UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Check One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For The Fiscal Year Ended July 1, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ___ to ___
Commission File Number: 0-22639
CHAMPPS ENTERTAINMENT, INC.
(Formerly known as Unique Casual Restaurants, Inc.)
(Exact name of registrant as specified in its charter)
Delaware 04-3370491
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5619 DTC Parkway, Suite 1000, Englewood, CO 80111
(Address of principal executive offices) (Zip Code)
303-804-1333
(Registrant's telephone number, including area code)
Securities registered pursuant to Section12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, par value $.01 per share.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers, pursuant to Item 405
of Resolution S-K is not contained herein, and will not be contained to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K: [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant based on the closing price of the Common Stock of the registrant as
quoted on the National Association of Securities Dealers Automated Quotation
System on September 20, 2001 was $59,275,853 (for purposes of calculating this
amount only, directors, officers and beneficial owners of 10% or more of the
Common Stock of the registrant may be deemed affiliates).
Number of shares of Common Stock, $.01 par value, outstanding at September 20,
2000: 12,059,858
i
DOCUMENTS INCORPORATED BY REFERENCE
The sections of the Company's definitive Proxy Statement, listed below, which
have been or will be filed by the Company with the Securities and Exchange
Commission, are incorporated in this Annual Report by reference and shall be
deemed to be a part hereof:
The Company's definitive Proxy Statement mailed in connection with its
Annual Meeting of Stockholders to be held on or about December 5, 2001
pursuant to regulation 14A, which involves the election of directors.
Cross Reference Sheet between Items of
Registrant's Proxy Statement and Form 10-K
Form 10K
Item No. Item in Form 10-K Item in Proxy Statement
PART III
10 Directors and Executive Election of Directors and Directors of
Officers of the Registrant Committees in the Company's Proxy
Statement relating to its Annual
Meeting of Stockholders to be held on
or about December 5, 2001.
11 Executive Compensation Compensation in the Company's
Proxy Statement relating to its Annual
Meeting of Stockholders to be held on
or about December 5, 2001.
12 Security Ownership of Certain Principal Stockholders in the Company's
Beneficial Owners and Proxy Statement relating to its Annual
Management Meeting of Stockholders to be held on
or about December 5, 2001.
13 Certain Relationships and
Related Transactions
Copies of all documents incorporated by reference other than exhibits to such
documents will be provided without charge to each person who receives a copy of
this Annual Report upon written request addressed to: Stockholder Relations,
Champps Entertainment, Inc., 5619 DTC Parkway, Suite 1000, Englewood, Colorado
80111.
ii
FORM 10-K INDEX
PART I
Item 1 Business 1
Item 2 Properties 12
Item 3 Legal Proceedings 12
Item 4 Submission of Matters to a Vote of Security Holders 12
PART II
Item 5 Market for the Registrant's Common Stock and Related
Stockholder Matters 13
Item 6 Selected Financial Data 13
Item 7 Management's Discussion and Analysis of Results of
Operations and Financial Condition 15
Item 7a Quantitative and Qualitative Disclosure About Market Risk 21
Item 8 Financial Statements and Supplementary Data 21
Item 9 Changes in and Disagreements with Accountants on
Accounting Financial Disclosure 21
PART III
Item 10 Directors and Executive Officers of the Registrant 22
Item 11 Executive Compensation 24
Item 12 Security Ownership of Certain Beneficial Owners and
Management 24
Item 13 Certain Relationships and Related Transactions 25
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 26
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In this report and from time to time, the Company may make certain
statements that contain "forward-looking" information. Words such as
"believe," "expect," "intend," "assume," "anticipate," "estimate,"
"project," and similar expressions are intended to identify such
forward-looking statements as are other similar expressions which
predict or indicate future events and trends and which do not relate to
historical matters.. Forward-looking statements may be made by
management, directors or employees orally or in writing, including, but
not limited to, in press releases, as part of Management's Discussion
and Analysis of Financial Condition and Results of Operations as
contained in this report and as part of other sections of this Report,
in other documents the Company files with the SEC, in the company's
annual report to shareholders, or other filings. Readers are cautioned
not to place undue reliance on these forward-looking statements, which
speak only as of their respective dates, and are subject to known and
unknown risks, uncertainties and assumptions, some of which are beyond
the control of the Company, including those set forth in the
Management's Discussion and Analysis of Financial Condition and Results
of Operations under the heading "Forward-Looking Statements." Should
one or more of these risks or uncertainties materialize, or should any
of the underlying assumptions prove incorrect, actual results of
current and future operations may vary materially from the anticipated,
estimated or projected future results and performance achievements
expressed or implied by the "forward-looking" statement.
PART I
Item 1. Business.
Champps Entertainment, Inc. (formerly known as Unique Casual Restaurants, Inc.)
(the "Company") is a Delaware corporation formed on May 27, 1997. The Company's
principal executive offices are located at 5619 DTC Parkway, Suite 1000,
Englewood, Colorado 80111, and its telephone number is (303) 804-1333.
The Company's principal subsidiary is Champps Operating Corporation, Inc. a
Minnesota corporation ("COC"). COC in turn, owns four subsidiaries, each of
which is engaged in owning and operating Champps Americana restaurants. See
Exhibit 21.1 for a complete list of the Company's subsidiaries.
The Company's principal business activity is to own, operate and franchise
Champps Americana casual dining restaurants within a single business segment.
Operations
The Champps Americana ("Champps") concept is based upon providing exceptional
food, value and service to its customers in an atmosphere that is entertaining
and energetic, yet comfortable. The food offerings at Champps' forty one
restaurants combine a wide selection of appetizers, soups, salads, entrees
including chicken, beef, fish, pasta, as well as, bi-weekly "specials,"
innovative sandwiches, burgers, and desserts. Selections reflect a variety of
ethnic and regional cuisines and traditional favorites. Because Champps' menu is
not tied to any particular type of food, Champps can introduce and eliminate
items based on current consumer trends without altering its theme. Portion sizes
are generous and each dish is attractively presented. Champps believes that
these qualities give customers a sense of value. Entree prices currently range
from $4.95 to $19.95. Champps emphasizes freshness and quality in its food
preparation. Fresh sauces, dressings, batters and mixes are prepared daily on
the premises, primarily from original ingredients using fresh produce. Champps
invests substantial time in training and testing kitchen employees to maintain
consistent food preparation. Strict food standards at Champps restaurants have
also been established to maintain quality.
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The Champps customer's experience is enhanced by the attitude and attention of
restaurant personnel. Accordingly, the Champps concept emphasizes prompt
greeting of arrivals, frequent visits to customer tables to monitor customer
satisfaction and service and an overall friendly treatment of its customers.
Service is based upon a team concept so that customers are made to feel that any
employee can help them and they are never left unattended. Success of the
Champps restaurants depends upon employee adherence to these standards. To
maintain these standards, Champps seeks to hire and train personnel who will
work in accordance with Champps' philosophy and frequently rewards individual
and restaurant achievement through several recognition programs intended to
build and maintain employee morale. All of the service personnel at each Champps
restaurant meet with the managers at two daily pre-shift motivational meetings.
Restaurant promotions, specials and quality control are all discussed and
explained during these meetings.
Champps-owned, franchised and licensed restaurants are designed and decorated in
a casual theme, although they differ somewhat from each other. Champps
restaurants generally range in size from approximately 7,000 to 12,000 square
feet. Champps' standard restaurant features a bar, open kitchen and dining on
multiple levels. Customers can also dine at the bar or on an outside patio,
where available. The spacious design facilitates efficient service and
encourages customer participation in entertainment and promotional events and
allows customers to view the kitchen, dining area, and bar. Strategically placed
wide screen televisions and monitors stimulate customer perception of activity
and contribute to the total entertainment experience and excitement of the
restaurant.
An important part of the Champps dining experience is the entertainment. Patrons
may watch one of several sporting events being broadcast, or listen to a variety
of music played by the disc jockey. The music is changed for the time of day and
season of the year. The exposed kitchen offers customers the opportunity to
observe the cooks, and, in certain locations, a discreetly located game room is
provided for arcade games. The entertainment aspects of the Champps restaurants
are designed to encourage repeat visits, increase the length of a customer's
stay and attract customers outside of normal peak hours. In addition, a variety
of creative promotions and activities are conducted such as "Champps Bingo,"
"Spring Time Big Bike Give-Away," "Cash Tornado" and Karaoke. These promotions
and activities allow for customer participation and are continually changing.
Change of the ambiance is also experienced in each restaurant when the
restaurants are decorated for the holidays. The different looks and activities
of the restaurant provide customers a different feel each time they visit, thus
encouraging repeat business. Champps sells merchandise such as T-shirts, hats
and sweatshirts bearing the Champps Americana name. Although not currently a
significant source of revenue, the sale of its merchandise is believed to be an
effective means of promoting the Champps name.
Champps restaurants are generally open from 11:00 a.m. to 1:00 a.m. seven days a
week serving lunch, dinner and late night appetizers. Most Champps restaurants
also feature a Sunday brunch. Closing times of Champps restaurants will vary
based upon local laws relative to operating hours. Sunday brunch is served
beginning at 10:00 a.m. Each Champps restaurant maintains standardized food
preparation and service manuals which are designed to enhance consistency of
operations among the restaurants. Champps attempts to have each Company owned
and franchised restaurant operate under uniform standards and specifications
which are formulated at its headquarters in Englewood, Colorado.
Management
The management staff of a Champps restaurant is divided into three areas, the
General Manager, Front-of-House Managers and Back-of-House Managers. The General
Manager has responsibility for the entire restaurant. Front-of-House management
generally consists of an associate manager, two floor managers and a bar
manager. Back-of-House management generally consists of a kitchen manager, two
to three assistant kitchen managers and a daily specials chef. The Company
encourages the promotion of General Managers from within the Company's ranks. A
detailed development path that includes a period of time as the Assistant
General Manager (Kitchen Manager) gives the General Managers the training they
need to be successful when promoted. All General Managers report directly to the
Directors of Operations. The Directors of Operations generally oversee from five
2
to seven restaurants. Managers are compensated based on salary plus a quarterly
bonus. The bonus is determined by achievement of goals in the areas of
restaurant sales, profit and service levels.
Marketing
Champps restaurants have historically expended minimal amounts on traditional
media advertising and marketing, but have relied primarily on in-restaurant
marketing and promotions. However, the company has experimented with direct mail
marketing with positive results.
Site Selection
Champps uses its own personnel and consultants to analyze markets and sites for
new restaurants, obtain the required zoning and other permits, negotiate the
leasing or real estate purchase and oversee all aspects of the construction
process. Champps believes that location is a key factor in a restaurant's
ability to operate a profitable lunch and dinner business, and considers several
demographic factors in selecting sites, including the average income of the
neighboring residential population, the proximity of retail, office and
entertainment facilities, traffic patterns and the visibility of the site.
