1
Filed Pursuant to Rule 424(b)(1)
Registration No. 333-07019

PROSPECTUS

4,660,540 SHARES OF COMMON STOCK

DENAMERICA CORP.

This Prospectus relates to the following shares of common stock, par
value $.10 per share (the "Common Stock"), that may be sold from time to time by
certain selling shareholders (the "Selling Shareholders") of DenAmerica Corp.
(the "Company"): (i) 4,006,792 outstanding shares of Common Stock; (ii) 290,000
shares of Common Stock that may be sold upon exercise of certain non-redeemable
warrants (the "Representatives' Warrants") that were issued in October 1994 to
the representatives of the underwriters of the Company's initial public
offering, each of which entitles the holder to purchase one share of Common
Stock at a price of $6.00 per share until October 18, 1999; (iii) 109,650 shares
of Common Stock that may be sold upon exercise of certain redeemable warrants
(the "Preferred Warrants") that were issued from November 16, 1992 through
February 2, 1993 in connection with the issuance of the Company's Series A
Preferred Stock, each of which entitles the holder to purchase one share of
Common Stock at a price of $6.00 per share until their expiration during the
period from November 16, 1996 through February 2, 1997; (iv) 54,998 shares of
Common Stock that may be sold upon exercise of certain non-redeemable warrants
(the "Levy Warrants") that were issued in June 1993 in connection with the
issuance of certain subordinated notes, each of which entitles the holder to
purchase one share of Common Stock at a price of $5.03 per share until October
18, 1999; (v) 28,354 shares of Common Stock that may be sold upon exercise of
certain non-redeemable warrants (the "Trask Warrants") that were issued in June
1993 in connection with investment banking services, each of which entitles the
holder to purchase one share of Common Stock at a price of $5.41 per share until
July 27, 1997; (vi) 131,920 shares of Common Stock that may be sold upon
exercise of 4.9812 unit purchase options (the "Unit Purchase Options") that were
issued in December 1992 in connection with placement agent services, each of
which entitles the holder to purchase units consisting of 26,484 shares of
Common Stock and non-redeemable warrants (the "Unit Warrants") to purchase 7,795
shares of Common Stock at an exercise price of $165,000 per unit until October
18, 1997; and (vii) 38,826 shares of Common Stock that may be sold upon exercise
of the Unit Warrants issuable upon exercise of the Unit Purchase Options, each
of which entitles the holder to purchase one share of Common Stock at a price of
$6.00 per share until October 18, 1997. The Representatives' Warrants, Preferred
Warrants, Levy Warrants, Trask Warrants, and Unit Warrants sometimes are
collectively referred to herein as the "Selling Shareholders' Warrants." To the
extent required by applicable law or Securities and Exchange Commission
regulations, this Prospectus shall be delivered to purchasers upon resale of
such Common Stock by the Selling Shareholders. None of the proceeds of sales by
such Selling Shareholders will be received by the Company.

The Company's Common Stock is traded on the American Stock Exchange
(the "AMEX") under the symbol "DEN." On October 31, 1996, the last sale price of
the Common Stock as reported on the AMEX was $4.63 per share.

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS," WHICH BEGINS ON PAGE 6 OF THIS PROSPECTUS.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

THE DATE OF THIS PROSPECTUS IS NOVEMBER 14, 1996.
2
AVAILABLE INFORMATION

The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the Commission:
New York Regional Office, Seven World Trade Center, New York, New York 10048,
and Chicago Regional Office, 500 West Madison Street, Chicago, Illinois 60661.
Copies of such material can be obtained from the Public Reference Section of the
Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549 upon payment of the prescribed fees. The Commission also maintains a Web
site that contains reports, proxy and information statements and other materials
that are filed through the Commission's Electronic Data Gathering, Analysis, and
Retrieval system. This Web site can be accessed at http://www.sec.gov.

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

The Company hereby incorporates by reference in this Prospectus the
following documents previously filed with the Commission pursuant to the
Exchange Act: (i) the Company's Transition Report on Form 10-K for the year
ended December 27, 1995, as filed by the Company on June 12, 1996; (ii) the
Company's Quarterly Report on Form 10-Q for the quarter ended March 27, 1996, as
filed by the Company on May 16, 1996; (iii) the Company's Quarterly Report on
Form 10-Q for the quarter ended July 3, 1996, as filed by the Company on August
19, 1996; (iv) the Company's Current Report on Form 8-K as filed by the Company
on April 15, 1996, as amended by Form 8-K/A filed by the Company on June 12,
1996; (v) the Company's Current Report on Form 8-K as filed by the Company on
May 3, 1996; (vi) the Company's Current Report on Form 8-K as filed by the
Company on July 18, 1996, as amended by Form 8-K/A filed by the Company on
September 16, 1996, Form 8-K/A filed by the Company on November 1, 1996, and
Form 8-K/A filed by the Company on November 6, 1996; and (vii) the description
of the Company's Common Stock contained in the Registration Statement on Form
8-A as filed with the Commission on October 18, 1994. All reports and other
documents subsequently filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this Prospectus shall be
deemed to be incorporated by reference herein and to be a part hereof from the
date of filing of such reports and documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein prior to
the date hereof shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein, modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.

The information relating to the Company contained in this Prospectus
summarizes, is based upon, or refers to, information and financial statements
contained in one or more of the documents incorporated by reference herein;
accordingly, such information contained herein is qualified in its entirety by
reference to such documents and should be read in conjunction therewith.

The Company will furnish without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the documents referred to above that have been incorporated by
reference herein (other than exhibits to such documents, unless such exhibits
are specifically incorporated by reference into the information that this
Prospectus incorporates). Requests should be directed to DenAmerica Corp., 7373
N. Scottsdale Road, Suite D-120, Scottsdale, Arizona 85253, (telephone (602)
483-7055), Attention: Secretary.

FORWARD-LOOKING STATEMENTS

This Prospectus contains forward-looking statements that involve risks
and uncertainties. The Company's actual results of operations could differ
materially from those anticipated in such forward-looking statements as a result
of certain factors, including those set forth in "Risk Factors" and elsewhere in
this Prospectus.

2
3

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to the
more detailed information and financial statements, including the notes thereto,
appearing elsewhere or incorporated by reference in this Prospectus. Unless
otherwise indicated, all information in this Prospectus assumes no exercise of
any outstanding options or warrants.

THE COMPANY

The Company operates 182 Denny's restaurants, 99 Black-eyed Pea
restaurants, and 33 restaurants under various other trade names in 32 states. In
addition, the Company franchises 29 Black-eyed Pea restaurants in 6 states. The
Company has pursued an aggressive growth strategy, having acquired or developed
all of its restaurants since April 1986. The Company intends to increase the
number of its restaurants through the development of new Denny's and Black-eyed
Pea restaurants, the acquisition of existing Denny's restaurants, the
franchising of additional Black-eyed Pea restaurants, and the acquisition and
conversion to the Denny's or Black-eyed Pea concept of restaurants currently
operating under other restaurant concepts. The Company also plans to convert to
the Denny's concept certain of its restaurants currently operating under other
restaurant concepts, to re-image to the new Denny's format certain of its
Denny's restaurants that have not already been re-imaged, and to sell or close
under-performing restaurants. In addition, the Company may expand its operations
to include one or more additional restaurant concepts through the acquisition of
one or more restaurant chains or multiple restaurant locations.

The Company's Denny's restaurants represent approximately 12% of the
approximately 1,500 Denny's restaurants worldwide, making the Company the
world's largest Denny's restaurant franchisee in terms of revenue and the number
of restaurants operated. No other franchisee operates more than 23 Denny's
restaurants. Denny's restaurants are family-oriented, full-service dining
establishments featuring a wide variety of traditional family fare. Denny's
restaurants are designed to provide a casual dining atmosphere with moderately
priced food and quick, efficient service and generally are open 24 hours a day,
seven days a week. The Company believes that the Denny's name affords the
Company significant benefits, including the national name recognition,
popularity, and goodwill associated with Denny's restaurants.

Black-eyed Pea restaurants are full-service, family dining
establishments featuring wholesome home-style meals, including traditional
favorites such as pot roast, chicken fried steak, roast turkey, vegetable
dishes, and freshly baked breads and desserts. The Black-eyed Pea restaurant
concept was established in 1975, and the number of Black-eyed Pea restaurants
expanded rapidly through 1994, primarily in Texas and Oklahoma. The Company
believes that the emphasis of Black-eyed Pea restaurants on quality food, a
comfortable atmosphere, friendly service, and reasonable prices attracts a broad
range of customers, including families and business people.

The Company resulted from the March 29, 1996 merger (the "Merger") of
Denwest Restaurant Corp. ("DRC") and American Family Restaurants, Inc. ("AFR").
In connection with the Merger, the four shareholders of DRC became the owners of
shares representing approximately 53% of the outstanding voting power of the
Company; the Company changed its name to DenAmerica Corp.; and the executive
officers of DRC assumed the management of the Company. On July 3, 1996, the
Company purchased all of the outstanding stock of Black-eyed Pea U.S.A., Inc.
("BEP"), which operates and franchises the rights to operate Black-eyed Pea
restaurants (the "BEP Acquisition"). Had the Merger and BEP Acquisition occurred
on December 28, 1994, the Company would have had revenue on a pro forma basis of
approximately $327.0 million and $174.3 million in fiscal 1995 and the 27-week
period ended July 3, 1996, respectfully.

The Company believes that the Merger and the BEP Acquisition provide
enhanced strategic, operational, and financial synergies and increased
availability of capital resources. These advantages include (i) substantial
reductions in operating expenses and increased operating income as overhead is
consolidated, duplicative functions are eliminated, and other cost savings are
realized; (ii) expansion of the Company's geographic network of restaurants into
the predominately western and southwestern markets, which the Company believes
will provide significant opportunities for growth through the development of new
restaurants and the acquisition of existing restaurants; (iii) the ability to
enter high-growth markets with complementary restaurant concepts; (iv) increased
ability to finance, develop, acquire, convert, re-image, and franchise
additional restaurants; and (v) increased ability to attract and retain highly
qualified management personnel.

The Company's growth strategy is to (a) develop new Denny's and
Black-eyed Pea restaurants, (b) convert to the Denny's concept certain of its
existing restaurants operating under other concepts, (c) re-image to the new
Denny's format certain of its Denny's restaurants that have not already been
re-imaged, (d) franchise additional Black-eyed Pea restaurants, (e) acquire
existing Denny's restaurants and restaurants operating under other restaurant
concepts that can be converted to Denny's restaurants, and (f) increase its
operating efficiencies by concentrating its restaurant development,
acquisitions, and franchising in specific markets where it has existing
restaurants in order to gain advertising, management, and operating
efficiencies, by selling or closing restaurants that are not profitable and
cannot be successfully re-imaged or converted, and by capitalizing on operating
synergies and efficiencies made possible by its acquisitions and expanding
operations. The Company historically has funded its growth primarily through
sale-leaseback financing arrangements and currently has in place commitments for
approximately $20.0 million of sale-leaseback financing through 1997. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

3
4

THE OFFERING

Securities Offered by the Selling Shareholders....... 4,660,540 shares of Common Stock.
Common Stock Currently Outstanding................... 13,399,277 shares.
Use of Proceeds...................................... The Company intends to use the proceeds from the exercise of the
Selling Shareholders' Warrants and Unit Purchase Options described in this
Prospectus to provide working capital. The Company will not receive
any of the proceeds of sales by the Selling Shareholders.
Risk Factors......................................... Investors should carefully consider the factors discussed under
"Risk Factors."
American Stock Exchange symbol....................... DEN

SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA(1)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

AS OF AND FOR THE
AS OF AND FOR THE FISCAL YEAR ENDING PERIOD ENDING
---------------------------------------------------------- ----------------------
DEC. 26, DEC. 31, DEC. 30, DEC. 28, DEC. 27, JUNE 28, JULY 3,
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
(26 WEEKS) (27 WEEKS)

STATEMENT OF OPERATIONS DATA:
Restaurant sales $20,702 $27,712 $32,584 $47,323 $74,683 $33,137 $ 79,173
Restaurant operating income 1,265 2,671 3,147 4,539 6,643 3,449 6,876
Administrative expenses 1,461 1,867 2,050 2,619 3,380 1,603 3,181
Operating income (loss) (23) 930 1,328 1,320 3,263 1,846 3,695
Interest expense (535) (449) (736) (1,301) (2,467) (1,020) (3,651)
Net income (loss), before
extraordinary item (701) (22) 140 (341) 200 427 20

OTHER DATA:
EBITDA(2) $ 655 $ 1,923 $ 2,656 $ 2,821 $ 6,722 $ 3,029 $ 6,531
Cash flows provided by (used in)
operating activities 985 1,633 2,493 2,410 6,305 2,368 (837)
Cash flows (used in) investing activities (1,393) (1,988) (1,002) (9,667) (8,736) (6,816) (4,677)
Cash flows provided by (used in)
financing activities 400 (118) (1,168) 7,092 2,273 4,290 5,514
Capital expenditures 1,499 2,346 1,574 9,667 8,736 6,816 4,446
Depreciation and amortization 678 993 1,328 1,501 2,936 1,183 2,836
Ratio of earnings to fixed charges(3) .41 1.11 1.15 .81 1.10 1.32 1.01
Number of restaurants, end of period 28 31 37 70 102 73 312

BALANCE SHEET DATA:
Working capital (deficit) $(2,470) $(3,213) $(3,568) $(6,107) $(9,406) $(6,427) $(33,902)
Intangibles, net 2,137 1,772 1,317 11,151 11,925 11,475 72,517
Total assets 8,618 9,907 14,529 35,028 53,785 40,571 166,160
Long-term debt, less current portion 602 475 2,135 7,552 10,371 12,422 43,594
Obligations under capital leases,
less current obligations 2,289 2,808 4,307 7,151 19,881 6,906 24,034
Redeemable convertible preferred stock -- -- -- 7,397 7,501 7,449 --
Shareholders' equity (deficit) (1,102) (1,703) (1,218) 957 564 1,098 19,361

- ---------
(1) The summary historical consolidated financial data presented are derived
from DRC's historical financial statements and include the results of
operations of AFR and BEP since the respective accounting dates of the
Merger and the BEP Acquisition. See "Selected Historical Consolidated
Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The Company has consummated various
acquisitions and has opened new restaurants during each of the five fiscal
years shown. Accordingly, revenue increases and changes in other financial
data in each of the years shown arise primarily from restaurant
acquisitions and openings in each year.

(2) EBITDA represents income (loss) before minority interest in joint ventures,
interest, income taxes, depreciation and amortization. EBITDA is not
intended to represent cash flows from operations as defined by generally
accepted accounting principles and should not be considered as an
alternative to net income (loss) as an indication of the Company's
operating performance or to cash flows from operations as a measure of
liquidity. EBITDA is included because it is a basis upon which the Company
assesses its financial performance.

(3) Earnings consist of pre-tax income after minority interests plus fixed
charges, excluding capitalized interest. The Company's fixed charges
consist of (i) interest, whether expensed or capitalized; (ii) amortization
of debt expense, including any discount or premium whether expensed or
capitalized; and (iii) a portion of rental expense representing the
interest factor. Earnings were inadequate to cover fixed charges in fiscal
years 1991 $(841,000) and 1994 $(550,000).

The Company was incorporated in Georgia on September 25, 1989. The
Company maintains its principal executive offices at 7373 North Scottsdale Road,
Suite D-120, Scottsdale, Arizona 85253, and its telephone number is (602)
483-7055. As used in this Prospectus, the term "Company" refers to DenAmerica
Corp. and its subsidiaries, predecessors, and acquired entities, including DRC
and BEP. See "Business - Development of the Company."

4
5
SUMMARY UNAUDITED CONDENSED CONSOLIDATED PRO FORMA
STATEMENTS OF OPERATIONS

The following unaudited condensed consolidated pro forma statements of
operations of the Company for the year ended December 27, 1995 and the 27-week
period ended July 3, 1996, give effect to (i) the reverse purchase accounting
for the Merger, which had an effective accounting date of March 27, 1996, as if
it had occurred at the beginning of the period; (ii) the BEP Acquisition, which
had an effective accounting date of June 24, 1996, as if it occurred at the
beginning of the period; (iii) the repayment of the $6.0 million outstanding
principal of the Company's Series A 13% Subordinated Notes due 2003, together
with accrued and unpaid interest on such notes, as if it had occurred at the
beginning of such period; and (iv) the net reduction in operating expenses of
AFR and BEP after the Merger and the BEP Acquisition that occurred as a result
of employee terminations, closing of duplicate administrative facilities, or
contractual changes. The financial statements of AFR and BEP for the fiscal year
ended December 27, 1995, include (a) AFR's financial statements for its fiscal
year ended September 27, 1995, and (b) BEP's financial statements for its fiscal
year ended April 1, 1996. The financial statements of AFR and BEP for the
27-week period ended July 3, 1996 include, prior to their acquisition by the
Company, (1) AFR's financial statements for the three-month period ended March
27, 1996, and (2) BEP's financial statements for the period from January 9, 1996
to June 24, 1996. The unaudited condensed consolidated pro forma statements of
operations presented herein do not purport to represent what the Company's
actual results of operations would have been had the Merger, the BEP
Acquisition, or the other transactions described above occurred on those dates
or to project the Company's results of operations for any future period. See
"Unaudited Condensed Consolidated Pro Forma Statements of Operations" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

FISCAL YEAR ENDED DECEMBER 27, 1995

ACQUIRED PRO FORMA
COMPANIES ADJUSTMENTS(1)
THE COMPANY - -------------------- ---------------- PRO
HISTORICAL AFR BEP(2) AFR BEP FORMA
---------- --- ------ --- --- -----
(IN THOUSANDS, EXCEPT SHARE DATA)

STATEMENTS OF OPERATIONS DATA:
Restaurant sales:
Denny's restaurants .......... $70,429 $ 74,679 $ -- $ -- $ -- $ 145,108
Black-eyed Pea restaurants ... -- -- 145,455 -- -- 145,455
Other restaurants ............ 4,254 32,218 -- -- -- 36,472
------- --------- --------- ------- -------- ---------
Total restaurant sales ....... 74,683 106,897 145,455 -- -- 327,035
------- --------- --------- ------- -------- ---------
Restaurant operating income (loss) 6,643 8,923 (47,778) 943 50,240 18,971
Administrative expenses .......... 3,380 5,166 8,588 (1,869) (3,982) 11,283
Operating income (loss) .......... 3,263 3,757 (56,366) 2,812 54,222 7,688
Other (income) expense ........... -- (156) 717 -- -- 561
Interest expense, net ............ 2,467 1,714 5,362 4,175 (4,162) 9,556
Income (loss) from continuing
operations ................... $ 200 $ 1,706 $ (49,568) $(1,022) $ 47,050 $ (1,634)
Income from continuing
operations per common
and common equivalent share .. $ 0.28 $ (0.13)

27-WEEK PERIOD ENDED JULY 3, 1996

ACQUIRED PRO FORMA
COMPANIES ADJUSTMENTS(1)
THE COMPANY - --------------------- --------------------------- PRO
HISTORICAL AFR BEP(2) AFR BEP FORMA
---------- --- ------ --- --- -----
(13 WEEKS) (24 WEEKS)
(IN THOUSANDS, EXCEPT SHARE DATA)

STATEMENTS OF OPERATIONS DATA:
Restaurant sales:
Denny's restaurants.......... $ 64,078 $ 20,417 $ -- $ -- $ -- $ 84,495
Black-eyed Pea restaurants... 3,402 -- 66,645 -- -- 70,047
Other restaurants............ 11,693 8,047 -- -- -- 19,740
-------- -------- -------- -------- -------- --------
Total restaurant sales....... 79,173 28,464 66,645 -- -- 174,282
-------- -------- -------- -------- -------- --------
Restaurant operating income (loss) 6,876 (1,710) (51,978) 401 50,147 3,736
Administrative expenses.......... 3,181 1,687 5,543 (467) (3,240) 6,704
Operating income (loss).......... 3,695 (3,397) (57,521) 868 53,387 (2,968)
Other (income) expense........... (31) 229 -- 198
Interest expense, net............ 3,651 583 2,549 1,044 (1,859) 5,968
Income (loss) from continuing
operations................... $ 20 $ (2,698) $(48,600) $ (162) $ 45,893 $ (5,547)
Income from continuing
operations per common
and common equivalent share.. $ 0.00 $ (0.54)

(1) For a detailed description of the pro forma adjustments, see "Unaudited
Condensed Consolidated Pro Forma Statements of Operations."

(2) The restaurant operating losses for BEP in the periods presented above
include the provisions for restaurant closures and loss on impairment of
assets. See "Unaudited Condensed Consolidated Pro Forma Statements of
Operations."

5
6
RISK FACTORS

The following Risk Factors, in addition to those discussed elsewhere in
this Prospectus, should be considered carefully in evaluating the Company and
its business before purchasing any of the shares offered hereby.

NO ASSURANCE OF PROFITABILITY; INTEGRATION OF BUSINESS OPERATIONS FOLLOWING
THE MERGER AND BEP ACQUISITION

The Company's ability to generate operating profits will depend upon
its ability to successfully integrate the operations of DRC and BEP with those
of the Company; the nature and extent of any future developments, acquisitions,
conversions, and re-imagings of restaurants; the Company's capital resources;
the success of its franchising of Black-eyed Pea restaurants; general economic
and demographic conditions; and the Company's ability to refinance, restructure,
or repay its outstanding indebtedness. There can be no assurance that the
Company will be profitable in the future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

The Company anticipates that it will be able to use the opportunities
created by the Merger and the BEP Acquisition to effect what it believes will be
substantial cost savings, including a reduction in operating expenses as a
result of the elimination of duplicative administrative facilities, personnel,
and other overhead expenses. Significant uncertainties, however, accompany any
business combination and its implementation with respect to the ability of the
combined companies to integrate administrative functions and management
resources in order to achieve operating efficiencies. There can be no assurance
that the Company will be able to realize cost savings as a result of the Merger
or the BEP Acquisition, that such reductions will not result in a decrease in
revenue and profits, or that there will not be other adverse effects from the
reduction of such expenses. The inability to achieve the anticipated cost
savings could have a material adverse effect on the Company's future operating
results.

RISKS ASSOCIATED WITH BUSINESS STRATEGY

The Company intends to pursue a strategy of growth primarily through
the development of new Denny's and Black-eyed Pea restaurants, the acquisition
of existing Denny's restaurants, the franchising of additional Black-eyed Pea
restaurants, the acquisition and conversion to the Denny's or Black-eyed Pea
concepts of restaurants operating under other restaurant concepts, the
conversion of certain existing restaurants to the Denny's or Black-eyed Pea
concepts, the re-imaging of certain of its existing Denny's restaurants to the
new Denny's format, and the expansion of its operations to include one or more
additional restaurant concepts. There can be no assurance that the Company will
be successful in developing new restaurants or acquiring existing restaurants on
acceptable terms and conditions, that its operations can be expanded to include
other restaurant concepts, that any additional restaurants it develops or
acquires will be effectively and profitably managed and integrated into its
operations, that it will be able to effect its contemplated conversions or
re-imagings, or that any restaurants that it develops, acquires, converts, or
re-images will operate profitably. The execution of the Company's strategy will
require the availability of substantial funds. These funds historically have
been provided by sale-leaseback financing arrangements, and the Company
currently has in place commitments for approximately $20.0 million of
sale-leaseback financing through 1997. There can be no assurance, however, that
adequate financing will continue to be available on terms acceptable to the
Company. See "Risk Factors - Significant Borrowings and Future Financings."

Unforeseen expenses, difficulties, and delays frequently encountered in
connection with the rapid expansion of operations also could hinder the Company
from executing its business strategy. The magnitude, timing, and nature of
future restaurant developments, acquisitions, conversions, and re-imagings will
depend upon various factors, including the availability of suitable sites, the
ability to negotiate suitable terms, the Company's financial resources, the
availability of restaurant management and other personnel, the ability to obtain
any required consents from Denny's, Inc., the franchisor of Denny's restaurants,
or the Company's lenders for such developments,

6
7
acquisitions, and conversions, and general economic and business conditions.
Many of these factors will be beyond the control of the Company.

EXPANSION OF OPERATIONS

The Company's operations have expanded significantly since 1990. The
Company's success in the future will depend on its ability to integrate the
operations of DRC and BEP with its operations, to expand the number of its
restaurants either through increasing the number of its Denny's and BEP
restaurants or expanding its operations to include one or more additional
restaurant concepts, or both, and to operate and manage successfully its growing
operations. The Company's ability to expand successfully will depend upon a
number of factors, including the availability and cost of suitable restaurant
locations for development; the availability of restaurant acquisition
opportunities; the hiring, training, and retaining of additional management and
restaurant personnel; the availability of adequate financing; the continued
development and implementation of management information systems; and
competitive factors.

The rate at which the Company will be able to increase the number of
restaurants it operates will vary depending upon whether the Company acquires
existing restaurants or develops new restaurants. The acquisition of existing
restaurants will depend upon the Company's ability to identify and acquire
restaurants on satisfactory terms and conditions. The opening of new restaurants
will depend upon the Company's ability to locate suitable sites in terms of
favorable population characteristics, density and household income levels,
visibility, accessibility and traffic volume, proximity to demand generators
(including shopping malls, lodging, and office complexes) and potential
competition; to obtain financing for construction, tenant improvements,
furniture, fixtures, and equipment; to negotiate acceptable leases or terms of
purchase; to secure liquor licenses and zoning, environmental, health and
similar regulatory approvals; to recruit and train qualified personnel; and to
manage successfully the rate of expansion and expanded operations. The opening
of new restaurants also may be affected by increased construction costs and
delays resulting from governmental regulatory approvals, strikes or work
stoppages, adverse weather conditions, and various acts of God. Newly opened
restaurants may operate at a loss for a period following their initial opening.
The length of this period will depend upon a number of factors, including the
time of year the restaurant is opened, sales volume, and the Company's ability
to control costs. There can be no assurance that the Company will be successful
in achieving its expansion goals through development or acquisition of
additional restaurants or that any additional restaurants that are developed or
acquired will be profitable.

SIGNIFICANT BORROWINGS AND FUTURE FINANCINGS

The development of new restaurants, the acquisition of existing
restaurants, and the conversion and reimaging of restaurants requires funds for
construction, tenant improvements, furniture, fixtures, equipment, training of
employees, permits, initial franchise fees, and additional expenditures. See
"Business - Denny's Restaurants - Unit Economics" and "Business - Black-eyed Pea
Restaurants - Unit Economics." The Company has incurred substantial indebtedness
to effect its restaurant developments, acquisitions, conversions, and
re-imagings to date, and the Company may incur substantial additional
indebtedness in the future in order to implement its business plan and growth
strategy. The Company had long-term debt of $43.6 million, subordinated notes of
$30.0 million, obligations under capital leases aggregating $24.0 million, and a
working capital deficit of $33.9 million as of July 3, 1996.

The Company may seek additional equity or debt financing in the future
to provide funds to develop, acquire, convert, and re-image restaurants. In
addition, the Company currently intends to raise sufficient capital, either
through the sale of equity or by incurring replacement indebtedness, to enable
it to retire its Series B 13% Subordinated Notes due 2003 in the principal
amount of $18,250,000 (the "Series B Notes") prior to the date on which the
related Series B Warrants become exercisable on March 29, 1999 and its 12%
Subordinated Note due 2002 in the principal amount of $15.0 million (the "BEP
Purchase Note") prior to the time the related BEP Warrants become exercisable on
March 31, 1997. See "Description of Securities - Warrants." There can be no
assurance that such financing will be available or will be available on
satisfactory terms; that the Company will be able to

7
8
develop or acquire new restaurants, to convert existing restaurants to the
Denny's or Black-eyed Pea concepts, to re-image existing restaurants, or to
otherwise expand its restaurant operations; that the Company will be able to
refinance, restructure, or satisfy its obligations as they become due; or that
the Company will be able to retire its Series B Notes and BEP Purchase Note
before the related Series B Warrants and BEP Warrants are exercised. See "Risk
Factors - Expansion of Operations" and "Risk Factors - Inability to Develop or
Convert Restaurants." While debt financing enables the Company to add more
restaurants than it would otherwise be able to do, expenses are increased by
such financing and such financing must be repaid by the Company regardless of
the Company's operating results. Future equity financings could result in
dilution to shareholders.

RELIANCE ON DENNY'S, INC.

The Company currently operates 182 Denny's restaurants as a Denny's
franchisee. As a result of the nature of franchising and the Company's franchise
agreements with Denny's, Inc., the long-term success of the Company depends, to
a significant extent, on the continued vitality of the Denny's restaurant
concept and the overall success of the Denny's system; the ability of Denny's,
Inc. to identify and react to new trends in the restaurant industry, including
the development of popular menu items; the ability of Denny's Inc. to develop
and pursue appropriate marketing strategies in order to maintain and enhance the
name recognition, reputation, and market perception of Denny's restaurants; the
goodwill associated with the Denny's trademark; the quality, consistency, and
management of the overall Denny's system; and the successful operation of
Denny's restaurants owned by Denny's, Inc. and other Denny's franchisees. Any
business reversals that may be encountered by Denny's, Inc., a failure by
Denny's, Inc. to promote the Denny's name or restaurant concept, the inability
or failure of Denny's, Inc. to support its franchisees, including the Company,
or the failure to operate successfully the Denny's restaurants that Denny's,
Inc. itself owns could have a material adverse effect on the Company. In this
regard, Flagstar Companies, Inc., which owns Denny's, Inc., has been
experiencing financial difficulties, which could have a material adverse effect
on Denny's, Inc. The Company has no control over the management or operation of
Denny's, Inc. or other Denny's franchisees. Negative publicity with respect to
Denny's, Inc. or the Denny's name could adversely affect the Company. For
example, the Company experienced a decline in traffic and restaurant sales in
certain of its Denny's restaurants as a result of the negative publicity that
arose in 1993 relating to claims of alleged racial discrimination against
customers in certain Denny's, Inc. restaurants and a subsequent investigation of
such claims by the United States Department of Justice.

INABILITY TO DEVELOP OR CONVERT RESTAURANTS

The Company intends to develop new Denny's and Black-eyed Pea
restaurants and to convert to the Denny's concept certain restaurants that it
currently owns or that it may acquire in the future. See "Business - Strategy"
and "Business - Expansion of Operations." The Company's ability to develop new
Denny's and Black-eyed Pea restaurants will depend upon numerous factors,
particularly the Company's ability to identify suitable sites, obtain adequate
financing on acceptable terms, and other factors over which the Company may have
little or no control. There can be no assurance that the Company will be able to
secure sufficient restaurant sites that it deems to be suitable or to develop
Denny's or Black-eyed Pea restaurants on such sites on terms and conditions it
considers favorable in order to meet its growth objectives or to satisfy the
requirements of the Development Agreement described below.

