UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

(Check One)

X    ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934 [FEE REQUIRED] ---

For The Fiscal Year Ended June 29, 1996

     TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from ___ to ___

Commission File Number:  0-17229


                            DAKA INTERNATIONAL, INC.
             (Exact name of registrant as specified in its charter)

Delaware                                                              04-3024178
(State or other jurisdiction                                    (I.R.S. Employer
of incorporation or organization)                            Identification No.)


One Corporate Place, 55 Ferncroft Road, Danvers, MA                        01923
(Address of principal executive offices)                              (Zip Code)


                                  508-774-9115
              (Registrant's telephone number, including area code)


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

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant  based on the closing price of the Common Stock of the  registrant as
quoted on the National  Association of Securities  Dealers  Automated  Quotation
System on September 26, 1996 was $97,927,141  (for purposes of calculating  this
amount only,  directors,  officers and  beneficial  owners of 10% or more of the
Common Stock of the registrant may be deemed affiliates).

Number of shares of Common Stock,  $.01 par value,  outstanding at September 26,
1996: 11,129,059.

<PAGE>




                       DOCUMENTS INCORPORATED BY REFERENCE


The sections of the Company's  definitive Proxy Statement,  listed below,  which
have  been or will be filed by the  Company  with the  Securities  and  Exchange
Commission,  are  incorporated  in this Annual  Report by reference and shall be
deemed to be a part hereof:

         The Company's  definitive Proxy Statement mailed in connection with its
         Annual Meeting of  Stockholders to be held on December 4, 1996 pursuant
         to regulation 14A, which involves the election of directors.

                     Cross Reference Sheet between Items of
                   Registrant's Proxy Statement and Form 10-K

FORM 10-K
Item No.     Item in Form 10-K                   Item in Proxy Statement

PART III

10           Directors and Executive             Election of Directors and 
             Officers of the Registrant          Directors and  Committees in
                                                 the Company's Proxy Statement 
                                                 relating to its Annual Meeting 
                                                 of Stockholders to be held on  
                                                 December 4,  1996.

11           Executive Compensation              Executive Compensation in the 
                                                 Company's Proxy Statement 
                                                 relating to its Annual Meeting
                                                 of Stockholders to be held on 
                                                 December 4, 1996.  

12           Security Ownership of Certain       Principal Stockholders in the 
             Beneficial Owners and Management    Company's Proxy Statement 
                                                 relating to its Annual Meeting 
                                                 of Stockholders   to  be held 
                                                 on December 4, 1996.


Copies of all documents  incorporated  by reference  other than exhibits to such
documents will be provided  without charge to each person who receives a copy of
this Annual Report upon written request addressed to Stockholder Relations, DAKA
International,   Inc.,  One  Corporate   Place,  55  Ferncroft  Road,   Danvers,
Massachusetts 01923.

<PAGE>


                                 FORM 10-K INDEX

                                     PART I



Item 1 Business

Item 2 Properties

Item 3 Legal Proceedings

Item 4 Submission of Matters to a Vote of Security Holders

                                     PART II

Item 5 Market for the Registrant's  Common Stock and Related Stockholder Matters

Item 6 Selected Financial Data

Item 7 Management's  Discussion  and  Analysis  of  Results of  Operations  and
       Financial Condition

Item 8 Financial Statements and Supplementary Data

Item 9 Changes in and Disagreements with Accountants on Accounting and Financial
       Disclosure

                                    PART III

Item 10 Directors and Executive Officers of the Registrant

Item 11 Executive Compensation

Item 12 Security Ownership of Certain Beneficial Owners and Management

Item 13 Certain Relationships and Related Transactions

                                     PART IV

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



<PAGE>


THIS FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT
OF 1934.  THE COMPANY'S  ACTUAL RESULTS COULD DIFFER  MATERIALLY  FROM THOSE SET
FORTH IN THE FORWARD-LOOKING STATEMENTS. CERTAIN FACTORS THAT MIGHT CAUSE SUCH A
DIFFERENCE  ARE DISCUSSED IN THE SECTION  ENTITLED  "CERTAIN  FACTORS  AFFECTING
FUTURE OPERATING RESULTS" OF THIS FORM 10-K.


                                     PART I
Item 1.    Business.

Overview

DAKA International,  Inc. (the "Company"), formed in 1988 in connection with the
merger of Daka,  Inc.  ("Daka")  and  Fuddruckers,  Inc.  ("Fuddruckers"),  is a
diversified  foodservice  and  restaurant  company  operating  in  the  contract
foodservice  management industry and in the restaurant  industry.  Daka provides
restaurant-style  contract  foodservice  management  at a variety of schools and
colleges,  corporate  offices,  factories,  healthcare  facilities,  museums and
government  offices.  Fuddruckers  owns,  operates  and  franchises  Fuddruckers
restaurants,  which specialize in moderately-priced,  casual dining for families
and adults.

In fiscal 1994, the Company  acquired a 57% voting interest in Americana  Dining
Corporation  ("ADC"),  a newly formed  company  which  acquired two  restaurants
operated  under the name  "Champps  Sports  Cafe,"  pursuant  to a license  from
Champps Entertainment,  Inc. ("Champps").  Champps owns, licenses and franchises
Champps  Americana  restaurants,  which  specialize  in providing an  energetic,
upper-scale,  casual theme dining experience to a broad customer base, including
business  professionals,  families  and  adults.  In fiscal  1996,  the  Company
acquired Champps and the remaining 43% voting interest in ADC.

In fiscal 1996,  Daka also acquired The Great Bagel and Coffee  Company  ("Great
Bagel and Coffee").  Great Bagel and Coffee owns,  operates and  franchises  its
concept,  featuring  a full line of  fresh-baked  bagels and  distinctive  cream
cheeses,  gourmet  coffees,  and  sandwiches in a cafe setting.  Great Bagel and
Coffee's   operating   results  are  included  within  the  Company's   reported
foodservice financial information.

The Champps and Great Bagel and Coffee transactions have each been accounted for
as pooling-of-interests  and,  accordingly,  the  Company  has  restated  its
consolidated  financial  statements to include the accounts of Champps and Great
Bagel and Coffee.

Founded in 1973, Daka is one of the 10 largest contract  foodservice  management
companies in the United  States.  Operating  under the name "Daka  Restaurants,"
Daka  seeks  to  provide  a  retail  restaurant  atmosphere  for its  guests  by
operating,  among other things, a variety of branded concepts such as Taco Bell,
Burger King, Pizza Hut and Dunkin Donuts pursuant to licensing arrangements,  as
well as its own signature concepts within its foodservice operations. At the end
of fiscal 1993, the Company announced Daka's  aggressive  three-year growth plan
to double the size of its  existing  foodservice  business  by the end of fiscal
1996. At the beginning of fiscal 1994,  Daka acquired the majority of the assets
and foodservice contracts comprising Service America  Corporation's  educational
foodservice  business.  The acquired business provides contract foodservice to a
variety of colleges and universities,  and to public and private  elementary and
secondary schools,  many of which are located in geographic areas where Daka had
a significant presence. In February 1995, Daka, through a newly formed 80% owned
limited  partnership,  Daka  Restaurants,  L.P.,  acquired  certain  educational
foodservice  and  corporate  dining  contracts  from  ServiceMaster   Management
Services L.P. The acquired  contracts  expanded Daka's geographic  presence into
the western United States and strengthened its existing presence in the Midwest.
As a result of these two  acquisitions,  Daka  achieved  its  three-year  growth
objective in just nineteen  months.  Daka believes  that, as a result of current
and anticipated cost containment  policies,  more public and private educational
and  healthcare  facilities  will  seek to  manage  their  foodservice  costs by
replacing   self-operated   foodservice  operations  with  contract  foodservice
management.  Daka intends to pursue these expanding markets through its internal
sales force and by considering the acquisition of other contract  foodservice
management companies.

Fuddruckers  restaurants,  with an average  check of $6.15 and a "Kids Eat Free"
program after 4 PM on Monday  through  Thursday,  are designed to appeal to both
families  and  adults  seeking  value in a casual  dining  atmosphere.  The menu
prominently  features  Fuddruckers'  signature  hamburgers,  which are cooked to
order and served on buns baked daily  "from  scratch"  at each  restaurant.  The
Fuddruckers  restaurant decor features an open grill area, a glassed-in  butcher
shop and meat  display  case,  an open bakery and a colorful  display  island of
fresh produce and a variety of condiments,  sauces and melted cheeses from which
guests may garnish their own meals. In fiscal 1996, the Company acquired a 16.7%
equity interest in La Salsa Holding Co. ("La Salsa  Holding"), the franchisor 
and operator of La Salsa Mexican  restaurants,  and entered into a license
agreement with La Salsa Holding to utilize the "La Salsa Fresh Mexican Grill" 
concept within Fuddruckers  restaurants.  The La Salsa concept complements 
Fuddruckers' existing menu by featuring fresh,  healthy,  authentic Mexican 
foods.  Fuddruckers opened its first restaurant in 1980 in San Antonio, Texas 
and as of July 1, 1995, has expanded  its  operations  to include 121  
Fuddruckers-owned  and 76  franchised restaurants  located  throughout  the 
United States and in Canada,  Mexico,  the Middle   East  and   Australia.   
In   fiscal   1996,   Fuddruckers   opened  26 Fuddruckers-owned restaurants,
13 franchised restaurants and introduced "La Salsa Fresh  Mexican  Grill" in 
10  Fuddruckers  restaurants  in the Los Angeles,  San Antonio,  Chicago,  
and Milwaukee markets. In fiscal 1997,  Fuddruckers plans to open  7
domestic  Fuddruckers-owned,  up  to  10  domestic  franchised restaurants,  
with continued development and expansion in foreign countries.

The Champps  Americana  concept is based upon  providing the best possible food,
value and service to customers. The restaurant's diverse menu has over 120 items
including burgers,  pastas, salads,  sandwiches,  ribs, pizzas, seafood, chicken
and a variety of other dishes all served in generous  portions and prepared from
scratch  using high  quality  ingredients.  Customer  service is based on a team
approach  so that each  patron is  continually  attended  to, and  employees  go
through extensive  on-going training to ensure consistent  service.  The goal of
Champps is to promote an entertaining and energetic  atmosphere.  In the typical
Champps  restaurant,  customers  are  provided  a choice of  seating in the main
dining area, at the diner-type counter, in the bar areas, or, in some locations,
outside on the patio.  Champps  restaurants  generally have multiple  levels and
open sight lines so that all areas,  including the bar and kitchen,  are visible
and  allow  customers  to  feel  a part  of all  the  varied  activities  in the
restaurant.  These  activities  include  watching  sporting  events on  multiple
television  screens,  listening to music that is selected by a disc jockey based
upon the time of day or season, watching the cooks prepare meals, playing arcade
games in the discreetly located game room, or visiting the Champps gift shop. In
addition,  the bar provides a staging area for on-going  promotional events that
add to the  restaurant's  excitement.  The Champps  restaurant  concept has been
developed and refined since the first Champps restaurant was opened in St. Paul,
Minnesota in 1984. As of June 29, 1996, operations have been expanded to include
10 Champps-owned  and 10 franchised  restaurants  located  throughout the United
States.  Six Champps-owned  restaurants were opened in fiscal 1996 with plans to
open 9 domestic Champps-owned restaurants in fiscal 1997. One Champps-owned 
restaurant was sold in fiscal 1996.

See Note 13 to the Notes to  Consolidated  Financial  Statements  for  financial
information related to Daka, Fuddruckers and Champps.


<PAGE>



Daka Restaurants

Operations

Daka, one of the 10 largest  contract  foodservice  management  companies in the
United States, provides personalized,  high-quality,  restaurant-style  contract
foodservice  management and vending  operations at approximately  710 locations.
The  following  is a breakdown of Daka's managed  volume,  as defined below, 
for the year ended June 29, 1996, from the various industry segments in which
it operates:  colleges and universities - 49%;  business and industry - 25%;
public and private  elementary and  secondary  schools  - 20%;  museums  - 4%; 
and  healthcare  &  other - 2%.  Approximately  96% of  fiscal  1996  managed 
volume  was  derived  from  manual foodservice operations and approximately 4%
from vending operations.

Foodservice contracts are typically exclusive, range in duration from one to ten
years and can usually be  terminated  by either party upon 30 to 90 days notice.
Daka  conducts its  operations  on the basis of two types of contracts  with its
clients.  The first type is a management fee contract pursuant to which a client
reimburses  Daka for all costs  incurred in providing  foodservice  as well as a
negotiated fee for  overseeing  and  administering  its  foodservice  operation.
Management fee contracts are prevalent where companies subsidize food service as
a benefit  provided to employees and in elementary  and secondary  schools.  The
second type of contract is a profit and loss  contract  whereby Daka assumes the
risk of profit or loss from the foodservice operation.  Daka seeks to enter into
profit  and loss  contracts  whenever  appropriate  because it  believes  it can
achieve a greater level of  profitability  as a result of the flexibility it has
in establishing  menu mix and pricing in such contracts.  While Daka manages the
total sales volume  attributable  to both  contract  types,  generally  accepted
accounting principles require that Daka recognize sales and expenses from profit
and loss  contracts,  but only the management fee amount derived from management
fee  contracts.  Consequently,  Daka does not recognize  sales and expenses with
respect to management fee contracts.  As a result,  Daka's managed volume, which
represents  both sales made  pursuant to profit and loss  contracts and sales to
guests of foodservice clients pursuant to management fee contracts for any given
year, is considerably greater than the revenues it recognizes for such year.

Daka seeks to differentiate  itself from its competition by offering its clients
a number of foodservice  alternatives  that include  specific plans to meet each
client's needs and budget. Emphasis is placed on nutritious,  high-quality food;
trained, professional personnel; and innovative foodservice programs served in a
retail restaurant atmosphere.  To help create a retail restaurant atmosphere for
its  foodservice  guests,  Daka has developed 250 to 500 square foot  "signature
restaurants,"  each  with  its own  unique  name,  identity  and  menu,  serving
high-quality,  made-to-order  specialty  foods.  Designed to use existing common
area seating, such as a cafeteria or food court, the "signature restaurants" are
portable,  modular and capable of being installed in most foodservice locations.
Daka  believes  that  the  development  of  its  "signature  restaurants"  is an
innovative approach to serving guests in the foodservice  industry. In addition,
Daka offers its clients a variety of branded concepts,  such as Taco Bell, Pizza
Hut,  Dunkin Donuts and Burger King,  which Daka operates  pursuant to licensing
arrangements.

Daka's educational  foodservice  business,  which represents 69% of Daka's total
managed volume, is comprised of two distinct segments: colleges and universities
and elementary and secondary schools.

Foodservice  operations  at colleges  and  universities,  which  comprise 49% of
Daka's managed volume,  generally consist of multiple operating locations at any
one campus, each of which is a self-contained  foodservice unit such as a dining
hall,  cafeteria or snack bar. Revenues from foodservice  operations at colleges
and  universities  are derived from prepaid student board plans,  concessions at
sporting  events,   rathskellers  and  from  cash  sales  to  students,   school
administrators,  faculty and  off-campus  groups.  In  addition,  Daka  provides
catering  services to all departments of the college or university as well as to
private  organizations  using  campus  facilities.   Foodservice  operations  at
colleges and  universities  are typically  operated  pursuant to profit and loss
contracts.

<PAGE>

Foodservice  operations at elementary and secondary schools, which represent 20%
of Daka's  managed  volume,  are typically  operated  pursuant to management fee
contracts  since such  foodservice  operations are subsidized  under Federal and
State  School  Lunch  Programs,  and  generally  consist of  multiple  operating
locations within a school district.

Historically,  foodservice operations at corporate offices and factories,  which
currently  represent 25% of Daka's  managed  volume,  were operated  pursuant to
management  fee  contracts  and  were  subsidized  by  companies  as part of the
benefits provided to their employees.  However,  with the trend to contain costs
in recent  years,  many  companies  have  elected  to convert  their  subsidized
foodservice operations from management fee to profit and loss contracts, whereby
Daka is given  greater  control  over  pricing and menu  options in exchange for
assuming the risks and rewards inherent in profit and loss contracts.

Daka also provides full service dietary management to hospitals, continuing care
communities and other healthcare facilities, which currently comprises less than
2% of Daka's managed volume.  Foodservice in this segment is typically  provided
through a team of  professionals,  the composition of which varies  depending on
the size of the  operation,  the type of  healthcare  facility  and the  special
dietary  needs of the  patients.  In addition to providing  meals for  patients,
employees of the facility are also typically provided daily meals.

Daka's  ability  to  increase  its  prices  to cover  its cost  increases  is an
important factor in maintaining  satisfactory  profit levels.  Daka's ability to
increase prices is materially affected by competitive  factors,  resistance from
guests,  and resistance  from clients,  whose prior approval is required in many
instances.

Vending  operations,  which comprise  approximately 4% of Daka's managed volume,
generally  involve  24-hour  delivery  of  sandwiches,  hot and cold  beverages,
desserts,  and snacks through  coin-operated  machines  installed at private and
public locations.  Vending operations are either route operations or supplements
to manual  foodservice  operations.  Vending  machines  are used to augment  the
foodservice  operations  either at sites remote from the central cafeteria or to
service  clients' guests during  off-peak  periods such as second or third shift
operations.  The vending  machines  located at client locations that do not have
foodservice  operations  are usually  serviced by route  drivers  from a central
commissary.  Vending contracts  generally provide for payment to the client of a
commission  based on  machine  revenues,  although  certain  clients  forego the
commission and subsidize the foodservice  operation in order to maintain special
services and lower selling prices as an employee benefit.

Daka also includes the operations of Great Bagel and Coffee which owns and
operates 3 company  stores in the Phoenix  area, including one Great Bagel
Cafe  restaurant.  In addition,  there are approximately 15 existing
franchised units open in Arizona,  and up to 100 additional  franchised units
are expected to be opened in fiscal 1997 and fiscal 1998 in 11 western states.
Among its present franchisees,  Great Bagel and Coffee has an  exclusive  
arrangement with Texaco Refining and Marketing, Inc. to open both company-owned
and franchised in-store bagel  bakeries.  The Great Bagel and Coffee concept  
features an entire line of fresh-baked bagels and distinctive cream cheeses,  
together with gourmet coffees and a sandwich menu. Its newest concept,  
the Great Bagel Cafe, features gourmet pizzas,  beer and wine in a cafe 
setting,  in addition to its standard  menu of bagels and sandwiches. 
The current standard franchise agreement provides for the payment of a 
refundable  franchise  fee of between  $9,500 and $14,500 per store and 
ongoing royalties of 6% of gross sales of each store.


Management

The  foodservice  operations of Daka are currently  divided into five geographic
regions,  each of which is supervised by a Regional Vice President  reporting to
the  President  of  Foodservice  Operations.  The five  regions are divided into
districts supervised by District Managers reporting to their respective Regional
Vice President. Each District Manager oversees an average of 14 General Managers
or Chef  Managers,  with some  overseeing as few as one and others as many as 21
locations,  depending on the size and complexity of the operations.  The General
Managers or Chef Managers are responsible for the day-to-day operations of their
locations.   The  marketing,   human  resources,   and  training  functions  are
decentralized, reporting to the President of Foodservice Operations.

Marketing

Daka  has  created  a  marketing  catalogue  that  gives  General  Managers  the
opportunity to customize  their  promotional  programs.  Topics include  special
sections on celebrated foods, city  celebrations,  international food festivals,
and classic events.  As part of its "Be Our Guest" program,  Daka has redesigned
its  uniforms,  upgraded  the quality of the china,  silverware  and  glassware,
installed signage and serving systems and created a new logo featuring the brand
name "Daka Restaurants."

<PAGE>

Growth Strategy

Daka intends to increase its market share by adding new clients that  previously
were either self-operated or serviced by another contract foodservice  provider.
Industry  sources  estimate  that the  educational  and  healthcare  foodservice
segments  remain  substantially  self-operated  and that only the  business  and
industry  foodservice segment has achieved a high level of contract  foodservice
penetration.  Daka believes  that, as a result of current and  anticipated  cost
containment  policies,  many public and  private  educational  institutions  and
healthcare  facilities will seek to manage their  foodservice costs by replacing
their  own  self-operated   foodservice  operations  with  contract  foodservice
management.  Approximately  69% of  Daka's  managed  volume is  concentrated  in
educational  institutions,  a traditionally  self-operated  market.  The Company
believes that its experience is a competitive  advantage in obtaining additional
educational  institutions as contract foodservice clients. The healthcare market
is expanding  rapidly,  although it is not yet a  substantial  portion of Daka's
business.  Daka's experience in converting self-operated  foodservice operations
for  educational  institutions  to  contract  foodservice  should  enable  it to
participate competitively in the healthcare market.

The Company  believes it has made  sufficient  recent  investment in Daka's
corporate  infrastructure and operational  systems to support significant
future  growth in existing  and new  markets.  Great Bagel and Coffee will focus
growth efforts through new and existing franchised units.

Fuddruckers

Operations

Fuddruckers  restaurants,  with an average  check of $6.15 and a "Kids Eat Free"
program after 4 PM on Monday  through  Thursday,  are designed to appeal to both
families and adults seeking value in a casual dining atmosphere. The restaurants
offer a  distinctive  atmosphere  created by an open grill  area,  a  glassed-in
butcher shop, a display case featuring  choice steaks and  hamburgers  that have
been  freshly-cut or ground and an open bakery for hamburger buns,  brownies and
cookies.  Each restaurant  offers a substantially  similar menu that prominently
features Fuddruckers'  signature hamburger in one-third pound and one-half pound
sizes.  Hamburgers  are made  from  fresh  beef,  cut and  ground  daily at each
restaurant and served on buns baked daily "from scratch" at each restaurant. The
hamburgers are available with optional  specialty toppings from the grill. While
the menu is focused on  Fuddruckers'  signature  hamburger,  which  accounts for
approximately 65% of sales, it also includes fresh-cut, ribeye steak sandwiches,
various  grilled  chicken breast  sandwiches,  hot dogs, a variety of tossed and
specially prepared salads and soups, fish sandwiches, french fries, onion rings,
soft drinks,  hand-dipped milkshakes, and bakery items. Beer and wine are served
and,   generally,   account  for  approximately  3%  of  restaurant  sales.  The
restaurants  permit guests to participate  in the  preparation of their meals by
allowing  them to garnish  their own  entrees  from a  bountiful  array of fresh
lettuce, tomatoes,  onions, pickles, relish and a variety of condiments,  sauces
and melted cheeses at the "fixin's bar." Guests generally place their own orders
and serve themselves, thereby minimizing waiting time.