The cost to construct a typical new Champps restaurant, where Champps purchases
real estate, depending upon its location, is approximately $4.0 to $5.0 million.
These amounts are comprised of approximately $1.0 million for furniture,
fixtures and equipment, $1.5 to $2.0 million for building and improvements and,
$1.5 to $2.0 million for land and site work.
The cost to construct a typical new Champps restaurant where Champps enters into
a leasing arrangement is approximately $2.5 to $3.0 million. These amounts are
comprised of approximately $1.0 million for furniture, fixtures and equipment
and $1.5 to $2.0 million for leasehold improvements.
Preopening expenses are approximately $0.4 million for each new restaurant.
Preopening expenses include costs incurred prior to the date of opening for
management salaries, staff wages during training and costs associated with mock
services.
Future development of Champps restaurants will be accomplished primarily through
the development of Company owned restaurants. The development of additional
restaurants is contingent upon locating satisfactory sites, obtaining financing,
negotiating satisfactory leases or, alternatively, leasing and converting
existing restaurant sites into Champps restaurants. It is also dependent upon
securing appropriate governmental permits and obtaining liquor licenses. At July
1, 2001, the Company anticipates opening four stores in the second quarter and
an additional two to four stores in the company's fourth quarter of fiscal year
2002. The Company is also in negotiations for several additional sites.
Development of Champps-owned restaurants will be concentrated in existing
markets with population density levels sufficient to support the restaurants and
new markets with consistent demographics to the Company's most successful,
existing restaurants. During fiscal 2001, four new Champps restaurants were
opened. During fiscal 2000, four new Company owned restaurants were opened and
two restaurants were acquired from a franchisee. During fiscal 1999, two new
Champps Company-owned restaurants were opened.
Franchising and Licensing
Champps has offered franchises in markets where it deems expansion to be
advantageous to the development of the Champps concept and a system of
restaurants. Pursuant to franchise agreements, franchisees are granted an
exclusive territorial license to operate a single restaurant within a specified
area. As of July 1, 2001, there are thirteen franchised restaurants, of which,
3
two franchisees are operating multiple restaurants.
The standard franchisee agreement requires a franchisee to pay an initial fee of
$75,000 per restaurant (part of which may be associated with a development fee),
a continuing royalty fee of 3 1/4% of gross sales, and may provide for a
regional and/or national advertising fee of 1/2% of gross sales at such time as
Champps establishes a regional/national advertising program. Champps has granted
both single and multi-restaurant development rights depending upon market
factors and franchisee capabilities.
All franchisees are required to operate their restaurants in accordance with
Champps' standards and specifications, including controls over menu selection,
food quality and preparation. Champps approves all restaurant site selections
and applies the same criteria used for its own restaurant sites. Champps
requires all new franchisees to provide periodic financial reports and annual
financial statements reviewed by an independent certified public accountant.
Periodic on-site inspections are conducted to assure compliance with Champps
standards and to assist franchisees with operational issues. Franchisees bear
all direct costs involved in the development, construction and operation of
their restaurants.
Disposition and Certain Other Transactions
The Company, formerly known as Unique Casual Restaurants, Inc. was formed on May
27, 1997 in connection with a spin-off to holders of the common stock of DAKA
International, Inc. ("DAKA") (the "Spin-off"). As part of the spin-off, the
Company agreed to indemnify DAKA's parent company from and against losses
incurred or relating to or arising from certain liabilities that were not
assumed by DAKA's parent company. Since the time of its formation, the Company
has entered into numerous transactions which have altered the business the
Company owns, operates and franchises, as described below.
At inception, and continuing through November 1998, the Company's principal
business activities were to own and operate the restaurant operation previously
operated by various subsidiaries and divisions of DAKA prior to the formation
and the spin-off of the Company. The restaurant operations at the time of the
Spin-off included the Company, COC, Fuddruckers, Inc. ("Fuddruckers"), the Great
Bagel & Coffee Company ("Great Bagel & Coffee"), Casual Dining Ventures, Inc.
("CDVI") and Restaurant Consulting Services, Inc. ("RCS").
On November 24, 1998, the Company completed the sale of all of the outstanding
common stock of Fuddruckers to King Cannon, Inc. In connection with the sale of
Fuddruckers, the Company made certain representations, warranties, and covenants
which survive the closing of the sale and the Company and COC are obligated to
jointly and severally indemnify King Cannon, Inc., Fuddruckers and their
respective affiliates for certain indemnifiable losses. For a period of ten
years following the closing date of the Fuddruckers sale, the Company and
Champps agree not to compete directly with Fuddruckers. The Great Bagel & Coffee
and CDVI ceased operations on June 28, 1998 and the Company sold its interest in
RCS on May 24, 1999.
On June 29, 2000, the Company acquired two Champps restaurants from existing
franchisees. Both restaurants were owned or controlled by Dean Vlahos, a former
executive and director of the Company.
Accounting
Although formed on May 27, 1997, for purposes of this Form 10-K and financial
reporting purposes, the Company has been treated as if it was a stand-alone
entity for all periods presented after giving effect to sale of the Fuddruckers'
business segment.
4
Champps Restaurant Locations
The following table sets forth the locations of restaurants operated by Champps
and its franchisees as of September 20, 2001:
Company Owned Restaurant Locations Franchised Restaurant Locations
Domestic - Total 28 Domestic - Total 13
CALIFORNIA MINNESOTA
Irvine Burnsville
COLORADO Duluth
Denver Maple Grove
FLORIDA Maplewood
Ft. Lauderdale Minneapolis
GEORGIA New Brighton
Alpharetta St. Paul
ILLINOIS Woodbury
Lombard NEBRASKA
Schaumburg Omaha
Skokie NORTH CAROLINA
INDIANA Charlotte
Indianapolis SOUTH DAKOTA
MICHIGAN Sioux Falls
Livonia WISCONSIN
Troy Milwaukee
West Bloomfield Brookfield
MINNESOTA
Eden Prairie
Minnetonka
Richfield
NEW JERSEY
Edison
Marlton
OHIO
Columbus (3)
Dayton
Lyndhurst
PENNSYLVANIA
King of Prussia
TEXAS
Addison
Houston (2)
Las Colinas
San Antonio
VIRGINIA
Reston
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Purchasing
On November 27, 2000, the Company entered into a five-year distribution
agreement with Sysco Corporation ("Sysco") pursuant to which Sysco is entitled
to distribute not less than 80% of food and food-related purchases of Champps.
The agreement with Sysco is cancelable by either party upon 60 days written
notice. There is no guarantee that if this key supplier cancels the distribution
agreement, the Company will be able to find another supplier or put a
distribution network into place that is as cost effective as Sysco. Champps
franchisees also have the option of purchasing from Sysco.
Accounting and Management Information Systems
Since its inception on May 27, 1997, the Company has provided each of its
operating segments with centralized financial and management controls through
the use of an automated data processing system and prescribed reporting
procedures. The Company continues to upgrade its computer hardware and financial
software. Restaurants forward weekly sales reports, vendor invoices, payroll
information and other operating information to the Company's corporate
headquarters. The Company utilizes this data to centrally monitor sales,
product, labor and other costs and to prepare periodic financial and management
reports. The Company believes that its centralized accounting, payroll, cash
management and information systems permit the Company to control and manage its
operations efficiently.
On May 24, 1999, the Company entered into a three year services agreement with
RCS whereby RCS agreed to provide hosting and data processing services for the
Company. Among the services provided are wide area network management, Microsoft
exchange hosting, remote local area network management, hosting of Oracle
financials, hosting of the payroll system, access to the internet, data back up
and restores and the hosting of prior financial systems of the Company which are
no longer in operation. In May 2000, Aspeon, Inc. ("Aspeon") acquired RCS and
all the rights and obligations under the services agreement. As of July 1, 2001,
Aspeon has experienced financial difficulties evidenced by a restatement of its
financials, the temporary delisting of its stock and the devaluation of its
stock from a high of $28.00 in March 2000 to a recent low of $0.25. In response
to Aspeon's financial issues, the Company is currently seeking alternative
solutions for its hosting and data processing requirements. However, if Aspeon
becomes unable to fulfill the obligations of the service agreement, there is no
guarantee that the Company will be able to find an adequate solution in time to
avoid a disruption of the Company's business. Because the Company's dependence
on its data processing systems, the large number of transactions processed and
the number of third parties with whom the Company interacts through its systems,
a failure of this service provider could result in substantial and material
impact on the Company's business, operations and financial results.
Prior to May 24, 1999, the Company owned a 50% interest in RCS. The Company also
held a promissory note from RCS due June 30, 2002, with a face value of $2.3
million and accruing interest at 6% per annum. The Company consolidated RCS
operations for fiscal 1999 and 1998, while the Company maintained 50% ownership
of RCS and held the RCS note.
On May 24, 1999, the Company sold its 50% interest in RCS to RCS for $750,000 in
cash, $142,000 in assets, primarily consisting of computer hardware and
software, the cancellation of $263,000 of payables owed by the Company to RCS,
the cancellation of certain contingent obligations under the Chief Executive
Officer's employment agreement which were valued at $280,000 and prepaid
services valued at $750,000. In conjunction with the sale, the Company cancelled
the outstanding principal and interest due under the promissory note.
Competition
The restaurant industry is highly competitive. Champps competes with other
national and international restaurant chains as well as local and regional
operations. Competition within the industry is based principally on the quality,
variety and price of food products served. Site location, quality of service and
attractiveness of facilities are also important factors for a successful
6
restaurant. The restaurant industry is affected by general economic conditions,
environmental conditions such as weather, changing tastes, population, traffic
patterns and spending habits of guests. Champps believes that their competitive
position is enhanced by providing guests with a diverse selection of menu items
served in bountiful portions at moderate prices in an upscale and entertaining
atmosphere.
The Company also believes factors such as service, cleanliness and atmosphere
are as important in a guest's dining decision as menu and food quality. In
response to this trend, the Company has provided training, education and
motivational programs for its associates to focus on providing quality service
and to sustain a sensitivity to guest needs. The Company believes that by
operating in a professional manner where each of its associates places the guest
first, Champps can win guest loyalty.
Government Regulation
The Company is subject to various federal, state and local laws affecting its
business. Its operations are subject to various health, sanitation and safety
standards, federal and state labor laws, zoning restrictions and state and local
licensing. Federal and state environmental regulations have not had a material
effect on the Company's operations to date. Champps is also subject to federal
and state laws regulating franchise operations and sales. Such laws impose
registration and disclosure requirements on franchisors in the offer and sale of
franchises, or impose substantive standards on the relationship between
franchisor and franchisee.