The Company and Denny's, Inc. currently are parties to a development
agreement, as amended (the "Development Agreement") that gives the Company the
exclusive right to develop and open a total of 40 Denny's restaurants in
specified locations during the period ending December 31, 1997. See "Business -
Denny's Restaurants - Development Agreement." The acquisition of existing
Denny's restaurants or the conversion of other restaurants to the Denny's
concept do not constitute the opening of new Denny's restaurants under the
Development Agreement. At the request of the Company, Denny's, Inc. from time to
time has agreed to amend the terms of the Development Agreement so as to extend
the time in which the Company is required to develop new Denny's restaurants.
The Company requested such amendments as a result of its inability to secure
sites for new restaurants that it believed to be attractive on favorable terms
and conditions within the time periods required. The Company currently

8
9
anticipates that it will not develop the number of restaurants required to be
developed pursuant to the Development Agreement in 1996 and intends to request
an extension of the time in which it will be required to develop those
restaurants. There can be no assurance, however, that Denny's, Inc. will extend
the development schedules in the future in the event that the Company
experiences any difficulty in satisfying such schedules for any reason,
including a shortage of capital. In the event that the Company fails to timely
comply with the schedule for developing Denny's restaurants or otherwise
defaults under the Development Agreement, Denny's, Inc. will have the right to
terminate the Development Agreement and the Company's exclusive right to develop
Denny's restaurants in the locations specified in that agreement. The Company
will, however, continue to be able to develop additional Denny's restaurants on
a non-exclusive basis upon termination or expiration of the Development
Agreement.

The Company's ability to convert additional restaurants to the Denny's
concept will depend upon a number of factors, including the continued
availability of adequate financing on acceptable terms and the Company's ability
to identify and acquire existing restaurants that are suitable for conversion to
the Denny's concept. An agreement with Denny's Inc. requires the Company to
convert a total of 25 Kettle's restaurants to the Denny's concept by September
1997. As of October 31, 1996, the Company had converted 5 of the 25 Kettle
restaurants it is required to convert to the Denny's concept. There can be no
assurance that the Company will be able to convert its existing non-Denny's,
non-Black-eyed Pea restaurants in a timely manner or to acquire and convert
additional restaurants in the future in a manner that will enable it to meet its
expansion objectives.

RESTRICTIONS IMPOSED BY DENNY'S FRANCHISE AGREEMENTS

The Company is a party to a separate franchise agreement with Denny's,
Inc. for each of its Denny's restaurants (the "Denny's Franchise Agreements").
The Denny's Franchise Agreements impose a number of restrictions and obligations
on the Company. The Denny's Franchise Agreements require the Company to pay an
initial franchise fee and royalties equal to 4% of weekly gross sales and an
advertising contribution of 2% of weekly gross sales. Such amounts must be paid
or expended regardless of the profitability of the Company's Denny's
restaurants. The Denny's Franchise Agreements also require the Company to
operate its Denny's restaurants in accordance with the requirements and
specifications established by Denny's, Inc. relating to the exterior and
interior design, decor, and furnishings of Denny's restaurants, menu selection,
the preparation of food products, and quality of service as well as general
operating procedures, advertising, maintenance of records, and protection of
trademarks. In addition, from time to time, Denny's, Inc. may require the
Company to modify its restaurants to conform with the then-existing Denny's
restaurant format. The failure of the Company to satisfy such requirements could
result in the loss of the Company's franchise rights for some or all of its
Denny's restaurants as well as its development rights for additional Denny's
restaurants. See "Business - Denny's Restaurants - Denny's Franchise Agreements"
and "Business - Denny's Restaurants - Development Agreement."

In the event that the Company defaults under the Denny's Franchise
Agreements, the Company could be subject to potential damages for breach of
contract and could lose its rights under those agreements, including the right
to what the Company believes are favorable franchise arrangements and the right
to use the "Denny's" trademarks and trade styles. The loss of such rights would
have a material adverse effect on the Company. Denny's, Inc. has retained the
right to open on its own behalf or to grant to other franchisees the right to
open other Denny's restaurants in the immediate vicinity of the Company's
Denny's restaurants.

The Denny's Franchise Agreements also provide that, in the event an
assignment is deemed to have occurred thereunder, Denny's, Inc. will have the
option to purchase the interest being transferred. An assignment under the
Denny's Franchise Agreements will be deemed to have occurred if a person,
entity, or group of persons (other than a group including any of Jack M. Lloyd,
William J. Howard, and William G. Cox, each of whom is an officer and director
of the Company; Jeffrey D. Miller; a former officer and director of the Company;
or BancBoston Ventures, Inc. ("BancBoston"), a significant shareholder of the
Company) acquires voting control of the Board of Directors of the Company.

9
10
CERTAIN FACTORS AFFECTING THE RESTAURANT INDUSTRY

The ownership and operation of restaurants may be affected by adverse
changes in national, regional, or local economic or market conditions; increased
costs of labor (including those which may result from the recently enacted
increases in applicable minimum wage requirements); increased costs of food
products; fuel shortages and price increases; competitive factors; the number,
density, and location of competitors; limited alternative uses for properties
and equipment; changing consumer tastes, habits, and spending priorities; the
cost and availability of insurance coverage; management problems; uninsured
losses; changing demographics; changes in government regulation; changing
traffic patterns; weather conditions; and other factors. The Company may be the
subject of litigation based on discrimination, personal injury, or other claims,
including claims that may be based upon legislation that imposes liability on
restaurants or their employees for injuries or damages caused by the negligent
service of alcoholic beverages to an intoxicated person or to a minor.
Multi-unit restaurant operators, such as the Company, can be adversely affected
by publicity resulting from food quality, illness, injury, or other health and
safety concerns or operating issues resulting from one restaurant or a limited
number of restaurants operated under the same name, including those not owned by
the Company. None of these factors can be predicted with any degree of
certainty, and any one or more of these factors could have a material adverse
effect on the Company.

COMPETITION

As part of the nation's largest family-oriented, full-service
restaurant chain, the Company's Denny's restaurants compete primarily with
national and regional restaurant chains, such as International House of
Pancakes, Big Boy, Shoney's, Friendly's, and Perkins. The Company's Black-eyed
Pea restaurants compete in the casual and mid-scale dining segment and the
family dining segment with national and regional restaurant chains such as
Applebee's and Chili's. The Company's other restaurants also compete with
national restaurant chains as well as with smaller regional, local, and
independent operators.

The restaurant industry is intensely competitive with respect to price,
service, location, personnel, and type and quality of food. In addition,
restaurants compete for attractive restaurant sites and the availability of
restaurant personnel and managers. The Company has many well-established
competitors with financial and other resources substantially greater than those
of the Company. Certain competitors have been in existence for a substantially
longer period than the Company and may be better established in markets where
the Company's restaurants are or may be located. The restaurant business often
is affected by changes in consumer tastes, national, regional, or local economic
conditions, demographic trends, traffic patterns, and the type, number and
location of competing restaurants. The Company's success will depend, in part,
on the ability of the Company (and Denny's, Inc. in the case of the Company's
Denny's restaurants) to identify and respond appropriately to changing
conditions. In addition, factors such as inflation, increased food, labor, and
benefit costs, and the availability of experienced management and hourly
employees, which may adversely affect the restaurant industry in general, would
affect the Company's restaurants.

CONTROL BY CERTAIN SHAREHOLDERS; CONFLICTS OF INTEREST

The directors and officers of the Company currently own approximately
34.9% of the Company's outstanding Common Stock. In addition, BancBoston, a
former shareholder of DRC, currently owns approximately 15.9% of the Company's
outstanding Common Stock. Accordingly, such shareholders collectively have the
power to elect all of the members of the Company's Board of Directors and
thereby control the business and policies of the Company.

Jack M. Lloyd, the Chairman of the Board, President, and Chief
Executive Officer of the Company, and William J. Howard, Executive Vice
President and a director of the Company, currently hold an aggregate of
$16,794,000 in principal amount of the Company's Series B Notes in addition to
their Common Stock. As a result of such shareholders' ability, together with the
Company's other directors and officers, to direct the policies of the Company,
an inherent conflict of interest may arise in connection with decisions
regarding the timing of and the

10
11
allocation of assets of the Company for the purposes of interest payments on, or
redemption of, the Series B Notes. In addition, the Series B Notes contain
restrictive covenants relating to the operation of the Company and the
maintenance of certain financial ratios and tests. There can be no assurance
that the holders of the Series B Notes will waive any default under the notes. A
default not waived by a majority of the holders of the Series B Notes could have
a material adverse effect on the holders of the Company's Common Stock.

DEPENDENCE UPON KEY PERSONNEL

The Company's success will depend, in large part, upon the services of
Jack M. Lloyd, the Company's Chairman of the Board, President, and Chief
Executive Officer, and William G. Cox, the Company's Chief Operating Officer.
Although the Company has employment agreements with Messrs. Lloyd and Cox
expiring in December 1997 and May 1999, respectively, the loss of the services
of either of them could materially and adversely affect the Company. See
"Management - Employment Agreements."

GOVERNMENT REGULATION

The Company is subject to various federal, state, and local laws
affecting its business. The development and operation of restaurants depend to a
significant extent on the selection and acquisition of suitable sites, which are
subject to zoning, land use, environmental, traffic, and other regulations of
state and local governmental agencies. City ordinances or other regulations, or
the application of such ordinances or regulations, could impair the Company's
ability to construct or acquire restaurants in desired locations and could
result in costly delays. In addition, restaurant operations are subject to
licensing and regulation by state and local departments relating to health,
sanitation, safety standards, and fire codes; federal and state labor laws
(including applicable minimum wage requirements, tip credit provisions, overtime
regulations, workers' compensation insurance rates, unemployment and other
taxes, working and safety conditions, and citizenship requirements); zoning
restrictions; and, in those restaurants currently operated by the Company at
which alcoholic beverages are served, state and local licensing of the sale of
alcoholic beverages. The delay or failure to obtain or maintain any licenses or
permits necessary for operations could have a material adverse effect on the
Company. In addition, an increase in the minimum wage rate (such as the recently
enacted increase), employee benefit costs (including costs associated with
mandated health insurance coverage), or other costs associated with employees
could adversely affect the Company. The Company also is subject to the Americans
with Disabilities Act of 1990 which, among other things, may require the
installation of certain fixtures or accommodations in new restaurants or
renovations to its existing restaurants to meet federally mandated requirements.
With respect to its franchised Black-eyed Pea restaurants, the Company is
subject to regulation by the Federal Trade Commission and must comply with
certain state laws governing the offer, sale, and termination of franchises and
the refusal to renew franchises.

POSSIBLE VOLATILITY OF STOCK PRICE

The market price of the Company's Common Stock could be subject to wide
fluctuations in response to quarterly variations in the operating results of the
Company or other restaurant companies, changes in analysts' estimates of the
Company's financial performance, changes in national and regional economic
conditions, the financial markets, or the restaurant industry, natural
disasters, or other developments affecting the Company or other restaurant
companies. The trading volume of the Company's Common Stock has been limited,
which may increase the volatility of the market price for such stock. In
addition, the stock market has experienced extreme price and volume fluctuation
in recent years. This volatility has had a significant effect on the market
prices of securities issued by many companies for reasons not necessarily
related to the operating performances of these companies.

RIGHTS TO ACQUIRE SHARES

A total of 1,560,467 shares of the Company's Common Stock have been
reserved for issuance upon exercise of options granted or which may be granted
under the Company's stock option plans. See "Management - Stock Option Plans."
Employee and director stock options to acquire an aggregate of 1,218,800 shares
of Common Stock

11
12
currently are outstanding. In addition, warrants and unit purchase options to
acquire 1,904,393 shares of Common Stock currently are outstanding. During the
terms of such options and warrants, the holders thereof will have the
opportunity to profit from an increase in the market price of the Company's
Common Stock. The existence of such options and warrants may adversely affect
the terms on which the Company can obtain additional financing in the future,
and the holders of such options and warrants can be expected to exercise such
options and warrants at a time when the Company, in all likelihood, would be
able to obtain additional capital by offering shares of Common Stock on terms
more favorable to it than those provided by the exercise of such options and
warrants. See "Description of Securities."

SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of Common Stock in the public market, or
even the potential for such sales, could adversely affect prevailing market
prices for the Company's Common Stock and could adversely affect the Company's
ability to raise capital. There currently are outstanding 13,399,277 shares of
the Company's Common Stock. Of these shares, approximately 11,273,000 shares are
freely transferrable without restriction under the Securities Act of 1933, as
amended (the "Securities Act"), unless they are held by "affiliates" of the
Company, as that term is defined in the Securities Act and the regulations
promulgated thereunder or transfer of certain shares is restricted as a result
of contractual obligations.

The 6,937,500 shares of Common Stock issued pursuant to the Merger
generally are freely tradeable under Rule 145 under the Securities Act, unless
held by an affiliate, in which case such shares will be subject to the volume
and manner of sale restrictions under Rule 144. In connection with the Merger,
certain of the former shareholders of DRC entered into lock-up agreements with
respect to 4,660,256 shares of Common Stock issued to them upon consummation of
the Merger. See "Description of Securities - Shares Eligible for Future Sale."
The former shareholders of DRC have certain rights with respect to registration
of the shares of Common Stock issued in connection with the Merger or upon
exercise of the warrants issued in connection with the Merger. Holders of the
Selling Shareholders' Warrants, Unit Purchase Options, and other outstanding
warrants have certain rights with respect to registration of the shares
underlying such warrants and options for offer or sale to the public. See
"Description of Securities - Registration Rights." The Registration Statement of
which this Prospectus forms a part is intended to satisfy certain of the
Company's obligations with respect to such registration rights.

LACK OF DIVIDENDS; RESTRICTIONS ON ABILITY TO PAY DIVIDENDS IN THE FUTURE

The Company has never paid any dividends on its Common Stock and does
not anticipate that it will pay dividends in the foreseeable future. The Company
intends to apply any earnings to the expansion and development of its business.
In addition, the terms of the Company's $65.0 million credit facility and the
terms of the BEP Purchase Note and the Indenture governing its Series B Notes
limit the ability of the Company to pay dividends on its Common Stock.

CHANGE IN CONTROL PROVISIONS

The Company's Restated Articles of Incorporation and Amended and
Restated Bylaws and certain provisions of the Georgia Business Corporation Code
contain provisions that may have the effect of making more difficult or delaying
attempts by others to obtain control of the Company, even when these attempts
may be in the best interests of shareholders. See "Description of Securities -
Certain Provisions of the Company's Restated Articles of Incorporation and
Amended and Restated Bylaws; Certain Provisions of Georgia Law."

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain statements and information contained in this Prospectus under
the headings "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and "Business" concerning future,
proposed, and anticipated activities of the Company, certain trends with respect
to the Company's

12
13
operating results, capital resources, and liquidity or with respect to the
restaurant industry in general, and other statements contained in this
Prospectus regarding matters that are not historical facts are forward-looking
statements, as such term is defined in the Securities Act. Forward-looking
statements, by their very nature, include risks and uncertainties. Accordingly,
actual results may differ, perhaps materially, from those expressed in or
implied by such forward-looking statements. Factors that could cause actual
results to differ materially include those discussed elsewhere under "Risk
Factors."

USE OF PROCEEDS

The Company intends to use the proceeds from the exercise of the
Selling Shareholders' Warrants and Unit Purchase Options, a maximum of
approximately $3.9 million (net of the expenses of this offering) if all of the
Selling Shareholders' Warrants and Unit Purchase Options are exercised to
provide working capital which may be used for repayment of long-term debt as
required under the terms of the Company's existing credit facility and for
various corporate purposes, including the development of new restaurants,
acquisitions of existing restaurants, conversions of existing restaurants to the
Denny's or Black-eyed Pea concepts, and re-imaging of existing Denny's
restaurants. The market price of the Company's Common Stock has been lower than
the exercise prices of the Selling Shareholders' Warrants and Unit Purchase
Options during most of the period since the Company's initial public offering in
October 1994. See "Price Range of Common Stock." As a result, there can be no
assurance that all of the Selling Shareholders' Warrants and Unit Purchase
Options will be exercised prior to their respective expiration dates. The
Company will not receive any of the proceeds of sales of shares of Common Stock
by the Selling Shareholders.

DIVIDENDS

The Company has never paid any dividends. The Company intends to retain
any earnings to fund the growth of its business and does not anticipate paying
any cash dividends in the foreseeable future. In addition, the payment of
dividends on the Company's Common Stock is restricted under the Company's
existing credit facility with Banque Paribas, and the terms of the BEP Purchase
Note, and the Indenture governing the Company's Series B Notes.

13
14
CAPITALIZATION

The following table sets forth the capitalization of the Company as of
July 3, 1996 and as adjusted to reflect the exercise of all of the Selling
Shareholders' Warrants and Unit Purchase Options and the application of the
estimated net proceeds therefrom to repay long-term debt under the Company's
existing credit facility. There can be no assurance that all of the Selling
Shareholder Warrants and Unit Purchase Options will be exercised prior to their
respective expiration dates.

JULY 3, JULY 3,
1996 1996
ACTUAL AS ADJUSTED(1)
------ --------------
(UNAUDITED)
-----------
(DOLLARS IN THOUSANDS)
----------------------

Long-term debt, less current portion .......................................... $ 43,594 $ 39,786
Subordinated notes (face value $33,250) ....................................... 29,961 29,961
Obligations under capital leases, less current obligations .................... 24,034 24,034
Shareholders' equity:
Common stock, par value $.10 per share, 13,398,944 shares outstanding at July
3, 1996; 14,052,692 shares outstanding at July 3, 1996, as adjusted ....... 1,339 1,405
Additional paid-in capital .................................................. 34,537 38,279
Accumulated deficit ......................................................... (16,503) (16,503)
--------- ---------
Total shareholders' equity .................................................... 19,373 23,181
--------- ---------
Total capitalization .......................................................... $ 116,962 $ 116,962
========= =========

- ---------
(1) Excludes 1,038,800 shares of Common Stock reserved for issuance upon
exercise of stock options outstanding as of July 3, 1996, 180,000
shares of Common Stock reserved for issuance upon the exercise of stock
options granted subsequent to July 3, 1996, and 341,667 shares reserved
for issuance upon the exercise of stock options that may be granted in
the future pursuant to the Company's stock option plans. See
"Management - Stock Option Plans." Also excludes 1,251,270 shares of
Common Stock issuable upon exercise of outstanding warrants other than
the Selling Shareholder Warrants. See "Description of Securities -
Warrants."

14
15
PRICE RANGE OF COMMON STOCK

The following table sets forth the high and low sales prices per share
of the Company's Common Stock as reported on the AMEX for the calendar periods
indicated since the Company's initial public offering on October 18, 1994.

COMMON STOCK
------------
HIGH LOW
---- ---
1994

Fourth Quarter................................................... $5.13 $3.50

1995

First Quarter.................................................... $4.13 $2.63
Second Quarter................................................... 4.75 3.13
Third Quarter.................................................... 5.25 4.00
Fourth Quarter................................................... 6.00 4.00

1996

First Quarter.................................................... $5.75 $3.63
Second Quarter................................................... 6.00 3.00
Third Quarter.................................................... 5.63 3.50
Fourth Quarter (through October 31, 1996)........................ 5.13 4.25

The Company has never declared or paid any dividends. The Company
intends to retain earnings, if any, to fund the growth of its business and does
not anticipate paying any cash dividends in the foreseeable future. In addition,
the payment of dividends on the Company's Common Stock is restricted under the
Company's existing credit facility with Banque Paribas and the terms of the BEP
Purchase Note and the Indenture governing the Company's Series B Notes.

As of October 31, 1996, there were approximately 200 holders of record
of the Company's Common Stock. On October 31, 1996, the closing sales price of
the Company's Common Stock on the AMEX was $4.63 per share.

15
16
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The following selected historical consolidated financial data of the
Company for each of the fiscal years in the three-year period ended December 27,
1995 have been derived from and should be read in conjunction with the audited
consolidated financial statements and related notes thereto incorporated by
reference herein. The selected historical summary consolidated financial data
for the two fiscal years ended December 31, 1992 are derived from DRC's
historical financial statements (not included elsewhere herein), of which the
fiscal year ended December 26, 1991 is unaudited. The selected historical
consolidated financial data for the 26-week period ended June 28, 1995 is
derived from DRC's unaudited historical financial statements for such period.
The selected historical consolidated financial data for the 27-week period ended
July 3, 1996 include the unaudited results of operations of DRC since the
beginning of such period, the unaudited results of operations of AFR since the
accounting date for the Merger of March 27, 1996, and the unaudited results of
operations of BEP since the accounting date of the BEP Acquisition of June 24,
1996. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Basis of Presentation" and the consolidated financial
statements incorporated by reference herein.

AS OF AND FOR THE
AS OF AND FOR THE FISCAL YEAR ENDING PERIOD ENDING
--------------------------------------------------- ---------------------
DEC. 26, DEC. 31, DEC. 30, DEC. 28, DEC. 27, JUNE 28, JULY 3,
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT SHARE DATA) (26 WEEKS) (27 WEEKS)
---------- ----------

STATEMENT OF OPERATIONS DATA(1):
Restaurant sales ................................ $ 20,702 $ 27,712 $ 32,584 $ 47,323 $ 74,683 $ 33,137 $ 79,173
Restaurant operating income ..................... 1,265 2,671 3,147 4,539 6,643 3,449 6,876
Administrative expenses ......................... 1,461 1,867 2,050 2,619 3,380 1,603 3,181
Operating income (loss) ......................... (23) 930 1,328 1,320 3,263 1,846 3,695
Interest expense ................................ (535) (449) (736) (1,301) (2,467) (1,020) (3,651)
Net income (loss), before
extraordinary item ............................ (701) (22) 140 (341) 200 427 20

OTHER DATA:
EBITDA(2) ....................................... $ 655 $ 1,923 $ 2,656 $ 2,821 $ 6,722 $ 3,029 $ 6,531
Cash flows provided by (used in)
operating activities .......................... 985 1,633 2,493 2,410 6,305 2,368 (837)
Cash flows (used in) investing activities........ (1,393) (1,988) (1,002) (9,667) (8,736) (6,816) (4,677)
Cash flows provided by (used in)
financing activities ....................... 400 (118) (1,168) 7,092 2,273 4,290 5,514
Capital expenditures ............................ 1,499 2,346 1,574 9,667 8,736 6,816 4,446
Depreciation and amortization ................... 678 993 1,328 1,501 2,936 1,183 2,836
Ratio of earnings to fixed charges(3) ........... .41 1.11 1.15 .81 1.10 1.32 1.01
Number of restaurants, end of period ............ 28 31 37 70 102 73 312

BALANCE SHEET DATA:
Working capital (deficit) ....................... $ (2,470) $ (3,213) $ (3,568) $ (6,107) $ (9,406) $ (6,427) $ (33,902)
Intangibles, net ................................ 2,137 1,772 1,317 11,151 11,925 11,475 72,517
Total assets .................................... 8,618 9,907 14,529 35,028 53,785 40,571 166,160
Long-term debt, less current portion ............ 602 475 2,135 7,552 10,371 12,424 43,594
Obligations under capital leases,
less current obligations ................... 2,289 2,808 4,307 7,151 19,881 6,906 24,034
Redeemable convertible preferred stock .......... -- -- -- 7,397 7,501 7,449 --
Shareholders' equity (deficit) .................. (1,102) (1,703) (1,218) 957 564 1,098 19,361

- ---------
(1) The Company has consummated various acquisitions and has opened new
restaurants during each of the five fiscal years shown. Accordingly,
revenue increases in each of the years shown arise primarily from
restaurant acquisitions and openings in each year.

16
17
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENTS OF OPERATIONS

The following unaudited condensed consolidated pro forma statements of
operations of the Company for the year ended December 27, 1995 and the 27-week
period ended July 3, 1996, give effect to (i) the reverse purchase accounting
for the Merger, which had an effective accounting date of March 27, 1996, as if
it had occurred at the beginning of the period; (ii) the BEP Acquisition, which
had an effective accounting date of June 24, 1996, as if it occurred at the
beginning of the period; (iii) the repayment of the $6.0 million outstanding
principal of the Company's Series A 13% Subordinated Notes due 2003, together
with accrued and unpaid interest on such notes, as if it had occurred at the
beginning of each period; and (iv) the net reduction in operating expenses of
AFR and BEP after the Merger and the BEP Acquisition that occurred as a result
of employee terminations, closing of duplicate administrative facilities, or
contractual changes. The financial statements of AFR and BEP for the fiscal year
ended December 27, 1995, include (a) AFR's financial statements for its fiscal
year ended September 27, 1995, and (b) BEP's financial statements for its fiscal
year ended April 1, 1996. The financial statements of AFR and BEP for the
27-week period ended July 3, 1996 include, prior to their acquisition by the
Company, (1) AFR's financial statements for the three-month period ended March
27, 1996, and (2) BEP's financial statements for the period from January 9, 1996
to June 24, 1996. The unaudited condensed consolidated pro forma statements of
operations presented herein do not purport to represent what the Company's
actual results of operations would have been had the Merger, the BEP
Acquisition, or the other transactions described above occurred on those dates
or to project the Company's results of operations for any future period. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF
OPERATIONS FOR THE FISCAL YEAR ENDED DECEMBER 27, 1995
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

ACQUIRED PRO FORMA ADJUSTMENTS
COMPANIES DR (CR)
------------------ ---------------------
THE COMPANY - PRO
HISTORICAL AFR BEP AFR BEP FORMA
---------- --- --- --- --- -----

Restaurant sales:
Denny's restaurants .................... $70,429 $ 74,679 $ -- $ -- $ -- $145,108
Black-eyed Pea restaurants ............. -- -- 145,455 -- -- 145,455
Other restaurants ...................... 4,254 32,218 -- -- -- 36,472
------- -------- --------- ------- --------- ----------
Total restaurant sales ................. 74,683 106,897 145,455 -- -- 327,035
Restaurant operating expenses:
Cost of food and beverage .............. 20,343 30,529 39,914 (328)(a) -- 90,458
Payroll and payroll related costs....... 25,025 36,329 48,897 (164)(b) -- 110,087
Depreciation and amortization .......... 2,936 3,462 8,792 (212)(c) (7,412)(aa) 7,566
Other restaurant operating costs ....... 19,213 27,654 35,021 (239)(d) 7,556 (bb) 89,205
Provision for restaurant closures ...... -- -- 10,225 -- -- 10,225
Provision for loss on impairment
of assets ............................ 523 -- 50,384 -- (50,384)(cc) 523
------- -------- --------- ------- --------- ----------
Total restaurant operating
expenses ............................. 68,040 97,974 193,233 (943) (50,240) 308,064
Restaurant operating income (loss) ......... 6,643 8,923 (47,778) 943 50,240 18,971
Administrative expenses .................... 3,380 5,166 8,588 (1,869)(e) (3,982)(dd) 11,283
------- -------- --------- ------- --------- ----------
Operating income ........................... 3,263 3,757 (56,366) 2,812 54,222 7,688
Other (income) expense ..................... -- (156) 717 -- -- 561
Interest expense, net ...................... 2,467 1,714 5,362 3,640 (f) (4,162)(ee) 9,556
...................................... 535 (g)
------- -------- --------- ------- --------- ----------
Income (loss) before minority
interest in joint ventures
and income taxes ....................... 796 2,199 (62,445) (1,363) 58,384 (2,429)
Minority interest in joint ventures ........ (291) 85 -- -- -- (206)
------- -------- --------- ------- --------- ----------
Income (loss) before income taxes .......... 505 2,284 (62,445) (1,363) 58,384 (2,635)
Income taxes ............................... 305 578 (12,877) (341)(h) 11,334 (ff) (1,001)
------- -------- --------- ------- --------- ----------
Income (loss) from continuing
operations ............................. $ 200 $ 1,706 $(49,568) $(1,022) $ 47,050 $ (1,634)
======= ======== ======== ======= ========= ==========
Income (loss) from continuing
operations per common
and common equivalent share ............ 0.28 $ (0.13)
======== ==========
Weighted average number of common
and common equivalent shares
outstanding(i) ......................... 6,171,444 13,108,944
========= ==========

17
18

UNAUDITED CONDENSED CONSOLIDATED PRO FORMA
STATEMENT OF OPERATIONS FOR THE
27-WEEK PERIOD ENDED JULY 3, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

ACQUIRED PRO FORMA ADJUSTMENTS
COMPANIES DR (CR)
THE COMPANY - ------------------ --------------------- PRO
HISTORICAL AFR BEP AFR BEP FORMA
---------- --- --- --- --- -----
(13 WEEKS) (24 WEEKS)

Restaurant sales:
Denny's restaurants ............. $ 64,078 $20,417 $ -- $ -- $ -- $ 84,495
Black-eyed Pea restaurants ...... 3,402 -- 66,645 -- -- 70,047
Other restaurants ............... 11,693 8,047 -- -- -- 19,740
----------- ------- --------- ----- -------- ----------
Total restaurant sales .......... 79,173 28,464 66,645 -- -- 174,282
Restaurant operating expenses:
Cost of food and beverage ....... 21,971 8,628 19,832 (79)(a) -- 50,352
Payroll and payroll related costs 27,416 11,686 20,206 -- -- 59,308
Depreciation and amortization ... 2,836 1,134 4,231 (322)(c) (3,541)(aa) 4,338
Other restaurant operating costs 20,074 8,726 13,745 -- 3,778 (bb) 46,323
Provision for restaurant closures -- -- 10,225 -- -- 10,225
Provision for loss on impairment
of assets ..................... -- -- 50,384 -- (50,384)(cc) --
----------- ------- --------- ----- -------- ----------
Total restaurant operating
expenses ...................... 72,297 30,174 118,623 (401) (50,147) 170,546
Restaurant operating income (loss) .. 6,876 (1,710) (51,978) 401 50,147 3,736
Administrative expenses ............. 3,181 1,687 5,543 (467)(e) (3,240)(dd) 6,704
----------- ------- --------- ----- -------- ----------
Operating income .................... 3,695 (3,397) (57,521) 868 53,387 (2,968)
Other (income) expense .............. -- (31) 229 -- -- 198
Interest expense, net ............... 3,651 583 2,549 910 (f) (1,859)(ee) 5,968
............................... 134 (g)
----------- ------- --------- ----- -------- ----------
Income (loss) before minority
interest in joint ventures
and income taxes ................ 44 (3,949) (60,299) (176) 55,246 (9,134)
Minority interest in joint ventures . (11) 95 -- -- -- 84
----------- ------- --------- ----- -------- ----------
Income (loss) before income taxes ... 3 (3,854) (60,299) (176) 55,246 (9,050)
Income taxes ........................ 13 (1,156) (11,699) (14)(h) 9,353 (ff) (3,503)
----------- ------- --------- ----- -------- ----------
Income (loss) from continuing
operations ...................... $ 20 $(2,698) $ (48,600) $(162) $ 45,893 $ (5,547)
=========== ======= ========= ===== ======== ==========
Income (loss) from continuing
operations per common
and common equivalent share ..... $ 0.00 $ (0.54)
=========== ==========
Weighted average number of common
and common equivalent shares
outstanding(i) .................. 10,293,000 10,293,000
=========== ==========

18
19
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
PRO FORMA STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)