Each restaurant  contains a principal  dining area from which guests may observe
the  preparation of their meals,  and in some  restaurants an additional  dining
area with a patio motif.  Decor of the  principal  dining area of a  Fuddruckers
restaurant  generally  includes neon beverage signs, wood tables and chairs and,
in some instances,  original shipping  containers from certain foods sold by the
restaurant.  The open grill area enables guests to view the preparation of their
meals, all of which are cooked to order. The additional dining area has colorful
yellow awnings and  patio-style  tables and chairs and, in some  restaurants,  a
wall of doors which may be opened, weather permitting.

<PAGE>

The  typical  Fuddruckers  restaurant  is  located  in  a  suburban  area  in  a
free-standing  building  or in a shopping  center.  The area  within a five-mile
radius of the  restaurant  is usually zoned for retail,  office and  residential
uses.  Fuddruckers'  guests have an average  household  income of  approximately
$50,000.  Fuddruckers'  restaurants  typically range in size from 6,000 to 8,000
square feet with 200 to 300 seats and parking for between 100 and 200  vehicles.
Restaurants built in fiscal 1996 and those planned for fiscal 1997 are typically
between 4,800 and 6,000 square feet with 160 to 220 seats.

The restaurants  are open seven days a week,  generally from 11:00 a.m. to 11:00
p.m.,  for lunch,  dinner and late night  meals.  Certain  restaurants  are open
earlier to accommodate the sale of freshly-baked goods. Restaurants are designed
to enable guests to complete their visit within a convenient  40-minute  period,
which  attracts  the  business  person  on a  limited  luncheon  schedule.  This
contributes to Fuddruckers' higher percentage of lunch (45%) versus dinner (55%)
sales than the industry average for casual dining restaurants.

All  restaurants   are  operated  in  accordance   with  strict   standards  and
specifications for the quality of ingredients,  preparation of food, maintenance
of premises and  associates  conduct,  as set forth in  Fuddruckers'  policy and
procedures manuals. At each restaurant, Fuddruckers emphasizes uniform standards
for product quality, portion control, courteous service and cleanliness.

Fuddruckers establishes  specifications and approves purchasing arrangements for
basic menu  ingredients  and supplies for all its restaurants in order to obtain
favorable  prices and ensure  consistent  levels of quality and freshness.  Food
products in  Fuddruckers-owned  and  franchised  restaurants  are  regularly and
systematically tested for quality and compliance with Fuddruckers' standards.

Fuddruckers  emphasizes simplicity in its operations.  Its restaurants generally
have a total staff of one General Manager, two or three Assistant Managers,  and
25 to 45 other associates,  including full-time and part-time associates working
in  overlapping  shifts.  Since  Fuddruckers  generally  utilizes a self-service
concept, it typically does not employ waiters or waitresses.

During fiscal 1996,  Fuddruckers  complemented  its existing menu by introducing
"La Salsa Fresh Mexican Grill" in 10 Fuddruckers  restaurants in the Los
Angeles,San Antonio,  Chicago and Milwaukee markets. The La Salsa concept
features fresh, healthy,  authentic Mexican foods prepared in a stand-alone 
"outlet" inside the restaurant. Under the terms of a 10-year license
agreement with La Salsa Holding,Fuddruckers  will pay a franchise  fee, 
royalty  payments  equal to 5% of gross sales,  certain  training  costs and
marketing fund fees for each outlet opened.  Ten  outlets  were  opened in
fiscal  1996.

Management

Fuddruckers restaurant operations are currently divided into two regions, each
supervised by a Senior Vice  President of  Operations. The two regions are
divided into a total of thirteen  districts,  supervised by a Director of
Operations.  On average, each Director of Operations  supervises  nine 
restaurants  and reports to a Senior Vice President of Operations.

Marketing

Fuddruckers uses television, radio and print media to promote its various themes
in markets with a high  concentration of  Fuddruckers-owned  restaurants.  These
themes emphasize  Fuddruckers' unique name and fresh baked buns which are unique
characteristics  and  help  differentiate   Fuddruckers  from  other  restaurant
concepts.

Marketing research  conducted by Fuddruckers  indicates a strong consumer desire
for fresh,  high-quality  food.  Fuddruckers  restaurants  which  feature  fresh
produce  available at the "fixin's  bar," fresh beef ground daily and fresh buns
baked daily, address these consumer desires.

<PAGE>

One of Fuddruckers'  most successful  marketing  programs is the "Kids Eat Free"
program. This program is designed to increase guest traffic during traditionally
slow days by allowing a child under 12 to eat free Monday through  Thursday when
an accompanying  adult purchases a meal.  Since  implementing  this promotion in
1990,  Fuddruckers has experienced  increased guest traffic while  significantly
increasing  the number of kids meals served,  and still  improving its operating
margins.

Fuddruckers has developed  local store marketing  manuals to assist its managers
and franchisees in the development of a marketing and public relations  strategy
for their geographic area.  Workshops,  seminars and marketing  manuals are made
available to all franchisees. In addition, Fuddruckers allows its franchisees to
use its  various  television,  radio  and  print  advertising  materials  in the
franchisees' markets for a nominal fee intended to cover Fuddruckers' cost.

Site Selection

Fuddruckers  uses  its own  personnel  to  analyze  markets  and  sites  for new
restaurants, obtain the required zoning and other permits, negotiate the leasing
or real estate  purchase  and oversee all aspects of the  construction  process.
Fuddruckers  believes that location is a key factor in a restaurant's ability to
operate a profitable lunch and dinner business and considers several demographic
factors in selecting  sites,  including  the average  income of the  neighboring
residential  population,  the  proximity  of retail,  office  and  entertainment
facilities, traffic patterns and the visibility of the location.

The average  total cost to  construct a typical  Fuddruckers  restaurant,  where
Fuddruckers purchases real estate, depending upon its location, is approximately
$1.45 million,  which includes  $255,000 for  furniture,  fixtures and
equipment, $480,000 for building and improvements,  and $665,000 for land and
site work, and $50,000 related to pre-opening costs of the restaurant. In
1995 Fuddruckers arranged for  sale-leaseback  financing  whereby Fuddruckers
acquires real estate, constructs a new restaurant and then sells and
leases back the property.  This has enabled Fuddruckers to open new restaurants,
on sites where a leasing  arrangement was not available,  with a minimal capital
investment.  During fiscal 1996,  Fuddruckers opened 14 new restaurants pursuant
to such sale-leaseback arrangement.

The  average  total  cost  to  construct  a  new  Fuddruckers  restaurant  where
Fuddruckers enters into a leasing arrangement is approximately $785,000 which is
comprised of $255,000 for  furniture,  fixtures and  equipment, $480,000 for
leasehold improvements, and $50,000 related to pre-opening costs associated
with the restaurant. Fuddruckers typically receives a contribution of between
$300,000  and  $400,000  toward  the  construction  and  renovation  costs  from
landlords and believes that its growth enhances its ability to obtain attractive
leasing terms.  Despite this  favorable  condition,  there remains  considerable
competition among restaurant businesses for desirable sites.

Future development of Fuddruckers  restaurants will be accomplished  through the
sale of franchises and the  development of  Fuddruckers-owned  restaurants.  The
development of additional  restaurants is contingent upon locating  satisfactory
sites, financing, negotiating satisfactory leases or, alternatively, leasing and
converting  existing restaurant sites into Fuddruckers  restaurants.  It is also
dependent upon securing appropriate  governmental permits and obtaining beer and
wine licenses.

Franchising

Fuddruckers  offers  franchises  in  markets  where  it  deems  expansion  to be
advantageous  to the  development  of the  Fuddruckers'  concept  and  system of
restaurants.  Franchise  agreements  typically  grant  franchisees  an exclusive
territorial  license to operate a single  restaurant  within a  specified  area,
usually a four-mile radius  surrounding the franchised  restaurant.  Fuddruckers
has a close  relationship  with its franchisees and seeks to identify  potential
franchisees  with the  capability  and financial  resources to operate  multiple
restaurants. Of the 37 Fuddruckers franchisees, 15 operate multiple restaurants,
and 22 have operated Fuddruckers restaurants for more than 5 years.

<PAGE>

Franchisees bear all direct costs involved in the development,  construction and
operation of their  restaurants.  In exchange for a franchise  fee,  Fuddruckers
provides its  franchisees  assistance in the following  areas:  site  selection,
prototypical  architectural  plans,  interior  and  exterior  design and layout,
training,  marketing and sales techniques,  assistance by a Fuddruckers "opening
team" at the time a franchised  restaurant  opens, and operations and accounting
guidelines set forth in various policies and procedures manuals.

All  franchisees  are required to operate their  restaurants in accordance  with
Fuddruckers'  standards and specifications,  including controls over menu items,
food quality and preparation.  Fuddruckers requires the successful completion of
its  training  program  by a  minimum  of three  managers  for  each  franchised
restaurant.  In addition,  franchised  restaurants  are  evaluated  regularly by
Fuddruckers for compliance with franchise  agreements,  including  standards and
specifications through the use of periodic, unannounced, on-site inspections and
standards evaluation reports.

Fuddruckers  has license  agreements for the development of restaurants in Asia,
Australia,  the Middle  East,  and Europe with various  entities or  individuals
having substantial  financial resources.  It is anticipated that these licensees
will open up to nine  restaurants  pursuant to such  agreements  during the next
twelve months.

The current standard franchise agreement provides for the payment to Fuddruckers
of a non-refundable  franchise fee of between $25,000 and $50,000 per restaurant
and  ongoing  royalties  of  5% of  gross  sales  of  each  restaurant.  Certain
multi-unit  franchisees  have  entered  into royalty  buy-down  agreements  with
Fuddruckers,  which  reduce  royalty  payments  required  under  the  respective
franchise  agreements.  The royalty buy-down agreements  generally provide for a
one-time payment to Fuddruckers  covering a period of twelve to fourteen months,
and an amendment of the underlying  franchise agreement to reduce the royalty to
3% of gross sales. Once a franchisee executes a buy-down agreement,  the royalty
on any  subsequent  franchise  agreement  will be  reduced to 3%. As of June 29,
1996,  royalty  buy-down   agreements  have  been  executed  with  7  multi-unit
franchisees.


<PAGE>




                      Fuddruckers Locations - Company Owned

The following  table sets forth the locations of restaurants  owned and operated
by Fuddruckers as of June 29, 1996:

Domestic - Total 118    Domestic (Cont'd)        Domestic (Cont'd)

                        IOWA                     UTAH
ALABAMA                  Waterloo                 Layton
 Birmingham             KENTUCKY                  Orem
ARIZONA                  Florence                 Salt Lake City
 Flagstaff              MARYLAND                 VIRGINIA
 Glendale                Annapolis                Alexandria
 Mesa (2)                Baltimore                Annandale
 Phoenix                 Gaithersburg             Chesapeake (2)
 Scottsdale              Pikesville               Colonial Heights
 Tempe                   Rockville                Fairfax
 Tucson                 MASSACHUSETTS             Falls Church
CALIFORNIA               Boston                   Fredericksburg
 Burbank                 North Andover            Herndon
 Chula Vista             Saugus                   Midlothian
 La Mesa                MICHIGAN                  Newport News
 Lake Forest             Kentwood                 Richmond
 Lakewood               MINNESOTA                 Vienna
 Mira Mesa               Bloomington              Virginia Beach
 Pasadena                Brooklyn Center          Woodbridge
 Torrance                Burnsville              WISCONSIN
COLORADO                 Coon Rapids              Brookfield
 Aurora (2)              Eden Prairie
 Lakewood                Maple Grove
 Littleton               Roseville
GEORGIA                  St. Louis Park           International - Total 3
 Alpharetta             MISSOURI                  CANADA
 Athens                  Columbia                  Calgary
 Atlanta (2)             Maryland Heights          Edmonton
 Duluth                  St. Louis (2)             Regina
 Kennesaw               OHIO
 Marietta                Cincinnati (2)
 Norcross                Columbus (3)
 Peachtree City          Forest Park
 Snellville              Hilliard
 Tucker                  Mason
ILLINOIS                 Norwood
 Addison                TEXAS
 Aurora                  Austin (2)
 Calumet City            Clearlake
 Downers Grove N         Dallas
 Downers Grove S         Houston (11)
 Highland Park           Irving
 Matteson                Kingwood
 Orland Park             Plano
 Palatine                San Antonio (4)
 Schaumburg (2)          Woodlands
INDIANA
 Merrillville

<PAGE>

                 Fuddruckers Restaurants - Franchised Locations

The  following  table  sets  forth the  locations  of  restaurants  operated  by
Fuddruckers franchisees as of June 29, 1996:

Domestic - Total 69     Domestic (Cont'd)        International  - Total 7
                        NORTH DAKOTA
CALIFORNIA               Fargo                   AUSTRALIA
 Buena Park             OHIO                      Brisbane
 Citrus Heights          Akron                    Sydney
 Concord                 Canton                  BAHRAIN
FLORIDA                  Cleveland                Manama
 Altamonte Springs       South Euclid            CANADA
 Clearwater             OREGON                    Saskatoon
 Coconut Grove           Lake Oswego             KUWAIT
 Coral Springs           Portland                 Kuwait City
 Ft. Lauderdale         PENNSYLVANIA             SAUDI ARABIA
 Miami (2)               Greensburg               Al Khobar
 Plantation              Hamarville               Jeddah
 Tallahassee             Philadelphia
 Tampa                   Fairless Hill
KANSAS                  SOUTH CAROLINA
 Overland Park           Columbia
MARYLAND                 Greenville (2)
 Owings Mills            Hilton Head
MICHIGAN                 Myrtle Beach
 Flint                   North Myrtle Beach
 Novi                    Spartanburg
 Sterling Heights       SOUTH DAKOTA
MISSOURI                 Rapids City
 Independence            Sioux Falls
MONTANA                 TENNESSEE
 Billings                Kingsport
 Missoula                Nashville
NEBRASKA                TEXAS
 Omaha                   College Station
NEW JERSEY               Laredo
 New Brunswick           Lubbock
 Paramus                 McAllen
 Parsippany              Midland
 Tom's River             San Antonio (2)
 Turnersville            Temple
 Union                   Waco
 Voorhees               PUERTO RICO
 Wayne                   Caugus
NEW YORK
 Amherst
 Howard Beach
 Westbury
NORTH CAROLINA
 Asheville
 Charlotte
 Matthews
 Wilmington

<PAGE>

Champps

Operations

The Champps  Americana  concept is based upon  providing the best possible food,
value and  service to its  customers.  Although  food and  service  are the most
important  parts  of the  Champps  Americana  concept,  an  atmosphere  that  is
entertaining  and  energetic,  yet  comfortable,  is  also  critical.  The  food
offerings at Champps' restaurants combine a wide selection of appetizers, soups,
salads,  innovative  sandwiches,  pizza, burgers, and entrees including chicken,
beef,  fish,  pasta and  desserts.  Selections  reflect a variety  of ethnic and
regional cuisines and traditional  favorites.  Because Champps' menu is not tied
to any particular type of food,  Champps can introduce and eliminate items based
on  current  consumer  trends  without  altering  its theme.  Portion  sizes are
generous and each dish is attractively  presented.  Champps  believes that these
qualities give customers a sense of value.  Entree prices  currently  range from
$4.50  to  $14.25.   Champps  emphasizes  freshness  and  quality  in  its  food
preparation.  Fresh sauces,  dressings,  batters and mixes are prepared daily on
the premises,  generally from original  ingredients with fresh produce.  Champps
invests  substantial time in training and testing kitchen  employees to maintain
consistent food preparation.  Strict food standards at Champps-owned restaurants
have also been established to maintain quality.

The  customer's  experience  is  enhanced  by  the  attitude  and  attention  of
restaurant  personnel.   Accordingly,  Champps  emphasizes  prompt  greeting  of
arrivals,  frequent visits to customer tables to monitor  customer  satisfaction
and service,  and friendly  treatment of its customers.  Service is based upon a
team concept so that customers are made to feel that any employee can help them,
and they are never left unattended.  Success of the Champps  restaurants depends
upon employee adherence to these standards. To maintain these standards, Champps
seeks to hire and train  personnel  who will work in  accordance  with  Champps'
philosophy and frequently rewards individual and restaurant  achievement 
through several recognition programs intended to build and maintain employee
morale. All of the service  personnel at each Champps  restaurant  meet with
the managers at two daily pre-shift motivational meetings.  Restaurant
promotions,  specials and quality  control are all discussed and explained  
during these  meetings.  Also, employee enthusiasm is raised so that the 
employees can help increase the energy level and excitement of the restaurant.

Champps-owned, franchised and licensed restaurants are designed and decorated in
a casual theme,  although they differ somewhat from each other. Existing Champps
restaurants range in size from 7,000 to 12,000 square feet while the new Champps
restaurant  prototype is  approximately  8,700 square  feet.  Champps'  standard
restaurant  features a bar, open kitchen and dining on multiple levels including
a  diner-type  counter.  Customers  can also dine at the bar or  outside  on the
patio,  where  available.  The spacious design  facilitates  efficient  service,
encourages  customer  participation in entertainment and promotional  events and
allows customers to view the kitchen, dining area, and bar. Strategically placed
television screens stimulate  customer  perception of activity and contribute to
the total entertainment experience and excitement of the restaurant.

<PAGE>

An  important  part  of  the  Champps   Americana   dining   experience  is  the
entertainment.  Patrons may watch one of several  sporting events that are being
broadcast,  or listen to a variety  of music  played by the disc  jockey,  which
music is changed for the time of day and season of the year. The exposed kitchen
offers customers the opportunity to observe the cooks, and in certain  locations
a discretely  located game room is provided for arcade games. The  entertainment
aspects of the Champps  restaurants  are  designed to encourage  repeat  visits,
increase the length of a customer's stay and attract customers outside of normal
peak hours.  In addition,  a variety of creative  promotions  and activities are
conducted such as "Family Bingo," "Spring Time Big Bike Give-Away," and Karaoke.
These  promotions  and  activities  allow  for  customer  participation  and are
continually  changing.  Change  of the  ambiance  is  also  experienced  in each
restaurant  when the  restaurants  are  decorated  for the holidays and when the
dress of the restaurant  staff is changed for the seasons.  The different  looks
and  activities of the restaurant  provide  customers a different feel each time
they visit, thus encouraging repeat business.  Champps sells merchandise such as
T-shirts,  hats and sweatshirts bearing the Champps Americana name. Although not
currently  a  significant  source of  revenue,  the sale of its  merchandise  is
believed to be an effective means of promoting the Champps name.

Champps restaurants are generally open from 11:00 a.m. to 1:00 a.m. seven days a
week serving lunch,  dinner and late night appetizers.  Closing times of Champps
restaurants will vary based upon state laws concerning  operating hours.  Sunday
brunch is served  beginning  at 10:00 a.m.  Each  Champps  restaurant  maintains
standardized  food preparation and service manuals which are designed to enhance
consistency of operations  among the restaurants.  Although Champps  restaurants
differ  in some  respects,  Champps  attempts  to have  each  Champps-owned  and
franchised restaurant operate under uniform standards and specifications.

Management

The management staff of a Champps restaurant  is divided into three areas, the
General Manager, Front-of-House Managers and Back-of-House Managers. The General
Manager has responsibility for the entire restaurant.  Front-of-House management
consists  of an  associate  manager,  two  floor  managers  and  a bar  manager.
Back-of-House  management consists of a kitchen manager,  two to three assistant
kitchen managers and a daily specials chef. All General Managers report directly
to the Chief Operating  Officer.  Managers are compensated  based on salary plus
monthly bonus. The bonus is determined by means of monthly  restaurant sales and
profit goals.

Marketing

Champps has achieved its historical  success while expending  minimal amounts on
advertising  and  marketing.  Champps  restaurants  have relied on location  and
customer word-of-mouth.  However,  Champps-owned  restaurants expend a different
amount of resources on in-restaurant marketing and promotions.

Site Selection

Champps uses its own personnel to analyze markets and sites for new restaurants,
obtain the  required  zoning and other  permits,  negotiate  the leasing or real
estate  purchase and oversee all aspects of the  construction  process.  Champps
believes  that location is a key factor in a  restaurant's  ability to operate a
profitable lunch and dinner business and considers several  demographic  factors
in selecting sites, including the average income of the neighboring  residential
population,  the  proximity  of  retail,  office and  entertainment  facilities,
traffic patterns and the visibility of the location.

The average total cost to construct a typical Champps restaurant,  where Champps
purchases  real estate,  depending  upon its  location,  is  approximately  $4.5
million,  which  includes  approximately  $900,000 for  furniture,  fixtures and
equipment, $2.0 million for building and improvements, $1,200,000 for land and
site work, and $400,000 related to pre-opening costs of the restaurant.  In 
fiscal 1996,  Champps  arranged for  sale-leaseback  financing  whereby 
Champps  would acquire real estate, construct a new restaurant and then sell 
and lease back the property.  This has  enabled  Champps to open new  
restaurants  on sites where a leasing  arrangement  was not  available,  
with a  minimal  capital  investment. Champps  has  not  yet  sold  a  
restaurant   pursuant  to  such  sale-leaseback arrangement.

The  average  total cost to  construct a new Champps  restaurant  where  Champps
enters  into a  leasing  arrangement  is  approximately  $3.3  million  which is
comprised of  approximately  $900,000  for  furniture,  fixtures and  equipment,
$2.0 million for leasehold  improvements,  and $400,000 related to pre-opening 
costs of the restaurant.

<PAGE>

Future development of Champps restaurants will be accomplished primarily through
the  development of  Champps-owned  restaurants.  The  development of additional
restaurants  is  contingent  upon  locating   satisfactory   sites,   financing,
negotiating  satisfactory  leases  or,  alternatively,  leasing  and  converting
existing  restaurant sites into Champps  restaurants.  It is also dependent upon
securing appropriate governmental permits and obtaining liquor licenses.

Franchising

Champps offers franchises in markets where it deems expansion to be advantageous
to the development of the Champps concept and a system of restaurants. Franchise
agreements  grant  franchisees  an  exclusive  territorial  license to operate a
single restaurant within a specified area.  Currently,  there are no franchisees
operating multiple restaurants.

A typical  franchisee pays an initial fee of $75,000 per restaurant,  of which a
part may be  associated  with a  development  fee, a  continuing  royalty fee of
3-1/4% of gross sales, and a regional and/or national advertising fee of 1/2% of
gross sales at such time as Champps establishes a regional/national  advertising
program.  Among the services and materials that Champps  provides to franchisees
are site selection  assistance,  assistance in design development,  an operating
manual that includes quality control and service procedures,  training,  on-site
pre-opening  supervision  and  consultation  relating  to the  operation  of the
franchised   restaurants.   Champps  grants  both  single  and  multi-restaurant
development  rights  depending upon market factors and franchisee  capabilities.
With respect to multi-restaurant  agreements,  the franchisee's continuing right
to obtain franchises is contingent upon the franchisee's  continuing  compliance
with the restaurant development schedule.

