<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 3, 1997
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10
------------------------
GENERAL FORM FOR
REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
------------------------
UNIQUE CASUAL RESTAURANTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 04-3370491
-------------------------- ----------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
ONE CORPORATE PLACE
55 FERNCROFT ROAD
DANVERS, MASSACHUSETTS 01923
---------------------------------- ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(508) 774-9115
--------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
------------------- ------------------------------
COMMON STOCK, PAR VALUE $.01 PER SHARE THE NASDAQ NATIONAL MARKET
==============================================================================
<PAGE> 2
UNIQUE CASUAL RESTAURANTS, INC.
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
ITEM 1. BUSINESS.
The information required by this item is set forth under the captions
"Summary," "Risk Factors," "The Reorganization," "Management's Discussion and
Analysis of Results of Operations and Financial Condition of the Company," and
"Business" and in the Notes to the Combined Financial Statements in the
Information Statement, and is hereby incorporated by reference.
ITEM 2. FINANCIAL INFORMATION.
The information required by this item is set forth under the captions
"Summary," "Summary Historical Combined Financial Data," "Pro Forma
Capitalization," "Unaudited Pro Forma Combined Balance Sheet," "Selected
Historical Combined Financial Data," "Management's Discussion and Analysis of
Results of Operations and Financial Condition of the Company" and the Combined
Financial Statements in the Information Statement, and is hereby incorporated by
reference.
ITEM 3. PROPERTIES.
The information required by this item is set forth under the caption
"Business -- Properties" in the Information Statement, and is hereby
incorporated by reference.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is set forth under the captions
"Summary," "The Reorganization" and "Security Ownership of Certain Beneficial
Owners and Management" in the Information Statement, and is hereby incorporated
by reference.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
The information required by this item is set forth under the captions
"Summary" and "Management" in the Information Statement, and is hereby
incorporated by reference.
ITEM 6. EXECUTIVE COMPENSATION.
The information required by this item is set forth under the caption
"Management -- Executive Compensation" in the Information Statement, and is
hereby incorporated by reference.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is set forth under the captions
"Summary," "The Offer, the Merger and Certain Related Transactions," "Other
Agreements," and "Certain Relationships and Related Transactions," and
"Management" in the Information Statement, and is hereby incorporated by
reference.
ITEM 8. LEGAL PROCEEDINGS.
The information required by this item is set forth under the caption
"Business -- Legal Proceedings" in the Information Statement, and is hereby
incorporated by reference.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
The information required by this item is set forth under the captions
"Summary," "Risk Factors," "The Reorganization," and "Dividend Policy" in the
Information Statement, and is hereby incorporated by reference.
<PAGE> 3
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
On May 27, 1997, the Registrant issued and sold to DAKA International, Inc.
("DAKA International") 1,000 shares of its common stock, par value $.01 per
share (the "UCRI Common Stock"), for an aggregate consideration of $100 in
connection with the formation of Registrant. Such issuance did not involve an
underwriter, and no discount or commission was paid in connection therewith. The
Registrant relied on the exemption from registration contained in Section 4(2)
of the Securities Act of 1933, as amended.
Prior to the Distribution (as defined in the Information Statement), the
Registrant will issue a number of shares of UCRI Common Stock to DAKA
International in consideration for the Contribution (as defined in the
Information Statement) of certain assets to the Registrant in connection with
such Distribution. The number of shares of UCRI Common Stock issued to DAKA
International shall be equal to the number of shares necessary in order to
enable DAKA International to effect the Distribution. The Distribution of shares
of UCRI Common Stock by DAKA International to holders of its common stock will
be effected as a dividend, without consideration.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
The information required by this item is set forth under the caption
"Description of Capital Stock" in the Information Statement, and is hereby
incorporated by reference.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The information required by this item is set forth under the caption
"Liability and Indemnification of Directors and Officers" in the Information
Statement, and is hereby incorporated by reference.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is set forth under the captions
"Summary," "Summary Historical Combined Financial Data," "Pro Forma
Capitalization," "Unaudited Pro Forma Combined Balance Sheet," "Selected
Historical Combined Financial Data," "Management's Discussion and Analysis of
Results of Operations and Financial Condition of the Company" and the Combined
Financial Statements in the Information Statement, and is hereby incorporated by
reference.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS IN ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Index to Combined Financial Statements................................................ F-1
Report of Independent Auditors........................................................ F-2
Report of Independent Public Accountants.............................................. F-3
Combined Financial Statements:
Balance Sheets as of June 29, 1996, July 1, 1995 and March 29, 1997 (Unaudited)..... F-4
Statements of Operations for the fiscal years ended June 29, 1996, July 1, 1995
and July 2, 1994 and for the nine months ended March 29, 1997 (Unaudited) and
March 30, 1996 (Unaudited)....................................................... F-5
Statements of Cash Flows for the fiscal years ended June 29, 1996, July 1, 1995
and July 2, 1994 and for the nine months ended March 29, 1997 (Unaudited) and
March 30, 1996 (Unaudited)....................................................... F-6
Statements of Group Equity for the fiscal years ended June 29, 1996, July 1, 1995
and July 2, 1994 and for the nine months ended March 29, 1997 (Unaudited)........ F-7
Notes to Combined Financial Statements.............................................. F-8
</TABLE>
<PAGE> 4
(b)Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ----------------------------------------------------------------------------- ----
<C> <C> <S> <C>
2.1 -- Agreement and Plan of Merger, dated as of May 27, 1997, by and among Compass
Interim, Inc. ("Compass Interim"), Compass Holdings, Inc. ("Purchaser"),
Compass Group PLC ("Parent") and DAKA International, Inc. ("DAKA
International")..............................................................
2.2 -- Reorganization Agreement dated as of May 27, 1997, by and among DAKA
International, Daka, Inc. ("Daka"), the Registrant, Parent and Compass
Holdings.....................................................................
3.1 -- Certificate of Incorporation of the Registrant...............................
3.2 -- By-laws of the Registrant....................................................
3.3 -- Form of Amended and Restated Certificate of Incorporation of the
Registrant...................................................................
3.4 -- Form of Amended and Restated By-laws of the Registrant.......................
4.1 -- Specimen Stock Certificate for shares of the UCRI Common Stock...............
10.1 -- Tax Allocation Agreement dated as of May 27, 1997, by and among DAKA
International, Daka, the Registrant, Champps Entertainment, Inc. ("Champps"),
Fuddruckers, Inc. ("Fuddruckers"), Purchaser and Parent......................
10.2 -- Post-Closing Covenants Agreement, dated as of May 27, 1997, by and among DAKA
International, Daka, the Registrant, Champps, Fuddruckers, Purchaser and
Parent.......................................................................
10.3 -- Stock Purchase Agreement, dated as of May 26, 1997, between DAKA
International, Parent, Compass Interim, First Chicago Equity Corporation,
Cross Creek Partners I and the other holders of Series A Preferred Stock of
DAKA International...........................................................
10.4 -- Form of the Registrant's 1997 Stock Option and Incentive Plan................
10.5 -- Form of the Registrant's 1997 Stock Purchase Plan............................
10.6 -- Form of Indemnification Agreement, by and between the Registrant and
directors and officers of DAKA International.................................
20.1 -- Form of Letter to Stockholders of DAKA International.........................
21.1 -- List of Subsidiaries of the Registrant.......................................
23.1 -- Consent of Deloitte & Touche LLP.............................................
23.2 -- Consent of Arthur Andersen LLP...............................................
27.1 -- Financial Data Schedule......................................................
</TABLE>
<PAGE> 5
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, as amended, the registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized.
UNIQUE CASUAL RESTAURANTS, INC.
By: /s/ WILLIAM H. BAUMHAUER
-----------------------------------
Name: William H. Baumhauer
Title: Chairman, Chief Executive
Officer and President
Date: June 3, 1997
<PAGE> 6
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT
INFORMATION STATEMENT
UNIQUE CASUAL RESTAURANTS, INC.
COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
This Information Statement is being furnished in connection with the
distribution (the "Distribution") by DAKA International, Inc. ("DAKA
International") to holders of record as of June 24, 1997 or such later date that
is the earliest reasonably practicable date after Purchaser (as defined below)
notifies DAKA International of the Offer Closing Time (as defined below) (the
"Distribution Record Date") of shares of common stock (the "DAKA Common Stock")
of DAKA International, par value $.01 per share (the "DAKA Shares") and the
holders of record as of the Distribution Record Date of shares of Series A
Preferred Stock of DAKA International, par value .01 per share (the "Series A
Preferred Stock"), of one share of common stock (the "UCRI Common Stock"), par
value $.01 per share (the "UCRI Shares"), of Unique Casual Restaurants, Inc.
(the "Company"), a Delaware corporation and wholly owned subsidiary of DAKA
International, for each DAKA Share, and 22.222 UCRI Shares for each share of
Series A Preferred Stock, owned on the Distribution Record Date.
DAKA International entered into an Agreement and Plan of Merger dated as of
May 27, 1997 (the "Merger Agreement") with Compass Group PLC, a public limited
company incorporated in England and Wales ("Parent"), Compass Holdings, Inc., a
Delaware corporation and a wholly owned subsidiary of Parent ("Purchaser"), and
Compass Interim, Inc., a Delaware corporation and a wholly owned subsidiary of
Purchaser ("Compass Interim"), pursuant to which Purchaser agreed, upon the
satisfaction of certain conditions, to commence a tender offer (the "Offer") for
all of the outstanding DAKA Shares. Immediately prior to the consummation of the
Offer (the "Offer Closing Time"), pursuant to a plan of contribution and
distribution as described in the Reorganization Agreement (the "Reorganization
Agreement"), dated as of May 27, 1997, by and among DAKA International, Daka,
Inc., a Massachusetts corporation and a wholly owned subsidiary of DAKA
International ("Daka"), the Company and Parent, DAKA International intends to
undertake a series of transactions to transfer all of the restaurant operations
and franchising businesses of DAKA International and its subsidiaries, including
the Fuddruckers and Champps restaurant chains and certain other assets and
liabilities of DAKA International and Daka (the "Restaurant Business") to the
Company (the "Contribution") and, thereafter, to effect the Distribution. After
giving effect to the foregoing transactions, the assets of DAKA International
will consist only of the food catering, contract catering and vending businesses
of DAKA International as conducted primarily by Daka, excluding accounts
receivable and accounts payable (the "Foodservice Business").
Following consummation of the Offer, and subject to certain conditions
(including stockholder approval, if required by applicable law), Compass Interim
will merge with and into DAKA International (the "Merger") and DAKA
International will become a wholly owned subsidiary of Purchaser. The Company
contemplates that the date on which DAKA International will effect the
Distribution will be on or about the same date on which DAKA Shares are accepted
for purchase and paid for by Purchaser pursuant to the Offer. At the effective
time of the Merger (the "Merger Effective Time") each DAKA Share then
outstanding (other than DAKA Shares held by Parent, Purchaser or any other
wholly owned subsidiary of Parent and DAKA Shares held by stockholders who
perfect their dissenters' rights under Delaware law) will be converted into the
right to receive $7.50 in cash or any higher price per DAKA Share paid in the
Offer.
The Distribution is conditioned upon, among other things, the satisfaction
or waiver of all of the conditions to the Offer other than the condition that
the Distribution shall have become effective in accordance with the terms of the
Reorganization Agreement. The Offer is conditioned upon, among other things,
there being validly tendered and not withdrawn DAKA Shares which, when added to
the shares then beneficially owned by Parent and its affiliates, constitute at
least two-thirds of the sum of the total number of DAKA Shares then outstanding
plus the number of DAKA Shares then issuable upon conversion of the Series A
Preferred Stock and represent at least two-thirds of the voting power of all
shares of capital stock of DAKA International that would be entitled to vote on
the Merger. In order to receive UCRI Shares in the Distribution, record holders
of DAKA Shares and shares of Series A Preferred Stock must either tender such
shares pursuant to the Offer (and not subsequently withdraw and sell or
otherwise transfer such shares) or otherwise remain the record holder of such
shares on the Distribution Record Date. In addition, holders of options to
purchase DAKA Shares ("DAKA Stock Options") who exercise options on or prior to
the Distribution Record Date will be entitled to receive UCRI Shares in the
Distribution, in addition to the DAKA Shares issuable upon such exercise. If the
conditions to the Offer other than the condition that the Distribution shall
have become effective in accordance with the terms of the Reorganization
Agreement are not satisfied or waived in accordance with the Merger Agreement,
DAKA International does not presently intend to effect the Distribution.
No consideration will be paid by DAKA International's stockholders for the
UCRI Shares. As a result of the Distribution, the Company will cease to be a
subsidiary of DAKA International and will operate as an independent,
publicly-held company. There is no current public trading market for the UCRI
Shares, although it is expected that a "when-issued" trading market will develop
on or about the Distribution Record Date. The Company has applied for listing of
the UCRI Common Stock on the Nasdaq National Market ("Nasdaq") under the symbol
"UCRI."
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN MATTERS THAT SHOULD BE
CONSIDERED BY RECIPIENTS OF UCRI SHARES.
A copy of this Information Statement may be obtained without charge by
writing to Unique Casual Restaurants, Inc., One Corporate Place, 55 Ferncroft
Road, Danvers, Massachusetts 01923, Attention: General Counsel.
------------------------
NO VOTE OF STOCKHOLDERS IS REQUIRED IN CONNECTION WITH THIS DISTRIBUTION. WE ARE
NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
------------------------
The date of this Information Statement is June 3, 1997.
<PAGE> 7
ADDITIONAL INFORMATION
Upon completion of the Distribution, the Company will be, and until the
effective date of the Merger, DAKA International is expected to be subject to
the informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in accordance therewith reports, proxy
statements and other information have been or will be filed with the Securities
and Exchange Commission (the "Commission"). The reports, proxy statements and
other information filed by the Company or DAKA International with the Commission
may be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, as well
as at the Regional Offices of the Commission at Northwest Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, Suite 1300, 13th Floor, New York, New York 10048. The Commission also
maintains a web site (http://www.sec.gov) containing reports, proxy statements
and other information regarding registrants that file such material
electronically through the Commission's Electronic Data Gathering, Analysis and
Retrieval (EDGAR) system. Copies of such information can be obtained by mail
from the Public Reference Branch of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Application has been made for
listing of the Common Stock on Nasdaq. When listed, certain reports, proxy
statements and certain other information filed by the Company can also be
inspected at the offices of Nasdaq Operations, 1735 K Street, N.W., Washington,
D.C. 20006.
The Company has filed a Registration Statement on Form 10 with the
Commission under the Exchange Act with respect to the UCRI Shares being received
by DAKA International stockholders in the Distribution. This Information
Statement does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto, to which reference is hereby
made. Statements made in this Information Statement as to the contents of any
contract, agreement or other document referred to herein are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to such exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference.
The Registration Statement and the exhibits thereto filed by the Company
with the Commission may be inspected and copied at prescribed rates at the
public reference facilities of the Commission described above and are also
publicly available through the Commission's web site (http://www.sec.gov).
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS INFORMATION STATEMENT, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. NEITHER THE DELIVERY OF THIS INFORMATION STATEMENT NOR
ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL IMPLY THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF DAKA
INTERNATIONAL OR THE COMPANY SINCE THE DATE HEREOF.
<PAGE> 8
INFORMATION STATEMENT
TABLE OF CONTENTS
PAGE
----
SUMMARY.................................................................. 1
SUMMARY HISTORICAL COMBINED FINANCIAL DATA............................... 4
RISK FACTORS............................................................. 5
THE OFFER, THE MERGER AND CERTAIN RELATED TRANSACTIONS................... 10
THE REORGANIZATION....................................................... 19
OTHER AGREEMENTS......................................................... 23
MARKET FOR SHARES........................................................ 29
DIVIDEND POLICY.......................................................... 29
FEDERAL INCOME TAX CONSIDERATIONS........................................ 30
PRO FORMA CAPITALIZATION................................................. 32
UNAUDITED PRO FORMA COMBINED BALANCE SHEET............................... 33
SELECTED HISTORICAL COMBINED FINANCIAL DATA.............................. 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.................................................. 37
BUSINESS................................................................. 47
MANAGEMENT............................................................... 60
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................... 71
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........... 72
DESCRIPTION OF THE COMPANY'S CAPITAL STOCK............................... 73
HART-SCOTT-RODINO FILING REQUIREMENT..................................... 76
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS.................. 76
INDEPENDENT AUDITORS..................................................... 77
INDEX TO COMBINED FINANCIAL STATEMENTS................................... F-1
i
<PAGE> 9
- --------------------------------------------------------------------------------
SUMMARY
The following is a summary of certain information contained elsewhere in
this Information Statement. Reference is made to, and this summary is qualified
by, the more detailed information set forth in this Information Statement, which
should be read in its entirety. Unless the context otherwise requires, (i)
references in this Information Statement to DAKA International and the Company
shall include DAKA International's and the Company's respective subsidiaries
after the Distribution and (ii) references in this Information Statement to the
Company prior to the Distribution Date shall refer to the Restaurant Business as
operated by DAKA International.
This Information Statement contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Exchange Act. The Company's actual results could differ materially
from those set forth in such forward-looking statements. Certain factors, among
others, which may cause such a difference are set forth below under the heading
"Risk Factors" and under "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
THE COMPANY
The Company is a Delaware corporation, which, following the Contribution,
will own all of the assets (the "Transferred Assets") previously used by DAKA
International and its subsidiaries to operate the Restaurant Business as well as
the trade accounts receivable, subject to the trade accounts payable and certain
other obligations of Daka. The Company will be a diversified restaurant company
serving primarily the casual dining market and conducting most of its operations
through its wholly owned subsidiaries, Fuddruckers, Inc., a Texas corporation,
("Fuddruckers") and Champps Entertainment, Inc., a Minnesota corporation,
("Champps"). Fuddruckers owns, operates and franchises "Fuddruckers"
restaurants, which specialize in moderately priced, casual dining for families
and adults. Champps owns, licenses and franchises "Champps Americana"
restaurants, which specialize in providing an entertaining, energetic and casual
theme dining experience to a broad customer base. Following the Distribution,
the Company will own other restaurant business assets formerly owned directly or
indirectly by DAKA International, including equity interests in La Salsa Holding
Co. ("La Salsa Holding"), French Quarter Coffee Co. ("French Quarter"), and The
Great Bagel and Coffee Company ("Great Bagel and Coffee"). La Salsa is the
franchisor and operator of "La Salsa" Mexican restaurants. 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.
The Company's principal executive offices are located at One Corporate
Place, 55 Ferncroft Road, Danvers, Massachusetts 01923, and its telephone number
is (508) 774-9115.
THE REORGANIZATION, THE OFFER, THE MERGER AND CERTAIN RELATED TRANSACTIONS
The Offer
Pursuant to the Merger Agreement, Purchaser agreed to commence, and on May
29, 1997 did commence, the Offer, pursuant to which Purchaser offered to
purchase all outstanding DAKA Shares at $7.50 per share, net to the seller in
cash, upon the terms and subject to the conditions set forth in the Merger
Agreement. The Offer is conditioned upon, among other things, there being
validly tendered and not withdrawn DAKA Shares which, when added to the shares
then beneficially owned by Parent and its affiliates, constitute at least
two-thirds of the sum of the total number of DAKA Shares then outstanding plus
the number of shares then issuable upon conversion of the Series A Preferred
Stock and represent at least two-thirds of the voting power of all shares of
capital stock of DAKA International that would be entitled to vote on the
Merger. Conditioned upon consummation of the Offer, Purchaser also agreed to
purchase all outstanding shares of Series A Preferred Stock at a price equal to
$7.50 in cash multiplied by the number of DAKA Shares issuable upon conversion
of the Series A Preferred Stock. It is expected that the Distribution will be
made immediately prior to the time at which the DAKA Shares are accepted and
paid for by Purchaser pursuant to the Offer.
- --------------------------------------------------------------------------------
<PAGE> 10
The Contribution and Distribution
Pursuant to the provisions of the Reorganization Agreement, immediately
prior to the consummation of the Offer, DAKA International intends to transfer
all of the Transferred Assets to the Company. DAKA International will declare a
dividend (conditioned upon consummation of the Offer) of one UCRI Share for each
DAKA Share of record as of the Distribution Record Date. After giving effect to
the foregoing transactions, the assets of DAKA International will consist only
of the Foodservice Business and the accounts receivable of Daka. The
Distribution is conditioned upon the satisfaction or waiver of a number of
conditions, including, without limitation, the satisfaction or waiver of the
conditions to the consummation of the Offer other than the condition that the
Distribution shall have become effective in accordance with the terms of the
Reorganization Agreement. See "The Reorganization." As a result, in the Offer
and Distribution taken together, each stockholder of DAKA International who
tenders DAKA Shares pursuant to the Offer will receive $7.50 in cash from
Purchaser and one UCRI Share from DAKA International for each DAKA Share
tendered.
The Merger
The Merger Agreement provides that, following the completion of the Offer
and the satisfaction or waiver of the other conditions to the Merger, Compass
Interim will be merged with and into DAKA International, with DAKA International
being the surviving corporation (the "Surviving Corporation"). At the Merger
Effective Time each DAKA Share then outstanding (other than DAKA Shares held by
Parent, Purchaser or any other wholly owned subsidiary of Parent and DAKA Shares
held by stockholders who perfect their dissenters' rights under Delaware law)
will be converted into the right to receive $7.50 in cash or any higher price
per DAKA Share paid in the Offer. See "The Offer, the Merger and Certain Related
Transactions -- The Merger."
Conditions
Consummation of the Offer is conditioned upon, among other things, (i)
there being validly tendered and not withdrawn DAKA Shares which, when added to
the shares then beneficially owned by Parent and its affiliates, constitute at
least two-thirds of the sum of the total number of DAKA Shares then outstanding
plus the number of shares then issuable upon conversion of the Series A
Preferred Stock and represent at least two-thirds of the voting power of all
shares of capital stock of DAKA International that would be entitled to vote on
the Merger, (ii) the Distribution Record Date having been set, and (iii) the
satisfaction or waiver of the conditions to the Distribution.
The Distribution is conditioned upon, among other things, (i) the
satisfaction or waiver of all of the conditions to the Offer other than the
condition that the Distribution shall have become effective in accordance with
the terms of the Reorganization Agreement, (ii) the Distribution Record Date
having been set by the Board of Directors of DAKA International (the "DAKA
International Board"), and (iii) notification to DAKA International by Purchaser
that it is prepared to immediately consummate the Offer. Accordingly, it is
expected that the Distribution will be effected on or about the same time as the
consummation of the Offer.
The Merger is conditioned upon, among other things, the Distribution and
consummation of the Offer. If the conditions to the Offer, other than the
condition that the Distribution shall have become effective in accordance with
the terms of the Reorganization Agreement, are not satisfied or waived in
accordance with the Merger Agreement, DAKA International does not presently
intend to effect the Distribution.
TERMS OF DISTRIBUTION
Capitalized terms used in this Terms of Distribution and not otherwise
defined herein, shall have the meanings ascribed thereto in the Information
Statement.
Distributed Company........ Unique Casual Restaurants, Inc., a Delaware
corporation.
2
<PAGE> 11
UCRI Shares
Being Distributed........ Approximately 11,148,300 million UCRI Shares,
subject to increase or decrease upon the exercise
or cancellation of outstanding DAKA Stock Options
prior to the Distribution Record Date and excluding
264,701 UCRI Shares to be distributed to holders of
Series A Preferred Stock pursuant to the terms of
such preferred stock. See "The
Reorganization -- Treatment of DAKA Stock Options."
Conditions to the
Distribution............... The Distribution is subject to a number of
conditions, including, among other things, the
satisfaction or waiver of all of the conditions to
the Offer other than the condition that the
Distribution shall have become effective in
accordance with the terms of the Reorganization
Agreement, and it is expected to be effected on or
about the same date on which DAKA Shares are
accepted for purchase and paid for by Purchaser
pursuant to the Offer. See "The
Reorganization -- The Distribution -- Conditions to
the Distribution."
Distribution Record Date... To be determined by the DAKA International Board;
currently anticipated to be on or about June 24,
1997.
Distribution of UCRI
Shares..................... One UCRI Share is proposed to be distributed in
respect of each DAKA Share outstanding on the
Distribution Record Date. Holders of DAKA Stock
Options who exercise options on or prior to the
Distribution Record Date will be entitled to
receive UCRI Shares in the Distribution in addition
to the DAKA Shares issuable upon such exercise. See
"The Reorganization -- Treatment of DAKA Stock
Options."
Series A Preferred Stock... Pursuant to the Certificate of Designation, holders
of Series A Preferred Stock have the right to
receive dividends declared on the DAKA Common Stock
and, accordingly, will receive UCRI Shares pursuant
to the Distribution. See "Other
Agreements -- Series A Preferred Stock."
Tax Consequences........... The Distribution will be a taxable transaction to
DAKA International stockholders for federal income
tax purposes, and may also be a taxable transaction
for state, local and other tax purposes. See
"Federal Income Tax Considerations."
Trading Market -- The UCRI
Common Stock............. The Company has applied for listing of the UCRI
Common Stock on the Nasdaq National Market. A "when
issued" trading market for the UCRI Shares on
Nasdaq is expected to develop on or about the
Distribution Record Date. See "Market for Shares."
Distribution Date.......... The Company contemplates that the date on which the
Distribution will be effected (the "Distribution
Date") will be on or about the same date on which
DAKA Shares are accepted for purchase and paid for
by Purchaser pursuant to the Offer. Actual delivery
of stock certificates will be made as soon as
practicable following the Distribution Date. See
"The Reorganization -- The Distribution."
Hart-Scott-Rodino Filing Requirement
Any person receiving UCRI Shares pursuant to the Distribution and meeting
certain criteria may be required to file a Premerger Notification and Report
pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and observe the applicable waiting periods under the HSR Act.
If such waiting periods have not expired or been terminated at the Distribution
Date with respect to such recipient, the Company may be required to deliver such
recipients's UCRI Shares into an escrow facility pending the expiration or
termination of such waiting period. See "Hart-Scott-Rodino Filing Requirement."
3
<PAGE> 12
SUMMARY HISTORICAL COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table presents summarized combined historical statements of
operations and balance sheet data of the Company. The balance sheet data
presented below as of June 29, 1996 and July 1, 1995 and the statements of
operations data presented below for each of the fiscal years in the three-year
period ended June 29, 1996 are derived from the Company's audited combined
financial statements included herein. The balance sheet data as of July 3, 1994,
June 26, 1993, June 27, 1992, March 29, 1997 and March 30, 1996 and the
statements of operations data for the two years ended June 26, 1993 and for the
nine months ended March 29, 1997 and March 30, 1996, respectively, were derived
from the Company's accounting records, which, in the opinion of the Company's
management, have been prepared on the same basis as the Company's audited
historical combined financial statements and include all adjustments (consisting
only of normal recurring adjustments and accruals) necessary for a fair
presentation thereof.
The operating results for the nine months ended March 29, 1997 are not
necessarily indicative of the results that may be expected for the entire year.
The summarized historical combined financial data should be read in conjunction
with the combined financial statements and related notes thereto for the Company
and "Management's Discussion and Analysis of Results of Operations and Financial
Condition" included elsewhere in this Information Statement.
<TABLE>
<CAPTION>
AS OF AND FOR THE
AS OF AND FOR THE FISCAL YEAR ENDED NINE MONTHS ENDED
---------------------------------------------------- ---------------------
JUNE 29, JULY 1, JULY 3, JUNE 26, JUNE 27, MARCH 29, MARCH 30,
1996 1995 1994 1993 1992 1997 1996
-------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.............................. $183,755 $137,730 $100,677 $ 83,723 $56,309 $152,360 $135,043
Income (loss) from continuing operations
before income taxes and minority
interests................................. (6,931) 4,697 3,980 (38) (398) (12,333) (4,148)
Income (loss) from continuing operations.... (5,670) 1,798 1,300 361 (1) (8,548) (3,828)
Net income (loss)........................... (5,670) 1,798 1,300 361 (1) (8,548) (3,828)
Pro forma loss per share.................... (0.50) -- -- -- -- (0.75) --
BALANCE SHEET DATA:
Total assets................................ 142,348 102,431 78,365 52,517 41,072 147,963 131,145
Long term debt, including current portion... 6,366 4,009 3,372 3,253 14,703 5,098 8,115
-------- -------- -------- -------- -------- -------- --------
Group equity................................ 108,894 73,979 57,666 39,921 17,784 110,612 94,980
</TABLE>
4
<PAGE> 13
RISK FACTORS
The following risk factors should be considered carefully in addition to
the other information contained in this Information Statement.
ABSENCE OF HISTORY AS AN INDEPENDENT COMPANY
The Company was formed for the purpose of effecting the Distribution in
order to divest DAKA International of the Transferred Assets, including the
Restaurant Business in connection with the Offer. The Distribution is a
condition of the Offer required by Purchaser. The Company does not have an
operating history as a separate entity. Accordingly, the combined financial
statements included herein may not necessarily reflect the results of
operations, financial position and cash flows of the Restaurant Business had the
Company been operated as a separate entity during the periods presented.
SIGNIFICANT RECENT OPERATING LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY
The Company has incurred significant operating losses over the past two
years and had a loss before income tax benefit and minority interests of
approximately $12.3 million for the nine months ended March 29, 1997. While the
Company believes it has strategies that will give it the best opportunity to
return to overall profitability, there can be no assurance that such strategies
will be implemented within the anticipated time frame or at all or, if
implemented, will be successful. Accordingly, the Company may continue to incur
substantial and increasing operating losses over the next several years. The
amount of net operating losses and the time required by the Company to reach
sustained profitability are highly uncertain, and to achieve profitability the
Company must, among other things, address operational issues in the Fuddruckers
restaurant chain, successfully reduce selling, general and administrative
expenses as a percentage of sales from historical levels while continuing to
increase net revenues from its existing restaurants and successfully execute its
growth strategy for the Champps Americana restaurant chain. There can be no
assurance that the Company will be able to achieve profitability at all or on a
sustained basis.
LIMITED CAPITAL; NEED FOR BANK FINANCING
DAKA International historically funded the Company's operations and capital
expenditures. At March 29, 1997, DAKA International had approximately $103.6
million outstanding under its bank credit facility. It is a requirement of the
Offer that Parent assume such debt and repay it in full upon consummation of the
Offer. As a result, following the Distribution, the Company is expected to have
no bank debt, though the Company anticipates obtaining a credit facility for
working capital purposes after the Distribution. After the Distribution, the
Company will continue to be obligated under sale-leaseback financing and
equipment financing in connection with Company-owned restaurants. While the
Company currently believes that a curtailment of restaurant expansion in its
Fuddruckers restaurant chain, improved cash flows from operations, existing cash
balances and working capital, available sale-leaseback financing and equipment
financing will provide sufficient liquidity to meet its short-term obligations
and fund capital expenditures, the Company expects to be required to raise
additional funds through bank financings or other means to meet its longer term
needs. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations." Following the Distribution, the Company will be
responsible for obtaining its own financing. The Company has never obtained its
own financing. There can be no assurance that any such additional funding will
be available to the Company or, if available, that it will be on reasonable
terms.
