UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to Commission file number: 000-28590
Fine Host Corporation
(Exact name of Registrant as specified in its charter)
Delaware 06-1156070
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.)
3 Greenwich Office Park
Greenwich, CT 06831
(Address of principal executive offices) (Zip code)
(Registrant's telephone number including area code) (203) 629-4320
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value
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 Registrants 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. [ X ]
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13, or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes No Not applicable.
At March 19, 1999, the aggregate market value of shares of the
Registrant's Common Stock, $0.01 par value (based upon the closing
price of $0.21 per share of such stock on the OTC Bulletin Board) held
by non-affiliates of the Registrant was approximately $1,889,000.
Solely for the purposes of this calculation, shares held by directors
and officers of the Registrant have been excluded. Such exclusion
should not be deemed a determination or an admission by the Registrant
that such individuals are, in fact, affiliates of the Registrant.
The number of shares outstanding of each of the Registrant's classes of
common stock, as of March 19, 1999 is as follows:
Title Outstanding
----- -----------
Common Stock, $0.01 Par Value 9,047,970
FINE HOST CORPORATION
TABLE OF CONTENTS TO FORM 10-K
Item Number Page
----------- ----
PART I
ITEM 1 - BUSINESS 1
ITEM 2 - PROPERTIES 6
ITEM 3 - LEGAL PROCEEDINGS 7
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 9
PART II
ITEM 5 - MARKET FOR THE COMPANY'S EQUITY AND RELATED
STOCKHOLDER MATTERS 10
ITEM 6 - SELECTED FINANCIAL DATA 11
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION 12
ITEM 7A - QUANTATATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 19
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 19
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 19
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY 20
ITEM 11 - EXECUTIVE COMPENSATION 22
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 26
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 28
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K F-1
PART I
- ------
ITEM 1 - BUSINESS
- -----------------
General
Fine Host Corporation (the "Company") is a contract food service management
company, providing food and beverage concession, catering and other ancillary
services at approximately 900 facilities located in 43 states, primarily through
multi-year contracts. The Company targets three distinct markets within the
contract food service industry: the recreation and leisure market (arenas,
stadiums, amphitheaters, civic centers, other recreational facilities and
convention centers); the education and business restaurants market (colleges,
universities, elementary and secondary schools, corporate cafeterias, office
complexes and manufacturing plants); and the healthcare and corrections market
(long-term care facilities, hospitals, prisons and jails). The Company is the
exclusive provider of food and beverage services at substantially all of the
facilities it serves. The Company is a Delaware corporation, formed in November
1985, and its principal executive offices are located at 3 Greenwich Office
Park, Greenwich, Connecticut 06831. Its telephone number is (203) 629-4320.
Recent Developments
On January 7, 1999 the Company filed a voluntary petition for
reorganization under Chapter 11 of Title 11 of the United States Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court"). The Company's chapter 11 case was
precipitated by the discovery of certain accounting irregularities in December,
1997. As a result of these accounting irregularities, on February 6, 1998, the
Company announced that it was restating its financial statements for fiscal
years 1994 through 1996, and for the nine months ended September 24, 1997
(collectively, the "Restatement"). In connection with the discovery of the
accounting irregularities, certain officers and directors of the Company were
immediately terminated. In addition, a special committee of the Company's Board
of Directors retained the law firm of Schulte, Roth & Zabel LLP to conduct an
investigation in order to determine the nature and extent of the accounting
irregularities and to identify the persons who were responsible for the improper
activity. This investigation resulted in a comprehensive report prepared by
Schulte Roth & Zabel LLP. All of the Company's officers, directors and employees
in any way implicated in the accounting irregularities were terminated or
resigned well prior to the commencement of the Company's chapter 11 case.
Between December 15, 1997 and March 20, 1998, various lawsuits were instituted
against the Company seeking rescission and damages arising from the purchase and
sale of the Company's 5% Convertible Subordinated Notes due 2004 (the
"Convertible Notes") and common stock ("Common Stock"). Commencing in May, 1998,
the Company initiated a dialogue with an ad hoc committee (the "Ad Hoc
Committee") of holders of the Convertible Notes for the purpose of formulating a
restructuring of the Convertible Notes and resolving the pending litigation.
After extensive negotiations, the Company and the Ad Hoc Committee agreed to a
financial restructuring which is embodied in the proposed plan of reorganization
(the "Reorganization Plan") and accompanying disclosure statement (the
"Disclosure Statement"). By order dated January 7, 1999, the Bankruptcy Court
fixed February 25, 1999 as the date and time for the hearing to consider the
adequacy of the Disclosure Statement. On February 19, 1999, the Company filed an
amended Disclosure Statement (the "Amended Disclosure Statement"). As a result
of the modifications set forth in the Amended Disclosure Statement, the
Bankruptcy Court continued the hearing to consider the adequacy of the
Disclosure Statement until March 17, 1999. On March 17, 1999, the Bankruptcy
Court stated that it would approve the Amended Disclosure Statement subject to
certain modifications which now have been incorporated therein . As a result,
the Amended Disclosure Statement and ballots to vote to accept or reject the
Reorganization Plan are expected to be mailed on April 5, 1999. The deadline for
returning the completed ballots is expected to be May 7, 1999. The hearing to
consider confirmation of the Reorganization Plan is scheduled for May 18, 1999.
Pursuant to the Reorganization Plan (i) all of the Company's outstanding
Convertible Notes in the aggregate principal amount of $175 million will be
exchanged for approximately $45 million in cash and approximately 96% of the
outstanding new common stock of the reorganized Company (the "New Common
Stock"); (ii) holders of general unsecured claims will be paid in full; (iii)
all holders of rescission and damage claims against the Company relating to the
1
Convertible Notes (including all such claims asserted in pending litigation)
(the "Debenture Rescission Claims") will receive in satisfaction of their claims
a ratable share of an interest in a litigation trust, 3% of the New Common Stock
and warrants to purchase 750,000 shares of New Common Stock; and (iv) all
holders of rescission and damage claims against the Company relating to the
Common Stock (including all such claims asserted in pending litigation) (the
"Statutorily Subordinated Claims") and all holders of Common Stock will receive
in satisfaction of their claims and equity interests a ratable share of an
interest in the litigation trust, 1% of the New Common Stock and warrants to
purchase 250,000 shares of New Common Stock. No distribution, however, will be
made under the Reorganization Plan to holders of Debenture Rescission Claims
unless the class of Convertible Notes under the Reorganization Plan accepts the
Reorganization Plan. Additionally, no distribution will be made under the
Reorganization Plan to holders of Statutorily Subordinated Claims and Common
Stock unless all other classes under the Reorganization Plan accept or are
deemed to accept the Reorganization Plan. Pursuant to the Reorganization Plan,
all Common Stock and all options (and existing plans providing for the issuance
of options) relating thereto will be cancelled. Implementation of the
Reorganization Plan is subject to confirmation thereof in accordance with the
provisions of the Bankruptcy Code.
On December 14, 1998, the Company's Board of Directors appointed William D.
Forrest as President and Chief Operating Officer and Gerald P. Buccino as
Chairman of the Board. Mr. Forrest, who had been actively involved with the
Company as part of Buccino & Associates Inc. ("Buccino & Associates"), which had
been retained on December 16, 1997 as the Company's crisis management firm,
assumed the position of Chief Executive Officer on January 1, 1999 when Mr.
Buccino's term as Chief Executive Officer expired in accordance with his March
1, 1998 Employment Agreement. Effective January 1, 1999, Mr. Forrest was elected
as a Director of the Company to fill the vacancy created by the resignation of
Catherine B. James.
Mr. Forrest and the Company entered into an employment agreement dated as
of December 14, 1998. Pursuant to the employment agreement, Mr. Forrest will
serve the Company as President and Chief Executive Officer until the earlier of
(i) the effective date of the confirmation of the Company's Reorganization Plan
"Effective Date") or (ii) December 14, 1999. In addition to a $60,000 signing
bonus received in December, Mr. Forrest will be paid $400,000 per annum and a
bonus of (i) $300,000 if the Effective Date occurs on or before May 5, 1999; or
(ii) $200,000 if the Effective Date occurs after May 5, 1999, but on or before
June 5, 1999; or (iii) $150,000 if the Effective Date occurs after June 5, 1999,
but prior to January, 2000.
Pursuant to a Settlement Agreement dated as of December 14, 1998 by and
among Mr. Buccino, Buccino & Associates and the Company, the Company paid the
Buccino parties $400,000 and has committed to pay an additional $100,000 as a
success fee within five business days of the Effective Date.
Effective January 15, 1999, Randall K. Ziegler resigned as Executive Vice
President and Director of the Company. Pursuant to a Separation and Consulting
Agreement, the Company retained Mr. Ziegler for a period of nine months at a fee
of $13,750 per month and agreed to pay Mr. Ziegler an aggregate of $50,000 in
bonuses provided that certain accounts are awarded to the Company with Mr.
Ziegler's assistance. In addition, the Company agreed to pay Mr. Ziegler
severance for an additional nine months in the amount of $13,750 per month in
exchange for a release of the Company.
Effective in December, 1998, Chris Verros was promoted to Group President -
Recreation and Leisure of the Company. Mr. Verros was Senior Vice President
Recreation and Leisure, North prior to assuming responsibility for all of the
Company's Recreation and Leisure accounts as Group President.
Services and Operations
The Company provides a wide array of food services, ranging from food and
beverage concessions, such as hot dogs, sandwiches, soda and beer, to
sophisticated catering and fine dining in a formal setting. At its convention
center locations, the Company routinely serves banquets attended by thousands of
persons.
The Company is the exclusive provider of food and beverages at
substantially all of the facilities it serves and is responsible for hiring,
training and supervising substantially all of the food service personnel and
ordering, receiving, preparing and serving substantially all of the items of
food and beverage sold. At facilities serviced by the Company, the Company's
client is responsible for attracting patrons on an event-specific basis at
recreation and leisure facilities and convention centers and on a continuing
basis at education and corporate dining facilities. As a result, the Company
does not incur the expense of marketing to the broader public, and is able to
focus on operations, client satisfaction, account retention and new account
development.
2
Clients
The Company provides contract food services principally to recreation and
leisure facilities, education and corporate dining facilities, healthcare
facilities and corrections facilities. As of December 30, 1998, the Company
provided contract food service management at approximately 900 facilities.
Recreation and Leisure Facilities. The Company offers food and beverage
concession and catering services to arenas, stadiums, amphitheaters, civic
centers and other recreational facilities. These facilities typically select a
food service provider on the basis of its ability to generate increased volume
from concession sales while maintaining high quality and attendee satisfaction.
As of December 30, 1998, the Company provided services to facilities hosting 6
minor league baseball teams and 7 minor league hockey teams. Major league
recreation and leisure facilities served by the Company presently include Pro
Player Stadium in Miami, Florida (home of the Miami Dolphins and Florida
Marlins) and Sun Devil Stadium in Tempe, Arizona (home of the Arizona Cardinals
and the Arizona State University Sun Devils). Commencing in the fall of 1998,
the Company began providing full service concession operations at Raymond James
Stadium in Tampa, Florida, home of the Tampa Bay Buccaneers and at PSI Net
Stadium in Baltimore, Maryland, home of the Baltimore Ravens.
Food service offered in convention centers consists primarily of large
scale catering and banquet functions held in the facility's ballroom and banquet
halls, catering and concession services to functions held in meeting rooms, and
concession services offered to convention and trade show attendees. Major
convention center clients include the Austin Convention Center in Austin, Texas;
the D. L. Lawrence Convention Center in Pittsburgh, Pennsylvania; the Oregon
Convention Center in Portland, Oregon; and the Midwest Express Center in
Milwaukee, Wisconsin.
Education and Business Restaurants. The Company provides food and beverage
concession and catering services to student cafeterias, food courts, snack bars
and clubs at colleges, universities and elementary and secondary schools.
College student dining habits have changed dramatically in recent years, with
students tending to eat smaller meals throughout the day and evening, often
paying with debit cards in lieu of cash or traditional board plans. In response
to these changes, the Company now offers increased quality and choices among
food and beverage items at educational facilities, including recognized brand
name foods served in educational facilities by the Company's employees. The
Company has contractual arrangements with quick serve restaurant concepts such
as Subway Corporation, Pizza Hut, Inc. and Taco Bell Corp. to offer their
products at various dining locations at educational institutions. The Company
presently provides dining services to students at colleges and universities
including Alfred University in Alfred, New York; Boise State University in
Boise, Idaho; Morris Brown College in Atlanta, Georgia; Mt. Hood Community
College in Gresham, Oregon; and Xavier University in New Orleans, Louisiana. The
Company also provides food services to secondary schools such as the following
school districts: Newark, New Jersey; Bonneville, Idaho; and Marana, Arizona.
The Company provides food and beverage services to corporate dining rooms
and cafeterias, office complexes and manufacturing plants. The Company serves a
diversified mix of large corporate clients, focusing on more upscale office
dining. Clients include facilities of Carnival Cruise Lines, Burger King and
Becton Dickinson and Company.
Healthcare and Corrections. The Company provides food, beverage and
catering services to hospitals, nursing homes and retirement communities. A
registered dietitian provides guidance in meeting the diverse nutritional needs
at these facilities. The Company provides menu planning, recipe development,
diet instructions and nutritional care planning as part of its healthcare food
service operations. Healthcare clients include Allina Health System, Benedictine
Health Dimensions, Ebenezer Social Ministries and the State of South Dakota.
3
The Company provides food and beverage services to prisons, jails and
residential facilities. These facilities range from minimum security
correctional facilities to maximum security state penitentiaries. They also
include children's homes, juvenile detention centers and other residential
corrections facilities. Many of these facilities are accredited by the American
Correctional Association. The Company provides food and beverage services at
corrections facilities for the State of Minnesota, the State of South Dakota and
Corrections Corporation of America, as well as numerous county jails.
Contracts
The Company generally enters into one of the following types of contracts:
profit and loss contracts ("P&L"), profit sharing contracts and, to a lesser
extent, management fee contracts.
Under P&Ls, the Company receives substantially all of the revenues and
bears all the expenses of the operation. These expenses include rent paid to the
client, typically calculated as a fixed percentage of various categories of
sales. While the Company often benefits from greater upside potential with a P&L
contract, it is responsible for the costs of running the food service operation
and consequently bears greater risk than with a management fee or profit sharing
contract. Under profit sharing contracts, the Company typically receives a
percentage of profits earned at the facility plus a fixed fee or percentage of
sales as an administrative fee. Revenues derived under a limited number of
management fee contracts are based upon a fixed minimum fee. The Company is
reimbursed for substantially all of its on-site expenses incurred in providing
food and beverage services under all management fee contracts. A number of the
Company's management fee contracts provide for an additional incentive fee based
on a percentage of sales over a base threshold level.
The Company often provides a capital commitment in its bid to win a new
facility contract. This commitment most frequently takes the form of an
investment in food service equipment and leasehold improvements, which upgrade
the facility itself and can increase the returns to both the Company and the
facility owner by generating increased sales. Occasionally, the Company makes
loans or advances to the client, the proceeds of which are generally used to
improve an existing facility or to complete a new facility. When the Company
makes an investment, loan or advance to a facility under either a management fee
or profit sharing contract, ordinarily the amount of the commitment is repaid to
the Company out of the revenues generated by the food service operation in
accordance with an amortization schedule set forth in the contract. P&L
contracts ordinarily do not require the repayment of invested capital to the
Company during the contract term. Most of the Company's contracts require the
client to reimburse the Company for any unamortized invested capital in the
event of the expiration or termination of the contract for any reason, and the
Company generally keeps title to the subject assets until such payment is made.
Invested capital that is repaid is usually amortized over a period of time equal
to or greater than the term of the contract.
The length of contracts varies depending on the type of facility, type of
contract and financial investment. Contracts for Recreation and Leisure
facilities typically include the largest capital investment by the Company and
generally have a term of three to ten years. Contracts for convention centers
generally have a term of three to five years. Education market contracts
generally have a term of one to five years. Business restaurant accounts, which
generally require the smallest capital investment by the Company, typically have
a shorter term than those in the recreation and leisure, convention center and
education areas, and generally contain a provision allowing either party to
terminate for convenience after a short notice period, typically ranging from 30
to 90 days. The Company's remaining contracts, including healthcare and
corrections accounts, generally have a fixed term and in any fiscal year a
number of these contracts either expire or come up for renewal.
Certain municipalities and governmental authorities require that a certain
percentage of food service contract bids be from minority-owned and/or
women-owned businesses ("MBEs" and "WBEs," respectively). The Company has
entered into joint ventures with four MBEs/WBEs to operate facilities located in
Orlando, Florida; Portland, Oregon; Fort Worth, Texas; and Milwaukee, Wisconsin.
It is likely that the Company will be required to partner with additional
MBEs/WBEs in the future as a precondition to winning certain municipal and
governmental authority facility food service contracts.
4
Sales and Marketing
The Company selectively bids for both privately owned facility contracts
and contracts awarded by governmental and quasi-governmental agencies. The
privately negotiated transactions are usually competitive in nature, with a
privately owned facility owner or operator soliciting proposals from the Company
and several of its competitors. These bids often require a Company team to
formulate a rapid response and make a proposal encompassing, among other things,
a capital investment and other financial terms. In certain cases, a private
facility owner may choose to negotiate with the Company exclusively for a period
of time. Governmental contracts are usually awarded pursuant to a
request-for-proposal process. Bidding in publicly controlled venues often
requires more than a year of effort by a Company team, focusing on building
meaningful relationships in the local community in which the venue is located
and raising the profile of the Company name with the decision makers within that
community. During this bidding period, the Company expends substantial time,
effort and funds preparing a contract proposal and negotiating the contract.
Members of the Company's sales and marketing team maintain a high degree of
visibility in various industry trade associations. Virtually all of the
Company's clients and potential clients in facilities operated by governmental
and quasi-governmental authorities are members of these trade groups. The
Company regularly exhibits at industry trade shows held for and by groups
comprised of recreation and leisure facility owners, convention center managers
and representatives of colleges, universities, elementary and secondary schools
and healthcare and corrections facilities. The Company also advertises on a
regular basis in magazines and periodicals that focus on the public facilities
industry.
Competition
The Company encounters significant competition in each area of the contract
food service market in which it operates. Food service companies compete for
clients on the basis of quality and service standards, innovative approaches to
food service facilities design and maximization of sales and price (including
capital expenditures). Competition may result in price reductions, decreased
gross margins and loss of market share. Certain of the Company's competitors
compete with the Company on both a national and international basis and have
greater financial and other resources than the Company. In addition, existing or
potential clients may elect to "self operate" their food service, eliminating
the opportunity for the Company to compete for the account. There can be no
assurance that the Company will be able to compete successfully in the future or
that competition will not have a material adverse effect on the Company's
business, financial condition or results of operations.
Employees
As of December 30, 1998, the Company had approximately 3,250 full-time
employees and 11,000 employees hired on a part-time or on an event-by-event
basis. The number of part-time employees varies significantly from time to time.
The Company believes that its future success will depend in large part upon the
continued service of its senior management personnel and upon the Company's
continuing ability to attract and retain highly qualified managerial personnel.
Competition for highly qualified personnel is intense and there can be no
assurance that the Company will be able to retain its key managerial personnel
or that it will be able to attract and retain additional managerial personnel in
the future. Approximately 5% of the Company's total employees (including full
and part-time) are covered by collective bargaining agreements. The Company has
not experienced any work stoppage and considers its relations with its employees
to be satisfactory. The Company has hired and expects to continue to need to
hire a large number of qualified, temporary workers at particular events.
Government Regulation
The Company's business is subject to various governmental regulations
incidental to its operations, such as environmental, employment and health and
safety regulations. Since it serves alcoholic beverages at many convention
centers and recreation and leisure facilities, the Company also holds liquor
licenses incidental to its contract food service business and is subject to the
liquor license requirements of the states in which it holds a liquor license. As
of December 30, 1998, the Company and its affiliates held liquor licenses in 23
states. While the application procedures and requirements for a liquor license
vary by state, the Company has received an alcoholic beverage license with
respect to every application it has submitted, and has never had an alcoholic
beverage license revoked or suspended.
5
Typically, liquor licenses must be renewed annually and may be revoked or
suspended for cause at any time. Alcoholic beverage control regulations relate
to numerous aspects of the Company's operations, including minimum age of
patrons and employees, hours of operation, advertising, wholesale purchasing,
inventory control and handling, and storage and dispensing of alcoholic
beverages. The Company has not encountered any material problems relating to
alcoholic beverage licenses to date. The failure to receive or retain a liquor
license in a particular location could adversely affect the Company's ability to
obtain such a license elsewhere.