All  franchisees  are required to operate their  restaurants in accordance  with
Champps'  standards and  specifications,  including controls over menu selection
and  food  quality  and  preparation.   Champps  approves  all  restaurant  site
selections  and applies the same  criteria  used for its own  restaurant  sites.
Champps  requires  all new  franchisees  to  provide at least  annual  financial
statements  reviewed by an independent  certified public accountant and conducts
its  own  audit  of  the  franchisee's  books  and  records.   Periodic  on-site
inspections  are conducted to assure  compliance  with Champps  standards and to
assist  franchisees with operational  issues.  Franchisees bear all direct costs
involved in the development, construction and operation of their restaurants.


<PAGE>



                              Restaurant Locations

The following table sets forth the locations of restaurants  operated by Champps
and its franchisees as of June 29, 1996:

Owned Restaurant Locations             Franchised Restaurant Locations
Domestic - Total 10                    Domestic - Total 10
CALIFORNIA                             MINNESOTA
 Irvine                                 Burnsville
INDIANA                                 Maple Grove
 Indianapolis                           Maplewood
OHIO                                    Minneapolis
 Columbus                               New Brighton
 Lyndhurst                              St. Paul
MINNESOTA                              NEBRASKA
 Minnetonka                             Omaha
 Richfield                             NORTH CAROLINA
NEW JERSEY                              Charlotte
 Edison                                SOUTH DAKOTA
 Marlton                                Sioux Falls
TEXAS                                  WISCONSIN
 Addison                                Greenfield
VIRGINIA
 Reston

<PAGE>

Expansion Strategy

The Company's long-term objective is to expand the Champps Americana  restaurant
concept nationally by opening additional Champps-owned and operated restaurants.
Champps  does  not  anticipate   significant  expansion  through  new  franchise
agreements,  but expects  that new  franchise  locations  will open  pursuant to
existing  franchise  development  and  licensing   agreements.   Development  of
Champps-owned   restaurants  will  be  concentrated  in  selected  markets  with
population  density  levels  sufficient  to  support  the  restaurants.  Champps
believes its concept can be adapted to a variety of locations,  both in terms of
market  demographics  and  configuration  of the  restaurant.  The  locations of
Champps  restaurants  are very  important.  Potential  sites are  reviewed for a
variety  of  factors,  including  trading-area  demographics,   such  as  target
population   density  and  household  income  levels;   an  evaluation  of  site
characteristics,   including  visibility,   accessibility,  traffic  volume  and
available  parking;  proximity to activity  centers,  such as shopping malls and
offices; and an analysis of potential competition.

Centralized Functions

The Company provides Daka, Fuddruckers and Champps with centralized  purchasing,
accounting and management information services.

Purchasing

The Company  capitalizes on the  combination of its  foodservice  and restaurant
businesses  through a centralized  and coordinated  purchasing  program and food
distribution  network. On December 1, 1992, the Company entered into a five-year
agreement with Kraft  Foodservice,  Inc.  ("Kraft") pursuant to which Kraft will
distribute  approximately  80% of  food  and  food-related  purchases  of  Daka,
Fuddruckers and Champps.  The agreement with Kraft is cancelable by either party
upon 90 days notice. Fuddruckers and Champps franchisees also have the option of
purchasing from Kraft. The Company believes that this agreement is unique in the
foodservice  industry  because it provides for a sharing  between  Kraft and the
Company of the savings that may be obtainable  through  purchasing from selected
vendors.  In addition,  under the agreement,  Kraft is furnishing to the Company
"Kraft-Link,"  Kraft's on-line  product-ordering  software which is installed in
major Daka locations and all Fuddruckers-owned and Champps-owned restaurants.

The Company's  purchasing programs have enabled Fuddruckers to maintain the same
menu prices for its signature  hamburgers since December 1990, further enhancing
the Company's philosophy of providing  high-quality products at moderate prices.
The Company  also acts as a  restaurant  equipment  dealer,  enabling it to take
advantage of dealer pricing, manufacturer discounts and rebates. The Company has
not  experienced  any difficulty in obtaining an adequate supply of quality food
products at acceptable prices from its suppliers.

<PAGE>

Accounting and Management Information Systems

The Company provides Daka,  Fuddruckers and Champps with  centralized  financial
and management  controls through the use of an automated data processing  system
and  prescribed  reporting  procedures.  The  Company  continues  to upgrade its
computer  hardware and  financial  software and has recently  implemented  a new
point of sale system for its Fuddruckers restaurants.  The foodservice locations
and  restaurants  forward  weekly  sales  reports,   vendor  invoices,   payroll
information  and  other  operating   information  to  the  Company's   corporate
headquarters.  The  Company  utilizes  this  data to  centrally  monitor  sales,
product,  labor and other costs and to prepare periodic financial and management
reports.  The Company believes that its centralized  accounting,  payroll,  cash
management,  and  information  systems improve its ability to control and manage
its operations efficiently.

Competition

In the contract  foodservice  segment,  Daka  competes  with large  national and
multi-national companies as well as local and regional competitors.  Some of the
major national and international companies include ARAMARK, Canteen Corporation,
Sodexho,  Gardner Merchant,  Compass,  Marriott Corporation and Service America.
The  contract  foodservice  management  business  is  highly  competitive.  Daka
believes  that  competition  is  based  on  pricing,   quality  of  service  and
reputation.  Additionally,  the ability of the  foodservice  contractor  to make
significant capital investments in the client's operation is a key factor in the
competition for large new contracts.

The restaurant industry is highly  competitive.  Fuddruckers and Champps compete
with other  national and  international  restaurant  chains as well as local and
regional operations. Competition within the industry is based principally on the
quality,  variety and price of food products served.  Site location,  quality of
service  and  attractiveness  of  facilities  are also  important  factors for a
successful  restaurant.  The restaurant industry is affected by general economic
conditions, changing tastes, population, traffic patterns and spending habits of
guests.  Fuddruckers  believes  that their  competitive  position is enhanced by
providing   guests  with   moderately-priced   quality  food  in  a  comfortable
atmosphere.

The Company believes that the businesses of Daka,  Fuddruckers and Champps share
important  characteristics  in their desire to provide  guests with  discernible
value and the highest quality of customer service and dining  atmosphere.  While
the restaurant  industry has  experienced  intense  competition  for many years,
contract  foodservice  providers  can no longer rely upon the luxury of "captive
customers," such as employees of corporate foodservice clients or students,  who
spend a  majority  of their  time in the same  facility  in which a  foodservice
operation is conducted.  Today, guests who do not find menu offerings acceptable
will simply eat elsewhere.  This places contract foodservice providers in direct
competition  with local  restaurants and fast food outlets for each guest's food
dollar. In addition, factors such as service,  cleanliness and atmosphere are as
important in a guest's dining decision as menu and food quality.

In response to this trend,  the Company  launched an internal program called "Be
Our  Guest"  in  its  Daka  operations.  This  program's  goal  is to  emphasize
Fuddruckers'  guest focus and to effect a transition in the Daka organization to
a   similar    guest-driven    orientation,    rather    than   a    traditional
"back-of-the-house"  foodservice  mentality.  The Company has provided training,
education  and  motivational  programs for its  associates to focus on providing
quality  service  and to  sustain a  sensitivity  to guest  needs.  The  Company
believes that by operating in a professional, restaurant-style manner where each
of its associates place the guest first, Daka, Fuddruckers,  and Champps can win
guest loyalty.

<PAGE>

Government Regulation

The Company is subject to various  federal,  state and local laws  affecting its
business.  Its operations are subject to various  health,  sanitation and safety
standards,  federal  and state labor laws,  zoning  restrictions,  and state and
local  licensing.  Federal and state  environmental  regulations  have not had a
material effect on the Company's operations to date. Fuddruckers and Champps are
also  subject to federal  and state laws  regulating  franchise  operations  and
sales. Such laws impose registration and disclosure  requirements on franchisors
in the offer and sale of  franchises,  or impose  substantive  standards  on the
relationship between franchisor and franchisee.

Fuddruckers and Champps restaurants are subject to state and local licensing and
regulation with respect to selling and serving alcoholic beverages.  The sale of
alcoholic  beverages  accounted for  approximately 3% of Fuddruckers' and 35% of
Champps' total  restaurants  sales during fiscal 1996. The failure to receive or
retain, or a delay in obtaining, a liquor license in a particular location could
adversely  affect  Fuddruckers',  Champps' or a  franchisee's  operation in that
location and could impair Fuddruckers', Champps' or such franchisee's ability to
obtain licenses  elsewhere.  Typically licenses must be renewed annually and may
be revoked or suspended for cause.

Fuddruckers  and Champps  restaurants  are  subject to "dram  shop"  statutes in
certain states. These statutes generally give a person injured by an intoxicated
person the right to recover damages from the  establishment  that has wrongfully
served alcoholic  beverages to the intoxicated  person.  Fuddruckers and Champps
each carry liquor  liability  coverage in the amount of $1 million.  However,  a
judgment  against  Fuddruckers or Champps under a "dram shop" statute in excess
of Fuddruckers' or Champps' liability coverage,  or any inability to continue to
obtain  such  insurance  coverage  at  reasonable  costs,  could have a material
adverse effect on the Company, Fuddruckers or Champps.

Research and Development

The Company is engaged in research  activities  relating to the  development  or
improvement of new and existing  products or services.  Daka,  Fuddruckers,  and
Champps  together  with their  franchisees,  utilize test kitchen  facilities to
develop  recipes,  test food  products and  equipment  and set  nutritional  and
quality standards.  Fuddruckers,  Champps, and their franchisees test additional
menu items in various markets on an on-going basis.  These tests are coordinated
through  the  corporate  headquarters.   Furthermore,   the  Company  employs  a
professional support staff to establish,  maintain and enforce high standards of
sanitation and safety in all phases of food preparation and service. The cost of
research and  development  currently is not  material to the  Company's  cost of
operations.

Service Marks

Daka has registered  certain trademarks and service marks with the United States
Patent and Trademark Office and with certain states,  including "Daka" and "Daka
Restaurants." In addition,  the Company is in the process of registering certain
trademarks  with respect to its  signature  concepts  including,  among  others,
French Quarter Coffee Company.  Fuddruckers has registered various service marks
with the United States Patent and  Trademark  Office,  including the trade names
"Fuddruckers"   and  "Daiquiritas"  and  the  "Fuddruckers  -  World's  Greatest
Hamburgers"  logo.  Champps  owns the  names  and  marks  "Champ's",  "Champps",
"Champps American Sports Cafe" and "Champps  Entertainment"  (collectively,  the
"Marks") in  connection  with  providing  bar and  restaurant  services,  and in
connection with the sale of related food products.

Pursuant to a Master Agreement dated February 1, 1994,  whereby Champps acquired
certain "Champ's" and "Champps"  service marks,  trademarks and trade names from
Champs  Restaurants,  Inc.  ("CRI"),  Champs pays CRI an annual fee equal to the
lesser of  approximately  $260,000 or  one-quarter  percent  (1/4%) of the gross
sales of Champps restaurants, but in no event less than $40,000. The maximum fee
payable by Champps is  increased  annually by the lesser of the  increase in the
Consumer Price Index or 4%.

All  of the  service  marks,  trade  names  and  trademarks  are of  significant
importance to the business of Fuddruckers  and Champps.  Fuddruckers and Champps
have also registered  various service marks in several  foreign  countries.  The
Company and its  subsidiaries  intend to protect  their  service  marks  through
registration with appropriate governmental authorities.

<PAGE>

Seasonality

As a result of the  strong  presence  in the  school  and  college  sector,  the
contract  foodservice  and  vending  operations  of Daka are subject to seasonal
patterns.  Revenues tend to be lower in June, July, August, December and January
when school enrollment is reduced. Adding to the seasonal decline is a reduction
in guests at  corporate  clients,  whose  employees  take  vacations  during the
summer.

Fuddruckers  and  Champps  sales  are  historically  higher  in the  spring  and
summer-time  months, due primarily to dining habits of its guests and eating out
trends of the general public.

Corporate Offices and Associates

DAKA International, Inc. is incorporated under the laws of the State of Delaware
and employs  approximately 120 associates on a full-time basis, four of whom are
executive officers.

Daka,  Inc. is incorporated  under the laws of the Commonwealth of Massachusetts
and employs  approximately 13,675 associates on a full-time and part-time basis.
Less than 10% of Daka's  associates are  represented  for collective  bargaining
purposes by unions. No single union contract covers a significant  number of any
one associate group.

Fuddruckers  is  incorporated  under the laws of the State of Texas and  employs
approximately 9,900 associates on a full-time and part-time basis.

Champps  Entertainment,  Inc.  is  incorporated  under  the laws of the State of
Minnesota  and  employs  approximately  1,500  associates  on  a  full-time  and
part-time   basis,   two  of  whom  are  executive   officers  of  the  Company.
Substantially all restaurant associates,  other than restaurant management,  are
compensated  on an hourly basis.  None of Champps'  associates  are covered by a
collective bargaining agreement.

The Company considers its relations with its associates to be good.

DAKA  International,  Inc.,  Daka,  Fuddruckers and ADC maintain their principal
executive   offices  at  One  Corporate  Place,  55  Ferncroft  Road,   Danvers,
Massachusetts 01923. The telephone number for the Company is (508) 774-9115.

Champps  Entertainment,  Inc.  maintains its principal  executive offices at 153
East Lake Street, Wayzata, Minnesota, 55391. The telephone number for Champps is
(602) 449-4841.


<PAGE>



Item 2.    Properties.

As of June 29, 1996,  the Company  leased  approximately  40,000  square feet of
office space at its  corporate  headquarters  in Danvers,  Massachusetts,  at an
average annual rental of $610,000 through November 30, 2001.

Fuddruckers   owns  the  land  and  related   improvements  at  11  of  the  121
Fuddruckers-owned  restaurants  with the  balance  of the  restaurants  operated
pursuant  to  long-term  leases.  The  location  and  general  character  of the
properties of the Company are described in Item 1 of this Report.

Champps leases approximately 4,000 square feet for its corporate office, located
in Wayzata, Minnesota, pursuant to a five-year lease at an average annual rental
of $70,800.  Champps also leases approximately 1,200 square feet adjacent to the
Minnetonka restaurant,  pursuant to a lease expiring in 2000. This space is used
by Champps' management and support staff.

Item 3.    Legal Proceedings.

The Company and/or its subsidiaries are parties to various lawsuits. However, in
the opinion of management  and legal  counsel,  none of these legal  proceedings
would result in final  judgments  which would have a material  adverse effect on
the Company's financial position, results of operations or cash flows.

Item 4.    Submission of Matters to a Vote of Security Holders.

There  were no  matters  submitted  by the  Company  to a vote of  Stockholders,
through the  solicitation of proxies or otherwise,  during the fourth quarter of
the fiscal year for which this report is filed.

                                     PART II

Item 5.    Market for the Registrant's Common Stock and Related Stockholder
           Matters.

The Common Stock of the Company is traded  over-the-counter and is quoted on the
Nasdaq Stock Market National Market under the symbol "DKAI." The following table
sets forth the high and low bid prices of the Company's Common Stock during each
quarter of the fiscal years ended June 29, 1996 and July 1, 1995.

                                                                               
                             1996                     1995
                        High       Low           High       Low
1st Fiscal Quarter    $ 33.75   $ 23.00        $ 15.50   $ 13.50
2nd Fiscal Quarter      33.63     22.75          16.25     12.88
3rd Fiscal Quarter      27.50     19.88          18.00     14.50
4th Fiscal Quarter      33.00     22.75          23.88     17.00

The Company has never paid cash dividends on shares of its Common Stock and does
not expect to pay dividends in the  foreseeable  future.  The Company intends to
retain  all of its  available  funds  for the  operation  and  expansion  of its
business.  In  addition,  the terms of the  Company's  line-of-credit  agreement
prohibit the payment of dividends on the Company's Common Stock. As of September
26, 1996, the approximate number of record holders of the Company's Common Stock
was 3,751.



<PAGE>


Item 6.    Selected Financial Data.

In fiscal 1996, the Company merged with Champps Entertainment,  Inc. ("Champps")
whereupon  Champps became a wholly-owned  subsidiary of DAKA. In 1996, DAKA also
merged  with The Great  Bagel and  Coffee  Company  ("Great  Bagel and  Coffee")
whereupon Great Bagel and Coffee became a wholly-owned  subsidiary of DAKA. Both
transactions  have been accounted for as  pooling-of-interests,  and accordingly
the Company's consolidated financial statements have each been restated to 
include the accounts of Champps and Great Bagel and Coffee (collectively the
"1996 Poolings-of-Interests").

The following selected financial information for 1996, 1995 and 1994 (except for
1994  Balance  Sheet  Data)  has  been  derived  from the  audited  consolidated
financial  statements  of the Company  included  elsewhere in this  Report. 
The selected 1994 Balance Sheet Data and the selected financial information 
for 1993 and 1992 have been derived from: (i) the audited consolidated 
financial statements of DAKA; (ii) the audited financial statements of 
Champps Entertainment, Inc.; (iii) the unaudited consolidated financial 
statements of The Great Bagel and Coffee Company as of and for the fiscal 
years ended July 2, 1994, June 26, 1993, and June 27, 1992.  Such unaudited 
consolidated financial statements of the Great Bagel and Coffee Company, in the
opinion of management,contain all adjustments, consisting of normal 
recurring adjustments, necessary for the fair presentation of the 
financial position and results of operations for these periods.  The 
following  selected  financial  information  should be read in conjunction  
with "Management's  Discussion  and  Analysis of Financial  Condition  and 
Results of Operations"  and the audited  consolidated  financial  statements  
and the notes thereto included elsewhere in this Report.

<TABLE>
<CAPTION>
                                                   June 29,     July 1,      July 2,     June 26,      June 27,
                                                     1996         1995        1994         1993          1992
                                                                  (In thousands, except per share data)
<S>                                              <C>          <C>          <C>          <C>           <C>
Statements of Operations Data:

Total revenues ..................................$ 404,824    $ 334,837    $ 257,146    $ 189,201     $ 171,175
 
Income from continuing
  operations before income taxes 
  and minority interests ....... ................      203       14,892       11,382        7,558         5,774
Income from continuing operations ...............      905        9,583        7,586        5,145         4,333
Gain on extinguishment of debt, net .............     --           --           --            462          --
Net income ......................................      905        9,583        7,586        5,607         4,333
Income available for
  common stockholders ...........................      905        9,183        6,786        5,607         4,333

Earnings per share:
Primary:
 Income from continuing operations ..............     0.09         1.35         0.94         1.01          0.85
 Income available for
  common stockholders ...........................     0.09         1.35         0.94         1.10          0.85

Fully diluted:
 Income from continuing operations ..............     0.09         0.96         0.83         0.69          0.71
 Income available for
  common stockholders ...........................     0.09         0.96         0.83         0.75          0.71

Weighted average number of shares:
 Primary ........................................    9,971        6,791        6,082        5,101         5,089
 Fully diluted ..................................   10,535       11,228       10,728        7,989         6,085

Balance Sheet Data:

Total assets ....................................$ 231,557    $ 180,853    $ 128,979    $  90,711     $  76,976
Long-term debt ..................................   99,862       71,029       48,535       32,636        28,738
Stockholders' equity ............................   82,867       59,054       41,172       26,422        15,934
</TABLE>

<PAGE>


Item 7  Management's  Discussion  and  Analysis  of  Results of  Operations  and
Financial Condition

Certain Factors Affecting Future Operating Results

This Form 10-K contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934.  The Company's  actual results could differ  materially  from those set
forth in the forward-looking statements.  Certain factors which may cause such a
difference include among the following: the impact of increased competition in
the bidding process for foodservice contracts against competitors with 
significant financial resources and market  share;  the exercise by  foodservice
clients of their right to terminate  contracts which typically provide for 
termination upon 30 to 60 days notice; the impact of increasing competition in 
the casual and upscale casual dining segment of the restaurant  industry;  
changes in general  economic conditions  which impact  consumer  spending for
restaurant  occasions;  adverse weather conditions,  competition among 
restaurant companies for attractive sites and  unforeseen  events  which  
increase  the cost to develop  and/or  delay the development  and opening of 
new  restaurants;  increases in the cost of product, labor,  and other  
resources  necessary to operate both the  restaurants and the
foodservice   facilities;   unforeseen   difficulties  in  integrating  acquired
businesses; the amount and rate of growth of general and administrative expenses
associated  with building a  strengthened  corporate  infrastructure  to support
operations;  the  availability  and  terms of financing  for the Company and any
changes to that financing;  the revaluation of any of the Company's  assets (and
related expenses); and the amount of, and any changes to, tax rates.

                              RESULTS OF OPERATIONS
Summary

In February 1996, CEI Acquisition Corp., a wholly-owned  subsidiary of DAKA, 
merged with  Champps  Entertainment,  Inc. ("Champps") whereupon Champps
became a wholly-owned subsidiary of DAKA. In April, DAKA also merged with The 
Great Bagel and Coffee Company  ("Great Bagel and Coffee")  whereupon  Great 
Bagel and Coffee became a wholly-owned subsidiary of DAKA. Both transactions 
have been accounted for as poolings-of-interests, and accordingly, the 
consolidated financial statements and Management's Discussion and Analysis 
have been restated to include the accounts of Champps and Great Bagel and 
Coffee.

The Company  recorded  significantly  lower  earnings  in 1996 as income  before
income taxes  and minority interests decreased 99% to $0.2 million as 
compared to $14.9 million in 1995 and $11.4  million in 1994.  Earnings  
in 1996 were  impacted  by  non-recurring charges relating to merger costs 
and the adoption of a new accounting  standard, along with poor operating  
performance in the Fuddruckers' segment and increased corporate selling,  
general and administrative  expenses. Income after income taxes
and minority interests decreased  91% to $0.9  million in 1996 as compared to
$9.6  million in 1995 and $7.6 million in 1994 while fully diluted  earnings 
per share  decreased to $0.09 in 1996,  a decrease  of 91% as  compared  to 
$0.96 in 1995 which was 16% higher than the $0.83  earned on a fully  diluted 
basis in 1994.  The 91%  decrease in fully diluted earnings per share during 
1996 results from lower earnings offset,in part, by a 6% decrease in the 
weighted average number of outstanding  shares.  The 16% increase in fully 
diluted  earnings per share during 1995 as compared to 1994 came despite a 5% 
increase in the weighted  average  number of  outstanding shares as a result 
of the Common  Stock and 7%  Convertible  Subordinated  Notes
(the "Notes") sold in March 1993.