ABSENCE OF PRIOR TRADING MARKET FOR THE COMMON STOCK
There has not been any established public market for the trading of the
UCRI Common Stock, although it is expected that a "when-issued" trading market
will develop on or about the Distribution Record Date. The Company has applied
for listing of the UCRI Common Stock on Nasdaq. There can be no assurance,
5
<PAGE> 14
however, that such listing application will be approved by Nasdaq by the
Distribution Date, if at all. There also can be no assurance that a liquid
trading market for the UCRI Common Stock will develop, or that listing of the
UCRI Common Stock on Nasdaq will be maintained. There also can be no assurance
as to the prices at which the UCRI Common Stock will trade before or after the
Distribution Date. Until the UCRI Common Stock is fully distributed and an
orderly market develops, the prices at which UCRI Shares trade may fluctuate
significantly. Prices for UCRI Shares will be determined in the marketplace and
may be influenced by many factors other than the financial performance and
prospects of the Company, including the depth and liquidity of the market for
UCRI Shares, investor perception of the Company and the industry in which the
Company participates and general economic and market conditions. See "Market for
Shares."
RISKS RELATED TO TRANSITIONAL ARRANGEMENTS
In connection with the Distribution, the Company and DAKA International
will enter into a Transitional Services Agreement relating to, among other
things, the allocation or sharing for a period of up to 18 months (subject to
certain extensions at the option of Purchaser) of (i) employees, (ii) overhead
support services, (iii) leased office facilities, (iv) management information
support services, (v) software, (vi) accounting and payroll resources, and (vii)
record keeping resources (collectively, the "Transitional Arrangements"). Such
arrangements could place significant strain on the Company's management,
customer service and support, operations and administrative personnel and
resources for a considerable period of time. The Company's ability to manage the
Transitional Arrangements depends on the Company's success in organizing,
managing and structuring operating, management, information and financial
systems, which may adversely impact the Company's ability to reorganize its
corporate and support functions and to reduce its selling, general and
administrative expenses. Under the terms of the Merger Agreement, the Company
will assume the obligations of DAKA International under the lease with respect
to the Company's headquarters in Danvers, Massachusetts.
In addition, for a period of four months after the Offer Closing Time,
Purchaser will act as agent of the Company with respect to the collection of the
trade receivables of Daka assigned to the Company as part of the Transferred
Assets and the payment of the trade payables of Daka for which the Company has
agreed to retain full liability. Under the terms of this agency arrangement,
Purchaser will have significant control over the method of collection of the
trade receivables and the remittance of any net cash flow therefrom to the
Company. Significant delays in the remittance of such net cash flow by Purchaser
or other events that may affect the timing or the amounts of cash collections by
Purchaser as agent on behalf of the Company could have a material adverse effect
on the Company.
RISKS RELATED TO ASSUMED LIABILITIES AND INDEMNIFICATION OBLIGATIONS
The Company has assumed significant obligations and liabilities in
connection with the Contribution, including, among other things, liabilities in
connection with claims for severance pay benefits under the DAKA International,
Inc. Severance Pay Program prior to the Offering Closing Time, obligations under
DAKA International insurance policies based on occurrences prior to the Offer
Closing Time and liabilities for welfare benefit claims incurred on or prior to
the Offering Closing Time under DAKA International welfare plans. See "The
Reorganization." In addition, the Company has agreed to indemnify, among others,
the Purchaser for Indemnifiable Losses (as defined in the Post-Closing Covenants
Agreement) relating to or arising from events, occurrences and actions occurring
or existing prior to the Offer Closing Time, including liabilities related to
pending litigation, litigation commenced after the Offer Closing Time but
relating to actions, events or occurrences before the Offer Closing Time and
numerous other contingencies related to the conduct of the Foodservice Business
before the Offer Closing Time. See "Business -- Legal Proceedings." The scope
and amount of such liabilities is subject to a high degree of uncertainty and
risk, and the Company is not in a position to quantify such liabilities or
anticipate whether or when such liabilities may become due. Under the terms of
the Merger Agreement and related agreements, the Company is required to
collateralize or otherwise ensure for the benefit of Purchaser its ability to
meet its obligations with respect to its indemnification obligations under the
Post-Closing Covenants Agreement dated as of May 27, 1997, by and among DAKA
International, Daka, the Company, Champps, Fuddruckers, Purchaser and Parent
(the "Post
6
<PAGE> 15
Closing Covenants Agreement") and other liabilities. Such requirement may reduce
the Company's access to cash balances for a significant period of time after the
Distribution and may also constrain the Company's cash flow. The timing and
ultimate aggregate amount of such liabilities and obligations could have a
material adverse effect on the results of operations, cash flows and financial
condition of the Company.
PENDING LITIGATION
Under the Post-Closing Covenants Agreement the Company has agreed to assume
full liability in connection with all costs, losses, liabilities and damages
related to the purported class action lawsuit filed against DAKA International
in the United States District Court for the District of Massachusetts on behalf
of persons who acquired DAKA Common Stock between October 30, 1995 and September
9, 1996 (Venturino et al. v. DAKA International, Inc. and William H. Baumhauer,
Civil Action No. 96-12109-GAO) (the "Venturino Lawsuit") and has agreed to
indemnify DAKA International for all losses and damages related to such lawsuit.
See "Business -- Legal Proceedings." There can be no assurance that the
Venturino Lawsuit will not result in significant litigation costs or damages
being ultimately awarded to the plaintiffs, which could have a material adverse
effect on the Company.
RELIANCE ON KEY PERSONNEL
The business of the Company is dependent upon its ability to attract and
retain highly qualified managerial personnel. Competition for such personnel is
intense, and following the Distribution the Company and DAKA International may
compete with each other as well as third parties for such personnel. There can
be no assurance regarding the impact of the Distribution on the ability of the
Company to retain its key managerial personnel or to attract, assimilate or
retain such personnel in the future. The inability of the Company to attract and
retain such personnel could have a material adverse effect on the business,
results of operations and financial condition of the Company.
COMMON STOCK ELIGIBLE FOR RESALE
Except for UCRI Shares received by persons who may be deemed to be
"affiliates" of the Company under the Securities Act of 1933, as amended (the
"Securities Act"), the Company expects the UCRI Shares issued in the
Distribution to be eligible for immediate resale. To the extent that
stockholders of the Company elect to sell a significant number of UCRI Shares
within a short period of time after the Distribution, such sales could have an
adverse impact on the market price of the UCRI Common Stock. The impact of such
sales may be increased by the limited volume of trading in UCRI Common Stock and
the resulting volatility in the market price of UCRI Common Stock. See "Market
for Shares."
COMPETITION
The casual dining restaurant industry is highly competitive. There are a
significant number of restaurant businesses that compete directly and indirectly
with the Company's Fuddruckers and Champps Americana restaurant chains in their
respective markets. Many of these entities are well-established and have
significantly greater financial, marketing, higher total sales volume and
profits and other resources than does the Company. Increasingly, other companies
are utilizing the concept of casual entertainment restaurants in a manner
similar to the Company, and, as a result, the Company expects to encounter
increased competition in the future. Such increased competition may have an
adverse effect on the Company's operating results. In addition to other
restaurant companies, the Company competes with numerous other businesses for
suitable locations for its restaurants. See "Business -- Competition."
QUARTERLY FLUCTUATIONS AND SEASONALITY AND OTHER CONDITIONS
In recent periods the Company's Fuddruckers restaurant chain has
experienced operational difficulties which have impacted its profitability. The
Company's Champps Americana restaurant chain is in the expansion phase. The
timing of revenues and expenses associated with the opening of new restaurants
or the
7
<PAGE> 16
closing or repositioning of existing restaurants are expected to result in
fluctuations in the Company's quarterly results. In addition, the Company's
results, and the results of the restaurant industry as a whole, may be adversely
affected by changes in consumer tastes, discretionary spending priorities,
national, regional or local economic conditions, demographic trends, consumer
confidence in the economy, traffic patterns, weather conditions, employee
availability and the type, number and location of competing restaurants. Changes
in any of these factors could adversely affect the Company. In addition, the
Company's restaurants are dependent on frequent deliveries of food supplies and
any shortages of such supplies or interruptions could have an material adverse
effect on the Company.
POTENTIAL INCREASES IN FOOD AND LIQUOR COSTS
Among other factors, the success of the Company's business and its
operating results are dependent upon its ability to anticipate and react to
changes in food and liquor costs and, particularly for Champps Americana
restaurants, the mix between food and liquor revenues. Various factors beyond
the Company's control, such as adverse weather changes, may affect food costs
and increases in federal, state and local taxes may affect liquor costs. While
in the past Fuddruckers and Champps have been able to manage their exposure to
the risk of increasing food and liquor costs through certain purchasing
practices, menu changes and price adjustments, there can be no assurance that
the Company will be able to do so in the future or that changes in its sales mix
or its overall buying power will not adversely affect the Company's results of
operations.
GOVERNMENT REGULATION
The Company is subject to numerous federal, state and local laws affecting
its business. Each restaurant location is subject to licensing and regulation by
a number of governmental authorities, which may include alcoholic beverage
control, health and safety and fire agencies in the state or municipality in
which each of the Company's restaurant units is located. Each restaurant is
required to obtain, directly or indirectly, a license to sell alcoholic
beverages on the premises from a state authority and, in certain locations,
county and municipal authorities. Typically, licenses must be renewed annually
and may be revoked or suspended for cause at any time. Alcoholic beverage
control regulations govern numerous aspects of the daily operations of each
entertainment restaurant location, including the minimum age of patrons and
employees, hours of operations, advertising practices, wholesale purchasing,
inventory control and handling, and storage and dispensing of alcoholic
beverages or relating to alcoholic beverage licenses to date. The failure to
receive or retain a liquor license in a particular locations could adversely
affect the Company's ability to obtain such a license elsewhere.
The Company is subject to "dram-shop" statutes in the states in which its
restaurants are located. These statutes generally provide a person injured by an
intoxicated person with the right to recover damages from an establishment which
wrongfully served alcoholic beverages to the intoxicated individual. The Company
intends to carry liquor liability coverage as part of its existing comprehensive
general liability insurance, which coverage the Company believes is consistent
with that carried by other entities serving alcoholic beverages. Although the
Company intends to be covered by insurance, a judgment against the Company under
a dram-shop statute in excess of the Company's liability coverage could have a
material adverse effect on the Company.
Various federal and state labor laws govern the Company's relationship with
its employees, including such matters as minimum wage requirements, overtime and
other working conditions. Significant additional government-imposed increases in
minimum wages, paid leave of absence and mandated health benefits, or increased
tax reporting and tax payment requirements for employees who receive gratuities,
could be detrimental to the economic viability of the Company's operations. In
addition, the Company is subject to extensive rules and regulations with respect
to discriminatory practices and accommodation of persons with disabilities. See
"Business -- Government Regulation."
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BY-LAWS
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation (the "Certificate") and Amended and Restated By-laws (the
"By-laws"), certain sections of the Delaware General
8
<PAGE> 17
Corporate Law (the "DGCL"), and the ability of the Company's Board of Directors
(the "Board") to issue shares of the Company's preferred stock (the "Preferred
Stock") and to establish the voting rights, preferences and other terms thereof
without further stockholder action, may be deemed to have an antitakeover effect
and may discourage takeover attempts not first approved by the Board (including
takeovers which stockholders may deem to be in their best interests). Such
provisions include, among other things, a classified Board serving staggered
three year terms, the elimination of stockholder voting by written consent, the
removal of directors only for cause, the vesting of exclusive authority in the
Board to determine the size of the Board and (subject to certain limited
exceptions) to fill vacancies thereon, the vesting of exclusive authority in the
Board (except as otherwise required by law) to call special meetings of
stockholders, and certain advance notice requirements for stockholder proposals
and nominations for elections to the Board. These provisions, and the ability of
the Board to issue Preferred Stock without further action by stockholders, could
delay or frustrate the removal of incumbent directors or the assumption of
control by stockholders, even if such removal or assumption of control would be
beneficial to stockholders, and also could discourage or make more difficult a
merger, tender offer or proxy contest, even if such events would be beneficial,
in the short term, to the interests of stockholders. The Company is subject to
Section 203 of the DGCL which generally imposes restrictions on acquirors
(including their affiliates) of 15% or more of the UCRI Common Stock
outstanding.
DIVIDEND POLICY
The Company does not anticipate paying cash dividends on UCRI Common Stock
in the foreseeable future. The payment of dividends may be prohibited under any
future credit facility which the Company may obtain. See "Dividend Policy."
9
<PAGE> 18
THE OFFER, THE MERGER AND CERTAIN RELATED TRANSACTIONS
GENERAL
The following summary of the transactions contemplated by, and certain
terms of, the Merger Agreement does not purport to be complete and is qualified
in its entirety by reference to the full text of the Merger Agreement, (a copy
of which has been filed as an exhibit to the registration statement on Form 10
of which this Information Statement is a part).
THE OFFER
The Merger Agreement provides for the making of the Offer by Purchaser.
Purchaser has agreed to accept for payment and pay for all DAKA Shares tendered
pursuant to the Offer as soon as practicable following the Distribution Record
Date. The Distribution Record Date is expected to be June 24, 1997. Subject only
to the condition that no statute, rule, regulation, decree or injunction
initiated by a governmental entity would prohibit Purchaser from consummating
the Offer or the Merger, prohibit DAKA International from consummating the
Distribution, or have a Material Adverse Effect on DAKA International and Daka
as a whole, Purchaser has agreed to extend the period of time the Offer is open
until the first business day following the Distribution Record Date. The
obligation of Purchaser to accept for payment and pay for DAKA Shares tendered
pursuant to the Offer is subject to the satisfaction of the Distribution
Condition (as defined below), the Minimum Condition (as defined below) and
certain other conditions that are described below under "--Certain Conditions to
the Offer." Purchaser has agreed that, without the written consent of DAKA
International, no amendment to the Offer may be made which changes the form of
consideration to be paid or decreases the price per DAKA Share or the number of
DAKA Shares sought in the Offer or which imposes conditions to the Offer in
addition to the Distribution Condition, the Minimum Condition and the other
conditions described in Section 15 of the Merger Agreement or broadens the scope
of such conditions, and no other amendment may be made in the terms or
conditions of the Offer which is adverse to holders of DAKA Shares. The closing
of the Offer (the "Offer Closing") will take place immediately prior to the
Offer Closing Time upon the satisfaction or waiver of the conditions to the
Offer. The date of the Offer Closing shall be referred herein as the "Offer
Closing Date."
Certain Conditions to the Offer. Notwithstanding any other provision of
the Offer, Purchaser will not be required to purchase any DAKA Shares tendered,
and may terminate the Offer, if (i) immediately prior to the expiration of the
Offer (as extended in accordance with the terms of the Offer), (a) any
applicable waiting periods under the HSR Act and the Exon-Florio Amendment to
the Defense Production Act (the "Exon Florio Amendment") shall not have expired
or been terminated, (b) the condition that the Distribution Record Date has been
set (the "Distribution Condition") shall not have been satisfied, (c) the
condition that there have been validly tendered (including for this purpose DAKA
Shares that remain subject to guaranteed delivery procedures) and not withdrawn
prior to the Expiration Date (as defined below) a number of DAKA Shares which,
when added to the shares beneficially owned by Parent and its affiliates,
constitutes at least two-thirds of the sum of the total number of DAKA Shares
then outstanding plus the DAKA Shares then issuable upon conversion of the
Series A Preferred Stock and represents at least two-thirds of the voting power
of all shares of capital stock of DAKA International that would be entitled to
vote with respect to the Merger (the "Minimum Condition") shall not have been
satisfied, or (ii) prior to the acceptance for payment of DAKA Shares, any of
the following events shall occur:
(a) any of the representations or warranties of DAKA International
contained in the Merger Agreement shall not have been true and correct at
the date when made or (except for those representations and warranties made
as of a particular date which need only be true and correct as of such
date) shall cease to be true and correct at any time prior to consummation
of the Offer, except (i) where DAKA International has delivered to Parent a
certificate (the "DAKA International Bring-Down Certificate") dated as of
the Offer Closing Date that (x) updates any section of the disclosure
schedule previously delivered to Parent pursuant to the Merger Agreement so
long as such updated schedules taken as a whole do not constitute a
Material Adverse Change (as defined in the Merger Agreement) compared to
the original schedules, or (y) sets forth events or conditions that have
occurred since the
10
<PAGE> 19
date of the Merger Agreement which, if they had occurred or been in
existence as of the date of the Merger Agreement would be required to be
disclosed, so long as such events or conditions taken as a whole do not
constitute a Material Adverse Change or (ii) where the failure to be so
true and correct would not have a Material Adverse Effect (as defined in
the Merger Agreement) on DAKA International and Daka, taken as a whole, and
Parent shall not have received a certificate signed on behalf of DAKA
International by the chief financial officer to such effect; or
(b) any of the representations or warranties of DAKA International
contained in Sections 4.2(b), (c), (d), (e), (p) and (s) of the Merger
Agreement shall not have been true and correct at the date when made or
(except for those representations and warranties made as of a particular
date which need only be true and correct as of such date) shall cease to be
true and correct at any time prior to the consummation of the Offer, and
Parent shall not have received a certificate signed on behalf of DAKA
International by the chief executive officer and the chief financial
officer to such effect; or
(c) DAKA International shall have breached any of its covenants or
agreements contained in the Merger Agreement or any Ancillary Agreement (as
defined in the Merger Agreement), provided, however, that if any such
breach is curable by DAKA International or Daka through the exercise of
best efforts within five business days and so long as DAKA International or
Daka continues to use such best efforts, Purchaser may not terminate the
Offer until such five business day period has expired without the breach
being cured; or
(d) there shall be any statute, rule, regulation, decree, order or
injunction promulgated, enacted, entered or enforced, or any legal or
administrative proceeding initiated by any United States federal or state
government, governmental authority or court (other than the routine
application to the Offer, the Merger or the Distribution of waiting periods
under the HSR Act, the Exon-Florio Amendment or review by the Commission of
the Schedule 14D-1, Schedule 14D-9 or Form 10), which would (i) prohibit
Purchaser from consummating the Offer or the Merger, (ii) prohibit DAKA
International from consummating the Distribution or (iii) have a Material
Adverse Effect on DAKA International and Daka as a whole (provided that the
provisions of this clause (iii) shall only apply in the event of any
statute, rule, regulation, decree, order or injunction (A) which is enacted
or entered into following the date of the Merger Agreement and (B) the
substantive provisions of which were initially proposed for enactment
following the date of the Merger Agreement); or
(e) there shall have occurred (i) any general suspension of trading in
securities on the New York Stock Exchange or Nasdaq, (ii) a declaration of
a banking moratorium or any suspension of payments in respect of banks in
the United States, or (iii) a commencement of a war or armed hostilities
involving the United States, which in the case of any of the foregoing
clauses (i), (ii) or (iii) would have a Material Adverse Effect on DAKA
International and Daka taken as a whole; or
(f) either the Merger Agreement or the Reorganization Agreement shall
have been terminated in accordance with its terms; or
(g) DAKA International shall have failed to enter into license
agreements for each of the "French Quarter Coffee", "Leo's Deli" and "Good
Natured Cafe" names and marks, as provided in the Reorganization Agreement;
or
(h) Parent shall not have received an opinion dated the Merger Closing
Date (as defined below) of Goodwin, Procter & Hoar LLP, counsel to DAKA
International, in substantially the form attached to the Merger Agreement;
or
(i) there shall have been a Material Adverse Change, or an event shall
have occurred which could reasonably be expected to result in a Material
Adverse Change; or
(j) Parent shall not have received all consents or releases related to
the Foodservice Business or otherwise, necessary or appropriate to effect
the Contribution, the Distribution and the Merger and to release DAKA
International, Daka, Parent, Purchaser and Compass Interim and the assets
of the Foodservice Business from any obligation or liability, including,
without limitation, the Indebtedness (as
11
<PAGE> 20
defined in the Merger Agreement) except as may be otherwise expressly
permitted in the Merger Agreement or in the Ancillary Agreements (as
defined below); or
(k) any approval by a governmental entity in connection with the
transaction contemplated by the Merger Agreement and by the Ancillary
Agreements, including, without limitation, any approval under the HSR Act
or the Exon-Florio Amendment shall contain a requirement for the sale or
disposition of assets or conditions or limitations in connection with
Parent's acquisition of the Foodservice Business or operation of its
existing business and operations or the Foodservice Business after the
Offer Closing Time; or
(l) Allen R. Maxwell shall have indicated to DAKA International, Daka
or Parent that he does not intend to abide by the terms of his employment
agreement; or
(m) the Distribution shall not have become effective in accordance
with the terms of the Reorganization Agreement and each of the agreements
contemplated thereby; or
(n) the Company shall fail to have delivered to Parent indemnification
agreements in substantially the form attached as an exhibit to the
Reorganization Agreement concerning each executive officer and director of
the Company in form and substance reasonably satisfactory to Parent; or
(o) Parent shall be unable to pay in full the aggregate amount of
principal, accrued but unpaid interest and fees due under the Third Amended
and Restated Credit Agreement dated as of October 15, 1996 among DAKA
International, subsidiary guarantors, the bank party thereto and The Chase
Manhattan Bank, N.A., as Agent ("Chase Manhattan Bank"), as amended through
the date of the Merger Agreement (the "Credit Facility") or such amount
shall exceed $110,000,000; or
(p) releases of claims and indemnification rights in forms reasonably
satisfactory to Parent from each of William H. Baumhauer, Allen R. Maxwell,
Charles W. Redepenning, Jr., David G. Parker, Louis A. Kaucic, Donald C.
Moore and Dean P. Vlahos shall not have been delivered to Parent; or
(q) letters of resignation from each executive officer and director of
DAKA International other than Erline Belton and Joseph W. O'Donnell shall
not have been delivered to Parent; or
(r) DAKA International shall not have paid to Parent the amounts set
forth in Section 6.7 of the Merger Agreement, net of any amounts due from
Parent thereunder; or
(s) the Company shall have failed to enter into the Transition
Agreement as provided in the Post-Closing Covenants Agreement; or
(t) DAKA International shall have failed to have assigned or
transferred to the Company the Headquarters Lease (as defined in the Merger
Agreement).
The term "Ancillary Agreements" means the Reorganization Agreement, the
Post Closing Covenants Agreement, the Transition Agreement referred to in
Section 3.2 of the Post Closing Covenants Agreement, and the Tax Allocation
Agreement dated as of May 27, 1997, by and among DAKA International, Daka, the
Company, Champps, Fuddruckers, Purchaser and Parent (the "Tax Allocation
Agreement").
The term "Expiration Date" means 12:00 Midnight, New York City time, on
June 25, 1997, unless and until Purchaser, as provided below, will have extended
the period of time for which the Offer is open, in which event the term
"Expiration Date" means the latest time and date at which the Offer, as so
extended by Purchaser, will expire.
The foregoing conditions are for the sole benefit of Parent and may be
asserted by Parent regardless of the circumstances giving rise to such
conditions, or may be waived by Parent in whole or in part at any time and from
time to time in its sole discretion; provided that the conditions set forth in
clauses (i)(a), (b), (c) and (ii)(d) and (m) above may be waived only by mutual
consent of Purchaser and the Company.
No assurance can be given that all of these considerable conditions to the
consummation of the Offer will be fulfilled or waived by Parent or that the
Offer will be consummated.
12
<PAGE> 21
THE MERGER
The Merger Agreement provides that, following the purchase of DAKA Shares
pursuant to the Offer, and the satisfaction or waiver of the other conditions to
the Merger, Compass Interim will be merged with and into DAKA International. The
Merger Agreement provides that the Merger will become effective and the Merger
Effective Time will occur immediately following the Distribution upon the filing
of certificates of merger or other appropriate documents (in any such case, the
"Certificate of Merger") with the Delaware Secretary of State or at such other
time as agreed to by DAKA International and Purchaser and approved by the
independent directors of DAKA International. The Merger Agreement provides that
the closing of the Merger (the "Merger Closing") will take place within five
business days after the satisfaction or waiver of the conditions to the Merger
or such other date established by Purchaser and approved by the independent
directors of the Company. The parties have agreed to use reasonable best efforts
to cause the Merger Closing to occur immediately after the Offer Closing Time.
Otherwise Purchaser has agreed to use reasonable best efforts to cause the
Merger Closing to occur as soon as practicable after the Offer Closing. The date
of the Merger Closing is referred to in the Merger Agreement as the "Merger
Closing Date."
At the Merger Effective Time, (i) except as provided in (ii) below, each
DAKA Share issued and outstanding immediately prior to the Merger Effective Time
will be converted into the right to receive $7.50 in cash, or any higher price
paid per DAKA Share in the Offer, without interest (the "Merger Price"); (ii)(a)
each DAKA Share held in the treasury of DAKA International or held by any wholly
owned subsidiary of DAKA International (but not any Benefit Plan (as defined in
the Merger Agreement)) and each DAKA Share held by Purchaser, Compass Interim or
any wholly owned subsidiary of Parent, excluding, in each case, any such shares
held by the Company, Purchaser or any of their wholly owned subsidiaries in a
fiduciary, custodial or similar capacity immediately prior to the Merger
Effective Time will be canceled and retired and cease to exist; (b) each DAKA
Share held by any holder who has not voted in favor of the Merger or consented
thereto in writing and who has delivered a written demand for appraisal of such
DAKA Shares and perfected such appraisal rights, all in accordance with Section
262 of the DGCL will not be converted into or be exchangeable for the right to
receive the Merger Price (the "Dissenting Shares"); and (iii) each share of
common stock of Purchaser issued and outstanding immediately prior to the
Effective Date will be converted into and exchangeable for one share of common
stock of the Surviving Corporation.
Conditions to the Merger. The respective obligation of each party to the
Merger Agreement to effect the Merger is subject to the satisfaction or waiver
on or prior to the Merger Closing Date of a number of conditions, including the
following: (a) the Merger Agreement shall have been adopted by the affirmative
vote of the stockholders of DAKA International by the requisite vote in
accordance with applicable law, if required by applicable law, (b) no statute,
rule, regulation, order, decree, or injunction shall have been enacted, entered,
promulgated or enforced by any court or governmental authority which prohibits
or restricts the consummation of the Merger, (c) the Offer shall not have been
consummated, (d) the Distribution shall have become effective in accordance with
the terms of the Reorganization Agreement and each of the agreements
contemplated thereby, (e) no temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the consummation
of the Merger, the Contribution or the Distribution shall be in effect and no
such litigation or legal action shall have been threatened or shall be pending.
No action, suit or other proceeding shall be pending by any governmental entity
that, if successful, would restrict or prohibit the consummation of the Merger,
the Contribution or the Distribution; provided, however, that DAKA International
will not unreasonably withhold its waiver of the condition set forth in this
sentence upon Parent's request in the event such an action, suit or other
proceeding is pending with respect to the Merger alone.
Approval of DAKA International Stockholders. If required by applicable law
in order to consummate the Merger, DAKA International will duly call, give
notice of, convene and hold a special meeting (the "Special Meeting") of its
stockholders as soon as practicable following the consummation of the Offer for
the purpose of considering and taking action upon the Merger Agreement and the
Merger. In addition to receiving notice of such Special Meeting, stockholders
would receive a Proxy Statement from DAKA International (the "Proxy Statement")
recommending approval of the Merger Agreement and the Merger at the Special
Meeting. Section 253 of the DGCL would permit the Merger to occur without a vote
of DAKA
13
<PAGE> 22
International's stockholders (a "short-form merger") if Purchaser were to
acquire at least 90% of all of the outstanding DAKA Shares in the Offer. If
Purchaser acquires 90% or more of the outstanding DAKA Shares in the Offer,
Purchaser intends to cause the Merger to occur as a short-form merger.
Representations and Warranties. The Merger Agreement includes customary
representations and warranties by DAKA International and Daka to Parent,
Purchaser and Compass Interim as to corporate organization and power,
authorization and approval of agreements and the transactions contemplated
thereby, noncontravention of laws and agreements, the filing of all required
reports, schedules, forms, statements and other documents with the Commission,
the accuracy of financial statements and filings with the Commission, and the
conduct of the Foodservice Business in the ordinary course and the absence of
any material adverse change with respect to DAKA International, Daka or the
Foodservice Business.
The Merger Agreement also includes customary representations and warranties
by Parent, Purchaser and Compass Interim to DAKA International.
Composition of the DAKA International Board Pending the Merger. The Merger
Agreement provides that, in the event that Purchaser acquires at least
two-thirds of the DAKA Shares outstanding pursuant to the Offer, Purchaser shall
be entitled to designate for appointment or election to the DAKA International
Board, upon written notice to DAKA International, such number of persons
("Purchaser's Designees") so that Purchaser's Designees constitute the same
percentage (but in no event less than five persons) of the DAKA International
Board, rounded up to the next whole number, as the percentage of DAKA Shares
acquired in connection with the Offer. Prior to the consummation of the Offer,
DAKA International will obtain the resignations of such number of directors as
is necessary to enable Purchaser's Designees to be elected to the DAKA
International Board and will take all action required to appoint or elect such
Purchaser's Designees.
The Merger Agreement also provides that, in the event that Purchaser's
Designees are elected to the DAKA International Board after the acceptance for
payment of shares pursuant to the Offer, until the Merger Effective Time, the
DAKA International Board will have at least two directors who are directors on
May 27, 1997 (the "Independent Directors"), provided that, in such event, if the
number of Independent Directors shall be reduced below two for any reason
whatsoever, any remaining Independent Directors (or Independent Director, if
there is only one remaining) shall be entitled to designate persons to fill such
vacancies who shall be deemed to be Independent Directors for purposes of the
Merger Agreement or, if no Independent Director then remains, the other
directors shall designate two persons to fill such vacancies who will not be
stockholders, affiliates or associates of Parent, Purchaser or Compass Interim
and such persons will be deemed to be Independent Directors for purposes of the
Merger Agreement. In the event that Purchaser's Designees are elected to the
DAKA International Board after the acceptance for payment of DAKA Shares
pursuant to the Offer and prior to the Merger Effective Time, the Merger
Agreement provides that the affirmative vote of a majority of the Independent
Directors shall be required to (i) amend or terminate the Merger Agreement by
DAKA International, (ii) exercise or waive any of DAKA International's rights,
benefits or remedies under the Merger Agreement, (iii) extend the time for
performance of Parent's, Purchaser's or Compass Interim's respective obligations
under the Merger Agreement, (iv) take any other action by the DAKA International
Board under or in connection with the Merger Agreement or any of the
transactions contemplated thereby or (v) approve any other action by DAKA
International which could adversely affect the interests of the stockholders of
DAKA International (other than Parent, Purchaser or Compass Interim and their
affiliates) with respect to the transactions contemplated by the Merger
Agreement.
Business of DAKA International Pending the Merger. The Merger Agreement
provides that, during the period from the date of the Merger Agreement and
continuing until the Offer Closing Time, except for the Contribution, the
Distribution and the other transactions expressly provided for in the
Reorganization Agreement and the Tax Allocation Agreement, as expressly
contemplated or permitted by the Merger Agreement, or to the extent that Parent
otherwise consents in writing (which consent will not be unreasonably withheld),
DAKA International and Daka will conduct the Foodservice Business in the
ordinary course, consistent with past practice including, without limitation,
using reasonable efforts to preserve beneficial relationships between the
Foodservice Business and its suppliers, employees and customers. The Merger
Agreement also includes limitations, prohibitions and other provisions relating
to the conduct of the business
14
<PAGE> 23
of DAKA International and its subsidiaries during this period with respect to
(a) capital projects, (b) contracts and agreements outside the ordinary course
of business, (c) sales incentive programs, (d) changes in or issuances,
repurchases or redemption of capital stock, (e) charter or by-law amendments,
(f) acquisitions and dispositions, (g) levels of indebtedness as of the Merger
Effective Time, (h) adoption or amendment of benefit plans or arrangements, (i)
actions relating to employment agreements of certain employees of DAKA
International, (j) changes in accounting principles, policies or procedures, (k)
incurrence of liens, (l) nonwaiver of existing standstill and confidentiality
agreements, (m) defense of pending litigation, (n) increases in the amount of
deferred tax liabilities, or decreases in the amount of deferred assets of DAKA
International or its subsidiaries other than in the ordinary course of business
consistent with past practice, and (o) provision to Parent and its officers,
employees and advisors of reasonable access, during the period prior to the
Offer Closing Time, to DAKA International's properties, books, records, reports
and personnel relating to the Foodservice Business.