The Company is subject to "dram-shop" statutes in the states in which
facilities are located. These statutes generally provide a person injured by an
intoxicated person the right to recover damages from an establishment, which
wrongfully served alcoholic beverages to the intoxicated individual. The Company
carries liquor liability coverage as part of its existing comprehensive general
liability insurance, which it believes is adequate. While the Company maintains
such insurance, there can be no assurance that such insurance will be adequate
to cover any potential liability or that such insurance will continue to be
available on commercially acceptable terms.
In addition, various federal and state agencies impose nutritional
guidelines and other requirements on the Company at certain of the education,
healthcare and corrections facilities it serves. The cost of the Company's
compliance with governmental regulations has not been material. However, there
can be no assurance that additional federal or state legislation, or changes in
regulatory implementation, would not limit the activities of the Company in the
future or significantly increase the cost of regulatory compliance.
ITEM 2 - PROPERTIES
- -------------------
The following is a summary by operating segment of the principal physical
properties occupied by the Company:
Approximate
Location Square Feet Occupancy
-------- ----------- ---------
Education and Business
Restaurants:
----------------------
Freeville, NY 18,000 Lease expiring December 2004
Miami, FL 3,800 Lease expiring October 1999
Rochester, NY 6,000 Lease expiring May 2003
Ronkonkoma, NY 5,300 Lease expiring July 1999
Vestal, NY 22,000 Lease expiring August 1999
Health and Corrections:
----------------------
Roseville, MN 15,300 Leases expiring August 1999
and August 2000
All Other:
---------
Greenwich, CT 25,200 Leases expiring June 2004
(Corporate headquarters) and August 2008
Raleigh, NC 4,900 Lease expiring November 2002
Tempe, AZ 1,400 Lease expiring December 1999
The Company believes that if it were unable to renew the lease on any of
these facilities, other suitable facilities would be available to meet the
Company's needs.
6
ITEM 3 - LEGAL PROCEEDINGS
- --------------------------
In January 1996, the Company was served with a complaint naming it as one
of five defendants in a lawsuit brought by multiple plaintiffs in the New York
State Supreme Court alleging damages arising out of the Woodstock II Festival
held in August 1994 in Saugerties, New York. The promoter of the festival is
also a defendant. According to the complaint, the plaintiffs were hired by the
Company (which had a concession agreement with the promoter of the festival) as
subcontractors of food, beverage and/or merchandise. In their complaint, which
seeks approximately $5.9 million in damages, the plaintiffs allege damages
arising primarily from the failure to provide adequate security and prevent
festival attendees from bringing food and beverages into the festival. The
Company and the promoter have made cross-demands for indemnification against
each other under applicable provisions of their concession agreement. On April
4, 1996, the other defendants named in the suit answered the complaint and
asserted cross-claims for contribution and indemnification against the Company.
Thereafter, the Company answered the complaint and asserted a cross-claim for
indemnification against the promoter and a cross-claim for contribution against
all of its codefendants.
The Company has also sued a former client in the Jefferson Circuit Court of
the Commonwealth of Kentucky for certain amounts owed by the former client under
the food service contract between the parties, and the former client has filed a
counterclaim against the Company seeking unspecified damages for the Company's
alleged tortuous interference with a prospective contractual relationship with
another food service provider.
The foregoing legal proceedings have been stayed as a consequence of the
commencement of the Company's Chapter 11 case. The Company does not believe that
any liabilities relating to the foregoing legal proceedings are likely to be,
individually or in the aggregate, material to its consolidated financial
position, results of operations or cash flows.
Between December 15, 1997 and March 25, 1998, 13 purported class action
lawsuits were filed in the United States District Court for the District of
Connecticut (the "Court") against the Company and certain of its officers and/or
directors (the "Shareholder Litigation"). The complaints assert various claims
against the Company, including claims alleging violations of Sections 10(b) and
20(a) of the Securities Exchange Act of 1934 and/or violations of Sections 11,
12(2) and 15 of the Securities Act of 1933 and various rules promulgated
thereunder, as well as fraud and negligent misrepresentation. On February 13,
1998, the plaintiffs in the actions filed a Motion for Consolidation and for
Appointment as Lead Plaintiffs and for Approval of A Selection of Lead Counsel
(the "Motion"). On March 25, 1998, the Motion was granted. Lead Plaintiffs filed
a Consolidated Amended Complaint on May 14, 1998. On June 29, 1998, the Company
and certain of the individual defendants moved to dismiss the claim asserted
under Section 11 of the Securities Act of 1933. The other individual defendants
moved to dismiss the complaint in its entirety. On October 22, 1998, the Court
granted the motion to dismiss the entire complaint as to certain individual
defendants and denied the Company's motion to dismiss the claim asserted under
Section 11 of the Securities Act of 1933. On December 9, 1998, the plaintiffs
amended the complaint to add Deloitte & Touche LLP as a defendant. On March 10,
1999, the plaintiffs further amended the complaint to add William R. Berkley,
former director and Chairman of the Board of the Company, Joshua A. Polan,
former director of the Company, NationsBank Montgomery Securities and CIBC
Oppenheimer defendants. The Company has not yet answered the complaint as so
amended and, by reason of the automatic stay provided by Section 362 of the
Bankruptcy Code, the foregoing litigation is stayed against the Company, and all
claims asserted therein will be addressed in the context of the Company's
Chapter 11 case.
On or about January 30, 1998, the Company and certain other individuals
were named as defendants in an action arising out of the issuance and sale in
October 1997 of $175 million in the aggregate principal amount of the Company's
5% Convertible Notes (the "Bondholder Litigation"). The plaintiffs allegedly
purchased the Convertible Notes in the aggregate principal amount of $7.5
million. The Amended Complaint in the action, filed on or about April 22, 1998
in the United States District Court for the Southern District of New York,
alleges, among other things, that the Offering Memorandum prepared by the
Company in connection with the offering contained materially false information.
The complaint asserts various claims against the Company, including claims
alleging violations of Sections 10(b), 18(a) and 20(a) of the Securities
Exchange Act of 1934 and various rules promulgated thereunder, as well as fraud
and negligent misrepresentation. The relief sought by the plaintiffs includes
compensatory damages of $1.5 million plus interest, punitive damages of $0.5
million, costs and disbursements, and attorneys' fees. On July 10, 1998, the
plaintiffs filed a Second Amended Complaint.
7
On July 29, 1998, the Company moved to dismiss the Section 10(b) fraud and
negligent misrepresentation counts of the Second Amended Complaint. The other
individual defendants moved to dismiss the Second Amended Complaint in its
entirety. On August 7, 1998, the Judicial Panel on Multidistrict Litigation
ordered that the Bondholder Litigation be transferred to the District of
Connecticut and, with the consent of that court, be assigned to the judge
presiding over the Shareholder Litigation for coordinated or consolidated
pretrial proceedings with the Shareholder Litigation. On October 22, 1998, the
Court in the District of Connecticut dismissed the negligent misrepresentation
count of the Second Amended Complaint, and otherwise denied the defendants'
motions to dismiss the complaint. On November 30, 1998, the defendants answered
the Second Amended Complaint. This action is also stayed as against the Company
by reason of the automatic stay provided in Section 362 of the Bankruptcy Code.
All claims asserted against the Company in the Bondholder Litigation will be
addressed in the context of the Company's Chapter 11 case. (See Part II, Item 7
- - Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources.)
On December 12, 1997, the Company issued a press release announcing that
the Audit Committee of its Board of Directors (the "Audit Committee") had
instructed the Company's auditors to conduct an inquiry into certain accounting
practices, including the capitalization of certain expenses, and that the
auditors advised the Audit Committee on December 12, 1997, based upon their
preliminary inquiry, that certain expenses incurred during 1997 were incorrectly
capitalized rather than expensed in the period in which they were incurred. The
Company stated that it believed the amounts would be material and that earnings
for each of the first three quarters of 1997 would need to be restated. On
December 15, 1997, the Company issued a press release announcing that
preliminary indications were that the accounting problems were not limited to
the incorrect capitalization of the expenses, and that periods prior to 1997
would also need to be restated. The press release also stated that the outside
directors of the Company's Board of Directors (the "Outside Directors") had
terminated the employment of Richard E. Kerley, Chairman of the Board and Chief
Executive Officer, and Nelson A. Barber, Senior Vice President and Treasurer. On
February 19, 1998, the Securities and Exchange Commission issued a formal order
of investigation into the events relating to the December 12 and 15, 1997
announcements relating to accounting irregularities.
On January 7, 1999 the Company filed a voluntary petition for
reorganization under Chapter 11 of Title 11 of the United States Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court"). The Company's chapter 11 case was
precipitated by the discovery of certain accounting irregularities in December,
1997. As a result of these accounting irregularities, on February 6, 1998, the
Company announced that it was restating its financial statements for fiscal
years 1994 through 1996, and for the nine months ended September 24, 1997
(collectively, the "Restatement"). In connection with the discovery of the
accounting irregularities, certain officers and directors of the Company were
immediately terminated. In addition, a special committee of the Company's Board
of Directors retained the law firm of Schulte, Roth & Zabel LLP to conduct an
investigation in order to determine the nature and extent of the accounting
irregularities and to identify the persons who were responsible for the improper
activity. This investigation resulted in a comprehensive report prepared by
Schulte Roth & Zabel LLP. All of the Company's officers, directors and employees
in any way implicated in the accounting irregularities were terminated or
resigned well prior to the commencement of the Company's chapter 11 case.
Between December 15, 1997 and March 20, 1998, various lawsuits were instituted
against the Company seeking rescission and damages arising from the purchase and
sale of the Company's 5% Convertible Subordinated Notes due 2004 (the
"Convertible Notes") and common stock ("Common Stock"). Commencing in May, 1998,
the Company initiated a dialogue with an ad hoc committee (the "Ad Hoc
Committee") of holders of the Convertible Notes for the purpose of formulating a
restructuring of the Convertible Notes and resolving the pending litigation.
After extensive negotiations, the Company and the Ad Hoc Committee agreed to a
financial restructuring which is embodied in the proposed plan of reorganization
(the "Reorganization Plan") and accompanying disclosure statement (the
"Disclosure Statement"). By order dated January 7, 1999, the Bankruptcy Court
fixed February 25, 1999 as the date and time for the hearing to consider the
adequacy of the Disclosure Statement. On February 19, 1999, the Company filed an
amended Disclosure Statement (the "Amended Disclosure Statement"). As a result
of the modifications set forth in the Amended Disclosure Statement, the
Bankruptcy Court continued the hearing to consider the adequacy of the
Disclosure Statement until March 17, 1999. On March 17, 1999, the Bankruptcy
Court stated that it would approve the Amended Disclosure Statement subject to
certain modifications which now have been incorporated therein . As a result,
the Amended Disclosure Statement and ballots to vote to accept or reject the
Reorganization Plan are expected to be mailed on April 5, 1999. The deadline for
returning the completed ballots is expected to be May 7, 1999. The hearing to
consider confirmation of the Reorganization Plan is scheduled for May 18, 1999.
8
Pursuant to the Reorganization Plan (i) all of the Company's outstanding
Convertible Notes in the aggregate principal amount of $175 million will be
exchanged for approximately $45 million in cash and approximately 96% of the
outstanding new common stock of the reorganized Company (the "New Common
Stock"); (ii) holders of general unsecured claims will be paid in full; (iii)
all holders of rescission and damage claims against the Company relating to the
Convertible Notes (including all such claims asserted in pending litigation)
(the "Debenture Rescission Claims") will receive in satisfaction of their claims
a ratable share of an interest in a litigation trust, 3% of the New Common Stock
and warrants to purchase 750,000 shares of New Common Stock; and (iv) all
holders of rescission and damage claims against the Company relating to the
Common Stock (including all such claims asserted in pending litigation) (the
"Statutorily Subordinated Claims") and all holders of Common Stock will receive
in satisfaction of their claims and equity interests a ratable share of an
interest in the litigation trust, 1% of the New Common Stock and warrants to
purchase 250,000 shares of New Common Stock. No distribution, however, will be
made under the Reorganization Plan to holders of Debenture Rescission Claims
unless the class of Convertible Notes under the Reorganization Plan accepts the
Reorganization Plan. Additionally, no distribution will be made under the
Reorganization Plan to holders of Statutorily Subordinated Claims and Common
Stock unless all other classes under the Reorganization Plan accept or are
deemed to accept the Reorganization Plan. Pursuant to the Reorganization Plan,
all Common Stock and all options (and existing plans providing for the issuance
of options) relating thereto will be cancelled. Implementation of the
Reorganization Plan is subject to confirmation thereof in accordance with the
provisions of the Bankruptcy Code.
The Company is involved in certain other legal proceedings incidental to
the normal conduct of its business. The Company does not believe that any
liabilities relating to such other legal proceedings to which it is a party are
likely to be, individually or in the aggregate, material to its consolidated
financial position, results of operations or cash flows. Each of such other
proceedings has been stayed as against the Company by reason of the automatic
stay provided in section 362 of the Bankruptcy Code.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
Not applicable.
9
PART II
- -------
ITEM 5 - MARKET FOR THE COMPANY'S EQUITY AND RELATED STOCKHOLDER MATTERS
- --------------------------------------------------------------------------------
Market Information
The Common Stock was quoted on the NASDAQ National Market under the symbol
"FINE" from the initial public offering on June 19, 1996 through July 8, 1998.
Since July 9, 1998, the Common Stock has been traded on the OTC Bulletin Board
under the same symbol.
The following table sets forth the high and low sale prices of the Common
Stock on the NASDAQ National Market or the OTC Bulletin Board, as applicable,
for the periods indicated.
High Low
Fiscal Year Ended December 30, 1998: ----- -----
First Quarter* $7.125 $2.56
Second Quarter 6.188 2.00
Third Quarter 2.344 0.72
Fourth Quarter 1.937 0.41
High Low
Fiscal Year Ended December 31, 1997: ----- -----
First Quarter $28.50 $18.25
Second Quarter 33.00 22.75
Third Quarter 38.75 29.00
Fourth Quarter* 43.00 9.75
*The closing price on December 12, 1997, when NASDAQ suspended trading in shares
of the Company's Common Stock, was $10.125. On March 3, 1998, NASDAQ lifted the
trading halt.
Number of Stockholders
As of March 19, 1999, there were approximately 127 holders of record of the
Company's Common Stock.
Dividend Policy
The Company has never paid cash dividends on its Common Stock and does not
intend to declare any cash dividends on the Common Stock in the foreseeable
future. Also, as discussed in Item 3 - Legal Proceedings, the Company has filed
for protection under Chapter 11 of the Bankruptcy Code and accordingly will not
be paying dividends on its Common Stock.
10
ITEM 6 - SELECTED FINANCIAL DATA
-----------------------------------
Fiscal Years (1)
- ------------------------------------------------------------------------------------------------------------------
1998 1997(2) 1996(2) 1995 1994
Statement of Operations Data:
Net sales $327,121 $275,068 $144,400 $107,859 $104,068
Gross profit 24,578 15,889 11,821 8,956 7,983
(Loss) income from operations (32,266) (27,508) (3,683) (1,585) 27
Net loss $(38,100) $(23,821) $ (4,441) $(2,709) $(1,213)
Basic and diluted loss per share of
Common Stock (3) $(4.21) $(2.74) $ (1.39) $ (1.76) $ (.71)
Average number of shares of Common
Stock outstanding 9,052 8,683 4,137 2,048 2,048
Selected Cash Flows Data:
Net cash (used in) provided by
operating activities $(27,515) $(23,908) $(7,655) $(907) $2,509
Net cash used in investing activities (12,036) (58,071) (18,117) (4,246) (8,985)
Net cash (used in) provided by
financing activities (2,993) 186,954 29,885 4,255 7,632
Balance Sheet Data (at end of period):
Working capital (deficit) $75,052 $103,662 $(3,753) $(7,744) $(5,533)
Total assets 243,123 290,178 95,993 48,988 47,266
Total debt 180,427 183,444 40,573 28,931 25,518
Stockholders' equity 27,364 65,464 28,544 907 3,016
<FN>
(1) The Company's fiscal year ends on the last Wednesday of December.
The 1997 fiscal year was a 53 week period.
(2) Significant acquisitions were made in these years.
(3) Basic and diluted loss per share for fiscal years 1998 and 1997 is
calculated based upon net loss, and for the fiscal years 1994 through 1996
it is calculated based upon the net loss/income less accretion to the
redemption value of warrants issued in fiscal 1994. Accretion to redemption
value of warrants was $1,300 ($0.31 per share), $900 ($0.44 per share) and
$250 ($0.12 per share) for fiscal 1996, 1995 and 1994, respectively.
</FN>
11
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------------------------------------------------------------------------
RESULTS OF OPERATION
--------------------
From time to time the Company and its representatives may provide
information, whether orally or in writing, including certain statements in this
Form 10-K under this Item which are deemed to be "forward-looking" within the
meaning of the Private Securities Litigation Reform Act of 1995 ("Litigation
Reform Act"). These forward-looking statements and other information relating to
the Company are based on the beliefs of management as well as assumptions made
by and information currently available to management.
The words "anticipate," "believe," "estimate," expect," "intend," "will,"
and similar expressions, as they relate to the Company or the Company's
management, are intended to identify forward-looking statements. Such statements
reflect the current views of the Company with respect to future events and are
subject to certain risks, uncertainties and assumptions. These risks and
uncertainties include, but are not limited to, the Company's emergence from
bankruptcy proceedings; successful execution of internal performance plans;
retention of key personnel; availability of labor; performance issues with key
suppliers, subcontractors and business partners; legal proceedings; market
acceptance risks; the effect of economic conditions; the impact of competition;
Year 2000 compliance; legislative or regulatory actions; and contract retention
and continuation and future contract awards. Should one or more of these risk or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, and estimated or expected.
In accordance with the Litigation Reform Act, the Company is making
investors aware that such "forward looking" statements, because they relate to
future events, are by their very nature subject to many important factors which
could cause actual results to vary materially from those contained in the
"forward-looking" statements. These factors are detailed from time to time in
the Company's filings with the Securities and Exchange Commission.
Overview
The Company is a contract food service management company, providing food
and beverage concession, catering and other ancillary services at approximately
900 facilities located in 43 states, primarily through multi-year contracts. The
Company targets three distinct markets within the contract food service
industry: the recreation and leisure market ("Recreation and Leisure"), serving
arenas, stadiums, amphitheaters, civic centers, other recreational facilities
and convention centers; the education and business restaurants market ("EBR"),
serving colleges, universities, elementary and secondary schools, corporate
cafeterias, office complexes and manufacturing plants; and the healthcare and
corrections market ("Healthcare and Corrections"), serving long-term care
facilities, hospitals, prisons and jails). The Company is the exclusive provider
of food and beverage services at substantially all of the facilities it serves.
A significant portion of the Company's growth to date has been derived from
acquisitions. In the 1996 fiscal year, the Company acquired four companies. The
Company acquired Sun West Services, Inc. ("Sun West"), serving the EBR and
Healthcare and Corrections markets, in March 1996; Ideal Management Services,
Inc. ("Ideal"), serving the EBR market, in July 1996; PCS Holding Corporation
(formerly known as HCS Management Corporation) ("PCS"), serving the EBR market,
in November 1996; and Republic Management Corp. of Massachusetts ("Republic"),
serving the EBR market, in December 1996. In the 1997 fiscal year, the Company
acquired five companies. Commencing in December 1996, the Company acquired
Service Dynamics Corp. ("Service Dynamics"), serving the EBR market, for a
purchase price of approximately $3.0 million. In January 1997, the Company
acquired Serv-Rite Corporation ("Serv-Rite"), serving the EBR market, for a
purchase price of approximately $8.0 million. In August 1997, the Company
acquired Statewide Industrial Catering, Inc. ("Statewide"), serving the EBR
market, for approximately $3.2 million, and Best, Inc. ("Best"), primarily
serving the Healthcare and Corrections markets, for approximately $26.0 million.
On October 3, 1997, the Company acquired Total Food Service Direction, Inc.
("Total"), serving the EBR market, for approximately $4.9 million. The purchase
price for each of the foregoing acquisitions includes debt assumed by the
Company as part of the acquisition.