The following explanations serve to describe the assumptions used in
determining the pro forma adjustments necessary to present the pro forma results
of operations of AFR and DRC for the year ended December 27, 1995 and the
27-week period ended July 3, 1996:

27-WEEK
FISCAL PERIOD
YEAR ENDED ENDED
DEC. 27, 1995 JULY 3, 1996
------------- ------------

(a) Adjust food costs for discounts not taken by AFR $ (328) $ (79)
============ =============

(b) Adjustment for inclusion of DRC employees under
the new workers' compensation costs $ (164) $ --
============ =============

(c) Adjustment for new depreciation and amortization for AFR
Property and equipment 1,700 425
Goodwill 1,550 387
------------ -------------
3,250 812
Amount recorded in financial statements 3,462 1,134
------------ -------------
Pro forma adjustment $ (212) $ (322)
============ =============

(d) Adjustment for inclusion of DRC under the new insurance $ (239) $ --
============ =============

(e) Adjustment for consolidation of administrative expenses $ (1,869) $ (467)
============ =============

(f) Adjustment for additional interest on subordinated notes
Interest expense at 13% $ 3,153 $ 788
Amortization of discount 487 122
------------ -------------
$ 3,640 $ 910
============ =============
(g) Adjustment for additional interest expense
Additional borrowings of $5,096 for Merger-related
expenses at an effective rate of 10.5% $ 535 $ 134
============ =============

(h) Adjustment for income taxes for above adjustments
at an effective rate of 38% $ (341) $ (14)
============ =============

(i) The weighted average number of common shares outstanding
includes the number of common shares of AFR outstanding
as of the Merger increased by the number of shares issued
to the former shareholders of DRC in connection with the
Merger

19
20
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
PRO FORMA STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)

The following explanations serve to describe the assumptions used in
determining the pro forma adjustments necessary to present the pro forma results
of operations of BEP for the year ended December 27, 1995 and the 24-week
period ended July 3, 1996:

24-WEEK
FISCAL PERIOD
YEAR ENDED ENDED
DEC. 27, 1995 JULY 3, 1996
------------- ------------

(aa) Adjustment for new depreciation and amortization for BEP
principally arising from the sale and leaseback of
restaurant property and equipment:

Property and equipment $ 1,380 $ 690
Amount recorded in financial statements 8,792 4,231
------- --------
Pro forma adjustment $(7,412) $ (3,541)
------- --------

(bb) Adjustment to reflect new operating lease payments for
land, building and equipment which were sold
and leased back $ 7,556 $ 3,778
======= ========

(cc) Adjustment to reflect the elimination of the historical
provision for loss on impairment of assets resulting
from the sale to the Company $(50,384) $(50,384)
======== ========

(dd) Adjustment for consolidation of administrative expenses
arising from the elimination of employees and other costs
when administrative facilities were consolidated $(3,982) $ (3,240)
======= ========

(ee) Adjustment to eliminate interest on historical debt
agreements at acquisition date and to add interest
on the BEP Purchase Note:
Elimination of historical interest $(5,182) $ (2,369)
Interest on the BEP Purchase Note 1,800 900
Elimination of interest on the Series A Notes (780) (390)
------- --------
$(4,162) $ (1,859)
======= ========
(ff) Adjustment for income taxes for the above adjustments
at an effective rate of 38% $11,334 $ 9,353
======= ========

20
21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

BASIS OF PRESENTATION

Upon consummation of the Merger, the former shareholders of DRC owned
an aggregate of approximately 53.0% of the outstanding voting power of the
Company immediately following the Merger. See "Business - Development of the
Company." Accordingly, the Merger has been accounted for as a reverse purchase
under generally accepted accounting principles, pursuant to which DRC is
considered to be the acquiring entity and AFR the acquired entity for accounting
purposes, even though the Company is the surviving legal entity. In addition, as
permitted under generally accepted accounting principles, for accounting
purposes the Merger was deemed to have occurred on March 27, 1996, the last day
of DRC's first quarter for fiscal 1996. As a result, (i) the historical
financial statements of AFR for periods prior to the date of the Merger are no
longer the historical financial statements of the Company and therefore are no
longer presented; (ii) the historical financial statements of the Company for
periods prior to the Merger are those of DRC; (iii) all references to the
financial statements of the "Company" apply to the historical financial
statements of DRC prior to and subsequent to the Merger; and (iv) any references
to "AFR" apply solely to American Family Restaurants, Inc. and its financial
statements prior to the Merger. The effective accounting date of the BEP
Acquisition was June 24, 1996. Accordingly, the results of operations for the
27-week period ended July 3, 1996 includes the results of operations of BEP from
June 24, 1996 through July 3, 1996. The following discussion and analysis should
be read in conjunction with the information set forth under "Selected
Consolidated Financial Data" and the consolidated financial statements and notes
thereto incorporated by reference herein.

GENERAL

The Company currently operates 182 Denny's restaurants in 28 states.
The Company's Denny's restaurants that were open for a 12-month period had
average restaurant sales of $958,000 in fiscal 1995 as compared with $895,000 in
fiscal 1994. Denny's restaurants that were developed by the Company had average
sales of approximately $1.3 million in fiscal 1995. In January 1996, the Company
and Denny's, Inc. adopted the "Breakaway Breakfast" value price strategy, which
offered five breakfast items for $1.99 or less. The promotional advertising
associated with the Breakaway Breakfast was directed primarily in "A" media
markets, while the majority of the Company's Denny's restaurants are located in
non-A markets. As a result, the Company's operating results under this value
pricing strategy reflected lower guest check averages without a corresponding
increase in guest counts. Comparable restaurant sales declined 0.8% through July
3, 1996 and margins were adversely impacted, primarily as a result of increased
labor costs. In July 1996 and September 1996, the Company and Denny's, Inc.,
respectively, withdrew from the Breakaway Breakfast promotional specials and
increased the price of the Grand Slam breakfast special to $2.99 during certain
periods of the day. As a result, the average guest check increased from $4.80
during the 27-week period ended July 3, 1996 to $5.04 for the period from July
4, 1996 through October 31, 1996. However, guest counts for the period from July
4, 1996 through October 31, 1996 have decreased approximately 10% as compared
with the comparable period in the prior year. The Company believes that the
increase in the pricing tiers within the value pricing strategy will result in
improved long-term operating results.

The Company currently operates 99 Black-eyed Pea restaurants in 14
states and franchises 29 Black-eyed Pea restaurants in 6 states. The Company
operates 65 Black-eyed Pea restaurants in Texas and Oklahoma, which the Company
considers to be its core market for Black-eyed Pea restaurants. The average
sales for all Black-eyed Pea restaurants was $1.5 million and $1.4 million in
fiscal 1995 and 1996, respectively, as compared with average sales at
restaurants in the core market of $1.64 million and $1.59 million during the
same periods. Through August 31, 1996, comparable same-store sales increased
0.6% for all of the Company's Black-eyed Pea restaurants, while comparable
same-store sales increased by 2.8% for Black-eyed Pea restaurants in the core
market. The guest check average at the Company's Black-eyed Pea restaurants is
$8.10. Alcohol and carry-out sales account for approximately 2.5% and 10.5%
respectively, of total sales at the Company's Black-eyed Pea restaurants.

21
22
The previous management of BEP expanded the Black-eyed Pea restaurant
concept through 1994, primarily in the non-core market areas of Indianapolis,
Indiana, St. Louis, Missouri, and Virginia. Prior to the BEP Acquisition, BEP
closed all four Indianapolis restaurants and two restaurants located in Virginia
that were considered to be under-performing markets. During 1995, BEP converted
60 Black-eyed Pea restaurants to the "Market Grill" concept, which features an
increased number of menu selections and an enhanced seating and decor package.
The average costs for these enhancements was approximately $250,000 per
location.

The Company intends to develop additional restaurants in its core
markets in order to take advantage of efficient advertising, utilization of an
existing management structure, and reduced distribution costs of food and
beverages. In addition, the Company intends to sell or close under-performing
restaurants. Since 1993, the Company has been able to increase its operating
income by developing new restaurants and acquiring additional restaurants, which
has provided increased revenue without a proportionate increase in
administrative expenses. As a result, administrative expenses have decreased
from 6.3% of restaurant sales in fiscal 1993 to 4.5% of restaurant sales in
fiscal 1995. In addition, administrative expenses decreased from 4.8% of
restaurant sales in the 26-week period ended June 28, 1995 to 4.0% of restaurant
sales in the 27-week period ended July 3, 1996. The Company intends to continue
to improve its operating income and anticipates that administrative expenses
will continue to represent a decreasing percentage of revenue as it continues to
assimilate operations following the Merger and the BEP Acquisition.

COMPARISON OF RESULTS OF OPERATIONS

The following table presents for the periods indicated, certain items
in the historical consolidated statements of operations as a percentage of total
restaurant sales.

FISCAL YEAR ENDED PERIOD ENDED
----------------------------------- ---------------------
DEC. 30, DEC. 28, DEC. 27, JUNE 28, JULY 3,
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(26 WEEKS) (27 WEEKS)

Restaurant sales:
Denny's restaurants ................. 100.0% 100.0% 94.2% 100.0% 80.9
Other restaurants ................... -- -- 5.8% -- 14.8
Black-eyed Pea restaurants .......... -- -- -- -- 4.3
----- ----- ----- ----- -----
Total restaurant sales ............ 100.0% 100.0% 100.0% 100.0% 100.0%
Restaurant operating expenses:
Cost of food and beverage ........... 27.4 27.0 27.2 26.6 27.8
Payroll and payroll related costs ... 31.6 33.8 33.5 33.3 34.6
Charge for impaired assets .......... -- -- 0.7 -- --
Depreciation and amortization ....... 4.1 3.2 3.9 3.6 3.6
Other restaurant operating costs .... 27.3 26.4 25.7 26.1 25.4
----- ----- ----- ----- -----
Total restaurant operating expenses 90.4 90.4 91.0 89.6 91.3
----- ----- ----- ----- -----
Restaurant operating income ............ 9.6 9.6 9.0 10.4 8.7
Administrative expenses ................ 6.3 5.5 4.5 4.8 4.0
Other items ............................ (0.8) 1.3 -- -- --
----- ----- ----- ----- -----
Operating income ....................... 4.1 2.8 4.5 5.6 4.7
Other income (expense) ................. 0.4 (0.1) -- -- --
Interest expense ....................... (2.3) (2.7) (3.3) (3.1) (4.6)
----- ----- ----- ----- -----
Income before minority interest
in joint ventures, income
taxes and extraordinary item ........ 2.2 -- 1.2 2.5 0.1
Minority interest in joint ventures .... 1.4 1.1 0.4 (0.4) --
----- ----- ----- ----- -----
Income before income taxes and
extraordinary item ................... 0.8 (1.1) 0.8 2.1 0.1
Income tax expense (benefit) ........... 0.4 (0.4) 0.5 0.8 --
----- ----- ----- ----- -----
Income (loss) before
extraordinary item .................. 0.4 (0.7) 0.3 1.3 0.1
Extraordinary item - loss on
extinguishment of debt ............... -- -- -- -- (0.7)
----- ----- ----- ----- -----
Net income (loss) ...................... 0.4% (0.7)% 0.3% 1.3% (0.6)%
===== ===== ===== ===== =====

22
23
27-WEEK PERIOD ENDED JULY 3, 1996 COMPARED WITH 26-WEEK PERIOD ENDED JUNE 28,
1995

Restaurant Sales. Restaurant sales increased $46.0 million to $79.2
million for the period ended July 3, 1996 as compared with restaurant sales of
$33.1 million for the period ended June 28, 1995. This increase was primarily
attributable to the Merger, the BEP Acquisition, and new restaurants opened
during fiscal 1995.

Cost of Food and Beverage. Cost of food and beverage increased to 27.8%
of restaurant sales for the period ended July 3, 1996 as compared with 26.6% of
restaurant sales for the period ended June 28, 1995, primarily as the result of
several promotional programs implemented in January 1996 and the higher food
costs associated with the Company's non-Denny's restaurants, which were 30.5% of
restaurant sales at such restaurants for the period.

Payroll and Payroll Related Costs. Payroll and payroll related costs were
34.6% of restaurant sales for the period ended July 3, 1996 as compared with
33.3% of restaurant sales for the period ended June 28, 1995. This increase was
primarily attributable to staffing inefficiencies created by the promotional
programs implemented in the first quarter of 1996 and higher payroll costs
associated with the Company's non-Denny's restaurants, which were 38.3% of
restaurant sales at such restaurants for the period.

Depreciation and Amortization. Depreciation and amortization of
restaurant equipment, leasehold improvements, intangible assets, pre-opening
costs, and other items were 3.6% of restaurant sales for the period ended July
3, 1996 as compared with 3.6% of restaurant sales for the period ended June 28,
1995.

Other Restaurant Operating Costs. Other restaurant operating costs were
25.4% of restaurant sales for the period ended July 3, 1996 as compared with
26.1% of restaurant sales for the period ended June 28, 1995. This decrease was
primarily attributable to lower occupancy costs associated with the restaurants
operated by AFR prior to the Merger and to lower insurance costs.

Restaurant Operating Income. Restaurant operating income increased $3.4
million to $6.9 million for the period ended July 3, 1996 as compared with $3.5
million for the period ended June 28, 1995. This increase was principally the
result of the factors described above.

Administrative Expenses. Administrative expenses decreased to 4.0% of
restaurant sales for the period ended July 3, 1996 as compared with 4.8% of
restaurant sales for the period ended June 28, 1995. This decrease was primarily
the result of reduced administrative staffing levels as a result of the Merger
and an increase in revenue without a proportional increase in administrative
costs.

Interest Expense. Interest expense was $3.7 million, or 4.6% of
restaurant sales, for the period ended July 3, 1996 as compared with $1.0
million, or 3.1% of restaurant sales, for the period ended June 28, 1995. The
increase is the result of increased debt levels, including interest expense on
capitalized lease obligations associated with new store development.

Income Tax Expense. The Company recorded income tax expense of
approximately $13,000, an effective rate of 39.4%, for the period ended July 3,
1996 as compared with income tax expense of approximately $279,000, an effective
rate of 39.5%, for the period ended June 28, 1995.

Extraordinary Item - Loss on Extinguishment of Debt. In connection with
the Merger, the Company repaid approximately $11.0 million of indebtedness,
which resulted in an extraordinary loss on extinguishment of such debt of
$497,000, net of an income tax benefit of $332,000.

Net Income (Loss). The Company recorded a net loss of approximately
$(477,000) for the period ended July 3, 1996 as compared with net income of
$427,000 for the period ended June 28, 1995, as a result of the factors
described above.

23
24
FISCAL 1995 COMPARED WITH FISCAL 1994

Restaurant Sales. Restaurant sales increased $27.4 million, or 57.9%, to
$74.7 million for fiscal 1995 as compared with restaurant sales of $47.3 million
for fiscal 1994. This increase was primarily attributable to restaurant sales
associated with the 1994 acquisitions, restaurants opened during 1995, and the
restaurants associated with the Kettle leases.

Cost of Food and Beverage. Cost of food and beverage increased to 27.2%
of restaurant sales for fiscal 1995 as compared with 27.0% of restaurant sales
for fiscal 1994, primarily due to increased commodity prices in the fourth
quarter of 1995 and higher food costs at the restaurants associated with the
Kettle leases of 32.2% of restaurant sales. Excluding the food and beverage
costs at the restaurants associated with the Kettle leases, food and beverage
costs for fiscal 1995 would have been 26.9% of restaurant sales, a decrease of
0.1% from fiscal 1994.

Payroll and Payroll Related Costs. Payroll and payroll related costs were
33.5% of restaurant sales for fiscal 1995 as compared with 33.8% of restaurant
sales for fiscal 1994. This decrease was primarily attributable to improved
workers' compensation costs and the addition of new restaurants with higher
sales volumes without a proportionate increase in payroll costs. The payroll and
payroll related costs at the restaurants associated with the Kettle leases were
37.9% of restaurant sales. Excluding the payroll and payroll related costs at
the restaurants associated with the Kettle leases, payroll and payroll related
costs for fiscal 1995 would have been 32.9% of restaurant sales, a decrease of
0.8% from fiscal 1994.

Depreciation and Amortization. Depreciation and amortization of
restaurant equipment and leasehold improvements, intangible assets, and
pre-opening costs totaled $2.9 million, or 3.9% of restaurant sales, for fiscal
1995 as compared with $1.5 million, or 3.2% of restaurant sales, for fiscal
1994. The increase of approximately $1.4 million is attributable to the
amortization of the capital leases associated with new restaurants, the
amortization of intangible assets associated with the 1994 acquisitions, and the
amortization of pre-opening costs.

Other Restaurant Operating Costs. Other restaurant operating costs were
25.7% of restaurant sales for fiscal 1995 as compared with 26.4% of restaurant
sales for fiscal 1994. The decrease is attributable to improved cost controls at
the restaurant level as well as lower occupancy costs, including general
liability insurance costs. Other operating costs at the restaurants associated
with the Kettle leases, which include no franchise costs, were 30.8% of
restaurant sales. If the Kettle results were excluded, other operating costs for
fiscal 1995 would have been 25.5% of restaurant sales, a decrease of 0.9% from
fiscal 1994.

Restaurant Operating Income. Restaurant operating income increased $2.1
million to $6.6 million for fiscal 1995 as compared with $4.5 million for fiscal
1994. This increase was principally the result of increased restaurant sales and
the factors described above.

Administrative Expenses. Administrative expenses decreased to 4.5% of
restaurant sales for fiscal 1995 as compared with 5.5% of restaurant sales for
fiscal 1994. This decrease was primarily the result of increased sales volume
without proportionate cost increases.

Interest Expense. Interest expense increased to $2.5 million, or 3.3% of
restaurant sales, for fiscal 1995 as compared with $1.3 million, or 2.7% of
restaurant sales for fiscal 1994. This increase is attributable to the increased
level of long-term debt associated with the restaurant acquisitions in 1994 and
the capitalized lease obligations associated with new store development.

Income Taxes. The income tax provision was $305,000 for fiscal 1995 as
compared with an income tax benefit of $(209,000) for fiscal 1994. Due to the
adjustment of several items from the prior year, a tax rate of 60.3% resulted in
fiscal 1995.

24
25
FISCAL 1994 COMPARED WITH FISCAL 1993

Restaurant Sales. Restaurant sales increased $14.7 million, or 45.2%, to
$47.3 million for fiscal 1994 as compared with restaurant sales of $32.6 million
for fiscal 1993. This increase is due to the increased number of restaurants in
operation during 1994.

Cost of Food and Beverage. Cost of food and beverage decreased to 27.0%
of restaurant sales for fiscal 1994 as compared with 27.4% of restaurant sales
for fiscal 1993. This decrease is primarily attributable to improved cost
controls at the restaurant level.

Payroll and Payroll Related Costs. Payroll and payroll related costs were
33.8% of restaurant sales for fiscal 1994 as compared with 31.6% of restaurant
sales for fiscal 1993. This increase was attributable to staffing inefficiencies
associated with the 1994 acquisitions and increased workers' compensation costs.

Depreciation and Amortization. Depreciation and amortization of
restaurant equipment and leasehold improvements, intangible assets, and
pre-opening costs totaled $1.5 million, or 3.2% of restaurant sales, for fiscal
1994 as compared with $1.3 million, or 4.1% of restaurant sales, for fiscal
1993. This increase of approximately $200,000 is attributable to the increase in
obligations under capital leases associated with new restaurant openings and the
amortization of intangible assets associated with the 1994 acquisitions.

Other Operating Expenses. Other operating expenses were 26.4% of
restaurant sales for fiscal 1994 as compared with 27.3% of restaurant sales for
fiscal 1993. The decrease is attributable to improved cost controls at the
restaurant level as well as lower occupancy costs. Lower occupancy costs are
attributable to newly developed stores, which typically have higher sales
volumes and thus lower percentage occupancy costs.

Restaurant Operating Income. Restaurant operating income increased to
$4.5 million for fiscal 1994 as compared with $3.1 million for fiscal 1993 as a
result of the increased number of units inspected and operating.

Administrative Expenses. Administrative expenses decreased to 5.5% of
restaurant sales for fiscal 1994 as compared with 6.3% of restaurant sales for
fiscal 1993. This percentage decrease is primarily attributable to increased
sales volume without proportionate cost increases.

Interest Expense. Interest expense increased to $1.3 million, or 2.7% of
restaurant sales, for fiscal 1994 as compared with $736,000, or 2.3% of
restaurant sales for fiscal 1993. This increase is attributable to the increased
level of long-term debt associated with the 1994 acquisitions and the
capitalized lease obligations associated with new store development.

Income Taxes. The income tax benefit was $(209,000) for fiscal 1994 as
compared with an income tax provision of $144,000 for fiscal 1993.

LIQUIDITY AND CAPITAL RESOURCES

The Company, and the restaurant industry generally, operate principally
on a cash basis with a relatively small amount of receivables. Therefore, like
many other companies in the restaurant industry, the Company operates with a
working capital deficit. The Company's working capital deficit was $3.6 million
at December 30, 1993, $6.1 million at December 28, 1994, $9.4 million at
December 27, 1995, and $33.9 million at July 3, 1996. Of the working capital
deficit at July 3, 1996, approximately $11.6 million was attributable to
employee severance costs and restaurant closing costs as a result of the Merger.
In addition, the Company's working capital has been affected by expenditures of
approximately $4.0 million to settle past-due accounts of AFR existing on the
date of the Merger. The Company believes that its working capital deficit other
than the Merger-related amounts described above is consistent with the working
capital position of restaurant operators of similar size. The Company

25
26
anticipates that it will continue to operate with a working capital deficit, but
that the deficit will be reduced from current levels as the costs incurred as a
result of the Merger are paid.

The Company historically has satisfied its capital requirements through
credit facilities and the sale and leaseback of developed and acquired
restaurants or restaurants converted to the Denny's concept. The Company
requires capital principally for the development of new restaurants and to fund
the acquisition and conversion of existing restaurants. Expenditures for
property and equipment totaled approximately $1.6 million, $9.7 million and $8.7
million for fiscal 1993, fiscal 1994, and fiscal 1995, respectively.
Expenditures for property and equipment and intangibles totaled approximately
$4.4 million for the 27-week period ended July 3, 1996. As described below, the
Company currently has commitments for approximately $20.0 million of
sale-leaseback financing through 1997.

On March 29, 1996, the Company completed the Merger by issuing an
aggregate of 6,937,500 shares of Common Stock, $6.0 million of Series A 13%
Subordinated Notes due 2003 (the "Series A Notes"), $18.25 million of Series B
Notes, and Series A Warrants and Series B Warrants to acquire an aggregate of
660,000 shares of Common Stock to the former shareholders of DRC. Although no
cash was required for this acquisition of restaurant properties, the Company
entered into a new credit facility to fund acquisition costs and the significant
past-due payables of AFR existing at the time of the Merger. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Credit Facility." As described below, the Company repaid the Series A Notes in
connection with the BEP Acquisition.

On July 3, 1996, the Company completed the BEP Acquisition. The purchase
price for BEP consisted of (i) cash of approximately $50.0 million, and (ii) a
promissory note in the principal amount of $15.0 million issued to the seller
(the "BEP Purchase Note"). See "Description of Securities - BEP Purchase Note."
On July 3, 1996, the accounts of BEP included cash of approximately $4.2
million. The Company obtained the funds for the cash portion of the purchase
price by entering into sale and lease transactions. See "Properties" and
"Certain Transactions." Also in connection with the BEP Acquisition, on July 3,
1996, the Company repaid all of the $6.0 million principal amount outstanding on
its Series A Notes plus accrued and unpaid interest on the Series A Notes as of
July 3, 1996. The Company repaid the Series A Notes by utilizing the cash
acquired in connection with the BEP Acquisition, borrowings under the credit
facility described below, and by issuing 250,000 shares of Common Stock to the
holder of the Series A Notes. See "Certain Transactions."

The Company believes that its future capital requirements will be
primarily for the development of new restaurants, for continued acquisitions,
and for conversion of restaurants to the Denny's or other restaurant concepts.
Pursuant to the Development Agreement with Denny's, Inc., the Company is
required to develop and open a total of 40 Denny's restaurants in specified
locations during the period ending December 31, 1997. Through October 31, 1996,
the Company had developed and opened a total of 10 of the 40 new Denny's
restaurants and had two new restaurants under development. Pursuant to various
other agreements with Denny's, Inc. and certain other parties, the Company is
required to convert a total of 25 restaurants operated under the "Kettle" trade
name to the Denny's concept by March 1997. During the first two quarters of
fiscal 1996, the Company converted five non-Denny's restaurants to Denny's
restaurants and sold 23 other non-Denny's restaurants. The Company estimates
that its costs to develop and open new Denny's restaurants, excluding real
estate and building costs, will be approximately $350,000 to $390,000 per
restaurant, and that its costs associated with the conversion of a non-Denny's
restaurant to the Denny's concept will be approximately $160,000 to $450,000 per
restaurant. The lessors of 12 of the Company's Kettle restaurants have agreed to
fund up to $250,000 of the costs of converting each of those restaurants.

An affiliate of CNL Group, Inc. ("CNL") has agreed, subject to various
conditions, including that there be no material adverse change in the financial
condition of the Company, to make available to the Company up to $20.0 million
in each of 1996 and 1997 in order to finance development of new restaurants and
the conversion of non-Denny's restaurants to the Denny's concept. Each financing
will take the form of a "sale-leaseback," in which CNL would purchase a
particular restaurant property and lease it back to the Company for up to 30
years. During that period, the initial annual rent will be 10.625% of the
purchase price, subject to a 10% increase every

26
27
five years (e.g., from 10.625% to 11.6875% at the end of the first five-year
period). The leases also will provide for additional rent based on increases in
gross sales at the respective restaurants. The Company will have a right of
first refusal on the sale of each property by CNL, and will have the right to
purchase each property during the eighth year of the lease.

The Company plans to further increase its working capital as necessary
through equity or debt financings in the public or private securities markets,
additional sale-leaseback transactions, the disposition of underperforming
restaurants, and additional credit facilities. The Company currently anticipates
that it will utilize the Delayed Term Loan described below to repay the BEP
Purchase Note prior to the date on which the warrants issued in connection with
the BEP Purchase Note become exercisable. The Company also intends to use its
best efforts to redeem all of the Series B Notes prior to the date on which the
Series B Warrants become exercisable. See "Description of Securities -
Warrants." The Company currently anticipates that it will be required to obtain
the funds needed to repay the Series B Notes through the sale of equity
securities or by increasing its debt financing. There can be no assurance that
financing for any of these purposes will be available or will be available on
satisfactory terms.

CREDIT FACILITY

In connection with the Merger and the BEP Acquisition, the Company
entered into a $65.0 million credit facility with Banque Paribas, as agent, and
the Company's other senior lenders (the "Credit Facility"). The Credit Facility
consists of (i) a Term Loan (the "Term Loan"), (ii) Revolving Loans (the
"Revolver"), and (iii) a Delayed Draw Term Loan (the "Delayed Term Loan"). The
Term Loan, the Revolver, and the Delayed Term Loan will mature and become
payable December 31, 2001. At the Company's option, interest on all amounts
borrowed under the Credit Facility will accrue at the rate of either prime plus
1.5% or a "Eurodollar Rate" calculated based upon LIBOR plus 3.5%. Amounts
borrowed under the Credit Facility are secured by substantially all of the
tangible and intangible assets of the Company. The Company will be required to
make mandatory prepayments of amounts borrowed under the Credit Facility in the
event of certain asset sales, equity issuances, excess cash flows, and under
certain other circumstances.

The Credit Facility contains certain provisions that, among other things,
will limit the ability of the Company and its subsidiaries, without the consent
of Banque Paribas, to incur additional indebtedness, pay certain dividends or
make certain distributions on their respective capital stock, repurchase shares
of their respective capital stock, enter into additional restaurant leases, make
acquisitions or sell assets, or exceed specified levels of capital expenditures.

The Company paid fees for loan origination and amendment, investment
banking services, legal services, prepayment of existing debt, and other fees of
approximately $4.7 million in connection with the negotiation and execution of
the Credit Facility at the time of the Merger and the negotiation and execution
of amendments to the Credit Facility at the time of the BEP Acquisition. During
the term of the Credit Facility, the Company will be required to pay an annual
fee of $75,000 to Banque Paribas as agent of the lenders that participate with
it in the facility and a fee of 0.5% of the unused portion of amounts available
for borrowing under the Credit Facility. In addition, the Company issued to
Banque Paribas six-year warrants to acquire an aggregate of 738,028 shares of
the Company's Common Stock. See "Description of Securities - Warrants."

Term Loan

In connection with the Merger, the Company borrowed $35.0 million under
the Term Loan, which was used to refinance certain indebtedness of AFR and DRC
existing prior to the Merger and to pay certain transaction expenses incurred in
connection with the Merger and the Credit Facility. The Company is required to
repay the Term Loan in quarterly payments of principal and interest.

27
28
Revolver

The Credit Facility includes a $15.0 million Revolver that the Company
may utilize to finance working capital needs, to repay the Term Loan, to make
capital expenditures, and to support letters of credit. As of September 30,
1996, the Company had approximately $3.0 million available for borrowings under
the Revolver.

Delayed Term Loan

Provided that certain conditions are met, the Company will be permitted
to make draws of all or a part of the $15.0 million available under the Delayed
Term Loan to finance acquisitions of additional restaurants beginning on June
30, 1996 and ending on December 31, 1997, and will be permitted to make draws
under the Delayed Term Loan to repay the BEP Purchase Note and Series B Notes
beginning December 31, 1996 and ending on December 31, 1997.

SEASONALITY

The Company's operating results fluctuate from quarter to quarter as a
result of the seasonal nature of the restaurant industry, the temporary closing
of existing restaurants for conversion, and other factors. The Company's
restaurant sales are generally greater in the second and third fiscal quarters
(April through September) than in the first and fourth fiscal quarters (October
through March). Occupancy and other operating costs, which remain relatively
constant, have a disproportionately negative effect on operating results during
quarters with lower restaurant sales. The Company's working capital requirements
also fluctuate seasonally, with its greatest needs occurring during its first
and fourth quarters.

INFLATION

The Company does not believe that inflation has had a material effect on
operating results in past years. Although increases in labor, food or other
operating costs could adversely affect the Company's operations, the Company
generally has been able to modify its operating procedures or to increase prices
to offset increases in its operating costs.

NEW ACCOUNTING STANDARDS

The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," in fiscal 1995.

The Company has determined that it will not change to the fair value
method under Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation," but will continue to use Accounting Principles
Board Opinion No. 25 for measurement and recognition of employee stock based
transactions.