Champps restaurants are subject to state and local licensing and regulation with
respect to selling and serving alcoholic beverages. The sale of alcoholic
beverages accounted for approximately 33% of Champps' total restaurant sales
during fiscal year 2001 and 2000. The failure to receive or retain, or a delay
in obtaining, a liquor license in a particular location could adversely affect
Champps' or a franchisee's operation in that location. Typically, licenses must
be renewed annually and may be revoked or suspended for cause.
Champps restaurants are subject to "dram shop" statutes in certain states. These
statutes generally give a person injured by an intoxicated person the right to
recover damages from the establishment that has wrongfully served alcoholic
beverages to the intoxicated person. Champps carries liquor liability coverage
in the amount of $1.0 million per occurrence subject to a policy aggregate
limit. However, a judgment against Champps under a "dram shop" statute in excess
of Champps' liability coverage, or any inability to continue to obtain such
insurance coverage at reasonable costs, could have a material adverse effect on
the Company.
Research and Development
The Company is engaged in research activities relating to the development or
improvement of new and existing products or services. Champps utilizes its
kitchen facilities to develop recipes, test food products and equipment and set
nutritional and quality standards. Champps tests additional menu items in
various markets on an on-going basis. These tests are coordinated through the
corporate headquarters. Furthermore, the Company employs a professional support
staff and outside consultants to establish, maintain and enforce high standards
of sanitation and safety in all phases of food preparation and service. The cost
of research and development currently is not material to the Company's cost of
operations.
Service Marks
The Company, through its operating subsidiaries, has registered a number of
trademarks and service marks, in connection with providing bar and restaurant
services, with the United States Patent and Trademark Office and with certain
states, including the trade names: "Champ's," "Champps" and "Champps Americana"
(collectively, the "Marks").
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Pursuant to a Master Agreement dated February 1, 1994, whereby Champps acquired
certain "Champ's" and "Champps" service marks, trademarks and trade names from
Champs Restaurants, Inc. ("CRI"), Champps agreed to pay CRI an annual fee equal
to the lesser of approximately $260,000 or one-quarter percent (0.25%) of the
gross sales of Champps restaurants, but in no event less than $40,000. The
maximum fee payable by Champps is increased annually by the lesser of the
increase in the Consumer Price Index or 4%.
Some of the service marks, trade names and trademarks are of significant
importance to the businesses of Champps. The Company and its subsidiaries intend
to protect their service marks through registration with appropriate
governmental authorities.
Seasonality
Champps sales are historically higher in the fall, winter and spring months, due
primarily to the dining habits of its guests, the interest in athletic events at
these times of year which are featured on video walls in the Company's
restaurants and eating out trends of the general public.
Corporate Offices and Employees
The Company is incorporated under the laws of the State of Delaware. As of
September 20, 2001, the Company employs at its corporate headquarters
approximately 34 employees on a full-time basis, five of which are executive
officers. In addition, the Company employs five field-based Directors of
Operations and two field-based recruiters.
Champps Operating Corporation, Inc. is incorporated under the laws of the State
of Minnesota and employs approximately 3,800 employees on a full-time and
part-time basis. Substantially all restaurant employees, other than restaurant
management, are compensated on an hourly basis.
None of the Company's or its subsidiaries' employees are covered by collective
bargaining agreements. The Company considers its relations with its employees to
be good.
The Company maintains its present principal executive offices at 5619 DTC
Parkway, Suite 1000, Englewood, Colorado 80111. The telephone number for the
Company is (303) 804-1333.
Risk Factors
The Company May Be Unable to Sustain Profitability
The Company incurred losses in the fiscal years prior to and including 1999.
These losses resulted primarily from predecessor companies and discontinued
operations. Although the Company is now operating a single concept, Champps, we
cannot predict whether the Company will be able to achieve or sustain revenue
growth, profitability or positive cash flow in the future. Failure to achieve
these objectives may cause Champps' stock price to decline and make it difficult
to raise additional capital. See "Item 6. Selected Financial Data" and "Item 7.
Management's Discussion and Analysis of Results of Operations and Financial
Conditions" for information on the history of the Company's losses.
The Company's Business Could Be Materially Adversely Affected if the Company Is
Unable to Expand in a Timely and Profitable Manner.
To continue to grow, the Company must open new Champps restaurants on a timely
and profitable basis. The Company has experienced delays in restaurant openings
from time to time and may experience delays in the future. Delays or failures in
opening new restaurants could materially adversely affect the Company's
business, financial condition, operating results or cash flows. The Company
expanded from 14 restaurants at the end of fiscal 1997 to 28 restaurants at the
end of fiscal 2001. The Company expects to open an additional 6 to 8 restaurants
8
during fiscal 2002. The Company's ability to expand successfully will depend on
a number of factors, some of which are beyond the Company's control, including
the:
o identification and availability of suitable restaurant sites;
o competition for restaurant sites;
o negotiation of favorable leases;
o timely development in certain cases of commercial, residential, street or
highway construction near our restaurants;
o management of construction and development costs of new restaurants;
o securing of required governmental approvals and permits;
o recruitment of qualified operating personnel, particularly general managers
and kitchen managers;
o competition in new markets; and
o general economic conditions.
In addition, the Company contemplates entering new markets in which it has no
operating experience. These new markets may have different demographic
characteristics, competitive conditions, consumer tastes and discretionary
spending patterns than the Company's existing markets, which may cause the new
restaurants to be less successful in these new markets than in the existing
markets.
The Company May Not Be Able to Achieve and Manage Planned Expansion
The Company faces many business risks associated with rapidly growing companies,
including the risk that the existing management, information systems and
financial controls will be inadequate to support the planned expansion. The
Company cannot predict whether it will be able to respond on a timely basis to
all of the changing demands that the planned expansion will impose on management
and these systems and controls. If the Company fails to continue to improve
management, information systems and financial controls or encounters unexpected
difficulties during expansion, the Company's business, financial condition,
operating results or cash flows could be materially adversely affected.
Furthermore, the Company may seek to acquire the operations of other
restaurants. To do so successfully, the Company would need to identify suitable
acquisition candidates, obtain financing on acceptable terms, and negotiate
acceptable acquisition terms. Even if the Company is successful in completing
acquisitions, they may have a material adverse effect on the operating results,
particularly in the fiscal quarters immediately following the completion of an
acquisition, while the acquisition is being integrated into the Company's
operations. The Company does not currently have any definitive agreements,
arrangements or understandings regarding any particular acquisition.
The Company May be Unable to Fund Its Significant Future Capital Needs and The
Company May Need Additional Funding Sooner Than Anticipated
The Company will need capital to finance its expansion plans. Funds are required
for capital expenditures, preopening costs and potential initial operating
losses related to new restaurant openings. The Company may not be able to obtain
additional financing on acceptable terms. If adequate funds are not available,
the Company will have to curtail projected growth, which could materially
adversely affect the business, financial condition, operating results or cash
flows. Moreover, if the Company issues additional equity securities, stockholder
equity may be diluted.
The Company estimates that capital expenditures during fiscal 2002 will be
approximately $19.0 million and that capital expenditures during future years
will exceed this amount. The Company experienced cash flow from operations of
approximately $9.7 million in fiscal 2001, and approximately $5.3 million in
fiscal 2000. Although the Company expects that available borrowings, combined
with other resources, will be sufficient to fund the capital requirements
through fiscal 2002, this may not be the case. The Company may be required to
seek additional capital earlier than anticipated if:
9
o future actual cash flows from operations fail to meet expectations;
o costs and capital expenditures for new restaurant development exceed
anticipated amounts;
o the Company is unable to obtain sale-leaseback financing of certain
restaurants;
o landlord contributions, loans and other incentives are lower than expected;
o the Company is required to reduce prices to respond to competitive
pressures; or
o the Company is able to secure a greater number of attractive development
sites than currently anticipated.
See "Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition -Financial Condition and Liquidity" for a discussion of the
Company's historical and anticipated capital needs.
Fluctuations in the Company's Operating Results
The Company's operating results will fluctuate significantly because of several
factors, including the timing of new restaurant openings and related expenses,
profitability of new restaurants, increases or decreases in comparable
restaurant sales, general economic conditions, consumer confidence in the
economy, changes in consumer preferences, competitive factors and weather
conditions. As a result, the Company's operating results may fall below the
expectations of public market analysts and investors.
In the past, the Company's preopening costs have varied significantly from
quarter to quarter primarily due to the timing of restaurant openings. The
Company typically incurs most preopening costs for a new restaurant within the
two months immediately preceding, and the month of the restaurant's opening. In
addition, the labor and operating costs for a newly opened restaurant during the
first three to six months of operation are materially greater than what can be
expected after that time, both in aggregate dollars and as a percentage of
restaurant sales. Accordingly, the volume and timing of new restaurant openings
in any quarter has had and is expected to continue to have a significant impact
on quarterly preopening costs and labor and direct and occupancy costs. Due to
these factors, results for a quarter may not indicate results to be expected for
any other quarter or for a full fiscal year. See "Item 7. Management's
Discussion and Analysis of Results of Operations and Financial Condition"
Because of the Company's Small Restaurant Base, the Operating Results Could Be
Materially Adversely Affected By the Negative Performance of a Small Number of
Restaurants
The Company currently ownes and operates 28 restaurants. Due to the small
restaurant base, poor operating results at any one or more restaurants could
materially adversely affect the Company's business, financial condition,
operating results or cash flows. The operating results achieved to date may not
be indicative of the Company's future operating results with a larger number of
restaurants. Furthermore, a history of operating losses at a restaurant could
result in a charge for impairment of assets. See note 5 to the audited
consolidated financial statements for a discussion of the asset impairment
criteria.
Increased Food Costs Could Materially Adversely Affect the Operating Results
The Company's profitability depends in part on the Company's ability to
anticipate and react to changes in food costs. The Company relies on the
distributor, a national food distributor, as the primary distributor of its
food. Although the Company believes that alternative distribution sources are
available, any increase in distribution prices, failure to perform by the
distributor or the cancellation of the 5-year distribution agreement could cause
the food costs to increase. Further, various factors beyond the Company's
control, including adverse weather conditions, farm animal diseases,
governmental regulation or war may affect food costs. The Company cannot predict
whether it will be able to anticipate and react to changing food costs by
adjusting purchasing practices and menu prices, and a failure to do so could
materially adversely affect the Company's business, financial condition,
operating results or cash flows.
10
Changes in Consumer Preferences or Discretionary Consumer Spending Could
Negatively Impact the Operating Results
The Company's continued success depends, in part, upon the popularity of the
menu items served in the Champps environment and our dining style. Shifts in
consumer preferences away from our cuisine or dining style could materially
adversely affect future profitability. Also, the Company's success depends to a
significant extent on numerous factors affecting discretionary consumer
spending, including economic conditions, disposable consumer income and consumer
confidence. Adverse changes in these factors could reduce guest traffic or
impose practical limits on pricing, either of which could materially adversely
affect the Company's business, financial condition, operating results or cash
flows.