12
Results of Operations
The following table sets forth, for the periods indicated, certain
financial data as a percentage of the Company's net sales:
Fiscal Years
----------------------
1998 1997 1996
---- ---- ----
Net sales 100.0% 100.0% 100.0%
Cost of sales 92.5 94.2 91.8
----- ----- -----
Gross profit 7.5 5.8 8.2
General and administrative expenses 10.4 11.9 10.7
Special and restructuring charges 3.6 1.4 -
Provision for asset impairment and disposal 3.4 2.5 -
----- ----- -----
Loss from operations (9.9) (10.0) (2.5)
Interest expense, net 1.6 1.1 1.8
----- ----- -----
Loss before income taxes (11.5) (11.1) (4.3)
Income tax expense (benefit) 0.2 (2.5) (1.3)
----- ----- -----
Net loss (before warrant accretion in 1996) (11.7)% (8.6)% (3.0)%
===== ===== =====
Net sales attributable to the Company's principal operating segments,
expressed in dollars (in thousands) and as a percentage of total net sales were:
Fiscal Years
-----------------------------------------------
1998 1997 1996
---- ---- ----
Recreation and Leisure $ 119,722 36.6% $ 117,323 42.7% $ 98,836 68.5%
Education and Business Restaurants 147,381 45.0 129,865 47.1 40,193 27.8
Healthcare and Corrections 56,141 17.2 23,302 8.5 4,874 3.4
Other 3,877 1.2 4,578 1.7 497 0.3
------- ----- ------- ----- ------- -----
Total $ 327,121 100.0% $ 275,068 100.0% $144,400 100.0%
======= ===== ======= ===== ======= =====
Fiscal 1998 Compared to Fiscal 1997
Net Sales. The Company's net sales increased to $327.1 million in fiscal
1998 from $275.1 million in fiscal 1997. Net sales increased in fiscal 1998 in
all market areas. Recreation and Leisure net sales increased $2.4 million or
2.0%. The increase in Recreation and Leisure net sales is attributable to new
contracts with the Tampa Bay Buccaneers and the Baltimore Ravens. These
increases were offset by lower attendance at Pro Player Stadium, which hosted
the Divisional Playoffs, League Championship Series and World Series in 1997 and
from the expiration of the Company's contract with the Orange County Convention
Center in Orlando, Florida. Net sales in EBR increased $17.5 million or 13.5%.
Net sales increased by $26 million relating to the timing of the acquisition of
Total, Best, and Statewide in 1997 as well as from new business. This increase
was offset by the sale of some Business Restaurants contracts at Northwest Food
Service, Inc., Republic, and Creative Food Management, Inc. subsidiaries, as
well as the Company's decision to exit the hospital gift shop market. The $32.8
million growth in net sales in Healthcare and Corrections, is directly related
to the August 1997 acquisition of Best, which added approximately 50 and 70
contracts to these market areas, respectively. (See Note 6 to the Consolidated
Financial Statements).
Gross Profit. Gross profit as a percentage of net sales increased to 7.5%
in fiscal 1998 from 5.8% in fiscal 1997. Gross profit increased in all three of
the Company's business segments. Recreation and Leisure benefited from higher
margins at many of its units through improved management of other operating
expenses. EBR benefited from exiting unprofitable businesses. Corrections and
Healthcare improved its margins through purchasing efficiencies.
13
General and Administrative Expenses. General and administrative expenses
increased to $33.9 million (or 10.4% of net sales) in fiscal 1998 from $32.8
million (or 11.9% of net sales) in fiscal 1997. The acquisition of Best and
Total added $4.9 million which was offset by a $1.5 million reduction in
expenses from sold and closed units from 1997 to 1998. Although the Company
incurred certain additional expenses consolidating the accounting operations at
acquired companies, productivity initiatives and expense controls reduced
general and administrative expenses by another $2.3 million.
Special and Restructuring Charges. In connection with the Restatement, the
Company incurred costs of $7.6 million in 1998, of which $7.0 million related to
legal, accounting, financial advisors and management consulting fees and
severance payments. The additional $0.6 million was attributable to the cost of
rescinding a 10 year lease that was signed in October 1997 for the relocation of
the Company's corporate headquarters. Restructuring charges totaled $4.1
million, primarily representing professional fees, employee severance and
retention bonuses related to the implementation of the Reorganization Plan. The
Company incurred costs of approximately $3.8 million (or 1.4% of net sales) in
1997 to cover the write-off of $2.2 million of deferred debt costs in connection
with the Company's then-existing credit facility and approximately $1.6 million
for the costs of legal, accounting and management consulting fees.
Loss on Asset Impairment and Disposal. During 1998, the Company completed
the disposition of certain EBR and Recreation and Leisure contracts. The loss on
the disposition of the assets related to these contracts, which included
inventory, real property, fixtures and equipment and allocated goodwill and
contract rights, totaled $5.7 million. In addition, the Company recorded an
impairment loss of $5.5 million primarily relating to a write off of tangible
and intangible assets on contracts in 1998. The prior year provision pertained
to the write down of contract loans related to a Recreation and Leisure contract
and an EBR contract. The Company recorded charges of $6.8 million in 1997 to
reflect the loss on sale of assets and the write down to fair value of certain
long-lived assets, held for sale and in use. The assets written down included
excess of cost over net assets acquired, contract rights and fixtures and
equipment. These assets were primarily in the EBR segment.
Operating Loss. The operating loss increased $4.8 million to $32.3 million
in fiscal 1998. Excluding the Special and Restructuring Charges and Loss on
Asset Impairment and Disposal, the 1998 operating loss was $9.4 million versus
$17.0 million in 1997 and is primarily due to an increase in gross profit,
offset slightly by an increase in general and administrative expenses as
discussed above.
Interest Expense, Net. The Company has invested the remaining proceeds from
the issuance in October 1997 of the Convertible Notes, which has generated
interest income that partially offset the interest expense on the Convertible
Notes, resulting in an increase in net interest expense of $1.9 million in
fiscal 1998 as compared to fiscal 1997.
14
Fiscal 1997 Compared to Fiscal 1996
Net Sales. The Company's net sales approximately doubled to $275.1 million
in fiscal 1997 from $144.4 million in fiscal 1996. Net sales increased in fiscal
1997 in all market areas. Recreation and Leisure net sales increased $18.5
million or 18.7%. The increase in Recreation and Leisure net sales is
attributable to: increased sales of $15.5 million from existing accounts,
including $6.2 million related to Pro Player Stadium in Miami, Florida, which
hosted the 1997 Divisional Playoffs, League Championship Series and World
Series, and a $4.7 million increase from the contract with the Orange County
Convention Center in Orlando, Florida which nearly tripled its facility size in
1997; and net sales of $5.8 million from ten new contracts, including the
University of Georgia in Athens which contributed $1.1 million and $3.1 million
from the Tulsa Exposition Center in Tulsa, Oklahoma. These increases were offset
by decreased net sales of approximately $1.3 million due to the absence in 1997
of a one time special event, Super Bowl 1996, and $1.5 million from terminated
contracts. Net sales in EBR increased 223% in 1997, or $89.7 million, primarily
as a result of 1997 acquisitions and the full year impact of 1996 acquisitions.
The $18.4 million growth in net sales in Healthcare and Corrections, or 378%, is
directly related to the August 1997 acquisition of Best, which added
approximately 120 contracts to this operating segment. (See Note 6 to the
Consolidated Financial Statements.)
Gross Profit. Gross profit as a percentage of net sales decreased to 5.8%
in fiscal 1997 from 8.2% in fiscal 1996. Reductions in the carrying value of
certain assets, primarily accounts receivable and fixtures and equipment, were
$4.3 million in 1997 as compared to $1.3 million in 1996. Excluding these
write-downs, the gross profit percentage was 7.3% and 9.1% in 1997 and 1996,
respectively. The decline in gross profit excluding write-downs was primarily
related to the increased business in the lower margined EBR segment in
connection with recent acquisitions and a decrease in margins at several
recreation and leisure and convention center units including the Coral Sky
Amphitheater, Concord Pavilion, Dayton Convention Center and the Bayside
Exposition Center.
General and Administrative Expenses. General and administrative expenses
increased to $32.8 million (or 11.9% of net sales) in fiscal 1997 from $15.5
million (or 10.7% of net sales) in fiscal 1996. This increase was primarily
attributable to the Company's investment in regional and accounting management,
training and human resource support, additional sales personnel and regional
office facilities to support the current growth of the Company. In addition,
there were significant expenses related to the performance of duplicate
functions by personnel at the following acquired companies: Service Dynamics,
Serv-Rite, Statewide, Best and Total.
Special and Restructuring Charges. In connection with the Restatement, the
Company incurred costs of approximately $3.8 million (or 1.4% of net sales) in
the fourth quarter of 1997 to cover the write-off of $2.2 million of deferred
debt costs in connection with the Company's then-existing credit facility and
approximately $1.6 million for the costs of legal, accounting and management
consulting fees.
Loss on Asset Impairment and Disposal. The Company recorded a charge of
$6.8 million in 1997 to reflect the loss on sale of assets and the write down to
fair value of certain long-lived assets, held for sale and in use. The assets
written down included excess of cost over net assets acquired, contract rights
and fixtures and equipment. These assets were primarily in the EBR segment.
Operating Loss. Operating loss increased from $3.7 million in fiscal 1996
to $27.5 million in fiscal 1997. Excluding the Special and Restructuring Charges
and Loss on Asset Impairment and Disposal, the 1997 operating loss was $16.9
million and is primarily due to a decline in gross profit and increased general
and administrative expenses as discussed above.
Interest Expense, Net. During 1997, the Company repaid certain obligations
under its then-existing credit facility with the net proceeds from the follow-on
public offering completed in February and issuance of Convertible Notes in
October. The Company has invested the remaining proceeds from the issuance of
the Convertible Notes, which has generated interest income that partially offset
the interest expense on the Convertible Notes. The combination of these
activities has resulted in an increase in net interest expense of $0.5 million
in fiscal 1997 as compared to fiscal 1996.
15
Liquidity and Capital Resources
At December 30, 1998, the Company had cash and cash equivalent balances of
$67.2 million and the Company's current assets of $113 million exceeded its
current liabilities of $38 million, resulting in working capital of $75 million.
The cash balances are primarily attributable to the proceeds from the issuance
of the Convertible Notes.
The Company has funded its capital requirements from a combination of debt
and equity financing. Net cash used in operating activities was $27.5 million,
$23.9 million and $7.7 million in fiscal 1998, 1997 and 1996, respectively, and
is primarily attributable to net losses incurred in each fiscal year.
Net cash flows used in investing activities was $12 million, $58.1 million
and $18.1 million in fiscal 1998, 1997 and 1996, respectively, the principal
components of which are acquisitions of businesses, loans to clients, purchases
of equipment and direct payments associated with acquiring individual contracts,
as further described below. In 1998, and to a lesser extent in 1997, such
outflows were partially offset by proceeds from the sale of equipment and
collections of notes receivable. The decrease in total cash used in investing
activities from 1997 to 1998 is primarily attributable to the lack of
acquisitions in 1998.
The Company is often required to provide a capital commitment in its bid to
win a new facility contract. This commitment most often takes the form of an
investment in food service equipment and leasehold improvements, which upgrades
the facility itself and can increase the returns to both the Company and the
facility owner by generating increased sales. Occasionally, the Company makes
loans or advances to the client, the proceeds of which are generally used to
improve an existing facility or to complete a new facility. When the Company
makes an investment, loan or advance to a facility under certain contracts, the
amount of the commitment, together, in certain cases, with interest, is repaid
to the Company out of the revenues generated by the food service operation in
accordance with an amortization schedule set forth in the contract.
A significant portion of the Company's growth to date has been derived from
acquisitions. From April 1993 through October 1997, the Company acquired 12
companies. Of the 12 acquisitions since April 1993, five were completed in
fiscal 1997 for an aggregate purchase price of approximately $45.1 million,
which includes $9.5 million of debt assumed by the Company. The Company is in
the process of eliminating certain redundant operations through closings of
offices and termination of excess personnel from certain of the companies.
In October 1997, the Company issued, through a private placement pursuant
to Rule 144A under the Securities Act of 1933, Convertible Notes. The
Convertible Notes are unsecured obligations of the Company and are convertible
into common stock at a conversion price of $44.50 per share. The net proceeds of
$169.1 million, after deducting underwriting discounts and certain expenses,
were used to repay approximately $50.0 million in outstanding debt under the
Company's then-existing credit facility. The remaining net proceeds were
invested in short-term investments. In connection with the offering of the
Convertible Notes, the Company had agreed to file a shelf registration
statement, which would cause the Convertible Notes to be freely tradable. The
Company did not file a shelf registration statement and will not do so as a
consequence of the commencement of the Chapter 11 case, and therefore has been
obligated to pay liquidated damages on the Convertible Notes from January 25,
1998, in the amount of $.05 per week per thousand dollar principal amount,
subject to increase every quarter up to a maximum of approximately 1.3% per
annum.
Throughout 1998, management negotiated with certain holders of the
Company's Convertible Notes, who had formed (the Ad Hoc Committee ) comprised of
the three largest Noteholders, holding in excess of 92% of the aggregate $175
million of Convertible Notes issued in October 1997. As a result of such
negotiations, on January 7, 1999, the Company filed a voluntary petition for
reorganization under the Bankruptcy Code in the Bankruptcy Court. At that time,
the Company filed the Reorganization Plan which embodies the terms of the
restructuring agreed upon by the Ad Hoc Committee.
Pursuant to the Reorganization Plan (i) all of the Company's outstanding
Convertible Notes in the aggregate principal amount of $175 million will be
exchanged for approximately $45 million in cash and approximately 96% of the
outstanding common stock of the reorganized Company (the "New Common Stock");
(ii) holders of general unsecured claims will be paid in full; (iii) all holders
of rescission and damage claims against the Company relating to the Convertible
Notes (including all such claims asserted in pending litigation) will receive in
16
satisfaction of their claims a ratable share of an interest in a litigation
trust, 3% of the New Common Stock and warrants to purchase 750,000 shares of New
Common Stock; and (iv) all holders of rescission and damage claims against the
Company relating to the Common Stock (including all such claims asserted in
pending litigation) and all holders of Common Stock will receive in satisfaction
of their claims and equity interests a ratable share of an interest in the
litigation trust, 1% of the New Common Stock and warrants to purchase 250,000
shares of New Common Stock. No distribution, however, will be made under the
Reorganization Plan to holders of Common Stock unless all other classes under
the Reorganization Plan accept or are deemed to accept the Reorganization Plan.
Pursuant to the Reorganization Plan, all Common Stock and all options (and
existing plans providing for the issuance of options) relating thereto will be
cancelled. (See Note 2 to the Consolidated Financial Statements.)
Management believes that the Company's cash position at December 30, 1998
will be sufficient to satisfy the Company's cash requirements for at least the
next twelve months. Accordingly, management believes it is unlikely that in 1999
cash flow demands will be made upon the Company which it will be unable to
satisfy from its present cash position and operations. The Company is presently
engaged in negotiations with certain lenders for a credit facility, which would
be available to the Company following the confirmation of the Reorganization
Plan. There can be no assurance, however, that such a credit facility will be
obtained. The shareholder and/or bondholder litigation described in Item 3 -
Legal Proceedings is automatically stayed as provided in Section 362 of the
Bankruptcy Code. However, if the Reorganization Plan is not confirmed and the
plaintiffs prevail in the shareholder and/or bondholder litigation, the outcome
could have a material adverse effect on the Company's financial position,
results of operations and cash flows. Capital to meet these potential cash flow
demands may not be available to the Company when required. Management considers
it unlikely that the Reorganization Plan will not be confirmed, given the
support of the Ad Hoc Committee.
Year 2000 Compliance
The year 2000 ("Y2K") problem stems from computer programs written in a way
that differentiates calendar years by utilizing two rather than four digits. As
a result, many information systems may be unable to properly recognize and
process date sensitive information beyond December 31, 1999. The Company is
addressing the Y2K situation by establishing processes for evaluating and
managing the risks associated with this issue.
The Company is currently replacing or upgrading its computer systems to
make them Y2K compliant, and expects to have remediation completed by the first
half of 1999 for all significant computer systems. Testing is expected to
continue throughout 1999. The new information systems are estimated to cost
approximately $3.0 million ($500,000 expended through December 30, 1998), a
substantial portion of which will be capitalized. Spending for the Y2K project
is not expected to have a material impact on the Company's results of operations
or cash flows. Although the Company does not currently have a complete
contingency plan for Y2K compliance, it intends to develop one during fiscal
year 1999.
While the Company believes all necessary work will be completed on a timely
basis, there can be no guarantee that all systems will be fully compliant by
December 31, 1999. Estimated time and costs may vary, particularly where
external systems of other companies and government agencies on which the Company
relies must be converted in a timely manner.
The Company is in the process of evaluating the Y2K readiness of all
internally engineered systems and all types of purchased hardware and software
systems used within the enterprise and is obtaining, where feasible, contractual
warranties from system vendors that their products (i) are or will be Y2K
compliant by December 31, 1999, or (ii) will be replaced or updated by a product
with similar or improved functional characteristics that are compliant. The
Company requires Y2K contractual warranties from all vendors of new software and
hardware. In addition, the Company is testing newly purchased significant
hardware and software systems in an effort to ensure their Y2K compliance.
17
The Company has entered formal communications with most of its suppliers,
banks and other business partners or vendors seeking assurances they will be Y2K
compliant. Although no method exists for achieving certainty that any
significant business partners will function without disruption after December
31, 1999, the Company's goal is to obtain as much detailed information as
possible about its significant partners' Y2K plans. This process should assist
in identifying those companies that potentially pose a significant risk of
failure to perform their obligations to the Company as a result of the Y2K
problem. The Company is planning, where appropriate, to review such significant
partners throughout 1999 to confirm their level of preparedness for 2000, and to
make adjustments where necessary to avoid utilization of those partners who
present an unacceptable level of risk.
The Company currently is not dependent on a single source for any of its
products or services. In the event a significant supplier, bank or other
business partner or vendor were unable to provide services to the Company due to
a Y2K failure, the Company believes it would have adequate alternate sources for
such products or services. There can be no guarantee, however, that similar or
identical products or services would be available on the same terms and
conditions or that the Company would not experience some adverse effects as a
result of switching to such alternate sources.
Like most business enterprises, the Company is dependent upon its own
internal computer technology and relies upon timely performance by its business
partners. A large-scale Y2K program failure could impair the Company's ability
to timely deliver food service or administer its accounts payable or receivable
functions, resulting in potential lost sales opportunities and additional
expenses. The Company's Y2K program seeks to identify and minimize this risk and
includes testing of its internally engineered systems and purchased hardware and
software, to ensure, to the extent feasible, all such systems will be Y2K
compliant. The Company is continually refining its understanding of the risk the
Y2K situation poses to its significant business partners based upon information
obtained through surveys and interviews. The refinement will continue throughout
1999.
New Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS 131 superceded SFAS 14, "Financial
Reporting for Segments of a Business Enterprise," replacing the "industry
segment" approach with the "management" approach. The management approach
designates the internal organization that is used by management for making
operating decisions and assessing performance as the source of the Company's
reportable segment. SFAS 131 also requires disclosures about products and
services, geographic areas, and major customers. The adoption of SFAS 131 by the
Company in December 1998 did not affect results of operations or financial
position but did affect the disclosure of segment information.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and hedging activities. SFAS No.
133 is effective for all fiscal quarters of fiscal years beginning after June
15, 1999. The adoption of SFAS No. 133 is not expected to have a material impact
on the Company.
Inflation
The Company believes that inflation has not had a material effect on its
results of operations.
Seasonality
The Company's business is seasonal in nature. Many Recreation and Leisure
facilities experience slack periods in April, May and June due to fewer sporting
events in these months and convention centers generally host fewer conventions
from May through September. In addition, many Education facilities are closed
during the summer months. Among other things, the Company adjusts its labor
scheduling and staffing to compensate for these fluctuations.
18
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ---------------------------------------------------------------------
Financial instruments which potentially subject the Company to a
concentration of credit risk principally consist of cash and cash equivalents,
trade accounts receivable and payable, contract loans and notes receivable,
long-term obligations, convertible subordinated notes and subordinated debt.
The Company invests its excess cash primarily in money market funds,
commercial paper and certain U.S. Government securities with an original
maturity of three months or less which are deposited with a number of
institutions with high credit ratings.
Concentration of credit risk with respect to accounts receivable is limited
due to the large number of customers that make up the Company's customer base,
thus spreading trade credit risk. The Company maintains reserves for potential
credit losses, which, in the aggregate, have not exceeded management
expectations.
The carrying amounts reflected in the consolidated balance sheets for cash
and cash equivalents, accounts receivable and payable, and the current portion
of long-term obligations and subordinated debt approximate fair value due to the
short maturities of these instruments.
Substantially all of the contract loans to clients are subject to immediate
and full repayment under the terms of related concession agreements and are
carried at fixed rates, either through the terms of the notes or through
discounting. One loan with a ten-year term has an interest rate tied into the 30
day LIBOR rate.