No Solicitation of Third Party Acquisition Proposals. Pursuant to the
Merger Agreement, neither DAKA International nor any of its directors, officers
or employees will, and DAKA International will use its best efforts to ensure
that none of its representatives will, directly or indirectly, solicit, initiate
or encourage any inquiries or proposals from or with any person (other than
Parent and its subsidiaries) or such person's directors, officers, employees,
representatives and agents that constitute, or could reasonably be expected to
lead to a Third Party Acquisition. A "Third Party Acquisition" means (i) the
acquisition by any person of more than 20% of the total assets of the
Foodservice Business, (ii) the acquisition by any person of 20% or more of (A)
the DAKA Shares or (B) the total number of votes that may be cast in the
election of directors of DAKA International at any meeting of stockholders of
DAKA International assuming all the DAKA Shares and all other securities of DAKA
International, if any, entitled to vote generally in the election of directors
were present and voted at such meeting, or (iii) any merger, consolidation or
other combination of DAKA International or Daka with any person; provided that
"Third Party Acquisition" does not include any transactions which relate solely
to the business to be owned by the Company and its subsidiaries following the
Distribution and which would not have a material adverse effect on the
consummation of the Offer, the Merger, the Distribution or the transactions
contemplated by the Merger Agreement. The Merger Agreement provides that DAKA
International has ceased or caused to be terminated any discussions or
negotiations with any parties other than Parent conducted prior to the date of
the Merger Agreement with respect to any Third Party Acquisition.
Notwithstanding the foregoing, DAKA International may furnish or cause to be
furnished information (pursuant to confidentiality arrangements no less
favorable to DAKA International than the Confidentiality Agreement (as defined
in the Merger Agreement), unless already in existence on the date of the Merger
Agreement) and may participate in such discussions and negotiations directly or
through its representatives if another person or group makes an offer or
proposal which the DAKA International Board believes, in the good faith exercise
of its business judgment and based upon advice of its outside legal and
financial advisors, could reasonably be expected to be consummated and
represents a transaction more favorable to its stockholders than the
transactions contemplated by the Merger Agreement (a "Higher Offer"). Subject to
compliance by the DAKA International Board with their fiduciary duty, DAKA
International will notify Parent as soon as practicable if any such inquiries or
proposals are received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued with it,
which notice will provide the identity of the third party or parties and the
terms of any such proposal or proposals. The DAKA International Board may fail
to recommend or fail to continue to recommend the Offer or the Merger Agreement
in connection with any vote of its stockholders, or withdraw, modify, or change
any such recommendation, or recommend or enter into an agreement regarding a
Higher Offer, if the DAKA International Board, after receiving the advice of its
outside counsel, determines in good faith that making such recommendation, or
the failure to recommend any other offer or proposal, or the failure to so
withdraw, modify, or change its recommendation, or the failure to recommend or
enter into an agreement regarding a Higher Offer, could constitute a breach of
the directors' fiduciary duties under applicable law. In such event,
notwithstanding anything contained in the Merger Agreement to the contrary, any
such failure to recommend, withdrawal, modification, or change of recommendation
or recommendation of such other offer or proposal, or the entering by DAKA
International into an agreement with respect to a Higher Offer
15
<PAGE> 24
(provided that DAKA International will have provided Parent notice of its
intention to so enter, the terms of the Higher Offer and the identity of the
other party thereto), will not constitute a breach of the Merger Agreement by
DAKA International. Notwithstanding the foregoing, DAKA International will not
enter into an agreement with a third party with respect to, or take any action
to approve such transaction under any antitakeover provision of DAKA
International's Certificate of Incorporation, as amended or state law in
connection with any Third Party Acquisition unless and until the Merger
Agreement is terminated in accordance with the provisions contained therein.
Certain Covenants of Parent. Under the Merger Agreement, Parent has agreed
to limitations, prohibitions and other provisions applicable during the period
from the date of the Merger Agreement and continuing until the Offer Closing
Time relating to the provision of certain information to DAKA International (or
its counsel) regarding filings with any Governmental Entity (as defined in the
Merger Agreement) in connection with the Merger Agreement and the transactions
contemplated thereby.
Covenants of Parent and Purchaser Regarding Tax Treatment. In the Merger
Agreement, Parent and Purchaser have agreed that each will and each will cause
the Surviving Corporation to, treat the Distribution for purposes of all federal
and state taxes as an integrated transaction with the Offer and the Merger and
thus report the Distribution as a constructive redemption of a number of DAKA
Shares equal in value to the value of the UCRI Shares distributed in the
Distribution.
Covenants of Parent Regarding Continued Indemnification of Officers and
Directors. In the Merger Agreement, Parent has agreed that for a period of
three years after the Offer Closing Time, it will not modify the rights of
certain non-employee directors of DAKA International to indemnification and will
cause DAKA International and the Surviving Corporation to include in their
Certificates of Incorporation and By-laws provisions with respect to the right
of directors and officers to indemnification substantially similar to such
provisions in the Certificate of Incorporation and By-laws of DAKA International
as of the date of the Merger Agreement.
Certain Other Covenants, Agreements and Actions. Subject to the terms and
conditions of the Merger Agreement, DAKA International has agreed to use its
reasonable best efforts to comply promptly with all legal and regulatory
requirements which may be imposed on it or its subsidiaries with respect to the
Offer, the Distribution, the Contribution, and the Merger and the transactions
contemplated by the Merger Agreement and to obtain any consent, authorization,
order or approval of, or any exemption by, and to satisfy any condition or
requirement imposed by, any Governmental Entity or other public or private third
party, required to be obtained, made or satisfied by DAKA International or any
of its subsidiaries in connection with the Distribution or the Merger or the
taking of any action contemplated thereby or by the Merger Agreement or the
Ancillary Agreements. Likewise, Parent has agreed to use its reasonable best
efforts to comply promptly with all legal and regulatory requirements which may
be imposed on it or its subsidiaries with respect to the Offer, the Merger and
transactions contemplated thereby and by the Merger Agreement and to obtain any
consent, authorization, order or approval of, or any exemption by, and to
satisfy any condition or requirement imposed by, any Governmental Entity or
other public or private third party, required to be obtained, made or satisfied
by Parent or any of its subsidiaries in connection with the Merger or the taking
of any action contemplated thereby or by the Merger Agreement or the Ancillary
Agreements. Additionally, (i) an employment agreement between Allen R. Maxwell,
DAKA International and Daka must have been executed in the form attached as an
exhibit to the Merger Agreement and (ii) Parent must have received certified
DAKA International Board resolutions and certified resolutions of the Board of
Directors of Daka authorizing the Distribution and the Merger and the
transactions contemplated thereby, and reflecting its determination that the
consummation of such transactions will not violate applicable insolvency laws.
Indebtedness. In the Merger Agreement, DAKA International has agreed to
take such action as may be necessary so that, as of the Offering Closing Time,
DAKA International and Daka, taken as a whole, will not have any indebtedness
other than: (A) the Funded Debt (as defined below), and (B) indebtedness
incurred pursuant to a written agreement that provides that such indebtedness
will be assumed by the Company or a subsidiary of the Company at or prior to the
Offer Closing Time and that, upon such assumption, DAKA International and Daka
will have no obligation or liability in respect of such indebtedness.
16
<PAGE> 25
The term "Funded Debt" means the amount of indebtedness outstanding plus
any accrued but unpaid interest and fees under the terms of the Credit Facility,
together with the amount of indebtedness outstanding (consisting of market to
market exposure) plus all other amounts due under any Interest Rate Protection
Agreement (as defined in the Credit Facility), which aggregate amount will not
exceed $110,000,000.
Simultaneously with the Offer Closing Time, Purchaser will, or will cause
DAKA International to, repay the Funded Debt and will use its reasonable best
efforts to cause the lenders under the Credit Facility to deliver to the Company
such documents or instruments necessary to release or terminate all liens on
assets of DAKA International, the Company or their respective subsidiaries
securing the Funded Debt. The parties must have receipt of reasonably
satisfactory evidence to Parent of the amount of Funded Debt outstanding at the
Offer Closing Time and confirmation that such Funded Debt (as adjusted in
accordance with the terms of the Merger Agreement) has been repaid pursuant to
Parent's wire transfer to Chase Manhattan Bank, simultaneously with the Merger
Closing and that all obligations or liabilities of DAKA International and Daka,
and all liens related to the Acquired Assets (as defined in the Merger
Agreement), have been satisfied or released in full.
Stock Option and Stock Purchase Plans. Pursuant to the Merger Agreement,
DAKA International will make all adjustments and take all steps set forth in the
Reorganization Agreement with respect to DAKA Stock Options as a result of the
Distribution and other transactions contemplated by the Merger Agreement and the
Reorganization Agreement. After taking into account all such adjustments to such
DAKA Stock Options and the other matters set forth in the Reorganization
Agreement, all DAKA Stock Options which are outstanding immediately prior to
Purchaser's acceptance for payment and payment for DAKA Shares pursuant to the
Offer will, regardless of whether such DAKA Stock Options are vested and
exercisable be canceled as of the Offer Closing Time and the holders thereof
will be entitled to receive from the Company, for each share subject to such
DAKA Stock Option, an amount in cash equal to the excess of the Offer Price over
the per share exercise price of such DAKA Stock Option, less all applicable
withholding taxes, which amount will be payable by the Company not later than 30
days after the Offer Closing Time.
In addition, DAKA International will make all adjustments and take all
steps set forth in the Reorganization Agreement with respect to its Stock
Purchase Plan (the "Existing Stock Purchase Plan") regarding DAKA Shares
purchasable by participating employees of DAKA International or its subsidiaries
(the "Participating Employees") under the Existing Stock Purchase Plan with
respect to offerings thereunder (the "Purchasable DAKA Shares"). In lieu of
receiving Purchasable DAKA Shares, the Participating Employees shall be entitled
to receive from the Company, for each DAKA Purchasable Share, in addition to
UCRI Shares in the Distribution as provided above, an amount in cash equal to
the excess of the Offer Price over the per-share purchase price of such
Purchasable DAKA Share under the Existing Stock Purchase Plan, less all
applicable withholding taxes, which amount shall be payable by the Company not
later than 30 days after the Offering Closing Time, whereafter all rights of
Participating Employees under the Existing Stock Purchase Plan shall terminate.
DAKA International will use its reasonable best efforts to ensure that
neither DAKA International nor any of its subsidiaries is or will be bound by
any options, warrants, rights or agreements which would entitle any person,
other than Parent, Purchaser, Compass Interim or DAKA International or any of
their respective subsidiaries, to beneficially own, or receive any payments in
respect of, any capital stock of DAKA International or the Surviving Corporation
(other than as provided in the Merger Agreement or in the Ancillary Agreements).
Offer Closing Date Payments. The Merger Agreement provides that at the
Offer Closing, (a) DAKA International will deliver to Purchaser in cash or cash
equivalents an amount equal to (i) $1,500,000, plus (ii) $7.50 multiplied by the
sum of (A) the number of outstanding Shares and (B) the outstanding DAKA Shares
into which the Series A Preferred Stock, is convertible, minus $85,000,000 and
(b) Parent will deliver to the Company any amount by which the Funded Debt is
less than $110,000,000.
Fees and Expenses. Except as provided in the Merger Agreement with respect
to termination of the Merger Agreement under certain circumstances, all fees and
expenses incurred in connection with the Merger, the Contribution, the
Distribution, the Merger Agreement, the Reorganization Agreement and the
transac-
17
<PAGE> 26
tions contemplated by the Merger Agreement and the Ancillary Agreements will be
paid by the party incurring such fees or expenses, whether or not the Merger is
consummated. In accordance with the foregoing sentence, the Company agrees to
pay the fees and expenses of Bear, Stearns & Co. Inc. ("Bear Stearns") and
Parent agrees to pay the fees and expenses of Patricof & Co. Capital Corp.,
NationsBanc Capital Markets, Inc., MacKenzie Partners, Inc., and The Bank of New
York, and the filing fees associated with any filing under the HSR Act.
Notwithstanding the foregoing, Purchaser and the Company have agreed to share
equally any transfer taxes imposed in connection with or as a result of the
Merger, other than transfer taxes imposed on any holder of DAKA Shares.
In the event that Parent or DAKA International terminates the Merger
Agreement as a result of certain acts or omissions by the DAKA International
Board, as described in the Merger Agreement, and, at the time of termination
there has been made a proposal relating to a Third Party Acquisition that has
become public and, within 12 months following such termination, DAKA
International or Daka enters into a definitive agreement with respect to (a) the
sale of the Foodservice Business, (b) the sale of substantially all of the
assets of DAKA International or Daka, or (c) the merger of DAKA International or
Daka with or into any other entity, or DAKA International shall recommend any
Third Party Acquisition to its stockholders, then DAKA International or Daka
will promptly pay to Parent an amount equal to the sum of (i) $5,800,000 and
(ii) the fees and expenses actually incurred by Parent in connection with the
negotiation and preparation of the Merger Agreement and the Ancillary Agreements
to which Parent is a party, the performance of Parent's covenants therein, and
the transactions contemplated thereby, including, without limitation, all fees
and disbursements of Parent's financial advisors, legal counsel, accountants and
other advisors, up to a maximum of an additional $2,000,000.
Termination. The Merger Agreement provides that such agreement may be
terminated at any time prior to the Offer Closing Time, notwithstanding any
approval of the Merger Agreement by the stockholders of DAKA International, by:
(a) mutual written consent of Parent and DAKA International; or
(b) by either Parent or DAKA International if:
(i) there has been a failure to perform an obligation or satisfy a
condition precedent (regardless of materiality) or an unwaived material
breach of the Merger Agreement by a party, provided that only the
non-breaching party may terminate;
(ii) the Offer shall expire or have been terminated in accordance
with its terms without any DAKA Shares being purchased thereunder, or
Purchaser shall not have accepted for payment or paid for DAKA Shares
validly tendered pursuant to the Offer (as a result of the conditions to
the Offer not being satisfied or waived by Purchaser) prior to July 31,
1997, unless the failure to consummate the Offer is the result of a
willful and material breach by the party seeking to terminate the Merger
Agreement;
(iii) if any Governmental Entity shall have issued a final and
nonappealable order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the Offer;
or
(c) Parent if (i) the DAKA International Board shall have withdrawn,
or modified or changed, in a manner adverse to Parent, its approval or
recommendation of the transactions contemplated by the Merger Agreement and
the Ancillary Agreements or shall have recommended another offer or
proposal with respect to a Third Party Acquisition, or a Third Party
Acquisition has occurred or any person will have entered into a definitive
agreement with DAKA International with respect to a Third Party
Acquisition; or
(d) DAKA International if the DAKA International Board shall have
failed to recommend to its stockholders the approval of the transactions
contemplated by the Merger Agreement and the Ancillary Agreements or will
have withdrawn, modified or changed such recommendation.
18
<PAGE> 27
THE REORGANIZATION
THE REORGANIZATION AGREEMENT
The following summary of certain terms of the Reorganization Agreement does
not purport to be complete and is qualified in its entirety by references to the
full text of the Reorganization Agreement (a copy of which has been filed as an
exhibit to the registration statement on Form 10 of which this Information
Statement is a part).
The Contribution. Under the terms of the Reorganization Agreement, prior
to the Distribution, DAKA International, Daka and Daka's subsidiaries
(collectively, the "DAKA International Group") will contribute to the Company
all of DAKA International's and Daka's right, title and interest in, to and
under all of the Transferred Assets, which exclude the Foodservice Assets (as
defined below) to be specifically acquired by Parent pursuant to the Merger. The
Foodservice Assets, which are listed in a schedule attached to the
Reorganization Agreement, will consist principally of the assets that are used
primarily in or held primarily for the use in or otherwise necessary for the
operation, as presently conducted, of the Foodservice Business, excluding all
accounts receivable and accounts payable. At the same time, the Company will
assume all of DAKA International's liabilities excluding the Foodservice
Liabilities (as defined in the Reorganization Agreement) (the "Assumed
Liabilities"). Notwithstanding the foregoing, the Reorganization Agreement
provides that the Contribution will not result in the assignment of any lease,
license agreement, contract, agreement, sales order, purchase order, open bid or
other commitment or asset if an assignment or attempted assignment of the same
without the consent of the other party or parties thereto would constitute a
breach thereof or in any way impair the rights of DAKA International or CDV,
Champps, French Quarter, Fuddruckers, Great Bagel and Coffee, Pulseback,
Specialty Concepts and their subsidiaries (the "UCRI Group") thereunder. In the
event any attempted assignment is deemed ineffective for the reasons set forth
in the preceding sentence, the Reorganization Agreement describes certain
alternative methods by which the parties will attempt to place the Company in
substantially the same position as if the assignment had occurred. The
Reorganization Agreement provides for certain adjustments to reflect that the
income and expenses attributable to the operation of the Foodservice Business on
or before the Offer Closing Time shall be for the account of the Company and the
income and expenses attributable to the operation of the Foodservice Business
after the Offer Closing Time shall be for the account of DAKA International.
The purpose and effect of the Contribution is to facilitate the Merger by
separating the Transferred Assets and the Assumed Liabilities from the
Foodservice Business of DAKA International and its subsidiaries, and to transfer
the Transferred Assets and the Assumed Liabilities to the Company. Accordingly,
following the Contribution and the Distribution, the Foodservice Business will
consist of all of the businesses, assets and liabilities of DAKA International
at the time of the Merger.
The Distribution. The equity capitalization of the Company prior to the
Distribution will consist of 1,000 issued and outstanding shares of UCRI Common
Stock (the "Existing UCRI Shares"), all of which are outstanding and owned
beneficially and of record by DAKA International. Immediately prior to the Offer
Closing Time, the Company will cause the Company to exchange the Existing UCRI
Shares owned by DAKA International for a total number of UCRI Shares equal to
the total number of DAKA Shares outstanding as of the Distribution Record Date.
In the Distribution, DAKA International will distribute on a pro rata basis all
of the issued and outstanding UCRI Shares to the holders of the DAKA Shares. All
UCRI Shares issued in the Distribution will be duly authorized, validly issued,
fully paid and nonassessable.
Conditions to the Distribution. The obligations of DAKA International to
consummate the Contribution and Distribution are subject to the fulfillment of
each of the following conditions: (i) in the case of the Distribution, the
transactions accomplishing the Contribution must have been consummated; (ii)
each of Parent, Purchaser and Compass Interim will have performed in all
material respects all obligations required to be performed by it under the
Reorganization Agreement at or prior to the Offer Closing Time, and DAKA
International will have received a certificate signed on behalf of Parent by the
chief executive officer and the chief financial officer of Parent to such
effect; (iii) DAKA International will have received opinions of Smith Helms
Mulliss & Moore, L.L.P. and Freshfields, each dated as of the Offer Closing
Time, in substantially the
19
<PAGE> 28
forms attached as exhibits to the Reorganization Agreement; (iv) simultaneously
with the Offer Closing, Parent will have paid to Chase Manhattan Bank on behalf
of DAKA International all Funded Debt; (v) no temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Contribution or the Distribution will be in effect and no
such litigation or legal action will have been threatened or will be pending and
no action, suit or other proceeding will be pending by any governmental entity
that, if successful, would restrict or prohibit the consummation of the
Contribution or the Distribution; (vi) any applicable waiting periods under the
HSR Act or the Exon-Florio Amendment will have expired or been terminated; (vii)
the Registration Statement on Form 10 filed by the Company with the Commission
under the Exchange Act with respect to the UCRI Shares being distributed in the
Distribution (the "Form 10") will have been declared effective by the
Commission; (viii) Purchaser will have accepted for payment pursuant to the
Offer a number of validly tendered shares which satisfies the Minimum Condition;
(ix) the representations and warranties of Parent contained in the Merger
Agreement will be true and correct in all material respects; (x) the
non-contravention of laws; (xi) the absence of a Material Adverse Change or any
event that could reasonably be expected to result in a Material Adverse Change;
(xii) Allen R. Maxwell will not have indicated that he does not intend to abide
by the terms of his employment agreement; and (xiii) Parent will have paid to
the Company any amount by which the Funded Debt outstanding at the Offer Closing
Time is less than $110,000,000.
Under applicable law, the Contribution and the Distribution would
constitute a "fraudulent transfer" if (i) DAKA International is insolvent at the
Offer Closing Time or the time of Distribution, (ii) the Contribution or the
Distribution would render DAKA International insolvent, (iii) the Contribution
or the Distribution would leave DAKA International engaged in a business or
transaction for which its remaining assets constituted unreasonably small
capital or (iv) DAKA International intended to incur or believed it would incur
debts beyond its ability to pay as such debts mature. Generally, an entity is
considered insolvent if it is unable to pay its debts as they become due and
payable or if the fair value of its assets is less than the amount of its actual
and expected liabilities. In addition, under Section 170 of the DGCL (which is
applicable to the Distribution), a corporation generally may make distributions
to its stockholders only out of its surplus (net assets minus stated capital)
and not out of stated capital.
If a court, in a lawsuit by an unpaid creditor or representative of
creditors, such as a trustee in bankruptcy, were to find that, at the time DAKA
International effects the Contribution and the Distribution, DAKA International
(i) was insolvent, (ii) was rendered insolvent by reason of such transaction,
(iii) was engaged in a business or transaction for which DAKA International's
remaining assets constituted unreasonably small capital or (iv) intended to
incur or believed it would incur debts beyond its ability to pay as such debts
matured, such court could void the Contribution and the Distribution as a
fraudulent conveyance and require that stockholders of DAKA International return
the UCRI Common Stock to DAKA International or to a fund for the benefit of DAKA
International's creditors.
EMPLOYEE BENEFITS AND LABOR MATTERS
General. For purposes of allocating employee benefit liabilities and
obligations, "Foodservice Employee" in the Reorganization Agreement means any
individual who upon the Offer Closing Time is an officer or employee of any
member of either the UCRI Group or the DAKA International Group and who is set
forth on the disclosure schedules to the Reorganization Agreement (which
schedule will be updated by mutual agreement of the Company and Parent prior to
the Offer Closing Time). The schedule will include such officers or employees
who are on approved leave or lay-off (with recall rights) from active
employment, other than any individual who, as of the Merger Closing Date, has
been determined to be permanently disabled under existing benefit plans of the
Company.
Also under the Reorganization Agreement, the Company and the UCRI Group
generally will be responsible for claims or proceedings against DAKA
International or Daka relating to any alleged violation of any legal requirement
pertaining to labor relations or employee matters to the extent that the
allegations relate to any period prior to the Offer Closing Time and for
withdrawal liabilities in connection with a multi-employee plan beyond certain
threshold amounts decided in the Reorganization Agreement.
20
<PAGE> 29
Furthermore, DAKA International will take the necessary actions to transfer
ownership of life insurance policies on the lives of its executives (other than
Allen R. Maxwell) to the Company, and the Company will assume all liability for
earned or accrued vacation pay and banked or earned/accrued sick leave pay
accrued by Foodservice Employees and the Company's employees through the Offer
Closing Time. Vacation pay and sick leave for Foodservice Employees after the
Offer Closing Time will be provided under Parent's vacation and sick leave
policies.
Employee Welfare Plans. In general, the Reorganization Agreement requires
DAKA International to amend its employee benefit and executive compensation
plans to remove DAKA International as sponsor and named fiduciary and substitute
the Company in its place prior to the Offer Closing Time. Also prior to the
Offer Closing Time, Parent is required to establish new plans, or amend existing
plans (the "Parent Plans"), in order to make available to eligible Foodservice
Employees approximately the same benefits as were available to them (with the
same vesting or service credit status, where applicable) prior to the Offer
Closing Time. The Reorganization Agreement also provides that the appropriate
amount of plan assets, in the case of funded benefit plans, will be transferred
from DAKA International welfare plans (the "DAKA Welfare Plans") to Parent Plans
in order to provide benefits to the eligible Foodservice Employees after the
Offer Closing Time. Foodservice Employees will be permitted to roll over their
DAKA Welfare Plan account balances into Parent Plans, subject to the terms
thereof. Except as otherwise noted in the Reorganization Agreement, DAKA
International will cause the Company or one of its subsidiaries to assume and be
solely responsible for or cause its insurance carriers or agents to be solely
responsible for, all liabilities for welfare benefit claims incurred on or prior
to the Closing Date under the DAKA Welfare Plans.
The Reorganization Agreement provides that the Company and the UCRI Group
will be responsible for any retiree medical, life insurance or other benefits
that are now or may hereafter become payable with respect to any former employee
of DAKA International or one of its affiliates who retired from the Company,
DAKA International, or any of their subsidiaries prior to the Offer Closing Time
and who met the eligibility requirements for such benefits at that time. The
Foodservice Employees who retire from DAKA International or Parent after the
Offer Closing Time will not be entitled to retiree medical and life insurance
benefits from either the DAKA Welfare Plans or the Parent Plans.
Severance Pay. The UCRI Group will assume and be solely responsible for
all liabilities and obligations whatsoever in connection with claims for
severance pay benefits without regard to when such claims are made under the
terms of the Daka International, Inc. Severance Pay Program or any of the
severance plans sponsored by any member of DAKA International Group prior to the
Offer Closing Time, including, without limitation, any individuals who, in
connection with the Distribution, cease to be employees of the DAKA
International Group, whether or not such individuals are offered or accept
employment with either Group. DAKA International will be responsible for the
payment of severance pay benefits payable pursuant to any New Welfare Plan (as
defined in the Reorganization Agreement) that may be established after the Offer
Closing Time to provide severance pay benefits to Foodservice Employees at the
time of their termination.
Collective Bargaining Agreements. Under the Reorganization Agreement, as
of the Offer Closing Time DAKA International and the DAKA International Group
will retain and be responsible only for the collective bargaining agreements
listed in the Reorganization Agreement, and only to the extent such agreements
relate to the terms and conditions of employment of the Foodservice Employees.
The Company and the UCRI Group will assume and be solely responsible for all
liabilities or claims made or arising under any collective bargaining agreement
covering the terms and conditions of either group of employees relating to any
period of time on or before the Offer Closing Time.
TREATMENT OF DAKA STOCK OPTIONS
Effective as of the Distribution Date, the Company will adopt (and DAKA
International, as sole stockholder of the Company, will approve) the Company's
1997 Stock Option and Incentive Plan (the "1997 Stock Option Plan") for the
benefit of employees of the Company and non-employee directors of the Company.
See "Management -- Employee Stock Plans -- 1997 Stock Option Plan."
21
<PAGE> 30
As provided in the Reorganization Agreement, DAKA Stock Options which have
been granted to employees of the Company, non-employee directors of the Company,
and former DAKA International employees (who are not employees of the Company)
pursuant to DAKA International's 1994 Equity Incentive Plan, the 1988 Incentive
Stock Option Plan, and the 1988 Nonqualified Stock Option Plan (collectively,
the "DAKA Option Plans"), and which are outstanding immediately prior to the
Distribution, shall be converted into two (2) separate non-qualified options.
The holder of a DAKA Stock Option will receive one option to purchase DAKA
Shares (the "DAKA Converted Option") and one option to purchase UCRI Shares (the
"UCRI Converted Option"), with each Converted Option to purchase shares of
either DAKA Stock or UCRI Stock, as the case may be, equal in number to the
number of DAKA Shares relating to such DAKA Stock Option. The exercise price per
share of each DAKA Converted Option shall be adjusted by dividing the
pre-conversion exercise price by the DAKA Conversion Factor. The DAKA Conversion
Factor shall mean an amount equal to the quotient obtained by dividing (a) the
sum of (i) the Offer Price, plus (ii) the per share fair market price of the
UCRI Common Stock, determined based on the average closing price of the UCRI
Common Stock over the three-consecutive day trading period immediately following
the Offer Closing Time (the "UCRI Stock Value") by (b) the Offer Price. The
exercise price per share of each UCRI Converted Option shall be adjusted by
dividing the pre-conversion exercise price by the UCRI Conversion Factor. The
UCRI Conversion Factor shall mean an amount equal to the quotient obtained by
dividing (a) the sum of (i) the Offer Price, plus (ii) the UCRI Stock Value by
(b) the UCRI Stock Value. Each Converted Option shall otherwise be subject to
the same terms and conditions as the original DAKA Stock Option.
REPRESENTATIONS AND WARRANTIES
In the Reorganization Agreement, the Company makes certain representations
and warranties to DAKA International, Daka and Parent, and each of DAKA
International and Daka, jointly and severally, made certain representations and
warranties to the Company, with respect to: (a) its due organization, good
standing and corporate power; (b) its power and authority to execute the
Reorganization Agreement and the other Ancillary Agreements to which it is party
and to consummate the transactions contemplated thereby; (c) the enforceability
of the Reorganization Agreement and the other Ancillary Agreement to which it is
party; (d) the non-contravention of laws or, articles of incorporation and
bylaws and; (e) the absence of the need for governmental or third-party consents
in connection with the execution, delivery and performance by it of the
Reorganization Agreement and the other Ancillary Agreements to which it is
party, except as set forth in the Merger Agreement.
AMENDMENT
The Reorganization Agreement provides that the parties thereto may modify
or amend the Reorganization Agreement only by written agreement executed and
delivered by duly authorized officers of the respective parties.
22
<PAGE> 31
OTHER AGREEMENTS
THE TAX-ALLOCATION AGREEMENT
The following summary of certain terms of the Tax Allocation Agreement does
not purport to be complete and is qualified in its entirety by reference to the
full text of the Tax Allocation Agreement (a copy of which has been filed as an
exhibit to the registration statement on Form 10 of which this Information
Statement is a part).
The Company, DAKA International and Parent have entered into the Tax
Allocation Agreement which sets forth each party's rights and obligations with
respect to payments and refunds, if any, of federal, state, local or foreign
taxes for periods before and after the Merger and related matters such as the
filing of tax returns and the conduct of audits and other tax proceedings.
In general, under the Tax Allocation Agreement, the Company will be
responsible for all tax liabilities of the DAKA International Group and the UCRI
Group for periods (or portions of periods) ending on or before the effective
date of the Distribution and will have the benefit of any tax refunds, tax
credits or loss carryforwards arising in such pre-Distribution periods. For
periods (or portions of periods) beginning after the effective date of the
Distribution, in general, the Company will be responsible for tax liabilities of
the UCRI Group, and DAKA International will be responsible for tax liabilities
of DAKA International Group.
POST-CLOSING COVENANTS AGREEMENT
The Post-Closing Covenants Agreement includes significant undertakings on
the part of the Company with respect to its operations after the Offer Closing
Time and potential liability and payments due to DAKA International and
Purchaser after the Offer Closing Time. While the amount of payments, if any,
which might be payable to DAKA International by the Company under the
Post-Closing Covenants Agreement cannot be quantified at this time, the
aggregate amount of such payments could have a material effect on the financial
condition of the Company.