The Company May Be Unable to Compete With Larger, Better Established Competitors
The restaurant industry is highly competitive. Due to the Company's limited
financial resources and operating history, the Company may be unable to compete
effectively with larger, better established competitors, which have
substantially greater financial resources and operating histories than the
Company do. The Company will likely face direct competition with these
competitors in each of the markets the Company enter. See "Item 1.
Business--Competition" for a discussion of the competition the Company face.
The Company Could Face Potential Labor Shortages
The Company's success depends in part upon its ability to attract, motivate and
retain a sufficient number of qualified employees, including restaurant
managers, kitchen staff and wait staff, necessary to keep pace with its
expansion schedule. Qualified individuals needed to fill these positions are in
short supply in certain areas, and the inability to recruit and retain such
individuals may delay the planned openings of new restaurants or result in high
employee turnover in existing restaurants which could have a material adverse
effect on the Company's business, financial condition, operating results or cash
flows. Additionally, competition for qualified employees could require us to pay
higher wages to attract sufficient employees, which could result in higher labor
costs.
The Company's Operations Depend on Governmental Licenses and the Company May
Face Liability Under Dram Shop Statutes
The Company's business depends on obtaining and maintaining required food
service and liquor licenses for each of its restaurants. If the Company fails to
hold all necessary licenses, the Company may be forced to delay or cancel new
restaurant openings and close or reduce operations at existing locations. In
addition, the sale of alcoholic beverages subjects us to "dram shop" statutes in
some states. These statutes allow an injured person to recover damages from an
establishment that served alcoholic beverages to an intoxicated person. If the
Company receives a judgment substantially in excess of its insurance coverage,
or if the Company fails to maintain its insurance coverage, the business,
financial condition, operating results or cash flows could be materially and
adversely affected. See "Item 1. Business - Government Regulation" for a
discussion of the regulations the Company must comply with.
Complaints or Litigation from Guests May Materially Adversely Affect Us
The Company is from time to time the subject of complaints or litigation from
guests alleging illness, injury or other food quality, health or operational
concerns. Adverse publicity resulting from these allegations may materially
adversely affect the company and its restaurants, regardless of whether the
allegations are valid or whether Champps is liable. These claims may divert
financial and management resources that would otherwise be used to benefit the
future performance of the Company's operations.
11
The Company's business may be adversely affected by acts of war and terrorism
The terrorist attacks on New York and Washington, D.C on September 11, 2001 may
have a variety of adverse effects on business, financial and general economic
conditions. At this time, however, management is not able to predict the nature,
extent and duration of these effects on the Company's business and finances.
Item 2. Properties.
As of July 1, 2001, the Company leased approximately 7,500 square feet of office
space at its corporate headquarters in Englewood, Colorado, at an average annual
rent of $165,000, through May 2003. The Company has an optional renewal period
of three years. The rent expense during the renewal period will be the
prevailing market rate at the time of the renewal. See "Item 1. Business -
Champps Restaurant Locations" for a listing of the Company's owned and
franchised restaurant locations.
Item 3. Legal Proceedings.
The Company assumed certain contingent liabilities of DAKA, and its subsidiary,
Daka, Inc. ("Daka") in connection with the Spin-off and agreed to assume certain
contingent liabilities of Fuddruckers for periods prior to its sale to King
Cannon, see "Disposition Transactions" in this Form 10-K. Further, the Company
is also engaged in various other actions arising in the ordinary course of
business. The Company believes, based upon consultation with legal counsel, that
the ultimate collective outcome of these other matters will not have a material
adverse effect on the Company's consolidated financial condition, results of
operations or cash flows. See Item 1, "Business - Disposition and Certain Other
Transactions ".
In the third quarter of fiscal 2000, a Washington, D.C. superior court jury
awarded a former Daka employee $187,000 in compensatory damages and $4.8 million
in punitive damages based on the employee's claim of negligent supervision and
retaliation, due to alleged conduct that occurred in 1996 at a former Daka food
service location. While Daka is now a subsidiary of Compass Group, PLC, the
events at issue in the case took place while a predecessor company of Champps
owned Daka. On March 28, 2000, Daka filed post-trial motions, including motions
to reduce the damage awards, for judgment not withstanding the verdict, or in
the alternate, for a new trial. These motions were subsequently denied by the
court. On September 20, 2000, Daka filed a Notice of Appeal with the Court of
Appeals for the District of Columbia. The Company may be liable for the payment
of any amounts ultimately due by Daka upon final determination of the appeal.
The Company is of the opinion that the ultimate outcome of this matter will not
have a material adverse effect on the Company's financial position, results of
operations or cash flows.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted by the Company to a vote of Stockholders,
through the solicitation of proxies or otherwise, during the fourth quarter of
the fiscal year for which this report is filed.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
12
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters.
The Company's common stock originally was listed on the NASDAQ National Market
("Nasdaq") under the symbol "UNIQ" from July 17, 1997, the date on which the
Company became a publicly traded company as a result of its spin-off from DAKA,
through July 28, 1999. On July 28, 1999, the Company changed its name from
Unique Casual Restaurants, Inc. to Champps Entertainment, Inc. and changed its
symbol on Nasdaq to "CMPP." The table below sets forth, since such date and for
the fiscal periods indicated, the high and low intra-day sales price per share
with respect to fiscal 2000 and 2001 of the Common Stock as reported on the
Nasdaq.
High Low
------ ------
Fiscal 2000
First Fiscal Quarter $ 4.00 $ 2.00
Second Fiscal Quarter 3.63 1.88
Third Fiscal Quarter 4.50 2.63
Fourth Fiscal Quarter 5.88 3.44
Fiscal 2001
First Fiscal Quarter 6.50 4.38
Second Fiscal Quarter 9.38 4.31
Third Fiscal Quarter 9.00 6.63
Fourth Fiscal Quarter 10.41 6.51
On September 20, 2001, there were 2,515 holders of record of the Company's
Common Stock.
The Company has never paid cash dividends on shares of its Common Stock and does
not expect to pay dividends in the foreseeable future. The Company presently has
no plans to buy back shares of the Company Common Stock in the open market.
Item 6. Selected Financial Data.
SELECTED FINANCIAL DATA
The following table presents selected consolidated data from continuing
operations and balance sheet data of the Company. Data for 1999 and earlier
periods have been restated to account for the Company's Fuddruckers segment as a
discontinued operation. The balance sheet data as of July 1, 2001, July 2, 2000,
June 27, 1999, June 28, 1998 and June 29, 1997 and the statements of operations
data for each of the five fiscal years in the period ended July 1, 2001
presented below are derived from the Company's audited consolidated financial
statements.
For purposes of this Form 10-K and financial reporting purposes, the Company has
been treated as if it was a stand-alone entity for all periods presented. The
Company's results from continuing and discontinued operations, as presented in
the table below for periods prior to July 17, 1997, include allocations and
estimates of certain expenses, including corporate accounting, tax, cash
management, information technology, legal, risk management, purchasing and human
resources, historically provided to the Company by DAKA International.
13
Certain amounts have been reclassified for fiscal 2000 and earlier periods to
conform to fiscal 2001 presentation. The reclassifications have no impact on net
income (loss), earnings (loss) per share or balance sheet data. Fiscal 1998 and
1997 include activity from the discontinued subsidiaries Specialty Concepts,
Inc. and Casual Dining Ventures, Inc. and the subsidiaries of Casual Dining
Ventures, Inc. During fiscal 1998 and 1997, revenues from these discontinued
subsidiaries were $3.7 million and $5.9 million, respectively.
The selected consolidated financial data should be read in conjunction with the
consolidated financial statements and related notes thereto of the Company and
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" included elsewhere in this Annual Report on Form 10-K.
Amounts are in thousands except per share data.
As of and for the Fiscal Years Ended
---------------------------------------------------------
July 1, July 2, June 27, June 28, June 29,
2001 2000 1999 1998 1997
-------- -------- --------- --------- ---------
Statements of Operations Data:
Total Revenues 133,316 109,445 88,286 78,008 64,647
Income (loss) from continuing operations before cumulative
effect of change in accounting for preopening costs 5,721 2,350 (14,079) (5,999) (27,389)
Net Income (loss) 13,537 2,273 (23,922) (27,735) (39,043)
Basic Income (loss) per share from continuing operations 1.14 0.20 (1.21) (0.52)
Proforma basic (loss) per share from continuing operations (2.40)
Diluted Income (loss) per share from continuing operations 1.10 0.19 (1.21) (0.52)
Proforma diluted (loss) per share from continuing operations (2.40)
Basic weighted average shares (in thousands):
Historical 11,871 11,654 11,622 11,489
Proforma 11,426
Diluted weighted average shares (in thousands):
Historical 12,363 11,742 11,622 11,489
Proforma 11,426
Balance Sheet Data:
Total assets 79,458 67,093 57,142 86,660 110,267
Long-term debt related to continuing operations,
including current portion 17,093 19,324 6,157 6,945 4,256
Total equity 44,616 30,122 27,819 50,398 79,053
Discontinued operations:
Minority interest and obligations under put agreement
related to the discontinued operations - - - 5,400 1,100
Net long-term assets - - - 44,335 65,307
Net current liabilities - - - (4,202) (6,492)
14
Item 7. Management's Discussion and Analysis of Results of Operations
and Financial Condition.
General
As of September 20, 2001, Champps Entertainment, Inc. operated 28 Company owned
upscale, high volume, casual dining restaurants under the names of Champps
Americana and Champps Restaurants. The Company also franchises 13 restaurants
under the name of Champps Americana.
The Company's revenues consist primarily of sales from our restaurant
operations. Comparable restaurant sales include the sales of restaurants open
for the entire month in the period which they become eligible for inclusion in
the calculation. New restaurants are eligible for inclusion in the comparable
sales base in their fifteenth month of operation.
The Company utilizes a 52/53 week fiscal year ending on the Sunday closest to
June 30th for financial reporting purposes. The Company's fiscal years ended
July 1, 2001, July 2, 2000 and June 27, 1999, are referred to as 2001, 2000, and
1999, respectively. Fiscal 2000 contained 53 weeks. Fiscal 2001 and 1999 each
contain 52 weeks.