The Company's long-term obligations consist of capital lease obligations
carried at effective interest rates of 5.2% to 12%, Convertible Notes and
subordinated debt, a substantial portion of which are carried at discounted
rates ranging from 10% to 12.5%. If the Reorganization Plan is confirmed by the
Bankruptcy Court and implemented, holders of the Convertible Notes will
surrender them in exchange for approximately 96% of the outstanding common stock
of reorganized Fine Host and approximately $45 million in cash. (See Part I,
Item 3 - Legal Proceedings.) The Convertible Notes are carried at face value,
and given the Company's current situation, it is not practicable to estimate
their fair value.
The Company's foreign currency rate exposure is not significant. Certain
raw materials used primarily in food and beverage products are subject to price
volatility caused by weather and other factors. Commodity activity is not
material to the Company's consolidated financial position, results of
operations, or cash flows. In addition, the Company has entered into purchasing
agreements with various national and regional suppliers pursuant to which the
Company agreed to purchase its requirements of products (as defined in the
agreements). If the Company exceeds the agreed-upon purchasing levels,
additional rebates and promotional allowances may be payable by the suppliers.
If the Company fails to meet agreed-upon purchasing levels during the term of
the agreements, the suppliers may elect to extend the term of the agreements by
one year, or a longer period, if necessary, to reach agreed-upon purchasing
levels.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ---------------------------------------------------
See index to the financial statements included in Item 14.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -----------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
As previously reported by the Company in its Current Report on Form 8-K
filed on February 12, 1998.
19
PART III
- --------
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
- ----------------------------------------------------------------------
Executive Officers and Directors of the Company
Class I Directors' terms expire at 2000 Annual Meeting or when their successors
are chosen. Class II Directors' terms expire at 2001 Annual Meeting or when
their successors are chosen. Class III Directors' terms expire at 1999 Annual
Meeting or when their successors are chosen.
The executive officers and directors of the Company are as follows:
Name Age Position
--- --------
William D. Forrest (1) 38 Chief Executive Officer, President and Director
Gerald P. Buccino (2) 60 Chairman of the Board
Randall K. Ziegler 56 Executive Vice President - Business Development
Chris S. Verros 40 Group President - Recreation and Leisure
Mark Simkiss 47 Group President - Education and Business Dining
Perry M. Rynders 40 Group President - Healthcare
- Corrections
Richard L. Hall 45 Senior Vice President, Chief Accounting Officer
and Treasurer
Ellen Keats 42 Senior Vice President, General Counsel and
Secretary
Ronald E. Blaylock (1)(4) 39 Director
J. Michael Chu (3)(4) 40 Director
Norman B. Habermann (3)(4) 65 Director
Jack H. Nusbaum (2) 58 Director
(1) Class II Director
(2) Class I Director
(3) Class III Director
(4) Member of Compensation Committee
William D. Forrest has been President of the Company since December 14,
1998, and Chief Executive Officer since January 1, 1999. Prior to joining the
Company, Mr. Forrest was actively involved with the Company as part of Buccino &
Associates, Inc., the crisis management firm retained by the Company in
December, 1997. Mr. Forrest is owner and President of Forrest Advisory Services,
a management consulting firm specializing in turnaround situations. From 1989 to
1996 he was owner and President of Forrest Associates, another turnaround
consulting firm. Mr. Forrest has been a director since January, 1999.
20
Gerald P. Buccino was Chief Executive Officer from March 10, 1998 through
December 31, 1998 and President of the Company from March 10, 1998 through
December 14, 1998. He was elected as a director on July 1, 1998. Mr. Buccino was
appointed Chairman of the Board on December 14, 1998. His firm, Buccino &
Associates, Inc., was retained by the Company in December 1997 to oversee the
management of the Company. Since 1981, Mr. Buccino has been Chairman and Chief
Executive Officer of Buccino & Associates, Inc.; Mr. Buccino is President and
Chairman of the Board of the Buccino Foundation, a charitable organization. Mr.
Buccino is also a member of the Board of Regents of Seton Hall University.
Randall K. Ziegler resigned as Executive Vice President of the Company and
as a director and officer effective January 15, 1999, and became a consultant to
the Company. From May 1998 through January 15, 1999 Mr. Ziegler was Executive
Vice-President - Business Development. Mr. Zeigler was Group President -
Recreation and Leisure from June 1997 to May 1998, and he was President of the
Company's Food Services Division from 1990 to 1995. Mr. Ziegler had been a
director since 1994.
Chris S. Verros has been Group President - Recreation and Leisure since
December 1998. Prior to that time, he served as Senior Vice President - North
from 1996 to 1998. From 1994 to 1996, Mr. Verros was Vice President - North.
Prior to joining the Company, he was Vice President of Fanfare, Inc., a contract
food service provider acquired by the Company in 1994.
Mark Simkiss has been Group President - Education and Business Restaurants
since July 1998. Mr. Simkiss was Group President - School Nutrition Services
from June 1997 until July 1998. From February 1997 until June 1997, Mr. Simkiss
was Senior Vice President - School Nutrition at the Company. From September 1995
until February 1997, Mr. Simkiss was Director of Business Development - School
Nutrition at Aramark Corp., a food service company ("Aramark"). For more than
five years prior to September 1995, Mr. Simkiss was a Regional Vice President of
Aramark.
Perry M. Rynders has been Group President - Healthcare and Group President
- - Corrections since August 1997. For more than five years prior to joining the
Company, Mr. Rynders served as President of Best, Inc., which was acquired by
the Company in August 1997. Mr. Rynders also served as Chief Financial Officer
of Best from 1994 to 1997.
Richard L. Hall has been Senior Vice President, Chief Accounting Officer
and Treasurer of the Company since September 1998. From November 1997 to August
1998 Mr. Hall was Chief Financial Officer of Century Data Systems Inc., a point
of sale systems integrator. From June 1990 to July 1997 he was Executive Vice
President and Chief Financial Officer of Hardee's Food Systems Inc., a food
service retailer.
Ellen Keats has been Vice President and General Counsel of the Company
since December 1996. Ms. Keats became Secretary in June 1997 and Senior Vice
President in May 1998. She previously served as Corporate Counsel of the Company
from 1994 to 1996. Prior to joining the Company, from 1993 to 1994, Ms. Keats
was General Counsel of EIS International, Inc., a telecommunications and
software company in Stamford, Connecticut.
Ronald E. Blaylock has been a director of the Company since shortly after
the Initial Public Offering in June 1996. Mr. Blaylock has been President and
Chief Executive Officer of Blaylock & Partners, L.P., an investment-banking
firm, since he founded the firm in September 1993. Mr. Blaylock is a trustee of
Georgetown University, where he was a member of a NCAA Final Four basketball
team, and also serves as a director of Harbourton Mortgage Corp., Advantica
Restaurant Group, Inc. and Covenant House.
J. Michael Chu has been a director of the Company since April 1997. Mr. Chu
has been the Managing Director of Catterton-Simon Partners ("Catterton") since
1989. Catterton is a private equity investment firm focusing on the consumer,
food and beverage industries. Mr. Chu is a member of the Board of Trustees of
Bates College.
Norman N. Habermann has been a director of the Company since August 1998.
Mr. Habermann has been President of Scobrett Associates, Inc., a venture capital
and consulting firm since 1994. Mr. Habermann is a member of the Board of
Trustees of the University of California - Santa Barbara.
21
Jack H. Nusbaum has been a director of the Company since shortly after the
Company's Initial Public Offering in June 1996. Mr. Nusbaum is the Chairman of
the New York law firm of Willkie Farr & Gallagher, where he has been a partner
for more than the past twenty-five years. He is also a director of Pioneer
Companies, Inc., W.R. Berkley Corporation, Strategic Distribution, Prime
Hospitality Corp. and The Topps Company, Inc. Mr. Nusbaum is also a trustee of
Prep for Prep and the Joseph Collins Foundation.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and persons who own more than ten percent
of a registered class of the Company's equity securities to file reports of
ownership and changes in ownership on Forms 3, 4 and 5 with the Securities and
Exchange Commission. Officers, directors and greater than ten percent
stockholders are required by the Commission's regulation to furnish the Company
with copies of all Forms 3, 4 and 5 they file.
Based solely on the Company's review of the copies of such forms it has
received, the Company believes that all of its officers, directors and greater
than ten percent beneficial owners complied with all filing requirements
applicable to them with respect to transactions during fiscal 1998.
ITEM 11 - EXECUTIVE COMPENSATION
- -------------------------------------
The following table sets forth information regarding the compensation of
the Company's Chief Executive Officer and the four other most highly compensated
executive officers (collectively, the "Executive Officer Group") during the
fiscal years ended December 30, 1998, December 31, 1997 and December 25, 1996.
Summary Compensation Table (1)
Long Term
Compensation
Annual Awards
Name and Principal Fiscal Compensation Securities Underlying All Other
Position Year Salary Bonus Options/SARs Compensation(2)
- ----------------------------- ------ ------ ----- --------------------- ---------------
Gerald P. Buccino (3) 1998 $1,000,000 $ - - $ 2,457
Chairman, President and
CEO
Mark Simkiss (4) 1998 170,417 71,250 - 2,964
Group President 1997 128,638 56,250 27,500 442
Randall K. Ziegler (5) 1998 171,980 35,410 - 5,853
Group President 1997 193,500 35,410 22,500 4,083
1996 193,500 71,750 15,000 28,602
Catherine B. James (6) 1998 149,521 50,000 - 271,914
Chief Financial Officer 1997 138,006 - 67,500 345
Perry M. Rynders (7) 1998 174,569 20,000 - 1,342
Group President 1997 55,010 - 20,000 69
Chris S. Verros (8) 1998 134,408 51,500 - 2,553
Group President
<FN>
(1) Other annual compensation in the form of perquisites and other personal
benefits has been omitted for certain executive officers as the aggregate amount
of such perquisites and other personal benefits was less than the lesser of 10%
of their salary and bonus or $50,000.
22
(2) Represents premiums paid by the Company for excess group life insurance for
fiscal 1998 (Mr. Buccino $2,457; Mr. Simkiss $1,114; Mr. Ziegler $2,520; Ms.
James $914; Mr. Rynders $142; Mr. Verros $592), contributions by the Company to
a 401(k) savings plan on account of each executive officer for fiscal 1998 (Mr.
Simkiss $1,850; Mr. Ziegler $3,333; Ms. James $1,000; Mr. Rynders $1,200; Mr.
Verros $1,961) and severance pay (Ms. James $270,000).
(3) Mr. Buccino's employment with the Company as President ended on December 14,
1998, and his term as Chief Executive Officer expired on December 31, 1998. He
was appointed Chairman of the Board on December 14, 1998. He has agreed to serve
as a consultant to the Company. See "Executive Compensation - Settlement
Agreement with Gerald P. Buccino."
(4) Mr. Simkiss became an Executive Officer of the Company in February 1997.
(5) Mr. Ziegler resigned from the Company effective as of January 15, 1999. He
has agreed to serve as a consultant to the Company. See "Executive Compensation
- - Separation and Consulting Agreement with Randall K. Ziegler."
(6) Ms. James resigned from the Company effective as of September 30, 1998. See
"Executive Compensation - Separation Agreement with Catherine B. James."
(7) Mr. Rynders became an Executive Officer of the Company in August 1997.
(8) Mr. Verros became an Executive Officer of the Company in December 1998.
</FN>
Stock Option Grants in Last Fiscal Year
There were no options granted to the Executive Officer Group during the
fiscal year ended December 30, 1998.
The following table sets forth information regarding options exercised by
the Executive Officer Group during the fiscal year ended December 30, 1998.
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End
Option/SAR Values
Number Of
Securities Value Of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
At Fiscal At Fiscal
Year-End Year-End
Shares (#) ($)
Acquired On Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
- ---- ----------- ----------- ------------- -------------
Perry M. Rynders 0 0 0/20,000 0/0
Mark Simkiss 0 0 1,500/26,000 0/0
Chris S. Verros 0 0 3,000/24,500 0/0
Randall K. Ziegler (1) 0 0 15,250/31,000 0/0
(1) Mr. Ziegler resigned from the Company effective as of January 15, 1999.
He has agreed to serve as a consultant to the Company. See "Executive
Compensation - Separation and Consulting Agreement with Randall K. Ziegler."
23
Long-Term Incentive Plans - Awards In Last Fiscal Year
There were no awards under the Company's Long-Term Incentive Plan (the
"LTIP") granted to the Executive Officer Group during the fiscal year ended
December 30, 1998. On April 7, 1998, the Compensation Committee terminated the
Long-Term Incentive Plan.
Employment Agreement with William D. Forrest
Effective as of December 14, 1998, Mr. Forrest became President of the
Company, and effective January 1, 1999 he became Chief Executive Officer and a
director of the Company. Pursuant to an Employment Agreement, Mr. Forrest will
serve through the earlier of (1) the Effective Date or (2) December 14, 1999,
unless earlier terminated, at a salary of $400,000 per annum plus an additional
$60,000 which was paid in December, 1998. The Agreement also provides that Mr.
Forrest will receive a bonus of $300,000 if the Effective Date occurs on or
before May 5, 1999, $200,000 if the Effective Date occurs after May 5, 1999 but
on or before June 5, 1999, or $150,000 if the Effective Date occurs after June
5, 1999 but prior to January 5, 2000. In the event of termination of employment,
the Company shall pay to Mr. Forrest all amounts accrued but unpaid in respect
of salary or unreimbursed expenses. In the event Mr. Forrest's employment is
terminated without cause prior to his entitlement to the bonus payment described
above, he shall be paid a termination fee ("Fee") in lieu of any and all such
bonus payments. If such termination is prior to the expiration of 120 days after
January 7, 1999, the commencement date of the Company's Chapter 11 case, the Fee
shall be $300,000; if the termination is more than 120 but less than 151 days
after January 7, 1999, the Fee shall be $200,000; and if the termination is more
than 150 days after January 7, 1999, the Fee shall be $150,000. In addition, the
Company has agreed to indemnify Mr. Forrest to the fullest extent permitted
under Section 145 of the Delaware General Corporation Law.
Agreement with Gerald P. Buccino
Effective December 14, 1998, Mr. Buccino resigned as President of the
Company and effective December 31, 1998, his term as Chief Executive Officer
expired. Mr. Buccino is also Chairman and CEO of Buccino & Associates. Pursuant
to an Agreement, the Company agreed to pay Mr. Buccino the sum of $500,000, with
$200,000 payable on the date the agreement was signed (December 14, 1998),
$200,000 payable on January 5, 1999 and $100,000 payable as a success fee within
five business days of the Effective Date. The Agreement also contains certain
provisions for settling any outstanding invoices with Buccino & Associates. The
Agreement also provides that if requested to by the Company, Mr. Buccino will
continue to provide certain services upon reasonable advance notice by the
Company, including, without limitation, contacts with customers, vendors and
performance bond companies, for compensation of $5,000 per day after December
31, 1998 plus reimbursement of reasonable travel and related out of pocket
expenses. Mr. Buccino also agreed to work each business day in the week leading
up to and the week of the Company's filing of the Reorganization Plan, without
any additional compensation. The Agreement provides that Mr. Buccino shall also
be paid $425 per hour for certain additional services. Pursuant to the
Agreement, Buccino & Associates consented to the employment of Mr. Forrest and
another former Buccino & Associates employee by the Company and agreed to
terminate their consulting relationships with the Company. The parties also
exchanged mutual releases as part of the Agreement.
Separation and Consulting Agreement with Randall K. Ziegler
Effective January 15, 1999, Mr. Ziegler resigned as Executive Vice
President and as a director of the Company. Pursuant to a Separation and
Consulting Agreement, the Company retained Mr. Ziegler as a consultant for a
period of nine months at a fee of $13,750 per month, and agreed to pay severance
to Mr. Ziegler in an amount equal to $13,750 per month for a period of nine
months following the consulting term, or in a lump sum if Mr. Ziegler so elects
prior to the expiration of the consulting term. The Company agreed to provide
medical benefits to Mr. Ziegler comparable to his existing benefits and a car
during the consulting and severance periods, subject to offset to the extent Mr.
Ziegler obtains full-time employment during such periods. In addition, the
Company agreed to pay Mr. Ziegler an incentive bonus of $35,000 at such time as
other employees are paid their bonuses in accordance with Company policy and to
24
pay Mr. Ziegler up to $20,000 for outplacement services at his request upon
presentation of appropriate documentation therefor. In addition, the Company
agreed to pay Mr. Ziegler additional bonuses totaling $50,000 if certain
accounts were awarded to the Company during the consulting period and he used
his reasonable best efforts, if requested by the Company, in helping the Company
to be awarded those accounts. Mutual releases were also exchanged as part of the
agreement. In addition, the Company agreed to indemnify Mr. Ziegler to the
fullest extent permitted under Section 145 of the Delaware General Corporation
Law.
Separation Agreement with Catherine B. James
Effective as of September 30, 1998, Catherine B. James resigned as
director, Executive Vice President, Chief Financial Officer and Treasurer of the
Company. Pursuant to a letter agreement dated September 15, 1998, the Company
paid Ms. James $270,000 in exchange for a release of the Company. In addition,
the Company agreed to indemnify Ms. James, and to advance expenses, to the
fullest extent permitted under Section 145 of the Delaware General Corporation
Law.
Directors' Compensation
Directors' Compensation: Members of the Board of Directors who are not
officers or employees of the Company ("Non-Employee Directors") receive $2,500
per Board meeting and committee meeting and participate in the 1996 Non-Employee
Director Stock Plan (the "Directors Plan"). Pursuant to the Directors Plan, each
Non-Employee Director will, on the date of each Annual Meeting of Stockholders,
be automatically granted, without further action by the Board of Directors, a
number of shares of Common Stock equal to $15,000 divided by the Fair Market
Value (as defined in the Directors Plan) of one share of Common Stock on the
date of grant. There was no such grant made in 1998.
Common Stock granted under the Directors Plan is restricted and
nontransferable until the first Annual Meeting of Stockholders immediately
following the date of the grant unless otherwise provided by the Board of
Directors. In the event that a Non-Employee Director ceases to be a member of
the Board of Directors, other than because of his or her death or Disability (as
defined in the Directors Plan), all shares of Common Stock granted to him or her
pursuant to the Directors Plan whose restrictions have not lapsed shall be
forfeited back to the Company. Upon a Non-Employee Director's death or
Disability all restrictions on shares of Common Stock granted to him pursuant to
the Directors Plan shall lapse and all such shares shall become freely
transferable. In the event of a Change in Control (as defined in the Directors
Plan), all restrictions with respect to shares of Common Stock previously
granted pursuant to the Directors Plan will immediately lapse and all such
shares will become immediately transferable.
Special Committee
On December 19, 1997, the Board of Directors appointed a Special Committee
comprised of Messrs. Blaylock, Chu and Nusbaum. The Special Committee was
authorized to conduct an inquiry with respect to all financial, transactional
and other matters as it deemed necessary or appropriate, to retain professionals
and to otherwise exercise all of the powers of the Board of Directors in the
management of the business and affairs of the Company, subject to Delaware
General Corporation Law. In view of the broad responsibilities of the Special
Committee, the members of the Special Committee received $2,500 per meeting. The
Special Committee was disbanded in July 1998. Its function was taken over by an
Audit Committee consisting of all directors, who receive no additional
compensation for their membership.
Compensation Committee Interlocks and Insider Participation
As of December 18, 1997, the Compensation Committee consisted of Messrs.
Chu and Blaylock. Mr. Habermann joined the committee following his election as a
director on August 4, 1998. The committee members are paid $2,000 per meeting,
and Mr. Chu is paid a $10,000 a year retainer to act as Chairman of the
Compensation Committee.
The Company knows of no executive officer-director interlocks or
reportable transactions by present members of the Compensation Committee.
25
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
Except as noted below, the following table sets forth certain information
with regard to the beneficial ownership of the Common Stock as of March 19, 1999
by each person known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock. This information has been obtained by the
Company from either Schedule 13G or Schedule 13G/A, based on the most recent
filing by such Reporting Persons. Except as otherwise noted, the named
beneficial owner has sole power to vote or direct the vote and sole power to
dispose or to direct the disposition of the securities reported for it.