28
29
BUSINESS

GENERAL

The Company currently operates 314 family-oriented, full-service
restaurants in 32 states, primarily in the southeastern, midwestern, western,
and southwestern United States. Of the Company's 314 restaurants, 182 are
Denny's restaurants, which represents approximately 12% of the Denny's system
and makes the Company the largest Denny's franchisee in terms of revenue and the
number of restaurants operated. The Company also owns and operates 99 Black-eyed
Pea restaurants, primarily in Texas, Georgia, Oklahoma, and the Washington, D.C.
area, and franchises to third parties the rights to operate 29 Black-eyed Pea
restaurants in 6 states. In addition, the Company operates 33 restaurants under
various other concepts, which the Company currently is in the process of
converting to the Denny's concept or selling. The Company intends to increase
the number of its restaurants through the development of new Denny's and
Black-eyed Pea restaurants, the acquisition of existing Denny's restaurants, the
franchising of additional Black-eyed Pea restaurants, and the acquisition and
conversion to the Denny's or Black-eyed Pea concept of restaurants currently
operating under other restaurant concepts. The Company also plans to convert to
the Denny's or Black-eyed Pea concept certain of its restaurants currently
operating under other restaurant concepts, to re-image to the new Denny's format
certain of its Denny's restaurants that have not already been re-imaged, and to
sell or close other restaurants as appropriate based on performance,
geographical, and other considerations. In addition, the Company may expand its
operations to include one or more additional restaurant concepts through the
acquisition of one or more restaurant chains or multiple restaurant locations.
See "Business - Strategy."

DEVELOPMENT OF THE COMPANY

The Company began operations in 1986 through one or more predecessor
entities under common control. The Company was incorporated in 1989 and has
pursued an aggressive program of growth through acquisitions of Denny's and
other restaurants and through development of new Denny's restaurants. Since
1986, the Company has developed more new Denny's restaurants than either
Denny's, Inc. or any other Denny's franchisee. The table below sets forth
information regarding the number of restaurants that the Company has acquired,
developed, converted to the Denny's concept, and closed or sold in each year
since the beginning of fiscal 1991, including restaurants developed, sold, or
closed by BEP prior to the BEP Acquisition.

RESTAURANTS ACQUIRED, DEVELOPED, CONVERTED, SOLD, OR CLOSED

1991 1992 1993 1994 1995 1996(1)
---- ---- ---- ---- ---- ----

DENNY'S RESTAURANTS:
Number open beginning of period....... 59 72 89 102 148 168
Acquired.............................. 9 3 2 40 3 0
Developed............................. 0 1 4 6 8 5
Converted from other concept.......... 5 13 7 1 10 12
Sold or closed........................ (1) 0 0 (1) (1) (3)
------ ------ ------ ------ ------ ------
Number open at end of period.......... 72 89 102 148 168 182
====== ====== ====== ====== ====== ======
NON-DENNY'S RESTAURANTS:
Number open beginning of period....... 62 59 43 59 56 82
Acquired.............................. 6 1 24 1 36 1
Converted............................. (5) (13) (7) (1) (10) (12)
Closed(2)............................. (5) (4) (1) (3) 0 (15)
Sold.................................. 0 0 0 0 0 (23)
Reopened.............................. 1 0 0 0 0 0
------ ------ ------ ------ ------ ------
Number open at end of period.......... 59 43 59 56 82 33
====== ====== ====== ====== ====== ======
BLACK-EYED PEA RESTAURANTS:
Number open beginning of period....... 61 70 82 97 103 105
Developed............................. 9 12 15 6 5 0
Sold or closed........................ 0 0 0 0 (3) (6)
------ ------ ------ ------ ------ ------
Number open at end of period.......... 70 82 97 103 105 99
====== ====== ====== ====== ====== ======

- ------------------
(1) As of October 31, 1996

(2) Of the stores closed as of October 31, 1996, five are closed for remodeli

29
30
Although it currently has no acquisition targets, the Company may
expand its operations to include one or more additional restaurant concepts
through the acquisition of one or more restaurant chains or multiple restaurant
locations. It is currently contemplated that such acquisitions would be made
only if they can be integrated with the Company's existing restaurant operations
and only if they would have a meaningful impact on the Company's operations.

The following table sets forth certain information with respect to the
Company's restaurants as of October 31, 1996 and plans for future restaurant
activity.

CURRENT RESTAURANTS ANTICIPATED FUTURE ACTIVITY
---------------------------------------------------------- ----------------------------------------------------
COMPANY-OWNED RESTAURANTS DENNY'S BLACK-EYED NON-DENNY'S
----------------------------------------- TO BE PEAS TO BE TO BE NON-DENNY'S
CLOSED FRANCHISED DEVELOPED DEVELOPED CONVERTED TO BE
BLACK-EYED FOR BLACK-EYED THROUGH THROUGH THROUGH SOLD OR
DENNY'S PEA OTHER REMODEL PEA 12/31/97 12/31/97 12/31/97 CLOSED
------- --- ----- ------- --- -------- -------- -------- ------

Alabama....... 7 1 3 3

Arizona....... 15 6 2

Arkansas...... 2 1

Colorado...... 8 13 1

Florida....... 17 3 5 3

Georgia....... 14 9 1 1

Idaho......... 6

Illinois...... 1 1

Indiana....... 6 1

Iowa.......... 5

Kansas........ 1 2

Kentucky...... 16

Louisiana..... 1 1

Maryland...... 4

Michigan...... 1 11 11

Minnesota..... 1

Missouri...... 1 5

Nebraska...... 4

Nevada........ 1

New Mexico.... 2

North Carolina 3 1 2 2

Ohio.......... 20 1 3 4

Oklahoma...... 2 5 5 1 5

Oregon........ 1 1

South Carolina 2 1 1 1

South Dakota.. 1

Tennessee..... 5 2

Texas......... 26 60 6 1 7 6

Utah.......... 8 1

Virginia...... 5 1 3 1

Wisconsin..... 3

Wyoming....... 5
--- -- -- - -- - - -- --
182 99 33 5 29 5 8 27 11
=== == == = == = = == ==

30
31
STRATEGY

The Company's business strategy is to (i) continue to develop new
restaurants; (ii) convert to the Denny's concept certain of its existing
restaurants operating under other concepts; (iii) re-image to the new Denny's
format certain of its Denny's restaurants that have not already been re-imaged;
(iv) accelerate efforts to franchise additional Black-eyed Pea restaurants; (v)
acquire additional restaurants; and (vi) enhance its operational efficiencies.

New Restaurant Development

The Company plans to continue to develop new Denny's and Black-eyed Pea
restaurants, particularly in high-growth markets where it currently operates
restaurants in order to capitalize on positive demographic and traffic patterns,
an existing management structure, established advertising programs, and reduced
distribution costs of food and beverages. During the three-year period ended
December 27, 1995, the Company developed 22 new Denny's restaurants. Sales per
restaurant for those of the Company's new Denny's restaurants that operated for
all of fiscal 1995 averaged $1.3 million, which exceeds the average sales per
restaurant for the Company's other Denny's restaurants. The Company has
developed five new Denny's restaurants during fiscal 1996 and currently has five
new Denny's restaurants in various stages of development. The Company
anticipates that it will develop two new Denny's restaurants during the
remainder of 1996 and approximately five new Denny's restaurants in 1997,
primarily within its current geographic territory. The Company currently
anticipates that it will develop approximately eight new Black-eyed Pea
restaurants through the end of 1997. In addition, the Company plans to
accelerate its franchising efforts with respect to Black-eyed Pea restaurants.
See "Risk Factors - Inability to Develop or Convert Restaurants."

Conversions of Non-Denny's Restaurants

The Company plans to convert most of its current non-Denny's and
non-Black-eyed Pea restaurants to the Denny's concept. The Company believes that
conversion to the Denny's concept contributes substantially to improved
restaurant sales and restaurant operating income. Historically, the Company's
cost to convert a non-Denny's restaurant to a Denny's restaurant has ranged from
approximately $250,000 to $500,000, including opening costs and franchise fees.
The Company estimates the cost to convert each of its Kettle restaurants to
Denny's restaurants to be $350,000, including opening costs and franchise fees,
but the lessors of 12 of the Company's Kettle restaurants have agreed to fund up
to $250,000 of these conversion costs. The Company anticipates that it will
convert a total of 12 non-Denny's restaurants to the Denny's concept by the end
of fiscal 1996.

Denny's Re-Imaging Program

The Company plans to re-image certain of its Denny's restaurants that
have not been re-imaged to the new Denny's concept implemented by Denny's, Inc.
in 1994. The re-imaging strategy includes a remodeling program featuring an
updated exterior look, new signage, and an improved interior layout with more
comfortable seating and enhanced lighting. The Company believes that re-imaging
often results in a percentage growth in operating income that exceeds the
percentage growth in sales. The Company re-imaged seven Denny's restaurants
during 1995. Since their re-imaging, sales in the restaurants re-imaged in 1995
have increased 15% over the results in the prior year. The Company's costs to
re-image its Denny's restaurants historically have averaged approximately
$300,000 per restaurant. However, Denny's, Inc. recently implemented a program
of re-imaging its Denny's restaurants at a cost of approximately $150,000 per
restaurant. The Company intends to implement this program for future re-imagings
of its Denny's restaurants. The re-imaging process generally takes approximately
20 days per store, during which time the restaurant is closed, causing a loss of
revenue. The Company anticipates that beginning in fiscal 1997 it well resume
re-imaging selected restaurants in markets where it believes such re-imagings
will have a meaningful impact on sales and operating margins.

31
32
Increased Franchising Efforts

The Company intends to increase its efforts to expand the number of
franchised Black-eyed Pea restaurants and to strengthen its franchise system.
The Company currently is developing and implementing plans to identify selected
high-growth markets that will be suitable locations for franchised Black-eyed
Pea restaurants and to initiate a program of controlled franchise expansion. The
Company intends to attract franchisees that have the experience, financial
resources, and management capabilities necessary to develop and operate multiple
restaurant locations in accordance with the standards of the Black-eyed Pea
franchise system. The Company also intends to provide its franchisees with
sufficient assistance in site selection, store design and construction, employee
training, restaurant operations, purchasing, and marketing in order to ensure
the success of the entire Black-eyed Pea restaurant concept.

Restaurant Acquisitions

The Company plans to continue to acquire Denny's restaurants as well as
other restaurants that it can convert to the Denny's concept. The Company
strives to acquire restaurants when it believes it can improve their performance
through better management and greater operating efficiencies or through
conversion to the Denny's or Black-eyed Pea concept. The Company believes it can
take advantage of its organizational and management expertise to bring improved
quality and operating efficiencies to the restaurants it acquires.

From January 1, 1994 through July 3, 1996, the Company acquired a total
of 179 restaurants in 9 transactions. Of these restaurants, 43 were Denny's
restaurants acquired either from Denny's, Inc. or from other Denny's franchisees
and 99 were Black-eyed Pea restaurants purchased in the BEP Acquisition. These
strategic acquisitions increased market share in existing marketplaces or
extended geographic coverage and resulted in a decrease in administrative
expenses as a percentage of sales without a proportionate cost increase.

Enhancement of Operating Efficiencies

The Company intends to enhance its operating efficiencies by (i)
concentrating its restaurant development, acquisitions, and franchising efforts
in specific markets where it has existing restaurants; (ii) selling or closing
restaurants that are not profitable and cannot be successfully re-imaged or
converted; and (iii) capitalizing on operating synergies and efficiencies made
possible by its acquisitions and expanding operations.

Concentrating Restaurant Growth in Specific Markets

The Company currently plans to concentrate the restaurant development,
acquisition, and franchising efforts described above in selected high-growth
markets where it operates existing restaurants in order to capitalize on certain
operating efficiencies that such concentration generally provides. The Company's
experience indicates that operating multiple restaurant locations in targeted
markets enables each restaurant within the market to achieve increased customer
recognition and to obtain greater benefits from advertising and marketing
expenditures than can be obtained by single restaurants in isolated markets. In
addition, concentration of restaurants in specific markets will create economies
of scale and costs savings as a result of lower overall management costs, lower
costs of goods sold as a result of lower distribution costs, more efficient
utilization of advertising and marketing programs, and other administrative
savings.

Sale or Closure of Certain Restaurants

Following the Merger, the Company decided to sell or close a total of two
Denny's restaurants and 31 non-Denny's restaurants. The Company determined that
these restaurants either could not be converted to the Denny's concept because
they were situated in close proximity to an existing Denny's restaurant or had
below-average unit operating results. Upon consummation of the Merger, the
Company established reserves of approximately $6.0 million related to the cost
of closing these restaurants. Effective as of July 3, 1996, the Company sold 23
non-Denny's restaurants to a former officer and director of the Company. See
"Certain Transactions." The Company

32
33
intends to continue to evaluate the operating results of each of its restaurants
and to sell or close any underperforming restaurants that it determines it will
be unable to successfully re-image or convert.

Capitalizing on Operating Synergies and Efficiencies

The Company has completed the consolidation of certain of its
administrative functions following the Merger and the BEP Acquisition and plans
to continue to implement steps resulting in significant operating efficiencies
and cost savings made possible by those transactions. These steps include taking
advantage of substantial reduction in operating expenses and increased operating
income as the overhead of the Company, DRC, and BEP is consolidated, duplicative
functions are eliminated, and other cost savings are realized. The headquarters
for the combined operations has been consolidated within DRC's existing facility
in Scottsdale, Arizona, which will reduce overall payroll costs and other
overhead expenses, including redundant legal, accounting, and other corporate
administrative costs. In addition, DRC's comprehensive insurance policy was
cancelled following the Merger and the Company is seeking to further consolidate
its insurance policies and reduce insurance costs following the BEP Acquisition.
The Company currently is upgrading its management information systems to enable
its restaurant-level point-of-sales systems to communicate directly with the
Company's centralized accounting systems, which should speed information
delivery, eliminate system redundancies, and enable Company management to more
effectively analyze and monitor sales and costs throughout the Company's
operations.

DENNY'S RESTAURANTS

The Company currently operates 182 Denny's restaurants, representing
approximately 12% of the Denny's system and making the Company the world's
largest Denny's franchisee in terms of revenue and the number of restaurants
operated.

Denny's, Inc.

The Company operates its Denny's restaurants pursuant to franchise
agreements with Denny's, Inc. See "Business - Denny's Restaurants - Denny's
Franchise Agreements." Denny's, Inc. is a wholly owned subsidiary of Flagstar
Companies, Inc. ("Flagstar"). Flagstar conducts its restaurant operations
through three principal chains: Denny's, the largest family-oriented,
full-service restaurant chain in the United States, with more than 1,500
corporate-owned or franchised units in 49 states and six foreign countries;
Hardee's, a chain of quick-service restaurants specializing in sandwiches; and
Quincy's, one of the largest chains of steakhouse restaurants in the
southeastern United States. Flagstar also operates El Pollo Loco, a chain of
quick-service restaurants featuring flame-broiled chicken and steak products and
related Mexican food items.

Concept

Denny's are family-oriented, full-service restaurants, featuring a wide
variety of traditional family fare. The restaurants are designed to provide a
casual dining atmosphere with moderately priced food and quick, efficient
service. Denny's restaurants generally are open 24 hours a day, seven days a
week.

Menu and Pricing

All Denny's restaurants throughout the United States have uniform menus
with some regional and seasonal variations. Denny's restaurants serve breakfast,
lunch, and dinner and also feature a "late night" menu. Breakfasts include
Denny's popular "Original Grand Slam Breakfast" combinations, consisting of a
variety of eggs, breakfast meats, pancakes, biscuits, muffins, and other items,
as well as traditional breakfast items such as eggs, omelets, pancakes, waffles,
cereals, and muffins. Lunch and dinner entrees include prime rib, roast beef,
fried shrimp, fish, roast turkey, grilled or fried chicken, sirloin tips, and
liver. The restaurants also offer a variety of soups, salads, sandwiches,
appetizers, side orders, beverages, and desserts. Appetizers include mozzarella
sticks, buffalo wings, chili, chicken strips, and quesadillas; and desserts
include cakes, pies, ice cream, and sundaes. The restaurants

33
34
offer free refills on coffee, soft drinks, lemonade, and tea. Special menus are
available for senior citizens and children. Through July 3, 1996, the average
check per customer at the Company's Denny's restaurants was $5.04.

Since 1994, Denny's, Inc. has conducted a promotional strategy that
involves the "value pricing" of several menu items and directing the marketing
efforts at such items. The first and best known "valued priced" item has been
the Original Grand Slam Breakfast, which consists of two eggs, two pancakes, two
sausage links, and two strips of bacon that typically would sell for
approximately $3.99 but currently sells for $2.99. These programs have resulted
in increased costs of food and beverage as a percentage of the Company's
restaurant sales. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Denny's Inc. recently discontinued several
of these promotional programs.

Restaurant Layout

The Company's Denny's restaurants generally operate in free-standing
locations in high-traffic commercial areas. The restaurants average
approximately 4,800 square feet, with an average seating capacity of 180 people.
Generally, the dining areas are fully carpeted and informal in design and
contain booths, tables, and counter seating. The layout of each restaurant is
designed to easily accommodate both smaller groups of two and four as well as
large groups of guests. All guests are greeted and seated by a host or hostess
when they enter the restaurant.

Unit Economics

The Company estimates that its total costs of developing a new Denny's
restaurant currently ranges from $290,000 to $390,000, exclusive of annual
operating costs and assuming that the land and buildings are obtained under a
lease arrangement. These costs include approximately (i) $230,000 to $330,000
for furniture, fixtures, and equipment; (ii) $40,000 for pre-opening costs,
including hiring and training costs, employee wages, and advertising; and (iii)
$20,000 for the initial franchise fee. The Company estimates that its total cost
of converting an acquired restaurant to the Denny's concept currently ranges
from approximately $250,000 to $500,000, exclusive of annual operating costs and
assuming that the land and building are obtained under a lease arrangement.
These costs include approximately (a) $200,000 to $450,000 for remodelling and
improvements; (b) $30,000 for pre-opening costs, including hiring costs,
employee wages, and advertising; and (c) $20,000 for the initial franchise fee.
The Company leases substantially all of its restaurant sites in order to
minimize the costs of acquiring and developing new restaurants. The Company
currently intends to lease its restaurant sites in the future. See "Business -
Financing and Leasing" and "Properties."

Site Selection

When evaluating whether and where to develop a new Denny's restaurant,
the Company conducts an internal screening process to determine a restaurant's
estimated profit potential. The Company considers the location of a restaurant
to be one of the most critical elements of the restaurant's long-term success.
Accordingly, the Company expends significant time and effort in the
investigation and evaluation of potential restaurant sites. In conducting the
site selection process, the Company primarily evaluates site characteristics
(such as visibility, accessibility, and traffic volume), considers the
restaurant's proximity to demand generators (such as shopping malls, lodging,
and office complexes), reviews potential competition, and analyzes detailed
demographic information (such as population characteristics, density, and
household income levels). Because Denny's restaurants are often impulse rather
than destination restaurants, the Company emphasizes visibility and high traffic
patterns in its site selection and places somewhat less importance on population
demographics. Senior corporate management evaluates and approves each restaurant
site prior to its development. Denny's, Inc. provides site selection guidelines
and criteria as well as site selection counseling and assistance and must
approve sites selected by the Company.

34
35
The Denny's System

Denny's restaurants are developed and operated pursuant to a specified
system developed by Denny's, Inc. (the "Denny's System"). Denny's, Inc. prepares
and maintains the detailed standards, policies, procedures, manuals, and other
requirements that constitute the Denny's System in order to facilitate the
consistent operation and success of all Denny's restaurants. The Denny's System
includes distinctive interior and exterior designs, decors, color schemes,
furnishings, and employee uniforms; uniform specifications and procedures for
restaurant operations; standardized menus featuring unique recipes and menu
items; procedures for inventory and management control; formal training and
assistance programs; advertising and promotional programs; and special
promotional items. The Denny's System includes established, detailed
requirements regarding (i) the quality and uniformity of products and services
offered; (ii) the purchase or lease, from suppliers approved by Denny's, Inc.,
of equipment, fixtures, furnishings, signs, inventory, ingredients, and other
products and materials that conform with the standards and specifications of the
Denny's Systems; and (iii) standards for the maintenance, improvement, and
modernization of restaurants, equipment, furnishings, and decor. To ensure that
the highest degree of quality and service is maintained, each franchisee must
operate each Denny's restaurant in strict conformity with the methods,
standards, and specifications prepared by Denny's, Inc.

Denny's Franchise Agreements

The Denny's Franchise Agreements generally require payment of an initial
franchise fee and a royalty equal to 4% of weekly gross sales (as defined in the
Denny's Franchise Agreements) and an advertising contribution of 2% of weekly
gross sales in markets where Denny's, Inc. conducts significant institutional
advertising. In markets where Denny's, Inc. does not conduct significant
institutional advertising, the Denny's Franchise Agreements require the Company
to pay Denny's, Inc. 0.5% of weekly gross sales and to spend an additional 1.5%
of weekly gross sales on local advertising. Initial franchise fees for the
Denny's restaurants operated by the Company have ranged from $0 to $35,000. The
Company negotiates the initial franchise fees, which vary based upon such
factors as involvement of Denny's, Inc. personnel in the training of the
Company's employees and the number of Denny's restaurants being developed or
acquired. Shorter development periods will result in lower initial franchise
fees. The Denny's Franchise Agreements generally have a term of 20 years or the
earlier expiration of the relevant building lease (including options for
extensions). A Denny's Franchise Agreement may be terminated by the Company only
upon the occurrence of a material breach by Denny's, Inc.

The Denny's Franchise Agreements entitle the Company to use the "Denny's"
name, trade symbols, and intellectual property, including menus, symbols,
labels, and designs, to promote the restaurants and the Denny's affiliation.
Denny's, Inc. also furnishes training and supervisory services for maintaining
modern and efficient operation of the restaurants and helps fund a national
advertising campaign. The Company generally is required to maintain a standard
exterior decor and exterior signs and a consistent interior color scheme and
layout at its Denny's restaurants. Each Denny's restaurants employee is required
to wear a standard uniform. The Company is free to establish its own prices at
its Denny's restaurants, which may differ by location and are influenced by
geographic and other considerations.

In the event of a "change of control" of the Company, the Denny's
Franchise Agreements give Denny's, Inc. the option to purchase within one year
after the date of such change of control of all of the Denny's restaurants owned
or operated by the Company for their fair market value. As long as the Company
is a publicly held corporation, a change of control will be deemed to have
occurred only if any person, entity, or group of persons (other than a group
which includes Jack M. Lloyd, William J. Howard, and William G. Cox, each of
whom is an officer and director of the Company, Jeffrey D. Miller, a former
officer and director of the Company, or BancBoston) acquires voting control of
the Company's Board of Directors.

Without the consent of Denny's, Inc., the Company may not directly or
indirectly own, operate, control, or have any financial interest in any coffee
shop or family-style restaurant business or any other business that would
compete with the business of any Denny's restaurant, Denny's, Inc., or any
affiliate, franchisee, or subsidiary

35
36
of Denny's, Inc. (other than restaurants currently operated by the Company). For
two years after the expiration or termination of a Denny's Franchise Agreement,
the Company will not be permitted, without the consent of Denny's, Inc.,
directly or indirectly to own, operate, control, or have any financial interest
in any coffee shop or family-style restaurant substantially similar to a Denny's
located within a 15-mile radius of a Denny's restaurant subject to the expired
or terminated agreement. These restrictions will not apply to the operation of
another Denny's restaurant or the ownership of less than 5% of the publicly
traded stock of any other company.

An agreement with Denny's, Inc. and the terms of the leases for its
Kettle restaurants require the Company to convert 25 Kettle restaurants operated
by it to the Denny's concept prior to September 1997. As of October 31, 1996,
the Company has converted five of the 25 Kettle restaurants to the Denny's
concept. See "Risk Factors - Reliance on Denny's, Inc.," "Risk Factors -
Inability to Develop or Convert Restaurants," and "Risk Factors - Restrictions
Imposed by Denny's Franchise Agreements."

Development Agreement

In conjunction with the purchase of 13 Denny's restaurants from Denny's,
Inc. in 1994, the Company entered into the Development Agreement with Denny's,
Inc. The Development Agreement gives the Company the exclusive right to develop
and open Denny's restaurants in specified locations (the "Territory") in
Arizona, Colorado, Idaho, Kansas, Missouri, Nebraska, Texas, Utah, and Wyoming.
The Development Agreement requires the Company to develop 40 new Denny's
restaurants in the Territory by the end of 1997. Acquisitions of existing
Denny's restaurants within the Territory and development of new restaurants
outside the Territory will not satisfy the Company's obligations under the
Development Agreement. Through October 31, 1996, the Company has developed 10 of
the 40 new restaurants required by the Development Agreement to be developed in
the Territory and has two other new Denny's restaurants in various stages of
development.

During the term of the Development Agreement, Denny's, Inc. retains the
right (i) to open and operate or franchise Denny's restaurants at certain
non-standard locations within the Territory, such as universities, government
facilities, public transportation facilities, or shopping malls; (ii) to open
and operate or franchise non-standard Denny's restaurants within the Territory,
such as at drug or department stores, truck stops, or hotel or motel chains; and
(iii) to open and operate or franchise others to operate Denny's restaurants
located within the Territory that Denny's, Inc. acquires during the term of the
Development Agreement.

There can be no assurance that the Company will be able to identify
sufficient restaurant sites that it deems to be suitable or to develop Denny's
restaurants on such sites on terms and conditions it considers favorable in
order to satisfy the requirements of the Development Agreement. The Development
Agreement gives Denny's, Inc. the right to terminate the Development Agreement
and the Company's exclusive right to develop Denny's restaurants in the
Territory in the event that the Company fails to timely comply with the
development schedule for the restaurants or if the Company otherwise defaults
under the Development Agreement. At the request of the Company, Denny's, Inc. in
the past has agreed to amend the terms of the Development Agreement so as to
extend the time in which the Company was required to develop certain Denny's
restaurants. There can be no assurance that Denny's, Inc. will agree to extend
the development schedules in the future in the event the Company experiences any
difficulty in satisfying such schedules for any reason, including a shortage of
capital. See "Risk Factors - Reliance on Denny's, Inc.," "Risk Factors -
Inability to Develop or Convert Restaurants," and "Risk Factors - Restrictions
Imposed by Denny's Franchise Agreements." The Company will, however, continue to
be able to develop additional Denny's restaurants on a non-exclusive basis upon
termination or expiration of the Development Agreement.

36
37
BLACK-EYED PEA RESTAURANTS

Concept

Black-eyed Pea restaurants are full-service, casual dining
establishments, featuring wholesome home-style meals, including traditional
favorites such as pot roast, chicken fried steak, roast turkey, vegetable
dishes, and freshly baked breads and desserts. The Company believes that the
emphasis of Black-eyed Pea restaurants on quality food, comfortable atmosphere,
friendly service, and reasonable prices attracts a broad range of customers,
including families and business people.

Black-eyed Pea restaurants are open for lunch and dinner seven days a
week, typically from 11:00 a.m. to 10:00 p.m. On average, sales before 5:00 p.m.
account for approximately 48% of total sales per restaurant.

Black-eyed Pea restaurants offer a variety of entrees accompanied by a
broad selection of fresh vegetables, unlimited helpings of freshly baked breads,
large servings of iced tea and soft drinks (with complimentary refills), and
fruit cobblers, pies, and other freshly prepared desserts. Entrees include
chicken fried steak, grilled chicken, seasoned meat loaf, pot roast with gravy,
and roast turkey with dressing. Black-eyed Pea restaurants also offer a range of
freshly made soups, salads, appetizers, and sandwiches. In addition to its
standard menu items, Black-eyed Pea restaurants offer regular daily specials,
such as chicken pot pie, fried fish, and chicken and dumplings. Vegetable
offerings are an important component of the Black-eyed Pea restaurant menu. Each
restaurant features a dozen vegetables daily, from which customers can make two
or three selections to accompany their meals, as well as a vegetable plate
entree, which consists of up to five vegetable selections. To encourage family
dining, Blackeyed Pea restaurants feature a children's menu, which offers
smaller portions of regular menu items, as well as special items such as peanut
butter and jelly and grilled cheese sandwiches. During BEP's fiscal 1996, the
average check per customer at the Company's Black-eyed Pea restaurants was
$8.10. During the same period, liquor sales accounted for approximately 2.5% of
total revenue of Black-eyed Pea restaurants.

Each Black-eyed Pea restaurant has a full-service kitchen, which gives it
the flexibility to prepare daily and seasonal specials and to otherwise expand
its food offerings. The Company regularly reviews and revises the existing
Black-eyed Pea restaurant menu and conducts consumer tests of new menu items in
order to improve the quality and breadth of food offerings and encourage repeat
business. The Company maintains a test kitchen facility, which includes a full
Black-eyed Pea restaurant cookline, for use in its product development efforts.

Restaurant Layout

The distinctive, turn-of-the-century "General Store" appearance of
Black-eyed Pea restaurants is designed to create a casual and comfortable dining
atmosphere, which appeals to their broad customer base, including families. The
focal point of each Black-eyed Pea restaurant is a mural depicting the history
of the area in which the restaurant is located. Restaurant interiors are
decorated with quilts, canned goods, toys, antique farm tools and cooking
utensils which line the walls and shelves. Most Black-eyed Pea restaurants have
booth and table seating as well as a small lunch counter/bar on one side of the
dining room, which also provides take-out service.

Black-eyed Pea restaurants generally range in size from approximately
4,000 square feet to 6,000 square feet and have dining room seating for 160 to
210 customers and counter/bar seating for approximately 10 additional guests.
The Company's current prototype restaurant is approximately 5,400 square feet
and has dining room seating for approximately 200 customers plus counter/bar
seating for approximately 10 customers.

37
38
Unit Economics

The Company estimates that its total costs of developing a new Black-eyed
Pea restaurant currently ranges from $385,000 to $435,000, exclusive of annual
operating costs and assuming that the land and buildings are obtained under a
lease arrangement. These costs include approximately (i) $300,000 to $350,000
for furniture, fixtures, and equipment; (ii) $50,000 for pre-opening costs,
including hiring and training costs, employee wages, and advertising; and (iii)
$30,000 for the initial franchise fee in the case of franchisees. The Company
currently plans to lease substantially all of its new Black-eyed Pea restaurant
sites in order to minimize the costs of developing new restaurants. See
"Business - Financing and Leasing" and "Properties."

Site Selection

The Company believes that proper site selection is critical to maximizing
the success of a particular Blackeyed Pea restaurant and, therefore, senior
management devotes significant time and resources in selecting and evaluating
each prospective site. A variety of factors are analyzed in the site selection
process, including local market demographics, acquisition cost, site visibility
and accessibility, and proximity to significant generators of potential
customers such as major retailers, retail centers, office complexes, hotels and
entertainment centers. In most instances, the Company prefers the stand-alone
Black-eyed Pea prototype because it enhances the restaurant's visibility and
customer access.

Franchises

As of October 31, 1996, the Company had five Black-eyed Pea franchisees
operating 29 restaurants in 6 states. The Company plans to accelerate its
efforts to franchise additional Black-eyed Pea restaurants. See "Strategy -
Increased Franchising Efforts."