Forward-Looking Statements
Except for the historical information contained herein, the matters discussed in
the following Management's Discussion and Analysis of Results of Operations and
Financial Condition of the Company and elsewhere in this Annual Report on Form
10-K are forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. Words such as "believe,"
"expect," "anticipate," "intend," "assume," "estimate," "project," and similar
expressions which predict or indicate future events and trends are intended to
identify such forward-looking statements. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of their
respective dates. Forward-looking statements involve known and unknown risks and
uncertainties, many of which may be beyond the Company's control. Should one or
more of these risks or uncertainties materialize, or should any of the
underlying assumptions prove incorrect, actual results of current and future
operations may vary materially from those anticipated, estimated or projected by
the forward-looking statements. Factors that may cause such a difference
include, among others, the following: the ability of the Company to successfully
implement strategies to improve overall profitability; the impact of increasing
competition in the casual and upscale casual dining segments of the restaurant
industry; changes in general economic conditions which impact consumer spending
for restaurant occasions; the impact of the World Trade Center terrorist attack
and its impact on consumer confidence and the economy; adverse weather
conditions; competition among restaurant companies for attractive sites and
unforeseen events which increase the cost to develop and/or delay the
development and opening of new restaurants; increases in the costs of product,
labor, and other resources necessary to operate the restaurants; unforeseen
difficulties in integrating acquired businesses; the ability of the Company to
obtain a satisfactory solution regarding the Company's data processing and
computer hosting requirements; the availability and terms of financing for the
Company and any changes to that financing; the ultimate outcome of certain
contingent obligations related to the Company's former Fuddruckers segment and
its other predecessor businesses; the issuance and renewal of licenses and
permits for restaurant development and operations, including the sale of
alcoholic beverages; and the amount of, and any changes to, tax rates. You
should carefully review all of these factors, and you should be aware that there
may be other factors that could cause differences. These forward-looking
statements were based on information, plans and estimates as of the date of this
report. The Company undertakes no obligation to publicly update any
forward-looking statements to reflect changes in underlying assumptions or
factors whether as a result of new information, future events or other changes.
15
RESULTS OF OPERATIONS
Overview
The Company reported a net income of $13.5 million for the fiscal year ended
July 1, 2001, compared to a net income of $2.3 million last year. Pretax income
for fiscal 2001 was $5.6 million after an increase ($0.6 million) to reserves
for additional anticipated legal and other expenses related to litigation
involving predecessor companies that were either spun-off or sold prior to
fiscal 1999, compared to $2.4 million last year. Net income also includes a net
tax benefit of $7.9 million resulting from a reassessment of the expected tax
benefits the Company will realize in fiscal 2001 and future years from its net
operating loss carryforward. The Company reported a profit from continuing
operations of $5.7 million for fiscal 2001. While the Company believes its
strategies will continue to produce overall profitability, there can be no
assurance that such strategies will continue to be successful. Accordingly, the
Company may again incur operating losses. To sustain profitability, the Company
must, among other things, manage, within acceptable parameters, contingencies
associated with its former businesses including Fuddruckers, its former food
service and Great Bagel and Coffee businesses, continue to reduce selling,
general and administrative expenses as a percentage of sales while continuing to
increase net revenues from its restaurants and successfully executing its growth
strategy for the Champps Americana concept.
See "Item 1. Business" for a discussion of events in fiscal 2001 and 2000 that,
in part, will shape the future direction of the Company.
The Company's Champps Americana restaurant chain is in the expansion phase. The
timing of revenues and expenses associated with the opening of new restaurants
are expected to result in fluctuations in the Company's quarterly and annual
results. In addition, the Company's results, and the results of the restaurant
industry as a whole, may be adversely affected by changes in consumer tastes,
discretionary spending priorities, national, regional or local economic
conditions, demographic trends, consumer confidence in the economy, traffic
patterns, weather conditions, employee availability and the type, number and
location of competing restaurants. Changes in any of these factors could
adversely affect the Company.
Among other factors, the success of the Company's business and its operating
results are dependent upon its ability to anticipate and react to changes in
food and liquor costs and, particularly for Champps Americana restaurants, the
mix between food and liquor revenues. Various factors beyond the Company's
control, such as adverse weather changes, may affect food costs and increases in
federal, state and local taxes may affect liquor costs. While in the past, the
Company has been able to manage its exposure to the risk of increasing food and
liquor costs through certain purchasing practices, menu changes and price
adjustments, there can be no assurance that the Company will be able to do so in
the future or that changes in its sales mix or its overall buying power will not
adversely affect the Company's results of operations.
Notwithstanding these risks, the Company believes that its near-term strategies,
including, but not limited to, continued expansion of Champps, improved
operational excellence, anticipated continued lower general and administrative
expenses from actions taken since June 27, 1999, the effects of the Spin-off,
the Fuddruckers Sale, the consolidation of corporate headquarters, the sale of
non-essential assets and businesses, and other related transactions, should
provide the opportunity for increased profitability.
16
Champps
The following table sets forth certain financial information for Champps.
(in thousands)
2001 2000 1999
------------ ------------- -------------
Restaurant sales $ 132,672 $ 108,643 $ 87,728
============ ============= =============
Sales from Champps restaurants 100.0% 100.0% 100.0%
Operating Expenses:
Labor costs (31.6) (33.0) (33.9)
Product costs (28.9) (28.9) (29.3)
Other Operating Expense (15.0) (15.0) (15.8)
Occupancy (8.1) (8.7) (9.5)
Depreciation and amortization (4.2) (3.7) (3.9)
------------ ------------- -------------
Restaurant unit contribution 12.2% 10.7% 7.6%
============ ============= =============
Restaurant unit contribution $ 16,156 $ 11,587 $ 6,703
Preopening expense (1,470) (1,462) (1,164)
Franchising and royalty income 644 802 558
------------ ------------- -------------
Restaurant unit, franchising and royalty contribution $ 15,330 $ 10,927 $ 6,097
============ ============= =============
Certain amounts have been reclassified for fiscal year 2000 and earlier to
conform to fiscal year 2001 presentation.
Comparison of Fiscal Years Ended July 1, 2001 and July 2, 2000
Sales in Company-owned restaurants increased approximately $24.1 million, or
22.2%, to $132.7 million for fiscal 2001, compared with $108.6 million for
fiscal 2000. The increase reflects both an increase in the number of
Company-owned restaurants open between years, and an increase in same store
sales. The Company opened four new restaurants in fiscal 2001. Same store sales
increased approximately 0.2% in fiscal 2001.
Restaurant unit contribution prior to preopening expenses of $16.2 million for
fiscal 2001 was up 39.7% from $11.6 million in fiscal 2000. The restaurant unit
contribution margin increased to 12.2% for fiscal 2001 from 10.7% in fiscal
2000. Margin improvements were made in labor cost and occupancy cost while
depreciation and amortization expenses were higher due to the number of new
restaurants added during fiscal 2001. Product costs and other operating expenses
were the same percent of sales in fiscal 2001 and 2000.
Labor costs increased $6.1 million to $41.9 million for fiscal 2001 from $35.8
million in fiscal 2000. Labor cost as a percent of restaurant sales improved
1.4% to 31.6% for fiscal 2001 from 33.0% in fiscal 2000. Improvements resulted
primarily from a menu reengineering which resulted in improved efficiencies for
the back of the house staff. In addition, taxes and benefits associated with
wages improved primarily from lower than anticipated health care costs.
Product costs increased $6.9 million to $38.3 million for fiscal 2001 from $31.4
million in fiscal 2000. Product costs as a percent of restaurant sales remained
the same 28.9% in fiscal 2001 and 2000. During April, 2001 a 1% price increase
was implemented to offset increasing costs in beef.
17
Other operating expenses consist primarily of restaurant-level expenses for
utilities, marketing expenses, repairs and maintenance and supplies such as
tableware, cleaning and paper supplies. Other operating expenses increased $3.8
million to $20.1 million for fiscal 2001 from $16.3 million in fiscal 2000.
Other operating expenses as a percent of restaurant sales remained the same
15.0% in fiscal 2001 and 2000. Despite higher utility costs for the year,
improvements in marketing expense and direct operating expenses offset the
increase in utilities.
Occupancy expenses increased $1.3 million to $10.7 million for fiscal 2001 from
$9.4 million in fiscal 2000. Occupancy expense as a percent of restaurant sales
improved 0.6% to 8.1% for fiscal 2001 from 8.7% in fiscal 2000. Improvements
resulted primarily from an improvement in insurance expenses. In addition, the
increased sales volume relative to fixed rent had an impact of lowering the
expense relative to sales.
Depreciation and amortization expense increased $1.4 million to $5.5 million for
fiscal 2001 from $4.1 million in fiscal 2000. Depreciation and amortization
expense as a percent of restaurant sales increased 0.5% to 4.2% for fiscal 2001
from 3.7% in fiscal 2000. This increase was primarily the result of additional
depreciation on capital expenditures for an increasing number of restaurants.
Preopening expenses were approximately $1.5 million in fiscal 2001 and in fiscal
2000. The Company opened four new stores in both fiscal 2000 and 2001. In fiscal
2000, the Company also acquired two restaurants from an existing franchisee
which incurred minimal preopening expenses. Preopening expenses have
historically been approximately $0.4 million per location.
Comparison of Fiscal Years Ended July 2, 2000 and June 27, 1999
Sales in Company-owned restaurants increased approximately $20.9 million, or
23.8%, to $108.6 million for fiscal 2000, compared with $87.7 million for fiscal
1999. The increase reflects both an increase in the number of Company-owned
restaurants open between years and an increase in same store sales. The Company
opened four new restaurants in fiscal 2000. Same store sales increased
approximately 4.7% in fiscal 2000.
Restaurant unit contribution prior to preopening expenses of $11.6 million for
fiscal 2000 was up 73.1% from $6.7 million in fiscal 1999. The restaurant unit
contribution margin increased to 10.7% for fiscal 2000 from 7.6% in fiscal 1999.
Improvements were made in all expense categories.
Preopening expenses were approximately $1.5 million in fiscal 2000, compared
with $1.2 million in fiscal 1999. This increase relates primarily to the number
of units opened, the timing of construction, and construction in progress
between years. Preopening expenses have historically been approximately $0.4
million per location.
General and Administrative Expenses
Comparison of Fiscal Year Ended July 1, 2001 and July 2, 2000
General and administrative expenses from continuing operations were
approximately $7.7 million for fiscal 2001, compared with approximately $6.8
million in fiscal 2000. General and administrative expense as a percent of
revenues of 5.8% for fiscal 2001 improved 0.4% from 6.2% in fiscal 2000.
General and administrative expenses included a number of one time only expenses
in fiscal 2001 that are not anticipated to occur again. Included in these
expenses are litigation expenses relative to arbitration hearings and liquor
violations at one of the Champps restaurants. These litigation expenses were
approximately $0.6 million in fiscal 2001.
18
Comparison of Fiscal Year Ended July 1, 2000 and June 27, 1999
General and administrative expenses from continuing operations were
approximately $6.8 million for fiscal 2000, compared with approximately $19.0
million in fiscal 1999. In fiscal 2000, there were no unusual expenses impacting
general and administrative expenses.