Beneficial Ownership (1)
Name and Address -----------------------
of Beneficial Owner Shares(2) Percentage
------------------- --------- ----------
Angelo, Gordon & Co., L.P. (3) 1,357,978 10.5%
245 Park Ave.
New York, NY 10167
Franklin Mutual Advisors, Inc. (4) 902,171 7.0%
51 John F. Kennedy Parkway
Short Hills, NJ 07078
Oaktree Capital Management, LLC (5) 798,651 6.1%
550 S. Hope St., 22nd Floor
Los Angeles, CA 90017
Citigroup Inc.(6) 742,296 5.7%
153 East 53rd Street
New York, NY 10043
Wellington Management Company, LLP (7) 656,600 5.1%
75 State St.
Boston, MA 02109
(1) Under the rules of the Securities and Exchange Commission, shares are
deemed to be "beneficially owned" by a person if such person directly or
indirectly has or shares (i) the power to vote or dispose of such shares,
whether or not such person has any pecuniary interest in such shares, or (ii)
the right to acquire the power to vote or dispose of such shares within 60 days,
including any right to acquire through the exercise of any option, warrant or
right. Calculations are based on shares outstanding, including 3,932,584 shares
issuable upon conversion of the Convertible Notes.
(2) Includes shares of Common Stock issuable upon conversion of the
Convertible Notes.
(3) Angelo, Gordon & Co., L.P. ("Angelo, Gordon" ) had beneficial ownership
of notes convertible into 57,708 shares for its own account and notes
convertible into 1,300,270 shares for the account of 16 private investment funds
for which it acts as general partner and/or discretionary investment advisor.
John M. Angelo, in his capacities as a general partner of AG Partners, L.P. the
sole general partner of Angelo, Gordon, and the chief executive officer of
Angelo, Gordon and Michael L. Gordon, in his capacities as a general partner of
AG Partners, L.P. the sole general partner of Angelo, Gordon, and the chief
operating officer of Angelo, Gordon, may be considered beneficial owners of the
1,357,978 shares. Neither Angelo, Gordon nor Mr. Angelo nor Mr. Gordon has sole
or shared voting or dispositive power. The business address for Mr. Angelo and
Mr. Gordon is also 245 Park Avenue, New York, NY 10167. Information regarding
Angelo, Gordon has been obtained by the Company from a Schedule 13G/A filed by
Angelo, Gordon with the Securities and Exchange Commission on or about February
11, 1999 reporting beneficial ownership of Common Stock as of December 31, 1998.
26
(4) Information regarding Franklin Mutual Advisors, Inc. ("FMAI") has been
obtained by the Company from a Schedule 13G filed by FMAI with the Securities
and Exchange Commission on or about February 9, 1999, reporting beneficial
ownership of Common Stock as of December 31, 1998. The securities reported on
herein are beneficially owned by one or more open-end investment companies or
other managed accounts which, pursuant to advisory contracts, are advised by
FMAI, a direct subsidiary of Franklin Resources, Inc. ("FRI"). Such advisory
contracts grant to FMAI all investment and voting power over the securities
owned by such advisory clients. Charles B. Johnson and Rupert H. Johnson, Jr.
(the "Principal Shareholders") each own in excess of 10% of the outstanding
common stock of FRI and are the principal shareholders of FRI.
(5) Oaktree Capital Management, LLC, a California limited liability company
("Oaktree"), serves in the following capacities (i) as the General Partner of
the OCM Opportunities Fund, L.P., a Delaware limited partnership (the
"Opportunities Fund"), (ii) as investment manager of the OCM Convertible Trust,
and (iii) as investment manager for certain third party accounts which invest in
similar securities as the Opportunities Fund or the OCM Convertible Trust. In
such capacities, Oaktree may be deemed to be the beneficial owner of 798,651
shares of the Company's Common Stock. Information regarding Oaktree has been
obtained by the Company from a Schedule 13G filed by Oaktree with the Securities
and Exchange Commission on or about February 12, 1998 reporting beneficial
ownership of Common Stock as of December 31, 1997.
(6) Information regarding Citigroup Inc. ("Citigroup") has been obtained by
the Company from a Schedule 13G/A filed by Citigroup for Citigroup and its
wholly-owned subsidiaries Salomon Brothers Asset Management Inc. ("SBAM"),
Salomon Brothers Holding Co. Inc. ("SBHC") and Salomon Smith Barney Holdings,
Inc. ("SSB") with the Securities Exchange Commission on or about January 22,
1999 reporting beneficial ownership of Common Stock as of December 31, 1998.
Citigroup, SBAM, SBHC and SSB report having shared voting and investment power
over the securities. The business address of SBAM, SBHC and SSB is 388 Greenwich
Street, New York, NY 10013.
(7) Information regarding Wellington Management Company, LLP ("WMC") has
been obtained by the Company from a Schedule 13G filed by WMC with the
Securities and Exchange Commission on or about January 13, 1998, reporting
beneficial ownership of Common Stock as of December 31, 1997. WMC reports having
shared voting power over 195,000 shares and shared dispositive power over
656,600 shares.
The following table sets forth certain information with regard to the
beneficial ownership of the Common Stock as of March 19, 1999 by (i) each
director of the Company and each executive officer group of the Company, and
(ii) all directors and officers of the Company as a group. Except as otherwise
noted, the named beneficial owner has sole voting and dispositive power.
27
Name of Beneficial Owner Beneficial Ownership (1)
- ------------------------ -----------------------
Shares Percentage
------ ----------
Randall K. Ziegler (2) 55,250 *
Perry M. Rynders 5,000 *
Mark Simkiss (3) 1,500 *
Chris S. Verros (3) 3,000 *
Ronald E. Blaylock 1,799 *
J. Michael Chu 549 *
Jack H. Nusbaum 1,799 *
All directors and executive officers as
a group (8 persons) (4) 70,897 *
* Less than 1%.
(1) Under the rules of the Securities and Exchange Commission, shares are
deemed to be "beneficially owned" by a person if such person directly or
indirectly has or shares (i) the power to vote or dispose of such shares,
whether or not such person has any pecuniary interest in such shares, or (ii)
the right to acquire the power to vote or dispose of such shares within 60 days,
including any right to acquire through the exercise of any option, warrant or
right. Percentage calculations are based on shares outstanding including 21,750
shares issuable upon exercise of stock options.
(2) Includes 15,250 shares of Common Stock issuable upon exercise of stock
options.
(3)Consists entirely of shares of Common Stock issuable upon exercise of
stock options.
(4) Includes 21,750 shares of Common Stock issuable upon exercise of stock
options beneficially owned by directors and executive officers of the Company.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
Buccino & Associates, Inc.
Buccino & Associates acted as the Company's management consulting firm from
December 15, 1997 to December 14, 1998. Gerald P. Buccino is the Chairman and
Chief Executive Officer of Buccino & Associates. Mr. Buccino served as President
of the Company from March 10, 1998 through December 14, 1998 and Chief Executive
Officer of the Company from March 10, 1998 through December 31, 1998. Mr.
Buccino continues to serve the Company as Chairman of the Board. Buccino &
Associates billed the Company in accordance with its standard hourly rates for
services rendered, which amounted to $2,212,000 and $157,000 in the fiscal years
1998 and 1997, respectively. The Company's present Chief Executive Officer and
President, William D. Forrest, was also previously retained by Buccino &
Associates while on assignment at the Company.
Other
See "Item 11 - Executive Compensation Committee Interlocks and Insider
Participation."
The law firm of Willkie Farr & Gallagher was retained as the Company's
legal counsel until March 11, 1999 with respect to certain matters. Mr. Nusbaum,
a director of the Company, is the Chairman of Willkie Farr & Gallagher.
The Company believes that all transactions between the Company and its
officers, directors and principal stockholders or affiliates thereof, in light
of the circumstances of the transactions, have been and will in the future be on
terms no less favorable to the Company than could be obtained from unaffiliated
third parties. Such transactions are subject to the approval of a majority of
the disinterested directors of the Company.
28
PART IV
- -------
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
INDEX TO FINANCIAL STATEMENTS
Page
----
Reports of Independent Accountants F-2 and F-3 F-2 and F-3
Consolidated Balance Sheets as of December 30, 1998 and December 31, 1997 F-4
Consolidated Statements of Operations for the fiscal years ended December 30, 1998,
December 31, 1997 and December 25, 1996 F-5
Consolidated Statements of Stockholders' Equity for the fiscal years ended December 30,
1998, December 31, 1997 and December 25, 1996 F-6
Consolidated Statements of Cash Flows for the fiscal years ended December 30, 1998,
December 31, 1997 and December 25, 1996 F-7
Notes to Consolidated Financial Statements F-8
F- 1
Report of Independent Accountants
To the Board of Directors and Stockholders
of Fine Host Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Fine Host
Corporation and its subsidiaries (the "Company") at December 30, 1998 and
December 31, 1997, and the results of their operations and their cash flows for
the fiscal years then ended in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audits 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, Fine Host Corporation, the parent company,
filed a plan of reorganization under Chapter 11 of the U.S. Bankruptcy Code on
January 7, 1999. The financial circumstances of the Company arising from the
bankruptcy filing and recurring losses from operations raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also discussed in Note 2. The consolidated
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
PricewaterhouseCoopers LLP
Stamford, Connecticut
March 22, 1999
F-2
Independent Auditors' Report
To the Board of Directors and Stockholders of
FINE HOST CORPORATION
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of Fine Host Corporation and
subsidiaries (the "Company") for the year ended December 25, 1996.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements of Fine Host
Corporation and subsidiaries present fairly, in all material respects,
the results of their operations and their cash flows for the year ended
December 25, 1996 in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
New York, New York
February 28, 1997, except for Note 26, as to which the date is January
28, 1998 and except for Note 3 - Basic and Diluted Loss Per Share as to
which the date is April 7, 1998
F-3
FINE HOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except per share data)
December 30, 1998 December 31, 1997
----------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents $67,178 $109,722
Accounts receivable, net 37,090 29,712
Inventories 6,197 6,241
Prepaid expenses and other current assets 2,541 1,940
------- -------
Total current assets 113,006 147,615
Contract rights, net 30,530 36,152
Fixtures and equipment, net 20,563 24,269
Excess of cost over net assets
acquired, net 48,144 55,551
Contract loans and notes receivable 24,178 15,481
Other assets 6,702 11,110
------- -------
Total assets $243,123 $290,178
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 35,332 $ 41,270
Current portion of long-term obligations 306 464
Current portion of subordinated debt 2,316 2,219
------- -------
Total current liabilities 37,954 43,953
Convertible subordinated notes 175,000 175,000
Long-term obligations 266 574
Subordinated debt 2,539 5,187
------- -------
Total liabilities 215,759 224,714
Commitments and contingencies
Stockholders' equity:
Common Stock, $.01 par value, 25,000 shares
authorized, 9,060 issued 91 91
Treasury stock, 12 shares at December 30, 1998 (74) -
Additional paid-in-capital 102,949 102,949
Accumulated deficit (75,520) (37,420)
Receivables from stockholders for purchase of
Common Stock (82) (156)
------- -------
Total stockholders' equity 27,364 65,464
------- -------
Total liabilities and stockholders' equity $243,123 $290,178
======= =======
See accompanying notes to consolidated financial statements.
F-4
FINE HOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)
Fiscal Years Ended
-------------------------------------------
December 30, December 31, December 25,
1998 1997 1996
----------- ----------- -----------
Net sales $327,121 $275,068 $144,400
Cost of sales 302,543 259,179 132,579
------- ------- -------
Gross profit 24,578 15,889 11,821
General and administrative expenses 33,935 32,815 15,504
Special and restructuring charges 11,702 3,784 -
Loss on asset impairment and disposal 11,207 6,798 -
------ ------- -------
Loss from operations (32,266) (27,508) (3,683)
Interest expense 11,351 5,080 3,157
Interest income 6,274 1,965 539
------ ------- -------
Loss before income taxes (37,343) (30,623) (6,301)
Income tax expense (benefit) 757 (6,802) (1,860)
------ ------- -------
Net loss (38,100) (23,821) (4,441)
Accretion to redemption value of warrants - - (1,300)
------ ------- -------
Net loss attributable to Common Stockholders $(38,100) $(23,821) $ (5,741)
======= ======= =======
Basic and diluted loss per share of Common Stock $ (4.21) $ (2.74) $ (1.39)
======= ======= =======
Average number of shares of Common Stock
outstanding 9,052 8,683 4,137
======= ======= =======
See accompanying notes to consolidated financial statements.
F-5
FINE HOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(amounts in thousands, except share data)
Receivables
From
Stockholders
Convertible For
Preferred Stock Common Stock Treasury Stock Additional Purchase of Total
--------------- ------------ -------------- Paid in Accumulated Common Stockholders'
Shares Amount Shares Amount Shares Amount Capital Deficit Stock Equity
------ ------ ------ ------ ------ ------ ------- ------- ----- ------
Balance, December 27, 1995 134,171 $1 2,048,200 $20 - $ - $ 8,933 $(7,858) $(189) $ 907
Net loss - - - - - - - (4,441) - (4,441)
Stock warrant accretion - - - - - - - (1,300) - (1,300)
Shares issued in connection
with acquisition - - 25,900 1 - - 369 - - 370
Shares issued in connection
with initial public offering - - 3,064,718 30 - - 32,459 - - 32,489
Conversion of Preferred Stock (134,171) (1) 939,197 9 - - (8) - - -
Warrants exercised - - 123,585 1 - - 608 - - 609
Warrants redeemed - - - - - - (200) - - (200)
Other - - 10,416 1 - - 109 - - 110
------- --- --------- -- ------ ---- ------- ------- --- ------
Balance, December 25, 1996 - - 6,212,016 62 - - 42,270 (13,599) (189) 28,544
Net loss - - - - - - - (23,821) - (23,821)
Shares issued in connection
with follow-on public offering - - 2,689,000 27 - - 58,906 - 33 58,966
Conversion of convertible notes - - 76,332 1 - - 1,144 - - 1,145
Stock options exercised - - 80,299 1 - - 569 - - 570
Stock issued to non-employee
directors - - 2,196 - - - 60 - - 60
------- --- --------- -- ------ ---- ------- ------- --- ------
Balance, December 31, 1997 - - 9,059,843 91 - - 102,949 (37,420) (156) 65,464
Net loss - - - - - - - (38,100) - (38,100)
Subscriptions paid off - - - - - - - - 74 74
Treasury shares acquired - - - - (11,873) (74) - - - (74)
------- --- --------- -- ------ ---- ------- ------- --- ------
Balance, December 30, 1998 - $ - 9,059,843 $91 (11,873) $(74) $102,949 $(75,520) $(82) $27,364
======= === ========= == ======= ==== ======= ======= === ======
See accompanying notes to consolidated financial statements.
F-6
FINE HOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands, except per share data)
Fiscal Years Ended
---------------------------------------------
December 30, December 31, December 25,
1998 1997 1996
----------- ----------- -----------
Cash flows from operating activities:
Net loss $(38,100) $(23,821) $(4,441)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 10,954 10,292 3,573
Deferred income tax benefit - (6,998) (1,940)
Loss on asset impairment and disposal 5,742 6,798 -
Loss on disposition of businesses 5,768 - -
Provision for doubtful accounts 927 950 66
Changes in operating assets and liabilities, net
of effects from acquisition of businesses:
Accounts receivable (8,103) (7,503) (1,417)
Inventories (635) (795) (366)
Prepaid expenses and other current assets (643) 544 1,060
Accounts payable and accrued expenses (6,095) (2,048) (4,154)
Other assets 2,670 (1,327) (36)
------ ------ ------
Net cash used in operating activities (27,515) (23,908) (7,655)
------ ------ ------
Cash flows from investing activities:
Direct payments to acquire contracts (612) (5,875) (5,754)
Purchases of fixtures and equipment (4,679) (8,187) (3,534)
Proceeds from sales of businesses or assets 3,349 1,151 64
Acquisition of businesses, net of cash acquired - (33,225) (9,387)
Collection of notes receivable 2,479 1,092 494
Issuance of loans and notes receivable (12,573) (13,027) -
------ ------ ------
Net cash used in investing activities (12,036) (58,071) (18,117)
------ ------ ------
Cash flows from financing activities:
Proceeds from issuance of common stock - 58,966 32,489
Proceeds from issuance of convertible
subordinated notes - 169,486 -
Borrowings under long-term debt agreement - 70,761 27,844
Payment of long-term obligations (442) (110,876) (22,461)
Payment of subordinated debt (2,551) (1,953) (8,396)
Redemption of warrants - - (200)
Proceeds from exercise of stock options
and warrants - 570 609
------ ------- ------
Net cash (used in) provided by financing activities (2,993) 186,954 29,885
------ ------- ------
(Decrease) increase in cash (42,544) 104,975 4,113
Cash, beginning of year 109,722 4,747 634
------- ------- ------
Cash, end of year $ 67,178 $109,722 $4,747
======= ======= ======
See accompanying notes to consolidated financial statements.
F-7
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
1. Description of Business
Fine Host Corporation and its subsidiaries (the "Company") provide contract
food service management to three distinct markets within the contract food
service industry: the recreation and leisure market (arenas, stadiums,
amphitheaters, civic centers other recreational facilities and convention
centers); the education and business restaurants market (colleges, universities,
elementary and secondary schools, corporate cafeterias, office complexes and
manufacturing plants); and the healthcare and corrections market (long term care
facilities, hospitals, prisons and jails).
2. Chapter 11 Filing and Plan of Reorganization
On January 7, 1999 the Company filed a voluntary petition for
reorganization under Chapter 11 of Title 11 of the United States Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court"). The Company's chapter 11 case was
precipitated by the discovery of certain accounting irregularities in December,
1997. As a result of these accounting irregularities, on February 6, 1998, the
Company announced that it was restating its financial statements for fiscal
years 1994 through 1996, and for the nine months ended September 24, 1997
(collectively, the "Restatement"). In connection with the discovery of the
accounting irregularities, certain officers and directors of the Company were
immediately terminated. In addition, a special committee of the Company's Board
of Directors retained the law firm of Schulte, Roth & Zabel LLP to conduct an
investigation in order to determine the nature and extent of the accounting
irregularities and to identify the persons who were responsible for the improper
activity. This investigation resulted in a comprehensive report prepared by
Schulte Roth & Zabel LLP. All of the Company's officers, directors and employees
in any way implicated in the accounting irregularities were terminated or
resigned well prior to the commencement of the Company's chapter 11 case.
Between December 15, 1997 and March 20, 1998, various lawsuits were instituted
against the Company seeking rescission and damages arising from the purchase and
sale of the Company's 5% Convertible Subordinated Notes due 2004 (the
"Convertible Notes") and common stock ("Common Stock"). Commencing in May, 1998,
the Company initiated a dialogue with an ad hoc committee (the "Ad Hoc
Committee") of holders of the Convertible Notes for the purpose of formulating a
restructuring of the Convertible Notes and resolving the pending litigation.
After extensive negotiations, the Company and the Ad Hoc Committee agreed to a
financial restructuring which is embodied in the proposed plan of reorganization
(the "Reorganization Plan") and accompanying disclosure statement (the
"Disclosure Statement"). By order dated January 7, 1999, the Bankruptcy Court
fixed February 25, 1999 as the date and time for the hearing to consider the
adequacy of the Disclosure Statement. On February 19, 1999, the Company filed an
amended Disclosure Statement (the "Amended Disclosure Statement"). As a result
of the modifications set forth in the Amended Disclosure Statement, the
Bankruptcy Court continued the hearing to consider the adequacy of the
Disclosure Statement until March 17, 1999. On March 17, 1999, the Bankruptcy
Court stated that it would approve the Amended Disclosure Statement subject to
certain modifications which now have been incorporated therein . As a result,
the Amended Disclosure Statement and ballots to vote to accept or reject the
Reorganization Plan are expected to be mailed on April 5, 1999. The deadline for
returning the completed ballots is expected to be May 7, 1999. The hearing to
consider confirmation of the Reorganization Plan is scheduled for May 18, 1999.
Pursuant to the Reorganization Plan (i) all of the Company's outstanding
Convertible Notes in the aggregate principal amount of $175 million will be
exchanged for approximately $45 million in cash and approximately 96% of the
outstanding new common stock of the reorganized Company (the "New Common
Stock"); (ii) holders of general unsecured claims will be paid in full; (iii)
all holders of rescission and damage claims against the Company relating to the
Convertible Notes (including all such claims asserted in pending litigation)
(the "Debenture Rescission Claims") will receive in satisfaction of their claims
a ratable share of an interest in a litigation trust, 3% of the New Common Stock
and warrants to purchase 750,000 shares of New Common Stock; and (iv) all
holders of rescission and damage claims against the Company relating to the
Common Stock (including all such claims asserted in pending litigation) (the
"Statutorily Subordinated Claims") and all holders of Common Stock will receive
in satisfaction of their claims and equity interests a ratable share of an
interest in the litigation trust, 1% of the New Common Stock and warrants to
purchase 250,000 shares of New Common Stock. No distribution, however, will be
made under the Reorganization Plan to holders of Debenture Rescission Claims
unless the class of Convertible Notes under the Reorganization Plan accepts the
Reorganization Plan. Additionally, no distribution will be made under the
Reorganization Plan to holders of Statutorily Subordinated Claims and Common
Stock unless all other classes under the Reorganization Plan accept or are
deemed to accept the Reorganization Plan. Pursuant to the Reorganization Plan,
all Common Stock and all options (and existing plans providing for the issuance
of options) relating thereto will be cancelled. Implementation of the
Reorganization Plan is subject to confirmation thereof in accordance with the
provisions of the Bankruptcy Code.