<PAGE>

The Company  adopted  early the  provisions  of
Statement  of  Financial  Accounting  Standards  No.  121  "Accounting  for  the
Impairment of Long-Lived  Assets and Long-Lived Assets to Be Disposed Of", which
resulted in a third quarter noncash pretax charge of approximately $5.7 million.
The provision  includes charges for impairments to the carrying value of certain
restaurant  and  foodservice  contract  assets,   reacquired  franchise  rights,
investments  and certain  other  assets.  In  addition,  consolidated  operating
results  includes a non-tax  deductible  charge of $2.9 million  relating to the
mergers  with  Champps and Great  Bagel and Coffee.  Included in these costs are
legal,   investment   banking  and   professional   fees   associated  with  the
transactions,  and costs  associated with combining the operations of previously
separate companies and instituting certain operating efficiencies.

At June 29, 1996, the Company was not in compliance with its debt service 
coverage, minimum tangible net worth and fixed charge coverage covenants.  On
October 15, 1996, the Company obtained a waiver of noncompliance related to
such covenants from its lender, and renegotiated certain terms and conditions
of its existing credit facility.

The Company expects operating results for the first quarter of fiscal 1997 to be
substantially  below the first  quarter  results for fiscal 1996,  and will most
likely result in a net loss due, in part, to Fuddruckers'  operating performance
which  continues  to be below  expectations  for the first two months of the new
fiscal year.

<PAGE>

Foodservice

The following table sets forth,  for the periods  presented,  certain  financial
information  of  the  Company's  foodservice  business.  For  further  financial
information relating to the Company's foodservice business, see Note 13 to Notes
to Consolidated Financial Statements.

<TABLE>
<CAPTION>
                                                                             1996         1995        1994
                                                                             ----         ----        ----
<S>                                                                        <C>         <C>          <C>
Managed volume:
 Management fee contracts ................................................ $109,564    $107,959     $113,905
 Profit and loss contracts ...............................................  218,361     193,154      150,839
                                                                            -------     -------      -------
   Total managed volume .................................................. $327,925    $301,113     $264,744
                                                                           ========    ========     ========

Sales from profit and loss contracts .....................................    100.0%      100.0%       100.0%
Operating expenses:
 Labor costs .............................................................    (34.1)      (33.91)       (34.4)
 Product costs ...........................................................    (36.0)      (36.2)       (35.3)
 Other operating expenses ................................................    (15.2)      (15.8)       (15.4)
 Depreciation and amortization ...........................................     (2.6)       (2.4)        (2.2)
 Impairment charges and merger costs .....................................     (1.5)        --           --
                                                                               ----        ----         ----       
Income from profit and loss contracts ....................................     10.6%       11.7%        12.7%
                                                                               ====        ====         ==== 

Income from profit and loss contracts .................................... $ 22,841    $ 22,619     $ 19,154
Management and other fees ................................................    6,148       5,715        6,132
                                                                              -----       -----        -----
 Income from foodservice operations ...................................... $ 28,989    $ 28,334     $ 25,286
                                                                           ========    ========     ========
</TABLE>


<PAGE>


Daka conducts its operations on the basis of two types of foodservice  contracts
with its clients.  The first type is a management fee contract pursuant to which
a client  pays  Daka a  negotiated  fee for  overseeing  and  administering  its
foodservice  operations and reimburses  Daka for all costs incurred in providing
such service.  Management fee contracts are prevalent where companies  subsidize
foodservice as part of the benefits provided to employees and in elementary and
secondary  schools.  The second type of  contract is a profit and loss  contract
whereby Daka assumes the risk of profit or loss from the foodservice operations.
Daka  seeks to  enter  into  profit  and loss  contracts  whenever  parctical,
believing  it can achieve a greater  level of  profitability  as a result of the
flexibility it has in establishing menu mix and pricing in such contracts.

Managed  volume in the  foodservice  segment  increased  $26.8  million or 9% to
$327.9  million in 1996 as compared to $301.1  million in 1995.  The increase in
managed volume results from the full year impact of managed volume  generated by
the educational and corporate  foodservice contracts acquired from ServiceMaster
Management  Services L.P.  ("SMMSLP") on February 8, 1995, a 2% increase in same
location sales,  offset, in part, by lost contracts.
During1996,  Daka retained approximately 89% of its contracts, which is slightly
lower than its historical norm of 92%.  Managed volume in 1995 increased  $36.4
million  or 14% to $301.1  million,  as  compared  to  managed  volume of $264.7
million in 1994.  The increase in managed volume in 1995 as compared to 1994 was
due to a combination of increased volume of existing food operations  offset, in
part, by one less week of operations in 1995 compared to 1994.

Income from  foodservice  operations,  excluding  impairment  charges and merger
costs,  increased  15% to $32.5  million in 1996 as compared to $28.3 million in
1995, which was 12% higher than the $25.3 million in 1994. During 1996, a number
of marginally  profitable or unprofitable  contracts  expired and,  accordingly,
became subject to a competitive bidding process.  Throughout this process,  Daka
rebid  unprofitable  or  marginally  profitable  contracts  on terms that should
provide an acceptable profit.  Certain of these contracts were retained,  and as
anticipated,  certain other  contracts  were not  retained.  Despite the loss of
these contracts,  income from profit and loss contracts in Daka's base business,
excluding the educational and corporate  foodservice  contracts acquired in 1995
from SMMSLP and excluding  1996  impairment  charges and merger costs,  improved
during 1996 compared to 1995. Operating margins in the base foodservice business
remained  consistent from year to year while the acquired contracts performed as
expected.   The  lower  operating   margins   associated  with  the  educational
foodservice  contracts  acquired  is  typical  of  the  educational  foodservice
industry  and  consistent   with  the  operating   margins  in  Daka's  existing
educational  foodservice business.  Lower labor costs in 1995 reflect the impact
of the  Company's  ongoing  safety  program  which  resulted  in lower  workers'
compensation  costs.  Depreciation  and amortization in 1996, 1995 and 1994 as a
percentage of sales from profit and loss  contracts  increased  primarily due to
the amortization of the costs assigned to the acquired contracts.


<PAGE>


Fuddruckers

The following table sets forth,  for the periods  presented,  certain  financial
information  for  Fuddruckers.  For  further  financial  information  related to
Fuddruckers, see Note 13 to Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
                                                          1996           1995         1994
                                                          ----           ----         ----
<S>                                                     <C>            <C>          <C>     
Restaurant sales .....................................  $131,592       $110,703     $ 87,030
                                                         =======       ========     ========

Sales from Fuddruckers-owned restaurants .............     100.0%         100.0%       100.0%
Operating expenses:
Labor costs ..........................................     (29.0)         (28.8)       (28.8)
Product costs ........................................     (28.2)         (27.8)       (27.8)
Other operating expenses .............................     (27.0)         (25.7)       (25.7)
Depreciation and amortization ........................      (6.1)          (4.8)        (4.6)
Impairment charges ...................................      (1.9)           --           --
                                                         -------        -------      -------   
Income from restaurant operations ....................       7.8%          12.9%        13.1%
                                                         =======        =======      =======

Income from restaurant operations ....................  $ 10,324       $ 14,252     $ 11,400
Franchising income ...................................     6,575          5,372        4,318
                                                         -------        -------      -------
Income from restaurant and franchising operations ....  $ 16,899       $ 19,624     $ 15,718
                                                         =======        =======      =======
Number of restaurants (end of period):
 Fuddruckers-owned ...................................       121             98           75
 Franchised ..........................................        76             70           75
                                                         -------        -------      -------
  Total restaurants ..................................       197            168          150
                                                         =======        =======      ======= 
</TABLE>


Total  revenues from  restaurant  and  franchising  operations in 1996 increased
$22.1 million or 19% to $138.2  million  whereas  revenues from  restaurant  and
franchising operations in 1995 increased $24.8 million or 27% to $116.1 million,
as compared to total revenues of $91.3 million in 1994.

Sales in Fuddruckers-owned  restaurants increased $20.9 million or 19% to $131.6
million in 1996 as compared to $110.7  million in 1995.  This increase is due to
$3.3 million of incremental sales for a full year from five restaurants acquired
from  franchisees  during 1995 and $30.3 million of sales at restaurants  during
their  first year of  operation,  including  26 new  restaurants  opened in 1996
offset, in part, by a 4.9% decrease  in comparable  restaurant  sales and a $4.4
million  decrease in sales due to the closing and/or sale of three  restaurants.
Comparable restaurant sales decreased primarily as a result of inclement weather
in many  Fuddruckers  major  markets  throughout  the  third  quarter.  Sales at
Fuddruckers-owned  restaurants  increased $23.7 million or 27% to $110.7 million
in 1995 as  compared  to  $87.0  million  in  1994.  This  increase  is due to a
combination  of  $12.7  million  of  sales  at  17  restaurants   acquired  from
franchisees  during the second half of 1994 and in 1995,  $14.6 million of sales
at  restaurants  during  their  first  year  of  operation,   including  22  new
restaurants  opened in 1995 and a 0.8% increase in comparable  restaurant  sales
offset,  in part, by a $1.5 million decrease in sales resulting from the closing
and/or  sale of five  restaurants  and the  effect  of 52 weeks of sales in 1995
whereas 1994 had 53 weeks.

Franchise income  increased $1.2 million in 1996 as compared to 1995,  primarily
due  to  revenue  generated  from  continued  sales  of  multi-unit  development
agreements in both the United States and internationally. The remaining increase
represents  additional royalty income relating to 13 new franchised  restaurants
opened offset, in part, by the closing of 7 franchised restaurants during 1996.
In 1995, franchise income increased $1.1 million compared to 1994 due to 
revenues generated from the sale of multi-unit development agreements in both 
the United States and internationally, offset by the reduction of royalty 
income associated with the acquisition of 5 franchised restaurants in 1995.

<PAGE>

Income from restaurant operations,  excluding impairment charges, decreased $1.5
million or 10% to $12.8  million in 1996 compared to $14.3 million in 1995 while
margins as a percentage  of sales  decreased  from 12.9% in 1995 to 9.7% in 1996
exclusive of impairment  charges of 1.9%.  Higher costs as a percentage of sales
in all cost components  reflect the large numbers of new  restaurants, lower 
than anticipated sales levels and start-up costs associated with
new concepts.  Operating  margins  decreased by 3.2% in 1996  principally due to
weather-related  expenses.  Income from  restaurant  operations,  increased $2.9
million or 25% to $14.3  million in 1995 as compared  to $11.4  million in 1994.
The  improvement  in  operating  margins can be  attributed  to lower  operating
expenses  associated with the acquired  Atlanta  restaurants,  strong  operating
results at the new  restaurants  opened,  the closing of  marginally  profitable
restaurants,  and improved product costs through national  purchasing  programs.
Depreciation and amortization in 1996 increased significantly as a percentage of
sales  compared to 1995 and 1994 due  primarily to increased  pre-opening  costs
associated with new restaurants,  pre-opening  costs related to the 
"La Salsa  Fresh  Mexican  Grill"  concept in 10  restaurants, and continued
installation of new point of sale equipment.

Champps

The following table sets forth certain  financial  information for Champps 
restaurants.  For further information related to Champps, see Note 13 to 
Notes to the Consolidated Financial Statements.
<TABLE>
<CAPTION>
                                                           1996          1995           1994
                                                           ----          ----           ----
<S>                                                      <C>           <C>            <C>     
Restaurant sales .....................................   $ 41,593      $ 19,257       $  8,273
                                                         ========      ========       ========

Sales from Champps restaurants .......................      100.0%        100.0%         100.0%
Operating expenses:
Labor costs ..........................................      (33.2)        (31.0)         (31.4)
Product costs ........................................      (28.8)        (29.0)         (28.0)
Other operating expenses .............................      (22.6)        (20.5)         (20.2)
Depreciation and amortization ........................       (8.7)         (5.5)          (3.4)
Impairment charges and merger costs ..................       (6.3)          --             --
                                                         --------      --------       --------
Income from restaurant operations ....................        0.4%         14.0%          17.0%
                                                         ========      ========       ========

Income from restaurant operations ....................   $    150      $  2,689       $  1,409
Franchising income ...................................        555           636            554
                                                         --------      --------       --------
Income from restaurant and franchising operations ....   $    705      $  3,325       $  1,963
                                                         ========      ========       ========
Number of restaurants (end of period)
Champps-owned ........................................         10             5              3
Franchised ...........................................         10            10              8
                                                         --------      --------       --------
Total restaurants ....................................         20            15             11
                                                         ========      ========       ========
</TABLE>

Total revenues from  restaurants  and  franchising  operations in 1996 increased
$22.3 million or 112% to $42.1 million  whereas  revenues  from  restaurant  and
franchising operations in 1995 increased $11.1 million or 126% to $19.9 million,
as compared  to total  revenues of $8.8  million in 1994.  Franchise  income has
remained relatively consistent in 1996, 1995 and 1994.

Sales in  Champps-owned  restaurants  increased  $22.3  million or 116% to $41.6
million  in 1996 as  compared  to $19.3  million  in 1995  primarily  due to the
opening of 6 new  restaurants,  offset by the sale of one restaurant in the last
quarter of 1996. Sales at Champps-owned  restaurants  increased $11.0 million or
133% to $19.3  million in 1995 as compared to $8.3  million in 1994,  due to the
opening of two new restaurants.

<PAGE>

Income from restaurant  operations,  before impairment charges and merger costs,
increased 4% to $2.8  million in 1996 as compared to $2.7 million in 1995.  This
increase  is due  to a  combination  of  increased  revenues  derived  from  new
restaurant  openings  offset by  increased  labor,  overhead,  depreciation  and
amortization  expenses associated with these restaurant  openings.  In addition,
one  restaurant  was sold in the last  quarter of 1996.  Income from  restaurant
operations  increased 93% to $2.7 million in 1995 as compared to $1.4 million in
1994 primarily due to revenues derived from new restaurant openings.

Selling, General and Administrative Expenses

Selling,   general  and  administrative   expenses  including  depreciation  and
amortization  related to  corporate  assets  amounted  to $40.8  million,  $32.9
million and $29.0 million in 1996, 1995 and 1994, respectively. Selling, general
and  administrative  expenses as a percentage  of total  managed  volume of $501
million,  $431  million and $360 million in 1996,  1995 and 1994,  respectively,
which includes foodservice managed volume, restaurant sales at Fuddruckers-owned
and Champps-owned restaurants, aggregated 8.1%, 7.6% and 8.1%, respectively.

The $7.9 million  increase in selling,  general and  administrative  expenses in
1996, compared to 1995 was primarily due to additional  corporate staff hired to
support Champps' aggressive  expansion plans,  ongoing investment in information
systems and divisional  infrastructures,  pursuit of nontraditional  foodservice
venues and expenses  related to the  negotiations  and due diligence  associated
with a proposed joint venture and a foodservice acquisition. The $3.9 million 
increase in selling, general and administrative expenses in 1995, compared to
1994, was primarily due to overhead related to acquired foodservice 
contracts,  increased  Fuddruckers' and Champps' marketing expenses and 
higher Champps' overhead costs.

Interest Expense

Interest  expense  amounted to $5.9  million,  $4.3  million and $2.9 million in
1996, 1995 and 1994, respectively.  In 1996 and 1995, interest expense increased
$1.6  million and $1.4  million or 37% and 48%,  respectively,  due to increased
borrowings  under the  Company's  line-of-credit  used to finance  acquisitions,
capital  expenditures for new Fuddruckers and Champps  restaurants,  and capital
expenditures at client  facilities.  Interest expense associated with the higher
level of debt in 1996 and 1995 was offset,  in part, by a  combination  of lower
interest  rates  and  lower  interest  costs  associated  with  the  Convertible
Subordinated Notes. Approximately $8.2 million of Convertible Subordinated Notes
were  converted  in the second half of 1995 while the  remaining  $20.5  million
outstanding  Convertible  Subordinated  Notes were  converted in the first three
quarters of 1996.

<PAGE>

Income Taxes

The  Company  files  consolidated  income tax  returns  for  federal  income tax
purposes.  As of June 29, 1996 the Company had net operating loss  carryforwards
of approximately $9.3 million. The carryforwards expire at various dates through
2011 and a portion of such carryforwards can only be applied  against the 
taxable income of Fuddruckers and a portion against the earnings of the 
Company's 63% owned subsidiary, Atlantic Restaurant Ventures, Inc. The 
Company's effective tax rate on income was  12.5%, 35.7%, and 32.8% in 1996,
1995 and  1994, respectively.  In 1996, the Company  recorded a net tax benefit 
of $1.6 million related  to  changes  in  management's   estimate  of  the  
valuation  allowance associated with its net operating loss carryforwards. 
Approximately $1.0 million of this benefit was offset by the impact of 
non-deductible merger costs. In 1995 and 1994,  the  targeted  jobs credit 
was a  significant  factor in lowering the Company's effective tax rate.

Earnings Per Share

Primary  earnings per share in 1996 decreased 93% due primarily to significantly
lower earnings and a 47% increase in the weighted  average number of outstanding
shares  resulting  from  additional  shares issued in connection  with the 
conversion of Preferred Stock and Notes.  Primary  earnings per share in 1995
increased 21% as compared to 1994 due principally to increased earnings and 
lower Preferred Stock dividends  despite  additional shares issued in 
connection with the conversion of outstanding Notes.

Fully  diluted  earnings per share in 1996  decreased  91% due to  significantly
lower earnings offset,  in part, by a decrease in the weighted average number of
outstanding  shares  principally  related to the anti-dilutive  effect of shares
issued upon  conversion of the Notes.  Fully diluted  earnings per share in 1995
increased 16% due to increased earnings,  offset partially by an increase in the
weighted average number of outstanding shares principally due to the granting
of employee stock options.  Lower fully diluted  earnings per share,  as
compared  to  primary  earnings  per  share,  is due to  the  inclusion,  in the
computation of fully diluted  earnings per share, the weighted average number of
shares issuable upon conversion of the Preferred Stock and Notes. As such, there
is no impact on fully  diluted  earnings per share upon  conversion  of Notes or
Preferred  Stock.  Shares issuable upon conversion of the Notes or Preferred 
Stock are not included in the  computation of primary  earnings per
share since such securities were not considered  common stock equivalents at the
time of issuance.

Seasonality

As a result of the  Company's  strong  presence in the  educational  foodservice
segment,  the contract foodservice and vending operations of Daka are subject to
seasonal patterns. Revenues tend to be lower in June, July, August, December and
January  when school  enrollment  is reduced.  The  seasonal  decline is further
accentuated by corporate  clients,  whose  employees  take vacations  during the
summer.

Fuddruckers' and Champps' sales have  historically  been higher in March,  June,
July and August,  and lower in January,  February,  September  and October,  due
primarily  to dining  habits of its guests and eating out trends of the  general
public.

<PAGE>

Accounting Pronouncement Not Yet Adopted

In October 1995 the Financial  Accounting  Standards  Board issued  Statement of
Financial   Accounting   Standards  No.  123  -  "Accounting   for   Stock-Based
Compensation"  ("SFAS 123").  SFAS 123  establishes  accounting  and  disclosure
requirements  using a fair  value-based  method of  accounting  for  stock-based
employee compensation plans. Under the provisions of SFAS 123, effective for the
fiscal year  beginning  June 30, 1996, the Company may either adopt the new fair
value-based  accounting method or continue the intrinsic  value-based method for
employee  stock-based  compensation  and  provide pro forma  disclosures  of net
income and earnings per share as if the  accounting  provisions  of SFAS 123 had
been adopted.  The Company plans to adopt only the  disclosure  requirements  of
SFAS  123.  The  Company   generally   does  not  grant  options  to  outsiders,
accordingly,  the adoption of SFAS 123 is not expected to have a material effect
on the Company's consolidated net earnings or cash flows.



<PAGE>



                        FINANCIAL CONDITION AND LIQUIDITY

Working capital amounted to $28.6 million at June 29, 1996, an increase of $16.0
million, as compared to working capital of $12.6 million at July 1, 1995.  Cash
and cash equivalents at June 29, 1996 aggregated $11.7 million, an increase of
$1.2 million as compared to cash and cash equivalents of $10.5 million at 
July 1, 1995.

During June 1996, the Company amended its revolving line-of-credit agreement
principally to increase the Company's borrowing capacity from $100 million to 
$150 million and extend the maturity date to June 30, 1999 (the "June 
Agreement").  At June 29, 1996, the Company was not in compliance with the debt
service coverage, minimum tangible net worth and fixed charge coverage covenants
contained in the June Agreement.  On October 15, 1996, the Company obtained a
waiver of noncompliance related to such covenants from its lenders and 
renegotiated certain terms and conditions of the June Agreement (the "October
Agreement"), including (i) decreasing the Company's borrowing limit from
$150 million to $125 million; (ii) changing the maturity date to October 1,
1997; (iii) increasing the interest rate on borrowings; (iv) restricting 
capital expenditures during the remaining term of the October Agreement; and
(v) the addition of financial covenants which are restrictive to the Company's
business activities (see Note 5 to the Consolidated Financial Statements).  At 
June 29, 1996, the Company had available borrowing capacity of approximately
$22 million under the October Agreement.  The Company expects to incur 
approximately $450,000 of expenses associated with obtaining and negotiating
the October Agreement.

In 1996, the Company also obtained $40 million of sale-leaseback financing for
the contruction of up to 10 new Champps restaurants.  At June 29, 1996, the 
entire $40 million sale-leaseback financing was available for use.  Any unused
commitment expires in December 1997.  In 1995, the Company obtained $25 million
of sale-leaseback financing for the construction of up to 20 new Fuddruckers
restaurants. At June 29, 1996, approximately $11.8 million of the sale-leaseback
financing was available for use.  The Company does not expect to use the entire
commitment provided under the sale-leaseback facilities.

Cash use for capital expenditures aggregated $65.6 million during 1996 and
included leaseholds and equipment for the 26 new Fuddruckers and 6 new Champps
restaurants opened in 1996, leaseholds and equipment for Fuddruckers and Champps
restaurants currently under construction and scheduled to open during the first
half of fiscal 1997, upgrades at existing at Fuddruckers and Champps 
restaurants, continued upgrading of data processing systems, and improvements
made to facilities of foodservice clients.

The Company has kept its restaurants and foodservice locations in good condition
and does not believe that significant capital expenditures will be required in
the near future to maintain these properties.

During 1996, approximately $20.5 million of Notes were converted into Common
Stock.  All Notes have been converted as of June 29,1996.