In fiscal 1999, general and administrative expenses include losses of $2.7
million of the sale of non-essential assets, $2.7 million in charges related to
predecessor businesses and $2.3 million of the total $2.7 million in losses on
business and lease contracts. Exclusive of these costs, general and
administrative expenses for 1999 would have been $11.3 million. General and
administrative expenses, excluding unusual items have decreased from $11.3
million in fiscal 1999 to $6.8 million for fiscal 2000. The decrease is
primarily the result of consolidation of the Company's former offices in
Massachusetts and Minnesota into one office based in Englewood, Colorado.
Income Taxes
For fiscal year 2001, the Company recorded a benefit for income taxes of $7.9
million primarily related to the reversal of a portion of the valuation
allowance against the Company's net deferred tax assets. The change in the
valuation allowance is due to management's determination that the Company will,
more likely than not, be able to realize certain of those net deferred tax
assets through the generation of income in future periods. Net deferred tax
assets at July 1, 2001, after valuation allowances were $8.1 million. Net
deferred tax assets consist primarily of net operating loss and other credit
carryforwards that may be used to offset taxable income in future periods. As of
July 1, 2001, the Company had Federal net operating loss carryforwards of
approximately $59.0 million, expiring at various dates through 2020. Also during
fiscal 2001, management determined that the utilization of such loss
carryforwards would not be limited by provisions of the Internal Revenue Code as
had been previously expected. The Company recorded a provision for state taxes
of $260,000 for the year ended July 1, 2001.
Inflation
The impact of inflation and changing prices has had no material impact on net
sales and revenue or income from continuing operations during the last three
years.
Year 2000 Compliance
The statements in the following section include "Year 2000 Readiness Disclosure"
within the meaning of the year 2000 Information and Readiness Disclosure Act.
The Company has experienced no material Year 2000-date related disruptions or
other significant problems. The Company has made no additional expenditures
relative to the Year 2000 in fiscal 2001. Based on currently available
information, management continues to believe that Year 2000-date related
disruptions or other problems, if any, will not have a significant adverse
impact on its operational results or financial condition. As of July 1, 2001,
the Company is anticipating no further expenditures relative to the Year 2000
issue.
FINANCIAL CONDITION AND LIQUIDITY
The working capital needs of companies engaged in the restaurant industry are
generally low as sales are made for cash, and purchases of food and supplies and
other operating expenses are generally paid in 30 to 60 days after receipt of
invoices and labor costs are paid bi-weekly. Capital expenditures for expansion
during 2001, 2000 and 1999 were generally provided through cash balances
(including in fiscal 1999 a portion of the proceeds from the sale of
Fuddruckers) and standard restaurant financing methods including sale-leaseback
transactions, mortgage facilities, tenant improvement allowances and equipment
19
financings. Capital expenditures for the purchase of property and equipment were
$14.5 million, $13.9 million and $10.4 million for continuing operations,
respectively, for 2001, 2000 and 1999.
At the end of fiscal 2001, the Company's unrestricted cash was $1.3 million and
restricted cash was $0.8 million. The Company anticipates that it will continue
to generate positive cash flow in fiscal 2002; however, there are also
significant cash expenditures anticipated during the forthcoming year related to
the opening of new restaurants and the renovation and remodeling of existing
restaurants.
During fiscal 2001, the Company generated cash flows from operating activities
of $9.7 million. During the same period, the Company received financings of $5.1
million associated primarily with the sale leaseback of its Las Colinas, Texas
restaurant for $3.1 million; a one store equipment lease for $0.9 million; and
landlord contributions in the form of a tenant improvement allowances together
with a note payable totaling $1.2 million. The Company also received $0.5
million from the sale of a former Fuddrucker's restaurant location.
During fiscal 2001, the Company opened four restaurants: the Las Colinas, Texas
restaurant opened July 24, 2000; the Skokie, Illinois restaurant opened May 24,
2001; the Willowbrook, Texas restaurant opened June 26, 2001; and, the King of
Prussia, Pennsylvania restaurant opened June 28, 2001. Total capital
expenditures for new restaurants during fiscal 2001 were approximately $12.2
million. Capital expenditures for repairs and remodels to existing restaurants
were approximately $2.3 million.
During fiscal 2002, the Company has commitments and anticipates the receipt of
$1.8 million from an equipment lease and tenant improvement allowances of
approximately $2.6 million for restaurants opened as of July 1, 2001.
During fiscal 2002, the company anticipates opening six to eight additional
restaurants. New restaurants in Indianapolis, Indiana, Pentagon City, Virginia,
Utica, Michigan and Columbia, Maryland are anticipated to open in the second
quarter of 2002. The Company anticipates receiving tenant improvement allowances
of approximately $2.5 million for three of these restaurants while the
construction of the fourth restaurant will be financed by AEI and leased to
Champps. AEI is a real estate investment trust. The Company currently leases
eight restaurants from AEI or its limited partnerships. The Company anticipates
opening two to four restaurants in the fourth quarter of fiscal 2002. Currently,
the Company has an executed contract for two restaurants to be located in
Denver, Colorado and Durham, North Carolina. Both restaurants are expected to
open in the fourth quarter of fiscal 2002. Additional sites are currently
identified for Champps restaurants and contracts are being negotiated.
Anticipated in fiscal 2002 are capital expenditures of approximately $19.0
million, primarily for new restaurants and standard remodeling and upgrades in
existing restaurants. These expenditures will be funded through cash flow from
existing operations, and through tenant improvement allowances as well as
equipment leases associated with new restaurants. The Company is anticipating
the receipt of tenant improvement allowances to off-set these capital
expenditures in the amount of $8.6 million in fiscal 2002. As of September 20,
2001, the Company has received $1.3 million of the anticipated tenant
improvement allowances. The Company has signed contracts for $5.8 million
additional tenant improvement allowances. And, the Company is anticipating $1.5
million of additional tenant improvement allowances by the end of fiscal 2002.
The Company also has a commitment for a $5.0 million loan collateralized by
assets of the Company. This commitment is subject to various pre-closing
conditions and there can be no assurances that the financing will be available
on the terms currently anticipated or at all.
It is also anticipated that there will be substantial cash payments in fiscal
2002 associated with liabilities previously recorded in fiscal 1998 and 1999
related to the Spin-off Transaction and Fuddruckers Sale transactions. Included
in these cash payments, the Company anticipates that there will be payments for
prior year insurance claims, tax audits and legal settlements. During fiscal
2001, the Company made payments of $2,739 to reduce these liabilities.
Anticipated expenditures are estimated to range between $1.5 million to $2.0
million for fiscal 2002. Remaining amounts are anticipated to be paid in fiscal
2003.
20
The impact of inflation and changing prices has had no material impact on net
sales and revenue or income from continuing operations during the last three
years.
Item 7A. Quantitative and Qualitative Market Risk Disclosures
The market risk exposure inherent in the Company's financial instruments and
consolidated financial position represents the potential losses arising from
adverse changes in interest rates. The Company is exposed to such interest rate
risk primarily in its significant investment in cash and cash equivalents and
the use of fixed and variable rate debt to fund its acquisitions of property and
equipment in past years and the implicit interest rates in the Company's
sale-leaseback arrangements.
Market risk for cash and cash equivalents and fixed rate borrowings is estimated
as the potential change in the fair value of the assets or obligations resulting
from a hypothetical ten percent adverse change in interest rates, which would
not have been significant to the Company's financial position or results of
operations during fiscal 2001. The effect of a similar hypothetical change in
interest rates on the Company's variable rate debt and the investment rates
implicit in the Company's sale-leaseback arrangements also would have been
insignificant due to the immaterial amounts of borrowings outstanding under the
Company's credit arrangements. For additional information about the Company's
financial instruments and these financing arrangements, see "Notes to
Consolidated Financial Statements".
Item 8. Financial Statements and Supplementary Data.
The information required under this Item 8 is set forth on pages F-1 through
F-25 of this Report.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
None.
[Remainder of page left intentionally blank]
21
PART III
Item 10. Directors and Executive Officers of the Registrant.
Directors of the Registrant
Incumbent Directors
The following table sets forth certain information regarding current members of
the Board of Directors:
Principal Director Expiration
Name Age Occupation Since of Term Class
----------------------------- ------ ------------------------------------- -------------- ------------- ---------
William H. Baumhauer 53 Chairman, President and Chief June 1999 2001 II
Executive Officer of the Company
Timothy R. Barakett 36 Chairman of Atticus Capital, L.L.C. March 1999 2002 I
James Goodwin 45 Independent Consultant March 1999 2002 I
Nathaniel P.J.V. Rothschild 30 President of Atticus Capital, L.L.C. August 1999 2001 II
Alan D. Schwartz 51 Senior Managing Director of May 1997 2002 III
Corporate Finance for Bear,
Stearns & Co., Inc.
Stephen F. Edwards 38 Partner May 2001 2002 III
Bruckman, Rosser, Sherrill
& Co., LLC
The name, age and principal occupation during the past five years and other
information concerning each director are set forth below:
William H. Baumhauer, 53, has served as a Director and Chairman of the Board of
Directors since August 23, 1999, and as President and Chief Executive Officer
since June 24, 1999. Mr. Baumhauer also held these positions with the Company or
its predecessors from September 1988 until July 24, 1998, when he left the
Company to serve as President and Chief Operating Officer of Planet Hollywood
International, Inc., a position he held until his return to the Company on June
24, 1999. Subsequent to his return to the Company, on October 12, 1999, Planet
Hollywood filed for protection under Chapter 11 of the U.S. Bankruptcy Code.
Timothy R. Barakett, 36, has been the Chairman and Managing Member of Atticus
Capital, L.L.C., a private investment management company and an affiliate of
Atticus Partners, since October 1995. He also serves as the Managing Member of
Atticus Holdings, LLC, a Delaware limited liability company and as the Chairman
and Chief Executive Officer of Atticus Management, Ltd., an international
business company and structured under the laws of the British Virgin Islands.
From June 1993 until March 1995, Mr. Barakett was a Managing Director and
General Partner at Junction Advisors, Inc. a private investment management
company. Mr. Barakett also serves as a director of RIT Capital Partners plc.,
and Groupe Andre, SA.
22
James Goodwin, 45, has been a private investor since 1998. From 1990 until
February 1998, Mr. Goodwin was a Managing Director at Gleacher Natwest, Inc., an
investment banking company. Mr. Goodwin also serves as a Director for Kiewet
Materials Company located in Omaha, Nebraska.
Nathaniel P.V.J. Rothschild, 30, has been President of Atticus Capital, L.L.C.,
a private investment management company, since January 2000 and a member since
March 1996. Since April 2000, Mr. Rothschild has been serving as the Chairman
and Director of Groupe Andre, S.A. From April 1997 to January 1999, Mr.