F-8
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
3. Summary of Significant Accounting Policies
Basis of Presentation - The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany transactions and accounts have been eliminated.
Use Of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Concentration Of Credit Risk - The Company primarily competes in one
business market, the contract food service industry, and encounters significant
competition in each business segment of the contract food service market in
which it operates. The length of contracts varies depending on the type of
facility, type of contract and financial investment. Contracts for recreation
and leisure facilities typically include significant capital outlays by the
Company and generally have a term of three to ten years. Contracts for
convention centers generally have a term of three to five years. Education
contracts generally have a term of one to five years. Business dining accounts,
which generally require the smallest capital investment by the Company,
typically have a shorter term, and generally contain a provision allowing either
party to terminate for convenience after a short notice period, typically
ranging from 30 to 90 days. The Company's remaining contracts generally have a
fixed term and in any fiscal year a number of these contracts either expire or
come up for renewal.
Concentration of credit risk with respect to accounts receivable is limited
due to the large number of customers that make up the Company's customer base,
thus spreading trade credit risk. The Company maintains reserves for potential
uncollectible amounts, which, in the aggregate, have not exceeded management
expectations.
Impairment of Long-Lived Assets - Under the provisions of Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of", the Company
evaluates its fixtures and equipment, identifiable intangibles (acquired
contract rights) and excess of cost over net assets acquired (collectively
referred to as "long-lived assets") for impairment as events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable. Generally, the evaluation is performed in conjunction with the
Company's annual planning and strategic review process, unless circumstances
indicate otherwise.
The Company evaluates the recoverability of long-lived assets by measuring
the carrying amount of the assets against the estimated non-discounted future
cash flows associated with the use of the long-lived assets. At the time such
evaluations indicate that the future non-discounted cash flows of certain
long-lived assets are not sufficient to recover the carrying value of such
assets, the assets are written down to their fair values. For long-lived assets
expected to be held and used, fair value is generally calculated by discounting
estimated future cash flows expected to be generated by those assets at rates
that market participants would use to determine fair value. For long-lived
assets expected to be disposed of, the fair value is determined by estimated
selling price less costs to sell.
Cash and Cash Equivalents - Cash and cash equivalents include cash, money
market funds, commercial paper and certain U.S. Government securities with an
original maturity of three months or less and are deposited with a number of
institutions with high credit ratings. The Company does not believe it is
exposed to any significant credit risk related to cash and cash equivalents.
F-9
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
Accounts Receivable - Accounts receivable are net of allowance for
uncollectible accounts of $1,999 and $1,072 for fiscal years 1998 and 1997,
respectively.
Inventories - Inventories are stated at the lower of cost, determined on a
first-in, first-out (FIFO) basis, or market.
Contract Rights - Contract rights are composed of direct payments to
clients to acquire contracts and costs of licenses and permits ("direct
payments") as well as the value of contracts acquired through acquisitions of
businesses. Direct payments are being amortized over a range of 1 to 10 years.
The value of contract rights acquired through acquisitions of businesses has
been determined through independent valuation based on projected cash flows
discounted at a rate that market participants would use to determine fair value
and is being amortized over the projected lives as determined through the
valuation process, with an average amortization period of 10 years as of
December 30, 1998.
Fixtures and Equipment - Acquisitions of fixtures and equipment are
recorded at cost and are depreciated using the straight-line method over periods
ranging from 3 to 20 years.
Excess of Cost Over Net Assets Acquired - The excess of cost over net
assets acquired is amortized using the straight-line method over periods ranging
from 20 to 30 years.
Treasury Stock - Treasury stock is recorded at cost.
Revenue Recognition and Cost of Sales - Sales from all food and beverage
concession and catering contract food services are recognized in net sales as
the services are provided. Net sales include reimbursements for food and payroll
costs incurred on behalf of customers under contracts in which the Company
manages food service programs for a fee.
The Company enters into one of the following types of contracts for its
food services: profit and loss contracts ("P&Ls"), profit sharing contracts and
a limited number of management fee contracts with a fixed minimum fee, some of
which provide for an additional incentive fee based upon a percentage of sales
over a base threshold level. In certain P&Ls the Company is required to bear all
the expenses of the operation, including rent paid to the client usually
calculated as a fixed percentage of various categories of sales. In other P&Ls,
net sales include reimbursements for operating expenses incurred on behalf of
customers, as well as revenues generated at the facility under contracts in
which the Company manages the food service contract for a management fee. Under
the profit sharing contracts, the Company receives a percentage of profits
earned at the facility after the payment of all expenses of the operation plus a
fixed fee or percentage of sales as an administrative fee. For a limited number
of the Company's management fee contracts with a fixed minimum fee, the revenues
generated at the location are used to pay for all expenses incurred in providing
food and beverage services, and the excess of revenues over management fees and
operating expenses are distributed to the client.
Cost of sales is composed of the following:
Fiscal Years Ended
-----------------------------
1998 1997 1996
------- ------ ------
Wages and benefits $117,650 $ 90,690 $ 44,464
Food and beverages 106,380 94,057 42,250
Rent paid to clients 40,925 40,586 28,181
Other operating expenses 27,531 24,463 14,095
Depreciation and amortization 10,057 9,383 3,589
------- ------- -------
$302,543 $259,179 $132,579
======= ======= =======
Income Taxes - Deferred tax assets and liabilities are recognized for the
estimated future tax effects attributable to temporary differences, principally
depreciation, amortization of contract rights and operating loss carry forwards.
A temporary difference is the difference between the tax basis of an asset or
liability and its reported amount in the financial statements using currently
enacted tax rates.
F-10
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
Stock Option Plan - Stock options are recorded in accordance with
Accounting Principles Board Opinion ("APB") No. 25, with pro forma disclosures
of net income/(loss) and earnings/(loss) per share as if Statement of Financial
Accounting Standards ("SFAS") No. 123 had been applied.
Segment Information - In December 1998, the Company adopted SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS 131
superceded SFAS 14, "Financial Reporting for Segments of a Business Enterprise,"
replacing the "industry segment" approach with the "management" approach. The
management approach designates the internal organization that is used by
management for making operating decisions and assessing performance as the
source of the Company's reportable segments. SFAS 131 also requires disclosures
about products and services, geographic areas, and major customers. The adoption
of SFAS 131 did not affect results of operations or financial position but did
affect the disclosure of segment information (see Note 24 to the Consolidated
Financial Statements).
Basic and Diluted Loss Per Share - In December 1997, the Company adopted
SFAS No. 128, "Earnings per Share." Under SFAS No. 128, basic earnings per share
is based on the weighted average number of common shares outstanding during the
year, whereas diluted earnings per share also gives effect to all dilutive
potential common shares that were outstanding during the period. Dilutive
potential common shares include preferred stock, stock options, warrants and
convertible notes (see Note 19). In calculating loss per share, net loss has
been increased for the accretion to the redemption value of warrants by $1,300
in fiscal 1996 (see Note 16).
Fiscal Year - The Company's fiscal year ends on the last Wednesday in
December. The 1998 and 1996 fiscal years were 52-week periods. The 1997 fiscal
year was a 53-week period.
Reclassification - Certain prior year amounts and balances have been
reclassified to conform to the current presentation.
4. Special and Restructuring Charges
In connection with the Restatement described in Note 26, the Company
incurred costs in 1998 of $11.7 million representing the costs of legal,
accounting, financial advisors, management consulting fees, severance, retention
bonuses and the cost of rescinding the 10 year lease that was signed in October
1997 for the relocation of its corporate headquarters. In connection with the
Company's Chapter 11 Filing and Reorganization Plan as discussed in Note 2, the
Company anticipates that it will incur additional legal, accounting, financial
advisor and management consulting fees during the first half of 1999.
In addition, also in connection with the Restatement, the Company incurred
costs of approximately $3.8 million in the fourth quarter of 1997 to cover the
write-off of $2.2 million of deferred debt costs in connection with the
Company's then-existing credit facility and $1.6 million for the costs of legal,
accounting and management consulting fees.
5. Loss on Asset Impairment and Disposal
Loss on asset impairment and disposal consists of the following:
Fiscal Years Ended
------------------
1998 1997
------ ------
Loss on sale of assets $ 5,723 $ 823
Provision for impairment on assets to be sold - 1,194
Impairment losses on terminated contracts,
business shutdowns and under-performing
contracts 5,484 4,781
------ -----
Total $11,207 $6,798
====== =====
F-11
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
6. Acquisitions
In 1997, the Company acquired 100% of the stock of four companies for
approximately $42,100, consisting of cash, subordinated promissory notes to the
sellers and assumed debt. The acquired companies provide contract food services
to Healthcare and Corrections and Education and Business Restaurant clients in
Minnesota, Wisconsin, North Dakota, South Dakota, Illinois, Iowa, New York,
Pennsylvania, and Southern Florida.
In 1996, the Company acquired 100% of the stock of five companies for
approximately $26,000, consisting of cash, subordinated promissory notes to the
sellers and assumed debt. In addition, 25,900 shares of the Company's Common
Stock were issued.
The aforementioned acquisitions have been accounted for under the purchase
method of accounting and, accordingly, the accompanying consolidated financial
statements reflect the fair values of the assets acquired and liabilities
assumed or incurred as of the effective date of the acquisitions. The results of
operations of the acquired companies are included in the accompanying
consolidated financial statements since their respective dates of acquisition.
The following table summarizes pro forma information with respect to the
income statement data for fiscal years 1997 and 1996 as if each acquisition had
been completed as of the beginning of the fiscal year in which the respective
acquisition occurred. No adjustments for acquisition synergies (i.e. overhead
reductions) have been reflected.
Fiscal Years Ended
--------------------------
December 31, December 25,
Summary statement of operations data (unaudited): 1997 1996
----------- -----------
Net sales $323,516 $254,028
======= =======
Loss from operations $(28,701) $ (6,435)
======= =======
Loss before warrant accretion $(28,290) $ (8,044)
======= =======
Basic and diluted loss per share of common
stock before warrant accretion $ (3.26) $ (1.94)
======= =======
The above pro forma information is provided for informational purposes
only. It is based on historical information and does not necessarily reflect the
actual results that would have occurred nor is it necessarily indicative of
future results of operations of the combined enterprise.
7. Inventories
The components of inventories are as follows:
December 30, December 31,
1998 1997
----------- -----------
Food $4,206 $4,676
Beverage 1,205 956
Other 786 609
----- -----
Total $6,197 $6,241
===== =====
F- 12
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
8. Contract Rights and Excess of Costs Over Net Assets Acquired
December 30, December 31,
Contract Rights 1998 1997
--------------- ----------- -----------
Acquired contract rights $30,029 $31,443
Less: accumulated amortization 7,762 4,989
------ ------
Net acquired contract rights 22,267 26,454
------ ------
Direct payments, licenses and permits 11,766 12,936
Less: accumulated amortization 3,503 3,238
------ ------
Net direct payments, licenses and permits 8,263 9,698
------ ------
Contract rights, net $30,530 $36,152
====== ======
Amortization expense of contract rights was $4,186, $3,026, and $559 in
1998, 1997 and 1996, respectively.
December 30, December 31,
Excess of Costs Over Net Assets Acquired 1998 1997
---------------------------------------- ----------- -----------
Gross excess of costs over net assets acquired $55,724 $61,802
Less: accumulated amortization 7,580 6,251
------ ------
Net excess of costs over net assets acquired $48,144 $55,551
====== ======
Amortization expense of excess of costs over net assets acquired was
$1,854, $1,634, and $817 in 1998, 1997 and 1996, respectively.
9. Fixtures and Equipment
Fixtures and equipment consists of the following:
December 30, December 31,
1998 1997
----------- -----------
Furniture and fixtures $16,124 $19,083
Office equipment 5,096 4,109
Vending equipment 4,113 5,327
Leasehold improvements 3,112 3,015
Smallwares 2,427 2,556
Other 2,083 1,710
------ ------
32,955 35,800
Less: accumulated depreciation 12,392 11,531
------ ------
Fixtures and equipment, net $20,563 $24,269
====== ======
The Company invests in fixtures and equipment at various locations. Upon
termination of a concession agreement, the client is generally required to
purchase the assets from the Company for an amount equal to their net book
value.
All fixtures and equipment are depreciated over periods ranging from 3 to
20 years, except smallwares which are depreciated over periods ranging from 3 to
5 years. Depreciation expense was $4,638, $5,367, and $2,327 in 1998, 1997 and
1996, respectively.
F-13
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
10. Contract Loans and Notes Receivable
From time to time the Company loans funds to its clients to assist them in
funding construction and for working capital needs. Substantially all of these
loans are subject to immediate and full repayment under the terms of related
concession agreements. Included among the loans and notes the Company has
outstanding are the following:
o Loans made in December 1997 and May 1998 to a client in the aggregate amount
of $20 million. The loans are to be repaid as provided for in the Concession
Management Agreement with the client (the "Agreement"). Generally, the client
will pay the Company $800 each June 1 beginning in 1998 through 2014, provided,
however, that repayment amounts per year would be reduced in the event that
aggregate loan repayments of up to $6 million are made. Other provisions of the
Agreement provide for full or partial loan payments. Interest of 6.62% is
calculated on the outstanding principal balance. If after year 17 of the
Agreement, a loan balance remains, an amount will be deducted from the
commission payable to the client during years 18 to 25 of the Agreement to repay
the balance of the loan to the Company. The balance of the loan at December 30,
1998 and December 31, 1997 is $19.7 million and $10 million, respectively, of
which $18.9 million and $10 million, respectively, is classified as long-term.
o A non-interest bearing loan made in September 1997 to a client in the
aggregate amount of $3.5 million. The loan was discounted at a rate of 8% and is
repayable at the end of the initial term of the client agreement in June 2008,
provided that the agreement is not renewed pursuant to its terms. If the
agreement is renewed, the loan shall be repaid over the 10-year renewal term at
$350 per year. The balance of the loan at December 30, 1998 and December 31,
1997 (net of discounts of $1,770 and $1,903, respectively) was $1,730 and
$1,597, respectively, all of which is classified as long-term.
o A non-interest bearing loan made in February 1996 to a client in the aggregate
amount of $900. The loan was discounted at a rate of 8%, and is repayable in 10
annual installments of $90. The balance of the loan at December 30, 1998 and
December 31, 1997 (net of discounts of $174 and $217, respectively) was $546 and
$593, respectively. The portion classified as long-term at fiscal year-end 1998
and 1997 was $496 and $593, respectively.
Various other loans to clients with an aggregate balance at December 30,
1998 and December 31, 1997 of $4.0 million and $4.1 million, respectively, of
which $3.1 million and $3.3 million, respectively, is classified as long-term.
These loans bear interest at rates ranging from 8.5-12% and are payable in
various amounts through 2025.
11. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
December 30, December 31,
1998 1997
----------- -----------
Accounts payable $ 9,178 $11,794
Accrued wages and benefits 8,927 8,275
Accrued rent to clients 5,463 4,070
Severance, fees and other
liabilities relating
to acquisition of businesses 1,137 4,325
Deferred income 2,373 2,875
Professional fees 1,178 1,075
Accrued interest 1,870 1,836
Accrued other 5,206 7,020
------ ------
Total $35,332 $41,270
====== ======
F-14
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
12. Long-Term Obligations
Long-term obligations consist of the following:
December 30, December 31,
1998 1997
----------- -----------
Capital lease obligations, effective
interest rates of 5.2%, to 12.0% $572 $1,038
Less: current portion 306 464
--- -----
Total $266 $ 574
=== =====
The Company's capital leases are for equipment and vehicles with a net book
value of $1,186 at December 30, 1998.
Long-term obligations at December 30, 1998 are payable as follows:
Year Ending Amount
----------- ------
December 29, 1999 $328
December 27, 2000 273
---
Total 601
Less portion of lease
payments representing
interest 29
---
Total $572
===
13. Convertible Subordinated Notes
On October 27, 1997, the Company issued $175.0 million of 5% Convertible
Subordinated Notes due 2004 (the "Convertible Notes") in a private placement
under Rule 144A of the Securities Act of 1933. The Convertible Notes are
unsecured obligations of the Company and were convertible into Common Stock at a
conversion price of $44.50 per share. The net proceeds of $169.1 million, after
deducting discounts and certain expenses, were used to repay approximately $50.0
million in outstanding obligations under the Company's then-existing credit
facility. The remaining proceeds were invested in short-term investments in
accordance with the Company's investment policy. In connection with the
Company's private offering of the Convertible Notes, the Company had agreed to
file a shelf Registration Statement, which would cause the Convertible Notes to
be freely tradable. The Company has not filed the shelf Registration Statement
and is therefore obligated to pay liquidated damages on the Convertible Notes
from January 25, 1998, in the amount of $.05 per week per thousand dollar
principal amount, subject to increase each quarter up to a maximum of
approximately 1.3% per annum. In 1998 the Company paid $8,750 of interest and
$720 in liquidated damages due and owing on the Convertible Notes. At December
30, 1998, the interest rate including liquidated damages was 6.04%. No payments
have been made with respect to the Convertible Notes since the Company's Chapter
11 filing.
As further described in Note 20, on or about January 30, 1998, the Company
was named as a defendant in an action arising out of the issuance and sale of
the Convertible Notes. See also Note 2.
Given the Company's current situation, it is not practicable to estimate
the fair value of the Convertible Notes.
14. Subordinated Debt
In October 1997, as part of the acquisition of Total Food Services
Distribution, Inc. ("Total"), the Company issued to the stockholders of Total
subordinated promissory notes with a face value of $1,000 at 9.0% interest per
annum, due 1999. The notes were discounted to present value using a market rate
of 11% per annum. The balances at December 30, 1998 aggregated $491.
F-15
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
In August 1997, as part of the acquisition of Statewide Industrial
Catering, Inc. ("Statewide"), the Company issued to the stockholders of
Statewide a subordinated promissory note with a face value of $1,600 at 7%
interest per annum, due 2001. The note was discounted using a market rate of
11%, per annum and had a balance of $1,113 at December 30, 1998, of which $744
was classified as long-term.
In connection with the 1997 acquisitions of Serv-Rite Corporation and Best
Inc. the Company acquired other notes payable with interest rates ranging from
8% to 10% per annum. Other notes payable total $757 at December 30, 1998, of
which $610 was classified as long-term.
In December 1996, as part of the acquisition of Republic Management
Corp.("Republic"), the Company issued to a stockholder of Republic a
subordinated promissory note with a face value of $1,000 at 8.75% interest per
annum, payable in quarterly installments. The note was discounted to present
value using a market rate of 11% per annum and had a balance of $310 at December
30, 1998, all of which was classified as current.
In July 1996, as part of the acquisition of Ideal Management Services, Inc.
("Ideal"), the Company issued to the stockholders of Ideal two convertible
subordinated promissory notes each with a face value of $710 at 7 1/4% interest
per annum, payable in quarterly installments. At the option of the noteholders,
the outstanding principal balance of the notes was convertible into Common Stock
at a conversion price of $15 per share. On July 30, 1997, the aggregate
outstanding principal balances were converted into 76,332 shares of Common
Stock.
In March 1996, as part of the acquisition of Sun West Services, Inc. ("Sun
West"), the Company issued to the stockholders of Sun West the following: (1) a
subordinated promissory note with a face value of $1,350 at 7% interest per
annum, payable in four annual installments beginning in 1998; and (2) a
subordinated promissory note with a face value of $638 at 7% interest per annum,
payable in three annual installments which began in 1997. The notes were
discounted to present value using a market rate of 10% per annum. The respective
balances at December 30, 1998 were $1,042 and $97, of which $717 and $0 were
classified as long-term.
In July 1995, as part of the purchase price of Northwest Food Service,
Inc., the Company issued a $1,350 note to the seller at 7% interest per annum.
The note was discounted to present value using a market rate of 12.5% per annum
and had a balance at December 30, 1998 of $764 of which $468 was classified as
long-term.
In July 1994, as part of the acquisition of Creative Food Management, Inc.