The following summary of certain provisions of the Post-Closing Covenants
Agreement does not purport to be complete and is qualified in its entirety by
reference to the full text of the Post-Closing Covenants Agreement (a copy of
which has been filed as an exhibit to the registration statement on Form 10 of
which this Information Statement is a part).
Indemnification by the Company. The Post-Closing Covenants Agreement
provides that except as otherwise specifically provided in the Merger Agreement
or any Ancillary Agreement, and subject to certain provisions of the
Post-Closing Covenants Agreement, the Company, will indemnify, defend and hold
harmless Parent, each affiliate of Parent, including any of its direct or
indirect subsidiaries (including, after the Offer Closing Time, DAKA
International and Daka and any subsidiary of Daka), (the "Compass Indemnitees")
from and against, and pay or reimburse the Compass Indemnitees for, all losses,
liabilities, damages, deficiencies, obligations, fines, expenses, claims,
demands, actions, suits, proceedings, judgments or settlements, including
certain interest and penalties, out-of-pocket expenses and reasonable attorneys'
and accountants' fees and expenses incurred in the investigation or defense of
any of the same or in asserting, preserving or enforcing any of such Compass
Indemnitee's rights under the Post-Closing Covenants Agreement, suffered by such
Compass Indemnitee ("Indemnifiable Losses"), as incurred relating to or arising
from (i) the Assumed Liabilities, including without limitation the Special
Liabilities (as defined in the Post Closing Covenants Agreement) (including the
failure by the Company or any of its subsidiaries to pay, perform or otherwise
discharge such Assumed Liabilities in accordance with their terms), whether such
Indemnifiable Losses relate to or arise from events, occurrences, actions,
omissions, facts or circumstances occurring, existing or asserted before, at or
after the Offer Closing Time; (ii) a claim by any person who is not the Company
or an affiliate of the Company (other than DAKA International or Daka)
(collectively, "UCRI Indemnitees") or one of the Compass Indemnitees (a "Third
Party Claim") that there is any untrue statement or alleged untrue statement of
a material fact contained in any of the Schedule 14D-1, the Schedule 14D-9, the
Form 10, the Information Statement, the Proxy Statement or any other document
filed or required to be filed with the Commission in connection with the
transactions contemplated by the Merger Agreement, the Reorganization Agreement
or any preliminary or final form thereof or any amendment or supplement
23
<PAGE> 32
thereto (the "Filings"), or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; but only (a) in the case of the Schedule 14D-1 with respect to
information provided by the Company, DAKA International or Daka in writing
relating to the Company, DAKA International or Daka, as the case may be,
contained in or omitted from such Filings or (b) in the case of the Proxy
Statement, information that is derived from filings made by DAKA International
with the Commission prior to the Offer Closing Time; (iii) the breach by the
Company or any of its subsidiaries of any agreement or covenant or from an
inaccuracy in any representation or warranty of DAKA International or Daka
contained in the Merger Agreement or an Ancillary Agreement which does not by
its express terms expire at the Offer Closing Time; (iv) any Special Liability
(as defined in the Post-Closing Covenants Agreement), including, among others,
any civil action or any action by a Governmental Entity (as defined in the
Post-Closing Covenants Agreement) where such Indemnifiable Losses relate to or
arise from events, occurrences, actions, omissions, facts or circumstances
occurring or existing prior to the Offer Closing Time and relating to DAKA
International, including, but not limited to, the Venturino Lawsuit and any
other litigation pending as of or relating to a time period prior to the Offer
Closing Time, as well as claims and action relating to or arising from actions
or omissions occurring prior to the Offer Closing Time by DAKA International,
Daka or their affiliates in connection with the performance of the transactions
contemplated by the Merger Agreement or the Ancillary Agreements or any other
matter set forth in the Post-Closing Covenant Agreement; (v) any actual or
alleged criminal violation of any law, rule or regulation of any Governmental
Entity ("Criminal Matters") by DAKA International or any of its subsidiaries,
including Daka, or any director, officer, employee or agent of DAKA
International or any of its subsidiaries, including Daka, occurring or alleged
to have occurred prior to the Offer Closing Time or any Criminal Matters by the
Company or any of its subsidiaries, or any director, officer, employee or agent
of the Company or any of its subsidiaries, occurring or alleged to have occurred
prior to or after the Offer Closing Time; (vi) any claim that the execution,
delivery or performance by the Company, DAKA International or Daka of each of
the Merger Agreement or the Ancillary Agreements to which it is or will be a
party or the consummation of the transactions contemplated thereby results in a
violation or breach of, or constitutes a default or impermissible transfer
under, or gives rise to any right of termination, first refusal or consent under
or gives rise to any right of amendment, cancellation or acceleration of any
material benefit under, any Material Contract other than a Customer Contract
(each as defined in the Post-Closing Covenants Agreement); (vii)(a) the Benefit
Plans or Multiemployer Plans sponsored or contributed to by any member of the
DAKA International Group, but only with regard to events, occurrences, actions,
omissions, facts or circumstances occurring, existing or asserted prior to the
Offer Closing Time or occurring in connection with or as a result of the
consummation of certain transactions contemplated by the Merger Agreement and
the Reorganization Agreement, (b) the employment of any Foodservice Employee
during the period ending at the Offer Closing Time, or (c) the employment or
termination of any employee of the Company whether before, on or after the Offer
Closing Time; (viii) the collection of Trade Receivables or the payment of
Obligations (each as defined in the Post-Closing Covenants Agreement), provided,
the Company will have no obligation to indemnify for Indemnifiable Losses that
are finally determined to have resulted primarily from the gross negligence or
willful misconduct of Parent or its subsidiaries; (ix) the Stock Purchase
Agreement (as defined below) other than monetary obligations thereunder relating
to the purchase of the Series A Preferred Stock; (x) the repayment by Parent or
its subsidiaries of any bonus or similar payments paid to DAKA International or
Daka prior to the Offer Closing Time under the purchasing contacts set forth in
the Post-Closing Covenants Agreement on a prorated basis, as further provided
therein; and (xi) relating to the lease agreement by which DAKA International
leases its headquarters.
Indemnification by Parent and Purchaser. The Post-Closing Covenant
Agreement provides that except as otherwise specifically provided in the Merger
Agreement or any Ancillary Agreement, and subject to certain provisions of the
Post-Closing Covenants Agreement, Parent and Purchaser (jointly and severally)
will indemnify, defend and hold harmless the UCRI Indemnitees from and against
and pay or reimburse the UCRI Indemnitees for, all Indemnifiable Losses, as
incurred, relating to or arising from (i) the Foodservice Assets, the
obligations and liabilities of DAKA International and Daka other than the
Assumed Liabilities or the conduct of the Foodservice Business where such
Indemnifiable Losses relate to or arise form events,
24
<PAGE> 33
occurrences, actions, omissions, facts or circumstances occurring, existing or
asserted after the Offer Closing Time; (ii) a Third Party Claim that there is
any untrue statement or alleged untrue statement of a material fact contained in
any of the Filings, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; but only in the case of the Schedule 14D-9, Form 10, Information
Statement, or Proxy Statement with respect with respect to information provided
by Parent or its subsidiaries (excluding DAKA International and Daka prior to
the Offer Closing Time) in writing relating to Parent or its subsidiaries
contained in or omitted from such Filings; (iii) the breach by Parent or its
subsidiaries (other than DAKA International or Daka) of any agreement or
covenant, or from an inaccuracy in any representation or warranty of Parent or
its subsidiaries (other than DAKA International or Daka) contained in the Merger
Agreement or an Ancillary Agreement (other than an agreement or covenant assumed
by the Company pursuant to an Ancillary Agreement) which does not by its express
terms expire at the Offer Closing Time; (iv) any actual or alleged criminal
matters by Parent or any of its subsidiaries, including DAKA International or
Daka or any director, officer, employee or agent of Parent or any of its
subsidiaries, including DAKA International or Daka, after the Offer Closing
Time, occurring or alleged to have occurred prior to or after the Offer Closing
Time, but, in the case of DAKA International or Daka, only where such matters do
not relate to a pattern or course of conduct commencing prior to the Offer
Closing Time; (v) the employment of any Foodservice Employee, but only with
regard to events, occurrences, actions, omissions, facts or circumstance
occurring, existing or asserted after the Offer Closing Time; (vi) the
collection of Trade Receivables or the payment of Obligations by Parent or its
subsidiaries pursuant to the terms of the Post-Closing Covenants Agreement, but
only in the event that such Indemnifiable Losses are finally determined to have
resulted primarily from the gross negligence or willful misconduct of Parent or
its subsidiaries; and (vii) the repayment by the Company of any bonus or similar
payments paid to Parent or its subsidiaries after the Offer Closing Time under
the purchasing contracts set forth in the Post-Closing Covenants Agreement on a
prorated basis, as further provided therein.
Limitation on Indemnification Obligations. The Post-Closing Covenants
Agreement provides the amount of any Indemnifiable Loss or other liability for
which indemnification is provided in the Post-Closing Covenants Agreement will
be net of any amounts actually recovered by the indemnitee from third parties
(including amounts actually received under insurance policies). In addition,
neither New International nor Parent will have any liability for indemnification
for Indemnifiable Losses unless the aggregate of all Indemnifiable Losses for
which it would be liable, but for certain limitations described therein exceeds
on a cumulative pre-tax basis $250,000 (the "Basket Amount") and then only the
amount by which such Indemnifiable Losses exceed the Basket Amount provided that
the Basket Amount will not apply to amounts paid in connection with certain
Special Liabilities (which amounts will be paid in their entirety). In no event
will the Company have a right of contribution against DAKA International or Daka
in connection with indemnities of DAKA International and Daka found in the
Post-Closing Covenants Agreement, the Merger Agreement or any of the Ancillary
Agreements.
Transitional Arrangements. The Company and Parent have agreed to enter
into an agreement or agreements with respect to certain transitional
arrangements (the "Transition Agreement") to be effective upon the consummation
of the Merger. The Transition Agreement is expected to address, among other
things, the allocation of employees; overhead support services; the sublease by
Parent of a portion of the Company's leased headquarters office facilities;
information support services; licensed software; representations and covenants
as to the nature and extent of the Company's software resources and the software
necessary for the conduct of the Foodservice Business; accounting and payroll
business practices; division of headquarters assets; and records retention
issues.
Insurance. Except as otherwise specifically provided in the Merger
Agreement, the Reorganization Agreement or any other Ancillary Agreement, with
respect to any loss, liability or damage relating to the Foodservice Assets
rising out of events occurring prior to the Offer Closing Time, the Company will
assert any such claims under the Insurance Policies with respect to such loss,
liability or damage in accordance with the terms thereof. Upon the request of
the Company, Parent will use reasonable best efforts to assist the Company in
resolving any such claims under the Insurance Policies with respect to such
loss, liability or damage.
25
<PAGE> 34
Notwithstanding the foregoing, the Company will have full responsibility to
assert any claim with respect to the Foodservice Assets arising out of events
occurring prior to the Offer Closing Time and the Company assumes full
responsibility for all costs, payment obligations and reimbursement obligations
relating to such claims.
Reorganization Expenses. The Post-Closing Covenants Agreement provides
that, except as otherwise expressly provided in the Ancillary Agreements, the
Company will be responsible for and agree to pay such expenses which are agreed
in the Merger Agreement to be the responsibility of DAKA International or Daka
but only to the extent they were incurred before the Offering Closing Time;
provided that DAKA International may, prior to the Offer Closing Time, pay any
such expenses that would otherwise be or become the responsibility of the
Company.
Covenant Not to Compete. In the Post-Closing Covenants Agreement, the
Company agrees that, for a period of five years following the Offer Closing
Time, neither it nor any of its subsidiaries will directly or indirectly, either
individually or as an agent, partner, shareholder, investor, consultant or in
any other capacity, (i) participate or engage in, or assist others in
participating or engaging in, the business of providing contract catering,
contract food and vending services to business and industry, educational
institutions, airports, healthcare or museums or similar leisure facilities in
the continental United States but excluding food service at certain retail
outlets (the "Restricted Business"); provided, however, that the Company without
violating the Post-Closing Covenants Agreement, may own a passive investment of
in the aggregate not more than 2% of the issued and outstanding stock of a
publicly held corporation, partnership or other entity engaged in the business
of providing foodservice or vending services; (ii) influence or attempt to
influence any customer of Parent, Purchaser, DAKA International or Daka to
divert its business from Parent, DAKA International or Daka to any person then
engaged in any aspect of the Restricted Business in competition with Parent,
DAKA International or Daka; or (iii) solicit or hire any of the Foodservice
Employees at the district manager level or above, either during the term of such
person's employment by Parent, DAKA International or Daka or within 12 months
after such person's employment has ceased for any reason, to work for the
Company or any person in any aspect of foodservice (including vending service)
in competition with Parent, DAKA International, or Daka; provided the foregoing
will not apply to foodservice (i) terminated by Parent, DAKA International, or
Daka after the Offer Closing Time or (ii) who have been employed by Persons
other than Parent, DAKA International, or Daka for at least six months prior to
being hired by the Company or its subsidiaries.
Net Worth. The Post-Closing Covenants Agreement provides that for a period
ending on the later of three years following the Offer Closing Time or the final
resolution of certain claims for indemnification thereunder, the Company and its
subsidiaries, on a consolidated basis, will maintain at all times a net worth
(determined in accordance with generally accepted accounting principles,
consistently applied) of not less than $50,000,000 (the "Minimum Net Worth").
During the same period, the Company will provide to Parent, within 45 days
following the end of each of the Company's fiscal quarters, a certificate of the
chief financial officer of the Company certifying the Company's continuing
compliance with such covenant. If the Company fails to meet the Minimum Net
Worth, it will immediately provide alternative secured collateral for such
deficiency in a form reasonably satisfactory to Parent.
Duty to Defend. Under the Post-Closing Covenants Agreement, the Company
covenants and agrees that it will vigorously and in good faith defend the
Compass Indemnitees in any proceeding or claim of which it has assumed (or is
required to assume the defense) pursuant to the Post-Closing Covenants
Agreement, including but not limited to the Special Liabilities and any Third
Party Claim. If the Company determines to settle any claim, including but not
limited to the Special Liabilities or any Third Party Claim, the Compass
Indemnitees will have no duty or obligation to contribute to any settlement, and
the failure of any Compass Indemnitee to so contribute will in no way excuse or
discharge the obligations of the Company under the Post-Closing Covenants
Agreement.
Guaranty by Champps and Fuddruckers. Pursuant to the terms of the
Post-Closing Covenants Agreement, each of Champps and Fuddruckers, jointly and
severally, continuously and unconditionally guarantees to Parent and its
subsidiaries the full and prompt payment and performance of all obligations of
the Company under the Ancillary Agreements, whenever the same, or any part
thereof, shall become due and
26
<PAGE> 35
payable in accordance with the terms of the Ancillary Agreements (the
"Guaranty"). Notwithstanding the foregoing, the Guaranty is limited to those
obligations of the Company that become due for payment or for which performance
will have begun and as to which the Company has been properly put on notice of a
potential claim of Indemnifiable Loss on or before December 31, 1998. In
addition, Champps and Fuddruckers each agree that Parent or its subsidiaries may
at any time and from time to time without notice to Champps or Fuddruckers
renew, amend, modify or extend the time of payment or performance of any
obligations guaranteed under the Post-Closing Covenants Agreement as Parent may
deem advisable without discharging, releasing or in any manner affecting the
liability of Champps or Fuddruckers thereunder. Finally, the Post-Closing
Covenants Agreement provides that the Guaranty is a guaranty of payment and
performance and not of collection, and each of Champps and Fuddruckers waives
any right it may have to require that any action be brought against the Company
or to require that resort be had to any security.
Trade Receivables and Obligations. The Reorganization Agreement provides
that the Trade Receivables and the Obligations (as each is defined in the
Post-Closing Covenants Agreement) have been assigned and transferred to the
Company. Pursuant to the Post-Closing Covenants Agreement, the Company appointed
Daka as its agent after the Offer Closing Time for the purposes of collection of
the Trade Receivables and payment of the Obligations, and authorized Daka to pay
the Obligations and to collect the Trade Receivables. Daka will serve in such
capacity commencing at the Offer Closing Time and continuing thereafter for a
period of not more than four months using prompt, diligent and reasonable
efforts, consistent with its regular collection practices, for its own Trade
Receivables, to collect those Trade Receivables owned by the Company to be
identified by the Company to Daka at the Offer Closing Time. Daka will have no
obligation to institute any action or other litigation before any court, agency,
arbitrator or tribunal to collect or enforce any right of the Company with
respect to its Trade Receivables. In each instance where the institution of an
action or a lawsuit is appropriate, Daka will allow the Company to collect such
Trade Receivables and to pursue any such remedies. However, Daka will not,
without the Company's prior written consent, compromise or settle for less than
full value of any Trade Receivables unless Daka pays the Company the full amount
of any deficiency. In connection with Daka's collection efforts, the Company
will assist Daka, subject to certain limitations, with special collection
efforts on selected Trade Receivables if Daka in reasonable discretion requests
such efforts. With respect to Obligations, commencing at the Offer Closing Time
and continuing for a period of not more than four months thereafter, Daka will
pay when due certain Obligations of the Company to be identified by the Company
to Daka at the Offer Closing Time. Daka will pay such Obligations from the
collected Trade Receivables, and the obligation of Daka to pay such Obligations
will be limited to the actual amount of Trade Receivables collected by Daka. The
Company may elect to provide to Daka, from time to time, a schedule of proposed
payments of Obligations, which Daka will follow, unless Daka determines
adherence to such schedule will have a material adverse effect on its ability to
operate the Foodservice Business in the ordinary course or impair the credit of
Daka.
Daka shall not be obligated to remit to the Company any net proceeds from
the collection of Trade Receivables for eight weeks after the Offer Closing
Time. Not later than the business day following the last day of the eighth week
after the Offer Closing Time, Daka will remit to the Company the amount of
collected Trade Receivables in excess of the aggregate amount of Obligations
paid by Daka, provided that Purchaser may retain an amount sufficient to cover
any payments that Purchaser in good faith determines to be due to Purchaser from
the Company under the terms of the Post Closing Covenants Agreement (including
the "Post Closing Payments" provisions summarized below), even if the amount of
such payments or the obligations of the Company to make such payments has not
been finally established. Thereafter, Parent will remit any such net amount of
the Company not later than the first business day following the end of each
succeeding two-week period, provided, however, that Parent's obligation to remit
any such excess Trade Receivables to the Company will be subject to a right of
setoff granted to Parent in connection with the "Post-Closing Payments"
provisions summarized below. The extent to which Purchaser can control the
timing and amount of cash payments to the Company from the collection of Trade
Receivables, such control could have a material adverse effect on the Company's
cash flow and financial condition.
Post-Closing Payments. The Post-Closing Covenants Agreement provides for
post-closing payments in the following circumstances: (i) if the amount of the
Foodservice Current Assets (as defined in the Post-
27
<PAGE> 36
Closing Covenants Agreements and determined from the financial statements for
the Foodservice Business) is less than $10,000,000, then the Company will pay to
Parent an amount equal to such shortfall; (ii) if the product of $7.50 times the
sum of (A) the total number of issued and outstanding DAKA Shares as of the
Offer Closing Time plus (B) the total number of DAKA Shares into which all
shares of Series A Preferred Stock issued and outstanding as of the Offer
Closing Time are convertible is greater than $85,000,000 plus the amount paid by
the Company to Parent pursuant to Section 6.7(a)(ii) of the Merger Agreement,
then the Company will pay Parent the amount of such difference; and (iii) if the
Total Foodservice Managed Volume and Total Foodservice Segment Income (as
defined in the Post-Closing Covenants Agreement and determined from the
financial statements of the Foodservice Business), as adjusted to take into
account customer contracts that have been lost or gained between June 30, 1996
and the Offer Closing Date and certain other adjustments, are below or above
$289,300,000 and $20,500,000, respectively, the Company or Parent, as
applicable, will pay to the other party a Managed Volume/Profitability
Adjustment calculated by applying to $195,000,000 a percentage derived from a
formula set forth in the Post-Closing Covenants Agreement that gives equal
weight to any such shortfall or excess of the adjusted managed volume, on the
one hand, and any such shortfall or excess of the adjusted segment income, on
the other hand.
SERIES A PREFERRED STOCK
DAKA International currently has issued and outstanding 11,911.545 shares
of Series A Preferred Stock (which are convertible into 264,701 DAKA Shares) and
264,701 warrants exercisable for DAKA Shares upon redemption of the Series A
Preferred Stock. DAKA International has entered into a Stock Purchase Agreement
(the "Stock Purchase Agreement"), dated as of May 26, 1997, among DAKA
International, Parent, Purchaser, First Chicago Equity Corporation, an Illinois
corporation ("FCEC"), and Cross Creek Partners I, an Illinois general
partnership ("Cross Creek"), and all of the other holders of Series A Preferred
Stock (together with FCEC and Cross Creek, the "Preferred Stockholders"),
pursuant to which the Preferred Stockholders will sell to Purchaser, and
Purchaser will buy, all of the issued and outstanding Series A Preferred Stock
and related warrants. Such purchase and sale of the Series A Preferred Stock
will occur immediately following the consummation of the Offer and the Preferred
Stockholders will receive from Purchaser an amount in cash equal to the product
of the Offer Price multiplied by the number of DAKA Shares into which such
shares of Series A Preferred Stock are then convertible. The Stock Purchase
Agreement also provides that, as required by the Certificate of Designation of
the Series A Preferred Stock, any dividend declared on the DAKA Common Stock
will be paid to the Preferred Stockholders. Accordingly, because the
Distribution Record Date will be the date immediately prior to the consummation
of the Offer, and the sale of the Series A Preferred Stock is conditioned upon
such consummation, the Preferred Stockholders will not be obligated to sell
their Series A Preferred Stock unless and until the Offer is consummated and
will receive 264,701 UCRI Shares pursuant to the Distribution. The Preferred
Stockholders will receive no consideration in the Offer or in the Merger and the
Series A Preferred Stock and related warrants will be cancelled. The Company
will have no preferred stock or warrants outstanding immediately after the
Distribution.
28
<PAGE> 37
MARKET FOR SHARES
LISTING AND TRADING OF THE UCRI COMMON STOCK
Under existing Nasdaq requirements, DAKA International will make a public
announcement of the special dividend to effect the Distribution at least 10
calendar days prior to the Distribution Record Date (or such shorter period as
permitted by Nasdaq).
The Company has applied for listing of the UCRI Common Stock on Nasdaq
under the symbol "UCRI." Initially the Company is expected to have approximately
1,794 holders of record, based on the number of stockholders of record of DAKA
International as of May 23, 1997.
A "when-issued" trading market for the UCRI Common Stock is expected to
develop on or about the Distribution Date. The term "when-issued" means that
shares can be traded prior to the time certificates are actually available or
issued. Prices at which the UCRI Shares may trade, on a "when-issued" basis or
after the Distribution, cannot be predicted. The Company has applied for listing
of the UCRI Common Stock on Nasdaq. There can be no assurance, however, that
Nasdaq will approve the UCRI Common Stock for trading prior to the Distribution
Record Date or at all, that a liquid trading market for the UCRI Common Stock
will develop, or that listing of the UCRI Common Stock on Nasdaq will be
maintained. There also can be no assurance as to the prices at which the UCRI
Common Stock will trade before or after the Distribution Date. Until the UCRI
Common Stock is fully distributed and an orderly market develops, the prices at
which shares trade may fluctuate significantly. Prices for UCRI Shares will be
determined in the marketplace and may be influenced by many factors other than
the financial performance and prospects of the Company, including the depth and
liquidity of the market for the shares, investor perception of the Company and
the industry in which the Company participates and general economic and market
conditions. See "Risk Factors -- Absence of Prior Trading Market for the Common
Stock."
The UCRI Shares distributed to DAKA International stockholders are expected
to be freely transferable, except for UCRI Shares received by persons who may be
deemed to be "affiliates" of the Company under the Securities Act. Persons who
may be deemed to be affiliates of the Company after the Distribution generally
include individuals or entities that control, are controlled by, or are under
common control with the Company, and may include the directors and principal
executive officers of the Company as well as any principal stockholder of the
Company. Persons who are affiliates of the Company will be permitted to sell
their UCRI Shares only pursuant to an effective registration statement under the
Securities Act or an exemption from the registration requirements of the
Securities Act, such as the exemptions afforded by Section 4(2) of the
Securities Act and Rule 144 thereunder.
TRADING MARKET OF DAKA STOCK
As of May 23, 1997, there were approximately 1,794 stockholders of record
of DAKA International. Following the consummation of the Offer, the DAKA Common
Stock may no longer meet the requirements of Nasdaq for continued listing and
may, therefore, be delisted by the National Association of Securities Dealers.
DIVIDEND POLICY
The Company does not currently anticipate paying any dividends or
distributions in the foreseeable future. The Company currently intends to retain
all earnings to support its growth strategy. The payment of dividends may be
prohibited under any future credit facility which the Company may obtain.
Payment of future dividends, if any, on the UCRI Common Stock will be at the
discretion of the Board after taking into account various factors, including the
Company's financial condition, operating results, current and anticipated cash
needs and plans for expansion.
29
<PAGE> 38
FEDERAL INCOME TAX CONSIDERATIONS
The following summary addresses the material federal income tax
consequences to holders of DAKA Common Stock from the Offer, the Merger and the
Distribution. The summary does not address all aspects of federal income
taxation that may be relevant to particular holders of DAKA Common Stock and
thus, for example, may not be applicable to holders of DAKA Common Stock who are
not citizens or residents of the United States or holders of DAKA Common Stock
who are employees and who acquired their shares pursuant to the exercise of
incentive stock options; nor does this summary address the effect of any
applicable foreign, state, local or other tax laws. The discussion assumes that
each holder of DAKA Common Stock holds such shares as a capital asset within the
meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the
"Code").
STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE PRECISE
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF THE PROPOSED
TRANSACTIONS.
Tax Consequences of Receipt of Cash and Shares of UCRI Common
Stock. Assuming that Purchaser accepts DAKA Common Stock pursuant to the Offer,
and the Distribution and the Merger are consummated, holders of record of DAKA
Common Stock on the Distribution Record Date, and who also tender their DAKA
Shares in the Offer or have such shares exchanged for the Merger Price upon
consummation of the Merger, will receive for each DAKA Share consideration
consisting of (i) one UCRI Share and (ii) $7.50 in cash. Holders of record of
DAKA Common Stock on the Distribution Record Date, and who sell their DAKA
Shares after the Distribution Date other than pursuant to the Offer or the
Merger, will receive consideration consisting of (i) one UCRI Share for each
DAKA Share held on the Distribution Record Date and (ii) the proceeds from the
sale of their DAKA Shares. In each of the above-mentioned cases, the receipt of
such consideration will be a taxable transaction for federal income tax
purposes, and may also be a taxable transaction under applicable state, local,
foreign and other tax laws.
The proper federal income tax characterization of the Distribution as
either a dividend or as proceeds from the sale or exchange of DAKA Shares is
unclear. When addressing the issue of whether a distribution from a corporation
in connection with a disposition of all of the shares of that corporation is
treated as sale proceeds or as an ordinary income dividend, the courts and the
Internal Revenue Service ("IRS") have each reached inconsistent positions and
have used inconsistent methods of analysis.
Certain authorities support treatment of the Offer, the Distribution and
the Merger as a single integrated transaction in which a holder of DAKA Common
Stock receives the cash in an actual exchange for a portion of such holder's
DAKA Common Stock and receives UCRI Shares in a constructive redemption of such
holder's remaining DAKA Common Stock. Parent and the Company have agreed to
treat the purchase of DAKA Common Stock in the Offer, the Distribution and the
Merger in accordance with this analysis for all tax purposes. If this treatment
applies, a holder of DAKA Common Stock would recognize gain or loss equal to the
difference between (i) the sum of the amount of cash plus the fair market value
of the UCRI Shares received (which fair market value likely will equal the
average trading value per share of UCRI Common Stock on the first Nasdaq trading
day following the Distribution Date) and (ii) such holder's adjusted tax basis
for such holder's DAKA Common Stock. Such gain or loss will be capital gain or
loss and will be long-term capital gain or loss if, on the date of the exchange,
the stockholder has held the DAKA Common Stock for more than one year.
Although there are authorities supporting the view that the UCRI Common
Stock received in the Distribution should be treated as having been received in
a constructive redemption of a portion of the DAKA Common Stock, certain other
authorities support treating the receipt of the UCRI Common Stock as taxable in
an independent transaction. If the Distribution is treated as an independent
transaction, the fair market value of the shares of UCRI Common Stock would be
taxable to the recipient as a distribution from the Company under Section 301 of
the Code. In either case, the cash received by a holder of DAKA Common Stock
would still be treated as received in exchange for such holder's DAKA Common
Stock and would be subject to tax in the manner described above.
30
<PAGE> 39
Under Section 301 of the Code, the amount of the Distribution would be
taxable as a dividend for federal income tax purposes to the extent of the
Company's current and accumulated earnings and profits. The amount of the
Distribution that exceeds such earnings and profits would first be treated as a
non-taxable return of capital to the extent of the stockholder's tax basis in
such stockholder's DAKA Common Stock, and such stockholder's tax basis in such
DAKA Common Stock would be reduced accordingly (but not below zero), and
thereafter as capital gain. The amount of any reduction in the stockholder's
basis in such DAKA Common Stock would increase the stockholder's gain (or reduce
the stockholder's loss) on the exchange of the DAKA Common Stock for cash. The
determination of a corporation's earnings and profits requires complex factual
and legal analyses; moreover, the amount of a corporation's current earnings and
profits cannot be determined until the close of its taxable year. To the extent,
if any, that the receipt of UCRI Common Stock is treated as a dividend under the
foregoing rules, certain corporate stockholders may be eligible for the
"dividends received deduction" ("DRD") with respect to such dividend, subject to
certain holding period and other limitations. Any such dividend received by a
corporate stockholder eligible for the DRD would constitute an "extraordinary
dividend" subject to the provisions of Section 1059 of the Code if, in general,
the value of the distribution exceeds 10% of the holder's basis in its DAKA
Shares. If Section 1059 were to apply, a corporate stockholder that has not held
its DAKA Shares for a period of more than two years prior to the dividend
announcement date would be required to reduce its basis in (thereby increasing
its gain or reducing its loss on the disposition of) such DAKA Shares by the
portion of the dividend that was excluded from income by reason of the DRD.
Under current law, the maximum federal tax rate applicable to long-term
capital gains recognized by an individual is 28%, and the maximum federal tax
rate applicable to ordinary income (including dividends) and short-term capital
gains recognized by individuals is 39.6%. The maximum federal tax rate
applicable to all capital gains and ordinary income recognized by a corporation
is 35%. It is possible that legislation may be enacted that would reduce the
maximum federal tax rate applicable to long-term capital gains, possibly with
retroactive effect. It is not possible to predict whether or in what form any
such legislation may be enacted.
Regardless of whether the receipt of the UCRI Common Stock is treated as a
constructive redemption or a distribution under Section 301 of the Code, a
holder's tax basis in the UCRI Common Stock generally will be equal to the fair
market value of the UCRI Common Stock on the Distribution Date, and such
holder's holding period for the UCRI Common Stock will begin on the day after
the Distribution Date.
