
Year Ended Year Ended Year Ended
December 26, December 27, December 28,
1999 1998 1997
------------ ------------- ------------

Net income (loss):
As reported...... $12,085 $ (8,646) $11,000
======= ======== =======

Pro forma........ $12,019 $(10,247) $11,528
======= ======== =======

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

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

Franchise Revenues

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

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

Development Agreements. Development agreements provide for the
development of a specified number of restaurants, bakeries and cafes
within a defined geographic territory in accordance with a schedule of
opening dates. Development schedules generally cover three to five
years and typically have benchmarks for the number of restaurants,
bakeries and cafes to be opened and in operation at six to twelve
month intervals. Development agreement payments are made when the
agreement is executed and are nonrefundable.

F-14

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

Wholesale Revenues

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

Manufacturing Revenues

Manufacturing revenues consist primarily of sales of proprietary gas
fryers and other custom-fabricated restaurant equipment from the Company's
manufacturing business to distributors and franchisees.

Other Revenues

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

Insurance Programs

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

F-15

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

International Operations

The Company is exposed, to a limited degree, to changes in
international economic conditions and currency fluctuations due to its
international franchise operations. AFC has not historically maintained any
hedges against foreign currency fluctuations, although the Company did
enter into a foreign currency hedging agreement in 1999 with respect to the
Korean Won. Losses recorded by the Company during the past three years
related to foreign currency fluctuations have not been material to the
Company's results of operations. For fiscal years 1999, 1998 and 1997,
royalties and other revenues from foreign franchisees represented 1.7%,
1.9% and 2.4%, respectively, of the Company's total revenues.

2. Fair Value of Financial Instruments

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

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

F-16

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

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

1999 1998
--------------------- --------------------
Carrying Fair Carrying Fair
Value Value Value Value
--------- -------- -------- --------

10.25% Senior Subordinated Notes $166,980 $167,815 $175,000 $182,000
======== ======== ======== ========

3. Inventories

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

December 26, December 27,
1999 1998
------------ ------------
Food and beverage items, preparation
and packaging materials................ $12,878 $ 10,269
Restaurant equipment..................... 3,903 2,913
------- --------
$16,781 $ 13,182
======= ========

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

4. Property and Equipment

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

F-17

December 26, December 27,
1999 1998
------------ ------------

Owned properties:
Land............................. $ 44,664 $ 43,289
Buildings........................ 79,097 71,827
Equipment........................ 155,545 146,507
Leasehold improvements........... 83,681 80,045
Construction work in process..... 10,785 8,008
Properties held for sale......... 1,333 3,683

Capital leases:
Buildings........................ 3,811 3,811
Equipment........................ 23,960 21,818
-------- --------
402,876 378,988
Less: accumulated depreciation and
amortization...................... 139,594 115,847
-------- --------
$263,282 $263,141
======== ========

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

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

5. Other Assets

Other assets consist of the following (in thousands):

December 26, December 27,
1999 1998
------------ ------------

Deposits........................... $ 2,113 $ 2,297
Information technology costs....... 4,070 4,888
Debt issuance costs, net........... 7,891 9,298
Real estate development costs...... 2,692 1,602
Other.............................. 1,676 1,413
-------- --------
$18,442 $19,498
======== ========

6. Intangible Assets

Intangible assets consist of the following (in thousands):

F-18

December 26, December 27,
1999 1998
------------ ------------

Franchise value................... $110,000 $117,278
Goodwill.......................... 125,925 126,043
Tradename......................... 10,800 -
Other............................. 5,485 7,088
-------- --------
252,210 250,409
Less: accumulated amortization.... 47,340 42,289
-------- --------
$204,870 $208,120
======== ========

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

7. Other Liabilities

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

December 26, December 27,
1999 1998
------------ ------------

Insurance reserves................ $ 4,847 $ 8,598
Deferred franchise revenues....... 6,930 6,472
Litigation and environmental...... 5,874 6,314
Other............................. 18,012 16,579
------- -------
$35,663 $37,963
======= =======

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

8. Long-term Debt

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

F-19

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

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

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

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

The Term Loan A, the Term Loan B, the Acquisition Facility and the
Revolving Facility (collectively "the 1997 Credit Facility") bear interest,
at the Company's election, at either (i) a

F-20

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

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

Term Loans

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

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

Acquisition Facility

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

Revolving Facility

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

F-21

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

Other Terms

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

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

10.25% Senior Subordinated Notes ("Senior Notes")

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

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

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

The Senior Notes restrict, among other things, the ability of the
Company and its wholly-owned subsidiaries a) to incur additional
indebtedness and subsidiary preferred stock, b) to sell assets and to use
the proceeds from asset sales, c) to engage in certain transactions with
affiliates,

F-22

d) to pay dividends, make certain investments and make other restricted
payments, as defined, and e) to maintain a certain interest coverage ratio.
At December 26, 1999, the Company was in compliance with all covenants.