("Creative"), the Company issued to the stockholders of Creative the following:
(1) a non-interest bearing subordinated promissory note with a face value of
$1,440, payable in monthly installments beginning in 1996; and (2) a
non-interest bearing subordinated promissory note with a face value of $756,
payable in monthly installments beginning in 1995, which was satisfied in full
during 1998. The notes were discounted to present value using a market rate of
10% per annum. The balance of the former note at December 30, 1998 was $280, all
of which was classified as current.
In April 1993, the Company entered into a subordinated loan agreement, as
amended (the "Subordinated Loan Agreement"), pursuant to which the Company sold
$8,500 of its variable rate subordinated notes (the "1993 Notes"), together with
detachable warrants to purchase a maximum of 867,230 shares of a new class of
Non-Voting Common Stock. The proceeds from the issuance of the 1993 Notes were
used to repay existing indebtedness. A portion of the net proceeds from the IPO
(see Note 12) was used to repay the 1993 Notes.
The estimated fair value approximated the carrying amount of subordinated
debt at December 30, 1998 and December 31, 1997.
F-16
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
Subordinated debt at December 30, 1998 is payable as follows:
Year Ending Amount
----------- ------
December 29, 1999 $2,520
December 27, 2000 1,192
December 26, 2001 1,108
December 25, 2002 63
December 31, 2003 69
Thereafter 290
-----
5,242
Less: discount on
subordinated note 387
-----
Total $4,855
=====
15. Stockholders' Equity
Common Stock - Holders of Common Stock are entitled to one vote per share
in all matters to be voted on by the stockholders of the Company. Subject to
preferences that may be applicable to any Preferred Stock outstanding at the
time, holders of Common Stock are entitled to receive ratably such dividends, if
any, as may be declared from time to time by the Board of Directors out of
legally available funds.
On February 7, 1997, the Company conducted a follow-on offering as
authorized by its Board of Directors, selling 2,689,000 shares of its Common
Stock at a price of $23.50 per share, generating net proceeds (including the net
proceeds received by the Company upon the exercise of certain stock options held
by senior executives of the Company in connection with the Follow-On Offering)
of approximately $58.9 million, after deducting the underwriting discount and
offering expenses paid by the Company. The net proceeds were used to repay
obligations under the Company's then existing credit facility and the remainder
of the net proceeds were invested in short term investments in accordance with
the Company's investment policy.
On June 19, 1996, the effective date of the initial public offering
("IPO"), as authorized by the Board of Directors, the Company sold 3,064,718
shares at a price of $12.00 per share, generating net proceeds (including the
net proceeds received by the Company upon the exercise of certain warrants and
options) of approximately $32.5 million, after deducting the underwriting
discount and offering expenses paid by the Company. The net proceeds were used
to repay obligations under the Company's then-existing credit facility in effect
prior to the IPO and subordinated notes, as well as to repurchase certain
warrants, and the remainder was used for general corporate purposes.
See Note 2 for information regarding the Company's proposed Reorganization
Plan and its effect on Common Stock if confirmed and implemented.
Preferred Stock - Holders of the Series A Convertible Preferred Stock are
entitled to receive, when and as declared, out of the net profits of the
Company, dividends in an amount per share equal to the aggregate per share
amount of all cash dividends declared on the Common Stock multiplied by the
number of shares of Common Stock into which a share of Series A Convertible
Preferred Stock is convertible on the date on which such dividend is to be paid
in full. All dividends declared upon Series A Convertible Preferred Stock shall
be declared pro rata per share. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company, the holders of the shares
of Series A Convertible Preferred Stock then outstanding shall be entitled to
share ratably with holders of the shares of Common Stock in any distribution of
the assets and funds of the Company. Each share of Series A Convertible
Preferred Stock is convertible into seven shares of Common Stock, subject to
certain adjustments. In conjunction with the IPO all of the then outstanding
Convertible Preferred Stock was converted into 939,197 shares of Common Stock.
F- 17
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
1996 Non-Employee Director Stock Plan - The 1996 Non-Employee Director
Stock Plan (the "Directors' Plan") authorizes the grant of an aggregate of
50,000 shares of Common Stock. Common Stock is granted pursuant to the Directors
Plan only to members of the Board of Directors who are not officers or employees
of the Company ("Non-Employee"). If he or she remains a director of the Company,
on the date of each of the Company's Annual Meeting of Stockholders, each
Non-Employee will be automatically granted, without further action by the Board
of Directors, a number of shares of Common Stock equal to $15 divided by the
fair market value (as defined in the Directors' Plan) of one share of Common
Stock on the date of grant. No shares were granted under this plan in 1998.
Pursuant to the Reorganization Plan, the Directors' Plan will be cancelled. See
Note 2.
16. Stock Options
Stock Options - The 1994 Stock Option Plan provides for granting of either
incentive stock options or non-qualified options to purchase shares of Common
Stock. The plan provides that (i) the option price of an incentive stock option
may not be less than the fair market value of the Common Stock on the date of
grant and (ii) the option price of an option which is not an incentive stock
option shall not be less than 85% of the fair value. Generally, for options
granted prior to September 1997, the options become exercisable after one year
in 20% increments per year. Generally, for options granted in September 1997 and
later, the options become exercisable after 3 years in 33.3% increments per
year. Most option grants expire ten years from the date of grant. The Company
has reserved 1,566,084 shares for distribution under the plan. In addition,
included in the table below are 27,944 options issued in connection with the
Fanfare acquisition in 1993. As a result of the Chapter 11 filing, no further
options with respect to Common Stock will be issued, and if the Reorganization
Plan is confirmed and implemented, all such options will be cancelled. See Note
2.
A summary of the status of the Company's stock option plan as of December
30, 1998, December 31, 1997 and December 25, 1996 and changes during the years
ending on those dates is presented below:
1998 1997 1996
------------------------ ------------------------ ------------------------
Weighted-Average Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------ -------------- ------ -------------- ------ --------------
Outstanding at
beginning of year 857,845 $22.95 491,194 $11.03 143,444 $6.19
Granted - - 813,500 28.50 380,750 12.82
Exercised - - 80,299 7.13 2,916 6.43
Cancelled 206,100 27.13 366,550 22.76 30,084 10.92
------- ------- -------
Outstanding at end
of year 651,745 21.64 857,845 22.95 491,194 11.03
======= ======= =======
Options exercisable at
year-end 243,445 16.48 92,996 9.64 88,204 6.20
======= ======= =======
Options available for
grant at end of year 861,984 736,183 102,834
======= ======= =======
F-18
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
The following table summarizes information about stock options outstanding
at December 30, 1998:
Options Outstanding Options Exercisable
---------------------------------------------------- -----------------------------
Number Weighted-Average Number
Range Of Outstanding Remaining Contractual Weighted-Average Exercisable Weighted-Average
Exercise Prices At 12/30/98 Life (in years) Exercise Price at 12/30/98 Exercise Price
- --------------- ----------- --------------- -------------- ----------- --------------
$ 4.93 - $ 7.14 54,245 4.5 $ 6.29 54,245 $6.29
$12.00 - $15.62 225,000 6.9 12.97 99,300 12.84
$20.75 - $37.94 372,500 6.6 29.11 89,900 26.64
------- ------
651,745 6.5 21.64 243,445 16.48
======= =======
If the fair value based accounting method was used to account for
stock-based compensation costs, pro forma net loss would have been unchanged for
the fiscal year ended December 30, 1998 and would have been $25,967, or $2.99
pro forma basic loss per share for the fiscal year ended December 31, 1997. The
fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1998 and 1997, respectively; no dividend yield;
expected volatility of 100% and 41-43%; risk-free interest rate of 4.54% and 6%;
and an expected lives of 7.6 years and 8.6 years. There were no grants in 1998.
Holders of Subordinated Notes -
In conjunction with the Ideal Management Services, Inc. acquisition (Note
6) convertible subordinated notes were issued. At the option of the note holders
the outstanding principal balance is convertible into Common Stock at a
conversion price of $15 per share. On June 30, 1997, the aggregate outstanding
principal balances were converted into 76,332 shares of Common Stock.
Pursuant to the issuance and sale of the 1993 Notes (see Note 14), the
purchaser received warrants to purchase 733,467 and 133,763 shares of Non-Voting
Common Stock at exercise prices of $4.93 a share (the "$4.93 Warrants") and $.01
a share (the "$.01 Warrants"), respectively. The warrants were valued at $230.
The $4.93 and the $.01 Warrants were exercisable from the date of issue
through the periods ended April 29, 2001 and April 29, 2003, respectively. Both
the number of shares and exercise price were subject to adjustment under various
antidilution provisions.
Upon achieving specified levels of earnings in each of fiscal 1993 and
1994, the Company had the right to earn back, in respect of each such year, the
portion of the $4.93 Warrants issued to the purchaser of the 1993 Notes
representing the right to acquire 1% of the fully diluted Common Stock. The
Company originally reported earnings sufficient to achieve the required earnings
levels specified for those fiscal years. Accordingly, in each of May 1994 and
June 1995, the Company canceled $4.93 Warrants to acquire the equivalent of 1%
of the fully diluted Common Stock, or approximately 43,365 shares (in each
year). Based on restated results of operations, the Company would not have had
the right to cancel the warrants and accordingly, they would have been
outstanding at the end of each year. As a result of the refinancing completed
prior to the IPO, the Company redeemed an additional amount of the $4.93
Warrants equal to 2% of the fully diluted Common Stock, or 86,730 shares.
F-19
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
Upon achieving specified levels of earnings in each of fiscal 1993, 1994,
1995 and 1996, the Company had the right to earn back the total of the $.01
Warrants issued (133,763) to the noteholder. Since the Company originally
reported earnings sufficient to achieve the required earnings level specified
for fiscal 1993, 1994 and 1995, the Company, in each of fiscal 1994, 1995 and
1996 earned back and cancelled 33,439 of the $.01 Warrants held by the purchaser
of the 1993 Notes, respectively. Based on restated results of operations, the
Company would not have had the right to cancel the warrants and accordingly,
they would have been outstanding at the end of each year.
During a specified repurchase period, the Company was obligated, subject to
certain conditions, to repurchase (the "Put Repurchase") all or a designated
portion of the issuable warrant shares within 120 days after notification of a
put option exercise. The Put Repurchase period began on the earlier of (i) April
29, 1997, (ii) the prepayment of 50% of the original principal amount of the
Notes issued under the Subordinated Loan Agreement, or (iii) a Change of
Control, as defined, of the Company. The Put Repurchase price was based upon the
greater of the Appraised Value (as defined in the warrant agreement) of the
Common Stock, and the result obtained by dividing a multiple of the Company's
adjusted earnings, as defined, by the number of fully diluted shares of Common
Stock. The Put Repurchase was accreted to its highest redemption price based on
the IPO offering price. Upon the closing of the IPO, holders of Warrants to
acquire an aggregate of 296,726.5 additional shares of Common Stock (280,003.5
at $4.93 per share and 16,723 at $.01 per share) were obligated to sell these
warrants to the Company at a price equal to $2,180.
In March 1996, the holder of the 1993 Notes sold the 1993 Notes to a
non-affiliate of the Company. The purchaser also acquired 280,003.5 of the $4.93
Warrants and 16,723 of the $.01 Warrants. In connection with this transaction,
the purchaser granted the Company an option to purchase all of the warrants for
prices ranging from $500 to $1500 in the event the 1993 Notes were fully
redeemed before various dates from June 30, 1996 to December 31, 1996. In the
event the Company increased its bank borrowings in excess of $32,500, the option
price would increase by $200 for each additional $2,500 of borrowings, subject
to a maximum increase in the option price of $600. Upon the closing of the IPO,
the Company repurchased these warrants for an aggregate repurchase price of
$700.
Holders of Series A Convertible Preferred Stock -
In connection with the sale in fiscal 1993 by the Company of the Series A
Convertible Preferred Stock to an investor and one of its directors (described
in Note 13), each purchaser received $4.93 warrants and $.01 warrants to
purchase Common Stock. The investor received 118,307 of the $4.93 Warrants and
the director received 21,294 of the $4.93 Warrants. The investor received
453,432 of the $.01 Warrants and the director received 81,613 of the $.01
Warrants. Both the number of shares and the exercise price are subject to
adjustment under various antidilution provisions.
The $4.93 Warrants issued by the Company to the investor and the director
(139,601 in total) were subject to cancellation to the extent that the Company
earned back $4.93 Warrants issued to the purchaser of its 1993 Notes (see
above). Since the Company originally reported earnings sufficient to achieve the
earnings level specified for fiscal 1993 and 1994 required under the 1993 Notes,
8,253 of these $4.93 Warrants, the maximum allowed during the 1993 reduction
period, were canceled in June 1994, and an additional 7,763, the maximum allowed
during the 1994 reduction period, were canceled in June 1995. In conjunction
with the IPO, these holders of $4.93 Warrants exercised the remaining 123,585
$4.93 Warrants and sold such shares in the IPO.
Upon achieving specified levels of earnings in fiscal 1993, 1994, 1995 and
1996, the Company had the right to earn back the total of the $.01 Warrants
(535,045 in the aggregate) issued to the holders of the Series A Convertible
Preferred Stock. Since the Company originally reported earnings sufficient to
achieve the required earnings level specified for each of fiscal 1993, 1994 and
1995, the Company, in 1994, 1995 and 1996, respectively, cancelled 133,763 of
these warrants, representing 113,358 warrants for the investor and 20,405 for
the director. Based on restated results of operations the Company would not have
had the right to cancel the warrants and accordingly, they would have been
outstanding at the end of each year.
F-20
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
17. Commitments and Contingencies
The Company operates principally at its clients' premises pursuant to
written contracts ("Client Contracts"). The length of Client Contracts generally
ranges from one to ten years with options to renew for periods of one to ten
years. Certain of these Client Contracts provide for base rent and contingent
rent. Aggregate rent expense under these agreements for fiscal 1998, 1997 and
1996 was $40,925, $40,586 and $28,181, respectively.
Future minimum commitments as of December 30, 1998 for all non-cancelable
operating leases and client contracts are as follows:
Year Amount
---- ------
1999 $ 3,405
2000 2,582
2001 2,146
2002 1,602
2003 1,401
Thereafter 2,058
------
Total $13,194
======
Pursuant to its contracts with various clients, the Company is committed to
spend approximately $3,682 for equipment and capital improvements as of December
30, 1998. At December 30, 1998, the Company was contingently liable for
performance bonds in the aggregate amount of $8,328.
Effective as of September 3, 1998, the Company retained BT Alex. Brown
Incorporated ("BT Alex. Brown") as financial advisor to provide the Company with
restructuring advice. The Company committed to pay BT Alex. Brown an advisory
fee of $75 per month (the "Advisory Fees") for up to eight (8) months. Upon
completion of the restructuring, BT Alex. Brown will be entitled to a success
fee of $1.3 million less the aggregate Advisory Fees received.
The Company has entered into purchasing agreements with various national
and regional suppliers pursuant to which the Company agreed to purchase its
requirements of products (as defined in the agreements). If the Company exceeds
the agreed-upon purchasing levels, additional rebates and promotional allowances
may be payable by the suppliers. If the Company fails to meet agreed-upon
purchasing levels during the term of the agreements, the suppliers may elect to
extend the term of the agreements by one year, or a longer period, if necessary,
to reach agreed-upon purchasing levels.
18. Income Taxes
The income tax provision (benefit) consists of the following:
Fiscal Years Ended
-----------------------------------------
December 30, December 31, December 25,
1998 1997 1996
----------- ----------- -----------
Current:
State and local $ 757 $ 197 $ 80
--- ------ -----
Deferred:
Federal - (5,728) (1,588)
State and local - (1,271) (352)
--- ------ -----
Total deferred - (6,999) (1,940)
--- ------ -----
Total $ 757 $(6,802) $(1,860)
=== ====== =====
F-21
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are presented below:
December 30, December 31,
1998 1997
----------- -----------
Deferred tax assets:
Net operating loss carryovers $20,157 $11,863
Accrued compensation / marketing incentives 2,495 1,191
Other 1,242 437
------ ------
Total deferred tax assets 23,894 13,491
------ ------
Deferred tax liabilities:
Tax in excess of book depreciation 427 1,273
Excess tax deduction attributable to
contract rights 8,883 9,211
Other 554 379
Total deferred tax liabilities 9,864 10,863
------ ------
Subtotal (14,030) (2,628)
Valuation allowance 14,030 2,628
------ ------
Total $ - $ -
====== ======
The Company's effective income tax (benefit) rate differed from the Federal
statutory rate as follows:
Fiscal Years Ended
-----------------------------------------------
December 30, December 31, December 25,
1998 1997 1996
----------- ----------- -----------
Federal statutory rate (34.0)% (34.0)% (34.0)%
Excess of cost over net assets acquired 7.4 5.2 4.4
State & local taxes net of Federal
tax benefits (1.3) (2.3) (4.6)
Valuation allowance 30.5 8.6 -
Other, net (0.6) 0.3 4.7
---- ---- ----
Effective income tax (benefit) rate 2.0% (22.2)% (29.5)%
==== ==== ====
At December 30, 1998, the Company had, for Federal income tax reporting,
estimated loss carryovers of approximately $52 million that will begin to expire
in 2008.
The Company's loss carryovers for federal income tax purposes may be
significantly reduced in 1999 due to the discharge of indebtedness under the
Reorganization Plan as described in Note 2. Under the Internal Revenue Code, the
substantial changes in the Company's ownership typically will also result in an
annual limitation on the amount of the remaining net operating loss and tax
credit carryovers which can be utilized in future years.
Deferred tax liabilities result primarily from book tax differences in
contract rights acquired through stock acquisitions. These deferred tax
liabilities are provided as an increase to excess of cost over net assets
acquired and will reverse over an average period of ten years.
The Company believes that it is more likely than not that net deferred tax
assets will not be utilized in the future. Therefore, the Company has
established a full valuation allowance against the net deferred tax asset.
F-22
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
19. Loss Per Share
SFAS 128 requires the disclosure of a reconciliation of the numerators and
denominators of the basic and diluted per share computations for income/loss.
Since the inclusion of dilutive potential common shares (stock options,
preferred stock, warrants and convertible notes) would be antidilutive, meaning
inclusion of these potential common shares would decrease loss per share
amounts, the Company's calculation of basic and diluted earnings per share is
the same.
1998 1997 1996
------ ------ ------
Net loss $(38,100) $(23,821) $(4,441)
Accretion to redemption value of
warrants - - (1,300)
------ ------ -----
Basic and diluted loss $(38,100) $(23,821) $(5,741)
====== ====== =====
Basic and diluted shares 9,051,591 8,683,156 4,137,361
========= ========= =========
Basic and diluted loss per share $(4.21) $(2.74) $(1.39)
====== ====== =====
20. Litigation
In January 1996, the Company was served with a complaint naming it as one
of five defendants in a lawsuit brought by multiple plaintiffs in the New York
State Supreme Court alleging damages arising out of the Woodstock II Festival
held in August 1994 in Saugerties, New York. The promoter of the festival is
also a defendant. According to the complaint, the plaintiffs were hired by the
Company (which had a concession agreement with the promoter of the festival) as
subcontractors of food, beverage and/or merchandise. In their complaint, which
seeks approximately $5.9 million in damages, the plaintiffs allege damages
arising primarily from the failure to provide adequate security and prevent
festival attendees from bringing food and beverages into the festival. The
Company and the promoter have made cross-demands for indemnification against
each other under applicable provisions of their concession agreement. On April
4, 1996, the other defendants named in the suit answered the complaint and
asserted cross-claims for contribution and indemnification against the Company.
Thereafter, the Company answered the complaint and asserted a cross-claim for
indemnification against the promoter and a cross-claim for contribution against
all of its codefendants.
The Company has also sued a former client in the Jefferson Circuit Court of
the Commonwealth of Kentucky for certain amounts owed by the former client under
the food service contract between the parties, and the former client has filed a
counterclaim against the Company seeking unspecified damages for the Company's
alleged tortuous interference with a prospective contractual relationship with
another food service provider.
The foregoing legal proceedings have been stayed as a consequence of the
commencement of the Company's Chapter 11 case. The Company does not believe that
any liabilities relating to the foregoing legal proceedings are likely to be,
individually or in the aggregate, material to its consolidated financial
position, results of operations or cash flows.