The Company plans to open 7 new Fuddruckers and 9 new Champps restaurants in 
1997, continue to the extent permitted by the October Agreement to make
improvements at facilities of its foodservice clients and invest in improved
data processing systems pursuant to the terms and conditions of its new
credit agreement.  Management believes that cash flows from operations, 
existing cash, sale-leaseback financing and available borrowings under its
line-of-credit will provide sufficient liquidity to pay its liabilities in the
normal course of business, fund capital expenditures and service debt 
requirements for the foreseeable future.

Subsequent  to June 29, 1996,  SMMSLP  exercised  its Put right  pursuant to the
provisions of the Put/Call  Agreement  entered into by SMMSLP and the Company on
February 8, 1995 (see Notes 3 and 10 to the Consolidated  Financial Statements).
Accordingly,  the  Company is required  to pay  SMMSLP,  for its 19.99%  limited
partnership  interest  in DRLP,  a purchase  price  equal to $2.6  million  plus
SMMSLP's  portion  of any net  undistributed  earnings  of DRLP.

Item 8.    Financial Statements and Supplementary Data.

The  information  required  under this Item 8 is set forth on pages F-1 
through F-24 of this Report.

Item 9.    Changes in and Disagreements with Accountants on Accounting and 
           Financial Disclosure.

Not applicable.


<PAGE>



                                    PART III

Item 10.   Directors and Executive Officers of the Registrant.

Directors of the Registrant

There is incorporated in this Item 10 by reference that portion of the Company's
definitive Proxy Statement relating to its Annual Meeting to be held on December
4, 1996,  appearing  therein  under the  captions  "Election of  Directors"  and
"Directors and Committees."

Executive Officers of the Registrant

Certain  information is set forth below concerning the executive officers of the
Company, each of whom has been elected to serve until the regular meeting of the
Board of Directors  and until his successor is duly elected and  qualified.  The
executive officers of the Company are as follows:


Name                          Age         Position

William H. Baumhauer          48          Chairman of the Board and
                                           Chief Executive Officer
Allen R. Maxwell              57          Director, President and
                                           Chief Operating Officer
Earl T. Benson                49          Executive Vice President,
                                           Chief Financial Officer and
                                           Treasurer
Charles W. Redepenning, Jr    40          Senior Vice President, General
                                           Counsel and Secretary

William H.  Baumhauer  has served as Chairman  of the Board and Chief  Executive
Officer of the Company  since  November 1990 and as a Director  since  September
1988. He served in the capacity of President and Chief Operating  Officer of the
Company  from  September  1988 to  November  1990.  Mr.  Baumhauer  also  serves
Fuddruckers as Chairman of the Board and President  since 1985 and previously in
other executive officer capacities since joining Fuddruckers in 1983.

Allen R.  Maxwell has served as  President  and Chief  Operating  Officer of the
Company since November 1990 and as a Director and President of Daka,  Inc. since
September  1988. He served as the Executive  Vice  President of the Company from
September  1988 to November  1990.  Previously he served as the  Executive  Vice
President of  Administration  of Daka,  Inc. and in other  executive  capacities
since the formation of Daka, Inc. in 1973.

Earl T.  Benson has  served as  Executive  Vice  President  and Chief  Financial
Officer and Treasurer of the Company since April 1996. From June, 1988 to April,
1996 he served as Senior Vice  President  and Chief  Financial  Officer of Ross
Stores,  Inc.,  a national  off-price apparel  retailer. He also served as 
Controller and Treasurer upon joining Ross Stores, Inc. in 1984.

Charles W.  Redepenning,  Jr. has served as Senior Vice President of the Company
since  January 1991 and as General  Counsel and  Secretary of the Company  since
November 1988. He also served as Vice  President,  General Counsel and Secretary
of Fuddruckers in July 1987.


<PAGE>



Item 11.   Executive Compensation.

There  are  incorporated  in this Item 11 by  reference  those  portions  of the
Company's  definitive Proxy Statement  relating to its Annual Meeting to be held
on  December  4,  1996,   appearing   therein   under  the  caption   "Executive
Compensation."

Item 12.   Security Ownership of Certain Beneficial Owners and Management.

There is incorporated in this Item 12 by reference that portion of the Company's
definitive Proxy Statement relating to its Annual Meeting to be held on December
4, 1996, appearing therein under the caption "Principle Stockholders."

Item 13.   Certain Relationships And Related Transactions.

There are no items that are required to be disclosed pursuant to this item.


<PAGE>


                                     PART IV

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

The following are being filed as part of this Annual Report on Form 10-K.

A.   Financial Statements:

     Independent Auditors' Report

     Consolidated Balance Sheets - June 29, 1996 and July 1, 1995.

     Consolidated Statements of Income - Years ended June 29, 1996, July 1, 1995
     and July 2, 1994.

     Consolidated  Statements of Cash Flows - Years ended June 29, 1996, July 1,
     1995, and July 2, 1994.

     Consolidated  Statements  of  Stockholders'  Equity - Years  ended June 29,
     1996, July 1, 1995, and July 2, 1994.

     Notes to  Consolidated  Financial  Statements  - Years ended June 29, 1996,
     July 1, 1995, and July 2, 1994.

B.   Financial Statement Schedules:

     There  are  no  Financial   Statement   Schedules  required  to  be  filed.
     Information  required  by  Article  12 of  Regulation  S-X with  respect to
     Valuation  and  Qualifying  Accounts has been  included in the Notes to the
     Consolidated Financial Statements.

C.   Exhibits:

     2.1  Agreement  and  Plan  of  Merger  among  Champps  Entertainment,  Inc.
          ("Champps"),  DAKA  International,  Inc. ("DAKA" or the "Company") and
          CEI  Acquisition  Corp.,  dated as of October 10,  1995,  incorporated
          herein by reference to the  Company's  Registration  Statement on Form
          S-4 (File No. 33-65425) ("1996 DAKA Form S-4").

     2.2  Series D Convertible  Preferred Stock and Warrant Purchase  Agreement,
          dated as of January 12,  1996,  by and among La Salsa  Holding Co. and
          Casual Dining Ventures,  Inc. Pursuant to Item 601(b)(2) of Regulation
          S-K, the  Schedules to the Series D  Convertible  Preferred  Stock and
          Warrant Purchase Agreement are omitted.  The Company hereby undertakes
          to  furnish  supplementally  a copy  of any  omitted  Schedule  to the
          Commission upon request.

     2.3  Stock  Purchase  Agreement,  dated as of March 18, 1996,  by and among
          Casual Dining Ventures,  Inc., the Company, Champps Development Group,
          Inc.,  Steven  J.  Wagenheim,   Arthur  E.  Pew,  III,  PDS  Financial
          Corporation,  Douglas B.  Tenpas and  certain  other  stockholders  of
          Americana  Dining Corp.  Pursuant to Item 601(b)(2) of Regulation S-K,
          the Schedules to the Stock Purchase Agreement are omitted. The Company
          hereby  undertakes  to furnish  supplementally  a copy of any  omitted
          Schedule to the Commission upon request.

     2.4  Asset  Purchase  Agreement,  dated March 18, 1996,  between  Americana
          Dining Corp., as Seller,  and New Brighton  Ventures,  Inc., as Buyer.
          Pursuant to Item  601(b)(2) of  Regulation  S-K, the  Schedules to the
          Asset Purchase Agreement are omitted. The Company hereby undertakes to
          furnish   supplementally  a  copy  of  any  omitted  Schedule  to  the
          Commission upon request.

     2.5  Stock Purchase Agreement, dated as of March 29, 1996, by and among the
          Company,  The Great  Bagel and Coffee  Franchising  Corp.,  GBC Credit
          Company, Gemini Production Facility,  Inc., The Great Bagel and Coffee
          Company,  Mark C. Gordon, Brian H. Loeb, Jason R. Olivier,  Michael F.
          Zerbib,  Nicholas D. Zerbib,  and Thierry E. Zerbib.  Pursuant to Item
          601(b)(2)  of  Regulation  S-K, the  Schedules  to the Stock  Purchase
          Agreement  are  omitted.  The  Company  hereby  undertakes  to furnish
          supplementally  a copy of any omitted  Schedule to the Commission upon
          request.

     2.6  Stock  Purchase  Agreement,  dated as of March 31, 1996,  by and among
          Casual Dining Ventures, Inc., the Company and Edgebrook, Inc. Pursuant
          to Item  601(b)(2)  of  Regulation  S-K,  the  Schedules  to the Stock
          Purchase  Agreement  are omitted.  The Company  hereby  undertakes  to
          furnish   supplementally  a  copy  of  any  omitted  Schedule  to  the
          Commission upon request.

     3.1  Certificate of Incorporation of the Company.

     3.2  By-laws  of the  Company,  incorporated  herein  by  reference  to the
          Company's  Registration Statement on Form S-4 (File No. 33-24819) (the
          "1988 DAKA Form S-4")

     4.1  Certificate of Designation,  Preferences and Rights of Preferred Stock
          by  Resolution  of the Board of Directors  Providing  for the Issue of
          100,000  Shares of Preferred  Stock  Designated the Series A Preferred
          Stock,  incorporated herein by reference to the Company's Registration
          Statement on Form S-2 (No. 33-57554) (the "DAKA Form S-2").

     4.2  Specimen  Certificate  for DAKA Common Stock,  incorporated  herein by
          reference to the 1988 DAKA Form S-4.

     10.1 Employment Agreement dated January 1, 1992 between DAKA and William H.
          Baumhauer, incorporated herein by reference to the DAKA Form S-2.

     10.2 Employment  Agreement  dated January 1, 1992 between DAKA and Allen R.
          Maxwell, incorporated herein by reference to the DAKA Form S-2.

     10.3 Employment Agreement dated October 10, 1995 by and among DAKA, Dean P.
          Vlahos and Champps,  incorporated herein by reference to the Company's
          Current Report on Form 8-K, dated October 13, 1995.

     10.4 Amended and Restated Trust  Agreement  dated as of October 1, 1984 and
          the Second  through  Seventh  Amendments  thereto most recently  dated
          September  15, 1990,  relating to the Daka Thrift  Plan,  incorporated
          herein by reference to the Registrant's Annual Report on Form 10-K for
          the fiscal year ended June 30, 1990.

     10.5 Incentive Stock Option Plan of DAKA,  incorporated herein by reference
          to the 1988 DAKA Form S-4.

     10.6 Non-Qualified  Stock  Option  Plan of  DAKA,  incorporated  herein  by
          reference to the 1988 DAKA Form S-4.

     10.7 Senior  Executive  Stock Option Plan of DAKA,  incorporated  herein by
          reference to the DAKA Form S-2.

     10.8 Primary Distribution  Agreement effective December 1, 1992 between the
          Registrant  and  Kraft  Foodservice,   Inc.,  incorporated  herein  by
          reference to the DAKA Form S-2.

     10.9 Preferred  Stock Purchase  Agreement  dated as of October 23, 1991 and
          amended by Amendment  No. 1 dated as of December  19, 1991,  among the
          Registrant,  First  Capital  Corporation  of Chicago  and Cross  Creek
          Partners I, incorporated  herein by reference to the Company's Current
          Report on Form 8-K dated January 17, 1992.

     10.10Registration  Agreement dated January 17, 1992,  among the Registrant,
          First  Capital  Corporation  of Chicago  and Cross  Creek  Partners I,
          incorporated herein by reference to the DAKA Form S-2.

     10.11Amended and Restated Credit Agreement dated April 29, 1994 between the
          Registrant and the Chase Manhattan Bank,  N.A., as agent,  and related
          notes and security agreements  incorporated herein by reference to the
          DAKA Form S-2.

     10.12Americana  Dining Corp.  Stock Purchase  Agreement  (formerly  Champps
          Development  Corporation) dated March 3, 1994,  incorporated herein by
          reference to the  Company's  Annual Report on Form 10-K for the fiscal
          year ended July 2, 1994.

     10.13Financing  Commitment  from Casual  Dining  Ventures,  Inc.,  a wholly
          owned subsidiary of the Company,  to Americana Dining Corp.  (formerly
          Champps Development Corporation),  incorporated herein by reference to
          the  Company's  Annual  Report on Form 10-K for the fiscal  year ended
          July 2, 1994.

     10.14First  Amendment  Agreement  dated as of  December  30, 1994 among the
          Company and the Chase Manhattan  Bank,  N.A.,  incorporated  herein by
          reference  to the  Company's  Quarterly  Report  on Form  10-Q for the
          quarter ended December 31, 1994.

     10.15Business Transfer  Agreement by and between Daka Restaurants,  L.P. as
          Transferee and ServiceMaster Management Services L.P. as Transferor as
          of February 8, 1995, incorporated herein by reference to the Company's
          Current Report on Form 8-K dated February 23, 1995.

     10.16Limited  Partnership  Agreement  of  Daka  Restaurants,   L.P.  as  of
          February 8, 1995,  incorporated  herein by reference to the  Company's
          Current Report on Form 8-K dated February 23, 1995.

     10.17Put and Call  Agreement  by and between the Company and  ServiceMaster
          Management  Services L.P. as of February 8, 1995,  incorporated herein
          by  reference  to the  Company's  Current  Report  on Form  8-K  dated
          February 23, 1995.

     10.18Second  Amendment  Agreement  dated as of March  21,  1995  among  the
          Company and the Chase Manhattan  Bank,  N.A.,  incorporated  herein by
          reference  to the  Company's  Quarterly  Report  on Form  10-Q for the
          quarter ended April 1, 1995.

     10.19Asset Purchase  Agreement  between Discus  Corporation  and certain of
          its subsidiaries as sellers and Fuddruckers, Inc. as buyer dated April
          15, 1994,  incorporated herein by reference to Company's Annual Report
          on Form 10-K for the fiscal year ended July 2, 1994.



<PAGE>



     10.20Third Amended and Restated Registration Rights Agreement,  dated as of
          January 12,  1996,  by and among La Salsa  Holding Co., FMA High Yield
          Income L.P.,  WSIS Flexible  Income  Partners  L.P.,  WSIS High Income
          L.P.,  Howdy S. Kabrins,  La Salsa,  Inc., Crown Associates III, L.P.,
          Crown-Glynn  Associates,  L.P.,  Nueberger & Berman as Trustee for the
          Crown  Trust,  Theodore H.  Ashford,  Noro-Moseley  Partners II, L.P.,
          Seidler  Salsa,  L.P.,  Bankers  Trust  Company as Master  Trustee for
          Hughes Aircraft  Retirement  Plans,  Charles A. Lynch,  Sienna Limited
          Partnership I, Sienna Limited  Partnership II, Sienna Holdings,  Inc.,
          as Nominee,  InterWest  Partners IV,  Donald  Benjamin,  Vicki Tanner,
          Ronald  D.  Weinstock,   Inc.,  Frank  Holdraker,  and  Casual  Dining
          Ventures, Inc.

     10.21Fourth Amended and Restated  Restricted Stock  Agreement,  dated as of
          January 12, 1996, by and among La Salsa Holding Co., Howdy S. Kabrins,
          La Salsa, Inc.,  InterWest  Partners IV, Sienna Holding,  Inc., Sienna
          Limited  Partnership I, Charles A. Lynch,  Theodore H. Ashford,  Crown
          Associates III, L.P., Crown-Glynn Associates, L.P., Nueberger & Berman
          as  Trustee  for The Crown  Trust,  Noro-Moseley  Partners  II,  L.P.,
          Seidler Salsa,  L.P.,  Bankers Trust Company,  as Master Trustee,  for
          Hughes  Aircraft  Retirement  Plans,  FMA High Yield Income L.P., WSIS
          Flexible  Income  Partners L.P.,  WSIS High Yield Income L.P.,  Sienna
          Limited  Partnership  II, Donald  Benjamin,  Vicki  Tanner,  Ronald D.
          Weinstock, Inc., Frank Holdraker, and Casual Dining Ventures, Inc.

     10.22LaSalsa   Holding  Co.   Warrant  to  Purchase   Shares  of  Series  D
          Convertible  Preferred Stock,  dated as of January 12, 1996, issued to
          Casual Dining Ventures, Inc. by La Salsa Holding Co.

     10.23Second  Amended and Restated  Credit  Agreement,  dated as of June 25,
          1996, by and among the Company, Fuddruckers,  Inc., Daka, Inc., Casual
          Dining  Ventures,  Inc.,  Atlantic  Restaurant  Ventures,  Inc.,  Daka
          Restaurants,  L.P.,  French Quarter Coffee Company,  Americana  Dining
          Corp., Champps Entertainment of Edison, Inc., Champps Entertainment of
          Texas,   Inc.,  Champps   Entertainment  of  Wayzata,   Inc.,  Champps
          Entertainment,  Inc.,  Specialty  Concepts,  Inc., The Chase Manhattan
          Bank,  N.A.,  Fleet  National  Bank,  Mellon Bank,  N.A. and The First
          National Bank of Boston.

     10.24Severance,  Non-Competition and Confidentiality Agreement, dated as of
          March 18, 1996, between Steven J. Wagenheim and Americana Dining Corp.

     10.25LaSalsa  License  Agreement,  dated as of February  14,  1996,  by and
          between La Salsa Franchise, Inc. and La Salsa Holding Co.

     11.1 Statement regarding computation of earnings per share for the Company.

     21.1 Subsidiaries of the Company.

     23.1 Consent of Deloitte & Touche LLP

     24.1 Powers of Attorney.


D.   Reports on Form 8-K

     On March 6,  1996,  the  Company  filed a Current  Report on Form 8-K.  The
     Company  reported in Item 2 of the Form 8-K, the  acquisition by subsidiary
     merger of Champps Entertainment, Inc. ("Champps") and included, pursuant to
     Item 7 of the  Form  8-K,  audited  consolidated  financial  statements  of
     Champps and unaudited pro forma condensed consolidated financial statements
     of the Company and Champps.


<PAGE>


                                   SIGNATURES

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



                                  DAKA INTERNATIONAL, INC.
                                  (Registrant)


                                  By:  /s/Earl T. Benson
                                  ----------------------
                                  Earl T. Benson
                                  Executive Vice President, Chief
                                  Financial Officer and Treasurer
                                  (Principal Financial and Principal
                                  Accounting Officer)

Date: October 15, 1996


Pursuant to the requirement of the Securities  Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant,  and
in the capacities and on the date indicated.

Signature                                            Title

/s/William H. Baumhauer                     Chairman of the Board and
-----------------------                     Chief Executive Officer (Principal
William H. Baumhauer                        Executive Officer)


Allen R. Maxwell*                           Director, President and
                                            Chief Operating Officer

E. L. Cox*                                  Director

Dean P. Vlahos*                             Director

Joseph W. O'Donnell*                        Director

Erline Belton*                              Director

Alan D. Schwartz*                           Director


/s/Earl T. Benson                           Executive Vice President, 
------------------------                    Chief Financial Officer 
Earl T. Benson                              and Treasurer
                                            (Principal Financial and Principal
                                            Accounting Officer)

*By: /s/William H. Baumhauer                Date:  October 15, 1996
----------------------------
William H. Baumhauer
Attorney-In-Fact

<PAGE>


                          INDEPENDENT AUDITORS' REPORT


                            DAKA International, Inc.:


We  have  audited  the   accompanying   consolidated   balance  sheets  of  DAKA
International,  Inc. and its  subsidiaries  as of June 29, 1996 and July 1, 1995
and the related consolidated  statements of income, cash flows and stockholders'
equity for each of the three  years in the period  ended  June 29,  1996.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits. The consolidated financial statements give retroactive effect to the
merger of the Company  with  Champps  Entertainment,  Inc. and the merger of the
Company with The Great Bagel and Coffee  Company which have each been  accounted
for  as a  pooling-of-interests  as described  in  Note  2 to  the  consolidated
financial statements.

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

In our opinion,  such consolidated  financial  statements present fairly, in all
material respects,  the financial position of DAKA  International,  Inc. and its
subsidiaries  as of June  29,  1996 and July 1,  1995 and the  results  of their
operations  and their cash flows for each of the three years in the period ended
June 29, 1996, in conformity with generally accepted accounting principles.


Deloitte & Touche LLP
/s/Deloitte & Touche LLP

Boston, Massachusetts
September 6, 1996 (except for Note 5 as to which the date is October 15, 1996)




<PAGE>
                                      
                            DAKA INTERNATIONAL, INC.
                           CONSOLIDATED BALANCE SHEETS
                (Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>

                                                      June 29,      July 1,
                                                        1996         1995
<S>                                                  <C>          <C>
ASSETS:                                       
Current assets:
 Cash and cash equivalents ......................... $ 11,708     $ 10,538
 Accounts receivable, net ..........................   36,699       30,039
 Inventories .......................................   10,119        9,460
 Prepaid expenses and other current assets .........    5,265        2,240
                                                        -----        -----
  Total current assets .............................   63,791       52,277
                                                       ------       ------
Property and equipment:
 Land .............................................. $ 10,587     $  8,751
 Buildings and leasehold improvements ..............   96,219       79,521
 Equipment .........................................   56,347       36,231
                                                       ------       ------
                                                      163,153      124,503
 Accumulated depreciation and amortization .........  (38,590)     (30,207)
                                                       ------       ------
  Property and equipment, net ......................  124,563       94,296
                                                      -------       ------

Investments in, and advances to, affiliates ........    5,000          511
Other assets, net ..................................   32,717       31,442
Deferred tax assets ................................    5,486        2,327
                                                        -----        -----
                                                     $231,557     $180,853
                                                     ========     ========

LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
 Accounts payable .................................. $ 17,772       20,407
 Accrued expenses ..................................   15,110       18,203
 Current portion of long-term debt .................    1,507          851
 Deferred tax liabilities ..........................      787          236
                                                       ------       ------
  Total current liabilities ........................   35,176       39,697
                                                       ------       ------

Long-term debt .....................................   98,355       70,178
Other long-term liabilities ........................   12,978        8,912
Minority interests .................................    2,181        3,012

Commitments and contingencies (Note 10)         

Stockholders' equity:
 Preferred Stock, $.01 par value; 
  $100 liquidation preference; 1,000,000
  shares authorized; 11,912 and 100,000
  shares issued and outstanding at June 29,
  1996 and July 1, 1995, respectively ..............      --             1

 Common Stock, $.01 par value; 30,000,000
  shares authorized; 11,120,900 and 6,995,429
  issued and outstanding at June 29, 1996
  and July 1, 1995, respectively ...................      111           70
 Capital in excess of par value ....................   71,907       49,039
 Retained earnings .................................   10,849        9,944
                                                       ------       ------
   Total stockholders' equity ......................   82,867       59,054
                                                       ------       ------
                                                     $231,557     $180,853
                                                     ========     ========
</TABLE>


See notes to consolidated financial statements.