Debt Issuance Costs

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

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

December 26, December 27,
1999 1998
------------ ------------

Term Loans:
Term Loan A.................... $ 35,982 $ 44,250
Term Loan B.................... 73,205 50,000
10.25% Senior Subordinated Notes.. 166,980 175,000
Other notes....................... 1,129 1,850
-------- --------
277,296 271,100
Less: current maturities..... 13,111 8,356
-------- --------
$264,185 $262,744
======== ========

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

Year Amount
---- --------
2000............................... $ 13,111
2001............................... 8,414
2002............................... 23,139
2003............................... 22,109
2004............................... 43,543
Thereafter......................... 166,980
--------
$277,296
========

9. Leases

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

Capital Operating
Leases Leases
------- ---------

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

F-23

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

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

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

Rental
Income
-------

2000.............................. $ 5,327
2001.............................. 4,866
2002.............................. 4,205
2003.............................. 3,572
2004.............................. 2,993
Thereafter........................ 14,709
-------
Future minimum rentals....... $35,672
=======

10. Income Taxes

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

F-24

For For For
Year Ended Year Ended Year Ended
December 26, December 27, December 28,
1999 1998 1997
------------ ------------ ------------

Current income tax expense consists of:
Federal................................ $ 443 $ 1,094 $ 1,557
Foreign................................ 2,000 1,543 1,804
State.................................. 791 768 1,301
------ ------- ------
Total.................................. 3,234 3,405 4,662

Deferred income tax expense (benefit).... 5,071 (7,628) 3,863
------ ------- ------
Income tax expense (benefit).... $8,305 $(4,223) $8,525
====== ======= ======

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

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

For For For
Year Ended Year Ended Year Ended
December 26, December 27, December 28,
1999 1998 1997
------------ ------------ ------------

Statutory Federal income tax expense
(benefit) rate................... 35.0% (35.0%) 35.0%
Non-deductible items including
goodwill amortization............ 5.9 5.3 2.0
State taxes, net of federal benefit... 4.9 (2.1) 4.2
Benefit of job tax credits............ (1.1) - -
Other items, net...................... (4.0) (1.0) 2.4
---- ----- ----
Effective income tax expense
(benefit) rate................ 40.7% (32.8%) 43.6%
==== ===== ====

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

F-25

December 26, December 27,
1999 1998
------------ ------------

Current deferred tax asset (liability):
Payroll accruals.......................... $ 258 $ 919
Allowance for doubtful accounts........... 309 1,903
Other accruals............................ 223 1,755
-------- --------
Total current deferred tax asset....... 790 4,577
-------- --------

Noncurrent deferred tax asset (liability):
Franchise value and trademarks............ $(23,700) $(23,939)
Property, plant and equipment............. 10,148 4,476
Net operating loss carryforwards.......... 5,766 7,633
AMT credit carryforwards.................. 2,640 2,467
General business credit carryforwards..... 4,161 2,369
Foreign tax credit carryforwards.......... 3,121 3,732
Deferred compensation..................... 4,378 3,165
Insurance accruals........................ 4,479 5,684
Litigation/environmental accruals......... 2,337 2,739
Deferred franchise fee revenue............ 2,651 2,427
Other items, net.......................... 204 (177)
-------- --------
16,185 10,576
Valuation allowance....................... (7,053) (6,160)
-------- --------
Total noncurrent deferred tax asset
(liability)........................ 9,132 4,416
-------- --------

Net deferred tax asset................. $ 9,922 $ 8,993
======== ========

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

F-26

11. Stock Option Plans

The 1992 Stock Option Plan

The 1992 nonqualified Stock Option Plan authorizes the issuance of
options to purchase approximately 1.8 million shares of the Company's
common stock at $0.08 per share. The options currently granted and
outstanding allow certain officers of the Company to purchase approximately
1.6 million shares of common stock and are exercisable at various dates
beginning January 1, 1994. If not exercised, the options expire 15 years
after the date of issuance. For the years ended December 26, 1999, December
27, 1998 and December 28, 1997, the Company did not recognize any
compensation expense related to these options. As of December 26, 1999,
1,612,759 options were exercisable.