The Company has typically offered development agreements to franchisees
for construction of one or more restaurants over a defined period of time within
a specific geographic area. Under the current form of development agreement, a
franchisee is required to pay, at the time the agreement is signed, a
nonrefundable fee of $5,000 per restaurant committed to be developed. The
Company's current development agreement also requires franchisees to pay a
franchise fee of $30,000 per restaurant upon signing a franchise agreement for a
specific location before construction begins. The Company's current form of
franchise agreement has a 15 year initial term with certain renewal rights and
provisions for payment to the Company of royalties equal to 3.5% of gross sales
and advertising fees and required marketing expenditures of up to 2.75% of gross
sales. The Company requires each franchisee to have an approved full-time
principal operator who is responsible for the supervision and operation of the
franchise.

OTHER RESTAURANTS

In addition to its Denny's and Black-eyed Pea restaurants, the Company
operates 33 other restaurants. Of these restaurants, 18 operate under the name
"Kettle," 11 under the name "Mr. Fable's," two under the name "Jerry's," and two
under other concepts. The operations of these restaurants are substantially
similar to those of the Company's Denny's restaurants. These restaurants
generally feature family-oriented dining with full table service. Menu items
vary slightly among these restaurants, but they generally offer moderately
priced items, such as hamburgers, sandwiches, chicken, steaks, seafood and
breakfast items.

The terms of the August 1995 license agreement, leases, and subleases
pursuant to which the Company acquired the right to operate a total of 25
restaurants under the "Kettle" family-style restaurant concept as well as an
agreement with Denny's, Inc. require the Company to convert these restaurants to
the Denny's concept by September 1997. Since August 1995, the Company has
converted five of these 25 Kettle restaurants to the Denny's concept and plans
to convert the remainder as soon as practicable. Pursuant to the terms of the
license agreement, the Company will not be required to pay franchise fees to
Kettle Restaurants, Inc. as the franchisor of the Kettle

38
39
restaurant concept during the conversion period. Historically, the annual
revenue from Kettle restaurants averages $580,000 per restaurant, compared with
average revenue of $936,000 for the Denny's restaurants currently operated by
the Company. The Company believes that the costs of these leases and subleases
are on as favorable a basis as the lease costs of similar Denny's restaurants.
However, the costs of these leases may result in unfavorable operating results
until the restaurants are converted to the Denny's concept and additional
anticipated revenue is realized.

Effective as of July 3, 1996, the Company sold the assets related to 23
restaurants operated under the "Ike's" and "Jerry's" trade names to a former
officer and director of the Company. The restaurants were located in Illinois,
Indiana, Kentucky, and Ohio. See "Certain Transactions." The Company intends to
sell, close, or convert to the Denny's concept the remainder of its non-Denny's,
non-Black-eyed Pea restaurants as soon as practicable.

EXPANSION OF OPERATIONS

The Company has implemented an aggressive growth plan in its target
geographic markets based upon growth through the development of new Denny's and
Black-eyed Pea restaurants, acquisitions of existing Denny's restaurants,
franchising of additional Black-eyed Pea restaurants, and acquisitions of other
family-style restaurants that can be converted to the Denny's or Black-eyed Pea
concept. This growth plan emphasizes a continued focus on restaurant locations
and operations. The Company's current target geographic market ranges from the
southeastern and midwestern United States west to Arizona, Nevada, and Idaho.
Many of the states within the target market, such as Arizona, Colorado, Florida,
Georgia, Idaho, Nevada, Texas, and Utah, are among the fastest growing states in
the United States. Before developing or acquiring any restaurants in a
particular location within its target market, the Company evaluates factors such
as the size of the market area, demographic and population trends, competition,
and the availability and cost of suitable restaurant locations. See "Business -
Denny's Restaurants - Site Selection" and "Business - Black-eyed Pea Restaurants
- - Site Selection."

The Company believes it is able to achieve significant cost savings when
it incorporates newly developed or acquired restaurants into its operations by
taking advantage of certain economies of scale associated with administrative
overhead and management personnel and systems. As a result, the Company believes
that its corporate infrastructure enables it to eliminate administrative and
managerial redundancies and to reduce the overall operating costs on a
per-restaurant basis. Historically, the Company generally has been able to
increase sales volume at acquired or converted restaurants through remodeling
and improved service. The Company intends to continue developing and acquiring
additional restaurants in order to enhance its presence in its target markets,
to establish the necessary base from which it can further penetrate these
markets, and to capitalize on purchasing, advertising, managerial,
administrative, and other efficiencies that result from the concentration of
restaurants in specific markets.

Restaurant Development

Since 1986, the Company has developed and opened more Denny's restaurants
than either Denny's, Inc. or any other franchisee. In the three and one-half
year period prior to the BEP Acquisition, BEP developed 11 and franchised four
Black-eyed Pea restaurants. The Company plans to accelerate the development and
franchising of Black-eyed Pea restaurants.

In 1994, the Company entered into the Development Agreement with Denny's,
Inc. requiring it to develop an additional 40 new Denny's restaurants by the end
of 1997. See "Business - Denny's Restaurants - Development Agreement." The
specific time frame in which the Company is able to develop new Denny's and
Black-eyed Pea restaurants will be determined by the Company's success in
identifying suitable sites; obtaining financing for construction, tenant
improvements, furniture, fixtures, and equipment; negotiating acceptable lease
or purchase terms; securing the appropriate governmental permits and approvals
(including those relating to zoning, environmental, health, and liquor
licenses); managing restaurant construction; and recruiting and training
qualified personnel. There can be no assurance as to the number of new
restaurants that the Company will be able to open

39
40
or the ultimate success of any such restaurants. The development of new
restaurants also may be affected by increased construction costs and delays
resulting from governmental regulatory approvals, strikes or work stoppages, and
adverse weather conditions. Newly developed restaurants may operate at a loss
for a period following their initial opening. The length of this period will
depend upon a number of factors, including the time of year the facility is
opened, sales volume, and the Company's ability to control costs. There can be
no assurance that the Company will be successful in achieving its expansion
goals through the opening of additional restaurants or that any additional
restaurants that are opened will be profitable. Through October 31, 1996, the
Company has developed 10 of the 40 new Denny's restaurants required to be
developed under the Development Agreement with Denny's, Inc. The Company will,
however, continue to be able to develop additional Denny's restaurants on a
non-exclusive basis upon termination or expiration of the Development Agreement.

Restaurant Acquisitions

The Company actively evaluates the opportunities to acquire additional
Denny's restaurants or franchise rights from Denny's, Inc. or other Denny's
franchisees and to acquire other family-style restaurants that can be converted
to the Denny's or Black-eyed Pea concept. The Company also actively evaluates
opportunities to acquire other restaurant concepts that it can operate
profitably by integrating the acquired restaurants with the Company's existing
operations. The Company evaluates such opportunities based on numerous factors,
including location, operating history, future potential, acquisition price, and
the terms and availability of financing for such restaurants or additional
franchise rights. The acquisition of any such existing restaurants or additional
franchise rights may require the approval of Denny's, Inc. and the Company's
lenders. There can no be assurance that the Company will be able to acquire
additional operating Denny's restaurants, or other restaurants that are suitable
for conversion to Denny's or Black-eyed Pea restaurants, or that any such
restaurants that are acquired will be profitable to the Company.

Restaurant Conversions

The Company, primarily through AFR, historically has acquired and
operated non-Denny's restaurants. During the past several years, most of these
restaurants have been sold, closed, or converted to the Denny's concept. As of
October 31, 1996, the Company has converted 48 non-Denny's restaurants to the
Denny's concept, including 18 that have been converted since June 1995. For the
30 restaurants converted prior to June 1995, restaurant sales for the 12-month
period following conversion average $882,000 per restaurant, an increase of 61%
over average sales of $548,000 per restaurant for the 12-month period ended June
28, 1995. Operating income at these restaurants (excluding depreciation and
amortization) for the 12-month period prior to conversion averaged $91,000, or
16.6% of sales, per restaurant as compared with $196,000, or 22.2% of sales, per
restaurant for the 12-month period ended July 3, 1996. Sales and operating
results at restaurants that have been converted after June 28, 1995 have
exceeded these increases. There can be no assurance, however, that the improved
operating results at these restaurants will continue in the future. The Company
currently is in the process of converting five of its restaurants to the Denny's
concept and intends to convert most of its remaining non-Denny's, non-Black-eyed
Pea restaurants to the Denny's concept within the next 12-months. The Company is
a party to agreements obligating it to convert 25 restaurants operated under the
"Kettle" trade name to the Denny's concept by September 1997. As of October 31,
1996, the Company has converted five of the 25 Kettle restaurants to the Denny's
concept.

RESTAURANT OPERATIONS

Management Services

The Company believes that successful execution of basic restaurant
operations is essential to achieve and maintain a high level of customer
satisfaction in order to enhance the Company's success and future growth.
Therefore, the Company devotes significant efforts to ensure that all of its
restaurants offer quality food and service. The Company maintains standards for
the preparation and service of quality food, the maintenance and repair of
restaurant facilitates, and the appearance and conduct of employees.

40
41
Once a restaurant is integrated into its operations, the Company provides
a variety of corporate services to assure the operational success of the
restaurant and the proper execution of standards required by the Company for all
of its restaurants and by Denny's, Inc. in the case of its Denny's restaurants.
The Company's executive management continually monitors restaurant operations;
maintains management controls; inspects individual restaurants to assure the
quality of products and services and the maintenance of facilities; develops
employee programs for efficient staffing, motivation, compensation, and career
advancement; institutes procedures to enhance efficiency and reduce costs; and
provides centralized support systems.

The Company also maintains quality assurance procedures designed to
ensure compliance with the high quality of products and services mandated by it
and by Denny's, Inc. in the case of its Denny's restaurants. Company personnel
make unannounced visits to its restaurants to evaluate the facilities, products,
employees, and services. The Company believes that its quality review program
and executive oversight enhance restaurant operations, reduce operating costs,
improve customer satisfaction, and facilitate the highest level of compliance
with the Company's standards and those mandated by Denny's, Inc. in the case of
its Denny's restaurants.

The Company's district and restaurant management personnel are
responsible for the maintenance of the operational standards of its Denny's
restaurants as specified by Denny's, Inc. District managers are responsible for
the six to eight restaurants within their district. Restaurant managers are
responsible for day-to-day operations, including customer relations, food
preparation and service, cost control, restaurant maintenance, and personnel
relations. As required by Denny's, Inc., the Company staffs each of its Denny's
restaurants with an on-site general manager, two assistant managers, and 20 to
50 full-time or part-time hourly employees.

Responsibility for managing the operations of Black-eyed Pea restaurants
is currently shared by two operations managers. The Black-eyed Pea restaurant
system has three regional managers who report to their respective operations
managers. Each regional manager is responsible for five to eight districts, each
of which is in turn managed by a district supervisor. Most district supervisors
are responsible for six or seven restaurant locations. The management staff of a
typical Black-eyed Pea restaurant consists of a general manager, an assistant
general manager, and one or two assistant managers. Each Black-eyed Pea
restaurant employs approximately 60 persons.

Training

The Company seeks to attract and retain high-quality individuals with
prior restaurant experience for restaurant management positions. The Company
believes that the training of its management and other restaurant employees is
important to its ability to maintain the quality and consistency of its food and
service and to develop the personnel necessary to achieve its expansion plans.
Newly hired employees are reviewed at regular intervals during their first year,
and all restaurant personnel receive annual performance reviews. The Company
generally seeks to promote existing employees to fill restaurant management
positions.

As the only Denny's franchisee authorized to train its own restaurant
management personnel, the Company maintains a comprehensive training program
that provides all instructors, facilities, and required training materials
necessary to train its Denny's restaurant managers and other restaurant
management personnel. The training covers all aspects of management philosophy
and overall restaurant operations, including supervisory skills, customer
interaction, operating standards, cost control techniques, accounting
procedures, employee selection and training, risk management, and the skills
required to perform all duties necessary for restaurant operations. New managers
work closely with experienced managers and district managers to solidify their
skills and expertise. The Company designates certain experienced employees as
"Certified Trainers" who are responsible for training newly hired Denny's
restaurant employees. The Company's district managers and general managers
regularly participate in on-going training efforts. By training its own
management personnel and opening its own restaurants, the Company reduces its
initial franchise fee per Denny's restaurant from $35,000 to $20,000.

In the case of its Black-eyed Pea restaurants, the Company requires each
restaurant management employee to participate in a training program at
designated training restaurants. The restaurant management training program

41
42
utilizes manuals, tests and a scheduled evaluation process. In addition, the
Company has developed procedures for coordinating and overseeing the opening of
new Black-eyed Pea restaurants in order to maintain quality and consistency of
food and service. Special training teams are on hand at new locations, generally
for a period of one week before and one week after each restaurant opens.

Maintenance and Improvement of Restaurants

The Company maintains its Denny's and Black-eyed Pea restaurants and all
associated fixtures, furnishings, and equipment in conformity with the Denny's
System and the Black-eyed Pea concept, respectively. The Company also makes
necessary additions, alterations, repairs, and replacements to its restaurants,
such as periodic repainting or replacement of obsolete signs, furnishings,
equipment, and decor, including those required by Denny's, Inc. in the case of
its Denny's restaurants. The Company may be required, subject to certain
limitations, to modernize its Denny's restaurants to the then-current standards
and specifications of Denny's, Inc.

Management Information Systems

The Company maintains a centralized, computerized accounting system for
financial controls and reporting functions for all of its Denny's and Black-eyed
Pea restaurants. The Company has a point-of-sale reporting system installed in
each of its Denny's and Black-eyed Pea restaurants, which provide sales mix
information, labor scheduling functions, and weekly close-out processes.
Restaurants managers submit weekly reports on sales volume and mix, customer
counts, and labor costs to the Company's corporate management. Each Denny's
restaurant maintains "par stock" inventory levels and the restaurant manager
takes monthly physical inventories of all food, beverage, and supply items. The
Company's accounting department prepares monthly profit and loss statements,
which operational managers review and compare with the Company's prepared
budgets.

FINANCING AND LEASING

It is the Company's current strategy to lease, rather than own, the land
and buildings associated with the operations of its restaurants. Historically,
the Company has entered into sale-leaseback transactions or joint ventures under
which the financing company purchases the identified parcel of land and funds
the costs of the restaurant construction, excluding the initial franchise fee,
equipment costs, and restaurant preopening expenses. The financing company then
leases the restaurant property back to the Company for up to 30 years, including
renewal option periods, under terms of a triple-net lease. Initial rental rates
under these leases generally range from 10% to 12% of the financing company's
investment in land, improvements, and construction costs. The initial rate
typically is subject to rent increases of 10% every five years. The leases also
require the Company to pay additional rent based upon the gross sales of the
restaurant.

The Company's ability to effect its new restaurant development strategy
will depend on the availability of additional sale-leaseback financing on terms
and conditions that the Company believes are appropriate for the risk of the
development. The Company recently completed a sale and lease transaction with
FFCA Acquisition Corporation and other entities in connection with the BEP
Acquisition. See "Properties" and "Certain Transactions." In addition, the
Company currently has a commitment from CNL to provide $20.0 million of
sale-leaseback financing through 1996. The commitment is subject to various
terms and conditions and provides for an initial rate of 10-5/8% on the
financing company's investment in land, improvements, and construction costs. In
addition, the lessors of 12 of the Company's Kettle restaurants have agreed to
provide up to $250,000 of the costs of converting each of those restaurants to
the Denny's concept. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources." The
inability of the Company to secure sufficient additional sale-leaseback
financing in the future could have a significant impact on its ability to
acquire or develop new restaurants.

42
43
The Company and CNL currently are parties to three joint venture
agreements for the purpose of acquiring, developing, owning, and operating a
total of 16 restaurants. The Company and CNL each has a 50% interest in each of
the joint ventures. The Company is responsible for day-to-day operations of the
restaurants owned by each joint venture, and CNL pays the Company a management
fee of approximately 3.5% of sales for its services. Under the terms of the
joint ventures, CNL contributed 100% of the initial capital required for land,
building, and site development costs, and a subsidiary of CNL contributed 100%
of the capital required to equip the restaurants, acquire the franchises, train
the staff, stock the inventory, and open the restaurants. On a quarterly basis,
each of the joint ventures distributes to CNL that amount of its cash flows
available for distribution equal to a 20% annual, non-compounded, cumulative
distribution on CNL's initial capital contributions plus all additional capital
contributions. If any cash flows remain available for distribution, each of the
joint ventures next distributes to the Company the amount necessary to provide
the Company with distributions up to the amount received by CNL, except that the
distributions to the Company in any fiscal year will not exceed the sum which
would equal a 20% annual, non-compounded, non-cumulative distribution on CNL's
capital contributions.

The Company entered into its $65.0 million Credit Facility with Banque
Paribas, as agent, and the Company's other senior lenders in connection with the
Merger and the BEP Acquisition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Credit Facility." Reference is
made to "Properties" and "Certain Transactions" for additional information
regarding sale and lease transactions in connection with the BEP Acquisition.

EQUIPMENT, FOOD PRODUCTS, AND OTHER SUPPLIES

The Company's ability to maintain consistent quality throughout its
Denny's restaurants depends in part upon its ability to acquire from reliable
sources the equipment, food products, and related items necessary to meet the
standards set by Denny's, Inc. The Company believes the maintenance of this
uniformity and consistency enables it to capitalize on the name recognition and
goodwill associated with Denny's restaurants. As a result, the Company leases or
purchases all fixtures, furnishings, equipment, signs, food products, supplies,
inventory, and other products and materials required for the development and
operation of its Denny's restaurants from suppliers approved by Denny's, Inc. In
order to be approved as a supplier, a prospective supplier must demonstrate to
the reasonable satisfaction of Denny's, Inc. its ability to meet the
then-current standards and specifications of Denny's, Inc. for such items, must
possess adequate quality controls, and must possess the capacity to provide
supplies promptly and reliably. Although the Company is not required to acquire
its equipment or supplies from any specified supplier, it must obtain the
approval of Denny's, Inc. before purchasing or leasing any items from an
unapproved supplier.

The Company's Denny's restaurants operate on a par stock system, which is
a system that enables restaurant managers to place weekly inventory orders based
on historical sales volumes, thereby focusing on customer service rather than on
purchasing decisions. The Company purchases most of its food inventory for its
Denny's restaurants from a single supplier that specializes in providing food
products to Denny's franchisees. The Company believes that its purchases from
this supplier enable the Company to maintain a high level of quality consistent
with Denny's restaurants, to realize convenience and dependability in the
receipt of its supplies, to avoid the costs of maintaining a large purchasing
department, large inventories, and product warehouses, and to attain cost
advantages as a result of volume purchases. The Company does not have a supply
agreement or other contractual arrangement with its primary supplier and effects
purchases through purchase orders. The Company believes that food goods could be
readily purchased from a large number of vendors throughout its regions of
operation in the event that it is unable to purchase sufficient inventory from
its primary supplier. Each of the Company's Denny's restaurants purchases dairy,
bakery, and produce goods from approved local vendors.

With respect to its Black-eyed Pea restaurants, the Company strives to
obtain supplies of a high and consistent quality at competitive prices from
reliable sources. The Company negotiates directly with food manufacturers for
the majority of its purchases and with local suppliers for fresh produce, dairy,
and meat products. In addition, the Company contracts with a centralized
distribution company to store and deliver substantially all of the products and

43
44
supplies it purchases (other than fresh produce, meat and dairy products). The
Company offers its Black-eyed Pea franchisees the option to participate in its
purchasing and distribution program. Franchisees may purchase products and
supplies from other sources as long as the products meet Company specifications.

ADVERTISING AND MARKETING

As generally required under the terms of the Denny's Franchise
Agreements, the Company contributes 2% of its Denny's restaurant sales to an
advertising and marketing fund controlled by Denny's, Inc. Denny's, Inc. uses
this fund primarily to develop system-wide advertising, sale promotions, and
marketing materials and programs. The Denny's Franchise Agreements prohibit
franchisees, including the Company, from conducting any local, regional, or
national advertising without the prior written consent of Denny's, Inc. From
time to time, Denny's, Inc. may establish advertising cooperatives for
geographic areas not covered by existing advertising campaigns. In the event
that the Company participates in such a cooperative, any contribution that it
makes to a cooperative is in addition to the 2% of gross sales that the Company
is required to contribute to Denny's, Inc. Cooperatives have recently been
established in several of the Company's markets. The Company anticipates that
these cooperatives will be efficient, economical methods of increasing sales
through more effective regional or local advertising.

The Company uses television, radio and print advertising, and special
promotions to increase the traffic and sales at its Black-eyed Pea restaurants.
The Company's strategy is to develop a sufficient number of Black-eyed Pea
restaurants in its markets to permit the cost-effective use of television and
radio advertising. The Company's advertising campaigns are designed to
communicate the distinctive aspects of the Black-eyed Pea concept and are
targeted to appeal to its customer base. The Company employs a full-time vice
president of marketing and a full-time marketing director who plan, develop, and
implement advertising campaigns for its Black-eyed Pea restaurants. The Company
also uses full service advertising agencies. During BEP's last fiscal year,
expenditures for Black-eyed Pea advertising (including local promotions) were
approximately 4.6% of Black-eyed Pea restaurant sales.

GOVERNMENT REGULATION

The restaurant business is subject to extensive federal, state, and local
government regulation relating to the development and operation of restaurants.
Each of the Company's restaurants is subject to licensing and regulation by
state and local departments and bureaus of alcohol control, health, sanitation,
and fire and to periodic review by the state and municipal authorities for areas
in which the restaurants are located. In addition, the Company is subject to
local land use, zoning, building, planning, and traffic ordinances and
regulations in the selection and acquisition of suitable sites for constructing
new restaurants. Delays in obtaining, or denials of, revocation of, or temporary
suspension of, necessary licenses or approvals could have a material adverse
impact upon the Company's development or acquisition of restaurants or the
Company's operations generally. The Company also is subject to regulation under
the Fair Labor Standards Act, which governs such matters as working conditions
and minimum wages. An increase in the minimum wage rate, such as the recently
enacted increase, changes in tip-credit provisions, employee benefit costs
(including costs associated with mandated health insurance coverage), or other
costs associated with employees could adversely affect the Company. In addition,
the Company is subject to the Americans with Disabilities Act of 1990 which,
among other things, may require certain installations in new restaurants or
renovations to its existing restaurants to meet federally mandated requirements.

Sales of alcoholic beverages comprised less than 1% and 2.5%,
respectively, of restaurant sales in its Denny's restaurants and Black-eyed Pea
restaurants during their last fiscal year. The sale of alcoholic beverages is
subject to extensive regulations. The Company may be subject to "dram-shop"
statutes, which generally provide an individual injured by an intoxicated person
the right to recover damages from the establishment that wrongfully served
alcoholic beverages to that person. The Company carries liquor liability
coverage as part of its existing comprehensive general liability insurance and
has never been a defendant in a lawsuit involving "dram-shop" statutes.

44
45
The Company is subject to Federal Trade Commission ("FTC") regulations
and state laws which regulate the offer and sale of Black-eyed Pea restaurant
franchises. The Company also is subject to state laws which regulate substantive
aspects of the franchisor-franchisee relationship. The FTC requires the Company
to furnish to prospective Black-eyed Pea franchisees a franchise offering
circular containing prescribed information. A number of states in which the
Company offers Black-eyed Pea franchises also regulate the offer and sale of
franchises and require registration of the franchise offering with state
authorities. State laws that regulate the franchisor-franchisee relationship
presently exist in a substantial number of states and bills have been introduced
in Congress and in a number of state legislatures from time to time (some of
which are now pending) which would provide for federal and state regulation of
the franchisor-franchisee relationship in certain respects. Certain of such laws
may restrict the Company's ability to terminate the franchise agreements for its
franchised Black-eyed Pea restaurants, although these provisions have not had a
significant effect on the Company's operations to date.

TRADEMARKS

The Company licenses the right to use the "Denny's" trademark directly
from Denny's, Inc. The Company believes that the continued right to use the
"Denny's" trademark is important to its success. The Company has registered a
number of service marks, including the names "Black-eyed Pea" and the slogan
"Home Cookin' Worth Going Out For," with the United States Patent and Trademark
Office and in various states in connection with its Black-eyed Pea operations.
The Company regards these service marks as having significant value and being an
important factor in the marketing of its restaurants.

The Company also licenses the right to use the "Kettle" trademark from
Kettle Restaurants, Inc., pending the Company's conversion of its Kettle
restaurants to the Denny's concept. The Company owns the rights to certain other
trade names, including "Mr. Fable's," a registered trademark. The Company also
has a non-exclusive, royalty-free right to use the "Jerry's" trademarks. The
Company does not consider these trademarks important to its success.

COMPETITION

The restaurant industry is highly competitive with respect to price,
service, and food type and quality. In addition, restaurants compete for the
availability of restaurant personnel and managers. The Company's restaurants
compete with a large number of other restaurants, including national and
regional restaurant chains and franchised restaurant systems, many of which have
greater financial resources, more experience, and longer operating histories
that the Company, as well as with locally owned independent restaurants. Changes
in factors such as consumer tastes, local, regional, or national economic
conditions, demographic trends, traffic patterns, cost and availability of food
products or labor, inflation, and purchasing power of consumers also could have
a material adverse effect on the Company's operations.

The Company's restaurants also compete with various types of food
businesses, as well as other businesses, for restaurant locations. The Company
believes that site selection is one of the most crucial decisions required in
connection with the development of restaurants. As a result of the presence of
competing restaurants in the Company's target markets, the Company devotes great
attention to obtaining what it believes will be premium locations for new
restaurants, although no assurances can be given that it will be successful in
this regard.

As part of the nation's largest family-oriented, full-service restaurant
chain, the Company's Denny's restaurants compete primarily with regional
restaurant chains such as International House of Pancakes, Big Boy, Shoney's,
Friendly's, and Perkins. The Company's Black-eyed Pea restaurants compete in
both the casual midscale dining segment and the family dining segment.
Competitors include Applebee's and Chili's.

45
46
INSURANCE

The Company maintains general liability and property insurance and an
umbrella and excess liability policy in amounts it considers adequate and
customary for businesses of its kind. There can be no assurance, however, that
future claims will not exceed insurance coverage.

EMPLOYEES

At October 31, 1996, the Company had approximately 16,000 employees, of
whom approximately 85 were corporate personnel, approximately 900 were
restaurant management personnel, and the remainder were hourly personnel. The
Company is not a party to any collective bargaining agreement. The Company
believes that its relationship with its employees is good.

Each of the Company's typical Denny's restaurants has approximately 50
employees, including approximately 20 kitchen personnel and 30 service
personnel. Each of the Company's typical Black-eyed Pea restaurants employs
approximately 60 persons. Many of the Company's employees work part-time.
Restaurant personnel, other than regional, district and restaurant managers, are
paid on an hourly basis. Hourly rates vary according to geographical location,
generally ranging from $5.00 to $6.00 an hour for kitchen personnel. The Company
generally pays service personnel the applicable minimum wage plus tips.

46
47
PROPERTIES

The Company leases for a term expiring in 1998 approximately 18,000
square feet of office space in Scottsdale, Arizona, for use as its principal
corporate offices. The Company believes that this space may not be adequate for
its reasonably anticipated needs following the Merger and the BEP Acquisition
and intends to enter into leases for new or additional space as and when the
need arises.

The Company leases substantially all the land and buildings for its
Denny's restaurants. The initial lease terms range from 10 to 20 years and
include renewal options for up to 30 years. All of the Company's current leases
have remaining initial terms or renewal options that extend for more than five
years from the date of this Prospectus. The leases generally provide for a
minimum annual rent and additional rental payments if restaurant sales volume
exceed specified amounts. In addition, the leases generally require the Company
to pay real estate taxes, insurance premiums, maintenance costs, and certain
other of the landlords' operating costs. Contingent rentals have represented
less than 15% of total rent expense for each of fiscal 1993, 1994, and 1995.
Annual base rent for each location ranges from approximately $8,900 a year to
approximately $151,000 a year, with the annual average rent approximating
$53,000. The Company's Denny's restaurants generally are located in
single-purpose, one-story, freestanding buildings with a capacity of between 90
and 150 customers. The Company owns most of the furniture, fixtures, and
equipment in its Denny's restaurants, including kitchen equipment, seating and
tables.

The Company also leases substantially all of its Black-eyed Pea
restaurant locations. The Company leases 37 Black-eyed Pea restaurants from FFCA
Acquisition Corporation ("FFCA") as a result of a sale and lease transaction,
which provided a portion of the financing for the BEP Acquisition. The sale and
lease transaction with FFCA consisted of the sale to FFCA, for cash in the
amount of $35.75 million, of the real properties for 37 restaurants owned by BEP
or Texas BEP, L.P. ("Texas BEP"), a limited partnership in which BEP is the
general partner and in which a wholly owned subsidiary of BEP is the limited
partner. Concurrently with the sale of the properties to FFCA, FFCA leased the
properties to the Company and the Company subleased the properties to BEP and
Texas BEP. Each of the leases provides for a term of 20 years and includes
renewal options for two terms of five years each. The leases provide for an
initial annual rent of 10.5% of FFCA's investment and additional rental payments
if restaurant sales volume exceed specified amounts. In addition, the leases
require the Company to pay real estate taxes, insurance premiums, maintenance
costs, and certain other of the landlord's operating costs. The terms of the
subleases between the Company and BEP and Texas BEP are substantially identical
to the terms set forth in the leases between the Company and FFCA. Most of the
other Black-eyed Pea restaurant leases provide for minimum annual rent and
additional rental payments if sales volume exceeds specified amounts. Generally,
the Company is required to pay the cost of insurance, taxes, and certain other
items under these leases. Typically, these leases provide for an initial term of
10 to 20 years with one or more renewal terms.

47
48
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information with respect to each
of the Company's directors and executive officers.

NAME AGE POSITION
---- --- --------

Jack M. Lloyd............................. 46 Chairman of the Board, President, and Chief
Executive Officer

William J. Howard......................... 51 Executive Vice President, Secretary, and Director

William G. Cox............................ 46 Chief Operating Officer and Director

Todd S. Brown............................. 40 Vice President, Chief Financial Officer,
Treasurer, and Director

Michael Larsen............................ 42 Vice President

John M. Holliman, III..................... 41 Director

C. Alan MacDonald......................... 62 Director

Fred W. Martin............................ 63 Director

Philip B. Smith........................... 59 Director

Jack M. Lloyd has served as Chairman of the Board of the Company since
July 9, 1996 and as President, Chief Executive Officer, and a director of the
Company since March 29, 1996. Mr. Lloyd served as Chairman of the Board and
Chief Executive Officer of DRC from 1987 until March 1996 and served as
President of DRC from 1987 until November 1994. Since 1987, Mr. Lloyd, through
DRC, developed or acquired more than 70 Denny's restaurants throughout the
western United States. Mr. Lloyd engaged in commercial and residential real
estate development and property management as President of First Federated
Investment Corporation during the early and mid-1980s. Mr. Lloyd also held
senior management positions in accounting, financing, and budgeting for Texas
Utilities. Mr. Lloyd also currently serves as a director of Action Performance
Companies, Inc., a publicly held company.