Between December 15, 1997 and March 25, 1998, 13 purported class action
lawsuits were filed in the United States District Court for the District of
Connecticut (the "Court") against the Company and certain of its officers and/or
directors (the "Shareholder Litigation"). The complaints assert various claims
against the Company, including claims alleging violations of Sections 10(b) and
20(a) of the Securities Exchange Act of 1934 and/or violations of Sections 11,
12(2) and 15 of the Securities Act of 1933 and various rules promulgated
thereunder, as well as fraud and negligent misrepresentation. On February 13,
1998, the plaintiffs in the actions filed a Motion for Consolidation and for
Appointment as Lead Plaintiffs and for Approval of A Selection of Lead Counsel
(the "Motion"). On March 25, 1998, the Motion was granted. Lead Plaintiffs filed
a Consolidated Amended Complaint on May 14, 1998. On June 29, 1998, the Company
and certain of the individual defendants moved to dismiss the claim asserted
F-23
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
under Section 11 of the Securities Act of 1933. The other individual defendants
moved to dismiss the complaint in its entirety. On October 22, 1998, the Court
granted the motion to dismiss the entire complaint as to certain individual
defendants and denied the Company's motion to dismiss the claim asserted under
Section 11 of the Securities Act of 1933. On December 9, 1998, the plaintiffs
amended the complaint to add Deloitte & Touche LLP as a defendant. On March 10,
1999, the plaintiffs further amended the complaint to add William R. Berkley,
former director and Chairman of the Board of the Company, Joshua A. Polan,
former director of the Company, NationsBanc Montgomery Securities and CIBC
Oppenheimer defendants. The Company has not yet answered the complaint as so
amended and, by reason of the automatic stay provided by Section 362 of the
Bankruptcy Code, the foregoing litigation is stayed against the Company, and all
claims asserted therein will be addressed in the context of the Company's
Chapter 11 case.
On or about January 30, 1998, the Company and certain other individuals
were named as defendants in an action arising out of the issuance and sale in
October 1997 of $175 million in the aggregate principal amount of the Company's
5% Convertible Notes (the "Bondholder Litigation"). The plaintiffs allegedly
purchased the Convertible Notes in the aggregate principal amount of $7.5
million. The Amended Complaint in the action, filed on or about April 22, 1998
in the United States District Court for the Southern District of New York,
alleges, among other things, that the Offering Memorandum prepared by the
Company in connection with the offering contained materially false information.
The complaint asserts various claims against the Company, including claims
alleging violations of Sections 10(b), 18(a) and 20(a) of the Securities
Exchange Act of 1934 and various rules promulgated thereunder, as well as fraud
and negligent misrepresentation. The relief sought by the plaintiffs includes
compensatory damages of $1.5 million plus interest, punitive damages of $0.5
million, costs and disbursements, and attorneys' fees. On July 10, 1998, the
plaintiffs filed a Second Amended Complaint.
On July 29, 1998, the Company moved to dismiss the Section 10(b) fraud and
negligent misrepresentation counts of the Second Amended Complaint. The other
individual defendants moved to dismiss the Second Amended Complaint in its
entirety. On August 7, 1998, the Judicial Panel on Multidistrict Litigation
ordered that the Bondholder Litigation be transferred to the District of
Connecticut and, with the consent of that court, be assigned to the judge
presiding over the Shareholder Litigation for coordinated or consolidated
pretrial proceedings with the Shareholder Litigation. On October 22, 1998, the
Court in the District of Connecticut dismissed the negligent misrepresentation
count of the Second Amended Complaint, and otherwise denied the defendants'
motions to dismiss the complaint. On November 30, 1998, the defendants answered
the Second Amended Complaint. This action is also stayed as against the Company
by reason of the automatic stay provided in Section 362 of the Bankruptcy Code.
All claims asserted against the Company in the Bondholder Litigation will be
addressed in the context of the Company's Chapter 11 case. (See Note 2.)
On December 12, 1997, the Company issued a press release announcing that
the Audit Committee of its Board of Directors (the "Audit Committee") had
instructed the Company's auditors to conduct an inquiry into certain accounting
practices, including the capitalization of certain expenses, and that the
auditors advised the Audit Committee on December 12, 1997, based upon their
preliminary inquiry, that certain expenses incurred during 1997 were incorrectly
capitalized rather than expensed in the period in which they were incurred. The
Company stated that it believed the amounts would be material and that earnings
for each of the first three quarters of 1997 would need to be restated. On
December 15, 1997, the Company issued a press release announcing that
preliminary indications were that the accounting problems were not limited to
the incorrect capitalization of the expenses, and that periods prior to 1997
would also need to be restated. The press release also stated that the outside
directors of the Company's Board of Directors (the "Outside Directors") had
terminated the employment of Richard E. Kerley, Chairman of the Board and Chief
Executive Officer, and Nelson A. Barber, Senior Vice President and Treasurer. On
February 19, 1998, the Securities and Exchange Commission issued a formal order
of investigation into the events relating to the December 12 and 15, 1997
announcements relating to accounting irregularities.
On January 7, 1999 the Company filed a voluntary petition for
reorganization under Chapter 11 of Title 11 of the United States Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court"). The Company's chapter 11 case was
precipitated by the discovery of certain accounting irregularities in December,
1997. As a result of these accounting irregularities, on February 6, 1998, the
Company announced that it was restating its financial statements for fiscal
years 1994 through 1996, and for the nine months ended September 24, 1997
(collectively, the "Restatement"). In connection with the discovery of the
F-24
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
accounting irregularities, certain officers and directors of the Company were
immediately terminated. In addition, a special committee of the Company's Board
of Directors retained the law firm of Schulte, Roth & Zabel LLP to conduct an
investigation in order to determine the nature and extent of the accounting
irregularities and to identify the persons who were responsible for the improper
activity. This investigation resulted in a comprehensive report prepared by
Schulte Roth & Zabel LLP. All of the Company's officers, directors and employees
in any way implicated in the accounting irregularities were terminated or
resigned well prior to the commencement of the Company's chapter 11 case.
Between December 15, 1997 and March 20, 1998, various lawsuits were instituted
against the Company seeking rescission and damages arising from the purchase and
sale of the Company's 5% Convertible Subordinated Notes due 2004 (the
"Convertible Notes") and common stock ("Common Stock"). Commencing in May, 1998,
the Company initiated a dialogue with an ad hoc committee (the "Ad Hoc
Committee") of holders of the Convertible Notes for the purpose of formulating a
restructuring of the Convertible Notes and resolving the pending litigation.
After extensive negotiations, the Company and the Ad Hoc Committee agreed to a
financial restructuring which is embodied in the proposed plan of reorganization
(the "Reorganization Plan") and accompanying disclosure statement (the
"Disclosure Statement"). By order dated January 7, 1999, the Bankruptcy Court
fixed February 25, 1999 as the date and time for the hearing to consider the
adequacy of the Disclosure Statement. On February 19, 1999, the Company filed an
amended Disclosure Statement (the "Amended Disclosure Statement"). As a result
of the modifications set forth in the Amended Disclosure Statement, the
Bankruptcy Court continued the hearing to consider the adequacy of the
Disclosure Statement until March 17, 1999. On March 17, 1999, the Bankruptcy
Court stated that it would approve the Amended Disclosure Statement subject to
certain modifications which now have been incorporated therein . As a result,
the Amended Disclosure Statement and ballots to vote to accept or reject the
Reorganization Plan are expected to be mailed on April 5, 1999. The deadline for
returning the completed ballots is expected to be May 7, 1999. The hearing to
consider confirmation of the Reorganization Plan is scheduled for May 18, 1999.
Pursuant to the Reorganization Plan (i) all of the Company's outstanding
Convertible Notes in the aggregate principal amount of $175 million will be
exchanged for approximately $45 million in cash and approximately 96% of the
outstanding new common stock of the reorganized Company (the "New Common
Stock"); (ii) holders of general unsecured claims will be paid in full; (iii)
all holders of rescission and damage claims against the Company relating to the
Convertible Notes (including all such claims asserted in pending litigation)
(the "Debenture Rescission Claims") will receive in satisfaction of their claims
a ratable share of an interest in a litigation trust, 3% of the New Common Stock
and warrants to purchase 750,000 shares of New Common Stock; and (iv) all
holders of rescission and damage claims against the Company relating to the
Common Stock (including all such claims asserted in pending litigation) (the
"Statutorily Subordinated Claims") and all holders of Common Stock will receive
in satisfaction of their claims and equity interests a ratable share of an
interest in the litigation trust, 1% of the New Common Stock and warrants to
purchase 250,000 shares of New Common Stock. No distribution, however, will be
made under the Reorganization Plan to holders of Debenture Rescission Claims
unless the class of Convertible Notes under the Reorganization Plan accepts the
Reorganization Plan. Additionally, no distribution will be made under the
Reorganization Plan to holders of Statutorily Subordinated Claims and Common
Stock unless all other classes under the Reorganization Plan accept or are
deemed to accept the Reorganization Plan. Pursuant to the Reorganization Plan,
all Common Stock and all options (and existing plans providing for the issuance
of options) relating thereto will be cancelled. Implementation of the
Reorganization Plan is subject to confirmation thereof in accordance with the
provisions of the Bankruptcy Code.
The Company is involved in certain other legal proceedings incidental to
the normal conduct of its business. The Company does not believe that any
liabilities relating to such other legal proceedings to which it is a party are
likely to be, individually or in the aggregate, material to its consolidated
financial position, results of operations or cash flows. Each of such other
proceedings has been stayed as against the Company by reason of the automatic
stay provided in section 362 of the Bankruptcy Code.
21. Related Party Transactions
For each of fiscal 1997 and 1996, the Company incurred $150 in advisory
fees with a company whose sole owner was the Chairman of the Board of the
Company until April 1997. The Company incurred $2,212 and $157 in fiscal 1998
and 1997, respectively, in consulting fees with Buccino & Associates, whose
Chairman and Chief Executive Officer was Chief Executive Officer of the Company
from March 10, 1998 through December 31, 1998, and President of the Company from
March 10, 1998 through December 14, 1998.
F-25
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
22. Major Client
During fiscal 1998 and 1997 no client represented 10% or more of net sales,
and during fiscal 1996 one client represented 10.0% of net sales.
23. Quarterly Results (Unaudited)
The following summary shows the quarterly results of operations of the
Company for fiscal 1998 and 1997:
Fiscal Quarters
-------------------------------------
First Second Third Fourth (1)
----- ------ ----- ------
1998:
Net sales $84,996 $74,273 $77,737 $90,115
Gross profit 7,017 4,650 6,856 6,055
Net loss (7,730) (13,783) (5,398) (11,189)
Net loss per share of Common Stock $(.85) $(1.52) $ (.60) $(1.24)
1997:
Net sales $54,333 $57,231 $68,134 $95,370
Gross profit 4,849 2,966 4,135 3,939
Net loss (2,478) (3,580) (2,658) (15,105)
Net loss per share of Common Stock $(.32) $(.40) $(.30) $(1.68)
<FN>
(1) Fourth quarter 1998 and 1997 include special charges of $2,442 and
$3,784, respectively (see Note 4) and losses on asset impairment and disposal of
$2,626 and $6,798 (see Note 5).
</FN>
F-26
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
24. Segment Information
In 1998, the Company adopted SFAS 131. Under SFAS 131, the Company's three
reportable segments are: Recreation and Leisure, Education and Business
Restaurants and Healthcare and Corrections. The accounting policies of the
segments are the same as those described in the "Summary of Significant
Accounting Policies" (Note 3). Descriptions of the reportable segments are
contained in "Description of Business" (Note 1). The other sales and other
operating income in the reconciliations consists principally of janitorial
services.
The table below presents information about reported segments for the fiscal
years ended:
Education &
Recreation & Business Healthcare &
Leisure Restaurants Corrections Total
------------ ----------- ------------ --------
1998:
Sales $119,722 $147,381 $56,141 $323,244
======= ======= ====== =======
Operating income $5,909 $4,954 $3,039 $13,902
===== ===== ===== ======
Depreciation and
amortization $2,349 $1,597 $544 $4,490
===== ===== === =====
1997:
Sales $117,323 $129,865 $23,302 $270,490
======= ======= ====== =======
Operating income $4,352 $3,740 $695 $8,787
===== ===== === =====
Depreciation and
amortization $3,916 $2,658 $203 $6,777
===== ===== === =====
1996:
Sales $98,836 $40,193 $4,874 $143,903
====== ====== ===== =======
Operating income $4,193 ($175) $546 $4,564
===== === === =====
Depreciation and
amortization $2,301 $509 $ - $2,810
===== === === =====
A reconciliation of total sales for the fiscal years ended 1998, 1997, and
1996 is as follows:
1998 1997 1996
---- ---- ----
Sales:
Sales for reportable segments $323,244 $270,490 $143,903
Other sales 3,877 4,578 497
------- ------- -------
Net sales $327,121 $275,068 $144,400
======= ======= =======
F-27
FINE HOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
A reconciliation of total segment operating income to loss before income
taxes for the fiscal years ended 1998, 1997, and 1996 is as follows:
1998 1997 1996
---- ---- ----
Operating income (loss):
Operating income for reportable
segments $ 13,902 $ 8,787 $ 4,564
Other operating income (loss) 195 (163) (715)
Corporate general and
administrative expenses (23,454) (25,550) (7,532)
Special and restructuring charges (11,702) (3,784) -
Loss on asset impairment and
disposal (11,207) (6,798) -
Interest expense, net (5,077) (3,115) (2,618)
------ ------ -----
Loss before income taxes $(37,343) $(30,623) $(6,301)
====== ====== =====
The Company's foreign sales and assets are not significant.
25. Information on Supplemental Cash Flows
1998 1997 1996
---- ---- ----
Cash paid during the year for:
Interest $11,317 $1,991 $2,575
====== ===== =====
Income taxes $495 $226 $80
==== === ==
Non-cash investing and financing
activities:
Common Stock issued upon
debt conversion $1,145 $ -
===== ====
Stock warrant accretion - 1,300
===== =====
Subordinated notes issued in
conjunction with acquisitions 2,445 3,896
===== =====
Capital lease obligation incurred - 1,159
===== =====
Details of acquisitions (Note 6):
Fair value of assets acquired $71,648 $39,271
Liabilities assumed 36,547 28,870
Common Stock issued - 370
------ ------
Cash paid 35,101 10,031
Less: cash acquired 1,876 644
Net cash paid for acquisitions $33,225 $ 9,387
====== =====
26. Restatement of Financial Statements
Subsequent to the issuance of the Company's 1996 Consolidated Financial
Statements, the Company's management determined that (i) certain overhead
expenses had been improperly capitalized; (ii) insufficient reserves and
accruals had been recorded; (iii) inappropriate charges to acquisition
liabilities had been recorded; (iv) certain non-performing assets had not been
written-off; (v) improper revenue recognition had been used in regards to
certain contracts and agreements; and (vi) adjustments for the settlement of
certain terminated contracts were not recorded.
F-28
The Company filed a Current Report on Form 8-K on February 6, 1998, in
which the Company's financial statements for the years ended December 25, 1996,
December 27, 1995 and December 28, 1994 were restated from the amounts
previously reported to (i) reflect certain items previously improperly
capitalized as period costs; (ii) adjust previously recorded reserves and
accruals for certain items; (iii) expense items that had previously been charged
to inappropriately established acquisition liabilities; (iv) write-off certain
non-performing assets; (v) properly recognize revenue related to certain
contracts and agreements; and (vi) record adjustments for the settlement of
certain terminated contracts.
As further described in Note 20, the Company has been named as a defendant
in various lawsuits arising out of the Restatement.
27. Subsequent Events
See Note 2 regarding the Company's filing of a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code on January
7, 1999.
F-29
(a)(2) Financial Statement Schedules
None.
(a)(3) Exhibits
Exhibit No. Description
---------- -----------
2 Proposed Second Amended Plan of Reorganization for Debtor
Pursuant to Chapter 11 of the United States Bankruptcy
Code, dated as of March 17, 1999 and related Second
Amended Disclosure Statement.
** 3.1 Restated Certificate of Incorporation
** 3.2 Restated By-Laws
** 4.1 Specimen of Registrant's Common Stock certificate
***4.2 Indenture between the Company and The Bank of New
York, dated as of October 27, 1997, with respect to
$175,000,000 5% Convertible Subordinated Notes due 2004.
***4.3 Registration Rights Agreement, by and among the Company
and Donaldson, Lufkin & Jenrette Securities Corporation,
Nations bank Montgomery Securities, Inc., Smith Barney,
Inc. and Piper Jeffrey, Inc. dated as of October 27, 1997.
10.1 Employment Agreement, dated as of December 14, 1998, by
and among the Company and William D. Forrest.
10.2 Settlement Agreement, dated as of December 14, 1998, by
and among the Company and Gerald P. Buccino.
10.3 Separation and Consulting Agreement, dated as of January
15, 1999, by and among the Company and Randall K. Ziegler.
++++ 10.4 Separation Agreement, dated as of September 15, 1998, by
and among the Company and Catherine B. James.
++ 10.5 Form of Amended and Restated 1994 Stock Option Plan
+10.6 Form of Amended and Restated 1996 Non-Employee Director
Stock Plan
++ 10.7 Form of 1998 Annual Incentive Compensation Plan
** 10.7(a) Employment Agreement, dated as of June 30, 1995, by and
among the Company, Northwest Food Service, Inc. and
Robert F. Barney.
10.7(b) First Amendment to Employment Agreement, dated as of
July 1, 1996 by and among the Company, Northwest Food
Service,Inc. and Robert F. Barney.
+10.7(c) Second Amendment to Employment Agreement, dated as of
March 17, 1997 by and among the Company, Northwest Food
Service, Inc. and Robert F. Barney.
# 10.7(c) Third Amendment to Employment Agreement, dated as of
May 28, 1998 by and among the Company, Northwest Food
Service, Inc. and Robert F. Barney.
** 10.8 Form of Promissory Note from Richard E. Kerley to the
Company.
** 10.9 Form of Promissory Note from Randy B. Spector to the
Company.
** 10.10 Form of Promissory Note from Douglas M. Stabler to
Interlaken Capital Partners Limited Partnership.
** 10.11 Form of Registration Rights Agreement by and among the
Company and Messrs. Kerley, Spector, Ziegler and Stabler.
21 Subsidiaries
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Deloitte & Touche LLP
27 Financial Data Schedule
* Incorporated by reference to the Company's Current Report
on Form 8-K filed with the Securities and Exchange
Commission (the "Commission") on or about September 5,
1997.
** Incorporated by reference to the Registrant's
Registration Statement on Form S-1 (File No. 333-2906),
as amended, originally filed with the Commission on
March 29, 1996.
30
*** Incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended
September 24, 1997.
+ Incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended
March 26, 1997.
++ Incorporated by reference to the Registrant's Registration
Statement on Form S-1 (File No. 333-19909), as amended,
originally filed with the Commission on May 12, 1997.
+++ Incorporated by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended December 25,
1996.
++++ Incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended
September 30, 1998.
# Incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended July 1,
1998.
Certain instruments defining the rights of holders of long-term debt of the
Company have not been filed in accordance with Item 601(b)(4)(iii) of Regulation
8-K under the Securities Act. The Company hereby agrees to furnish a copy of
such instruments to the Commission upon request.
(b) Reports on Form 8-K
1. There were no reports on Form 8-K filed for the three months ended
December 30, 1998.
2. The Company filed a report on Form 8-K on January 7, 1999, under Item 5,
Other Events, stating that it had reached an agreement with a committee
representing its noteholders on a financial restructuring of the Company. The
Company also announced that, in order to implement the restructuring, it had
filed a petition for reorganization under Chapter 11 of the Bankruptcy Code
together with a plan of reorganization which embodies the terms of the
restructuring and which is supported by the noteholders' committee.
31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized in New York, New York on March 29, 1999.
FINE HOST CORPORATION
By: /s/ William D. Forrest
----------------------
Name: William D. Forrest
Title: President and Chief Executive Officer
Date: March 29, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.
Signature Title Date
- ------------------------- ---------------------------- -------------
/s/ Gerald P. Buccino Chairman of the Board March 29, 1999
- -------------------------
Gerald P. Buccino
/s/ William D. Forrest President and Chief Executive March 29, 1999
- ------------------------- Officer and Director
William D. Forrest
/s/ Richard L. Hall Senior Vice President and March 29, 1999
- ------------------------- Chief Accounting Officer and
Richard L. Hall Treasurer
(Principal Financial Officer)
/s/ Ronald E. Blaylock Director March 29, 1999
- -------------------------
Ronald E. Blaylock
/s/ J. Michael Chu Director March 29, 1999
- -------------------------
J. Michael Chu
/s/ Norman N. Habermann Director March 29, 1999
- -------------------------
Norman N. Habermann
/s/ Jack H. Nusbaum Director March 29, 1999
- -------------------------
Jack H. Nusbaum
32