Withholding. Unless a stockholder complies with certain reporting and/or
certification procedures or is an exempt recipient under applicable provisions
of the Code (and regulations promulgated thereunder), such stockholder may be
subject to a "backup" withholding tax of 31% with respect to any payments
received in the Offer, the Merger or as a result of the exercise of the holder's
dissenters' rights. Stockholders should contact their brokers to ensure
compliance with such procedures. Foreign stockholders should consult with their
tax advisors regarding withholding taxes in general.
THE FOREGOING SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES IS INCLUDED HEREIN
FOR GENERAL INFORMATION PURPOSES ONLY. ACCORDINGLY, EACH HOLDER OF SHARES IS
URGED TO CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES OF THE OFFER, THE MERGER AND THE
DISTRIBUTION.
31
<PAGE> 40
PRO FORMA CAPITALIZATION
The Company is a holding company formed solely to effect the Distribution
and until the Distribution Date will have no material assets or operations.
Immediately prior to the Distribution, the Company's assets will consist of its
net investment in the Transferred Assets and all of the Company's operations
(other than the management of the Transferred Assets) thereafter will be
conducted through the Transferred Assets. The following presents the pro forma
capitalization of the Company assuming that the formation of the Company, and
the Contribution and the related transactions and events described in the Notes
to the Unaudited Pro Forma Combined Balance Sheet included in this Information
Statement had each been consummated on March 29, 1997.
Management believes that the assumptions used provide a reasonable basis on
which to present such Pro Forma Capitalization. The Pro Forma Capitalization
table below should be read in conjunction with the Company's historical combined
financial statements, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Unaudited Pro Forma Combined Balance
Sheet." The Pro Forma Capitalization table below is provided for informational
purposes only and should not be construed to be indicative of the Company's
capitalization or financial condition had the Contribution and such related
transactions and events been consummated on the date indicated. Further, the Pro
Forma Capitalization table may not reflect the capitalization or financial
condition which would have resulted had the Transferral Assets been operated as
a separate, independent company during such period, and are not necessarily
indicative of the Company's future capitalization or financial condition.
UNIQUE CASUAL RESTAURANTS, INC.
PRO FORMA CAPITALIZATION
MARCH 29, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------- ------------
<S> <C> <C>
Cash................................................................. $ 3,798 $ 12,256
======== ========
Long-term debt:
Capitalized lease obligations...................................... $ 4,517 $ 5,518
Notes payable...................................................... 581 581
-------- --------
Total long-term debt....................................... 5,098 6,099
Minority interests................................................... 1,104 1,104
Equity:
Group equity....................................................... 110,612 --
Preferred Stock, 5,000,000 shares authorized; none issued and
outstanding..................................................... -- --
Common stock, par value $.01 per share; 30,000,000 shares
authorized; 11,405,000 shares issued and outstanding after
giving effect to converting
the initial issuance of the Company's common stock into the
number of shares necessary to effect the Distribution........... -- 114
Additional paid-in capital......................................... -- 131,853
-------- --------
Total equity............................................... 110,612 131,967
-------- --------
Total capitalization................................................. $116,814 $139,170
======== ========
</TABLE>
32
<PAGE> 41
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
The following Unaudited Pro Forma Combined Balance Sheet sets forth the
historical combined balance sheet of the Company assuming that the formation of
the Company and the related transactions and events described in the Notes to
such Unaudited Pro Forma Combined Balance Sheet had each been consummated on
March 29, 1997.
Certain non-restaurant operating assets and liabilities of DAKA
International and Daka will also be contributed (the "Additional Capital
Contribution") to the Company prior to the Distribution. However, those assets
and liabilities, consisting of trade accounts receivable, refundable income
taxes, property and equipment, other assets, accounts payable, accrued expenses,
long-term debt, other long-term liabilities, contingent liabilities and deferred
taxes, have not been included in the historical combined financial statements
since those assets and liabilities are principally related to the Foodservice
Business and have not been used in the historical operation of the Restaurant
Business.
Management believes that the assumptions used provide a reasonable basis on
which to present such Unaudited Pro Forma Combined Balance Sheet. The unaudited
pro forma combined balance sheet, however, has been prepared using financial
data as of March 29, 1997 and there can be no assurance that the amounts
ultimately contributed to the Company will not be substantially different. The
Unaudited Pro Forma Combined Balance sheet should be read in conjunction with
the Company's historical combined financial statements and notes thereto
included elsewhere in this Information Statement and "Management's Discussion
and Analysis of Financial Condition and Results of Operations." The Unaudited
Pro Forma Combined Balance Sheet should not be construed to be indicative of the
Company's financial position had the Contribution and such related transactions
and events described been consummated on the date contributed. Furthermore, the
Unaudited Pro Forma Combined Balance Sheet may not reflect the financial
condition which would have resulted had the Company been operated as a separate,
independent company during such period, and is not necessarily indicative of the
Company's future financial condition.
33
<PAGE> 42
UNIQUE CASUAL RESTAURANTS, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MARCH 29, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR
ADDITIONAL
CAPITAL
HISTORICAL CONTRIBUTION PRO FORMA
---------- ------------ ------------
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash................................................ $ 3,798 $ 8,458(1) $ 12,256
Accounts receivable, net............................ 5,460 40,158(2) 45,618
Inventories......................................... 4,389 -- 4,389
Refundable income taxes............................. -- 1,800 1,800
Deferred tax assets (liabilities)................... (676) 3,845(3) 3,169
Prepaid expenses and other current assets........... 2,854 2,854
-------- ------- --------
Total current assets........................ 15,825 54,261 70,086
Property and equipment, net........................... 113,453 1,915(4) 115,368
Investments in, and advances to, affiliates........... 5,000 -- 5,000
Deferred tax assets................................... 883 883
Other assets, net..................................... 12,126 1,810(5) 13,936
-------- ------- --------
Total assets................................ $147,287 $ 57,986 $205,273
======== ======= ========
LIABILITIES & GROUP EQUITY:
Current liabilities:
Accounts payable.................................... $ 9,719 $ 21,990(6) $ 31,709
Accrued expenses.................................... 8,432 12,652(8) 21,084
Current portion of long-term debt................... 1,096 118(7) 1,214
-------- ------- --------
Total current liabilities................... 19,247 34,760 54,007
Long-term debt........................................ 4,002 883(7) 4,885
Other long-term liabilities........................... 12,322 988(9) 13,310
Minority interests.................................... 1,104 -- 1,104
Group equity.......................................... 110,612 21,355(10) 131,967
-------- ------- --------
$147,287 $ 57,986 $205,273
======== ======= ========
</TABLE>
34
<PAGE> 43
UNIQUE CASUAL RESTAURANTS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MARCH 29, 1997
(1) To reflect the transfer to the Company of excess Foodservice Business
depository cash and the additional borrowings up to the long-term debt
balance assumed by Purchaser pursuant to the Merger Agreement. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity."
(2) To reflect the transfer to the Company of all Foodservice Business trade
accounts receivable.
(3) To reflect the transfer to the Company of anticipated income tax refunds
resulting from the current year loss of DAKA International and the
temporary differences resulting from the Additional Capital Contribution.
(4) To reflect the transfer to the Company of certain corporate property and
equipment.
(5) To reflect the transfer to the Company of a long-term note receivable due
from a certain educational institution.
(6) To reflect the transfer to the Company of Foodservice Business trade
accounts payable.
(7) To reflect the transfer to the Company of certain corporate capital lease
obligations.
(8) To reflect (i) the transfer to the Company of all Foodservice Business
accrued expenses; and (ii) to record certain transaction costs including
professional fees, insurance costs associated with the shareholder lawsuit
described in "Business -- Legal Proceedings", and certain costs associated
with foodservice contracts.
(9) To reflect the transfer to the Company of all Foodservice Business
long-term accrued expenses, including health and workers' compensation
accruals and reserves.
(10) To reflect the net increase in group equity resulting from the Additional
Capital Contribution.
35
<PAGE> 44
SELECTED HISTORICAL COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table presents selected historical combined statement of
operations and balance sheet data of the Company. The balance sheet data
presented below as of June 29, 1996 and July 1, 1995 and the statement of
operations data presented below for each of the fiscal years in the three-year
period ended June 29, 1996 are derived from the the Company's audited combined
financial statements included elsewhere herein. The balance sheet data as of
July 3, 1993, June 26, 1993, June 27, 1992, March 29, 1997 and March 30, 1996
and the statement of operations data for the two years ended June 26, 1993 and
for the nine months ended March 29, 1997 and March 30, 1996, respectively, were
derived from the Company's accounting records, which, in the opinion of the
Company's management, have been prepared on the same basis as the Company's
audited historical combined financial statements and include all adjustments
(consisting only of normal recurring adjustments and accruals) necessary for a
fair presentation thereof.
The operating results for the nine months ended March 29, 1997 are not
necessarily indicative of the results that may be expected for the entire year.
The selected historical combined financial data should be read in conjunction
with the combined financial statements and related notes thereto of the Company
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Information Statement.
<TABLE>
<CAPTION>
AS OF AND FOR THE
AS OF AND FOR THE FISCAL YEAR ENDED NINE MONTHS ENDED
---------------------------------------------------- ---------------------
JUNE 29, JULY 1, JULY 3, JUNE 26, JUNE 27, MARCH 29, MARCH 30,
1996 1995 1994 1993 1992 1997 1996
-------- -------- -------- -------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.............................. $183,755 $137,730 $100,677 $ 83,723 $56,309 $152,360 $135,043
Income (loss) from continuing operations
before income taxes and minority
interests................................. (6,931) 4,697 3,980 (38) (398) (12,333) (4,148)
Income (loss) from continuing operations.... (5,670) 1,798 1,300 361 (1) (8,548) (3,828)
Net income (loss)........................... (5,670) 1,798 1,300 361 (1) (8,548) (3,828)
Pro forma loss per share.................... (0.50) -- -- -- -- (0.75) --
BALANCE SHEET DATA:
Total assets................................ 142,348 102,431 78,365 52,517 41,072 147,963 131,145
Long term debt, including current portion... 6,366 4,009 3,372 3,253 14,703 5,098 8,115
Group equity................................ 108,894 73,979 57,666 39,921 17,784 110,612 94,980
</TABLE>
36
<PAGE> 45
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL OVERVIEW
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations is based upon the separate historical combined
financial statements of the Company, which present the Company's results of
operations, financial position and cash flow. These historical combined
financial statements include the assets, liabilities, income and expenses that
were directly related to the Restaurant Business as it was operated within DAKA
International. Regardless of the allocation of these assets and liabilities,
however, the Company's statement of operations includes all of the related costs
of doing business, including charges for the use of facilities and for employee
benefits, and includes an allocation of certain general corporate expenses of
DAKA International which were not directly related to the Transferred Assets,
including costs for corporate logistics, information technologies, finance,
legal and corporate executives. These allocations were based on a number of
factors including, for example, personnel, labor costs and sales volumes.
Management believes these allocations as well as the assumptions underlying the
development of the Company's separate combined financial statements to be
reasonable.
The financial information included herein may not, however, necessarily
reflect the results of operations, financial position and cash flows of the
Company as it will operate in the future or what the results of operations,
financial position and cash flows would have been had the Company been a
separate, stand-alone entity during the periods presented. This is due, in part,
to the historical operation of the Company as an integral part of DAKA
International. The historical financial information included herein also does
not reflect any changes which may occur in the operations of the Company
following the Distribution.
The Company historically has operated as part of DAKA International.
Following the Distribution, the Company will be a stand-alone entity with
objectives and strategies separate from those of DAKA International. The Company
will focus on operating the Restaurant Business.
FORWARD-LOOKING STATEMENTS
Except for the historical information contained herein, the matters
discussed in the following Management's Discussion and Analysis of Financial
Condition and Results of Operations of the Company and elsewhere in this
Information Statement are forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act.
Forward-looking statements involve risks and uncertainties, many of which may be
beyond the Company's control. 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 are set forth in this Information
Statement under the heading "Risk Factors" and include, among others, the
following: the ability of the Company to successfully implement strategies to
improve overall profitability; the Company's ability to manage the Transitional
Arrangements; the ultimate resolution and disposition of the Company's assumed
obligations and indemnifications pursuant to the Contribution; the impact of
increasing competition in the casual and upscale casual dining segments of the
restaurant industry; changes in general economic conditions which impact
consumer spending for restaurant occasions; adverse weather conditions,
competition among restaurant companies for attractive sites and unforeseen
events which increase the cost to develop and/or delay the development and
opening of new restaurants; increases in the costs of product, labor, and other
resources necessary to operate the restaurants; unforeseen difficulties in
integrating acquired businesses; the 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.
PROPOSED TRANSACTION
The Company has been formed for the purpose of effecting the Distribution
in order to divest DAKA International of the Restaurant Business so that Parent
may purchase the Foodservice Business pursuant to
37
<PAGE> 46
the Merger Agreement for approximately $195 million, including the assumption of
DAKA International indebtedness up to $110 million.
Pursuant to the Merger Agreement, Purchaser commenced the Offer on May 29,
1997. Following the purchase of DAKA Shares under the Offer and satisfaction of
certain other conditions, including approval by DAKA International stockholders
as may be required by law, DAKA International and Purchaser will consummate the
Merger. See "The Offer, the Merger and Certain Related Transactions."
In addition, prior to the consummation of the Offer, DAKA International
will effect the Distribution. After giving effect to the Distribution and the
consummation of the Offer, the Restaurant Business will be continued through the
Company. See "The Reorganization."
RECENT DEVELOPMENTS
All of the assets of the Company have been pledged as collateral under DAKA
International's various debt agreements and the Company is a guarantor of any
obligations pursuant to such agreements. During June 1996, DAKA International
amended its revolving line-of-credit agreement principally to increase its
borrowing capacity and extend the maturity date to June 30, 1999 (the "June
Agreement"). At June 29, 1996, DAKA International 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, DAKA
International 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").
On May 7, 1997, DAKA International renegotiated certain terms and
conditions of the October Agreement (the "May Agreement," collectively the
"Principal Credit Agreements") whereby DAKA International's borrowing limit will
be sequentially reduced to $72.5 million by March 31, 1998. The maturity date
was extended to April 2, 1998 and certain loan covenants were amended.
RESULTS OF OPERATIONS
The Company was formed for the purpose of effecting the Distribution in
order to divest DAKA International of the Transferred Assets, including the
Restaurant Business in connection with the Offer. The Distribution is a
condition of the Offer required by Purchaser. The Company does not have an
operating history as a separate entity. Accordingly, the combined financial
statements included herein may not necessarily reflect the results of
operations, financial position and cash flows of the Restaurant Business had the
Company been operated as a separate entity during the periods presented.
The Company has incurred significant operating losses over the past two
years and had a loss before income tax benefit minority interests of
approximately $12.3 million for the nine months ended March 29, 1997. While the
Company believes it has strategies that will give it the best opportunity to
return to overall profitability, there can be no assurance that such strategies
will be implemented within the anticipated time frame or at all, or if
implemented, will be successful. Accordingly, the Company may continue to incur
substantial and increasing operating losses over the next several years. The
amount of net operating losses and the time required by the Company to reach
sustained profitability are highly uncertain and to achieve profitability the
Company must, among other things, address operational issues in the Fuddrucker
restaurant chain, successfully reduce selling, general and administrative
expenses as a percentage of sales from historical levels while continuing to
increase net revenues from its existing restaurants and successfully execute its
growth strategy for the Champps Americana restaurant chain. There can be no
assurance that the Company will be able to achieve profitability at all or on a
sustained basis.
DAKA International historically funded the Company's operations and capital
expenditures. At March 29, 1997, DAKA International had approximately $103.6
million outstanding under its bank credit facility. It is a requirement of the
Offer that Parent assume such debt and repay it in full upon consummation of the
Offer. As a result, following the Distribution, the Company is expected to have
no bank debt, though the Company anticipates obtaining a credit facility for
working capital purposes after the Distribution. After the Distribution the
Company will continue to be obligated under sale-leaseback financing and
equipment
38
<PAGE> 47
financing in connection with Company-owned restaurants. While the Company
currently believes that a curtailment of restaurant expansion of Fuddruckers
improved cash flows from operations, existing cash balances and working capital,
available sale-leaseback financing and equipment financing will provide
sufficient liquidity to meet its short-term obligations and fund capital and
general corporate expenditures, the Company expects to be required to raise
additional funds through bank financings or other means to meet its longer term
needs. See "Risk Factors -- Limited Capital; Need for Bank Financing." Following
the Distribution, the Company will be responsible for obtaining its own
financing. The Company has never obtained its own financing. There can be no
assurance that any such additional funding will be available to the Company or,
if available, that it will be on reasonable terms.
Notwithstanding these risks, the Company believes its near-term strategies
including, but not limited to, product and menu introductions, marketing,
improving operational excellence in Fuddruckers, and anticipated lower selling,
general and administrative expenses resulting from actions taken since March 29,
1997 and the Transaction, should provide it with the best opportunity for
improved overall profitably.
Summary
In February 1996, CEI Acquisition Corp., a wholly-owned subsidiary of DAKA
International, merged with Champps whereupon Champps became a wholly-owned
subsidiary of DAKA International. In April 1996, DAKA International also merged
with Great Bagel and Coffee whereupon Great Bagel and Coffee became a
wholly-owned subsidiary of DAKA International. Both transactions have been
accounted for as poolings-of-interests, and accordingly, the combined financial
statements and this Management's Discussion and Analysis reflect the accounts of
Champps and Great Bagel and Coffee for all periods presented.
The Company incurred a net loss of $8.5 million for the first nine months
of fiscal 1997 compared with a net loss of $3.8 million for the first nine
months of fiscal 1996. Included within the 1996 loss are merger costs and
impairment charges aggregating $5.9 million.
Total revenues for the nine months ended March 29, 1997, increased 12.8% to
$152.4 million compared with $135.0 million last year.
Loss before income tax benefit and minority interests amounted to
approximately $12.3 million for the first nine months of fiscal 1997 compared
with income from operations of $1.8 million, excluding impairment charges and
merger costs, in the same period a year ago. This increase in operating loss was
primarily attributable to lower average store sales in the Fuddruckers segment
which reduced the Company's ability to leverage fixed costs, lower Fuddruckers
franchise income, poor operating results in the Specialty Concepts segment and
higher selling, general and administrative costs, offset, in part, by higher
sales in the Champps segment due to one new store being opened between periods.
The Company recorded a loss before income taxes and minority interests in
fiscal 1996 of $6.9 million compared with income before income taxes and
minority interests of $4.7 million in fiscal 1995 and $4.0 million in fiscal
1994. Operations in 1996 were impacted by non-recurring charges relating to
merger costs and impairment charges associated with 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 $7.5 million to a
loss of $5.7 million in 1996 compared with income of $1.8 million and $1.3
million in 1995 and 1994, respectively.
The Company adopted 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 fiscal
1996 pretax charge of approximately $3.0 million. The provision included charges
for impairments to the carrying value of certain restaurant assets, reacquired
franchise rights, investments and certain other assets. In addition, combined
operating results include 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.
39
<PAGE> 48
Fuddruckers
The following table sets forth, for the periods presented, certain
financial information for Fuddruckers:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------
MARCH 29, MARCH 30,
1996 1995 1994 1997 1996
-------- -------- ------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Restaurant sales...................... $131,592 $110,703 $87,030 $102,790 $96,788
======== ======== ======= ======== =======
Sales from Fuddruckers-owned
restaurants......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Labor costs......................... (29.0) (28.8) (28.8) (30.4) (28.4)
Product costs....................... (28.2) (27.8) (27.8) (27.6) (27.9)
Other operating expenses............ (27.0) (25.7) (25.7) (31.5) (26.6)
Depreciation and amortization....... (6.1) (4.8) (4.6) (7.0) (5.9)
Impairment charges.................. (1.9) -- -- -- (2.5)
-------- -------- ------- -------- -------
Restaurant unit contribution.......... 7.8% 12.9% 13.1% 3.5% 8.7%
======== ======== ======= ======== =======
Restaurant unit contribution.......... $ 10,324 $ 14,252 $11,400 $ 3,552 $ 8,383
Franchising and royalty income........ 6,575 5,372 4,318 2,856 5,755
-------- -------- ------- -------- -------
Restaurant unit, franchising and
royalty contribution................ $ 16,899 $ 19,624 $15,718 $ 6,408 $14,138
======== ======== ======= ======== =======
</TABLE>
COMPARISON OF NINE MONTHS ENDED MARCH 29, 1997 AND MARCH 30, 1996
Sales from Fuddruckers-owned restaurants increased approximately $6.0
million, or 6.2%, to $102.8 million for the first nine months of fiscal 1997
compared with $96.8 million for the comparable period last year. This increase
reflects the net addition of nine new Fuddruckers-owned restaurants during the
periods, offset primarily by a 7.7% decline in comparable restaurant sales for
the first nine months of fiscal 1997 and lower per restaurant average sales
volumes within Fuddruckers compared with last year.
Restaurant unit contribution, excluding impairment charges, for the first
nine months of fiscal 1997 decreased approximately $7.2 million, or 67.2%, to
$3.6 million compared with $10.8 million a year ago. Operating margins continued
to be negatively impacted by poor sales levels, higher labor and other operating
costs, and higher depreciation and amortization expenses offset, in part, by the
impact of menu changes, a 3% price increase effective in early December 1996 and
improved product costs.
Franchising and royalty income decreased approximately $2.9 million for the
nine months ended March 29, 1997. During the first nine months of fiscal 1997,
the Company did not execute any international multi-unit development agreements.
Royalty income from domestic franchised restaurants remained consistent for the
first nine months of fiscal 1997 compared to last year.
COMPARISON OF FISCAL YEARS ENDED JUNE 29, 1996, JULY 1, 1995 AND JULY 2, 1994
Sales in Fuddruckers-owned restaurants increased $20.9 million or 18.9% to
$131.6 million in 1996 compared with $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 27.2%
to $110.7 million in 1995 compared with $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
40
<PAGE> 49
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.
Restaurant unit contribution, excluding impairment charges, decreased $1.5
million or 10.5% to $12.8 million in 1996 compared with $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 number 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. Restaurant unit contribution increased $2.9 million or 25.4% to $14.3
million in 1995 as compared with $11.4 million in 1994. The improvement in 1995
operating margins is attributable 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
with 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 and continued installation of new point of sale equipment.
Franchising and royalty income increased $1.2 million in 1996 compared with
1995, primarily due to revenue generated from sales of domestic and
international multi-unit development agreements. 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 with 1994 due to
revenues generated from the sale of domestic and international multi-unit
development agreements domestically offset by the reduction of royalty income
associated with the acquisition of 5 franchised restaurants in 1995.
Champps
The following table sets forth certain financial information for Champps
restaurants:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------
MARCH MARCH
29, 30,
1996 1995 1994 1997 1996
------- ------- ------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Restaurant sales.......................... $41,593 $19,257 $8,273 $41,847 $29,612
======= ======= ====== ======= =======
Sales from Champps-owned restaurants...... 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Labor costs............................. (33.2) (31.0) (31.4) (32.6) (33.0)
Product costs........................... (28.8) (29.0) (28.0) (28.9) (28.7)
Other operating expenses................ (22.4) (20.5) (20.2) (23.5) (22.4)
Depreciation and amortization........... (8.7) (5.5) (3.4) (8.2) (7.8)
Impairment charges...................... (0.2) -- -- -- (0.2)
Merger costs............................ (6.3) -- -- -- (9.8)
------- ------- ------ ------- -------
Restaurant unit contribution.............. 0.4% 14.0% 17.0% 6.8% (1.9)%
======= ======= ====== ======= =======
Restaurant unit contribution.............. $ 150 $ 2,689 $1,409 $ 2,857 $ (575)
Franchising and royalty income............ 555 636 554 385 427
------- ------- ------ ------- -------
Restaurant unit, franchising and royalty
contribution............................ $ 705 $ 3,325 $1,963 $ 3,242 $ (148)
======= ======= ====== ======= =======
</TABLE>
COMPARISON OF NINE MONTHS ENDED MARCH 29, 1997 AND MARCH 30, 1996
Sales in Champps-owned restaurants increased approximately $12.2 million,
or 41.3%, to $41.8 million for the first nine months of fiscal 1997 compared
with $29.6 million a year ago. The increase primarily reflects the addition of
six new Champps-owned restaurants in fiscal 1996 (open for all of 1997), one new
Champps-
41
<PAGE> 50
owned restaurant opened in 1997, continued positive increases in comparable
restaurant sales and higher per restaurant average sales volumes for the first
nine months of fiscal 1997.
Restaurant unit contribution, excluding impairment charges and merger
costs, for the first nine months of fiscal 1997 increased approximately $0.5
million, or 22.9%, to $2.9 million compared with $2.4 million a year ago.
Operating margins for the nine months ended March 29, 1997 were impacted by a
10.6% increase in comparable restaurant sales and improved product costs offset,
in part, by higher other operating expenses and depreciation and amortization
expenses associated with store openings and pre-opening costs.
COMPARISON OF FISCAL YEARS ENDED JUNE 29, 1996, JULY 1, 1995 AND JULY 2, 1994
Sales in Champps-owned restaurants increased $22.3 million or 115.5% to
$41.6 million in 1996 as compared to $19.3 million in 1995 primarily due to the
opening of six new restaurants, increased comparable restaurant sales of 8.7%,
offset by the sale of one restaurant in the last quarter of 1996. Sales at
Champps-owned restaurants increased $11.0 million, or 132.5%, to $19.3 million
in 1995 as compared to $8.3 million in 1994, due to the opening of two new
restaurants.
Restaurant unit contribution, excluding impairment charges and merger
costs, increased 3.6% to $2.8 million in 1996 as compared to $2.7 million in
1995. This increase is due to increased revenues derived from six new
restaurants, increased comparable restaurant sales of 8.7%, offset by increased
labor, overhead and depreciation and amortization expenses associated with these
new restaurants. In addition, one restaurant was sold in the last quarter of
1996. Income from restaurant operations increased 92.9% to $2.7 million in 1995
as compared to $1.4 million in 1994 primarily due to revenues derived from new
restaurants. Franchise incoming and royalty has remained relatively consistent
in 1996, 1995 and 1994.
Specialty Concepts
The following table sets forth certain financial information for Specialty
Concepts:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------
MARCH 29, MARCH 30,
1996 1995 1994 1997 1996
------ ------ ------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Unit sales............................... $2,865 $1,738 $ 495 $3,829 $2,115
====== ====== ====== ====== ======
Sales from unit operations............... 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Labor costs............................ (29.5) (37.0) (35.8) (46.2) (20.6)
Product costs.......................... (17.1) (24.8) (17.2) (28.5) (38.6)
Other operating expenses............... (19.3) (9.1) (12.0) (27.8) (27.3)
Depreciation and amortization.......... (5.3) (3.0) (5.3) (15.0) (3.5)
Impairment charges..................... (17.9) -- -- -- (24.2)
Merger costs........................... (10.5) -- -- -- --
------ ------ ------ ------ ------
Unit contribution........................ 0.4% 26.1% 29.7% (17.7)% 14.6%
====== ====== ====== ====== ======
Unit contribution........................ $ (11) $ 453 $ 147 $ (676) $ 308
Franchising and royalty income........... 575 24 7 653 346
------ ------ ------ ------ ------
Unit and franchising contribution........ $ 564 $ 477 $ 154 $ (23) $ 654
====== ====== ====== ====== ======
</TABLE>
COMPARISON OF MARCH 29, 1997 AND MARCH 30, 1996
Sales in Specialty Concepts units increased approximately $1.7 million to
$3.8 million for the nine months ended March 29, 1997 compared with $2.1 million
for the comparable nine months last year. This increase reflects the expansion
initiatives in nontraditional restaurant venues in late fiscal 1996 and
throughout fiscal 1997. Unit contribution, excluding impairment charges, within
the Specialty Concepts segment were unprofitable in fiscal 1997 due to higher
operating costs in the Fudd Cafe units and the development and
42
<PAGE> 51
construction of the Company's "Leo's Deli" concept. The Company is currently
evaluating various strategic options relative to its specialty concept business
as a whole. At March 29, 1997, Specialty Concepts consisted of six Fudd Cafes,
seven Leo's Deli's, three Company-owned and approximately 25 franchised Great
Bagel and Coffee units and over 400 French Quarter Coffee locations.
COMPARISON OF FISCAL YEARS ENDED JUNE 29, 1996, JULY 1, 1995 AND JULY 2, 1994
Sales in Specialty Concepts units increased approximately $1.2 million to
$2.9 million in 1996 compared with $1.7 million in 1995 and $0.5 million in
1994. These increases primarily reflect the on-going expansion initiatives in
nontraditional restaurant venues and the opening of one Great Bagel and Coffee
unit in 1996 and 1994. No units were opened in 1995. Unit contribution was
essentially break-even in 1996 compared with unit contribution of approximately
$0.5 million in 1995 and $0.1 million in 1994. This decrease reflects the impact
of higher operating costs in the Fudd Cafe units and the development and
construction of the Company's "Leo's Deli" concept.
Franchising and royalty income increased approximately $0.5 million in 1996
compared with 1995 and 1994 amounts due to an increased number of multi-unit
franchise agreements signed with Great Bagel and Coffee franchisees.
Selling, General and Administrative Expenses
Included within the Company's historical selling, general and
adjministrative expenses are allocations of certain general corporate expeneses
of DAKA Interantional which were not directly related to the Transferred Assets,
including costs for corporate logistics, information technologies, finance,
legal and corporate executives. These allocations were based on a number of
factors including, for example, personnel, labor costs and sales volumes.
Management believes these allocations as well as the assumptions underlying the
development of the Company's separate combined financial statements to be
reasonable.
COMPARISON OF NINE MONTHS ENDED MARCH 29, 1997 AND MARCH 30, 1996
Selling, general and administrative expenses, including a component of
depreciation and amortization related to corporate assets of DAKA International
allocated to the Company, increased approximately $3.6 million to $21.9 million
for the nine months ended March 29, 1997. This increase primarily reflects the
impact of increased marketing efforts and costs for Fuddruckers, higher
overhead, including severance costs, associated with the Specialty Concepts
segment and ongoing investment in corporate infrastructures. Selling, general
and administrative expenses expressed as a percentage of total restaurant and
unit sales increased to 14.7% for the nine months ended March 29, 1997, compared
with 14.2% for the same period last year. Subsequent to March 29, 1997, the
Company has taken certain actions, including the elimination of various
positions in the corporate office, to further reduce its general and
administrative expenses.
COMPARISON OF FISCAL YEARS ENDED JUNE 29, 1996, JULY 1, 1995 AND JULY 2, 1994
Selling, general and administrative expenses, including a component of
depreciation and amortization related to corporate assets of DAKA International
allocated to the Company, amounted to $24.4 million, $18.6 million and $13.6
million in 1996, 1995 and 1994, respectively. Selling, general and
administrative expenses as a percentage of total restaurant and unit sales of
$176 million, $132 million and $96 million in 1996, 1995 and 1994, respectively,
aggregated 13.9%, 14.1% and 14.2%, respectively.
The $5.8 million increase in selling, general and administrative expenses
in 1996, compared with 1995, was primarily due to additional corporate staff
hired to support Champps' expansion plans, ongoing investment in information
systems and divisional infrastructures, and the pursuit of nontraditional
restaurant venues within the Specialty Concepts segment. The $5.0 million
increase in selling, general and administrative expenses in 1995, compared with
1994, was primarily due to increased Fuddruckers' and Champps' marketing
expenses and higher Champps' overhead costs.