William J. Howard has served as Executive Vice President of the Company
since July 9, 1996 and as Secretary and a director of the Company since March
29, 1996. Mr. Howard served as a Vice President of the Company from March 29,
1996 until July 3, 1996. Mr. Howard served as President of DRC from November
1994 until March 1996 and as a director of DRC from 1990 until March 1996. Mr.
Howard served as Vice President of DRC from 1990 until November 1994 and as
Chief Financial Officer of DRC from 1990 until August 1994. Prior to joining
DRC, Mr. Howard held numerous senior management positions with Citicorp and
Citibank, including Senior Vice President and Senior Credit Officer with
Citicorp Mortgage, Inc.

William G. Cox has served as Chief Operating Officer and a director of
the Company since March 29, 1996. Mr. Cox served as Vice President - Operations
for Denny's, Inc. from June 1993 until November 1995, with responsibility for
approximately 590 company-owned and franchised Denny's restaurants located
throughout the United States. Mr. Cox served as a Senior Vice President of
Flagstar and as Chief Operating Officer of Flagstar's "Quincy's" restaurant
chain from May 1992 to June 1993. Mr. Cox served as Vice President of Eastern
Operations of Denny's, Inc. from March 1991 to May 1992 and as a Regional
Manager and Division Leader for Denny's, Inc.

48
49
from 1981 to March 1991. Mr. Cox joined Denny's, Inc. as a Manager-in-Training
in September 1977 and had advanced to the position of Regional Manager by 1981.

Todd S. Brown has served as Vice President, Chief Financial Officer,
Treasurer, and a director of the Company since March 29, 1996. Mr. Brown served
as Vice President, Chief Financial Officer, and a Director of DRC from September
1994 until March 1996. Mr. Brown was employed by Deloitte & Touche LLP from 1980
to September 1994, most recently as a Senior Manager. Mr. Brown is a Certified
Public Accountant in the state of Arizona.

Michael Larsen has served as a Vice President of the Company since March
29, 1996. From 1993 until March 1996, Mr. Larsen served as Vice President of
Real Estate and Development of DRC. Mr. Larsen directs the due diligence of site
and building acquisitions and coordinates the construction of new restaurants.
From April 1984 to April 1993, Mr. Larsen was the Operations Manager for B&B
Properties, an advisor to several publicly traded real estate investment trusts.

John M. ("Jock") Holliman, III has served as a director of the Company
since March 29, 1996. Mr. Holliman served as a director of DRC from January 1995
until March 1996. Mr. Holliman is the sole general partner of AGP Management,
L.P., which is the managing general partner of Valley Ventures, L.P., a limited
partnership formed in 1993 to purchase the venture capital portfolio of Valley
National Bank of Arizona. From 1985 to 1993, Mr. Holliman served as Senior
Managing Director of Valley National Investors, Inc., a wholly owned Small
Business Investment Corporation subsidiary of Valley National Bank of Arizona.
Mr. Holliman also currently serves as a director of Voxel, OrthoLogic Corp., and
Express America Holdings Corp., each of which are publicly held corporations,
and several other privately held corporations. Mr. Holliman also serves as a
director of several non-profit organizations.

C. Alan MacDonald has served as a director of the Company since July
1993. Mr. MacDonald currently is a General Partner of the Marketing Partnership
Inc., a packaged goods marketing consulting firm. From 1992 through 1994, Mr.
MacDonald was Chairman of the Board and Chief Executive Officer of Lincoln
Snacks Company and continues to serve on that company's Board of Directors. From
1983 to 1995, Mr. MacDonald served as President and Chief Executive Officer of
the Nestle Foods Corporation. From 1955 through 1982, Mr. MacDonald was employed
by the Stouffers Corporation, serving as President of The Stouffer Frozen Food
Company from 1971 through 1982. Mr. MacDonald currently serves as a director of
American Maize-Products Co., a producer of corn sweeteners, corn starches, and
tobacco products; Lord, Abbett & Company, a manager of mutual funds;
Fountainhead Water Company, a producer of bottled water; and J.B. Williams, a
producer of men's toiletries. Mr. MacDonald is a member of the Board of
Trustees of Manhattanville College.

Fred W. Martin has served as a director of the Company since March 29,
1996. Mr. Martin served as a director of DRC from November 1994 until March
1996. Mr. Martin served as Western Regional Director of Franchise Development
with Denny's, Inc. from 1985 to 1994, during which time he approved and
developed 400 franchise and company locations for Denny's, Inc. throughout the
western United States. Mr. Martin served as Western Real Estate Representative
with Denny's, Inc. until 1985. Mr. Martin has over 17 years of experience in the
restaurant industry.

Philip B. Smith has served as a director of the Company since May 1993.
Mr. Smith has been a Vice Chairman of the Board of Spencer Trask Securities
Incorporated since 1991. He was formerly a Managing Director of Prudential
Securities in its merchant bank. Mr. Smith is a founding general partner of
Lawrence Venture Associates, a venture capital limited partnership headquartered
in New York City. From 1981 to 1984, he served as Executive Vice President and
Group Executive of the worldwide corporations group at Irving Trust Company.
Prior to joining Irving Trust Company, he was at Citibank for 15 years, where he
founded Citicorp Venture Capital as President and Chief Executive Officer. Since
1988, Mr. Smith also has been the managing general partner of

49
50
Private Equity Partnership, L.P. Mr. Smith is also a director of Great Bear
Technology Inc., Movie Gallery, Inc., and StarPress, Inc., which are publicly
held companies.

All directors of the Company hold office until the Company's next annual
meeting of shareholders or the election and qualification of their successors.
The former shareholders of DRC collectively own a sufficient number of shares of
the Company's Common Stock to elect all of the members of the Board of
Directors. There is no agreement or understanding between the Company and any of
the persons who constitute the Company's Board of Directors as to their serving
on the Company's Board of Directors in the future.

The Company's Board of Directors maintains an Audit Committee, a
Compensation Committee and a 1992 Stock Option Plan Committee. Messrs. Holliman
and Smith constitute the Audit Committee; and Messrs. Holliman, MacDonald, and
Martin constitute the Compensation and 1992 Stock Option Plan Committees.

KEY EMPLOYEES

The Company has identified Robert L. Hogan, Paul J. Bier, Robert J.
Gentz, Wes Garnett, and Eugene E. van Horne as key employees.

Robert L. Hogan has served as a Vice President - Marketing of the Company
since August 1996. Mr. Hogan is responsible for the marketing, research and
product development efforts for all of the Company's Denny's and Black-eyed Pea
restaurants. Prior to joining the Company, Mr. Hogan served as Vice President of
Marketing for Jack-In-The-Box Restaurants from 1979 to 1983; was employed as
Vice President of Marketing with SAGA Corp. from 1984 to 1986; operated his own
multi-unit restaurant company in California from 1986 to 1994, and was employed
as Vice President Marketing with Shoney's Inc. from 1995 to 1996.

Paul J. Bier has served as the Company's Vice President - Operations for
the Company's Denny's restaurants since October 1996. Mr. Bier's 25 years of
food service experience includes employment with Denny's, Inc. from 1974 to
1996. Mr. Bier most recently served as Division Vice President for Denny's, Inc.
with responsibility for over 500 company-owned and franchised restaurants.

Robert J. Gentz has served as Senior Vice President - Franchising and
Development of the Company since October 1996. Mr. Gentz oversees the
franchising and development of Black-eyed Pea restaurants. Prior to joining the
Company, Mr. Gentz spent nine years as Executive Vice President for CNL Group,
Inc., a diversified investment company that specializes in providing financing
to the restaurant industry. Mr. Gentz also served as Director of Development for
Wendy's International, Inc. from 1982 through 1988, where he was responsible for
company-owned and franchised restaurant development.

Wes Garnett has served as Vice President - Human Resources of the Company
since August 1996. From 1995 to August 1996, Mr. Garnett served as Vice
President of Human Resources of Black-eyed Pea Management Corporation. Mr.
Garnett's human resource background with restaurant companies spans more than 20
years. Mr. Garnett served as human resource manager for Burger King Corporation
from 1988 to 1992, and began his restaurant career with the Pillsbury
Corporation's Steak & Ale Division from 1978 to 1988. Prior to joining Steak &
Ale, Mr. Garnett spent five years with Dell Computer Corporation as human
resource manager for three of Dell's sales channels with gross sales of $2
billion.

Eugene E. van Horne has served as Vice President - Operations for the
Company's Black-eyed Pea restaurants since July 1996. Mr. van Horne joined BEP
in 1990 as Director of Franchising and became a Vice President of BEP, with the
added responsibility of Operations Administration, in 1994. In January 1996, Mr.
van Horne became Vice President of Operations for BEP. Mr. van Horne's career in
the restaurant business began with a McDonald's franchise in Colorado and
progressed to a multi-unit position with Long John Silver in 1974. In 1977, Mr.
van Horne became Director of Operations for a Pizza Inn franchise in Virginia.
In 1978, Mr. van Horne

50
51
became Vice President of Operations for a regional hamburger chain in Wyoming.
From 1980 to 1989, Mr. van Horne was the Colorado franchisee for Long John
Silver, acquiring a seven-store chain and building it to 20 locations.

EXECUTIVE COMPENSATION

The following table sets forth information concerning the compensation of
the Company's Chief Executive Officer and the two other most highly compensated
executive officers whose cash salary and bonuses exceeded $100,000 during the
fiscal year ended December 27, 1995 (the "Named Executive Officers"). The table
does not include information concerning the compensation during fiscal 1995 of
Jack M. Lloyd, William J. Howard, Todd S. Brown, or Michael Larsen, who became
officers of the Company on March 29, 1996.

SUMMARY COMPENSATION TABLE

LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
OTHER ANNUAL SECURITIES
FISCAL SALARY COMPENSATION UNDERLYING
NAME AND PRINCIPAL POSITION YEAR $ ($) OPTIONS (#)
--------------------------- ---- --------- --------- -----------

Jeffrey D. Miller, President and Chief 1995 $240,863 $ 23,750 --
Executive Officer(1) 1994 193,808 25,847 --
1993 178,969 39,183 --

Haig V. Antranikian, Executive Vice President, 1995 $150,594 $ 5,417 10,000(3)
Chief Operating Officer, and Director(2) 1994 117,275 406 28,000(4)
1993 103,158 5,294 --

Edward C. Williams, 1995 $99,509 $ 11,750 10,000(3)
Chief Financial Officer and Treasurer(5) 1994 89,001 5,961 40,000(4)
1993 64,808 5,294 25,000(6)

(1) Mr. Miller served as the President and Chief Executive Officer of the
Company or its predecessors from April 1986 until March 29, 1996 and as
Chairman of the Board of the Company from April 1986 until July 9, 1996.
Mr. Miller resigned as Chairman of the Board on July 9, 1996.

(2) Mr. Antranikian served as Executive Vice President and Chief Operating
Officer of the Company from March 1989 until March 29, 1996 and as a Vice
President of the Company from March 29, 1996 until July 3, 1996. Mr.
Antranikian resigned as an officer and director of the Company on July 3,
1996.

(3) The options were granted at an exercise price of $4.75 per share (the
fair value of the shares on the date of grant) and vest and become
exercisable in three equal annual installments beginning on the first
anniversary of the date of grant. Mr. Antranikian's unvested options were
cancelled in connection with his resignation as an officer and director
of the Company on July 3, 1996. See "Certain Transactions."

(4) The options were granted at an exercise price of $4.00 per share (the
fair value of the shares on the date of grant) and vest and become
exercisable in three equal annual installments beginning on the first
anniversary of the date of grant. Mr. Antranikian's unvested options were
cancelled in connection with his resignation as an officer and director
of the Company on July 3, 1996. See "Certain Transactions."

(5) Mr. Williams served as Chief Financial Officer and Treasurer of the Company
from February 1993 until March 29, 1996 and as Vice President - Finance of
the Company from March 29, 1996 until July 12, 1996. Mr. Williams
resigned as an officer of the Company on July 12, 1996.

51
52
(6) The options were granted at an exercise price of $2.00 per share (which was
below the fair value of the shares on the date of grant) and vest and
become exercisable in three equal annual installments beginning on the
first anniversary of the date of grant.

OPTIONS GRANTS

The following table sets forth certain information with respect to stock
options granted to the Named Executive Officers during the fiscal year ended
December 27, 1995.

OPTION GRANTS IN LAST FISCAL YEAR

INDIVIDUAL GRANTS
-----------------
POTENTIAL REALIZABLE
PERCENTAGE VALUE AT ASSUMED
NUMBER OF OF TOTAL ANNUAL RATES
SECURITIES OPTIONS OF STOCK PRICE
UNDERLYING GRANTED TO EXERCISE APPRECIATION
OPTIONS EMPLOYEES IN PRICE EXPIRATION OPTION TERM(2)
NAME GRANTED (#) FISCAL YEAR ($/SH)(1) DATE 5% 10%
---- ----------- ----------- -------- ---- -- ---

Jeffrey D. Miller -- -- -- -- -- --

Haig V. Antranikian 10,000 50% $4.75 10/10/05 $29,900 $75,700

Edward C. Williams 10,000 50% $4.75 10/10/05 $29,900 $75,700

(1) The options were granted at the fair value of the shares on the date of
grant. The options vest and become exercisable in three equal annual
installments beginning on the first anniversary of the date of grant, and
have a 10-year term. Mr. Antranikian's unvested options were cancelled in
connection with his resignation as an officer and director of the Company
on July 3, 1996. See "Certain Transactions."

(2) Potential gains are net of the exercise price, but before taxes associated
with the exercise. Amounts represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. The assumed 5% and 10% rates of stock price appreciation are provided
in accordance with the rules of the Securities and Exchange Commission and
do not represent the Company's estimate or projection of the future price
of the Company's Common Stock. Actual gains, if any, on stock option
exercises will depend upon the future market prices of the Company's Common
Stock.

RECENT GRANTS OF STOCK OPTIONS

Pursuant to his employment agreement with the Company, on March 29, 1996,
the Company granted William G. Cox, its Chief Operating Officer and a director,
options to acquire 300,000 shares of Common Stock, of which options to acquire
60,000 shares were granted at an exercise price of $3.00 per share and were
immediately vested and exercisable. The remaining options to acquire 240,000
shares of Common Stock were granted at an exercise price of $4.00 per share,
which was the fair market value of the Common Stock on the date of grant, and
vest and became exercisable in equal annual installments of 60,000 shares each
year, beginning on March 29, 1997.

On April 29, 1996, the Company granted options to acquire an aggregate of
264,800 shares of Common Stock at an exercise price of $4.00 per share, which
was the fair market value of the Common Stock on the date of grant. These
options included options to acquire 124,800 and 100,000 shares of Common Stock
granted to Todd S. Brown, Vice President, Chief Financial Officer, Treasurer,
and a director of the Company, and Michael Larsen, a Vice President of the
Company, respectively. Of the options granted, 20% were immediately vested and

52
53
exercisable and the remaining options vest and become exercisable in equal
annual installments beginning on April 29, 1997.

Subsequent to July 3, 1996, the Company granted options to acquire an
aggregate of 180,000 shares of Common Stock. These options included options to
acquire 50,000 shares of Common Stock at an exercise price of $4.94 per share
granted to Robert L. Hogan, the Company's Vice President - Marketing, on August
12, 1996; options to acquire 10,000 shares of Common Stock at an exercise price
of $4.00 per share granted to Paul J. Bier, the Company's Vice President -
Operations (Denny's restaurants), on September 16, 1996; and options to acquire
25,000 shares of Common Stock at an exercise price of $4.94 per share granted to
Eugene E. van Horne, the Company's Vice President - Operations (Black-eyed Pea
restaurants) on October 4, 1996.

OPTION HOLDINGS

The following table sets forth information concerning the options exercised
in fiscal 1995, and the number and value of all options held at December 27,
1995, by the Named Executive Officers.

AGGREGATED OPTION EXERCISES IN
LAST FISCAL YEAR AND YEAR-END OPTION VALUES

NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END ($)(1)
ACQUIRED VALUE -------------------------- -------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- -------------------------- -------------------------

Jeffrey D. Miller.......... None N/A -- -- N/A N/A
Haig V. Antranikian........ None N/A 9,333 28,667(2) $15,166 $ 39,084(2)
Edward C. Williams......... None N/A 29,999 45,001 $82,080 $112,505

(1) Calculated based upon the closing price of the Company's Common Stock on
December 27, 1995 of $5.625 per share, less the exercise prices of the
options held.

(2) Mr. Antranikian's unvested options were cancelled in connection with his
resignation as an officer and director of the Company on July 3, 1996.
See "Certain Transactions."

EMPLOYMENT AGREEMENTS

General

The Company currently is a party to employment agreements with each of
Jack M. Lloyd, William J. Howard, Todd S. Brown, and William G. Cox. In addition
to the provisions of the individual employment agreements as described below,
the employment agreements generally require the Company to provide each person
with certain medical and life insurance benefits, to reimburse them for all
travel, entertainment, and other ordinary and necessary expenses incurred in
connection with the Company's business and their duties under their respective
employment agreements, and to provide such other fringe benefits that the
Company makes generally available to all of its employees on a
non-discriminatory basis. The employment agreements with Messrs. Lloyd, Howard,
and Cox require the Company to provide each such officer with an automobile for
use in connection with the Company's business. The agreements with Messrs.
Lloyd, Howard, Brown, and Cox contain provisions that prohibit the respective
officer from (i) competing with the business of the Company, (ii) taking certain
actions intended to solicit other persons to terminate their business
relationship with the Company or to terminate his or her employment relationship
with the Company, and (iii) making unauthorized use or disclosure of the
Company's trade names, fictitious names, or confidential information.

53
54
Jack M. Lloyd; William J. Howard; Todd S. Brown

DRC entered into employment agreements, effective September 30, 1994,
with each of Jack M. Lloyd, William J. Howard, and Todd S. Brown. Upon
consummation of the Merger, the Company assumed DRC's obligations under these
agreements. The employment agreement with Mr. Lloyd, as recently amended,
provides for a base salary of $520,000 per year; the agreement with Mr. Howard,
as recently amended, provides for a base salary of $260,000 per year; and the
agreement with Mr. Brown, as amended, provides for a base salary of $124,800 per
year. In addition, each agreement provides that the Company may pay each of
Messrs. Lloyd, Howard, and Brown additional incentive compensation for each
fiscal year, based upon standards to be determined from time to time by the
Company's Board of Directors in its sole discretion. In order to be eligible to
receive incentive compensation for any fiscal year, however, the officer must be
employed by the Company on the last day of such fiscal year. Each employment
agreement expires on December 25, 1997. The Company may terminate each officer's
employment only for cause, as defined in the respective agreements. Each
agreement also will terminate automatically upon the death of the respective
officer, and each officer may terminate his employment agreement upon 60 days'
written notice to the Company.

William G. Cox

In December 1995, the Company entered into an employment agreement with
William G. Cox, which became effective upon consummation of the Merger. Pursuant
to his agreement with the Company, Mr. Cox serves as the Chief Operating Officer
of the Company at a base salary of $220,000 per year. The agreement also
provides that Mr. Cox will be eligible to receive an annual bonus of up to 50%
of his annual base salary pursuant to a bonus pool plan to be established by and
administered in the sole discretion of the Company. Pursuant to the agreement,
the Company reimbursed Mr. Cox for certain relocation expenses and granted to
Mr. Cox options to purchase 300,000 shares of the Company's Common Stock. Mr.
Cox's agreement provides for his employment until March 29, 1999, subject to
extension for additional one-year periods under mutually agreeable terms and
conditions. The Company may terminate the agreement only for cause, as defined
in the agreement.

STOCK OPTION PLANS

Amended and Restated 1992 Stock Option Plan

The Company's Amended and Restated 1992 Stock Option Plan (the "1992
Plan") was adopted by the Company's Board of Directors and approved by the
Company's shareholders in August 1994. In January 1995, the Company's Board of
Directors adopted, and in March 1995 the shareholders approved, an amendment to
the 1992 Plan that increased the number of shares of Common Stock reserved for
issuance under the 1992 Plan to 1,000,000 shares. The 1992 Plan limits the
persons eligible to receive options to directors, consultants, and key
employees, including officers, of the Company or a subsidiary of the Company and
"key persons" who are not employees but have provided valuable services, have
incurred financial risk on behalf of the Company, or have extended credit to the
Company or its subsidiaries. The 1992 Plan provides that options granted to
employees may be designated "incentive stock options" ("ISOs") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or non-qualified options subject to taxation pursuant to Section 83 of
the Code. Key persons who are not employees are eligible to receive only
non-qualified options. The 1992 Plan is intended to comply with Rule 16b-3 as
promulgated under the Exchange Act with respect to persons subject to Section 16
of the Exchange Act. As of October 31, 1996, there were outstanding options to
acquire a total of 761,500 shares of Common Stock.

The 1992 Stock Option Plan Committee (the "Committee") determines the
periods during which options granted under the 1992 Plan may be exercised, but
no option granted under the 1992 Plan may expire more than 10 years from the
date of grant. The Board of Directors or the Committee, in its sole discretion,
determines the exercise price of options granted under the 1992 Plan. ISOs may
not have an exercise price less than the fair market value of the Common Stock
on the grant date, except that, in the case of an ISO granted to any participant

54
55
who owns more than 10% of the Company's outstanding voting shares, the exercise
price must be at least 110% of the fair market value of the Common Stock on the
date of grant and the term of the option may be no longer than five years.
Options that are not ISOs may not have an exercise price less than the greater
of the minimum price required by applicable state law, by the Company's Restated
Articles of Incorporation, or the par value of the Common Stock.

At the discretion of the Committee or the Board of Directors, options may
be exercised by delivery of any combination of cash, shares of Common Stock, or
by delivering to the Company a promissory note upon such terms and conditions as
the Committee or Board of Directors may determine. The 1992 Plan also permits
the Committee or the Board of Directors, in its sole discretion, to include a
provision in any option agreement that will allow the optionholder, on any date
on which the option is exercisable and on which the fair market value (as
defined in the 1992 Plan) of Common Stock exceeds the exercise price of the
option, to surrender the option in lieu of exercise and in exchange receive cash
or shares of Common Stock in an amount equal to the excess of the fair market
value of Common Stock over the exercise price of the option.

The Committee or the Board of Directors has the right to amend, alter or
discontinue the 1992 Plan. Without the consent of the affected optionholder,
however, no amendment or alteration may be made that would impair the rights of
such optionholder under any outstanding option, except in the case of certain
stock splits, certain mergers or sales of assets, or upon the dissolution or
liquidation of the Company. Without the approval of the Company's shareholders,
no amendment or alteration may be made to the 1992 Plan that would (i) increase
the total number of shares reserved for issuance under the 1992 Plan; (ii)
change the class of persons eligible to participate in the 1992 Plan; (iii)
decrease the minimum exercise price of options that may be granted under the
1992 Plan; or (iv) extend the maximum life of the 1992 Plan or maximum option
exercise period. The number of shares and option prices are subject to
adjustment pursuant to certain anti-dilution provisions contained in the 1992
Plan. The 1992 Plan terminates on April 1, 2002.

1995 Directors Stock Option Plan

The Company's 1995 Directors Stock Option Plan (the "1995 Plan") was
adopted by the Board of Directors in January 1995 and approved by the Company's
shareholders in March 1995. A total of 300,000 shares of Common Stock have been
reserved for issuance under the 1995 Plan. The purpose of the 1995 Plan is to
promote the interests of the Company and its shareholders by strengthening the
Company's ability to attract and retain the services of experienced and
knowledgeable non-employee directors and by encouraging such directors to
acquire an increased proprietary interest in the Company.

A committee of two or more directors appointed by the Board of Directors
is responsible for interpreting and administering the 1995 Plan. The terms of
options granted, including the exercise price and number of shares of Common
Stock subject to the options, are set forth in the 1995 Plan and are not subject
to the discretion of the Board of Directors. Options to purchase 10,000 shares
of Common Stock are automatically granted to each non-employee director of the
Company on the date of his or her initial election to the Board of Directors or
re-election at an annual meeting of the Company's shareholders. Directors who
are first elected or appointed to the Board of Directors on a date other than an
annual meeting date are automatically granted options to purchase the number of
shares of Common Stock equal to the product of 10,000 multiplied by a fraction,
the numerator of which is the number of days during the period beginning on such
grant date and ending on the date of the next annual meeting, and the
denominator of which is 365. If no meeting is scheduled at a time a director is
first elected or appointed to the Board of Directors, the date of the next
annual meeting is deemed to be the 120th day of the fiscal year next following
the interim grant date. No option is transferable by the optionholder other than
by will or the laws of descent and distribution, and each option is exercisable,
during the lifetime of the optionholder, only by the optionholder or a person
who obtained the option pursuant to a qualified domestic relations order. The
exercise price of each option is the fair market value of the Company's Common
Stock on the business day preceding the date of grant, and the term of each
option may not exceed ten years. One-half of the options granted vest and

55
56
become exercisable after the first year of continuous service as a director
following the automatic grant date, and 100% vest after two years of continuous
service on the Board of Directors.

The exercise price of options granted pursuant to the 1995 Plan is
payable in full upon exercise of the options. Optionholders generally may pay
the exercise price by delivering to the Company any combination of cash, Common
Stock, or a promissory note with such terms and conditions as the Board of
Directors may determine. The 1995 Plan also permits the Board of Directors, in
its sole discretion, to include a provision in any option agreement that will
allow the optionholder, on any date on which the option is exercisable and on
which the fair market value (as defined in the 1995 Plan) of the Company's
Common Stock exceeds the exercise price of the option, to surrender the option
in lieu of exercise and in exchange receive cash or shares of Common Stock in an
amount equal to the excess of the fair market value of Common Stock over the
exercise price of the option.

The Board of Directors has the right to amend, alter or discontinue the
1995 Plan. Without the consent of the affected optionholder, however, no
amendment or alteration may be made that would impair the rights of any
optionholder under any outstanding options, except in the case of certain stock
splits, certain mergers or sales of assets, or upon the dissolution or
liquidation of the Company. Without approval of the Company's shareholders, no
amendment or alteration may be made that would (i) increase the total number of
shares reserved under the 1995 Plan; (ii) change the class of persons eligible
to participate in the 1995 Plan; (iii) decrease the minimum exercise price of
options that may be granted under the 1995 Plan; or (iv) extend the maximum life
of the 1995 Plan or maximum option exercise period. The number of shares and
option prices are subject to adjustment pursuant to certain anti-dilution
provisions contained in the 1995 Plan. The 1995 Plan expires on January 16,
2005.

The 1995 Plan replaced the Company's 1992 Directors' Stock Option Plan,
pursuant to which options to purchase 22,500 shares of Common Stock at an
exercise price of $6.00 per share were granted to each of Messrs. MacDonald,
Smith, and a former director of the Company. Each of Messrs. MacDonald, Smith,
and a former director of the Company received options to purchase 10,000 shares
of Common Stock at an exercise price of $3.00 per share at the time the 1995
Plan was approved by the Company's shareholders in March 1995. Upon consummation
of the Merger, C. Alan McDonald, Philip B. Smith, John M. Holliman, III, and
Fred W. Martin each were automatically granted options to purchase 10,000 shares
of Common Stock at an exercise price of $4.00 per share.

DIRECTOR COMPENSATION

Employees of the Company do not receive compensation for serving as
members of the Company's Board of Directors. Effective April 29, 1996,
non-employee members of the Board of Directors receive cash compensation in the
amount of $10,000 per annum. Non-employee directors receive automatic grants of
stock options under the 1995 Directors Stock Option Plan. See "Management -
Stock Option Plans."

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

C. Alan MacDonald and Philip B. Smith served as members of the
Compensation Committee of the Board of Directors during fiscal 1995. Mr. Smith
was Director of Merchant Banking for Spencer Trask Securities Incorporated
("Spencer Trask") from February 1992 through January 1994. From September 1992
through December 1993, Spencer Trask or its affiliates received from the Company
as compensation for acting as placement agent in the Company's private placement
of units consisting of Series A Preferred Stock and warrants to purchase Common
Stock (i) 4.9812 Unit Purchase Options to purchase, at an exercise price of
$165,000 per unit, an as adjusted aggregate of 131,920 shares of Common Stock
and Unit Warrants to purchase 38,826 shares of Common Stock; (ii) Trask Warrants
to purchase 29,268 shares of Common Stock at an exercise price of $5.41 per
share, as adjusted; (iii) a commission of 8% of the gross proceeds of all of the
units sold in the private placement; (iv) a management fee of 2% of the gross
proceeds of all of the units sold in the private placement; (v) a
non-accountable expense allowance of 2% of the gross proceeds of all of the
units sold in the private placement; and (vi) an agreement to enter into a
consulting agreement pursuant to which Spencer Trask received $3,000 per month
for

56
57
consulting services. In December 1992, the Company executed the consulting
agreement, which terminated upon the consummation of the Company's initial
public offering. In November 1993, the Company issued to Spencer Trask warrants
to purchase 10,500 shares of Common Stock at an exercise price of $6.60 per
share in connection with the waiver by Spencer Trask of its right of first
refusal to serve as the underwriter of the Company's initial public offering.
Those warrants expired on October 18, 1996. In November 1993, the Company also
agreed to pay Spencer Trask $145,000 for services rendered in connection with
the acquisition of certain restaurants, of which $50,000 was paid prior to the
Company's initial public offering in October 1994. The Company paid to Spencer
Trask an aggregate of $161,000 of the proceeds of the Company's initial public
offering, which represented the balance owed to Spencer Trask for services
rendered in connection with the acquisition of certain restaurants, all accrued
consulting fees under the consulting agreement from November 1993 through
October 1994, and a payment of $30,000 in connection with Spencer Trask's waiver
of its right of first refusal to serve as underwriter of the Company's initial
public offering. In July 1995, in consideration for rendering services to the
Company in connection with the Merger, the Company granted Mr. Smith options to
purchase 50,000 shares of Common Stock at an exercise price of $4.9375 per
share. One-half of these options vested and became exercisable in July 1996 and
the remaining options vest and become exercisable in July 1997.

INDEMNIFICATION AND LIMITATION OF PERSONAL LIABILITY OF DIRECTORS

The Company's Amended and Restated Bylaws require the Company to
indemnify its directors and officers against liabilities that they may incur
while serving in such capacities, to the full extent permitted and in the manner
required by the Georgia Business Corporation Code (the "GBCC"). Pursuant to
these provisions, the Company will indemnify its directors and officers against
any losses incurred in connection with any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he or she is or was a director or
officer of the Company or served with another corporation, partnership, joint
venture, trust or other enterprise at the request of the Company. In addition,
the Company will provide advances for expenses incurred in defending any such
action, suit or proceeding upon receipt of an undertaking by or on behalf of
such director or officer to repay such advances if it is ultimately determined
that he or she is not entitled to indemnification by the Company. The Company
has entered into indemnification agreements with certain of its directors and
executive officers pursuant to the foregoing provisions of its Amended and
Restated Bylaws.