<PAGE>


                            DAKA INTERNATIONAL, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
         Fiscal Years Ended June 29, 1996, July 1, 1995 and July 2, 1994
                    (In thousands, except per share amounts)
<TABLE>
<CAPTION>
                                                  1996         1995        1994
                                                  ----         ----        ----
<S>                                            <C>          <C>          <C> 
Revenues:
 Sales .......................................  $ 391,546    $ 323,114    $ 246,142
 Management and other fees....................     13,278       11,723       11,004    
                                                ---------    ---------    ---------
  Total.......................................    404,824      334,837      257,146
                                                ---------    ---------    ----------
Costs and expenses:
 Cost of sales and operating expenses .........   332,406      272,716      206,475
 Selling, general and administrative
  expenses ....................................    39,570       32,054       28,264
 Depreciation and amortization ................    18,492       11,690        8,473
 Impairment charges ...........................     5,711         --           --
 Merger costs .................................     2,900         --           --
 Interest expense .............................     5,894        4,344        2,883
 Interest income ..............................      (352)        (859)        (331)
                                                 ---------    ---------    ---------
   Total.......................................   404,621      319,945      245,764

Income before income taxes
 and minority interests .......................       203       14,892       11,382
Income tax expense ............................       129        5,317        3,697
Minority interests ............................      (831)          (8)          99
                                                ---------    ---------    ---------
Net income ....................................       905        9,583        7,586
Preferred Stock dividends .....................      --            400          800
                                                ---------    ---------    ---------
Income available for common stockholders ...... $     905    $   9,183    $   6,786
                                                =========    =========    =========

Earnings per share:
Primary:
 Income available for common stockholders ..... $    0.09    $    1.35    $    0.94

Fully diluted:
 Income available for common stockholders ..... $    0.09    $    0.96    $    0.83
</TABLE>


See notes to consolidated financial statements.


<PAGE>


                            DAKA INTERNATIONAL, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
        Fiscal Years Ended June 29, 1996, July 1, 1995 and July 2, 1994
                                 (In thousands)


<TABLE>
<CAPTION>
                                                                                1996         1995       1994
                                                                                ----         ----       ----
<S>                                                                          <C>          <C>         <C>
Cash flows from operating activities:
Net income .................................................................. $    905    $  9,583    $  7,586
Adjustments to reconcile net income to net cash provided by
 operating activities:
  Depreciation and amortization .............................................   18,492      11,690       8,473
  Impairment  charges .......................................................    5,711        --          --
  Deferred income taxes .....................................................   (2,608)     (1,954)        358
  Minority interests ........................................................     (831)         (8)         99

Change in assets and liabilities, net of acquisitions:
  Accounts receivable .......................................................   (5,724)      4,046      (9,412)
  Inventories ...............................................................     (679)       (161)       (632)
  Other assets ..............................................................  (10,786)     (5,037)      1,060  
  Accounts payable and accrued expenses .....................................   (5,476)      1,165       2,244
  Other long-term liabilities ...............................................    4,066       5,697         968
                                                                              --------    --------    --------
    Net cash provided by operating activities ...............................    3,090      25,021      10,744
                                                                              --------    --------    --------
Cash flows from investing activities:
Purchase of property and equipment ..........................................  (64,512)    (41,085)    (15,233)
Proceeds from sale of property and equipment ................................      434       1,227         477
Investment in, and advances to affiliates ...................................   (5,000)       (120)        (79)
Cash paid for acquisitions, net of cash acquired
 of $0, $175 and $163, respectively .........................................     --       (11,954)    (19,259)
                                                                              --------    --------    --------
   Net cash used in investing activities ....................................  (69,078)    (51,932)    (34,094)
                                                                              --------    --------    -------- 

Cash flows from financing activities:
Borrowing under line-of-credit agreement ....................................   47,000      30,300      15,669
Repayments of long-term debt and deferred purchase price ....................   (1,354)    (12,077)     (2,575)
Proceeds from sale-leaseback facility .......................................   18,651       5,742        --
Cash proceeds from common stock issuances ...................................      --         --         8,788
Sale of Preferred Stock by subsidiary .......................................      --         --         1,103
Payment of Preferred Stock dividends ........................................      --         (400)       (800)
Payment of cash dividends ...................................................      --         --          (738)
Proceeds from exercise of stock options .....................................    2,100         801         247
Proceeds from exercise of warrants ..........................................      781        --          --
                                                                              --------    --------    --------
  Net cash provided by financing activities .................................   67,178      24,366      21,694
                                                                              --------    --------    --------
Net increase (decrease) in cash and cash equivalents ........................    1,170      (2,545)     (1,656)

Cash and cash equivalents, beginning of year ................................   10,538      13,083      14,739
                                                                              --------    --------    --------
Cash and cash equivalents, end of year ...................................... $ 11,708    $ 10,538    $ 13,083
                                                                              ========    ========    ========
</TABLE>

See notes to consolidated financial statements.


<PAGE>


                            DAKA INTERNATIONAL, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
          Fiscal Years Ended June 29, 1996, July 1, 1995 and July 2, 1994
                    (Dollars in thousands, except share data)


<TABLE>
<CAPTION>
                                                   
                                Preferred Stock       Common Stock       Capital                      Total
                                Outstanding  Par    Outstanding  Par    In Excess     Retained     Stockholders'
                                  Shares    Value     Shares    Value    of Par       Earnings        Equity

<S>                               <C>        <C>    <C>         <C>     <C>           <C>            <C>    
Balance, June 26, 1993
(restated)                        100,000    $ 1     3,730,395  $ 37    $30,443       $ (3,977)      $ 26,504

Effect of Mergers                    -         -     1,678,000    17        878           (976)           (81)
                                  -------    ---    ----------  ----    -------       --------       --------
Balance, June 26, 1993
(as reported)                     100,000      1     5,408,395    54     31,321         (4,953)        26,423

Employee stock options
 exercised                           -         -       43,108      -        173             -             173
Exercise of warrants                 -         -         -         -         74             -              74
Sale of Common Stock                 -         -      822,236      8      8,780             -           8,788
Common Stock dividends               -         -         -         -        -           (1,072)        (1,072)
Preferred Stock dividends            -         -         -         -        -             (800)          (800)
Net income                           -         -         -         -        -            7,586          7,586
                                  -------    ---   ----------   ----    -------       --------       --------
Balance, July 2, 1994             100,000      1    6,273,739     62     40,348            761         41,172

Employee stock options
 exercised                           -         -       37,360      -        339              -            339
Exercise of warrants                 -         -         -         1        459              -            460
Shares issued upon conversion of
 certain Convertible
 Subordinated Notes, net             -         -      684,330      7      7,893              -          7,900
Preferred Stock dividends            -         -         -         -         -            (400)          (400)
Net income                           -         -         -         -         -           9,583          9,583
                                  -------    ---   ----------   ----    -------        -------        -------
Balance, July 1, 1995             100,000      1    6,995,429     70     49,039          9,944         59,054

Employee stock options
 exercised                           -         -      201,920      2      2,098              -          2,100
Exercise of warrants                 -         -         -         1        780              -            781
Tax benefits on exercise of
 stock options                       -         -         -         -        156              -            156
Shares issued upon conversion
 of certain Convertible
 Subordinated Notes, net             -         -     1,711,482     17    19,834              -         19,851
Shares issued upon conversion
 of certain Preferred Stock       (88,088)    (1)    1,957,521     19        -               -             18
Shares issued upon repurchase of
 ADC stock                           -         -       254,548      2        -               -              2
Net income                           -         -          -         -        -             905            905
                                  -------    ---    ----------    ----    -------      -------        -------
Balance, June 29, 1996             11,912    $ -    11,120,900    $111    $71,907      $10,489        $82,867
                                  =======    ===    ==========    ====    =======      =======        =======
</TABLE>


See notes to consolidated financial statements.

<PAGE>



                            DAKA INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          Fiscal Years Ended June 29, 1996, July 1, 1995 and July 2, 1994
                (Dollars in thousands, except per share amounts)

1.       Summary of Significant Accounting Policies

Basis of Presentation and Business

The accompanying  consolidated financial statements include the accounts of DAKA
International,  Inc.  and its  majority-controlled  subsidiaries  ("DAKA" or the
"Company")  including Daka, Inc. ("Daka"),  Fuddruckers,  Inc.  ("Fuddruckers"),
Champps  Entertainment,  Inc.  ("CEI" or "Champps"),  The Great Bagel and Coffee
Company  ("Great  Bagel and Coffee") and  Americana  Dining Corp.  ("ADC").  The
accompanying  consolidated  financial  statements  have  also been  restated  to
reflect the business  combinations  accounted for as  poolings-of-interest  more
fully described in Note 2.  Significant  intercompany  balances and transactions
have been eliminated in consolidation.

The Company is a diversified  restaurant  company  serving  customers  through a
variety of channels.  The Company's  Fuddruckers and Champps  subsidiaries serve
customers in casual and upscale  restaurant  settings, respectively, 
throughout  the United States and in Canada,  Mexico,   Australia,   Europe,  
and  the  Middle  East.  The  Company's subsidiary, Great Bagel and Coffee 
serves coffee, bagels and sandwich items in a cafe setting in western  
locations of the United States.  Restaurant  operations are  conducted  
through  company-owned  and  franchised  stores.  The  Company's subsidiary,
Daka,  is a leading  contract  foodservice  management  corporation
within the United States.

Fiscal Year

The  Company's  fiscal  year ends on the  Saturday  closest  to June  30th.  For
purposes of these notes to the  consolidated  financial  statements,  the fiscal
years  ended June 29,  1996,  July 1, 1995 and July 2, 1994 are  referred  to as
1996, 1995 and 1994, respectively. Fiscal 1996, 1995 and 1994 contain 52, 52 and
53 weeks, respectively.

Significant Estimates

In the process of preparing its consolidated  financial statements,  the Company
estimates the appropriate carrying value of certain assets and liabilities which
are not readily apparent from other sources.  The primary  estimates  underlying
the Company's financial statements include allowances for potential bad debts on
accounts and notes  receivable,  the useful lives of its assets and 
recoverability such as property and intangibles,  fair values of financial 
instruments,  the realizable value of its tax assets and accruals for health
insurance and other matters.  Management bases its estimates on certain 
assumptions, which they believe are reasonable in the  circumstances,  and 
while actual results could differ from those estimates, management  does not 
believe  that any change in those  assumptions  in the near term  would have
a  material  effect on the Company's consolidated financial position  or 
the  results of operation.


<PAGE>



Concentration of Credit Risk

The  Company  extends  credit  to  its  foodservice   clients  and  Fuddruckers'
franchisees.  The  Company's  foodservice  clients are  comprised  primarily  of
schools and colleges,  corporate offices,  factories, health care facilities and
governmental offices located in the United States.

The Company has an allowance  for  uncollectible  accounts  receivable  of $465,
$1,268 and $928 at June 29, 1996,  July 1, 1995 and July 2, 1994,  respectively.
The Company  recorded bad debt (credits) expense of $(177), $638 and $617 in
1996, 1995 and 1994, respectively, and had write-offs, net of recoveries  
associated  with uncollectible  accounts  receivable,  of $626, $298 and $180
in 1996,  1995 and 1994, respectively.

Inventories

Inventories  consist of food and  supplies  and are stated at the lower of cost,
determined using the first-in,  first-out method,  or market value.  Inventories
also include the initial cost of smallwares with replacements charged to expense
when purchased.

The components of inventories are as follows:

                                           1996     1995

                       Food and liquor   $ 4,990  $ 5,042
                            Smallwares     3,410    2,906
                              Supplies     1,719    1,512
                                         -------  -------
                                         $10,119  $ 9,460
                                         =======  =======

Property and Equipment

Property  and  equipment  is stated at cost and  includes an  allocation  of the
purchase  price for assets  acquired in connection  with the purchase of certain
restaurant and foodservice  businesses and the cost associated with improvements
made at facilities of its  foodservice  clients.  The allocation of the purchase
price is generally based upon independent appraisals of the assets acquired.
Property and equipment is depreciated  using the  straight-line  method over 
the  estimated useful lives of the assets.  Leasehold improvements,  which 
include improvements made at client  facilities,  and assets  capitalized  
pursuant to capital  lease obligations  are amortized over the shorter of 
the lease term,  contract term or the estimated useful life.  Useful lives 
range from 20 to 30 years for buildings and leasehold improvements and three
to ten years for equipment.

Interest costs  incurred  during the  construction  of new, or the expansion and
major  remodeling  of  existing   restaurants  or  foodservice   facilities  are
capitalized  as a component of the cost of the  property.  During 1996 and 1995,
$725 and $362 of interest costs were  capitalized,  respectively.  There were no
interest costs capitalized during 1994.

Deferred Financing Costs

Costs  associated  with the sale of the 7% Convertible  Subordinated  Notes (the
"Notes") (see Note 5), as well as costs  incurred to obtain new  financing,  are
included in other  assets and are  amortized  over the lives of the related debt
instruments  which range from three to ten years.  A pro rata portion of the net
unamortized  costs  associated  with the sale of the  Notes is  charged  against
capital in excess of par value as such Notes are converted into Common Stock.


<PAGE>


Accrued Insurance Costs

The Company is self insured for workers'  compensation,  general  liability  and
various  other  risks up to  specified  limits.  In  addition,  the  Company  is
self-insured up to certain limits for risks  associated with the healthcare plan
provided for its employees.  Expenses associated with the workers' compensation
and general  liability  programs are accrued based upon actuarial  studies which
determine the estimated amount required to cover incurred incidents.

Other Long-Term Liabilities

Other long-term  liabilities are comprised of deferred royalty buydown payments,
the liability under the long-term  incentive  compensation  plan,  deferred rent
liabilities  and  management's  estimate  of  the  non-current  portion  of  the
liability  related to the Company's  workers'  compensation  and  general  
liability   self-insurance program.

Deferred Rent Assets and Liabilities

Deferred rent assets, included in other assets, represent the difference between
the cost and the net proceeds  received  related to property  sold pursuant to
sale-leaseback  agreements and are amortized on a  straight-line  basis over the
initial  term of the lease.  For leases  which  contain  rent  escalations,  the
Company  records the total rent payable during the lease term on a straight-line
basis over the term of the lease. In addition, lease incentive payments received
from landlords are recorded as deferred rent  liabilities and are amortized on a
straight-line basis over the lease term as a reduction of rent expense.

Interest Rate Exchange Agreements

The Company has only limited involvement with derivative  financial  investments
and does not use such instruments for trading purposes. Derivative financial 
instruments are used only to manage  well-defined  interest rate risks.
The Company has entered into interest rate exchange  agreements (swaps), as
a means of managing interest rate risk related to borrowings  under the 
Company's  revolving line-of-credit and  capital lease facilities. Periodic  
cash payments  either  received or paid pursuant to interest rate swap 
agreements  are  accrued  on a  settlement  basis  and  amortized  as an
adjustment to interest expense over the term of the agreement.

Revenue Recognition

In addition to recording  sales,  franchise and royalty fees from its restaurant
operations,  the Company records revenues from foodservice  operations for sales
made pursuant to profit and loss contracts  (contracts where the Company assumes
the risk of loss),  and management  fees derived from  management fee contracts
as earned. Sales and related costs of sales made to guests of foodservice 
clients pursuant to management fee contracts are not reflected in the 
Company's consolidated statements of income.

<PAGE>

Franchising and Royalty Income

Franchise fees for new  franchises are recognized as revenue when  substantially
all  commitments and  obligations  have been fulfilled,  which is generally upon
commencement  of  operations  by the  franchisee.  The Company  also enters into
development  agreements granting  franchisees the exclusive right to develop and
operate  Fuddruckers  restaurants  in  certain  territories  in  exchange  for a
development fee. Amounts received in connection with such development agreements
are recognized as franchise fee revenues when received  since the Company is not
required  to  provide  any  future  services  and such fees are  non-refundable.
Franchisees  entering into  development  agreements are also required to execute
franchise  agreements and pay the standard  franchise fee which is sufficient to
cover the Company's  contractual  obligations to the  franchisee.  To the extent
that the  Company  provides  services  beyond its  contractual  obligation,  the
Company charges the franchisee a fee for such additional services.  During 1996,
1995 and 1994,  the Company  recognized  revenues of $3,417,  $2,303 and $1,281,
respectively, from development and franchise fees.

Royalty revenues from  franchised  restaurants  are  recognized as revenues when
earned in accordance with the respective franchise  agreement.  Advance payments
received  in  connection  with  royalty  buydown  agreements  are  deferred  and
recognized at the reduced royalty rate during the royalty buydown period 
specified in the agreements.  The remaining  balance of the advance payments is 
recognized on a straight-line basis over the remaining term of the agreement.
During 1996, 1995 and 1994,  the Company  recognized  revenues of $4,289,  
$3,729 and $3,598, respectively, from royalties.

Preopening Expenses

Direct  incremental  preopening costs associated with the opening of new, or the
expansion and major remodeling of existing restaurants or foodservice facilities
are capitalized and amortized over twelve months.  Unamortized  preopening costs
included  in other  assets  amounted  to  $3,310  and  $1,782  in 1996 and 1995,
respectively.

Income Taxes

The Company  recognizes  deferred tax assets and  liabilities for the future tax
consequences   attributable  to  differences  between  the  carrying  value  for
financial  reporting  purposes  and the tax basis of assets and  liabilities  in
accordance with Statement of Financial Accounting Standards ("SFAS") No.  109  -
"Accounting for Income Taxes".  Deferred tax assets and liabilities
are recorded  using the enacted tax rates expected to apply to taxable income in
the years in which such differences are expected to be recovered or settled. The
effect on deferred tax assets and  liabilities,  resulting  from a change in tax
rates,  is  recognized  as a component  of income tax expense in the period that
such  change  occurs.  Targeted  jobs tax  credits  and  foreign tax credits are
treated as a  reduction  of income  tax  expense  in the year such  credits  are
utilized.

<PAGE>

Cash Flow Information

For purposes of the consolidated statements of cash flows,  the Company 
considers all highly liquid,  short-term investments with original maturities
of three months or less when purchased to be cash equivalents.

Cash payments for interest aggregated $5,119, $4,963 and $2,628 in 1996,
1995 and 1994, respectively.

Cash payments for income taxes aggregated  $6,025,  $5,767,  and $4,022 in 1996,
1995 and 1994, respectively.

Capital lease  obligations  of $3,718,  $2,326 and $1,674 were incurred when the
Company  entered into leases for new  restaurant  and office  equipment in 1996,
1995 and 1994, respectively.

Significant other non-cash investing and financing transactions are as follows:

1996

 The Company  issued  254,548  shares of DAKA Common  Stock in exchange for each
 outstanding share of ADC common stock (see Note 3).

 The Company  sold a restaurant  with a book value of $1,306,  in exchange for a
 $1,280 promissory note (see Note 3).

 The  Company  issued  common  stock  upon the  conversion  of $20,538 of Notes,
 increasing Stockholders' Equity by $19,851, net of related unamortized deferred
 debt issue costs (see Note 5).

 The Company issued common stock upon the conversion of 88,088 shares, or 
 $8,809, of Preferred Stock.


1995

 The Company sold three Fuddruckers restaurants, with an aggregate book value of
 $1,944, in exchange for various note receivables (see Note 3).

 The  Company  issued  Common  Stock  upon the  conversion  of  $8,212 of Notes,
 increasing  Stockholders' Equity by $7,900, net of related unamortized referred
 debt issue costs.


1994

 The  Company  acquired  a  Fuddruckers  restaurant  in  exchange  for the 
 forgiveness of a  $1,005 promissory note.

 The Company forgave approximately $334 of a $1,072 promissory note from
 former CEI shareholders.

<PAGE>

Earnings Per Share

Primary  earnings per share are computed  using the weighted  average  number of
common and common equivalent shares (dilutive options and warrants) outstanding.
In  addition  to the  inclusion  of common and  common  equivalent  shares,  the
calculation  of fully diluted  earnings per share  includes the shares  issuable
upon conversion of the Preferred Stock which amounted to  approximately  264,700
and 2,222,200  shares in 1996 and 1995,  respectively,  and the shares  issuable
upon conversion of the Notes which amounted to approximately  1,711,500 in 1995.
All Notes  were  converted  by the  third  quarter  of 1996 (see Note 6).  Fully
diluted  earnings  per share  assumes  that the  Preferred  Stock and Notes were
converted  into Common Stock as of the  beginning of the fiscal year unless they
are anti-dilutive and reflect the elimination of interest expense related to the
Notes,  net of the related income tax effect,  and the  elimination of dividends
related to the Preferred Stock.  The shares issuable  pursuant to the contingent
warrant  held by the  holders of the  Preferred  Stock are not  included  in the
calculation  of fully  diluted  earnings  per share  since the  issuance of such
shares is contingent upon the redemption of the Preferred Stock by the Company.

During 1996 a portion of the  Preferred  Stock and the balance of the Notes were
converted  into  Common  Stock by the  holders  of such  securities.  Had  these
conversions taken place at the beginning of 1996, primary earnings per share for
1996 would have been $0.08.

 The  weighted  average  number of shares used in the  computation  of per share
 amounts for 1996, 1995 and 1994 are as follows: 

                          1996             1995              1994
                          ----             ----              ----
    Primary ..........  9,970,748        6,790,534         6,081,750
    Fully diluted .... 10,534,929       11,228,339        10,728,068


 Impairment of Long-Lived Assets

 In March 1995, the Financial  Accounting  Standards  Board ("FASB") issued  
 SFAS  No. 121 - "Accounting  for the  Impairment of Long-Lived  Assets and 
 Long-Lived  Assets to Be Disposed Of". SFAS No. 121 requires the Company to 
 evaluate the carrying  value of  long-lived  assets including  equipment  
 and  related  goodwill  whenever  events  or  changes  in circumstances 
 indicate that the carrying value may not be  recoverable.  Under SFAS No. 
 121, an assessment is made to determine if the sum of the expected  future
 undiscounted cash flows from the use of the assets and eventual  disposition is
 less than the  carrying  value.  If the sum of the expected  undiscounted  cash
 flows is less than the carrying  value,  an  impairment  loss is  recognized by
 measuring the excess of carrying value over fair value (generally estimated by
 projected future discounted cash flows from the applicable  operation or 
 independent appraisal).  In the third quarter of 1996, the Company adopted 
 the provisions of SFAS No. 121 which  resulted in a noncash  pretax  charge 
 of  approximately  $5,711.  The provision includes  charges for impairments
 to the carrying value of certain  restaurant and foodservice contract 
 assets,  reacquired franchise rights,  investments and certain other assets.