Rothschild was a Vice President of Atticus Management (Bermuda) Ltd. From March
1995 to March 1996 was a Financial Analyst at Gleacher Natwest, Inc., an
investment banking company and prior to that time, he was a financial analyst
with Lazard Brother & Co., Ltd. In London..
Alan D. Schwartz, 51, has served as a Director of the Company or its
predecessors since September 1988 and served as a Director of Fuddruckers, Inc.
from September 1984 until its merger with DAKA in 1988. Mr. Schwartz is Senior
Managing Director-Corporate Finance of Bear, Stearns & Co., Inc., and a Director
of its parent The Bear Stearns Companies, Inc. He has been associated with such
investment banking firms for more than five years. Mr. Schwartz is also a
Director of Young & Rubicam, Inc., Atwood Richards, Inc., St. Vincent's
Services, the American Foundation for AIDS Research, the New York Blood Center
and NYU Medical Center and a member of the Board of Visitors of the Fuqua School
of Business at Duke University.
Stephen F. Edwards, 38, has been a partner at Bruckman, Rosser, Sherrill & Co.,
LLC since 1995. Bruckman, Rosser & Sherrill & Co., LLC is private equity
investment firm specializing in the foodservice industry. Mr. Edwards is a
graduate of Yale University and the Harvard Business School. He serves on the
boards of directors of Town Sports International, Inc., Anvil Knitwear, Inc., Au
Bon Pain, O'Sullivan Industries, Inc. and Unwired Pty Ltd.
Meetings and Committees
The Board of Directors of the Company has a Compensation Committee, a Nominating
Committee and an Audit Committee. The Compensation Committee has the
responsibility of reviewing on an annual basis all officer and employee
compensation. The Compensation Committee is currently composed of Mr. Barakett,
Mr. Goodwin, Mr. Rothschild and Mr. Schwartz.
Audit Committee.
The Company's Board of Directors has established an Audit Committee currently
consisting of Messrs. Barakett, Goodwin and Edwards. The Audit Committee acts
pursuant to a Charter, which was adopted by the Board of Directors on March 8,
2000. The Audit Committee's duties include overseeing the internal accounting
controls and reviewing the financial statements of Champps. The Audit Committee
also makes recommendations concerning the engagement of independent public
accountants and communicates with Champps' independent auditors on matters of
auditing and accounting. The Audit Committee met four times during fiscal 2001.
Each of the Audit Committee members is "independent", as defined in Rule 4200
(a) (14) of the Marketplace Rules of the National Association of Securities
Dealers, Inc., with the exception of Mr. Barakett, who, due to his employment
and compensation relationship with Atticus Capital L.L.C. and its affiliated
entities, one or more of which may be deemed to be an affiliate of Champps,
serves as a non-independent director on the Audit Committee. Mr. Barakett was
elected to serve on the Board of Directors on March 4, 1999, and was appointed
to serve on the Audit Committee at the March 17, 1999 meeting of the Board of
Directors. On May 23, 2001, the Board of Directors determined that because of
Mr. Barakett's extensive financial expertise, his tenure and experience on the
Audit Committee, and his intimate knowledge of Champps' business activities as
23
they relate to the Audit Committee's responsibilities, his continued service on
the Audit Committee is in the best interests of Champps and its stockholders,
and complies with the conditions set forth in the NASD independence rules
allowing one non-independent director to serve on the Audit Committee in
exceptional and limited circumstances.
Executive Officers of the Registrant
Certain information is set forth below concerning the executive officers of the
Company, each of whom has been elected to serve until the regular meeting of the
Board of Directors and until his successor is duly elected and qualified. The
executive officers of the Company are as follows:
Name Age Position
---------------------------- ------------ ----------------------------------------------------------
William H. Baumhauer 53 Director, Chairman of the Board of Directors,
President and Chief Executive Officer
Donna L. Depoian 41 Vice President, General Counsel and Secretary
Frederick J. Dreibholz 46 Vice President, Chief Financial Officer,
and Treasurer
William H. Baumhauer has served as a Director and Chairman of the Board of
Directors since August 23, 1999, and as President and Chief Executive Officer
since June 24, 1999. Mr. Baumhauer also held these positions with the Company or
its predecessors from September 1988 until July 24, 1998, when he left the
Company to serve as President and Chief Operating Officer of Planet Hollywood
International, Inc., a position he held until his return to the Company on June
24, 1999. Subsequent to his return to the Company, on October 12, 1999, Planet
Hollywood filed for protection under Chapter 11 of the U.S. Bankruptcy Code.
Donna L. Depoian has served as Vice President, General Counsel and Secretary of
the Company since May 1998. She served as Acting General Counsel and Assistant
Secretary from February 1998 to May 1998 and as Corporate Counsel and Assistant
Secretary since July 1997. Ms. Depoian also served as Corporate Counsel and
Assistant Secretary for DAKA International, Inc. since April 1994. From May 1989
to April 1994, she practiced as an attorney for Bass & Doherty, P.C., a Boston
law firm concentrating in business and commercial real estate. From February
1988 to April 1989 she practiced as an attorney for Rossman, Rossman and
Eschelbacher, a Boston based law firm.
Frederick J. Dreibholz has served as Vice President, Chief Financial Officer and
Treasurer since October 1999. From April 1997 to November 1998, he served as
Chief Financial Officer of Unique Casual Restaurants, Inc. and Sforza
Enterprises, Inc. From November 1987 to April 1997, he served as Chief Financial
Officer of Flik International Corp. From June 1977 to April 1987, he held
various management and finance positions with Sky Chefs. From November 1998 to
October 1999, Mr. Dreibholz acted as a consultant to numerous restaurant and
food service clients in South Florida and New York City.
Item 11. Executive Compensation.
The information required by this Item is incorporated by reference to the
section captioned "Executive Compensation" in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The information required by this Item is incorporated by reference to the
section captioned "Security Ownership of Certain Beneficial Owners and
Management" contained in the Proxy Statement.
24
Item 13. Certain Relationships And Related Transactions.
The information required by this Item is incorporated by reference from the
sections captioned "Certain Relationship and Related Transactions" contained in
[Remainder of page left intentionally blank]
25
the Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.
The following are being filed as part of this Annual Report on Form 10-K.
A. Financial Statements:
Reports of Independent Auditors
Consolidated Balance Sheets - July 1, 2001 and July 2, 2000
Consolidated Statements of Operations - Fiscal years ended July 1,
2001, July 2, 2000 and June 27, 1999
Consolidated Statements of Cash Flows - Fiscal years ended July 1,
2001, July 2. 2000 and June 27, 1999
Consolidated Statements of Changes in Stockholders' Equity - Fiscal
years ended July 1, 2001, July 2, 2000 and June 27, 1999
Notes to Consolidated Financial Statements
B. Financial Statement Schedules:
There are no Financial Statement Schedules required to be filed.
Information required by Article 12 of Regulation S-X with respect to
Valuation and Qualifying Accounts has been included in the Notes to the
Consolidated Financial Statements.
C. Exhibits:
*2.1 Agreement and Plan of Merger, dated as of May 27, 1997, by and among
Compass Interim, Inc. ("Compass Interim"), Compass Holdings, Inc.
("Purchaser"), Compass Group PLC ("Parent") and DAKA International,
Inc. ("DAKA International").
*2.2 Reorganization Agreement dated as of May 27, 1997, by and among DAKA
International, Daka, Inc. ("Daka"), the Company, Parent and Compass
Holdings, together with certain exhibits thereto.
*2.3 Agreement and Plan of Merger among Champps Entertainment, Inc.
("Champps"), DAKA and CEI Acquisition Corp., dated as of October 10,
1995, incorporated herein by reference to DAKA's Registration Statement
on Form S-4 (File No. 33-65425) ("1996 DAKA Form S-4").
**2.4 Series D Convertible Preferred Stock and Warrant Purchase Agreement,
dated as of January 12, 1996, by and among La Salsa Holding Co. and
Casual Dining Ventures, Inc. Pursuant to Item 601(b)(2) of Regulation
S-K, the Schedules to the Series D Convertible Preferred Stock and
Warrant Purchase Agreement are omitted. The Company hereby undertakes
to furnish supplementally a copy of any omitted Schedule to the
Commission upon request.
26
**2.5 Stock Purchase Agreement, dated as of March 18, 1996, by and among
Casual Dining Ventures, Inc., DAKA, Champps Development Group, Inc.,
Steven J. Wagenheim, Arthur E. Pew, III, PDS Financial Corporation,
Douglas B. Tenpas and certain other stockholders of Americana Dining
Corp. Pursuant to Item 601(b)(2) of Regulation S-K, the Schedules to
the Stock Purchase Agreement are omitted. The Company hereby undertakes
to furnish supplementally a copy of any omitted Schedule to the
Commission upon request.
**2.6 Asset Purchase Agreement, dated March 18, 1996, between Americana
Dining Corp., as Seller, and New Brighton Ventures, Inc., as Buyer.
Pursuant to Item 601(b)(2) of Regulation S-K, the Schedules to the
Asset Purchase Agreement are omitted. The Company hereby undertakes to
furnish supplementally a copy of any omitted Schedule to the Commission
upon request.
**2.7 Stock Purchase Agreement, dated as of March 29, 1996, by and among
DAKA, The Great Bagel & Coffee Franchising Corp., GBC Credit Company,
Gemini Production Facility, Inc., The Great Bagel & Coffee Company,
Mark C. Gordon, Brian H. Loeb, Jason R. Olivier, Michael F. Zerbib,
Nicholas D. Zerbib, and Thierry E. Zerbib. Pursuant to Item 601(b)(2)
of Regulation S-K, the Schedules to the Stock Purchase Agreement are
omitted. The Company hereby undertakes to furnish supplementally a
copy of any omitted Schedule to the Commission upon request.
**2.8 Stock Purchase Agreement, dated as of March 31, 1996, by and among
Casual Dining Ventures, Inc., DAKA and Edgebrook, Inc. Pursuant to Item
601(b)(2) of Regulation S-K, the Schedules to the Stock Purchase
Agreement are omitted. The Company hereby undertakes to furnish
supplementally a copy of any omitted Schedule to the Commission upon
request.
*3.1 Certificate of Incorporation of the Company.
*3.2 By-laws of the Company.
*3.3 Form of Amended and Restated Certificate of Incorporation of the
Company.
*3.4 Form of Amended and Restated By-laws of the Company.
3.5 Certificate of Designations, Preferences and Rights of a Series of
Preferred Stock of the Company, dated January 30, 1998, incorporated
herein by reference to the Company's Current Report on Form 8-K filed
February 2, 1998.