As permitted by the GBCC, the Company's Restated Articles of
Incorporation contain provisions that eliminate the personal liability of
directors for monetary damages to the Company or its shareholders for breach of
their fiduciary duties as directors. In accordance with the GBCC, these
provisions do not limit the liability of a director for (i) any appropriation of
a business opportunity of the Company in violation of the director's duty, (ii)
acts or omissions that involve intentional misconduct or a knowing violation of
law, (iii) any dividend payment, stock repurchase, stock redemption or
distribution in liquidation that is prohibited under Georgia law, or (iv) any
merger from which the director derived an improper personal benefit. These
provisions do not limit or eliminate the rights of the Company or any
shareholder to seek an injunction or any other non-monetary relief in the event
of a breach of a director's fiduciary duty. In addition, these provisions apply
only to claims against a director arising out of his or her role as a director
and do not relieve a director from liability for violations of statutory law,
such as certain liabilities imposed on a director under the federal securities
laws.

57
58
CERTAIN TRANSACTIONS

In June 1992, the Company, Jeffrey D. Miller, President and Chief
Executive Officer of the Company at that time, and Ronald C. Davis, a former
director of the Company and a beneficial owner of more than 5% of the Company's
Common Stock at the time, entered into a stock redemption agreement (the "Davis
Redemption Agreement"). Pursuant to the Davis Redemption Agreement, on July 1,
1992, the Company redeemed certain shares of the Company's Common Stock owned by
Mr. Davis for a $4.5 million promissory note payable in June 1997. The Company's
obligation to make payments under the note was secured by the Company's pledge
of the shares redeemed from Mr. Davis. Also pursuant to the Davis Redemption
Agreement, the Company agreed to provide payment of health insurance premiums
for Mr. Davis, payment for a four-year lease for an automobile, payment of
automobile insurance during the term of the automobile lease, and payment of
approximately $15,000 for legal costs incurred in negotiations of agreements
with respect to the redemption of Mr. Davis's shares. In connection with the
Company's obtaining a new credit facility in May 1995, Mr. Davis agreed to
release the pledge of the shares of Common Stock, to extend the maturity date of
the note, and to subordinate the note to amounts due under the credit facility,
in exchange for increasing the principal amount of the note to $4.75 million,
increasing the interest rate of the note, and the payment to Mr. Davis of
$500,000. In March 1996, the Company utilized a portion of the proceeds of the
Credit Facility to repay the note, together with an additional payment of
$50,000 to obtain Mr. Davis' consent to the early repayment of the note.

Each of Jeffrey D. Miller and Haig V. Antranikian, formerly a Vice
President and director of the Company, owns a 20% interest in a building located
in Marion, Ohio that the Company leased for administrative offices. The Company
paid rent of $2,850 per month under the lease, which was the amount payable per
month under a promissory note issued to finance the initial acquisition of the
building. The Company also was responsible for all taxes, utilities,
maintenance, and other expenses associated with the building. Effective with the
closing of the Merger, the Company's obligations under this lease were
terminated by paying the lessor an amount equal to 50% of the balance of
payments remaining under the lease.

Jeffrey D. Miller and his wife have personally guaranteed repayment of
certain of the Company's obligations, including certain obligations of the
Company to its joint venture partners and its affiliates, obligations under the
Denny's Franchise Agreements, and certain property and equipment lease
obligations of the Company.

During the term of his employment with the Company, the Company from time
to time made loans to Mr. Miller. The largest outstanding principal balance of
such loans during fiscal 1993, fiscal 1994, and fiscal 1995 was $202,000,
$102,000, and $102,000, respectively. As of July 3, 1996, there was no
outstanding principal remaining on those loans.

On June 2, 1993, Lucien I. Levy, a beneficial owner of more than 5% of
the Company's Common Stock at that time, and persons affiliated with Mr. Levy
(collectively, the "Levy Investors") purchased $330,000 of the Company's 9%
Subordinated Notes due December 2, 1993 (the "1993 Notes") and received Levy
Warrants to purchase up to 54,998 shares of the Company's Common Stock at a
price of $5.03 per share, as adjusted. On September 1, 1993, the Company repaid
the 1993 Notes in full. In connection with the Merger, the Company extended the
period in which it is required to register the shares of Common Stock issuable
upon exercise of the Levy Warrants. The Registration Statement of which this
Prospectus forms a part is intended to satisfy the Company's obligation to
register such shares. See "Description of Securities - Registration Rights."

On September 1, 1993, the Levy Investors, including Lucien I. Levy, a
beneficial owner of more than 5% of the Company's Common Stock at that time,
purchased an aggregate principal amount of $3.5 million of the Company's 10%
Senior Bonds due June 30, 1996 (the "Bonds") and warrants to purchase up to
297,500 shares of Common Stock at an exercise price of $2.50 per share (the
"September Levy Warrants"). At the request of one of the Levy Investors, the
Company used a portion of the proceeds from the sale of the Bonds to repay
$100,000 of the principal of the Bonds. On September 30, 1993, the Company
repaid approximately $1.4 million of the

58
59
Bonds and the number of shares that could be purchased upon exercise of the
September Levy Warrants was reduced to 228,125. In October 1994, the exercise
price of the remaining September Levy Warrants was reduced to $.02 per share
because the Company did not complete its initial public offering before the date
specified in such warrants. The Company utilized a portion of the proceeds of
its initial public offering to repay the Bonds in full. The Levy Investors
exercised the September Levy Warrants on June 30, 1995. In connection with the
Merger, the Company extended the period in which it is required to register the
shares of Common Stock issued upon exercise of the September Levy Warrants. The
Registration Statement of which this Prospectus forms a part is intended to
satisfy the Company's obligation to register such shares. See "Description of
Securities - Registration Rights."

On March 31, 1994, the Company issued 40,000 shares of Common Stock to
Frank Regas in exchange for (i) $215,000 in cash, (ii) Mr. Regas' ownership
interest in 2.5% of the stock of Rudy's County Store and Bar-B-Q, Inc. (the
"Rudy's Franchisor"), and (iii) an assignment of Mr. Regas' rights under a
development agreement between Mr. Regas and the Rudy's Franchisor. Mr. Regas
served as Senior Vice President - Product Development and as a director of the
Company from June 1994 to March 29, 1996. The Registration Statement of which
this Prospectus forms a part is intended to satisfy the Company's obligation to
register the shares of Common Stock issued to Mr. Regas. See "Description of
Securities - Registration Rights."

Philip B. Smith, a director of the Company since May 1993, was Director
of Merchant Banking for Spencer Trask from February 1992 through January 1994.
From September 1992 through December 1993, the Company paid Spencer Trask or its
affiliates, as compensation for acting as placement agent in the Company's
private placement of units consisting of Series A Preferred Stock and warrants
to purchase Common Stock (i) 4.9812 Unit Purchase Options to purchase, at an
exercise price of $165,000 per unit, an as adjusted aggregate of 131,920 shares
of Common Stock and Unit Warrants to purchase 38,826 shares of Common Stock;
(ii) Trask Warrants to purchase 29,268 shares of Common Stock at an exercise
price of $5.41 per share, as adjusted; (iii) a commission of 8% of the gross
proceeds of all of the units sold in the private placement; (iv) a management
fee of 2% of the gross proceeds of all of the units sold in the private
placement; (v) a non-accountable expense allowance of 2% of the gross proceeds
of all of the units sold in the private placement; and (vi) an agreement to
enter into a consulting agreement pursuant to which Spencer Trask received
$3,000 per month for consulting services. In December 1992, the Company executed
the consulting agreement, which terminated upon the consummation of the initial
public offering. In November 1993, the Company issued to Spencer Trask warrants
to purchase 10,500 shares of Common Stock at an exercise price of $6.60 per
share in connection with the waiver by Spencer Trask of its right of first
refusal to serve as the underwriter of the Company's initial public offering.
Those warrants expired on October 18, 1996. In November 1993, the Company also
agreed to pay Spencer Trask $145,000 for services rendered in connection with
the acquisition of certain restaurants, of which $50,000 was paid prior to the
initial public offering. In October 1994, the Company paid to Spencer Trask an
aggregate of $161,000 of the proceeds of the initial public offering, which
represented the balance owed to Spencer Trask for services rendered in
connection with the acquisition of certain restaurants, all accrued consulting
fees under the consulting agreement from November 1993 through October 1994, and
a payment of $30,000 in connection with Spencer Trask's waiver of its right of
first refusal to serve as underwriter of the initial public offering.

The Company paid to affiliates of CNL (the "Selling Venturers") an
aggregate of $4.7 million from the net proceeds of the Company's initial public
offering in exchange for such persons' interests in a joint venture with the
Company. The Selling Venturers purchased an aggregate of 475,000 shares of the
Company's Common Stock in the initial public offering at the initial public
offering price of $5.00 per share.

In July 1995, the Company granted Philip B. Smith, a director of the
Company, options to purchase 50,000 shares of Common Stock at an exercise price
of $4.9375 per share in consideration for rendering services to the Company in
connection with the Merger. One-half of these options vested and became
exercisable in July 1996 and the remaining options vest and become exercisable
in July 1997.

59
60
Prior to the Merger, certain officers of DRC lent funds to DRC or its
predecessors. On December 10, 1993, Jack M. Lloyd and William J. Howard
contributed as paid-in-capital obligations owed by DRC to them in amounts
aggregating $469,275 and accrued interest of $52,250.

In April 1995, DRC purchased, for a purchase price of $75,000, a parcel
of land adjacent to one of its restaurants from an entity controlled by Jack M.
Lloyd. The Company believes that the purchase price represents the fair value of
the property on the date of purchase.

In August 1995, DRC entered into leases for two restaurant properties
owned by Lloyd/Howard L.L.C. ("Lloyd/Howard"), a limited liability company
controlled by Jack M. Lloyd (Chairman of the Board and Chief Executive Officer
of DRC at that time) and William J. Howard (President and a director of DRC at
that time). Lloyd/Howard acquired these two properties and certain other
properties from Kettle Restaurants, Inc. in consideration of the assumption by
Lloyd/Howard of environmental liabilities associated with the two properties
leased by DRC. The Company believes that the terms of the leases for these two
restaurant properties are no less favorable to the Company than could be
obtained from an unaffiliated third party for comparable properties.

Upon consummation of the Merger, the Company issued an aggregate of (i)
3,103,504 shares of Common Stock, $11,196,000 principal amount of Series B
Notes, and Series B Warrants to purchase an aggregate of 293,223 shares of
Common Stock to Jack M. Lloyd, Chairman of the Board and Chief Executive Officer
of DRC; (ii) 1,551,752 shares of Common Stock, $5,598,000 principal amount of
Series B Notes, and Series B Warrants to purchase 146,611 shares of Common Stock
to William J. Howard, President and a director of DRC; and (iii) 1,878,788
shares of Common Stock, $6,000,000 principal amount of Series A Notes, and
Series A Warrants to purchase 188,047 shares of Common Stock to BancBoston, in
exchange for such persons' respective shares of DRC capital stock. In connection
with the Merger, the Company entered into a registration rights agreement with
Mr. Lloyd, Mr. Howard, BancBoston, and the other former shareholder of DRC with
respect to the shares of Common Stock issued to them in the Merger and the
shares issuable upon exercise of the warrants. In connection with the BEP
Acquisition, the Company repaid all of the $6.0 million principal amount
outstanding on its Series A Notes held by BancBoston plus accrued and unpaid
interest thereon for $5.2 million in cash and 250,000 shares of the Company's
Common Stock. Upon payment of the Series A Notes, the related Series A Warrants
were automatically cancelled. The Company granted registration rights to
BancBoston for the 250,000 shares issued to it. See "Description of Securities -
Registration Rights." Upon consummation of the Merger, Mr. Lloyd became
President, Chief Executive Officer and a Director of the Company and Mr. Howard
became a Vice President and Director of the Company. Mr. Lloyd became Chairman
of the Board of the Company on July 9, 1996 and Mr. Howard became Executive Vice
President of the Company on July 9, 1996.

In May 1996, Jeffrey D. Miller forgave a $1.0 million loan to the Company
at the request of former shareholders of DRC. The existence of the loan would
have constituted a breach of obligations of the Company to the former
shareholders of DRC.

In connection with the financing of the BEP Acquisition, LH Leasing
Company, Inc. ("LH Leasing"), a corporation owned by Jack M. Lloyd and William
J. Howard, purchased from the Company for cash in the amount of $14.25 million
the equipment located at 62 Black-eyed Pea restaurants leased by BEP, a wholly
owned subsidiary of the Company, or Texas BEP, L.P. ("Texas BEP"), a limited
partnership in which BEP is the general partner and in which a wholly owned
subsidiary of BEP is the limited partner. Concurrently with the sale of the
equipment to LH Leasing, LH Leasing leased the equipment to the Company and the
Company subleased the equipment to BEP or Texas BEP. The equipment lease has a
term of five years and grants the Company an option to purchase the equipment at
its fair market value upon the expiration of the lease. The terms of the
subleases between the Company and each of BEP and Texas BEP are consistent with
the terms set forth in the equipment lease between the Company and LH Leasing.
Messrs. Lloyd and Howard formed LH Leasing as an accommodation to the Company to
enable it to satisfy the requirements of the Company's senior lenders. Messrs.
Lloyd and Howard received no material compensation for the transactions
involving the Company and LH Leasing.

60
61
In order to finance its sale and lease transaction with the Company, LH
Leasing borrowed cash in the amount of $14.25 million from FFCA. Messrs. Lloyd
and Howard jointly and severally guaranteed the repayment of the loan. In
addition, Messrs. Lloyd and Howard pledged their stock in LH Leasing to FFCA as
additional collateral for the loan.

Effective as of July 3, 1996, the Company sold the assets related to 23
restaurants operated under the "Ike's" and "Jerry's" trade names to Mid-American
Restaurants, Inc. ("Mid-American"), a corporation wholly owned by Haig V.
Antranikian, a Vice President and director of the Company at that time. As
payment for the restaurants, Mid-American issued to the Company a promissory
note in the principal amount of $4.6 million (the "Mid-American Note"). The
Mid-American Note (i) bears interest at the rate of 10% per annum through June
30, 2001, 11% per annum through June 30, 2002, and 12% per annum through June
30, 2003, and (ii) requires Mid-American to make 60 equal installments of
$65,000 per month beginning on July 31, 1996, 12 equal installments of $75,000
per month beginning on July 31, 2001, and 11 equal installments of $85,000 per
month beginning on July 31, 2002. All unpaid principal and interest on the
Mid-American Note will be due and payable on June 30, 2003. The MidAmerican Note
is secured by (a) all of the assets transferred to Mid-American, (b) the
personal guaranty of Mr. Antranikian and his wife, and (c) the pledge of all of
the outstanding stock of Mid-American owned by Mr. Antranikian. The Mid-American
Note also requires Mid-American to prepay all or a portion of the outstanding
principal under such note in the event of (1) an equity issuance or other
contribution to Mid-American's capital in excess of $500,000, in which case
Mid-American must make prepayments equal to 50% of Mid-American's net proceeds
from each such issuance or contribution up to $5.0 million and 100% of such net
proceeds in excess of $5.0 million, or (2) a sale by Mid-American of any of its
assets, to the extent that such sale results in net proceeds to Mid-American in
excess of $25,000.

In connection with the sale to Mid-American, the Company and Mid-American
entered into a master sublease agreement (the "Master Sublease") with respect to
the 23 restaurant properties pursuant to which Mid-American subleases each of
the restaurant properties on essentially the same terms as the terms of the
leases between the Company and the respective owners of those properties.
Mid-American's obligations under the Master Sublease are secured by Mr.
Antranikian's personal guaranty.

Also in connection with the sale to Mid-American, (i) Mr. Antranikian
repaid all outstanding principal and interest, totalling approximately $120,000,
under a loan made by the Company to Mr. Antranikian in April 1996; (ii) Mr.
Antranikian resigned as an officer and director of the Company; (iii) all of the
Company's obligations under Mr. Antranikian's employment agreement with the
Company were cancelled; and (iv) unvested employee stock options to purchase
28,667 shares of the Company's Common Stock held by Mr. Antranikian were
cancelled.

61
62
PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information regarding the shares
of the Company's outstanding Common Stock beneficially owned as of October 31,
1996 (i) by each of the Company's directors and executive officers; (ii) by all
directors and executive officers of the Company as a group; (iii) by each person
who is known by the Company to own beneficially or exercise voting or
dispositive control over more than 5% of the Company's Common Stock; and (iv) by
each of the Selling Shareholders.

SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(2) SHARES BEING OFFERING(2)
NAME AND ADDRESS OF ----------- REGISTERED FOR -----------
BENEFICIAL OWNER(1) NUMBER PERCENT SALE(3) NUMBER PERCENT(4)
- ------------------- ------ ------- ------- ------ ----------

DIRECTORS AND EXECUTIVE OFFICERS
Jack M. Lloyd 3,104,504 23.2% 0 3,104,504 22.1%
William J. Howard 1,551,752 11.6% 0 1,551,752 11.0%
William G. Cox 60,000(5) * 0 60,000 *
Todd S. Brown 24,800(6) * 0 24,800 *
Michael Larsen 20,000(7) * 0 20,000 *
John M. Holliman, III 12,436 * 4,436 8,000 *
C. Alan MacDonald 27,500(8) * 0 27,500 *
Fred W. Martin 1,000 * 0 1,000 *
Philip G. Smith 52,500(9) * 0 52,500 *
All directors and executive
officers as a group (9 persons) 4,673,692 35.8% 0 4,669,256 34.1%

NON-MANAGEMENT 5% SHAREHOLDERS
BancBoston Ventures, Inc.(10) 2,124,352 15.9% 2,124,352 0 *
Jeffrey D. Miller(11) 999,190 7.5% 999,190 0 *
Banque Paribas(12) 738,028 5.2% 0 738,028 5.0%

OTHER SELLING SHAREHOLDERS
O T Finance S.A 135,589 1.0% 135,589 0 *
John F. Steinmetz 112,180 * 89,680 22,500 *
Charles M. Harper TTEE,
Charles M. Harper Funnel
Trust DTD 1/24/86 102,500 * 65,000 37,500 *
Darier, Hentsch Private
Bank & Trust Ltd. 100,000 * 100,000 0 *
Fahnestock & Co., Inc. 99,000 * 99,000 0 *
The Lucien I. Levy Recovable
Living Trust & The Elvire
Levy Revocable Living Trust 95,779 * 90,174 5,605 *
Spencer Trask Securities 90,916 * 90,916 0 *
Hobart Teneff 82,716 * 82,716 0 *
Thomas M. Pisula 82,500 * 7,500 75,000 *
Neils Lauersen 68,021 * 50,416 17,605 *
David A. Handler 60,000 * 60,000 0 *
Frap Co., as Nominee for National
Westminister Bank, Custodian
F/B/O Hongkong & Shanghai Bank Trustee 58,500 * 13,500 45,000 *
TROBAR, Trustee under Living
Trust of J. Roy Duggan 55,250 * 5,250 50,000 *
Merl Trust 46,407 * 46,407 0 *
Jeffrey C. Key 40,000 * 39,000 1,000 *
Frank Regas(13) 40,000 * 40,000 0 *
Carol and Jimmy Filler 32,500 * 32,500 0 *
Credit Suisse 30,000 * 30,000 0 *
Jeffries & Co., Inc. 29,000 * 29,000 0 *
Don O. Weide and Janet Weide(14) 23,200 * 23,200 0 *
ASC Trading Corp. 22,750 * 5,250 17,500 *

62
63

Brian T. Reardon and
Robert J. Reardon, JTWROS 21,000 * 21,000 0 *
Coop Bank 20,000 * 20,000 0 *
John D. Broome 19,500 * 4,500 15,000 *
Jerome W. Niedfelt 16,250 * 16,250 0 *
ERMA Vertwaltungs AG,
Kurt Martin Consulting 13,267 * 13,267 0 *
Affida Bank 13,000 * 13,000 0 *
Jim Burke 13,000 * 13,000 0 *
Beverly Mitchell Mackey 12,500 * 12,500 0 *
James F. Langan, Sr 11,211 * 11,211 0 *
Michele Spycher 10,953 * 10,953 0 *
Kathryn G. Shaifer 10,833 * 10,833 0 *
Robert E. Vogel 10,400 * 10,400 0 *
Kevin Kimberlin 10,012 * 10,012 0 *
Walter F. Toombs 10,000 * 10,000 0 *
Zobec Management Ltd. 9,750 * 9,750 0 *
Stewart & Renate Savitsky 8,137 * 8,137 0 *
North American Trust Co. Custodian
fbo Arnold & Porter PSP/Richard Hubbard 7,500 * 7,500 0 *
David P. St. Jean 7,500 * 7,500 0 *
Peter F. Capuciati 6,500 * 6,500 0 *
James F. Connell & Elaine G. Connell,
Trustees UDT 7/9/79 6,500 * 6,500 0 *
Bruce D. Cowen 6,500 * 6,500 0 *
Howard Hirschmann 6,500 * 1,500 5,000 *
Josef and Shmuel Loffler TIC 6,500 * 6,500 0 *
ELJ Ltd. 5,605 * 5,605 0 *
Stephen G. Franklin, Sr 5,605 * 5,605 0 *
Nadine E. Hennelly 5,605 * 5,605 0 *
JTH Associates Partnership 5,605 * 5,605 0 *
James Kennedy 5,605 * 5,605 0 *
Richard L. Maender 5,605 * 5,605 0 *
Charles M. Merkel 5,605 * 5,605 0 *
William Wilkerson 5,605 * 5,605 0 *
James D. Sink 5,605 * 5,605 0 *
George S. Markelson 5,416 * 1,250 4,166 *
Banque OBC - Odier Bungener Courvoisner . 5,000 * 5,000 0 *
The Royal Bank of Scotland AG 5,000 * 5,000 0 *
Stuart Linde 5,000 * 5,000 0 *
Jerold Mann(15) 4,901 * 4,901 0 *
Bruce Raben 4,720 * 4,720 0 *
Christopher W. Allick 4,719 * 4,719 0 *
Daniel O. Conwill IV 4,719 * 4,719 0 *
Chris M. Kanoff 4,719 * 4,719 0 *
Jeffry K. Weinhuff 4,719 * 4,719 0 *
Andrew R. Whittaker 4,719 * 4,719 0 *
Peter S. Vosburgh 4,000 * 4,000 0 *
Henry H. Livingston, III 3,942 * 3,942 0 *
William R. Bolton and Susan A. Bolton 3,500 * 3,500 0 *
Joseph F. Chiappetta 3,300 * 3,300 0 *
Edwin J. Hagerty 3,300 * 3,300 0 *
Gordon R. McDonnell 3,300 * 3,300 0 *
Brian F. Mullin 3,300 * 3,300 0 *
Frank M. Whalen 3,300 * 3,300 0 *
Carla S. Levesque IRA Rollover 3,250 * 3,250 0 *
Carol Zervoulei 3,049 * 3,049 0 *

63
64

Louis V. Bellucci 2,885 * 2,885 0 *
Robert T. Colgan 2,800 * 2,800 0 *
Gloria Dare Baucon 2,600 * 600 2,000 *
A. G. Boyd-Gibbons 2,600 * 2,600 0 *
Henning Hoj and Inge Hoj(16) 2,600 * 2,600 0 *
Guarantee & Trust Co. TTEE
f/b/o Ronald J. Frank Sep - IRA 2,500 * 2,500 0 *
Dennis M. Sadler 2,402 * 2,402 0 *
Allen L. Notowitz 2,250 * 2,250 0 *
Victor Gick and Jacqueline M. Gick 1,868 * 1,868 0 *
Richard Friedman 1,500 * 1,500 0 *
William H. Blausey 1,168 * 1,168 0 *
John H. Blausey 1,167 * 1,167 0 *
John Doukas 914 * 914 0 *
John W. Handel 291 * 291 0 *
Ron Springer 152 * 152 0 *
Jeffrey Wattenberg 152 * 152 0 *
Shawnee L. Tammaro 56 * 56 0 *
Marjorie Cross 47 * 47 0 *
Lucinda Slosser 47 * 47 0 *

*Less than 1% of outstanding shares of Common Stock.

(1) Except as otherwise indicated, each person named in the table has sole
voting and investment power with respect to all Common Stock beneficially
owned by him, subject to applicable community property law. Except as
otherwise indicated, each of such persons may be reached through the
Company at 7373 N.
Scottsdale Road, Suite D-120, Scottsdale, Arizona 85253.

(2) The numbers and percentages shown include the shares of Common Stock
actually owned as of October 31, 1996 and the shares of Common Stock
which the person or group had the right to acquire within 60 days of such
date. In calculating the percentage of ownership, all shares of Common
Stock which the identified person or group had the right to acquire
within 60 days of October 31, 1996 upon the exercise of options and
warrants are deemed to be outstanding for the purpose of computing the
percentage of the shares of Common Stock owned by such person or group,
but are not deemed to be outstanding for the purpose of computing the
percentage of the shares of Common Stock owned by any other person.

(3) Each of the Selling Shareholders is assumed to be selling all of the
shares of Common Stock registered for sale and will own no shares of
Common Stock after the offering other than those shares held by certain
Selling Shareholders as of October 31, 1996, that do not require further
registration for resale, as set forth under "Shares Beneficially Owned
After Offering." The Company has no assurance that the Selling
Shareholders will sell any of the securities being registered hereby.

(4) Calculation of percentages of shares of Common Stock beneficially owned
after the offering assumes exercise of all of the Selling Shareholders'
Warrants and Unit Purchase Options.

(5) Represents 60,000 shares issuable upon exercise of currently exercisable
options.

(6) Represents 24,800 shares issuable upon exercise of currently exercisable
options.

(7) Represents 20,000 shares issuable upon exercise of currently exercisable
options.

(8) Represents 27,500 shares issuable upon exercise of currently exercisable
options.

(9) Represents 52,500 shares issuable upon exercise of currently exercisable
options.

(10) The address of BancBoston Ventures, Inc. is c/o BancBoston Capital, Inc.,
100 Federal Street, Boston, Massachusetts 02110.

(11) The address of Mr. Miller is 12274 North 138th Place, Scottsdale, Arizona
85259. Mr. Miller is a former officer and director of the Company.
Pursuant to the terms of the Credit Facility and an agreement with the

64
65
Company, Mr. Miller has agreed not to sell more than 170,000 shares of
Common Stock being registered hereby prior to March 29, 1997.

(12) The address of Banque Paribas is 227 West Monroe, Suite 3300, Chicago,
Illinois 60606.

(13) Mr. Regas was an officer and director of the Company from June 1994 to
March 1996.

(14) Represents 3,500 shares of Common Stock held by and 1,050 shares issuable
upon exercise of Preferred Warrants held by General Agency Insurance
Development Services; 3,500 shares of Common Stock held by and 1,050
shares issuable upon exercise of Preferred Warrants held by the General
Agency Insurance Development Services Profit Sharing Plan; 3,500 shares
of Common Stock held by and 1,050 shares issuable upon exercise of
Preferred Warrants held by the General Agency Insurance Development
Services Pension Plan; and 8,500 shares of Common Stock held by and 1,050
shares issuable upon exercise of Preferred Warrants held by the Don O.
Weide and Janet Weide Family Trust.

(15) Represents 3,901 shares of Common Stock held by Mr. Mann and 1,000 shares
of Common Stock held by the Jerold Mann Defined Benefit Pension Plan.

(16) Represents 1,000 shares of Common Stock held by and 300 shares issuable
upon exercise of Preferred Warrants held by Henning Hoj and Inge Hoj; and
1,000 shares of Common Stock held by and 300 shares issuable upon
exercise of Preferred Warrants held by the Hoj Family Limited
Partnership.

DESCRIPTION OF SECURITIES

GENERAL

The authorized capital stock of the Company currently consists of
20,000,000 shares of Common Stock, $0.10 par value per share, of which
13,399,277 shares were issued and outstanding as of October 31, 1996. An
additional 1,904,393 shares of Common Stock have been reserved for issuance upon
exercise of various outstanding warrants and unit purchase options, and an
additional 1,560,467 shares of Common Stock may be issued upon exercise of
options currently outstanding or issuable pursuant to the Company's stock option
plans. All of the outstanding shares of Common Stock are, and the shares of
Common Stock offered hereby when issued will be, fully paid and non-assessable.

COMMON STOCK

Holders of Common Stock are entitled to one vote per share on all matters
on which shareholders are entitled to vote, including the election of directors.
The shares do not have cumulative voting rights. Consequently, the holders of
more than 50% of the outstanding shares of Common Stock may elect all of the
Company's directors. All shares of Common Stock are entitled to share equally in
such dividends as the Board of Directors may declare, in its discretion, on the
Common Stock from sources legally available for such dividends. In the event of
a liquidation, dissolution, or winding up of the Company, holders of Common
Stock are entitled to share ratably in all assets available for distribution
after payment in full to all creditors of the Company. Holders of Common Stock
do not have preemptive rights to subscribe for additional shares on a pro rata
basis if and when additional shares are offered for sale. No redemption rights
or sinking funds are available to holders of Common Stock.

WARRANTS

General

As of October 31, 1996, warrants to purchase an aggregate of 1,733,647
shares of Common Stock were outstanding, excluding shares which may become
issuable upon exercise of the BEP Warrant, as described below. The shares of
Common Stock underlying the warrants, when issued upon exercise of the warrants
and payment of the purchase price for such shares of Common Stock, will be fully
paid and nonassessable. The Company will pay any transfer tax incurred as the
result of the issuance of Common Stock to the holder of a warrant upon its
exercise.

65
66
The warrants contain provisions that protect the holders against dilution of the
equity interest represented by the underlying shares of the Company's Common
Stock by adjustment of the exercise price and the number of shares issuable upon
exercise in the event of certain events such as stock dividends or
distributions, stock splits, or reorganizations. In the event of liquidation,
dissolution, or winding up of the Company, holders of unexercised warrants will
not be entitled to receive any assets of the Company available for distribution
to the holders of the Company's Common Stock. Holders of warrants will have no
voting, preemptive, liquidation, or other rights of a shareholder, as such,
until such warrants have been duly exercised and the exercise price is paid in
full. No dividends will be payable on the warrants prior to exercise.

Selling Shareholders' Warrants

From September 17, 1992 through February 2, 1993, the Company issued
Preferred Warrants to purchase an aggregate of 311,800 shares of Common Stock at
an exercise price of $6.00 per share in connection with the issuance of Series A
Preferred Stock. In 1995, the Company amended the terms of the Preferred
Warrants to (i) extend the expiration dates of the Preferred Warrants to a
period from September 17, 1996 through February 2, 1997, and (ii) reduce the
trading price of the Company's Common Stock that triggers the Company's right to
redeem the Preferred Warrants from $18.00 per share to $8.50 per share. In
addition, the Company has agreed to register the shares of Common Stock
underlying the Preferred Warrants if requested by the holders of a majority in
interest of the Preferred Warrants at such time as the price of the Company's
Common Stock exceeds the exercise price of the Preferred Warrants for 30
consecutive days.