<PAGE>

 Accounting Pronouncements Not Yet Adopted

 In October 1995, the FASB issued SFAS No.  123  -  "Accounting   for  Stock-
 Based Compensation".  SFAS No. 123  establishes  accounting  and disclosure
 requirements  using a fair  value-based  method of accounting  for  stock-based
 employee compensation plans. Under the provisions of No. SFAS 123, effective
 for the fiscal year beginning June 30, 1996, the Company may either adopt the 
 new fair value-based accounting method or continue the intrinsic value-based 
 method for employee  stock-based  compensation  and provide pro forma  
 disclosures  of net income and earnings per share as if the  accounting  
 provisions of SFAS No. 123 had been adopted.  The Company plans to adopt only 
 the disclosure  requirements  of SFAS No. 123.  The Company  generally  does  
 not  grant  options  to  outsiders, accordingly, the adoption of SFAS 123 is 
 not expected to have a material effect on the Company's consolidated net 
 earnings or cash flows.

 2.  Merger  with  Champps  Entertainment,  Inc.  and The Great Bagel and Coffee
 Company

 On February 21, 1996, CEI Acquisition Corp., a wholly-owned subsidiary of DAKA,
 merged  with and into  Champps  whereupon  Champps  became a  wholly-owned
 subsidiary  of DAKA  pursuant to an Agreement  and Plan of Merger dated October
 10, 1995 (the "Merger Agreement"). Under the terms of the Merger Agreement, the
 Champps common-stock  holders exchanged their holdings in Champps' common stock
 for 2,181,722  shares of DAKA common stock valued at  approximately  $49,634 on
 the merger date. On April 3, 1996,  the Company merged with The Great Bagel and
 Coffee Company ("Great Bagel and Coffee") whereby the Company exchanged 339,236
 shares of DAKA common stock valued at approximately  $8,566 for all outstanding
 shares of Great Bagel and Coffee common stock  (collectively  the "Mergers" and
 the "Merged Companies").

 The Mergers  have each  been  accounted  for  as  poolings-of-interests   and,
 accordingly,  the  consolidated  financial  statements  have been  restated  to
 include  the  accounts  of Champps  and Great  Bagel and Coffee for all periods
 presented.

 In connection with the Mergers, in 1996 the Company recorded a charge for
 merger costs of  $2,900.  Included in these costs  are legal, investment 
 banking and professional fees associated with the transaction, costs
 associated with combining the operations of previously  separate  companies and
 instituting certain operational efficiencies.


<PAGE>


     The  following   presents  the  operations  of  the  previously  separate
companies prior to the consummation of the Mergers:

<TABLE>
<CAPTION>
                            1996              1995               1994
                            ----              ----               ----
<S>                      <C>              <C>                <C> 
Revenues:
DAKA ....................$ 388,320 (4)    $ 320,605 (1)      $ 249,795 (1)
CEI .....................   14,253 (2)       12,470              6,849
Great Bagel and Coffee ..    2,251 (3)        1,762                502
                         ---------        ---------          ---------
                         $ 404,824        $ 334,837          $ 257,146
                         =========        =========          =========
Net income (loss):
DAKA ....................$     811 (4)    $   9,116 (1)      $   6,902 (1)
CEI .....................     (109)(2)          209                620
Great Bagel and Coffee ..      203 (3)          258                 64
                         ---------        ---------          ---------
                         $     905        $   9,583          $   7,586
                         =========        =========          =========
</TABLE>

 (1) As previously reported 

 (2) For the  six-month  period ended  December 31, 1995 

 (3) For the nine  months  ended  March 31,  1996 

 (4) Includes the results of  operations of CEI and Great Bagel and Coffee
     subsequent to December 31, 1995 and March 31, 1996, respectively.

 Transactions  between DAKA and the Merged  Companies  prior to the Mergers were
 not  significant.  The Company has not  recorded an  adjustment  to conform the
 accounting  policies of the Merged  companies to DAKA's,  as such policies were
 generally comparable.

<PAGE>

 3. Acquisition and Disposition Transactions

 Business  transactions  accounted for using the purchase  method of accounting,
 present the results of operations and cash flows of the acquired  business from
 the date of acquisition in the Company's consolidated financial statements. The
 following  presents the business  acquisitions  accounted  for as purchases and
 dispositions occurring during the three-year period ended June 29, 1996:

 1994 Transactions

  On March 29,  1994,  the Company  acquired a 50% ownership interest in ADC, a
 newly formed  Company  which then acquired two Champps  restaurants  located in
 Minnesota  for a purchase  price of $2,800  plus  100,000  shares of ADC Common
 Stock. In addition, the Company invested $2,800 in ADC in the form of Preferred
 Stock.  The terms of the Preferred  Stock provided for an 8% dividend,  payable
 quarterly,  mandatory  redemption  in March  1997 and  allowed  the  Company to
 convert  the  Preferred  Stock  into  Common  Stock at any  time at an  initial
 conversion  price of $6 per share. In addition,  the Preferred Stock has voting
 privileges  as if  converted  to Common  Stock,  giving the  Company 57% voting
 control  of  ADC;   accordingly,   ADC  has  been  included  in  the  Company's
 consolidated financial statement (see 1996 Transactions).

 On June 7, 1994,  Fuddruckers  acquired  the  assets,  operations  and  certain
 working  capital items of nine  Fuddruckers  restaurants  located in Minnesota,
 Nebraska and Missouri from a franchisee.  The purchase price of $6,273 was paid
 in cash at the closing. Also, during fiscal 1994, in a series of  
 transactions, Fuddruckers and a majority-owned  subsidiary  acquired  three 
 Fuddruckers  restaurants  and  the remaining 50% interest in two restaurants
 from its joint venture partners.  The total purchase price for these five 
 restaurants  was $2,382 and consisted of a combination of cash and
 offsets of notes receivable from the sellers.


<PAGE>

 1995 Transactions

 On December 15, 1994, Daka acquired  certain assets and  foodservice  contracts
 from Rowe, Inc. for a purchase price of $1,378  substantially  all of which was
 paid in cash.

 On February 1, 1995,  Fuddruckers  acquired the assets,  operations and certain
 working  capital items of a  Fuddruckers  restaurant in Texas from a franchisee
 for a  purchase  price  of $623  which  was paid in  cash.  On June  23,  1995,
 Fuddruckers  acquired  the assets of four  Fuddruckers  restaurants  located in
 Canada from a franchisee for a purchase price of $961 and the issuance of a 19%
 interest in the acquired  restaurants  to the former  franchisee.  The purchase
 price for the four  restaurants  in Canada  consisted  of  offsets  to  amounts
 receivable from the franchisee.

 On February 8, 1995, Daka acquired an 80.01% general partnership  interest in a
 newly formed limited partnership,  Daka Restaurants, L.P. ("DRLP"), in exchange
 for cash of $10,085.  Simultaneously,  DRLP acquired  substantially  all of the
 assets and  foodservice  contracts  comprising  the  educational  and corporate
 foodservice business of ServiceMaster Management Services L.P. ("SMMSLP") for a
 purchase price of approximately $21,117,  $10,250 for the foodservice contracts
 and fixed assets and $10,867 for the working capital assets. The purchase price
 was  comprised  of a cash  payment  of  $10,085,  the  assumption  of  $806  of
 liabilities,  a  deferred  payment of  $10,226  due on August 8, 1995,  and the
 issuance  of a 19.99%  limited  partnership  interest  in DRLP to  SMMSLP.  The
 deferred  payment  was paid by DRLP on June 13,  1995 at a discount  of $94. In
 addition,  the Company and SMMSLP entered into a Put/Call  Agreement related to
 SMMSLP's  limited  partnership  interest in DRLP which was  exercised by SMMSLP
 subsequent to June 29, 1996 (see Note 10).

  Also during  1995,  the Company  sold, at book value which  approximated fair
 market  value,  three  Fuddruckers  restaurants  located in the Kansas City and
 Omaha  markets  for a purchase  price of $1,300  substantially  all of which is
 payable in the form of notes receivable  collateralized by all of the assets of
 the restaurants sold.

<PAGE>

 1996 Transactions

 On March 31, 1996, the Company entered into separate Stock Purchase  Agreements
 (the  "Stock   Agreements")   with  two   stockholders  of  ADC  (the  "Selling
 Stockholders")  to  acquire  the 43%  voting  interest  in ADC not  held by the
 Company.  Pursuant to the terms of the Stock  Agreements,  the  Company  issued
 254,548 shares of DAKA common stock valued at $6,427 in exchange for the
 outstanding shares of ADC common stock. Based upon an independent
 valuation, the fair market value of the 43% voting interest acquired 
 approximated the consideration given by the Company.

 On March 31, 1996,  the Company sold one of the restaurants to a Selling
 Stockholder  of  ADC in exchange for a $1,280  promissory note collateralized 
 by the assets of the  restaurant.  Interest accrues at the rate of
 8.5% per annum and is  payable  in monthly  installments.  The note  matures on
 March 31, 2003, at which time the outstanding balance,  $1,180, will be due.
 Based on an  independent valuation obtained by the Company, the book value
 of the restaurant assets sold approximated their fair market value at
 March 31, 1996.

 The following pro forma results of operations assume that the 1996 purchase
 transactions described  above occurred at the beginning of 1996,  1995 and 
 1994. In addition to combining the historical results of operations,  the pro 
 forma amounts shown include adjustments for the estimated effect of 
 depreciation,  amortization and interest expense associated with such
 transactions.

 The pro forma  information  below  does not  purport  to be  indicative  of the
 results  of   operations   that  would  have  actually  been  achieved  if  the
 transactions  described above had actually been consummated as of the beginning
 of 1996, 1995 and 1994. In addition,  the pro forma  information below does not
 purport to be indicative of the results of operations  which may be achieved in
 the future. 

<TABLE>
<CAPTION>
                                                         (Unaudited)
                                                  1996       1995       1994
                                                  ----       ----       ----
<S>                                            <C>         <C>        <C>      
Revenues ..................................... $ 404,824   $382,727   $ 366,706
Net income ................................... $     692   $ 10,231   $   8,450
Net income available for
 common stockholders ......................... $     692   $  9,831   $   7,650

Earnings per share:
Primary ...................................... $    0.07   $   1.40   $    1.21
Fully diluted ................................ $    0.06   $   0.99   $    0.89
</TABLE>

<PAGE>

 4. Investments

In January  1996,  the Company  acquired a 16.7% equity  interest in the form of
convertible redeemable  preferred stock (the  "Preferred  Stock")  in La Salsa
Holding  Co.   ("La Salsa"),   a  franchisor  and  operator of La Salsa  Mexican
restaurants  for  approximately  $5,000.  Each share of  Preferred  Stock may be
converted  into  La Salsa's  Class D  Common  Stock  at $1.50 per  share  and is
redeemable  at face  value  in  installments  beginning  on March  3,  2000.  In
addition, the Company received warrants to acquire,  within 18 months, shares of
convertible  redeemable  preferred stock representing an additional 13.3% equity
interest  for  approximately  $7,100.  In addition,  the Company  entered into a
10-year  license  agreement with La Salsa to operate La Salsa outlets  within
certain  existing  Fuddruckers  restaurants  whereby  the  Company  will  pay  a
franchise  fee,  royalty  payments equal to 5% of La Salsa gross sales,  certain
training costs and marketing fund fees for each outlet  opened.  The Company's
investment in La Salsa is accounted for under the cost method of accounting.

On March 24,  1994,  the Company  acquired a 49% interest in  Innovative  Dining
Management,  Inc.  ("IDM"),  a  newly  formed  contract  foodservice  management
company,  in exchange  for $10 in cash.  The Company  invested  $70 in 1994,  an
additional $70 in 1995 in the form of Preferred Stock and advanced $50 to IDM in
exchange  for a long-term  note  collateralized  by all of the assets of IDM. In
addition,  on December 31, 1994,  Daka sold one of its  educational  foodservice
contracts  and  related  assets  to IDM at book  value  in  exchange  for a note
receivable  of $329.  In the third  quarter of 1996,  the Company  wrote off its
investment  in and note  receivable  from  IDM in  connection  with the  initial
adoption of SFAS 121 (see Note 1).

 5. Long-Term Debt

The components of long-term debt are as follows:

<TABLE>
<CAPTION>
                                      1996            1995
                                      ----            ----
<S>                                 <C>            <C>     
Borrowings under 
 revolving line-of-credit            $ 92,969       $ 45,969
Convertible Subordinated Notes          --           20,538
Notes payable                            747            546
Capital lease obligations              6,146          3,976
 (see Note 10)                       -------        -------
                                      99,862         71,029
Less current portion                  (1,507)          (851)
                                     -------        -------
                                    $ 98,355       $ 70,178
                                    ========       ========
</TABLE>

<PAGE>


 During 1996, the Company amended its revolving line-of-credit agreements
 (the "Amended" and the "June Agreement", collectively the "1996 Agreements")
 principally to increase the Company's borrowing limit from $75,000 to $150,000,
 extend the maturity date to June 30, 1999 and amend certain loan covenants.
 The terms of the 1996 Agreements provided the Company with the option of
 borrowing on a variable basis at either the bank's base rate, defined as the
 higher of the Federal Funds Rate plus .25% or the bank's prime rate, (8.25% 
 at June 29, 1996) or on a fixed basis at LIBOR, plus a margin of between .5%
 and 1.75% (6.56% at June 29, 1996) subject to prospective adjustment if the 
 Company achieved pre-defined levels of debt to consolidated earnings before
 interest and income taxes.  At June 29, 1996, approximately $89,000 of
 outstanding borrowings had fixed rates expiring through the first quarter of
 1997.  The Company is charged a commitment fee of .25% per annum on the unused
 portion of the line-of-credit.  The agreement is collateralized by all of the
 assets of the Company and its wholly-owned subsidiaries and contains various
 covenants which, among other things, require a minimum level of interest
 coverage, tangible assets and tangible net worth.  The terms of the
 agreement prohibit the payment of dividends with respect to the Company's
 Common Stock.  Borrowing capacity under the revolving line-of-credit is
 reduced by any outstanding letters of credit issued by the Company.

 At June 29, 1996, the Company was not in compliance with its debt service
 coverage, minimum tangible net worth and fixed charge coverage covenants.  On
 October 15, 1996, the Company obtained a waiver of noncompliance related to 
 such covenants from its lenders.  The Company also renegotiated certain terms
 and conditions of the 1996 Agreements (the "October Agreement"), decreasing 
 the Company's borrowing limit from $150 million to $125 million (reduced by
 $20 million on June 30, 1997), changing the maturity date to October 1, 
 1997, restricting restaurant expansion and capital expenditures, and amending
 certain loan covenants.  Borrowing rates were increased to a 3% margin and a
 1.75% margin on fixed basis and variable basis borrowings, respectively, and
 the commitment fee increased to .50% per annum on the unused portion.  Costs
 associated with obtaining and negotiating the Company's October Agreement are
 expected to approximate $450.  At June 29, 1996, the Company has available 
 borrowings under the October Agreement of approximately $22 million.

 In December 1995, the Company  entered into an interest rate swap agreement
 whereby $3,500 of notional  principal amount under a certain financing facility
 will bear interest at 6.57%. The interest rate swap agreement is effective July
 1, 1996 and  expires  September  1, 2000.  The  Company  also  entered  into an
 interest rate swap  agreement in August 1995 whereby,  effective  September 21,
 1995,  $30,000 of  notional  principal  amount  under the  Company's  revolving
 line-of-credit  agreement will  bear  interest  at  5.96%  plus a  margin
 determined  in accordance with the terms of the  line-of-credit  agreement,
 which effectively sets the interest  rate at 7.5%.  The swap  agreement 
 expires on September 22, 1997. The Company  recorded  additional  interest 
 expense during 1996 totaling approximately $62, pursuant to the swap agreement
 rate.

<PAGE>

 During  1993,  the Company sold $28,750 of 7%  Convertible  Subordinated  Notes
 ("Notes").  The Notes were  scheduled  to mature on March 15, 2003 and required
 semi-annual  payments  of  interest  on  March  15 and  September  15 and  were
 convertible into Common Stock at the option of the Holder, at any time prior to
 maturity or  redemption,  at a  conversion  price of $12 per share,  subject to
 adjustment in certain instances. The Company was permitted to redeem the Notes,
 in whole or in part, at any time after March 26, 1996. During 1996,  $20,484 of
 Notes  were  converted  into  Common  Stock by the  Holders of such  Notes. In
 connection with the conversion,  the Company increased  Stockholders' Equity by
 $19,851,  net of related unamortized  deferred debt issue costs.  Subsequent to
 the  conversion,  the Company  redeemed the remaining  outstanding  Notes.  The
 conversion  and  redemption  had no effect on fully diluted  earnings per share
 since the shares  issuable  per  conversion  of the Notes were  included in the
 calculation of fully diluted earnings per share.

 Notes payable  include several notes bearing  interest  ranging from 6% to 11%,
 require  monthly or quarterly  payments of principal and interest and mature at
 various times ranging from July 1996 to July 2002.

 Maturities  of long-term  debt,  including  capital lease  obligations,  are as
 follows:

                  1997 ..................  $ 1,507
                  1998 ..................   94,474
                  1999 ..................    1,565
                  2000 ..................    1,300
                  2001 ..................      991
                  Thereafter ............       25
                                           -------
                                           $99,862
                                           ======= 

<PAGE>

 6. Convertible Preferred Stock

 In January  1992,  the Company  sold,  for $10,000 in cash,  100,000  shares of
 Series  A  Convertible  Preferred  Stock  ("Preferred  Stock"),  which  may  be
 redeemed,  in whole  or in  part,  at any  time at the  Company's  option.  The
 Preferred  Stock is  convertible  at any time into a number of shares of Common
 Stock to be determined by multiplying  the number of shares of Preferred  Stock
 to be  converted  by $100 and  dividing  the result by a  specified  conversion
 price.  The initial  conversion  price of $4.50 per share  would  result in the
 issuance upon conversion of 2,222,222  shares of Common Stock. The terms of the
 Preferred  Stock  require that the Company pay dividends  semi-annually  at the
 rate of 8% per annum,  provided however, that no such dividends will be payable
 if for at least 30 trading  days during the previous  six-month  period the per
 share price of the Common Stock attains  certain  minimum  levels.  The minimum
 levels were not  attained  during  each of the three  six-month  periods  ended
 December 30, 1994  resulting  in the payment of $800 and $400 in dividends  for
 fiscal 1994 and fiscal 1995, respectively.  The minimum levels were attained in
 periods  subsequent  to December 31, 1994 and  accordingly,  no dividends  were
 required to be paid..  During the  six-month  period June 29, 1996,  the 30 day
 minimum per share price of the Common  Stock was $20.00,  and  increases at the
 rate of approximately  10% every six months  thereafter until June 30, 2000. In
 addition,  initial  Holders  of the  Preferred  Stock  were  issued  contingent
 warrants to purchase  2,222,222  shares of Common Stock at $4.50 per share. The
 contingent warrants expire on January 30, 2002 and may be exercised in whole or
 in part only upon redemption of the Preferred Stock by the Company.

 During 1996,  Holders of 88,088 shares of the Preferred  Stock  converted  such
 shares into  1,957,521  shares of Common Stock  resulting in the  expiration of
 1,957,521  contingent  warrants.  The conversion had no effect upon fully
 diluted  earnings per share as these shares were included in the calculation of
 fully  diluted  earnings  per share.  The Holders of the  Preferred  Stock were
 entitled to elect two directors of the Company, so long as more than 50% of the
 Preferred Stock  originally  issued remained  outstanding,  and one director so
 long as 25% of the Preferred Stock originally issued remained  outstanding.  In
 addition,  the  Holders of the  Preferred  Stock were  entitled  to vote on all
 matters  submitted  to the  Company's  Stockholders  for a vote.  Each share of
 Preferred Stock is entitled to one vote for each share of Common Stock issuable
 upon conversion of the Preferred Stock at the time the vote is taken.  Upon any
 liquidation of the Company,  the Holders of Preferred  Stock are entitled to be
 paid an amount equal to $100 per share plus accrued and unpaid dividends before
 any payment to the Holders of Common Stock. Additionally,  any sale or issuance
 of Common  Stock by the Company or its  Stockholders  which  results in another
 person  owning more than 50% of the Common  Stock is an event of default  which
 reduces the conversion price then in effect by 50%.

<PAGE>

 The terms of the Preferred Stock Certificate of Designation require the Company
 to comply with certain conditions. In the event of the Company's failure to pay
 dividends, redeem the Preferred Stock when required, achieve a specified market
 price  for  the  Common  Stock  during  1997-1999,   voluntary   bankruptcy  or
 insolvency,  the  Certificate  of  Designation  provides for a reduction in the
 conversion  price of the  Preferred  Stock of up to 40%, an additional 2% 
 added to the annual dividend  rate, and in the event of voluntary bankruptcy, 
 immediate redemption and the right to elect an additional  director who
 would be entitled to cast a number of votes  equal to the sum of the number
 of votes  entitled to be cast by all other  directors plus one,  depending
 on the nature of the event of noncompliance.

 7. Other Assets

 The components of other assets are as follows: 

                                             1996        1995 
                                             ----        ---- 

          Goodwill ....................... $ 23,698    $ 23,548
          Other ..........................   17,791      13,056
                                           --------    --------
                                             41,489      36,604
          Less accumulated amortization ..   (8,772)     (5,162)
                                           --------    --------
                                           $ 32,717    $ 31,442
                                           ========    ========  

 8. Accrued Expenses

 The components of accrued expenses are as follows:

                                               1996      1995
                                               ----      ----

       Salaries, wages and related taxes ... $ 6,596   $ 6,195
       Taxes ...............................   2,394     2,787
       Insurance ...........................   2,111     3,096
       Other ...............................   4,009     6,125
                                             -------   -------
                                             $15,110   $18,203
                                             =======   =======

<PAGE>

 9. Income Taxes

 In 1994,  the Company  changed  its method of  accounting  for income  taxes by
 adopting SFAS No. 109 - "Accounting for Income  Taxes".  Prior to 1994,  the
 Company  accounted for income taxes  pursuant  to  SFAS No. 96, "Accounting
 for Income Taxes".  The Company  elected to record the effect of adopting
 SFAS No. 109 in 1994's consolidated  financial statements rather
 than by restating prior years' consolidated financial statements.  The adoption
 of SFAS No. 109 had no material impact on net income and earnings per share.