The 1996 Performance-Based Stock Option Plan

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

F-27

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

The 1996 Stock Option Plan

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

The 1998 SCC Plan

In connection with the SCC acquisition in March 1998, the Company
created the Substitute Nonqualified Stock Option Plan ("1998 SCC Plan").
The 1998 SCC Plan authorizes the issuance of approximately 500,000
options at exercise prices that range from $3.91 to $6.75 per share. The
Company issued approximately 450,000 options at the closing date of the
acquisition. The issuance of the remaining 50,000 options are subject to a
reduction of options based on a holdback provision in the acquisition
agreement. Regarding the remaining options to be issued, a determination on
the number of options will be made on or about March 31, 2001, three years
from the closing date of the transaction. At December 26, 1999, the
weighted-average exercise price per share was $4.79. The options vest when
issued by the Company and expire at various dates through October 31, 2007.
At December 26, 1999, the weighted-average contractual life of these
options was 5.7 years. As of December 26, 1999, 462,756 options were
exercisable.

F-28

Warrants

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

A Summary of Plan Activity

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

1999 1998
----------------- -----------------
Shares Wtd.Avg. Shares Wtd.Avg.
(000's) Ex.Price (000's) Ex.Price
------- -------- ------- --------

Outstanding at beginning of year............ 5,985 $3.66 5,013 $2.36
Granted options and warrants................ 495 7.77 2,021 6.73
Exercised options and warrants.............. (160) 1.83 (10) 2.62
Cancelled options and warrants.............. (274) 4.37 (1,039) 3.37
----- ------
Outstanding at end of year.................. 6,046 3.97 5,985 3.66
===== ======

Exercisable at end of year.................. 4,901 3.41 4,618 3.34

Weighted average fair value of options and
warrants granted (See Note 1)............. $2.34 $2.36

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

12. Other Employee Benefit Plans

Pre-Tax Savings and Investment Plan

The Company maintains a qualified employee benefit plan under Section
401(k) of the Internal Revenue Code for the benefit of employees meeting
certain eligibility requirements. Under the plan, employees may contribute
up to 16.0% of their eligible compensation to the plan on a

F-29

pre-tax basis up to statutory limitations. The Company may make both
voluntary and matching contributions to the plan. The Company expensed
approximately $0.3 million during 1999 and $0.2 million in each of 1998 and
1997 for its contributions to the plan.

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

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

Deferred Compensation Plan

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

Long-Term Success Plan

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

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

F-30

Executive Retirement and Benefit Plans

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

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

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

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

13. Related Party Transactions

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

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

F-31

and December 27, 1998 are included as a reduction to shareholders' equity
in the accompanying consolidated balance sheets and consolidated statements
of shareholders' equity.

In connection with the Company's common stock offering described in
Note 11, the Company paid stock issuance costs of approximately $1.0
million to Freeman Spogli and Co., Inc., which through other affiliates is
the Company's majority common shareholder.

14. Commitments and Contingencies

Employment Agreements

Three senior executives and the Company have entered into employment
agreements containing customary employment terms which provide for an
annual base salary of $500,000, $350,000 and $315,000, respectively,
subject to annual adjustment by the Board of Directors, an annual incentive
bonus, stock options, fringe benefits, participation in Company-sponsored
benefit plans and such other compensation as may be approved by the Board
of Directors. The terms of the agreements terminate in 2003, unless
earlier terminated or otherwise renewed, pursuant to the terms thereof.
Pursuant to the terms of the agreements, if employment is terminated
without cause or if written notice not to renew employment is given by the
Company, the terminated executive would be entitled to, among other things,
two-and-one-half times his base annual salary and the bonus payable to the
individual for the fiscal year in which such termination occurs. Under the
agreements, upon (i) a change of control of the Company, (ii) a significant
reduction in the executive's responsibilities, title or duties or (iii) the
relocation of the Company's principal office more than 45 miles from its
current location, the executive may terminate his employment and would be
entitled to receive, among other things, the same severance pay he would
have received had his employment been terminated by the Company without
cause.

Supply Contracts

The principal raw material for the Company's Popeyes and Churchs
systems is fresh chicken. For fiscal years ended December 26, 1999 and
December 27, 1998, approximately 47% and 50%, respectively of Popeyes' and
Churchs' restaurant cost of sales was attributable to the purchase of fresh
chicken. As a result, the Company is significantly affected by increases in
the cost of chicken, which can be affected by, among other factors, the
cost of grain, the price for other alternative domestic meats and overseas
demand for chicken products. Due to extremely competitive conditions in the
"Quick Service Restaurant" industry, with respect to increases in raw
material costs such as chicken, the Company has generally not been able to
raise retail prices sufficiently to pass all such increased costs to the
consumer.