43
<PAGE> 52
Income Taxes
The operations of the Company are generally included in the consolidated
U.S. Federal Income tax return and certain combined and separate state and local
tax returns of DAKA International. A charge (credit) in lieu of taxes has been
presented as if the Company was a separate taxpayer. The Company's effective tax
benefit rate was approximately 30% for the nine-months ended March 29, 1997,
compared with an effective tax expense rate of approximately 110% for the
comparable period last year. The effective tax rate reflects the federal tax
benefit expected to be received by the Company. No benefit has been provided on
the state operating losses where such losses cannot be carried back by the
Company. As of June 29, 1996 the Company had net operating loss carryforwards of
approximately $11.5 million. The carryforwards expire at various dates through
2011 and a portion of such carry forwards 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.
Accounting Pronouncement Not Yet Adopted
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share," which the
Company will adopt in fiscal 1998. Had SFAS No. 128 been effective for the nine
months ended March 29, 1997 there would be an immaterial effect to the Company's
report pro forma loss per share.
LIQUIDITY AND CAPITAL RESOURCES
At March 29, 1997, the Company had a working capital deficiency of $3.4
million, a decrease of $4.8 million compared to working capital of $1.4 million
at June 29, 1996. The decrease in working capital is principally due to the loss
incurred by the Company during the period. Capital expenditures for restaurant
expansion during the first nine months of fiscal 1997 were funded primarily
through $9.4 million of sale-leaseback and equipment financing under existing
facilities.
At June 29, 1996, working capital amounted to $1.4 million, an increase of
$3.5 million, compared with a working capital deficiency of $2.1 million at July
1, 1995. Cash at June 29, 1996 aggregated $5.3 million, a decrease of $0.4
million compared with cash of $5.7 million at July 1, 1995. The working capital
needs of companies engaged in the restaurant industry are generally low as sales
are made for cash and inventory and labor costs and other operating expenses are
generally paid on terms. Given the Company's limited plans for expansion of its
Fuddruckers restaurant chain and existing sources of financing through
sale-leaseback facilities, the Company does not anticipate any significant need
for working capital over the next twelve months.
All of the assets of the Company have been pledged as collateral under DAKA
International's various debt agreements and the Company is a guarantor of any
obligations pursuant to the Principal Credit Agreements. See "-- Recent
Developments." In connection with the Merger, Parent will assume up to $110
million of the outstanding debt under the Principal Credit Agreements. Any
amounts outstanding in excess of $110 million as of the Offer Closing Date will
be repaid to the banks by the Company. At March 29, 1997, DAKA International had
approximately $103.6 million outstanding under its Principal Credit Agreements.
Pursuant to the Contribution, the net current assets (approximately $19.5
million as of March 29, 1997) of the Foodservice Business will be transferred to
the Company as of the Offer Closing Time. The Company and Purchaser have entered
into the Post Closing Covenant Agreement which provides for Purchaser to act as
agent for the Company in collecting such receivables and paying such payables
for 120 days after the Offer Closing Time. Beginning with the eighth week after
the Offer Closing Time, Purchaser will remit to the Company every two weeks the
net positive cash flow derived from collecting such receivables and paying such
payables. After 120 days, the net uncollected receivables and unpaid payables,
if any, will be returned to the Company. The extent to which Purchaser can
control the timing and amount of cash payments to the
44
<PAGE> 53
Company from the collection of trade accounts receivable could have a material
adverse effect on the Company's cash flow and financial condition.
DAKA International historically funded the Company's operations and capital
expenditures. At March 29, 1997, DAKA International had approximately $103.6
million outstanding under its bank credit facility. It is a requirement of the
Offer that Parent assume such debt and repay it in full upon consummation of the
Offer. As a result, following the Distribution, the Company is expected to have
no bank debt, though the Company anticipates to obtain a credit facility for
working capital purposes after the Distribution. After the Distribution the
Company will continue to be obligated under sale-leaseback financing and
equipment financing in connection with Company-owned restaurants. While the
Company currently believes that a curtailment of Fuddruckers restaurant
expansion, improved cash flows from operations, existing cash balances and
working capital, available sale-leaseback financing and equipment financing will
provide sufficient liquidity to meet its short-term obligations and fund
Fuddruckers capital expenditures, the Company expects to be required to raise
additional funds through bank financings or other means to meet its longer term
needs. See "Risk Factors -- Limited Capital; Need for Bank Financing." At the
Offer Closing Time, all debt outstanding under the Principal Credit Agreements
will be repaid and the Principal Credit Agreements will be terminated. The
Company is seeking to obtain a line-of-credit on its own behalf and is
optimistic that a line-of-credit between $5.0 million and $10.0 million can be
obtained, although the timing and amount of any such facility cannot be assured.
At March 29, 1997, the Company had three new Champps-owned restaurants
under construction and two Champps restaurants under development which are
expected to open in fiscal 1997 and the first half of fiscal 1998, respectively.
The Company had no new Fuddruckers-owned restaurants under construction or
development. There are no other restaurant expansion or development efforts
planned by the Company for the balance of fiscal 1997 or the first half of
fiscal 1998.
In January 1997, Fuddruckers obtained $7.5 million of sale-leaseback
financing for the construction of up to six new Fuddruckers restaurants from
Franchise Financing Corporation of America. Any unused commitment expires on
January 30, 1998. In December 1995, Champps obtained $40 million of sale-
leaseback financing for the construction 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.
45
<PAGE> 54
BUSINESS
OVERVIEW
Unique Casual Restaurants, Inc. (the "Company") was incorporated in the
State of Delaware on May 27, 1997. The Company's principal executive offices are
located at One Corporate Place, 55 Ferncroft Road, Danvers, Massachusetts 01923,
and its telephone number is (508) 774-9115. Following the Distribution, the
Company will operate the Restaurant Business, consisting of the restaurant
operation businesses formerly owned and operated by DAKA International.
References to "the Company" below refer to the Restaurant Business after the
Distribution, or as operated by DAKA International prior to the Distribution, as
the context requires.
DAKA International was formed in 1988 in connection with the merger of Daka
and Fuddruckers and, prior to the Contribution and Distribution, was a
diversified foodservice and restaurant company operating in the contract
foodservice management industry and in the restaurant industry. Following the
Contribution and Distribution, DAKA International, through its Daka subsidiary,
will continue to operate the Foodservice Business, including restaurant-style
contract foodservice management at a variety of schools and colleges, corporate
offices, factories, healthcare facilities, museums and government offices as a
subsidiary of Purchaser.
Fuddruckers owns, operates and franchises Fuddruckers restaurants, which
specialize in moderately-priced, casual dining for families and adults.
In fiscal year 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. 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 year 1996, the Company acquired
Champps and the remaining 43% voting interest in ADC.
In fiscal year 1996, DAKA International also acquired 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.
FUDDRUCKERS
Operations
Fuddruckers restaurants, with an average bill of $6.25 per person and a
"Kids Eat Free" program after 4:00 p.m. 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
46
<PAGE> 55
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.
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 year 1996 and those planned for fiscal year 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 year 1996, Fuddruckers complemented its existing menu by
introducing "La Salsa Fresh Mexican Grill" in ten 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 year 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, each 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.
47
<PAGE> 56
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 age 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, $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,
although no new Company-owned restaurants are planned for the balance of fiscal
1997 and the first half of fiscal 1998. 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 five years.
48
<PAGE> 57
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.
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 May 27, 1997,
royalty buy-down agreements have been executed with seven multi-unit
franchisees.
49
<PAGE> 58
Fuddruckers Restaurants -- Company Owned
The following table sets forth the locations of restaurants owned and
operated by Fuddruckers as of May 27, 1997:
DOMESTIC - TOTAL 122 ILLINOIS OHIO
ALABAMA Addison Cincinnati(2)
Birmingham Aurora Columbus(4)
ARIZONA Calumet City Fields Ertel
Flagstaff Downers Grove N Forest Park
Glendale Downers Grove S Hilliard
Mesa(2) Highland Park Mason
Phoenix(2) Matteson Norwood
Scottsdale Orland Park TEXAS
Tempe Palatine Austin(3)
Tucson Schaumburg (2) Clearlake
CALIFORNIA INDIANA Coperfield
Burbank Merrillville Dallas
Chula Vista KANSAS Houston (10)
La Mesa Overland Park Irving
Lake Forest KENTUCKY Kingwood
Lakewood Florence Plano
Mira Mesa MARYLAND San Antonio(4)
Pasadena Annapolis Woodlands
San Diego Baltimore UTAH
COLORADO Gaithersburg Layton
Aurora(2) Pikesville Orem
Lakewood Rockville Salt Lake City
Littleton MASSACHUSETTS Sandy
Marston Park Boston VIRGINIA
Thornton North Andover Alexandria
GEORGIA Saugus Annandale
Alpharetta MICHIGAN Chesapeake (2)
Athens Kentwood Colonial Heights
Duluth MINNESOTA Fairfax
Marietta Bloomington Falls Church
Norcross Brooklyn Center Fredericksburg
Peachtree City Burnsville Herndon
Snellville Eden Grove Midlothian
Town Center Mall Maple Grove Newport News
Tucker Roseville Richmond
St. Louis Park Vienna
MISSOURI Virginia Beach
Independence Woodbridge
Maryland Heights WISCONSIN
St. Louis(2) Brookfield
INTERNATIONAL - TOTAL 3
CANADA
Calgary
Edmonton
Regina
50
<PAGE> 59
Fuddruckers Restaurants -- Franchised Locations
The following tables set forth the locations of restaurants operated by
Fuddruckers franchisees as of May 27, 1997:
DOMESTIC - TOTAL 69 NEW YORK SOUTH DAKOTA
CALIFORNIA Amherst Rapid City
Buena Park Westbury Souix City
Citris Heights NORTH CAROLINA TENNESSEE
Concord Asheville Kingsport
FLORIDA Charlotte Nashville
Altmonte Springs Durham TEXAS
Clearwater Greensboro College Station
Coconut Grove Hickory Laredo
Coral Springs Huntersville Lubbock
Ft. Lauderdale Matthews McAllen
Miami Wilmington Midland
N. Miami Beach NORTH DAKOTA San Antonio(2)
Plantation Fargo Temple
Tallahassee OHIO Waco
Tampa Akron INTERNATIONAL - TOTAL 10
MARYLAND Canton AUSTRALIA
Owings Mills Cleveland Sydney
MICHIGAN South Euclid BAHRAIN
Flint OREGON Manama
Novi Lake Oswego Adliya
Sterling Heights Portland CANADA
MONTANA PENNSYLVANIA Saskatoon
Billings Greensburg INDONESIA
Missoula Hamarville Kelapa Gadung
NEBRASKA Philadelphia KUWAIT
Omaha Fairless Hill Kuwait City
NEW JERSEY SOUTH CAROLINA PUERTO RICO
New Brunswick Columbia Caugus
Paramus Greenville(2) SAUDI ARABIA
Parsippany Hilton Head Al Khobar
Tom's River Myrtle Beach Jeddah
Turnersville North Myrtle Beach Riyadh
Union Spartanburg
Voorhees
Wayne
51
<PAGE> 60
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 Americana restaurants range in size from 7,000 to 12,000 square
feet while the new Champps Americana 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.
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
varies depending on the time of day and season of the year. The exposed kitchen
offers customers the opportunity to observe the cooks, and, in certain
locations, a discreetly located game room is provided for arcade games. The
entertainment aspects of the Champps restaurants are designed to encourage
repeat visits, increase the length of a customer's stay and attract customers
outside of normal peak hours. In addition, a variety of creative promotions and
activities are conducted such as "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 dining atmosphere 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 Americana 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 Americana restaurants will vary
52
<PAGE> 61
based upon state laws concerning operating hours. Sunday brunch is served
beginning at 10:00 a.m. Each Champps Americana restaurant maintains standardized
food preparation and service manuals which are designed to enhance consistency
of operations among the restaurants. Although Champps Americana 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 Americana 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 Company's Chief Operating Officer. Managers are
compensated with a base 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 Americana restaurants have relied on
location and customer word-of-mouth. However, Champps-owned restaurants expend
varied amounts 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 Americana 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, $1.2 million
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 minimal
capital investment.
The average total cost to construct a new Champps Americana 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.
Future development of Champps Americana 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, a part
of which may constitute 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
53
<PAGE> 62
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, 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.
Restaurant Locations
The following table sets forth the locations of restaurants owned and
operated by Champps and owned and operated by franchisees as of May 27, 1997:
OWNED RESTAURANT LOCATIONS FRANCHISED RESTAURANT LOCATIONS
- -------------------------- -------------------------------
DOMESTIC -- TOTAL 12 DOMESTIC -- TOTAL 10
CALIFORNIA MINNESOTA
Irvine Burnsville
COLORADO Maple Grove
Denver Maplewood
FLORIDA Minneapolis
Ft. Lauderdale New Brighton
INDIANA St. Paul
Indianapolis NEBRASKA
OHIO Omaha
Columbus NORTH CAROLINA
Lyndhurst Charlotte
MINNESOTA SOUTH DAKOTA
Minnetonka Sioux Falls
Richfield WISCONSIN
NEW JERSEY Greenfield
Edison
Marlton
TEXAS
Addison
VIRGINIA
Reston
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
54
<PAGE> 63
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 Fuddruckers and Champps with centralized purchasing,
accounting and management information services.
Purchasing
The Company capitalizes on the diversity of its 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 Alliant
Foodservice, Inc. ("Alliant", formerly Kraft Foodservice, Inc.) pursuant to
which Alliant will distribute approximately 85% of food and food-related
purchases of Fuddruckers and Champps. The agreement with Alliant is cancelable
by either party upon 90 days notice. Fuddruckers and Champps franchisees also
have the option of purchasing from Alliant. The Company believes that this
agreement is unique because it provides for a sharing between Alliant and the
Company of the savings that may be obtainable through purchasing from selected
vendors. In addition, under the agreement, Alliant is furnishing to the Company
"Alliant-Link," Alliant's on-line product-ordering software, which is installed
in all Fuddruckers-owned and Champps-owned restaurants.
Historically, the Company's purchasing programs have enabled Fuddruckers to
maintain the same menu prices for its signature hamburgers since December 1990.
However, in December 1996 the Company implemented a 3% price increase for its
core menu items. 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.
Accounting and Management Information Systems
The Company provides 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 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 the centralized
accounting, payroll, cash management and information systems improve its ability
to control and manage its operations efficiently.
COMPETITION
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 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. Factors
such as service, cleanliness and atmosphere are as important in a guest's dining
decision as menu and food quality. In response to this trend, the Company has
provided training, education and motivational programs for its associates to
focus on providing quality service and to sustain a sensitivity to
55
<PAGE> 64
guest needs. The Company believes that by operating in a professional,
restaurant-style manner where each of its associates place the guest first,
Fuddruckers and Champps can win guest loyalty.
GOVERNMENT REGULATION
The Company is subject to various federal, state and local laws affecting
its business. Its operations are subject to various health, sanitation and
safety standards, federal and state labor laws, zoning restrictions and state
and local licensing. Federal and state environmental regulations have not had a
material effect on the Company's operations to date. 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 year
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. 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
The Company has registered a number of trademarks and service marks with
the United States Patent and Trademark Office and with certain states. 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" in connection with providing bar and restaurant
services, and in connection with the sale of related food products
(collectively, the "Marks"). Pursuant to the Reorganization Agreement, DAKA
International will transfer to the Company its rights associated with those
Marks related to the Restaurant Business. Those Marks related to the Foodservice
Business shall remain the property of DAKA International. In addition, pursuant
to certain licensing agreements between the Company and DAKA International, the
Company will grant a license to DAKA International for the names and marks
associated with "French Quarter Coffee", "Leo's Deli" and "Good Natured Cafe."
56
<PAGE> 65
Pursuant to a Master Agreement dated February 1, 1994, whereby Champps
acquired certain "Champ's" and "Champps" service marks, trademarks and trade
names from Champs Restaurants, Inc. ("CRI"), Champps 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 businesses 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.
SEASONALITY
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
The Company is incorporated under the laws of the State of Delaware and
will employ approximately 120 associates on a full-time basis, three who will be
executive officers.
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 is incorporated under the laws of the State of Minnesota and
employs approximately 1,500 associates on a full-time and part-time basis.
Substantially all restaurant associates, other than restaurant management, are
compensated on an hourly basis.
None of the Company's and its subsidiaries' employees are covered by
collective bargaining agreements. The Company considers its relations with its
associates to be good.
The Company, Fuddruckers and Great Bagel and Coffee 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 maintains its principal executive offices at 153 East Lake Street,
Wayzata, Minnesota, 55391. The telephone number for Champps is (602) 449-4841.
PROPERTIES
As of March 29, 1997, DAKA International 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. Prior to the
Distribution, the lease will be assigned to the Company. Under the terms of
various agreements with Purchaser, on a transitional basis the Company will
sublease to DAKA International one half of the leased space for a term up to 18
months after the Offer Closing Time.
Fuddruckers owns the land and related improvements at 11 of the 122
Fuddruckers-owned restaurants with the balance of the restaurants operated
pursuant to long-term leases.
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.
LEGAL PROCEEDINGS
On October 18, 1996, the Venturino Lawsuit was filed against DAKA
International in the United States District Court for the District of
Massachusetts on behalf of persons who acquired DAKA Common Stock between
October 30, 1995 and September 9, 1996. The complaint alleges violations of
federal and state
57
<PAGE> 66
securities laws by, among other things, allegedly misrepresenting and/or
omitting material information concerning the results and prospects of
Fuddruckers during that period and seeks compensatory damages and reasonable
costs and expenses, including counsel fees. On May 22, 1997, DAKA International
filed with the court a motion to dismiss plaintiffs' complaint. The Company has
agreed to indemnify Parent for any losses or expenses associated with the
Venturino Lawsuit. The Company believes the Venturino Lawsuit is without merit
and intends to defend itself vigorously. While the outcome of the case is not
presently determinable, the Company believes that the ultimate outcome of this
matter will not have a material adverse effect on the Company's financial
condition, results of operations or cash flows.
From time to time, the Company has been involved in other disputes and/or
litigation with respect to the operations of the Transferred Assets encountered
in its normal course of business. In the opinion of management, however, 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.
58
<PAGE> 67
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company and their ages are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- -------------------------- --- --------------------------------------------------------------------
<S> <C> <C>
William H. Baumhauer...... 48 Chairman, Chief Executive Officer and President and Director of the
Company and President of Fuddruckers
Erline Belton(1).......... 52 Director
E. L. Cox(1).............. 70 Director
Allen R. Maxwell.......... 58 Director
Donald C. Moore........... 42 Senior Vice President, Chief Financial Officer and Treasurer
Joseph W. O'Donnell(1).... 54 Director
Charles W. Redepenning,
Jr...................... 41 Senior Vice President, General Counsel and Secretary
Alan D. Schwartz(1)....... 47 Director
Dean P. Vlahos............ 46 Director of the Company and Chairman of the Board, President and
Chief Executive Officer of Champps
</TABLE>
- ---------------
(1) Member of both the Compensation Committee and Audit Committee.
EXECUTIVE OFFICERS
The following executive officers, all of whom previously served in similar
capacities as executive officers of DAKA International, were appointed by the
Board of Directors of the Company (the "Board") in May 1997.
William H. Baumhauer, Chairman, Chief Executive Officer and President and
Class III Director of the Company and President of Fuddruckers. Mr. Baumhauer
has served as Chairman of the Board and Chief Executive Officer of DAKA
International since November 1990 and as a Class III Director since September
1988. He has served as President and Chief Operating Officer of DAKA
International from September 1988 to November 1990. He has also served
Fuddruckers as Chairman of the Board since March 1985, President since January
1985 and as a director since July 1983.
Donald C. Moore, Senior Vice President, Chief Financial Officer and
Treasurer. Mr. Moore joined DAKA International as its Chief Financial Officer
in January, 1997. Prior to joining DAKA International, Mr. Moore served as
Senior Vice President and Chief Financial Officer of Al Copeland Enterprises, a
casual dining restaurant operation in New Orleans, Louisiana, from November 1995
to November 1996. He also served as Executive Vice President and Chief Financial
Officer of Rally's Hamburgers Inc., a quick service restaurant operation in
Louisville, Kentucky, from April 1990 to August 1995.
Charles W. Redepenning, Jr., Senior Vice President, General Counsel and
Secretary. Mr. Redepenning has served as Senior Vice President, General Counsel
and Secretary of DAKA International since November 1988. Prior to joining DAKA
International, he served as Vice President, General Counsel and Secretary of
Fuddruckers from 1986 to November 1988.
DIRECTORS
All of the members of the Board previously served as directors of DAKA
International and were elected to serve on the Board in May 1997. As provided in
the By-laws, the stockholders of the Company elect the members of the Board. The
Certificate provides for the Board to be divided into three classes of directors
serving staggered three-year terms. Accordingly, approximately one-third of the
Board will be elected each year. Initially, however, members of all three
classes were elected by DAKA International as sole stockholder of the Company
prior to the Distribution. The directors were elected to three classes as
follows: Messrs. Cox and Maxwell were elected as Class I Directors for a term
expiring at the 1997 Annual Meeting; Messrs. O'Donnell and Vlahos and Ms. Belton
were elected as Class II Directors for a term expiring at the 1998
59
<PAGE> 68
Annual Meeting; and Messrs. Baumhauer and Schwartz were elected as Class III
Directors for a term expiring at the 1999 Annual Meeting. At each Annual Meeting
of Stockholders beginning in 1997, directors will be elected to succeed those
whose terms expire, with each newly elected director to serve a three-year term.
Erline Belton, Class II Director. Ms. Belton has served as a director of
DAKA International since December 1993. She has served as President and Chief
Executive Officer of The Lyceum Group, a human resource consulting firm, since
September 1992. She served as Senior Vice President of Human Resource and
Organizational Development for Progressive Insurance Companies from April 1991
through September 1992. She also served as International Human Relations
Director, as well as several other human resources positions, with Digital
Equipment Corporation from 1978 through April 1991. Ms Belton serves on the
Board of Directors of: The National Leadership Coalition on AIDS; National
Minority AIDS Coalition; and Museum of African American History.
E. L. Cox, Class I Director. Mr. Cox has served as a director of DAKA
International since September 1988 and as a director of Fuddruckers from June
1988 until November 1988. Mr. Cox served as Chairman and Chief Executive Officer
of the Michigan Accident Fund from February 1990 until his retirement in August
1995. Prior thereto Mr. Cox served as Chairman and Chief Executive Officer of
Michigan Mutual/Amerisure Companies and its affiliated insurance companies from
May 1981 through January 1990. Mr. Cox is also a member of the Board of
Directors of Comerica, Inc., a publicly-traded financial institution, and a
director of various trade associations in the insurance industry.
Allen R. Maxwell, Class I Director. Mr. Maxwell has served as President
and Chief Operating Officer of DAKA International since November 1990 and as a
director since September 1988. Following the Distribution, Mr. Maxwell will
serve as the President of DAKA and will be an officer and a member of senior
management of Compass Group USA, Inc.
Joseph W. O'Donnell, Class II Director. Mr. O'Donnell has served as a
director of DAKA International since August 1996. He is a partner in the firm of
Osgood, O'Donnell & Walsh. Mr. O'Donnell has served as Chairman and Chief
Executive Officer of The J. Walter Thompson Company and Campbell-Mithun-Esty
Advertising, Inc.
Alan D. Schwartz, Class III Director. Mr. Schwartz has served as a
director of DAKA International since September 1988 and as a director of
Fuddruckers from September 1984 until November 1988. Mr. Schwartz is Senior
Managing Director -- Corporate Finance of Bear Stearns, and a director of its
parent, The Bear Stearns Companies, Inc. He has been associated with such
investment banking firm for more than five years. Mr. Schwartz is also a
director of Protein Databases, Inc. and a member of the Board of Visitors of the
Fuqua School of Business at Duke University.
Dean P. Vlahos, Class II Director and Chairman of the Board, President and
Chief Executive Officer of Champps. Mr. Vlahos has served as a director of DAKA
International since February 1996. Mr. Vlahos was the founder, and has been
Chairman of the Board, President and Chief Executive Officer of Champps since
its inception in October 1988. Mr. Vlahos also served as Chief Financial Officer
of Champps from its inception to March 1994. Prior to establishing Champps, he
started, owned and operated the original Champps Americana restaurants in St.
Paul, Minnesota (opened January 1983) and Richfield, Minnesota (opened February
1986). Mr. Vlahos has over 20 years of experience in the restaurant industry.
BOARD OF DIRECTORS AND ITS COMMITTEES
Each executive officer serves at the discretion of the Board. There are no
family relationships among any of the directors and executive officers of the
Company.
The Board has a Compensation Committee and an Audit Committee. The
Compensation Committee makes recommendations concerning salaries and incentive
compensation for employees of and consultants to the Company, establishes and
approves salaries and incentive compensation for certain senior officers and
employees. The Audit Committee reviews the results and scope of the financial
audit and other services provided by the Company's independent public
accountants. As of the Distribution Date, the members of both
60
<PAGE> 69
the Compensation Committee and Audit Committee will be Messrs Cox, O'Donnell and
Schwartz and Ms. Belton. None of the members of such committees are officers or
employees of the Company.
BOARD OF DIRECTORS COMPENSATION
Directors receive $1,000 per meeting plus travel expenses. Under the
Company's proposed 1997 Stock Option Plan, each non-employee director will
receive on an annual basis an option to purchase 1,500 UCRI Shares at an
exercise price equal to the fair market value of the UCRI Common Stock as of the
date of grant.
EXECUTIVE COMPENSATION
The Company was recently formed for the purpose of effecting the
Distribution and, as a result, historical information on the executive
compensation of the Company's officers as such (as opposed to their compensation
as officers of DAKA International) is not available. Compensation levels for the
Company's executive officers will be established by the Board and the
Compensation Committee in due course after the Distribution. It is anticipated,
however, that such compensation levels will be similar to those compensation
levels earned by executive officers while serving in similar capacities at DAKA
International. The following tables provide information as to compensation paid
by DAKA International during each of the three fiscal years ending with the
fiscal year ended June 29, 1996 to the Chief Executive Officer and the four
other most highly compensated executive officers whose total salary and bonus
for fiscal year 1996 exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
--------------------- ALL OTHER OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION SARS(1) COMPENSATION
- ------------------------------ ---- -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
William H. Baumhauer.......... 1996 $369,558 $200,000
Chairman and Chief 1995 325,000 230,000 $1,220,848(2)
Executive Officer 1994 303,708 161,000 9,000
Allen R. Maxwell(3)........... 1996 254,527 50,000 $ 60,000(4) 30,000(5)
President and Chief 1995 248,850 50,000 60,000(4) 5,000
Operating Officer 1994 256,036 80,500 60,000(4)
David G. Parker............... 1996 172,160 25,000 18,000(5)
Senior Vice President 1995 171,500 30,000 1,500
and Chief Administrative 1994 174,798 36,750 1,500
Officer
William T. Freeman(6)......... 1996 147,116 50,000 21,000(5)
Senior Vice President 1995 108,270 6,000
Corporate Development 1994 (7)
Louis A. Kaucic............... 1996 154,500 25,000 15,000(5)
Senior Vice President 1995 154,500 25,000 1,500
Human Resources 1994 157,471 36,750 1,500
</TABLE>
- ---------------
(1) Represents the number of DAKA Stock Options granted during the fiscal year.
(2) Represents amount earned pursuant to a long-term incentive plan, based on
the market value of the DAKA Stock as of June 29, 1996 (the closing sale
price of DAKA Common Stock on June 28, 1996, as reported by Nasdaq, was
$23.50 per share). Due to the decline in the DAKA Common Stock price
subsequent to June 29, 1995, as of October 22, 1996 this amount had declined
to zero. The amount earned under such plan vests on June 30, 1997 and is
payable in either cash or DAKA Common Stock at the option of DAKA
International. No portion of the amount earned under the plan vests or is
payable until June 30, 1997. See "-- Amendment to CEO Long-Term Incentive
Plan."
(3) Mr. Maxwell will not serve as an executive officer of the Company.
(4) In lieu of the receipt of senior executive stock options in fiscal 1992 in
connection with the recapitalization of DAKA International, DAKA
International provides to Mr. Maxwell an annuity for which DAKA
61
<PAGE> 70
International pays to an insurance company $60,000 per year for five years,
which payments commenced in fiscal year 1992.
(5) Granted on August 1, 1995 pursuant to a long-term incentive plan for
management pursuant to which the options will vest 100% on August 1, 1998
and have an exercise price equal to $24.00 per share (the fair market price
of the DAKA Common Stock as of the date of grant) with respect to one third
of the options granted, $25.80 per share with respect to another one third
of the options granted and $27.60 per share with respect to the remaining
one third of the options granted. See "The Reorganization -- Treatment of
DAKA Stock Options."
(6) Mr. Freeman resigned from DAKA International in January 1997 and will not
serve as an executive officer of the Company.
(7) Mr. Freeman became an employee of DAKA International in August 1994.
OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUES AT ASSUMED
ANNUAL RATES OF STOCK
% OF PRICE APPRECIATION
TOTAL OPTIONS FOR OPTION TERM
GRANTED TO EXERCISE (10 YEARS)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ----------------------
NAME GRANTED FISCAL YEAR PER SHARE DATE 5% ($) 10% ($)
- ---------------------------------- ------- ------------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Allen R. Maxwell.................. 30,000(1) 5.7% (1) 7/31/05 486,765 1,233,557
David G. Parker................... 18,000(1) 3.3 (1) 7/31/05 292,059 740,134
Louis A. Kaucic................... 15,000(1) 2.7 (1) 7/31/05 243,381 616,778
William T. Freeman................ 21,000(1) 4.0 (1) 7/31/05 347,737 863,490
</TABLE>
- ---------------
(1) Granted on August 1, 1995 pursuant to a long-term incentive plan for
management pursuant to which the options will vest 100% on September 1, 1998
and have an exercise price equal to $24.00 per share (the fair market price
of DAKA Common Stock as of the date of grant) with respect to one third of
the options granted, $25.80 per share with respect to another one third of
the options granted and $27.60 per share with respect to the remaining one
third of the options granted. See "The Reorganization -- Treatment of DAKA
Stock Options."
AGGREGATE OPTION EXERCISES IN FISCAL 1996
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF OUTSTANDING
NUMBER OF BENEFICIAL IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
ACQUIRED VALUE --------------------------- --------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- ----------- -------- ----------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
William H. Baumhauer........ -- -- 187,000 -- $3,584,580 --
Allen R. Maxwell............ -- -- 35,000 30,000 683,100 --
David G. Parker............. 10,000 $187,500 32,500 18,000 585,985 --
Louie A. Kaucic............. 0 -- 14,500 15,000 223,985 --
William T. Freeman.......... 6,000 86,220 -- 21,000 -- --
</TABLE>
- ---------------
(1) Based on the closing bid price of DAKA Common Stock on Nasdaq of $23.50 per
share on June 28, 1996. Based on subsequent declines in the market price of DAKA
Common Stock, these values are currently substantially lower.