Income tax expense is comprised of the following:


                                                1996       1995      1994
                                                ----       ----      ----
  Income before extraordinary gain:
   Currently payable:
    Federal ................................. $ 2,025    $ 5,403   $ 2,312
    State ...................................     712      1,868     1,027
                                              -------    -------   -------
                                                2,737      7,271     3,339
                                              -------    -------   -------
    Deferred income tax (benefit) expense ...  (2,608)    (1,954)      358
                                              -------    -------   -------
    Income tax expense ...................... $   129    $ 5,317   $ 3,697
                                              =======    =======   =======


Deferred  tax  assets and  liabilities  are  comprised  of the  following:

                                                       Asset
                                                    (Liability) 
                                                  1996      1995
  Current:
   Inventories                                 $   (368)  $  (284)
   Accrued expenses                                 528       566
   Prepaid expenses                              (1,429)   (1,091)
   Net operating loss carryforwards                 327       342
   Other                                            155       231
                                                -------   -------
                                                   (787)     (236)
                                                -------   ------- 

  Noncurrent:
   Net operating loss carryforwards               2,820     2,760
   Impairment charges                             1,766       --
   Depreciation and amortization                   (272)      263
   Deferred income                                  194       255
   Accrued expenses                               2,205     1,909
   Less valuation allowance                      (1,227)   (2,860)
                                                -------   -------
                                                  5,486     2,327
                                                -------   -------
                                                $ 4,699   $ 2,091
                                                =======   =======


<PAGE>


The following is a reconciliation  of income taxes at the federal statutory rate
to the Company's income tax expense:

                                                    1996      1995      1994
                                                    ----      ----      ---- 
Income taxes computed at statutory 
  federal income tax rates                      $   352     $ 5,215    $ 3,949
Non-deductible merger costs                         986         --         --
Non-deductible goodwill amortization                406         --         --
State income taxes, net of federal tax benefit      318         949        773
Net operating loss carryforwards                    --          --        (408)
Reduction of valuation allowance                 (1,633)       (171)      (320)
Income tax credits                                  --         (414)      (723)
Other, net                                          300        (262)       426
                                                -------     -------    ------- 
Income tax expense                              $   129     $ 5,317    $ 3,697
                                                -------     -------    -------
Effective tax rate                                 12.5%       35.7%      32.8%
                                                =======     =======    =======

As of June 29, 1996, the Company had federal net operating loss carryforwards of
approximately  $9,250  expiring at various  dates  through  2011.  Approximately
$6,500 of the  losses  are  related to  Fuddruckers  and  $2,750 are  related to
Fuddruckers' 63% owned subsidiary,  Atlantic Restaurant Ventures, Inc. ("ARVI").
Fuddruckers'  net  operating  loss  carryforwards  are  limited  in use to  $922
annually and can only be used to offset  taxable income of  Fuddruckers.  ARVI's
net operating  loss  carryforwards  can only be used to offset taxable income of
ARVI, of which $1,550 of the $2,750, is limited in use to $129 annually. In 1995
and 1994,  the  Company  provided a valuation  allowance  for the tax benefit of
Fuddruckers'  and ARVI's net  operating  loss  carryforwards  not expected to be
utilized in the succeeding year based on historical  operating results and other
available evidence.  In 1996, as a result of changes to the realization estimate
of  Fuddruckers'  net operating  loss  carryforwards,  the Company  reversed the
valuation  allowance  relating to Fuddruckers' net operating loss  carryforwards
and  reported  an income tax benefit of $1,935.  This tax benefit was offset, in
part, by a $302 increase in the valuation allowance related to ARVI. During 
1995,the valuation allowance was reduced by $342 relating to the net operating 
losses expected to be utilized by Fuddruckers  in 1996.  This decrease in the 
valuation allowance was offset,  in part, by a $171 increase  resulting from 
net operating loss incurred by ARVI in 1995.

10. Commitments and Contingencies

Leases

The Company has entered into lease agreements for certain restaurant  facilities
and office  space.  The fixed  terms of the leases  range up to 20 years and, in
general,  contain multiple renewal options for various periods ranging from 5 to
25 years.  Certain leases contain provisions which require  additional  payments
based on sales  performance and the payment of common area  maintenance  charges
and real estate taxes. In addition, the Company's foodservice  contracts,  which
may be  canceled  by either  party  upon 30 to 90 days  notice  provide  for the
payment of various  forms of rent.  Finally,  the Company  also  leases  certain
restaurant and computer equipment under operating leases which expire at various
dates through June, 2001.

<PAGE>

In October 1995,  Fuddruckers obtained a commitment for a $25,000 sale-leaseback
financing  facility from  Franchise  Finance  Corporation  of America  ("FFCA").
Pursuant to the terms of the facility, Fuddruckers will sell and lease back from
FFCA up to 20 Fuddruckers  restaurants to be constructed,  in which  Fuddruckers
has an ownership  interest in the real estate and will pay a  commitment  fee of
1.5% of the sale price of each property sold to FFCA.  The sale price is limited
to the lesser of 80% of the fair market  value of the  property  or $1,250.  The
unused commitment, if any, expires on October 31, 1996. The leases provide for a
fixed  minimum  rent plus  additional  rent based on a  percentage  of sales and
provide for an initial  lease term of 20 years with two 5-year  renewal  options
exercisable  at the  option of  Fuddruckers.  The terms  and  conditions  of the
sale-leaseback  are such that they do not meet the  criteria  for  treatment  as
capital  leases under SFAS No. 13 - "Accounting For Leases. As of June 
29, 1996, 11  Fuddruckers  restaurants have been sold to FFCA and 
approximately  $11.8 million of the  commitment  was available  for use. 
The  Company  is  currently  negotiating  future  financing commitments
with FFCA.

In December  1995,  CEI  obtained a  commitment  for a $40,000  development  and
sale-leaseback  financing  facility  from AEI  Fund  Management,  Inc.  ("AEI").
Pursuant  to the terms of the  agreement,  CEI will sell and lease back from AEI
Champps restaurants to be constructed, in which CEI has an ownership interest in
the real  estate and will pay a  commitment  fee of 1% of the sale price of each
property sold to AEI. The purchase price will be equal to the total project cost
of the property, as defined in the agreement,  not to exceed its appraised value
(the "Purchase Price").  The unused  commitment,  if any, expires on December 6,
1997.  The leases,  to be guaranteed  by DAKA,  provide for a fixed minimum rent
based on a percentage of the respective  property's  Purchase Price,  subject to
subsequent CPI-based increases.  The leases also provide for an initial term of
20 years with two 5-year renewal  options  exercisable at the option of CEI. The
terms and  conditions of the  sale-leaseback  are such that they do not meet the
criteria for treatment as capital leases under SFAS No. 13. As of June 29, 
1996 no Champps restaurants have been sold to AEI.

In December  1995,  the Company  obtained a $3,500  capital lease  facility from
Chase  Equipment  Leasing,  Inc.  ("Chase").  The lease  provides for  fifty-one
consecutive monthly rental payments, based on the total of all progress payments
made by Chase,  commencing  on or before July 1, 1996.  Interest  accrues at the
LIBOR rate plus 1%. As of June 29,  1996,  there were no  borrowings  under this
facility.

In January, 1996, CEI obtained a $5,000 capital lease facility from a third
party lender to fund the cost of certain  restaurant,  audio/visual and point of
sale equipment related to new restaurant construction.  The lease facility has a
five-year  term and an implicit  interest  rate of 10.2%.  As of June 29,  1996,
approximately $4,000 of the lease facility commitment was available for use.

Total rent expense including payments made pursuant to foodservice  contracts in
1996,  1995 and 1994  amounted to $27,240,  $22,058 and  $17,696,  respectively.
Total contingent rentals included in rent expense amounted to $4,889, $3,165 and
$1,262, respectively.

Included in property and equipment in 1996, 1995 and 1994 are $6,213, $4,841 and
$1,413, respectively,  of equipment held pursuant to capital lease arrangements.
The related accumulated  amortization was $1,413,  $770 and $555,  respectively.
Capital lease additions for equipment totaled $3,718, $2,326 and $1,674, in 
1996, 1995 and 1994, respectively.


<PAGE>

Future minimum lease payments pursuant to leases with noncancelable  lease terms
in excess of one year during each of the next five years and  thereafter  are as
follows:

  Years                                               Operating        Capital
  Ending                                               Leases          Leases

   1997 ............................................. $ 16,965        $  1,743
   1998 .............................................   16,703           1,661
   1999 .............................................   15,876           1,651
   2000 .............................................   15,085           1,279
   2001 .............................................   14,825             633
   Thereafter .......................................  101,482              63
                                                      --------        --------
   Total future minimum lease payments .............. $180,936           7,030
                                                      ========        ========
   Less amount representing interest ................                     (884)
                                                                      -------- 
   Present value of future minimum lease payments ...                 $  6,146
                                                                      ========

Put/Call Agreements

On October 22, 1993,  Fuddruckers  entered into an agreement  with a partnership
affiliated  with the president of a  majority-owned  subsidiary  of  Fuddruckers
pursuant  to which the  partnership  has agreed to  purchase  substantially  all
shares of common stock of the subsidiary not currently owned by Fuddruckers. The
partnership also invested $1,100 in shares of the subsidiary's  preferred stock.
Additionally,  Fuddruckers and the partnership entered into a Put/Call Agreement
whereby  Fuddruckers has an option to purchase and the partnership has the right
to require  Fuddruckers  to purchase all the common and  preferred  stock of the
subsidiary  owned by the  partnership  for a  purchase  price of  $5,400  plus a
premium based on the  subsidiary's  future financial  performance.  The put/call
option is exercisable by either Fuddruckers or the partnership between March 15,
1999 and  February  15, 2000.  On the date of the  Put/Call  Agreement  the fair
market value of the  subsidiary's  common stock plus the redemption value of the
preferred  stock was greater  than the present  value of the  put/call  price of
$5,400 based upon an  independent  valuation of the common stock obtained by the
Company from an investment banking firm. Similarly, at June 29, 1996, based upon
an  independent  valuation,  the value of the common and preferred  stock was in
excess of the present value of the put/call price.

In connection  with the acquisition by DRLP, the Company and SMMSLP entered into
a Put/Call  Agreement  whereby  SMMSLP is  permitted  to require  the Company to
purchase its limited  partnership  interest in DRLP anytime  during the ten-year
term of the  partnership  for a purchase  price  equal to $2,600  plus  SMMSLP's
portion of any net undistributed  earnings of DRLP. In addition,  the Company is
permitted  to require  SMMSLP to sell its  limited  partnership  interest to the
Company at any time after  February 8, 2000 for a purchase  price of 120% of the
sum of (i) $2,600 and (ii) SMMSLP's portion of any net undistributed earnings of
DRLP.  On July  13,  1996,  SMMSLP  exercised  its  Put  right  pursuant  to the
provisions of the Put/Call Agreement.

<PAGE>

Purchase Commitments

In  July  1995,  the  Company   entered  into  a  five  year  Exclusive   Coffee
Manufacturing  Agreement (the "Coffee Agreement") with a third party supplier of
ground and whole bean coffees,  including  flavored and gourmet coffee products.
Purchase  prices to be paid by the  Company are based on  commodity  market
exchange  prices.  At June 29, 1996, the Company's  commitment  under the Coffee
Agreement is approximately $11,883.

Litigation

In certain circumstances, where management and legal counsel believe that a loss
has been  incurred,  the  Company has  recorded  an  estimate of such loss.  The
Company is also engaged in various other legal  actions  arising in the ordinary
course of business which, in the judgment of management based upon  consultation
with legal  counsel,  the  Company has  adequate  legal  defenses  or  insurance
coverage  with respect to these  actions or believes  that the ultimate  outcome
will not have a material adverse affect on the Company's  consolidated financial
position, results of operations or cash flows.

11. Stock Options and Employee Benefit Plans

Stock Options

The Company has an Incentive  Stock Option  Plan, a  Non-Qualified  Stock Option
Plan and two  senior  executive  stock  option  plans (the  "Plans").  The Plans
provide for the granting of options to purchase an aggregate of 1,250,000 shares
of Common  Stock.  As of June 29, 1996,  there were 71,530  shares  reserved for
issuance under the Plans.

Under  the  Plans,  options  may be  granted  for a term of up to ten  years  to
eligible  employees  at an exercise  price equal to the fair market value of the
Common  Stock on the date of the grant.  At June 29,  1996,  539,146  options to
purchase shares of Common Stock under the Plans were  exercisable.  The activity
related  to all  stock  options  issued  under the  Plans  referred  to above is
summarized as follows:

                                         Number of    Exercise Price
                                          Shares         Per Share
                                          ------         ---------

Outstanding, June 26, 1993                299,985     $ 2.50 - 11.75

Options granted                           268,378       9.88
Options exercised                         (43,108)      2.50 - 11.75
Options canceled                           (6,125)      2.50 - 11.75
                                         --------    
Outstanding, July 2, 1994                 519,130       2.50 - 11.75
                                         ========

Options granted                           154,905      12.88 - 17.37
Options exercised                         (37,360)      2.50 - 12.88
Options canceled                          (22,020)      2.50 - 11.75
                                         --------
Outstanding, July 1, 1995                 614,655       2.50 - 17.37
                                         ========

Options granted                           530,635      11.05 - 35.94
Options exercised                        (201,920)      2.50 - 28.63
Options canceled                          (53,180)      2.50 - 28.63
                                         --------  
Outstanding, June 29, 1996                890,190       2.50 - 35.94
                                         ========

<PAGE>

Employee Benefit Plans

The Company  sponsors a 401(k)  retirement  plan for the benefit of its nonunion
Associates.  The Plan enables Associates to contribute up to 15% of their annual
compensation.  The Company makes  discretionary  contributions  to the Plan. The
Company  contributed  $305,  $375  and $0 to the Plan in  1996,  1995 and  1994,
respectively.

Effective  July  3,  1994,  the  Company   implemented  a  long-term   incentive
compensation  plan for its Chief  Executive  Officer  whereby  a portion  of the
increase  in the market  value of the  Company's  Common  Stock over  predefined
amounts,  is  payable  in either  cash or stock at the  option  of the  Company.
Amounts  payable under the plan vest on June 30, 1997. At June 29, 1996,  $1,221
had been accrued  representing  a pro rata portion of the amount  expected to be
payable under the plan based on the market value of the  Company's  Common Stock
on June 29, 1996. During 1995, the Company's Board of Directors and stockholders
approved  the Equity  Incentive  Plan for its senior  management  whereby  stock
options  will be issued at not less than fair  market  value and will vest three
years from the grant date. The Company  granted  approximately  300,000  options
under this plan in 1996.  There were no options  granted  under this plan during
1995.

12. Fair Value of Financial Instruments

The  estimated  fair  value  of  financial  instruments  has  been
determined by the Company using  available  market  information  and appropriate
valuation  methodologies.  The following  methods and  assumptions  were used to
estimate the fair value of the Company's financial  instruments for which it was
practicable to estimate that value:

     Current  Assets  and  Liabilities  - The  carrying  amount  of cash,  trade
     receivables,  trade accounts payable and accrued expenses approximates fair
     value because of the short maturity of these instruments.

     Notes Receivable - The carrying value of notes receivable approximates fair
     value and were estimated based on discounted cash flows expected to be
     received using interest rates at which similar loans are made to borrowers 
     with similar  credit ratings, or if the  loan  is  collateral   dependent,
     management's estimate of the fair value of the collateral.

     Long-term  Debt - The fair values of each of the Company's  long-term  debt
     instruments  approximates  the carrying values since the interest rates are
     generally floating or fixed for a period of short duration and are based on
     prevailing market rates.

     Interest  Rate Swaps - The fair value of interest  rate swaps is the amount
     at which they could be settled  based on estimates  obtained  from dealers.
     The amount required to settle  outstanding  interest rate swaps at June 29,
     1996 and July 1, 1995 was approximately $60 and $4, respectively.

<PAGE>

13. Segment Information

Income  from  foodservice,  restaurant  and  franchising  operations  have  been
determined  applying  the  accounting  policies in Note 1.  Revenue and costs as
shown  below  are  directly  related  to each  business  and do not  include  an
allocation of corporate  expenses,  non-operating  income,  interest expense and
income taxes. There are no sales among the Company's three businesses. The table
below  presents  certain  financial   information  for  the  Company's  contract
foodservice, Fuddruckers and Champps businesses, for 1996, 1995 and 1994:

<TABLE>
<CAPTION>
                                                                         1996        1995         1994
                                                                         ----        ----         ----
<S>                                                                   <C>          <C>          <C>
  Total Revenues:
    Sales from profit and loss contracts ...........................  $ 218,361    $ 193,154    $ 150,839
    Management and other fees ......................................      6,148        5,715        6,132
    Restaurant sales - Fuddruckers .................................    131,592      110,703       87,030
    Franchising income - Fuddruckers ...............................      6,575        5,372        4,318
    Restaurant sales - Champps .....................................     41,593       19,257        8,273
    Franchising income - Champps ...................................        555          636          554
                                                                      ---------    ---------    ---------
      Total revenues ...............................................  $ 404,824    $ 334,837    $ 257,146
                                                                      =========    =========    =========
  Foodservice:
    Sales from profit and loss contracts ...........................  $ 218,361    $ 193,154    $ 150,839
    Operating expenses:
     Labor costs ...................................................     74,554       65,481       51,814
     Product costs .................................................     78,666       69,964       53,199
     Other operating expenses ......................................     33,137       30,581       23,274
     Depreciation and amortization .................................      5,665        4,509        3,398
     Impairment charges ............................................      3,198         --           --
     Merger costs ..................................................        300         --           --
                                                                      ---------    ---------    ---------
    Income from profit and loss contracts ..........................     22,841       22,619       19,154
    Management and other fees ......................................      6,148        5,715        6,132
                                                                      ---------    ---------    ---------
    Income from foodservice operations .............................     28,989       28,334       25,286
                                                                      ---------    ---------    ---------
  Fuddruckers:
    Sales from restaurant operations ...............................    131,592      110,703       87,030
    Operating expenses:
     Labor costs ...................................................     38,137       31,889       25,034
     Product costs .................................................     37,146       30,785       24,209
     Other operating expenses ......................................     35,582       28,504       22,358
     Depreciation and amortization .................................      7,953        5,273        4,029
     Impairment charges ............................................      2,450         --           --
                                                                      ---------    ---------    ---------
    Income from restaurant operations ..............................     10,324       14,252       11,400
    Franchising income .............................................      6,575        5,372        4,318
                                                                      ---------    ---------    ---------
    Income from restaurant and franchising operations ..............     16,899       19,624       15,718
                                                                      ---------    ---------    ---------
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
                                                                         1996        1994         1995
                                                                         ----        ----         ----
 
     <S>                                                              <C>          <C>          <C>
     Champps:
      Sales from restaurant operations .............................     41,593      19,257       8,273
      Operating expenses:
       Labor costs .................................................     13,797       5,971       2,600
       Product costs ...............................................     11,981       5,590       2,318
       Other operating expenses ....................................      9,406       3,951       1,669
       Depreciation and amortization ...............................      3,596       1,056         277
       Impairment charges ..........................................         63        --          --
       Merger costs ................................................      2,600        --          --
                                                                       --------    --------    --------
      Income from restaurant operations ............................        150       2,689       1,409
      Franchising income ...........................................        555         636         554
                                                                       --------    --------    --------
      Income from restaurant and franchising operations ............        705       3,325       1,963
                                                                       --------    --------    --------
      Income from operations before selling,
      general and administrative expenses ..........................     46,593      51,283      42,967

      Selling, general and administrative expenses (1) .............     40,848      32,906      29,033
                                                                       --------    --------    --------

      Operating income .............................................      5,745      18,377      13,934

      Interest expense .............................................      5,874       4,344       2,883
      Interest income ..............................................       (352)       (859)       (331)
      Income before income taxes and minority interests ............        203      14,892      11,382
      Income tax expense ...........................................        129       5,317       3,697
      Minority interests ...........................................       (831)         (8)         99
                                                                       --------    --------    --------
      Net income ...................................................   $    905    $  9,583    $  7,586
                                                                       ========    ========    ========
</TABLE>


(1)  Selling,  general and administrative  expenses include depreciation expense
     on  corporate  assets  of  $1,278,  $852 and $769 in 1996,  1995 and  1994,
     respectively.


<PAGE>



Corporate  assets  include cash and cash  equivalents,  computer  equipment  and
deferred  income  taxes.  The following  table  presents  certain  balance sheet
information for the Company's foodservice, Fuddruckers and Champps subsidiaries:

                                  1996            1995            1994
                                  ----            ----            ----
Foodservice:
 Total assets                  $ 80,844        $ 74,703        $ 49,376
 Capital expenditures             7,530           6,684           6,263

Fuddruckers:
 Total assets                   104,177          83,834          62,178
 Capital expenditures            41,231          29,011           8,941

Champps:
 Total assets                   27,387           15,729          13,183
 Capital expenditures           13,771            5,309             671

Corporate:
 Total assets                   19,149            6,587           4,242
 Capital expenditures            5,698            2,407           1,032



<PAGE>


15. Quarterly Results (Unaudited)

The following  unaudited  quarterly financial data should be read in conjunction
with  the  audited  consolidated   financial   statements,   related  notes  and
Management's  Discussion  and Analysis of Results of  Operations  and  Financial
Condition:

<TABLE>
<CAPTION>
                                                First      Second       Third       Fourth
                                               Quarter     Quarter     Quarter      Quarter      Total
<S>                                          <C>         <C>         <C>          <C>          <C>      
1996:
Revenues ................................... $  93,514   $ 108,191   $ 103,214    $  99,905    $ 404,824
Gross profit ...............................    14,323      17,177       4,389       10,704       46,593
Income (loss) before income taxes
 and minoritt interests.....................     3,662       5,996      (7,621)      (1,834)         203
Net income (loss) ..........................     2,255       3,816      (5,528)         362          905

Net income:
  Primary ..................................      0.27        0.38       (0.56)        0.03         0.09
  Fully diluted ............................      0.22        0.35       (0.56)        0.03         0.09

1995:
Revenues ................................... $  67,102    $ 81,007    $ 90,145     $ 96,583    $ 334,837
Gross profit ...............................    10,814      13,070      13,089       14,310       51,283
Income before income taxes .................     2,631       4,231       3,735        4,295       14,892
Net income .................................     1,697       2,796       2,384        2,706        9,583

Net income:
  Primary ..................................      0.26        0.37        0.35         0.38         1.35
  Fully diluted ............................      0.18        0.28        0.24         0.26         0.96
</TABLE>


Certain amounts  related to the third quarter of 1996 have been  reclassified to
reflect further  analysis  performed by the Company to the amount provided as of
March  30,  1996,  related  to the  adoption  of SFAS No. 121 and the 
write-down of reacquired franchise rights, investments and  other assets. Such
reclassifications   have  the  effect  of  reducing  the  amounts   reported  as
"impairment and other charges" as of March 30, 1996 by approximately  $2,250 and
increasing  the amount  reported as "cost of sales and  operating  expenses"  by
approximately  $2,250. The reclassifications had no effect on the reported gross
profit,  income  before  income  taxes and minority interests,  net income or
primary and fully diluted earnings per share for the quarter ended 
March 30, 1996.