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

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

F-32

green coffee beans at a total cost of approximately $6.9 million. The
contract terms cover a period from January 2000 to December 2000.

Litigation

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

Environmental Matters

Approximately 150 of the Company's owned and leased properties are
known or suspected to have been used by prior owners or operators as retail
gas stations and a few of these properties may have been used for other
environmentally sensitive purposes. Many of these properties previously
contained underground storage tanks ("USTs") and some of these properties
may currently contain abandoned USTs. As a result of the use of oils and
solvents typically associated with automobile repair facilities and gas
stations, it is possible that petroleum products and other contaminants may
have been released at these properties into the soil or groundwater. Under
applicable Federal and state environmental laws, the Company, as the
current owner or operator of these sites, may be jointly and severally
liable for the costs of investigation and remediation of any such
contamination. As a result, after an analysis of its property portfolio,
including testing of soil and groundwater at a representative sample of its
facilities, the Company believes that it has accrued adequate reserves and
has obtained adequate insurance coverage for any environmental remediation
liabilities. The Company is currently not subject to any administrative or
court order requiring remediation at any of its properties.

Information Technology Outsourcing

F-33

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

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

Year Amount
---- ------

2000...................... $ 6,278
2001...................... 6,695
2002...................... 7,511
2003...................... 7,730
2004...................... 4,238
-------
$32,452
=======

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

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

Formula Agreement

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

F-34

Supply Agreements

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

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

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

Advertising Funds

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

King Feature Agreements

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

F-35

The King Features agreements automatically renew annually. Should a payment
be required under this licensing agreement, the payment will be made out of
the Advertising Funds described above.

Other Commitments

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

15. Segment and Geographic Information

The Company operates exclusively in the food service and beverage
industry. Substantially all revenues result from the sale of menu products
at restaurants, bakeries and cafes operated by the Company, franchise
royalty and fee income earned from franchised restaurant, bakery and cafe
operations and wholesale revenues from the sale of coffee products. The
Company's reportable segments are based on specific products and services
within the food service and beverage industry. The Company combined
Popeyes' and Churchs' domestic operations to form its chicken segment. The
Company previously aggregated the operations of Chesapeake and Cinnabon to
form its bakery segment, however, with the sale of Chesapeake in the third
quarter of 1999 (See Note 17), the bakery segment only includes Cinnabon's
operations. Chesapeake's operations have been classified as discontinued
operations in the accompanying financial statements. The Company's coffee
segment consists of SCC's domestic operations, which includes its wholesale
operations. The international segment is comprised primarily of the
Company's international franchised operations, which mainly consists of
Popeyes and Churchs international franchised restaurants.

The "other" segment includes the Company's manufacturing division,
Ultrafryer. The "corporate" component of operating income includes
revenues from (1) interest income from notes receivable and rental revenue
from leasing and sub-leasing agreements with franchisees and third parties,
less (2) corporate general and administrative expenses, depreciation,
amortization and interest expense.

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

Revenues:
1999 1998 1997
--------- --------- ---------
(in thousands)

Chicken................. $523,692 $495,770 $452,799
Coffee.................. 77,178 58,113 -
Bakery.................. 76,789 23,757 -
International........... 12,094 11,712 12,273
Other................... 11,056 9,866 8,557
Inter-segment revenues.. (1,980) (2,261) (857)
Corporate............... 8,313 8,602 8,539
-------- -------- --------
Total Revenues........ $707,142 $605,559 $481,311
======== ======== ========

F-36

Inter-segment revenues represent Ultrafryer sales to Company-operated
restaurants and SCC coffee sales to CII Company-operated bakeries. These
revenues are eliminated in consolidation.

Operating Income (Loss):
1999 1998 1997
--------- --------- ---------
(in thousands)

Chicken................. $103,891 $ 90,441 $ 90,457
Coffee.................. 10,464 7,701 -
Bakery.................. 9,144 4,020 -
International........... 5,924 6,912 7,684
Other................... 1,108 1,220 901
Corporate............... (18,161) (22,442) (25,284)
-------- -------- --------
Total Operating Income
(Loss).............. 112,370 87,852 73,758
Adjustments to reconcile
to income from operations:
Depreciation and
amortization.......... (42,352) (45,478) (33,532)
Compensation expense
related to stock
options.............. (1,465) (1,072) (2,217)
Gain/(loss) on fixed
asset write-offs...... (9,526) (14,615) 2,173
-------- -------- --------
Income from operations.. $ 59,027 $ 26,687 $ 40,182
======== ======== ========