62
<PAGE> 71
LONG-TERM INCENTIVE PLAN -- AWARD IN FISCAL 1996
<TABLE>
<CAPTION>
NUMBER OF PERFORMANCE ESTIMATED FUTURE PAYOUTS UNDER
SHARES, UNITS OR OTHER NON STOCK-PRICE-BASED PLANS
OR OTHER PERIOD UNTIL ------------------------------
NAME RIGHTS MATURATION THRESHOLD TARGET MAXIMUM
- -------------------------------------- ------------- -------------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
William H. Baumhauer.................. (1) June 30, 1997 (1) (1) (1)
</TABLE>
- ---------------
(1) The long-term incentive plan implemented by the DAKA International Board on
July 3, 1994 for the Chief Executive Officer is designed to provide an
incentive payment, payable at DAKA International's option in the form of
either cash or stock, equal to 2% of the increase in the market value of
DAKA International, as determined by the average 30 day trading price of
DAKA Common Stock and the weighted average number of shares outstanding,
from July 3, 1994 to June 30, 1997 in excess of 15% of the market value at
June 30, 1994. The incentive payment vests on June 30, 1997. See
"-- Amendment to CEO Long-Term Incentive Plan."
EMPLOYMENT AGREEMENTS
The Baumhauer Employment Agreement. DAKA International entered into an
employment agreement (the "Baumhauer Employment Agreement") with William H.
Baumhauer which commenced on January 1, 1997 and provides for an initial term of
three (3) years. After the Distribution, the Company will assume the Baumhauer
Employment Agreement under the same terms and conditions and DAKA International
will be released therefrom. The date of the agreement, however, will be amended
to be June 30, 1997. The Baumhauer Employment Agreement provides for automatic
renewal each year so that the residual term of such agreement is never less than
three years. Under the agreement, Mr. Baumhauer receives an annual base salary
of $450,500, subject to adjustment at the discretion of the Board. It further
provides that in the event the Company terminates the executive's employment
without "cause" (as defined therein) or the executive terminates his employment
for "good reason" (as defined therein), the Company shall pay the executive an
amount equal to the executive's cash compensation for three years. "Good reason"
is defined in each agreement as (i) an assignment to the executive of duties
other than those contemplated by the agreement, or a limitation on the powers of
the executive not contemplated by the agreement, (ii) the removal of the
executive from or failure to elect the executive to his named position, or (iii)
a reduction in the executive's rate of compensation or level of fringe benefits.
"Cause" is defined in each agreement as the executive's (i) theft from or fraud
on the Company, (ii) conviction of a felony or crime of moral turpitude, (iii)
willful violation of the terms of the agreement, (iv) conscious disregard or
neglect of his duties, or (v) willful and demonstrated unwillingness to perform
his duties under the agreement.
The Vlahos Employment Agreement. DAKA International, Champps and Dean
Vlahos are parties to a five-year employment agreement for Mr. Vlahos (the
"Vlahos Employment Agreement") which commenced on February 21, 1996. Following
the Distribution, the Company will succeed DAKA International as the guarantor
of Champps' obligations under the Vlahos Employment Agreement under
substantially the same terms and conditions. Under such agreement, Mr. Vlahos
provides full-time services to Champps in the capacity of Chairman of the Board,
Chief Executive Officer and President and has the authority to control the
operations of Champps so long as the average annual gross revenues per square
foot of the Champps-owned restaurants is at least $400. During the period of Mr.
Vlahos' full-time employment, Champps will pay Mr. Vlahos an initial base salary
of $350,000 plus a bonus of 50% of his base salary if he attains certain targets
established by the Board, which amount may be increased to up to 100% of his
base salary if he exceeds such performance targets by margins determined by the
Board. Twenty percent (20%) of the potential bonus payments for Mr. Vlahos were
related to performance targets established for DAKA International as a whole
(prior to the Distribution) and eighty percent (80%) were related to performance
targets established for Champps. Following the Distribution and the assumption
of the Vlahos Employment Agreement, 20% of the potential bonus payments for Mr.
Vlahos will relate to the Company as a whole and 80% will relate to performance
targets established for Champps. If Mr. Vlahos leaves for "good reason," or is
terminated by DAKA International without "cause," during the term of his
employment contract, the Company will be obligated to pay Mr. Vlahos his
remaining salary and bonus as severance. "Good reason" is defined in such
63
<PAGE> 72
agreement as (i) an assignment to Mr. Vlahos of duties other than those
contemplated by the agreement, or a limitation on the powers of Mr. Vlahos not
contemplated by the agreement, (ii) the removal of Mr. Vlahos from or failure to
elect Mr. Vlahos to his named position, or (iii) a reduction in Mr. Vlahos' rate
of compensation or level of fringe benefits. "Cause" is defined in the agreement
as Mr. Vlahos' (i) theft from or fraud on the Company, (ii) conviction of a
felony, (iii) violation of the terms of the agreement, (iv) conscious disregard
or neglect of his duties, or (v) demonstrated unwillingness to perform his
duties under the agreement. In the event that Mr. Vlahos' employment is
terminated for any reason other than by the Company for cause, Mr. Vlahos will
be provided the right, subject to certain obligations to the Company, to
establish a franchise for up to five Champps Americana restaurants anywhere in
the world, but no such restaurant may be within a 20 mile radius of any other
Champps restaurant, or in any territory that has been franchised or licensed by
Champps.
The Maxwell Employment Agreement.
Allen R. Maxwell entered into an employment agreement (the "Maxwell
Employment Agreement") with DAKA International which commenced on January 1,
1997. As required by Purchaser as a condition of the Offer, Mr. Maxwell has
agreed that, following the Distribution, Mr. Maxwell will release DAKA
International from such employment agreement. In consideration of such release,
the Company has agreed to pay Mr. Maxwell an aggregate of $500,000 over three
years commencing January 1, 1998. Effective as of the Offering Closing Date, Mr.
Maxwell has entered into a new employment agreement with DAKA International on
terms negotiated directly with Purchaser.
INDEMNIFICATION AGREEMENTS
The Company intends to enter into Indemnification Agreements with certain
of the executive officers of the Company and members of the Board who are not
officers of the Company (the "Indemnitees"), pursuant to which the Company has
agreed to advance expenses and indemnify such Indemnitees against certain
liabilities incurred in connection with their services as executive officers
and/or directors of the Company and in connection with their services as
executive officers and/or directors of DAKA International prior to the
consummation of the Offer (and, with respect to the Independent Directors (as
defined below), prior to the consummation of the Merger). In the event of a
proceeding brought against an Indemnitee by or in the right of DAKA
International or the Company, such Indemnitee shall not be entitled to
indemnification if such Indemnitee is adjudged to be liable to DAKA
International or the Company, as the case may be, if applicable law prohibits
such indemnification; provided, however, that, if applicable law so permits,
indemnification shall nevertheless be made by the Company in such event if, and
only to the extent that, the Court of Chancery of the State of Delaware, or
another court in which such proceeding shall have been brought or is pending,
shall determine.
Under the terms of each Indemnification Agreement, the Company shall
advance all reasonable expenses incurred by or on behalf of such Indemnitee in
connection with any proceeding in which Indemnitee is involved by reason of
Indemnitee's service to the Company or by reason of Indemnitee's service to DAKA
International prior to the consummation of the Offer (and, with respect to the
Independent Directors, prior to the consummation of the Merger). Such statement
shall include, among other things, an undertaking by or on behalf of such
Indemnitee to repay any expenses so advanced if it shall be ultimately
determined that such Indemnitee is not entitled to indemnification for such
expenses.
AMENDMENT TO CEO LONG-TERM INCENTIVE PLAN
The long-term incentive plan implemented by the DAKA International Board on
July 3, 1994 for the Chief Executive Officer was designed to provide an
incentive payment, payable at DAKA International's option in the form of either
cash or stock, equal to 2% of the increase in the market value of DAKA
International, as determined by the average 30 day trading price of the DAKA
Common Stock and the weighted average number of shares outstanding, from July 3,
1994 to June 30, 1997 in excess of 15% of the market value at June 30, 1994.
Pursuant to this long-term incentive plan ("LTIP") William H. Baumhauer has the
right (the "Performance Award") to receive an amount in cash, shares or a
combination equal to 2%
64
<PAGE> 73
of the excess (if any) of (A) the market value of the DAKA International as of
June 30, 1997 (determined based on the average aggregate trading price of
outstanding DAKA Shares during the period beginning June 1, 1997 and ending June
30, 1997) over (B) $137,776,000. Pursuant to its right to adjust the Performance
Award if it determines that external changes or other unanticipated business
conditions have materially affected the intended operation of the LTIP, the
Compensation Committee of the DAKA International Board has amended the terms of
the Performance Award such that Mr. Baumhauer's right to receive the Performance
Award shall instead be treated as though Mr. Baumhauer were the holder of an
option expiring immediately after the Offer Closing Time to acquire 228,260 DAKA
Shares at an exercise price of $12.07 per share (the "Deemed LTIP Option"). Upon
consummation of the Offer, after the conversion pursuant to the terms of the
Reorganization Agreement (the "Conversion") of the outstanding DAKA Stock
Options into (x) options to acquire an equal number of UCRI Shares and (y)
options to acquire an equal number of DAKA Shares, Mr. Baumhauer's rights
pursuant to the amended Performance Award will be determined as though the
Deemed LTIP Option were converted pursuant to the Conversion. See "The
Reorganization -- Treatment of DAKA Stock Options." Under the terms of the
amended Performance Award, the Company will (I) purchase Mr. Baumhauer's deemed
option to purchase DAKA Shares into which the Deemed LTIP Option was converted
for an amount equal to the product of (i) 228,260 and (ii) the excess, if any,
of the Offer Price over the exercise price for such deemed option determined
pursuant to the Conversion and (II) purchase Mr. Baumhauer's deemed option to
purchase UCRI Shares into which the Deemed LTIP Option was converted in exchange
for that number of UCRI Shares that is equal to the quotient obtained by
dividing (i) the product of (A) 228,260 and (B) the excess, if any, of the
per-share fair market value of the UCRI Common Stock, based on the average
closing price of the UCRI Common Stock over the three-consecutive-day trading
period immediately following the Offer Closing Date (the "LTIP Price") over the
exercise price for such deemed option determined pursuant to the Conversion
divided by (ii) the LTIP Price.
EMPLOYEE STOCK PLANS
Treatment of Stock Options in the Reorganization.
As provided in the Reorganization Agreement, outstanding DAKA Stock Options
which have been granted to employees of the Company, non-employee directors of
the Company, and former DAKA International employees (who are not employees of
the Company) pursuant to the DAKA Option Plans and which are outstanding
immediately prior to the Distribution shall be converted into two separate
non-qualified options. The holder of a DAKA Stock Option will receive one DAKA
Converted Option and one UCRI Converted Option, with each Converted Option equal
in number to the number of DAKA Shares relating to such DAKA Stock Option. The
exercise price per share of each DAKA Converted Option shall be adjusted by
dividing the pre-conversion exercise price by the DAKA Conversion Factor. The
DAKA Conversion Factor shall mean an amount equal to the quotient obtained by
dividing (a) the sum of (i) the Offer Price, plus the UCRI Stock Value by (b)
the Offer Price. The exercise price per share of each UCRI Converted Option
shall be adjusted by dividing the pre-conversion exercise price by the UCRI
Conversion Factor. The UCRI Conversion Factor shall mean an amount equal to the
quotient obtained by dividing (a) the sum of (i) the Offer Price, plus (ii) the
UCRI Common Stock Value by (b) the UCRI Stock Value. Each Converted Option shall
otherwise be subject to the same terms and conditions as the original DAKA Stock
Option.
The Company's 1997 Stock Option and Incentive Plan.
Effective as of the Distribution Date, the Board has adopted the 1997 Stock
Option Plan pursuant to which 1,250,000 UCRI Shares are authorized and reserved
for issuance. The 1997 Stock Option Plan permits the grant of (i) options to
purchase UCRI Shares intended to qualify as incentive stock options under
Section 422 of the Code ("Incentive Options") and (ii) options that do not so
qualify ("Non-Qualified Options"). The 1997 Stock Option Plan also permits the
grant of up to 250,000 UCRI Shares in the form of restricted stock, unrestricted
stock and Performance Share Awards (as defined in the 1997 Stock Option Plan).
The 1997 Stock Option Plan is designed and intended as a performance incentive
for officers, directors, employees,
65
<PAGE> 74
consultants and other key persons performing services for the Company or its
subsidiaries to encourage such persons to acquire or increase a proprietary
interest in the success of the Company.
Plan Administration. The 1997 Stock Option Plan provides that it shall be
administered either by the entire Board or the Compensation Committee as
appointed by the Board from time to time (in either case, the "Administrator").
Each member of the Compensation Committee must be an "outside director" within
the meaning of Section 162(m) of the Code and an "non-employee" director within
the meaning of the rules promulgated by the Commission under Section 16 of the
Exchange Act in order for specific grants of Incentive Options or Non-Qualified
Options to receive favorable treatment under certain relevant securities and tax
laws.
The Administrator has full power to select, from among the persons eligible
for awards under the 1997 Stock Option Plan, the individuals to whom awards will
be granted, to make any combination of awards to participants, and to determine
the specific terms of each award, subject to the provisions of the 1997 Stock
Option Plan. Incentive Options may be granted only to officers or other
employees of the Company, including members of the Board who are also employees
of the Company or its subsidiaries. Non-Qualified Options and other awards may
be granted or issued to officers or other employees of the Company, directors
and to consultants and other key persons who provide services to the Company
(regardless of whether they are also employees). Stock options with respect to
no more than 100,000 UCRI Shares can be granted to any individual during any
calendar year period.
The exercise price of each option granted under the 1997 Stock Option Plan
shall generally be the fair market value of the UCRI Common Stock on the date of
grant as determined by the Administrator; provided, however, that if the UCRI
Common Stock is traded on a national securities exchange or Nasdaq, the fair
market value shall not be less than the closing price reported for the UCRI
Common Stock on such date of grant. In the case of a grant of a Non-Qualified
Stock Option in lieu of cash compensation, the exercise price shall be no less
than 50% of the fair market value of the UCRI Common Stock on the date of grant.
No Incentive Option may be granted under the 1997 Stock Option Plan to any
employee of the Company or any subsidiary who owns at the date of grant shares
of stock representing in excess of 10% of the voting power of all classes of
stock of the Company or a parent or a subsidiary unless the exercise price for
stock subject to such option is at least 110% of the fair market value of such
stock at the time of grant and the option term does not exceed five years. No
options may be transferred by the optionee other than by will or the laws of
descent or distribution provided, however, that the Administrator may permit an
optionee to transfer his Non-Qualified Option to members of his immediate
family, to trusts for the benefit of such family members, or to partnerships in
which such family members are the only partners.
The term of each option is fixed by the Administrator and, in the case of
an Incentive Option, may not exceed ten years from the date of grant. The
Administrator determines at what time or times each option may be exercised and,
subject to the provisions of the 1997 Stock Option Plan, the period of time
during which options may be exercised, if any, after termination of employment
for any reason. Options may be made exercisable in installments, and the
exercisability of options may be accelerated by the Administrator. Upon exercise
of options, the option exercise price must be paid in full (i) in cash or by
certified or bank check or other instrument acceptable to the Administrator,
(ii) if the applicable option agreement permits, by delivery of UCRI Shares
already owned by the optionee, or (iii) through a "cashless" exercise procedure,
subject to certain limitations.
At the discretion of the Administrator, stock options granted under the
1997 Stock Option Plan may include a "re-load" feature pursuant to which an
optionee exercising an option by the delivery of shares of UCRI Shares would
automatically be granted an additional stock option (with an exercise price
equal to the fair market value of the UCRI Common Stock on the date the
additional stock option is granted) to purchase that number of UCRI Shares equal
to the number delivered to exercise the original stock option. The purpose of
this feature is to enable participants to maintain an equity interest in the
Company without dilution.
66
<PAGE> 75
Stock Options Granted to Non-employee Directors
The 1997 Stock Option Plan provides for the automatic grant of
Non-Qualified Options to non-employee directors. Each non-employee director who
is serving as a director of the Company on the fifth business day after each
annual meeting of stockholders, beginning with the 1997 annual meeting of
stockholders, will automatically be granted on such day a Non-Qualified Option
to acquire 1,500 UCRI Shares. The exercise price of each such Non-Qualified
Option is the fair market value of the UCRI Common Stock on the date of grant.
The Administrator may also grant additional Non-Qualified Options to
non-employee directors.
Restricted Stock
The Administrator may also award shares of UCRI Shares to participants,
subject to such conditions and restrictions as the Administrator may determine.
These conditions and restrictions may include the achievement of certain
performance goals and/or continued employment with the Company through a
specified restricted period. If the performance goals and other restrictions are
not attained, the participants will forfeit their shares of restricted stock.
The purchase price of shares of restricted stock will be determined by the
Administrator.
Unrestricted Stock
The Administrator may also grant UCRI Shares (at no cost or for a purchase
price determined by the Administrator) which are free from any restrictions
under the 1997 Stock Option Plan. Shares of unrestricted stock may be issued to
participants in recognition of past services or other valid consideration, and
may be issued in lieu of cash compensation to be paid to such participants. With
the consent of the Administrator, participants may elect to receive their cash
compensation in the form of unrestricted stock, either payable currently or on a
deferred basis.
Performance Share Awards
The Administrator may also grant performance share awards to participants
entitling the participants to receive UCRI Shares upon the achievement of
individual or Company performance goals and such other conditions as the
Administrator shall determine.
Adjustments for Stock Dividends, Mergers, Etc.
The Administrator will make appropriate adjustments in outstanding awards
to reflect stock dividends, stock splits and similar events. In the event of a
merger, liquidation, sale of the Company or similar event, the Administrator, in
its discretion may provide for substitution or adjustments of outstanding
awards, or may terminate all awards with payment of cash or in-kind
consideration.
Change of Control Provisions. The 1997 Stock Option Plan provides that in
the case of certain transactions constituting a change in control of the
Company, the 1997 Stock Option Plan and the awards issued thereunder shall
terminate upon the effectiveness of any such transaction or event, unless
provision is made in connection with such transaction for the assumption of
awards theretofore granted, or the substitution for such awards of new awards of
the successor entity or parent thereof, with appropriate adjustment as to the
number and kind of shares and the per share exercise price, if any. In the event
of such termination, each vested award, other than options, shall be settled in
cash or in kind, and each holder of outstanding options shall be permitted to
exercise all options whether vested or unvested for a period of at least 15 days
prior to the date of such termination.
Amendments and Termination
The Board may at any time amend or discontinue the 1997 Stock Option Plan
and the Administrator may at any time amend or cancel outstanding awards for the
purpose of satisfying changes in the law or for any other lawful purpose.
However, no such action may be taken which adversely affects any rights under
outstanding awards without the holder's consent. Further, 1997 Stock Option Plan
amendments shall be subject to approval by the Company's stockholders if and to
the extent required by the Code to preserve the
67
<PAGE> 76
qualified status of Incentive Options or to preserve tax deductibility of
compensation earned under stock options.
TAX ASPECTS OF THE 1997 STOCK OPTION PLAN UNDER THE U.S. INTERNAL REVENUE CODE
The following is a summary of the principal Federal income tax consequences
of option grants under the 1997 Stock Option Plan. It does not describe all
Federal tax consequences under the 1997 Stock Option Plan, nor does it describe
state or local tax consequences.
Incentive Options. Under the Code, an employee will not realize taxable
income by reason of the grant or the exercise of an Incentive Option. If an
employee exercises an Incentive Option and does not dispose of the shares until
the later of (a) two years from the date the option was granted or (b) one year
from the date the shares were transferred to the employee, the entire gain, if
any, realized upon disposition of such shares will be taxable to the employee as
long-term capital gain, and the Company will not be entitled to any deduction.
If an employee disposes of the shares within such one-year or two-year period in
a manner so as to violate the holding period requirements (a "disqualifying
disposition"), the employee generally will realize ordinary income in the year
of disposition, and, provided the Company complies with applicable withholding
requirements, the Company will receive a corresponding deduction in an amount
equal to the excess of (1) the lesser of (x) the amount, if any, realized on the
disposition and (y) the fair market value of the shares on the date the option
was exercised over (2) the option price. Any additional gain realized on the
disposition of the shares acquired upon exercise of the option will be long-term
or short-term capital gain and any loss will be long-term or short-term capital
loss depending upon the holding period for such shares. The employee will be
considered to have disposed of his shares if he sells, exchanges, makes a gift
of or transfers legal title to the shares (except by pledge or by transfer on
death). If the disposition of shares is by gift and violates the holding period
requirements, the amount of the employee's ordinary income (and the Company's
deduction) is equal to the fair market value of the shares on the date of
exercise less the option price. If the disposition is by sale or exchange, the
employee's tax basis will equal the amount paid for the shares plus any ordinary
income realized as a result of the disqualifying disposition. The exercise of an
Incentive Option may subject the employee to the alternative minimum tax.
Special rules apply if an employee surrenders UCRI Shares in payment of the
exercise price of such employee's Incentive Option.
An Incentive Option that is exercised by an employee more than three months
after an employee's employment terminates will be treated as a Non-Qualified
Option for Federal income tax purposes. In the case of an employee who is
disabled, the three-month period is extended to one year and in the case of an
employee who dies, the three-month employment rule does not apply.
Non-Qualified Options. There are no Federal income tax consequences to
either the optionee or the Company on the grant of a Non-Qualified Option. On
the exercise of a Non-Qualified Option, the optionee (except as described below)
has taxable ordinary income equal to the excess of the fair market value of the
UCRI Common Stock received on the exercise date over the option price of the
shares. The optionee's tax basis for the shares acquired upon exercise of a
Non-Qualified Option is increased by the amount of such taxable income. The
Company will be entitled to a Federal income tax deduction in an amount equal to
such excess, provided the Company complies with applicable withholding rules.
Upon the sale of the shares acquired by exercise of a Non-Qualified Option, the
optionee will realize long-term or short-term capital gain or loss depending
upon his or her holding period for such shares.
Special rules apply if an optionee surrenders UCRI Shares in payment of the
exercise price of a Non-Qualified Option.
PARACHUTE PAYMENTS
The exercise of any portion of any option that is accelerated due to the
occurrence of a change of control may cause a portion of the payments with
respect to such accelerated options to be treated as "parachute payments" as
defined in the Code. Any such parachute payments may be non-deductible to the
Company, in whole or in part, and may subject the recipient to a non-deductible
20% federal excise tax on all or portion of such payments (in addition to other
taxes ordinarily payable).
68
<PAGE> 77
LIMITATION ON COMPANY'S DEDUCTIONS
As a result of Section 162(m) of the Code, the Company's deduction for
certain awards under the 1997 Stock Option Plan may be limited to the extent
that the Chief Executive Officer or other executive officer whose compensation
is required to be reported in the summary compensation table receives
compensation (other than performance-based compensation) in excess of $1 million
a year.
1997 STOCK PURCHASE PLAN
The Company's 1997 Stock Purchase Plan (the "Stock Purchase Plan") provides
an opportunity for eligible employees of the Company and its subsidiaries to
purchase UCRI Shares, at a discount, through regular payroll deductions of up to
50% of their pre-tax gross salary. Subject to adjustment for stock splits, stock
dividends and similar events, a maximum of 400,000 UCRI Shares may be issued
under the Stock Purchase Plan.
The first offering under the Stock Purchase Plan will begin on the first
business day after the Offer Closing Date and end on September 30, 1997. Unless
otherwise determined by the Board, subsequent offerings will commence on each
October 1, January 1, April 1 and July 1 thereafter and will have a duration of
three months. The Purchase Plan Administrator (as defined below) may, in its
discretion select a different offering period for any offering, provided the
duration of the offering is not more than one year. Generally, all employees who
are customarily employed for more than 20 hours per week as of the first day of
the applicable offering period are eligible to participate in the Stock Purchase
Plan.
The maximum number of shares which may be purchased by a participating
employee of the Company and is subsidiaries during an offering will be
determined by the Purchase Plan Administrator on a uniform basis and generally
will equal 1,000 UCRI Shares. An employee may purchase shares under the Stock
Purchase Plan by authorizing payroll deductions of up to 50% of his regular pay
during this offering period. Unless the employee has previously withdrawn from
the offering, his accumulated payroll deductions will be used to purchase UCRI
Shares on the last business day of the period at a price equal to no less than
85% of the fair market value of the UCRI Common Stock on the first or last day
of this offering period, whichever is lower. For these purposes, the fair market
value of the UCRI Common Stock on the first day of the initial offering period
shall be deemed to be the offering price to the public on such date. Under
applicable tax rules, an employee may purchase no more than $25,000 worth of
UCRI Common Stock in any calendar year (determined on the first day of this
offering period(s) in which such stock is purchased); certain other tax
limitations may apply.
The Stock Purchase Plan will be administered by the person or persons
appointed by the Board (the "Purchase Plan Administrator"). The Purchase Plan
Administrator has the discretion to designate the subsidiaries of the Company
whose employees are eligible to participate in the Stock Purchase Plan from time
to time. The Purchase Plan Administrator may at any time amend the Stock
Purchase Plan, subject to the approval of the Company's stockholders if and to
the extent required to preserve the favorable tax treatment of participants, or
discontinue the Stock Purchase Plan.
The Stock Purchase Plan is intended to qualify as an "employee stock
purchase plan" as defined in Section 423 of the Code, which provides that an
employee will not have income for federal income tax purposes at the start of an
offering or upon receipt of UCRI Shares at the end of an offering, but generally
will recognize ordinary income, in addition to capital gain or loss, when the
employee sells the shares. The Company generally will not be entitled to a tax
deduction upon either the purchase or sale of shares issued under the Stock
Purchase Plan if certain holding period requirements are met.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee of the Board are Messrs.
Cox, O'Donnell and Schwartz and Ms. Belton, all of whom served as members of the
Compensation Committee of the DAKA International Board. For a discussion of
certain transactions among the Company and the members of the Compensation
Committee, see "Certain Relationships and Related Transactions."
69
<PAGE> 78
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
INTEREST OF CERTAIN PERSONS IN THE DISTRIBUTION
Employee Benefit and Other Arrangements for Officers and Directors
The executive officers of the Company will be entitled to participate in
certain deferred compensation, stock option, severance and other benefit
arrangements provided by the Company following the Distribution, which will not
be available to all employees of the Company; however, the compensation and
other benefit arrangements in which the officers and directors of the Company
will be entitled to participate following the Distribution will be substantially
the same as the compensation and other benefit arrangements which were extended
to those individuals in their previous capacities as officers and/or directors
of DAKA International. In addition, following the Distribution, certain of the
directors, officers and employees of the Company may be entitled to receive
certain adjustments to their existing benefit arrangements, including
adjustments made to outstanding stock options, as a result of the consummation
of the proposed transactions. See "The Reorganization -- Treatment of DAKA Stock
Options" and "Management -- Amendment to CEO Long-Term Incentive Plan."
In addition, each officer or director of the Company who is a former
officer or director of DAKA International and/or Daka will be entitled to be
indemnified by the Company to the fullest extent authorized by Delaware law, as
it now exists or may in the future be amended, against all expenses and
liabilities reasonably incurred in connection with his previous service for or
on behalf of DAKA International and/or Daka pursuant to Indemnification
Agreements with the Company (the "Indemnification Agreements" and each, an
"Indemnification Agreement"). See "Liability and Indemnification of Directors
and Officers" and "Management -- Interest of Certain Persons in the
Distribution."
Bear Stearns has acted as financial advisor to DAKA International in
connection with the Offer, the Merger and the Distribution, and will receive a
fee for such services, payment of which is contingent upon the consummation of
the transactions contemplated by the Merger Agreement and the Ancillary
Agreements. The transaction fee relating to the Offer, the Merger and the
Distribution is expected to equal approximately $1.95 million. In the past, Bear
Stearns and its affiliates have provided financial advisory and financing
services for DAKA International and have received fees for rendering such
services. Alan D. Schwartz is Senior Managing Director -- Corporate Finance of
Bear Stearns, and a director of the Company and, effective after the Offer is
consummated, a former director of DAKA International.
Allen R. Maxwell, a director of the Company and, effective after the Offer
is consummated, a former director of DAKA International, entered into a
Termination and General Release Agreement (the "Release") with DAKA
International and the Company as of May 27, 1997, which Release was required by
the Purchaser as a condition of the Offer. Pursuant to the Release and
conditioned upon the consummation of the Offer, (i) Mr. Maxwell will terminate
his existing employment agreement with DAKA International as of the Offer
Closing Time, (ii) each of DAKA International and Mr. Maxwell will release the
other from the claims it may have under the employment agreement as of the Offer
Closing Time and (iii) the Company will pay Mr. Maxwell $500,000 over a
three-year period that commences on January 1, 1998.
On May 23, 1997, Mr. Maxwell entered into a new employment agreement (the
"New Maxwell Employment Agreement") by and among Compass Group USA, Inc.
("Compass US"), DAKA International and Daka. Pursuant to the New Maxwell
Employment Agreement, Mr. Maxwell will act as the president of Daka and will be
an officer and a member of senior management of Compass US during the term of
the agreement. The agreement provides for an initial term commencing on the
Merger Effective Time and ending on September 30, 1999 and for a continuing term
until the agreement is terminated in accordance with the terms thereof. Under
the New Maxwell Employment Agreement, Mr. Maxwell will receive an annual base
salary of $280,000 and other customary benefits, and will be eligible to receive
a discretionary bonus at year-end for his services rendered during the initial
term. The agreement further provides that in the event Mr. Maxwell's employment
is terminated without "cause" (as defined therein), he shall be paid a severance
amount equal to one and one-half times his compensation package under the
agreement over an eighteen-month period. The New Maxwell Employment Agreement is
contingent upon the consummation of the Merger.
William H. Baumhauer, Chairman, Chief Executive Officer and President of
the Company had his Performance Award under the LTIP amended pursuant to an
agreed upon formula in the manner described under "Management -- Amendment to
CEO Long-Term Incentive Plan."
70
<PAGE> 79
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The outstanding voting securities of DAKA International as of April 30,
1997 consisted of 11,092,859 DAKA Shares, each of which is entitled to one vote
on each matter submitted to a vote of the stockholders, and 11,911.545 shares of
Series A Preferred Stock, convertible into 264,701 DAKA Shares, each of which is
entitled to one vote on each matter submitted to a vote of the stockholders for
each DAKA Share issuable upon conversion of the Series A Preferred Stock at the
time a vote is taken.
The following table sets forth certain information, as of April 30, 1997,
with respect to each person known by the Company to be the beneficial owner of
more than 5% of any class of the voting stock of DAKA International, each
director of the Company, each named executive officer of the Company, and all
directors and executive officers of the Company as a group. After giving effect
to the Distribution, it is expected that these holders will hold UCRI Shares in
similar proportions to the amounts set forth below.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
---------------------------------
PERCENTAGE
-------------------
NUMBER OF COMMON VOTING
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES(1) STOCK STOCK(2)
- ------------------------------------------------------------- --------- ------ --------
<S> <C> <C> <C>
5% Stockholders
Timothy R. Barakett.......................................... 608,600(3) 5.5% 5.4%
590 Madison Avenue, 32nd Floor, New York, NY 10022
Barrow, Hanley, Mewhinney & Strauss, Inc..................... 579,600(4) 5.2 5.1
One McKinney Plaza, 3232 McKinney Avenue, 15th Floor
Dallas, TX 75204-2429
Named Executive Officers and Directors
William H. Baumhauer(5)...................................... 187,000(6) 1.7 1.6
Erline Belton(7)............................................. 6,500(8) * *
E.L. Cox(9).................................................. 8,500(10) * *
Louis A. Kaucic(5)........................................... 15,100(11) * *
Allen R. Maxwell(5).......................................... 392,766(12) 3.5 3.4
Joseph W. O'Donnell(13)...................................... 3,400(14) * *
David G. Parker(5)........................................... 32,500(15) * *
Charles W. Redepenning, Jr.(5)............................... 23,100(16) * *
Alan D. Schwartz(17)......................................... 10,000(18) * *
Dean P. Vlahos(19)........................................... 847,014 7.6 7.4
All directors and executive officers as a group (10)
persons.................................................... 1,525,880 13.4% 13.1%
</TABLE>
- ---------------
* Less than 1%
(1) Beneficial share ownership is determined pursuant to Rule 13d-3 promulgated
under the Exchange Act. Accordingly, a beneficial owner of a security
includes any person who, directly or indirectly, through any contract,
arrangement, understanding, relationship or otherwise has or shares the
power to vote such security or the power to dispose of such security. The
amounts set forth in the table as beneficially owned include shares owned,
if any, by spouses and relatives living in the same home as to which
beneficial ownership may be disclaimed. The amounts set forth in the table
as beneficially owned include (i) DAKA Shares which directors and executive
officers have the right to acquire pursuant to previously granted options
exercisable within 60 days of April 30, 1997 and (ii) DAKA Shares which may
be acquired upon conversion of shares of Series A Preferred Stock
outstanding as of April 30, 1997.