4.2 Amended and Restated Shareholder Rights Agreement, dated as of January
30, 1998, between the Company and American Stock Transfer and Trust
Company, as Rights Agent, incorporated herein by reference to the
Company's Current Report on Form 8-K filed February 2, 1998.
*4.1 Specimen Stock Certificate for shares of the UCRI Common Stock.
*10.1 Tax Allocation Agreement dated as of May 27, 1997, by and among DAKA,
the Company, and Parent.
*10.2 Post-Closing Covenants Agreement, dated as of May 27, 1997, by and
among DAKA, Daka, Inc., the Company, Champps, Fuddruckers, Inc.,
Purchaser and Parent.
*10.3 Stock Purchase Agreement, dated as of May 26,1997, between DAKA,
Parent, Purchaser, First Chicago Equity Corporation, Cross Creek
Partners I and the other holders of Series A Preferred Stock of DAKA.
*10.4 Form of the Company's 1997 Stock Option and Incentive Plan.
*10.5 Form of the Company's 1997 Stock Purchase Plan.
*10.6 Form of Indemnification Agreement, by and between the Company and
directors and officers of DAKA.
27
**10.7 Third Amended and Restated Registration Rights Agreement, dated as of
January 12, 1996, by and among La Salsa Holding Co., FMA High Yield
Income L.P., WSIS Flexible Income Partners L.P., WSIS High Income L.P.,
Howdy S. Kabrins, La Salsa, Inc., Crown Associates III, L.P.,
Crown-Glynn Associates, L.P., Nueberger & Berman as Trustee for the
Crown Trust, Theodore H. Ashford, Noro-Moseley Partners II, L.P.,
Seidler Salsa, L.P., Bankers Trust Company as Master Trustee for Hughes
Aircraft Retirement Plans, Charles A. Lynch, Sienna Limited Partnership
I, Sienna Limited Partnership II, Sienna Holdings, Inc., as Nominee,
Interwest Partners IV, Donald Benjamin, Vicki Tanner, Ronald
D. Weinstock, Frank Holdraker, and Casual Dining
Ventures, Inc.
**10.8 Fourth Amended and Restated Restricted Stock Agreement, dated as of
January 12, 1996, by and among La Salsa Holding Co., Howdy S. Kabrins,
La Salsa, Inc., Interwest Partners IV, Sienna Holding, Inc.,
Sienna Limited Partnership I, Charles A. Lynch, Theodore H. Ashford,
Crown Associates III, L.P., Crown-Glynn Associates, L.P., Nueberger &
Berman as Trustee for The Crown Trust, Noro-Moseley Partners II, L.P.,
Seidler Salsa, L.P., Bankers Trust Company, as Master Trustee, for
Hughes Aircraft Retirement Plans, FMA High Yield Income L.P., WSIS
Flexible Income Partners L.P., WSIS High Yield Income L.P., Sienna
Limited Partnership II, Donald Benjamin, Vicki Tanner, Ronald D.
Weinstock, Frank Holdraker, and Casual Dining Ventures, Inc.
**10.9 La Salsa Holding Co. Warrant to Purchase Shares of Series D Convertible
Preferred Stock, dated as of January 12, 1996, issued to Casual Dining
Ventures, Inc. by La Salsa Holding Co.
**10.10 Severance, Non-Competition and Confidentiality Agreement, dated as of
March 18, 1996, between Steven J. Wagenheim and Americana Dining Corp.
**10.11 La Salsa License Agreement, dated as of February 14, 1996, by and
between La Salsa Franchise, Inc. and La Salsa Holding Co.
10.12 Separation Agreement, dated as of February 2, 1998, by and among Dean
P. Vlahos, the Company and Champps, incorporated herein by reference to
the Annual Report on Form 10-K of Unique Casual Restaurants, Inc. for
the year ended June 28, 1998.
10.13 Asset Purchase Agreement, dated as of February 2, 1998, by and between
Dean P. Vlahos and Champps, incorporated herein by reference to the
Annual Report on Form 10-K of Unique Casual Restaurants, Inc. for the
year ended June 28, 1998.
10.14 Champps Restaurant Development Agreement, dated as of February 2, 1998,
by and between Dean P. Vlahos and Champps, incorporated herein by
reference to the Annual Report on Form 10-K of Unique Casual
Restaurants, Inc. for the year ended June 28, 1998.
10.15 Stock Purchase Agreement, dated as of July 31, 1998, by and between
King Cannon, Inc. and Unique Casual Restaurants, Inc., incorporated
herein by reference to the Annual Report on Form 10-K of Unique Casual
Restaurants, Inc. for the year ended June 27, 1999.
10.16 Employment Agreement, dated as of June 24, 1999, by and between Unique
Casual Restaurants, Inc. and William H. Baumhauer, incorporated herein
by reference to the Annual Report on Form 10-K of Unique Casual
Restaurants, Inc. for the year ended June 27, 1999.
10.17 Termination Agreement and General Release, dated July 21, 1999, by and
between Champps Entertainment, Inc., Champps Operating Corporation and
Donald C. Moore, incorporated herein by reference to the Annual Report
on Form 10-K of Unique Casual Restaurants, Inc. for the year ended July
2, 2000.
28
10.18 Non-negotiable Promissory Note, dated August 2, 1999, payable by Donald
C. Moore to Champps Entertainment, Inc., incorporated herein by
reference to the Annual Report on Form 10-K of Unique Casual
Restaurants, Inc. for the year ended July 2, 2000.
10.19 Asset Purchase Agreement, dated April 6, 2000, made by and between
Prairie Restaurant Group, Inc. and Champps Operating Corporation,
incorporated herein by reference to the Annual Report on Form 10-K of
Unique Casual Restaurants, Inc. for the year ended July 2, 2000.
10.20 Asset Purchase Agreement, dated April 6, 2000, made by and between Dean
P. Vlahos and the Breagan Investment Group, Inc. and Champps Operating
Corporation, incorporated herein by reference to the Annual Report on
Form 10-K of Unique Casual Restaurants, Inc. for the year ended July 2,
2000.
10.21 Stock Redemption and Debt Restructuring Agreement, dated May 24, 1999,
made by and among Champps Entertainment, Inc., Theodore M. Mountzuris
and Restaurant Consulting Services, Inc.
10.22 Amended and Restated Employment Contract, dated September 28, 2000,
made by and between Champps Entertainment, Inc. and William H.
Baumhauer.
21.1 Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Deloitte & Touche LLP.
24.1 Powers of Attorney.
* Incorporated herein by reference to the Company's Registration
Statement on Form 10 filed June 3, 1997, as amended.
** Incorporated herein by reference to the Annual Report on Form 10-K of
DAKA International for the year ended June 29, 1996.
D. Reports on Form 8-K
Not applicable.
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
CHAMPPS ENTERTAINMENT, INC.
(Registrant)
By: /s/ William H. Baumhauer
William H. Baumhauer
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)
Date: October 1, 2001
By: /s/ Frederick J. Dreibholz
Frederick J. Dreibholz
Vice President, Chief Financial Officer
and Treasurer
(Principal Financial and Accounting
Officer)
Date: October 1, 2001
Pursuant to the requirement of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant, and
in the capacities and on the date indicated.
Signature Title
William H. Baumhauer Chairman of the Board
Timothy Barakett* Director
James Goodwin* Director
Nathaniel Rothschild* Director
Alan D. Schwartz* Director
Stephen F. Edwards* Director
By: /s/ William H. Baumhauer
William H. Baumhauer
Chairman of the Board, President and
Chief Executive Officer
Date: October 1, 2001
*By: /s/ Frederick J. Dreibholz
Frederick J. Dreibholz
Vice President, Chief Financial Officer
and Treasurer
Date: October 1, 2001
30
Report of Independent Public Accountants
To: Champps Entertainment, Inc.
The Company has audited the accompanying consolidated balance sheets of Champps
Entertainment, Inc. and subsidiaries as of July 1, 2001 and July 2, 2000 and the
related consolidated statements of operations, cash flows and changes in
shareholders' equity for the years then ended. 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.
The Company conducted our audits in accordance with auditing standards generally
accepted in the United States. 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. The Company believes that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Champps
Entertainment, Inc. and subsidiaries as of July 1, 2001 and July 2, 2000 and the
results of their operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States.
Arthur Andersen LLP
Denver, Colorado,
August 20, 2001
F-1
INDEPENDENT AUDITORS' REPORT
Champps Entertainment, Inc.:
The Company has audited the accompanying consolidated statements of operations,
cash flows and changes in stockholders' equity of Champps Entertainment, Inc.
and subsidiaries (formerly Unique Casual Restaurants, Inc.) for the year ended
June 27, 1999. 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 audit.
The Company conducted our audit in accordance with auditing standards generally
accepted in the United States of America. 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. The Company believes that our audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of the companies operations, their cash flows and
changes in stockholders' equity for the year ended June 27, 1999, in conformity
with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Boston, Massachusetts
October 1, 1999
F-2
Champps Entertainment, Inc.
Consolidated Balance Sheets
As of July 1, 2001 and July 2, 2000
(In thousands)
2001 2000
--------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 1,261 $ 4,373
Restricted cash 754 437
Accounts receivable, net 2,090 1,512
Inventories 2,294 2,022
Prepaid expenses and other current assets, net 1,790 1,320
Net deferred tax asset 2,000 -
Net assets held for sale - 452
--------- ---------
Total current assets 10,189 10,116
Property and equipment, net 56,953 52,555
Goodwill, net 5,069 3,825
Deferred tax asset 6,153 -
Other assets, net 1,094 597
---------- ---------
Total assets $ 79,458 $ 67,093
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,238 $ 4,507
Accrued expenses 6,842 7,520
Current portion of capital lease obligations 1,019 1,873
Current portion of notes payable 395 657
--------- ---------
Total current liabilities 13,494 14,557
Capital lease obligations, net of current portion 1,012 2,191
Notes payable, net of current portion 14,667 14,603
Other long-term liabilities 5,669 5,620
--------- ---------
Total liabilities 34,842 36,971
--------- ---------
Commitments and contingencies (Note 11)
Shareholders' equity:
Preferred stock (authorized 5,000 shares and none issued)
Common stock ($.01 par value per share; authorized 30,000
shares and 12,018 and 11,659 issued and outstanding at
July 1, 2001 and July 2, 2000, respectively) 120 117
Additional paid-in capital 80,343 79,389
Accumulated deficit (35,847) (49,384)
--------- ---------
Total shareholders' equity 44,616 30,122
--------- ---------
Total liabilities and shareholders' equity $ 79,458 $ 67,093
========= =========
The accompanying notes are an integral part of these balance sheets.
F-3
CHAMPPS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Years Ended July 1, 2001, July 2, 2000 and June 27, 1