Depreciation and Amortization:
1999 1998 1997
--------- --------- ---------
(in thousands)
Chicken................. $ 24,416 $ 24,935 $ 17,308
Coffee.................. 3,712 4,429 -
Bakery.................. 6,287 1,711 -
International........... 1,019 87 39
Other................... 226 316 288
Corporate............... 6,692 14,000 15,897
-------- -------- --------
Total Depreciation and
Amortization........ $ 42,352 $ 45,478 $ 33,532
======== ======== ========

F-37

Significant Non-cash Items:
1999 1998 1997
--------- --------- ---------
(in thousands)

Chicken................. $5,416 $ 9,956 $2,094
Coffee.................. 121 - -
Bakery.................. 79 - -
International........... - - -
Other................... 80 - 31
Corporate............... 3,830 4,659 1,021
------ ------- ------
Total Significant
Non-cash Items..... $9,526 $14,615 $3,146
====== ======= ======

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

Assets:
1999 1998
-------- --------
(in thousands)

Chicken........................ $295,214 $281,005
Coffee......................... 101,962 82,164
Bakery......................... 75,553 74,813
International.................. 11,175 15,236
Other.......................... 7,533 5,730
Corporate...................... 70,452 97,517
-------- --------
Total Assets................. $561,889 $556,465
======== ========

Capital Expenditures:
1999 1998
-------- --------
(in thousands)
Chicken........................ $ 33,635 $ 26,453
Coffee 13,453 4,602
Bakery......................... 3,346 850
International.................. 135 148
Other 388 140
Corporate...................... 4,261 9,332
-------- --------
Total Capital Expenditures.. $ 55,218 $ 41,525
======== ========

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

F-38

16. Acquisitions

Pinetree Foods, Inc. Acquisition

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

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

Seattle Coffee Company Acquisition

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

During 1999, the Company completed an analysis of the fair value and
allocation of its intangible asset acquired from SCC, which resulted in a
final purchase price adjustment to the amounts initially recorded on the
acquisition date. As part of this analysis, $11.3 million was reallocated
from goodwill to tradename and other intangibles. At December 26,
F-39

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

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

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

52 Weeks 52 Weeks
Ended Ended
12/27/98 12/28/97
--------- ---------

Total revenues........... $614,106 $532,512
======== ========

Net income (loss) from
continuing operations.. $ (3,289) $ 10,193
======== ========

Net income (loss)........ $ (9,182) $ 10,186
======== ========

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

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

Cinnabon International, Inc.

On October 15, 1998, the Company acquired Cinnabon International, Inc.
("CII"), the operator and franchisor of 363 retail cinnamon roll bakeries
operating in 39 states, Canada and Mexico. Two hundred and eleven of the
retail cinnamon roll bakeries were Company-operated and

F-40

were located within the United States. In connection with the acquisition,
CII became a wholly-owned subsidiary of AFC through the merger of AFC
Franchise Acquisition Corp. into CII (the "Acquisition").

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

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

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

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

52 Weeks 52 Weeks
Ended Ended
12/27/98 12/28/97
--------- ---------

Total revenues........... $659,498 $560,575
======== ========

Net income (loss) from
continuing operations.. $(13,219) $ 898
======== ========

Net income (loss)........ $(19,112) $ 891
======== ========

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

F-41

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

17. Divestitures

Cheasapeake Bagel Bakery

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

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

For
Thirty-six For For
Weeks Ended Year Ended Year Ended
August 30, December 27, December 28,
1999 1998 1997
---------- ----------- -----------

Total revenues................ $2,058 $ 3,533 $ 2,442
====== ======= =======

Pre-tax loss from operations.. 1,251 8,770 12
Income tax benefit............ (563) (2,877) (5)
------ ------- -------
Loss from operations.......... $ 688 $ 5,893 $ 7
====== ======= =======

18. Change in Accounting Estimate

Churchs and Popeyes

During 1999, the Company assessed the estimated useful lives of
its buildings, equipment and leasehold improvements at Churchs and Popeyes
Company-operated restaurant locations. The Company analyzed historical data
regarding restaurant operations, actual lives of restaurant properties and
property leasing arrangements. Churchs began operating in 1952 while
Popeyes
F-42

initiated their operations in 1972. Based on this analysis, the Company
revised its estimated useful lives for certain fixed asset categories as
follows:

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

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

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

This change in accounting estimate resulted in a $5.5 million decrease
in depreciation expense during the fiscal year ended December 26, 1999,
resulting in a $3.2 million after tax increase in net income for the same
period.

Cinnabon and Seattle Coffee

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

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

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

This change in accounting estimate resulted in a $2.0 million decrease
in depreciation expense for the year ended December 26, 1999, resulting in
a $1.2 million after tax increase in net income for the same period.

F-43