The Company issued to the representatives of the underwriters of its
initial public offering Representatives Warrants to purchase 290,000 shares of
Common Stock at an exercise price of $6.00 per share until October 18, 1999. In
connection with the issuance of subordinated notes in June 1993, the Company
issued Levy Warrants to purchase 54,998 shares of Common Stock at an exercise
price of $5.03 per share, as adjusted, until October 18, 1999. In connection
with investment banking services, in June 1993 the Company issued Trask Warrants
to purchase 29,268 shares of Common Stock at an exercise price of $5.41 per
share, as adjusted, until July 27, 1997.

Series B Warrants

The Company issued Series B Warrants to purchase an aggregate of 477,953
shares of Common Stock to former shareholders of DRC in connection with the
Merger. Each Series B Warrant entitles the holder to purchase one share of
Common Stock at an exercise price of $.01 per share beginning on March 29, 1999
and ending on March 29, 2001, subject to cancellation as set forth below.

In the event that all of the Series B Notes are redeemed, any Series B
Warrants that have not been exercised prior to such redemption will be cancelled
at the time of the redemption. The Company intends to use its best efforts to
redeem all of the Series B Notes prior to the time that the Series B Warrants
first become exercisable. No assurances can be given, however, that the Company
will be able to successfully redeem the notes prior to the date on which the
Series B Warrants become exercisable.

The Company also issued Series A Warrants to purchase an aggregate of
188,047 shares of Common Stock to a former shareholder of DRC in connection with
the Merger. The Series A Warrants were issued with similar terms to the Series B
Warrants. The Series A Warrants were cancelled in accordance with their terms
upon the repayment of the related Series A Notes in July 1996. See "Certain
Transactions."

Paribas Warrants

Upon consummation of the Merger and closing of the Credit Facility, the
Company issued to Banque Paribas warrants (the "Paribas I Warrants") to acquire
438,028 shares of the Company's Common Stock at an exercise price of $4.3065 per
share. The Paribas I Warrants expire on March 29, 2002. In connection with
amendments to the Credit Facility at the time of the BEP Acquisition, the
Company issued to Banque Paribas warrants to acquire

66
67
150,000 shares of Common Stock at an exercise price of $4.30 per share and
150,000 shares of the Company's Common Stock at an exercise price of $6.45 per
share (the "Paribas II Warrants" and together with the Paribas I Warrants the
"Paribas Warrants"). The Paribas II Warrants expire on July 3, 2002.

BEP Warrant

In conjunction with the issuance of the BEP Purchase Note as described
below, the Company issued BEP Holdings, Inc., the seller of BEP, a Common Stock
Purchase Warrant dated as of July 3, 1996 (the "BEP Warrant"), which will
entitle BEP Holdings, Inc. to purchase that number of shares of the Company's
Common Stock equal to (i) the total amount of principal and interest outstanding
under the BEP Purchase Note on April 1, 1997, divided by $1.0 million, times
(ii) one half of one percent, times (iii) the number of shares of the Company's
Common Stock outstanding on March 31, 1997, on a fully diluted basis (excluding
shares issuable upon exercise of the BEP Warrant and employee stock options).
The exercise price per share of the Common Stock underlying the BEP Warrant will
be 80% of the lesser of (a) the fair market value of the Company's Common Stock
on July 3, 1996, or (b) the fair market value of the Company's Common Stock on
the date that is five business days following the publication of the Company's
earnings release for the period ending March 31, 1997. The BEP Warrant becomes
exercisable on October 1, 1997 and will expire on March 31, 2002. In the event
that the Company repays the BEP Purchase Note in full on or before March 31,
1997, the BEP Warrant will automatically be cancelled at the time of repayment.
In the event that all or a portion of the principal of the BEP Purchase Note is
repaid on or after April 1, 1997, but on or prior to September 30, 1997, the
Company may elect to redeem all or a portion of the BEP Warrant from BEP
Holdings, Inc. at a redemption price of $0.25 per share issuable upon exercise
of the BEP Warrant.

UNIT PURCHASE OPTIONS

Holders of an aggregate of 4.9812 Unit Purchase Options may purchase
units consisting of 26,484 shares of Common Stock, as adjusted, and Unit
Warrants to purchase 7,795 shares of Common Stock, as adjusted. The Unit
Purchase Options may be exercised at a price of $165,000 per unit, or $6.23 per
share of Common Stock, until October 18, 1997. The Unit Warrants will entitle
the holders thereof to purchase shares of Common Stock at an exercise price of
$6.00 per share until October 18, 1997. An aggregate of 131,920 shares of Common
Stock and Unit Warrants to purchase an aggregate of 38,826 shares of Common
Stock are issuable upon exercise of the Unit Purchase Options.

SERIES B NOTES

General

There are currently outstanding $18,250,000 in aggregate principal
amount of the Company's Series B 13% Subordinated Notes due 2003. The Series B
Notes were issued to certain of the former shareholders of DRC in connection
with the Merger. See "Certain Transactions." The Series B Notes were issued
pursuant to an indenture, dated as of March 29, 1996, between the Company and
State Street Bank and Trust Company, Boston, Massachusetts, as trustee (the
"Trustee"), as subsequently amended by a supplemental indenture dated July 3,
1996 (the indenture and supplemental indenture together referred to as the
"Indenture"). The terms of the Indenture are governed by certain provisions
contained in the Trust Indenture Act of 1939, as amended. The Series B Notes are
unsecured obligations of the Company, issued only in fully registered form
without coupons in denominations of $1,000 and integral multiples thereof.

An aggregate of $6,000,000 of Series A Notes were issued at the same time
as the Series B Notes. The Series A Notes generally were senior to the Series A
Notes. The Series A Notes were redeemed in connection with the BEP Acquisition.
See "Certain Transactions."

67
68
Interest Payments and Maturity

Interest on the Series B Notes is payable semi-annually to the
registered holders of such notes commencing September 29, 1996 and continuing
every March 29 and September 29 thereafter until March 29, 2003, at which time
all principal and any unpaid and accrued interest will be due. Interest on the
Series B Notes is computed on the basis of a 360-day year of twelve 30-day
months. Payments of principal and interest will be made by mail to the
registered address of the respective holders of the Series B Notes.

Subordination

The payment of the principal of and interest on, and all premiums,
fees, costs, expenses, and liabilities arising under and in connection with, the
Series B Notes is subordinated and subject in right of payment, to the extent
set forth in the Indenture, to the prior payment in full of all senior
indebtedness of the Company, including the Credit Facility, as defined under the
Indenture. In addition, the payment of the principal of or interest on the
Series B Notes is subordinated, to the extent and in the manner provided in the
Intercreditor Agreement (as defined below), to the prior payment in full, in
cash, of the BEP Purchase Note. Pursuant to the terms of the Indenture, as well
as an intercreditor agreement among the Company, the Trustee, and certain of the
holders of the Series B Notes (the "Intercreditor Agreement"), holders of the
Series B Notes may not enforce remedies under the Series B Notes unless the
holders of Series B Notes have given the holders of the BEP Purchase Note
written notice at least 30 days prior to taking any action to enforce any
remedies with respect to the Series B Notes and no "Standstill Period" (as
defined) is continuing. A "Standstill Period," as defined in the Intercreditor
Agreement, will be a period of up to 180 days commencing on the date the Company
receives a written notice of the imposition of the Standstill Period from a
representative appointed by the holders of the BEP Purchase Note. The
Intercreditor Agreement also provides that, at any time prior to repayment in
full of the BEP Purchase Note, any modification, amendment, termination,
extension or waiver of any provision of the BEP Purchase Note that is identical
or substantially identical to any provision of the Indenture or Series B Notes
(a "Parallel Provision") will automatically modify, amend, terminate, extend, or
waive the Parallel Provision. In addition, any forebearance by the holders of
the BEP Purchase Note of any provision in the BEP Purchase Note will
automatically result in an identical forebearance of the Parallel Provision.
However, no such modification, amendment, waiver or forebearance will be
effective as to the Parallel Provision if it would (a) decrease the principal
amount of Series B Notes, or (b) decrease the interest rate payable on or in
respect of the Series B Notes.

Optional Redemption

The Company, at its option, may redeem the Series B Notes in whole or
in part at 100% of the principal amount thereof, plus accrued and unpaid
interest thereon to the applicable redemption date, at any time prior to March
29, 1999. In addition, the Company, at its option, may redeem the Series B Notes
in whole or in part at any time after March 29, 1999 at the redemption prices
(expressed as percentages of the outstanding principal amount) set forth in the
table below, plus accrued and unpaid interest thereon to the applicable
redemption date, if redeemed during the 12-month periods beginning on the dates
indicated in the table below:

DATE PERCENTAGE
---- ----------

March 29, 1999 .............................. 103%
March 29, 2000 .............................. 102%
March 29, 2001 .............................. 101%
March 29, 2002 .............................. 100%

The Credit Facility, the Indenture, and the Intercreditor Agreement
prohibit the Company from making an optional redemption of Series B Notes,
however, so long as the BEP Purchase Note remains outstanding. Notice of
redemption will be sent, by first class mail, postage prepaid, at least 30 days
but not more than 60 days prior to the date fixed for redemption, to each holder
whose Series B Notes are to be redeemed at the last address for

68
69
such holder then shown on the registry books. If less than all of the Series B
Notes are redeemed, the Company will be required to redeem such notes in
compliance with the requirements of the principal national securities exchange
or over-the-counter market, if any, on which the Series B Notes are listed or,
if the Series B Notes are not listed on a securities exchange or
over-the-counter market, on a pro rata basis. If any Series B Note is to be
redeemed in part only, the notice of redemption that relates to such Series B
Note will state the portion of the principal amount thereof to be redeemed. A
new Series B Note in principal amount equal to the unredeemed portion thereof
will be issued to the holder thereof as soon as practicable upon receipt by the
Company of each original Series B Note for cancellation.

Mandatory Redemption

Upon the occurrence of certain equity issuances, the Indenture requires
the Company, if and to the extent permitted by the Credit Facility and subject
to the subordination provisions of the Indenture, to commence an offer to redeem
the maximum principal amount of Series B Notes that may be redeemed with a
specified portion of the proceeds of such equity issuance, at the then-current
redemption price plus accrued and unpaid interest to the redemption date. In the
event that the Company is prohibited by the Credit Facility or any other credit
agreement from redeeming Series B Notes with such proceeds, the Company will be
required to promptly use all such proceeds to permanently reduce outstanding
senior indebtedness, as defined in the Indenture. To the extent that any
proceeds remain after prepayment of all senior indebtedness and redemption of
all Series B Notes tendered for redemption pursuant to the redemption offer, the
Company may use the remaining amount for any purpose not prohibited by the
Indenture. The Credit Facility, the Indenture, and the Intercreditor Agreement
prohibit the Company from redeeming any Series B Notes as a result of an equity
issuance, however, so long as the BEP Purchase Note remains outstanding.

BEP PURCHASE NOTE

The BEP Purchase Note is an unsecured obligation of the Company and is
subordinate to all of the Company's senior indebtedness, as defined in the BEP
Purchase Note, including the Company's borrowings under the Credit Facility. The
BEP Purchase Note bears interest at 12% per annum, subject to adjustment as
described below if the note is not paid by March 31, 1997. Interest on the BEP
Purchase Note will accrue from July 3, 1996 to March 31, 1997, at which time any
accrued but unpaid interest will be added to the outstanding principal on the
BEP Purchase Note. The Company will then pay all accrued interest on the BEP
Purchase Note on each June 30, September 30, December 31, and March 31,
beginning on June 30, 1997. The BEP Purchase Note will mature on March 31, 2002.

To the extent permitted by the Credit Facility and an intercreditor
agreement between Banque Paribas and BEP Holdings, Inc., the Company, at its
option, may repay all or any portion of the amount outstanding under the BEP
Purchase Note at any time without premium or penalty. The BEP Purchase Note also
requires the Company to use its best efforts to repay all or a portion of the
amount outstanding under such note on or before March 31, 1997 and June 30,
1997, respectively, by making certain borrowings as permitted under the Credit
Facility or by utilizing cash or other investments in excess of working capital
needs as permitted under the BEP Purchase Note and the Credit Facility. In the
event that (i) the Company makes a request for borrowings under the Credit
Facility to repay all or a portion of the BEP Purchase Note and, at the time of
the request, is in compliance with the requirements of the Credit Facility with
respect to such request, and (ii) Banque Paribas denies, does not consent to, or
otherwise prohibits such borrowings, then the interest payable under the BEP
Purchase Note will be adjusted to 14% per annum retroactive to January 1, 1997.
In addition to the prepayment requirements described above, the BEP Purchase
Note requires the Company to repay all or a portion of the amount outstanding
under such note in the event of certain "Equity Issuances" or a "Change of
Control," as those terms are defined in the BEP Purchase Note.

The BEP Purchase Note contains certain other customary provisions with
respect to representations, warranties, covenants, reporting requirements, and
events of default. The BEP Purchase Note also contains certain provisions that,
among other things, limit the ability of the Company and its subsidiaries to
incur additional

69
70
indebtedness, pay certain dividends or make certain distributions on their
respective capital stock, repurchase shares of their respective capital stock,
make or hold certain investments, or make asset acquisitions or sales.

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

No gain or loss will be recognized by a holder of any of the Selling
Shareholders' Warrants or Unit Purchase Options on the purchase of a share of
Common Stock for cash on exercise of the warrant or option. The adjusted basis
of a share of Common Stock received upon exercise of a warrant or option will
equal the sum of the holder's tax basis in the exercised warrant or option and
the exercise price. The tax holding period for the shares of Common Stock so
acquired will commence on the date the shares are purchased upon exercise of the
warrant or option and will not include the period during which the warrant or
option was held.

All gains or losses recognized upon the sale or exchange of Common
Stock, Selling Shareholders' Warrants, or Unit Purchase Options generally will
be a capital gain or loss. Such capital gain or loss will be long-term capital
gain or loss if the holder has held the security for more than one year.

The anti-dilution provisions of the Selling Shareholders' Warrants and
Unit Purchase Options require that the number of shares of Common Stock
purchasable upon exercise of warrants or options or the exercise price of the
warrants or options will be adjusted in the event of certain transactions. As to
certain types of adjustments, holders of warrants or options may be deemed to
have received a constructive distribution that may be taxable as a dividend
under Sections 301 and 305 of the Internal Revenue Code of 1986, as amended.

CERTAIN PROVISIONS OF THE COMPANY'S RESTATED ARTICLES OF INCORPORATION AND
AMENDED AND RESTATED BYLAWS; CERTAIN PROVISIONS OF GEORGIA LAW

The Company's Restated Articles of Incorporation and Amended and
Restated Bylaws contain various provisions that may have the effect, either
alone or in combination with each other, of making more difficult or
discouraging a business combination or an attempt to obtain control of the
Company that is not approved by the Company's Board of Directors. These
provisions include (i) prohibitions on the right of shareholders to remove
directors other than for cause and by the affirmative vote, at a shareholders'
meeting for which notice of such purpose was given, of at least 75% of the votes
entitled to vote in the election of such directors; (ii) restrictions on the
right of shareholders to call a special meeting of shareholders; (iii) the
requirement that actions taken by written consent of shareholders be signed by
holders of not less than 75% of the votes that would be entitled to vote on such
actions in lieu of a meeting; (iv) the right of the Company's Board of Directors
to consider the interests of various constituencies, including employees,
customers, suppliers, and creditors of the Company, as well as the communities
in which the offices or other establishments of the Company are located, in
addition to the interests of the Company and its shareholders, in discharging
its duties and determining what is in the Company's best interests; (v) the
requirement that certain provisions of the Restated Articles of Incorporation
and Amended and Restated Bylaws may be amended only by a supermajority vote of
shareholders; and (vi) a provision making applicable to the Company provisions
authorized by the GBCC relating to certain business combinations.

The Amended and Restated Bylaws make applicable to the Company certain
provisions of the GBCC relating to business combinations with interested
shareholders, as such persons are defined in the GBCC (the "Corporate Takeover
Provisions"). The Corporate Takeover Provisions are designed to encourage any
person, before acquiring 10% or more of the Company's voting shares, to seek
approval of the Company's Board of Directors of the terms of any contemplated
business combination. The Corporate Takeover Provisions will prevent certain
business combinations with an interested shareholder for a period of five years
from the time that such shareholder became an interested shareholder unless (a)
prior to the time such shareholder became an interested shareholder the
Company's Board of Directors approved either the business combination or the
merger that resulted in the shareholder becoming an interested shareholder, (b)
in the merger that resulted in the shareholder becoming an interested
shareholder, the interested shareholder became the beneficial owner of at least
90% of the outstanding voting shares of the Company, excluding shares owned by
the Company's officers, directors, affiliates, subsidiaries, and certain
employee stock plans, or (c) subsequent to becoming an interested shareholder,
such shareholder acquired additional shares resulting in the interested
shareholder becoming the owner of at least 90% of the

70
71
Company's outstanding voting shares and the business combination was approved by
the holders of a majority of the Company's voting shares, excluding from said
vote the shares owned by the interested shareholder or by the Company's
officers, directors, affiliates, subsidiaries, and certain employee stock plans.

The Amended and Restated Bylaws also make applicable to the Company
provisions (the "Fair Market Provisions") authorized by the GBCC which provide
that, unless the consideration to be received in a business combination with an
interested shareholder equals the fair market value of the property exchanged,
as formulated in the Fair Market Provisions, and the interested shareholder will
receive no benefit from the merger except proportionately as a shareholder, the
business combination must either be (1) approved by the unanimous vote of the
continuing directors, provided there are at least three such continuing
directors, or (2) recommended by at least two-thirds of the continuing directors
and approved by the holders of a majority of the Company's voting shares,
excluding from said vote the shares owned by an interested director who is, or
whose affiliate is, a party to the business combination.

REGISTRATION RIGHTS

In connection with the Merger, the Company entered into a registration
rights agreement (the "Registration Rights Agreement") with each of the former
shareholders of DRC under which they have certain registration rights with
respect to the Common Stock issued in connection with the Merger and the shares
of Common Stock issuable upon the exercise of the Series B Warrants. In July
1996, the Company also agreed that the 250,000 shares of its Common Stock issued
to BancBoston in connection with the redemption of the Series A Notes would be
covered by the Registration Rights Agreement. Pursuant to the terms of the
Registration Rights Agreement, upon the request of either BancBoston or the
holders of at least 50% of the securities subject to registration, the Company
will be required to register all or a portion of such persons' securities. The
former shareholders of DRC will be entitled to require the Company to effect an
aggregate of three such registrations. However, the Company will be required to
effect only one such registration in each 12-month period beginning on March 29,
1996. In addition, if at any time the Company proposes to file a registration
statement on its behalf or on behalf of any of its other security holders, the
former shareholders of DRC will be entitled to include their shares of Common
Stock in that registration statement. Pursuant to such right, BancBoston has
elected to have all of its shares of Common Stock included in the Registration
Statement of which this Prospectus forms a part. The rights of the former DRC
shareholders to have shares registered pursuant to the Registration Rights
Agreement are subject to certain limitations, including customary underwriter's
cutbacks and the terms of certain lockup agreements. See "Description of
Securities - Shares Eligible for Future Sale."

In connection with the BEP Warrant, the Company entered into a
registration rights agreement (the "BEP Registration Rights Agreement") with BEP
Holdings, Inc. pursuant to which BEP Holdings, Inc. has certain demand and
piggyback registration rights with respect to the Common Stock issuable upon the
exercise of the BEP Warrant. BEP Holdings, Inc.'s rights to have shares
registered pursuant to the BEP Registration Rights Agreement are subject to
certain limitations, including certain "blackout periods" that may be imposed by
the Company and customary underwriter's cutbacks.

In September 1993, the Company issued to the Levy Investors warrants to
purchase 228,125 shares of Common Stock. Such warrants were exercised in July
1995 at a price of $0.02 per share. See "Certain Transactions." The Company
currently is obligated to register the shares of Common Stock that were issued
upon exercise of such warrants and is obligated to obtain the consent of the
Levy Investors prior to filing a registration statement that does not include
such investors' shares. In March 1994, the Company issued 40,000 shares of
Common Stock to Frank Regas in exchange for cash, an ownership interest in the
Rudy's Franchisor, and an assignment of Mr. Regas' rights under a development
agreement with the Rudy's Franchisor. See "Certain Transactions." The Company
currently is obligated to register such shares. The Registration Statement of
which this Prospectus forms part is intended to satisfy the Company's
obligations to register the shares held by the Levy Investors and Mr. Regas.

In connection with its initial public offering, the Company issued to
the representatives of the underwriters Representatives Warrants to purchase
290,000 shares of Common Stock at an exercise price of $6.00 per share.

71
72
Holders of a majority of the Representatives Warrants have the right to demand
one registration as well as piggyback registration rights with respect to the
shares of Common Stock underlying such warrants. The holders of the Paribas
Warrants, the other outstanding Selling Shareholders' Warrants, and the Unit
Purchase Options have certain registration rights with respect to the shares of
Common Stock underlying such warrants or options. These registration rights
generally require the holders of a majority in interest of the respective
warrants or options to request a registration. Certain of the warrants also
include piggyback registration rights with respect to the underlying shares of
Common Stock. The Registration Statement of which this Prospectus forms a part
is intended to satisfy the Company's obligations to register the shares of
Common Stock underlying the Selling Shareholders' Warrants and Unit Purchase
Options.

REGISTRAR AND TRANSFER AGENT

The registrar and transfer agent for the Company's Common Stock is
American Stock Transfer & Trust Company in New York, New York.

SHARES ELIGIBLE FOR FUTURE SALE

There were 13,399,277 shares of Common Stock outstanding as of October
31, 1996. Of these shares, approximately 11,273,000 shares are freely
transferable without restriction under the Securities Act, unless they are held
by "affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act. The remaining shares outstanding are "restricted securities"
within the meaning of Rule 144 under the Securities Act and as such may be
subject to the volume and other resale limitations described below.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated for purposes of Rule 144) who beneficially owns
restricted securities with respect to which at least two years have elapsed
since the later of the date the shares were acquired from the Company or from an
affiliate of the Company is entitled to sell, within any three-month period, a
number of shares that does not exceed the greater of (i) 1% of the
then-outstanding shares of Common Stock (approximately 13,399 shares as of
October 31, 1996) or (ii) the average weekly trading volume in the Common Stock
during the four calendar weeks preceding such sale, subject to the filing of a
Form 144 with respect to such sale and certain other limitations and
restrictions. In addition, a person who is not an affiliate, has not been an
affiliate of the Company at any time during the 90 days preceding a sale, and
who beneficially owns restricted securities with respect to which at least three
years have elapsed since the later of the date on which the shares were acquired
from the Company or from an affiliate of the Company, is entitled to sell such
shares under Rule 144(k) without regard to the requirements described above.

In connection with the Merger, the Company issued 6,937,500 shares of
Common Stock to the former shareholders of DRC. Such shares generally are freely
tradeable pursuant to Rule 145 under the Securities Act unless held by an
affiliate, in which case such shares will be subject to the volume and manner of
sale restrictions under Rule 144. In connection with the Merger, Jack M. Lloyd
and William J. Howard each entered into a lock-up agreement with the Company,
pursuant to which they agreed not to sell or otherwise transfer shares of Common
Stock received in the Merger until the earlier of (i) March 29, 1998, or (ii)
the day following the consummation of a financing pursuant to which all
outstanding Series B Notes are redeemed. The lock-up agreements also provide
that, in the event that the financing involves a public offering of Common Stock
or securities convertible into Common Stock, Messrs. Lloyd and Howard will not
sell their shares of Common Stock for an additional six-month period. These
former shareholders of DRC have certain registration rights with respect to the
Common Stock issued to them upon consummation of the Merger or upon exercise of
the Series B Warrants, subject to the lockup agreements described above. See
"Description of Securities - Registration Rights."

Holders of the BEP Warrant, Paribas Warrants, Selling Shareholders'
Warrants, and Unit Purchase Options have certain registration rights with
respect to the shares underlying such warrants and options. See "Description of
Securities - Registration Rights."

The Company has filed registration statements under the Securities Act
to register for offer and sale the shares of Common Stock reserved for issuance
pursuant to the exercise of outstanding employee stock options and

72
73
stock options that may be granted under the 1992 Plan and 1995 Plan. See
"Management - Stock Option Plans." Shares issued upon exercise of stock options
granted pursuant to the Company's stock option plans generally will be eligible
for sale in the public market, except that affiliates of the Company will
continue to be subject to volume limitations.

PLAN OF DISTRIBUTION

The Company is registering hereby 4,660,540 shares of Common Stock
currently outstanding or issuable to the Selling Shareholders upon exercise of
Selling Shareholders' Warrants and Unit Purchase Options, all of which shares
may be sold from time to time by the Selling Shareholders. The Company has
granted registration rights to certain of the holders of the Selling
Shareholders' Warrants and Unit Purchase Options and to certain of the other
Selling Shareholders, which the Registration Statement of which this Prospectus
forms a part is intended to satisfy. Each Selling Shareholder may use this
Prospectus as updated from time to time to offer the shares of Common Stock for
sale in transactions in which the Selling Shareholder is or may be deemed to be
an underwriter within the meaning of the Securities Act. The Company will not
receive any proceeds from the sale of any shares of Common Stock by the Selling
Shareholders. The Company will not pay any compensation to an NASD member in
connection with this offering. Brokerage commissions, if any, attributable to
the sale of the shares of Common Stock offered hereby will be borne by the
holders thereof.

Each currently outstanding share of Common Stock being registered
hereby and each share of Common Stock issued upon exercise of the Selling
Shareholders' Warrants or Unit Purchase Options may be sold by the holder
thereof in transactions that are exempt from registration under the Securities
Act or so long as the Registration Statement of which this Prospectus forms a
part is effective under the Securities Act, and so long as there is a
qualification in effect under, or an available exemption from, any applicable
state securities law with respect to the issuance or resale of such shares. The
Selling Shareholders, in addition to selling pursuant to the Registration
Statement of which this Prospectus is a part, also may sell under Rule 144 as
promulgated under the Securities Act, if applicable. See "Description of
Securities - Shares Eligible for Future Sale."

The Selling Shareholders also may pledge the shares of Common Stock
being registered for resale hereby to NASD broker/dealers (each a "Pledgee")
pursuant to the margin provisions of each Selling Shareholder's customer
agreements with such Pledgees. Upon default by a Selling Shareholder, the
Pledgee may offer and sell shares of Common Stock from time to time as described
above.

EXPERTS

The financial statements and the related financial statement schedule
incorporated in this Prospectus by reference from the Company's Transition
Report on Form 10-K for the year ended December 27, 1995 have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.

LEGAL OPINIONS

The legality of the shares of Common Stock offered hereby will be
passed upon for the Company by O'Connor, Cavanagh, Anderson, Killingsworth &
Beshears, a professional association, Phoenix, Arizona.

73
74
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE

As a result of the reverse purchase accounting treatment described in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Basis of Presentation," the Company determined that it was in its
best interests that Deloitte & Touche LLP ("Deloitte & Touche"), DRC's
independent public accountants prior to the Merger, serve as the Company's
independent public accountants following the Merger. Accordingly, effective
April 29, 1996, the Company ceased its client-auditor relationship with KPMG
Peat Marwick LLP ("Peat Marwick") and on April 29, 1996, the Company retained
Deloitte & Touche as its independent public accountants. The change in
independent public accountants was approved by the Board of Directors of the
Company, including all of the members of the Audit Committee of the Board of
Directors.

Peat Marwick's report on the financial statements of AFR, which are not
incorporated by reference herein, for the years ended September 28, 1994 and
September 27, 1995 did not contain an adverse opinion or a disclaimer of opinion
and was not qualified or modified as to uncertainty, audit scope, or accounting
principles. In connection with the two audits for the years ended September 28,
1994 and September 27, 1995, and subsequently to April 29, 1996, there were no
disagreements on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreement, if not
resolved to the satisfaction of Peat Marwick, would have caused it to make
reference to the subject matter of the disagreement in connection with its
report. Prior to retaining Deloitte & Touche, no discussions took place between
the Company and Deloitte & Touche regarding the application of accounting
principles or the type of opinion that might be rendered on the Company's
financial statements since the historical financial statements of DRC, as
audited by Deloitte & Touche, will be the continuing historical financial
statements of the Company. The Company has authorized Peat Marwick to respond
fully to inquiries from Deloitte & Touche.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement on Form S-3 under the
Securities Act with respect to the shares offered hereby. This Prospectus does
not contain all the information contained in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information regarding the Company and the shares of
Common Stock offered hereby, reference is made to the Registration Statement,
including the exhibits which are a part thereof, which may be obtained upon
request to the Commission and the payment of the prescribed fee. Material
contained in the Registration Statement may be examined at the Commission's
Washington, D.C. office and copies may be obtained at the Commission's
Washington, D.C. office upon payment of prescribed fees. Statements contained in
this Prospectus are not necessarily complete, and in each case reference is made
to the copy of such contracts or documents filed as an exhibit to the
Registration Statement, each such statement being qualified by this reference.

OTHER INFORMATION

DENNY'S, INC. IS NOT SELLING, OFFERING FOR SALE OR UNDERWRITING ALL OR
ANY PART OF THE COMMON STOCK OFFERED HEREBY. DENNY'S, INC. DOES NOT ENDORSE OR
MAKE ANY RECOMMENDATIONS WITH RESPECT TO THIS OFFERING. NEITHER THE OFFERING NOR
THE CONTENTS OF THIS PROSPECTUS (AND, SPECIFICALLY, ANY FINANCIAL DATA CONTAINED
OR INCORPORATED BY REFERENCE HEREIN) HAVE BEEN APPROVED OR ENDORSED BY DENNY'S,
INC. AND DENNY'S, INC. ASSUMES NO OBLIGATION TO ANY INVESTOR IN CONNECTION WITH
THIS OFFERING OR THE ACCURACY OR ADEQUACY OF ANY PORTION OF THIS PROSPECTUS.

74
75
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY OR ON BEHALF OF THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SHARES COVERED BY THIS PROSPECTUS
IN ANY JURISDICTION OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.

Page

Available Information .......................................... 2
Incorporation of Certain Information
by Reference .................................................. 2
Prospectus Summary ............................................. 3
Risk Factors ................................................... 6
Use of Proceeds ................................................ 13
Dividends ...................................................... 13
Capitalization ................................................. 14
Price Range of Common Stock .................................... 15
Selected Historical Consolidated
Financial Data ................................................ 16
Unaudited Consolidated Condensed
Pro Forma Statements of Operations ............................ 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations .................................................... 21
Business ....................................................... 29
Properties ..................................................... 47
Management ..................................................... 48
Certain Transactions ........................................... 58
Principal and Selling Shareholders ............................. 62
Description of Securities ...................................... 65
Plan of Distribution ........................................... 73
Experts ........................................................ 73
Legal Opinions ................................................. 73
Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure .......................................... 74
Additional Information ......................................... 74
Other Information .............................................. 74

4,660,540 SHARES OF
COMMON STOCK

DENAMERICA CORP.

P R O S P E C T U S

NOVEMBER 14, 1996