(2) Includes all outstanding DAKA Shares and 11,911.545 shares of Series A
Preferred Stock remaining outstanding. For purposes of determining the
percentages set forth in the table, each outstanding share of Series A
Preferred Stock is counted as the equivalent of the 22.22 DAKA Shares into
which it can be converted, because it is entitled to one vote on each
matter submitted to a vote of stockholders for each DAKA Share issuable
upon conversion.
(3) This information is based upon a Schedule 13D filed with the Commission on
May 19, 1997.
71
<PAGE> 80
(4) This information is based upon a Schedule 13D filed with the Commission on
February 13, 1997.
(5) The address of the beneficial owner is One Corporate Place, 55 Ferncroft
Road, Danvers, MA 01923.
(6) DAKA Shares issuable upon exercise of options.
(7) The address of the beneficial owner is 41 Hawthone Street, Roxbury, MA
02119.
(8) Includes 5,500 DAKA Shares issuable upon exercise of options.
(9) The address of the beneficial owner is 2215 Covey Court, Grand Rapids, MI
49546.
(10) DAKA Shares issuable upon exercise of options.
(11) Includes 14,500 DAKA Shares issuable upon exercise of options.
(12) Includes 35,000 DAKA Shares issuable upon exercise of options.
(13) The address of the beneficial owner is Route 7A, Equinox Jr., Floor 2,
Manchester, VT, 05254.
(14) Includes 1,500 DAKA Shares issuable upon exercise of options.
(15) DAKA Shares issuable upon exercise of options.
(16) Includes 22,500 DAKA Shares issuable upon exercise of options.
(17) The address of the beneficial owner is 245 Park Avenue, New York, NY 10167.
(18) DAKA Shares issuable upon exercise of options.
(19) The address of the beneficial owner is 153 East Lake Street, Wayzata, MN
55391.
72
<PAGE> 81
DESCRIPTION OF THE COMPANY'S CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
The authorized capital stock of the Company consists of 30,000,000 UCRI
Shares, of which 11,413,001 UCRI Shares will be issued and outstanding as of the
Distribution Date, and 5,000,000 shares of Preferred Stock, of which no shares
will be issued and outstanding. The following summary description of the capital
stock of the Company is qualified in its entirety by reference to the
Certificate as of the Distribution Date and By-laws, copies of which are filed
as exhibits to the registration statement of which this Information Statement is
a part. The Certificate and By-laws have been adopted by the stockholders of the
Company and the Board.
Common Stock. Holders of UCRI Common Stock are entitled to one vote per
share on all matters to be voted on by stockholders. Holders of UCRI Common
Stock are not entitled to cumulative voting rights. Therefore, the holders of a
majority of the shares voted in the election of directors can elect all of the
directors then standing for election, subject to the rights of the holders of
Preferred Stock, if and when issued. The holders of UCRI Common Stock have no
preemptive or other subscription rights.
The holders of UCRI Common Stock are entitled to receive such dividends, if
any, as may be declared from time to time by the Board from funds legally
available therefor, with each UCRI Share sharing equally in such dividends. The
possible issuance of Preferred Stock with a preference over UCRI Common Stock as
to dividends could impact the dividend rights of holders of UCRI Common Stock.
There are no redemption or sinking fund provisions with respect to the UCRI
Common Stock. All outstanding UCRI Shares, including the shares offered hereby,
are, or will be upon completion of the Offering, fully paid and non-assessable.
The By-laws provide, subject to the rights of the holders of the Preferred
Stock, if and when issued, that the number of directors shall be fixed by the
Board. The directors, other than those who may be elected by the holders of
Preferred Stock, if and when issued, are divided into three classes, as nearly
equal in number as possible, with each class serving for a three-year term,
except with respect to the initial term of each class of directors which shall
be for the period described under "Management -- Directors and Executive
Officers." Subject to any rights of the holders of Preferred Stock, if and when
issued, to elect directors, and to remove any director, whom the holders of any
such stock had the right to elect, any director of the Company may be removed
from office only for cause and by the affirmative vote of at least two-thirds of
the total votes which would be eligible to be cast by stockholders in the
election of such director.
Undesignated Preferred Stock. The Board is authorized, without further
action of the stockholders of the Company, to issue up to 5,000,000 shares of
Preferred Stock in classes or series and to fix the designations, powers,
preferences and the relative, participating, optional or other special rights of
the shares of each series and any qualifications, limitations and restrictions
thereon as set forth in the Certificate. Any such Preferred Stock issued by the
Company may rank prior to the UCRI Common Stock as to dividend rights,
liquidation preference or both, may have full or limited voting rights and may
be convertible into UCRI Shares.
The purpose of authorizing the Board to issue Preferred Stock is, in part,
to eliminate delays associated with a stockholder vote on specific issuances.
The issuance of Preferred Stock could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring or seeking to acquire, a significant portion of the outstanding stock
of the Company.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BY-LAWS
General. A number of provisions of the Certificate and By-laws concern
matters of corporate governance and the rights of stockholders. Certain of these
provisions, as well as the ability of the Board to issue shares of Preferred
Stock and to set the voting rights, preferences and other terms thereof, may be
deemed to have an anti-takeover effect and may discourage takeover attempts not
first approved by the Board (including takeovers which certain stockholders may
deem to be in their best interests). To the extent takeover attempts are
discouraged, temporary fluctuations in the market price of the UCRI Common
Stock, which may result from actual or rumored takeover attempts, may be
inhibited. These provisions, together with
73
<PAGE> 82
the classified Board and the ability of the Board to issue Preferred Stock
without further stockholder action, also could delay or frustrate the removal of
incumbent directors or the assumption of control by stockholders, even if such
removal or assumption would be beneficial to the stockholders of the Company.
These provisions also could discourage or make more difficult a merger, tender
offer or proxy contest, even if favorable to the interests of the stockholders
of the Company, and could depress the market price of the UCRI Common Stock. The
Board believes that these provisions are appropriate to protect the interests of
the Company and all of its stockholders. The Board has no present plans to adopt
any other measures or devices which may be deemed to have an "anti-takeover
effect".
Board of Directors. The Certificate provides for the Board to be divided
into three classes of directors serving staggered three-year terms. As a result,
approximately one-third of the Board will be elected each year. In addition, the
Certificate provides that stockholders may remove a director only for cause and
only by the vote of the holders of two-thirds of the UCRI Common Stock.
Meetings of Stockholders. The By-laws provide that a special meeting of
stockholders may be called only by the Board, unless otherwise required by law.
The By-laws provide that only those matters set forth in the notice of special
meeting may be considered or acted upon at that special meeting, unless
otherwise provided by law. In addition, the By-laws set forth certain advance
notice and informational requirements and time limitations on any director
nomination or any new business which a stockholder wishes to propose for
consideration at an annual or special meeting of stockholders.
No Stockholder Action by Written Consent. The Certificate provides that
any action required or permitted to be taken by the stockholders of the Company
at an annual or special meeting of stockholders must be effected at a duly
called meeting and may not be taken or effected by a written consent of
stockholders in lieu thereof.
Indemnification and Limitation of Liability. The By-laws provide that
directors and officers of the Company shall be, and, in the discretion of the
Board, non-officer employees may be, indemnified by the Company to the fullest
extent authorized by Delaware law, as it now exists or may in the future be
amended, against all expenses and liabilities reasonably incurred in connection
with service for or on behalf of the Company, and under certain circumstances in
connection with service for or on behalf of DAKA International. The By-laws also
provide that the right of directors and officers to indemnification shall be a
contract right and shall not be exclusive of any other right now possessed or
hereafter acquired under any by-law, agreement, vote of stockholders or
otherwise. See "Liability and Indemnification of Directors and Officers." The
Certificate contains a provision permitted by Delaware law that generally
eliminates the personal liability of directors for monetary damages for breaches
of their fiduciary duty, including breaches involving negligence or gross
negligence in business combinations, unless the director has breached his or her
duty of loyalty, failed to act in good faith, engaged in intentional misconduct
or a knowing violation of law, paid a dividend or approved a stock repurchase in
violation of the DGCL or obtained an improper personal benefit. This provision
does not alter a director's liability under the federal securities laws. In
addition, this provision does not affect the availability of equitable remedies,
such as an injunction or rescission, for breach of fiduciary duty.
Amendment of the Certificate. The Certificate provides that an amendment
thereof must first be approved by, a majority of the Board and (with certain
exceptions) thereafter approved by the holders of a majority of the outstanding
shares entitled to vote on such amendment or repeal and the affirmative vote of
a majority of the outstanding shares of each class entitled to vote thereon as a
class; provided however, that the affirmative vote of two-thirds of the
outstanding shares of each class entitled to vote thereon as a class, is
required to amend (i) provisions set forth in Article V therein relating to
stockholder actions at annual or special meetings of stockholders, (ii)
provisions set forth in Article VI therein relating to directors of the Company,
(iii) provisions set forth in Article VII therein relating to the limitation of
liability of directors and officers of the Company and (iv) provisions set forth
in Article IX therein relating to amendments to the Certificate.
Amendment of By-laws. The Certificate provides that the By-laws may be
amended or repealed by the Board or by the stockholders. Such action by the
Board requires the affirmative vote of a majority of the
74
<PAGE> 83
directors then in office. Such action by the stockholders requires the
affirmative vote of the holders of at least two-thirds of the total votes
eligible to be cast by holders of voting stock with respect to such amendment or
repeal at an annual meeting of stockholders or a special meeting called for such
purpose, unless the Board recommends that the stockholders approve such
amendment or repeal at such meeting, in which case such amendment or repeal
shall only require the affirmative vote of a majority of the total votes
eligible to be cast by holders of voting stock with respect to such amendment or
repeal.
Ability to Adopt Shareholder Rights Plan. The Board may in the future
resolve to issue shares of Preferred Stock or rights to acquire such shares to
implement a shareholder rights plan. A shareholder rights plan typically creates
voting or other impediments to discourage persons seeking to gain control of the
Company by means of a merger, tender offer, proxy contest or otherwise if such
change in control is not in the best interest of the Company and its
stockholders. The Board has no present intention of adopting a shareholder
rights plan and is unaware of any attempt to gain control of the Company.
STATUTORY BUSINESS COMBINATION PROVISION
The Company is subject to the provisions of Section 203 of the DGCL
("Section 203"). Section 203 provides, with certain exceptions, that a Delaware
corporation may not engage in any of a broad range of business combinations with
a person or affiliate, or associate of such person, who is an "interested
stockholder" for a period of three years from the date that such person became
an interested stockholder unless: (i) the transaction resulting in a person
becoming an interested stockholder, or the business combination, is approved by
the board of directors of the corporation before the person becomes an
interested stockholder, (ii) the interested stockholder acquired 85% or more of
the outstanding voting stock of the corporation in the same transaction that
makes it an interested stockholder (excluding shares owned by persons who are
both officers and directors of the corporation, and shares held by certain
employee stock ownership plans); or (iii) on or after the date the person
becomes an interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66 2/3% of the
corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. Under Section 203, an
"interested stockholder" is defined (with certain limited exceptions) as any
person that is (i) the owner of 15% or more of the outstanding voting stock of
the corporation or (ii) an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation at any
time within the three-year period immediately prior to the date on which it is
sought to be determined whether such person is an interested stockholder.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or by-laws by action of
its stockholders to exempt itself from coverage, provided that such by-law or
charter amendment shall not become effective until 12 months after the date it
is adopted. Neither the Certificate nor the By-laws contains any such exclusion.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar of the UCRI Common Stock is American Stock
Transfer & Trust Company.
HART-SCOTT-RODINO FILING REQUIREMENT
Any person receiving UCRI Shares pursuant to the Distribution and meeting
the criteria set forth below may be required to file a Premerger Notification
and Report pursuant to the Hart-Scott-Rodino Antitrust Improvement Act of 1976,
as amended (the "HSR Act"). In general, if (i) a person receiving UCRI Shares
pursuant to the Distribution would own, upon consummation of the Distribution,
UCRI Shares that exceed $15 million in value, (ii) certain jurisdictional
requirements are met and (iii) no exemption applies, then the HSR Act would
require that such person file a Premerger Notification and Report Form and
observe the applicable waiting periods under the HSR Act prior to acquiring UCRI
Shares pursuant to the Distribution. If such waiting periods have not expired or
been terminated at the Distribution Date with respect to such recipient, the
Company may be required to deliver such recipient's UCRI Shares into an escrow
facility
75
<PAGE> 84
pending the expiration or termination of such waiting period. Holders of UCRI
Shares are urged to consult their legal counsel to determine whether the
requirements of the HSR Act will apply to the receipt by them of UCRI Shares in
the Distribution.
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The directors and officers of the Company are indemnified by certain
provisions of the By-Laws and the Certificate. See "Description of the Company's
Capital Stock -- Certain Provisions of the Company's Certificate of
Incorporation and By-Laws -- Indemnification and Limitation of Liability." In
addition, the Company intends to enter into Indemnification Agreements with the
Indemnitees, pursuant to which the Company will agree to advance expenses and
indemnify such Indemnitees against certain liabilities incurred in connection
with their services as executive officers and/or directors of the Company and in
connection with their services as executive officers and/or directors of DAKA
International, prior to the consummation of the Offer (and, with respect to the
Independent Directors, prior to the consummation of the Merger). In the event of
a proceeding brought against an Indemnitee by or in the right of the Company or
DAKA International, such Indemnitee shall not be entitled to indemnification if
such Indemnitee is adjudged to be liable to the Company or DAKA International,
as the case may be, if applicable law prohibits such indemnification; provided,
however, that, if applicable law so permits, indemnification shall nevertheless
be made by the Company in such event if, and only to the extent that, the Court
of Chancery of the State of Delaware, or another court in which such proceeding
shall have been brought or is pending, shall determine.
Under the terms of each Indemnification Agreement, the Company shall
advance all reasonable expenses incurred by or on behalf of such Indemnitee in
connection with any proceeding in which Indemnitee is involved by reason of
Indemnitee's service to the Company or by reason of Indemnitee's service to DAKA
International prior to the consummation of the Offer (and, with respect to the
Independent Directors, prior to the consummation of the Merger) within ten days
after the receipt by the Company of a statement from such Indemnitee requesting
such advance. Such statement shall include, among other things, an undertaking
by or on behalf of such Indemnitee to repay any expenses so advanced if it shall
be ultimately determined that such Indemnitee is not entitled to indemnification
against such expenses.
The preceding description of the indemnification obligations of the Company
is intended as a summary only and is qualified in its entirety by the full text
of the form of such agreements on file with the Commission.
INDEPENDENT AUDITORS
The Board anticipates appointing Deloitte & Touche LLP as the Company's
independent auditors to audit the Company's financial statements for the fiscal
year ending June 28, 1997.
76
<PAGE> 85
UNIQUE CASUAL RESTAURANTS, INC.
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................................ F-2
Report of Independent Public Accountants.............................................. F-3
Combined Financial Statements:
Balance Sheets as of June 29, 1996, July 1, 1995 and March 29, 1997 (Unaudited)..... F-4
Statements of Operations for the fiscal years ended June 29, 1996, July 1, 1995
and July 2, 1994 and for the nine months ended March 29, 1997 (Unaudited) and
March 30, 1996 (Unaudited)....................................................... F-5
Statements of Cash Flows for the fiscal years ended June 29, 1996, July 1, 1995
and July 2, 1994 and for the nine months ended March 29, 1997 (Unaudited) and
March 30, 1996 (Unaudited)....................................................... F-6
Statements of Group Equity for the fiscal years ended June 29, 1996, July 1, 1995
and July 2, 1994 and for the nine months ended March 29, 1997 (Unaudited)........ F-7
Notes to Combined Financial Statements.............................................. F-8
</TABLE>
F-1
<PAGE> 86
The accompanying combined financial statements of Unique Casual
Restaurants, Inc. have been prepared to give effect to the legal transfer of the
"Transferred Businesses" to the Registrant which will not occur until
immediately before effectiveness of the Registrant's Registration Statement on
Form 10. On the effective date of the Registration Statement covering the shares
of common stock to be distributed, we will issue the following report.
"INDEPENDENT AUDITORS' REPORT
UNIQUE CASUAL RESTAURANTS, INC.:
We have audited the accompanying combined balance sheets of Unique Casual
Restaurants, Inc. as of June 29, 1996 and July 1, 1995 and the related combined
statements of operations, cash flows and group 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. We did not audit the
consolidated financial statements of Champps Entertainment, Inc. (an acquisition
by the Company accounted for as a pooling-of-interests), which statements
reflect total assets constituting 12.0% of combined total assets as of July 1,
1995, total revenues constituting 9.1% and 6.8% of combined total revenues for
the years ended July 1, 1995 and July 2, 1994, respectively, and net income
constituting 11.7% and 47.5% of combined net income for the years ended July 1,
1995 and July 2, 1994, respectively. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for Champps Entertainment, Inc., is based solely
on the report of such other auditors.
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 and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
such combined financial statements present fairly, in all material respects, the
financial position of Unique Casual Restaurants, Inc. as of June 29, 1996 and
July 1, 1995 and the results of its operations and its cash flows for each of
the three years in the period ended June 29, 1996, in conformity with generally
accepted accounting principles.
As discussed in Note 3 to the combined financial statements, during the
year ended June 29, 1996, the Company adopted 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."
Boston, Massachusetts
, 1997"
Deloitte & Touche LLP
Boston, Massachusetts
May 30, 1997
F-2
<PAGE> 87
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Champps Entertainment, Inc.:
We have audited the consolidated balance sheet of Champps Entertainment,
Inc. (a Minnesota corporation) and Subsidiaries as of July 2, 1995, and the
related consolidated statements of operations and shareholders' investment and
cash flows for the years ended July 2, 1995 and June 30, 1994, not included
herein. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Champps Entertainment, Inc.
and Subsidiaries as of July 2, 1995 and the results of their operations and cash
flows for the years ended July 2, 1995 and June 30, 1994 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
April 5, 1996
F-3
<PAGE> 88
UNIQUE CASUAL RESTAURANTS, INC.
COMBINED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
JUNE 29, JULY 1, MARCH 29,
1996 1995 1997
-------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash........................................................ $ 5,281 $ 5,727 $ 3,798
Accounts receivable, net.................................... 5,509 2,776 5,460
Inventories................................................. 3,488 2,633 4,389
Deferred tax assets......................................... -- 370 --
Prepaid expenses and other current assets................... 2,174 1,766 2,854
-------- -------- --------
Total current assets................................ 16,452 13,272 16,501
-------- -------- --------
Property and equipment:
Land........................................................ 10,587 8,751 10,587
Buildings and leasehold improvements........................ 80,787 66,008 93,468
Equipment................................................... 42,073 23,342 43,478
-------- -------- --------
133,447 98,101 147,533
Accumulated depreciation and amortization................... (26,168) (18,724) (34,080)
-------- -------- --------
Property and equipment, net.............................. 107,279 79,377 113,453
-------- -------- --------
Investments in, and advances to, affiliates................... 5,000 -- 5,000
Deferred tax assets........................................... 682 847 883
Other assets, net............................................. 12,935 8,935 12,126
-------- -------- --------
$142,348 $102,431 $147,963
======== ======== ========
LIABILITIES AND GROUP EQUITY:
Current liabilities:
Accounts payable............................................ $ 6,305 $ 5,997 $ 9,719
Accrued expenses............................................ 7,177 8,605 8,432
Current portion of long-term debt........................... 1,299 731 1,096
Deferred tax liabilities.................................... 228 -- 676
-------- -------- --------
Total current liabilities........................... 15,009 15,333 19,923
Long-term debt................................................ 5,067 3,278 4,002
Other long-term liabilities................................... 12,210 7,933 12,322
Minority interests............................................ 1,168 1,908 1,104
Commitments and contingencies (Note 11)
Group equity.................................................. 108,894 73,979 110,612
-------- -------- --------
$142,348 $102,431 $147,963
======== ======== ========
</TABLE>
See notes to combined financial statements.
F-4
<PAGE> 89
UNIQUE CASUAL RESTAURANTS, INC.
COMBINED STATEMENTS OF OPERATIONS
FISCAL YEARS ENDED JUNE 29, 1996, JULY 1, 1995 AND JULY 2, 1994,
AND FOR THE NINE MONTHS ENDED MARCH 29, 1997 AND MARCH 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------
MARCH 29, MARCH 30,
1996 1995 1994 1997 1996
-------- -------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Sales............................... $176,050 $131,698 $ 95,798 $148,466 $128,515
Franchising and royalty income...... 7,705 6,032 4,879 3,894 6,528
-------- -------- -------- -------- --------
Total............................ 183,755 137,730 100,677 152,360 135,043
-------- -------- -------- -------- --------
COSTS AND EXPENSES:
Cost of sales and operating
expenses......................... 148,155 108,126 78,562 131,142 106,685
Selling, general and administrative
expenses......................... 24,181 18,566 13,611 21,495 18,107
Depreciation and amortization....... 12,136 6,632 4,551 11,764 8,342
Impairment charges.................. 3,026 -- -- -- 3,026
Merger costs........................ 2,900 -- -- -- 2,900
Interest expense.................... 641 331 300 613 375
Interest income..................... (353) (622) (327) (321) (244)
-------- -------- -------- -------- --------
Total............................ 190,686 133,033 96,697 164,693 139,191
-------- -------- -------- -------- --------
Income (loss) before income taxes
(benefit) and minority interests.... (6,931) 4,697 3,980 (12,333) (4,148)
Income tax expense (benefit).......... (536) 3,068 2,591 (3,721) 404
Minority interests.................... (725) (169) 89 (64) (724)
-------- -------- -------- -------- --------
Net income (loss)..................... $ (5,670) $ 1,798 $ 1,300 $ (8,548) $ (3,828)
======== ======== ======== ======== ========
Pro forma loss per share.............. $(0.50) -- -- $(0.75) --
Pro forma weighted average common
shares outstanding.................. 11,405 11,405
</TABLE>
See notes to combined financial statements.
F-5
<PAGE> 90
UNIQUE CASUAL RESTAURANTS, INC.
COMBINED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED JUNE 29, 1996, JULY 1, 1995 AND JULY 2, 1994
AND FOR THE NINE MONTHS ENDED MARCH 29, 1997 AND MARCH 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------
MARCH 29, MARCH 30,
1996 1995 1994 1997 1996
-------- -------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................... $ (5,670) $ 1,798 $ 1,300 $ (8,548) $ (3,828)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization............ 12,136 6,632 4,551 11,764 8,342
Impairment charges....................... 3,026 -- -- -- 3,026
Deferred income taxes.................... 763 (36) 402 247 392
Minority interests....................... (725) (169) 89 (64) (724)
Write-down of shareholder note........... -- -- 344 -- --
Change in assets and liabilities, net of
acquisitions:
Accounts receivable...................... (2,733) (657) (954) 49 (2,931)
Inventories.............................. (855) (705) (155) (901) (543)
Prepaid expenses and other assets........ (7,849) (3,140) (1,544) (3,539) (3,346)
Accounts payable and accrued expenses.... (845) 3,700 2,455 4,669 (1,317)
Other long-term liabilities.............. 1,385 1,889 2,178 67 (371)
-------- -------- -------- -------- --------
Net cash provided by (used in)
operating activities........... (1,367) 9,312 8,666 3,744 (1,300)
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment......... (51,572) (32,146) (8,181) (21,501) (41,418)
Cash paid for acquisitions, net............ -- (623) (7,137) -- --
Investment in, and advances to
affiliates............................... (5,000) -- (2,800) -- (5,000)
-------- -------- -------- -------- --------
Net cash used in investing
activities..................... (56,572) (32,769) (18,118) (21,501) (46,418)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing under a subsidiaries revolving
credit facility, net..................... 1,500
Proceeds from sale-leaseback facility...... 18,651 5,742 -- 9,081 11,833
Contributed capital........................ 39,932 14,179 16,445 10,168 32,899
Sales of preferred stock by subsidiary..... -- -- 1,103 -- --
Repayments of capital lease on
obligations.............................. (1,090) (1,588) (1,328) (2,975) (621)
-------- -------- -------- -------- --------
Net cash provided by financing
activities..................... 57,493 18,333 16,220 16,274 45,611
-------- -------- -------- -------- --------
Net increase (decrease) in cash............ (446) (5,124) 6,768 (1,483) (2,107)
Cash, beginning of year.................... 5,727 10,851 4,083 5,281 5,727
-------- -------- -------- -------- --------
Cash, end of year.......................... $ 5,281 $ 5,727 $ 10,851 $ 3,798 $ 3,620
======== ======== ======== ======== ========
</TABLE>
See notes to combined financial statements.
F-6
<PAGE> 91
UNIQUE CASUAL RESTAURANTS, INC.
COMBINED STATEMENTS OF GROUP EQUITY
FISCAL YEARS ENDED JUNE 29, 1996, JULY 1, 1995 AND JULY 2, 1994
AND FOR THE NINE MONTHS ENDED MARCH 29, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
BALANCE, JUNE 27, 1993............... $ 39,921
Contributed capital:
Cash............................... 16,445
Net income........................... 1,300
--------
Contributed capital:
Cash............................... 14,179
Non-cash........................... 336
Net income........................... 1,798
--------
BALANCE, JULY 1, 1995................ 73,979
Contributed capital:
Cash............................... 39,932
Non-cash........................... 653
Net loss............................. (5,670)
--------
BALANCE, JUNE 29, 1996............... 108,894
Contributed capital:
Cash (unaudited)................... 10,168
Non-cash (unaudited)............... 98
Net loss (unaudited)................. (8,548)
--------
BALANCE, MARCH 29, 1997
(UNAUDITED)........................ $110,612
========
</TABLE>
See notes to combined financial statements.
F-7
<PAGE> 92
UNIQUE CASUAL RESTAURANTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JUNE 29, 1996, JULY 1, 1995 AND JULY 2, 1994
(INFORMATION AS OF MARCH 29, 1997 AND FOR THE NINE MONTHS ENDED MARCH 29, 1997
AND MARCH 30, 1996 IS UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. BACKGROUND AND BASIS OF PRESENTATION
Background
Unique Casual Restaurants, Inc. (the "Company") is a newly formed Delaware
corporation which was formed on May 27, 1997 prior to its spin-off to holders of
the common stock of DAKA International, Inc. ("DAKA International") pursuant to
the transactions described below in Note 2 (the "Spinoff"). The Company's
principal business activities will be to own and operate the restaurant
operations, previously operated by various subsidiaries and divisions of DAKA
International prior to the formation and the Spinoff of the Company.
Basis of Presentation and Business
The accompanying combined financial statements include the accounts of the
DAKA International majority controlled subsidiaries which will be transferred to
the Company prior to the Spinoff, Fuddruckers, Inc. ("Fuddruckers"), Champps
Entertainment, Inc. ("CEI" or "Champps"), The Great Bagel and Coffee Company
("Great Bagel and Coffee"), Casual Dining Ventures, Inc. ("CDVI") and Atlantic
Restaurant Ventures, Inc. ("ARVI"). The historical DAKA International basis in
the assets and liabilities transferred to the Company in connection with the
transactions described in Note 2 have been recorded as the Company's initial
cost basis in a manner similar to a pooling-of-interests. In addition, the
combined statements of operations and cash flows include the combined financial
statements of the Company, Fuddruckers, CEI, Great Bagel and Coffee, CDVI and
ARVI in a manner similar to a pooling-of-interests. Minority shareholders'
equity in earnings (losses) of less than 100% owned subsidiaries is presented as
minority interests in the accompanying combined financial statements.
Significant intercompany balances and transactions have been eliminated in
combination.
2. FORMATION OF THE COMPANY
On May 27, 1997, DAKA International and its wholly-owned subsidiary, Daka,
Inc., a Massachusetts corporation ("Daka"), entered into an Agreement and Plan
of Merger (the "Merger Agreement") with Compass Interim, Inc., a Delaware
corporation (the "Purchaser"), a wholly-owned subsidiary of Compass Holdings,
Inc., a Delaware corporation, a wholly-owned subsidiary of Compass Group PLC
("Compass"), pursuant to which the Purchaser agreed, upon the satisfaction of
certain conditions, to commence a tender offer (the "Offer") for all of the
outstanding shares of DAKA International common stock (the "Merger").
Immediately prior to the consummation of the Offer, pursuant to a plan of
contribution and distribution as described in the Reorganization Agreement (the
"Reorganization Agreement"), dated as of May 27, 1997, by and among DAKA
International, Daka, the Company and Compass, DAKA International and certain of
its subsidiaries, including Daka and the Company, intend to make various
contributions of assets and equity interests to each other in the form of
dividends and capital contributions in order to divest DAKA International of its
restaurant businesses (the "Transferred Businesses") and for such assets to be
contributed to the Company. Following these transactions, the remaining business
activities of DAKA International will be its existing foodservice operations.
Following consummation of the Offer, and subject to certain conditions, the
Purchaser will merge with and into DAKA International. On or about the same time
as the acceptance for the purchase of shares of DAKA International common stock
pursuant to the Offer, DAKA International will distribute to each holder
F-8
<PAGE> 93
UNIQUE CASUAL RESTAURANTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
of record of shares of DAKA International common stock, one share of common
stock of the Company for each share of DAKA International owned by such
shareholder (the "Distribution").
The Distribution is conditioned upon, among other things, the satisfaction
or waiver of all of the conditions to the Offer. The Offer is conditioned upon,
among other things, there being validly tendered and not withdrawn shares of
DAKA International common stock which, when added to the shares then
beneficially owned by Compass and its affiliates, constitute at least two-thirds
of the voting power of all such outstanding shares of DAKA International common
stock on a fully diluted basis. No consideration will be paid by DAKA
International's stockholders for the shares of the Company's common stock. As a
result of the Distribution, the Company will cease to be a subsidiary of DAKA
International and will operate as an independent, publicly-held company. If
shares of DAKA International common stock are not accepted for tender pursuant
to the Offer, DAKA International does not presently intend to effect the
Distribution.
Certain other non-restaurant operating assets and liabilities of DAKA
International will also be contributed (the "Additional Capital Contribution")
to the Company prior to the Distribution. However, those assets and liabilities
consisting of trade accounts receivable, certain prepaid assets, property and
equipment, accounts payable, accrued expenses, contingent liabilities and
deferred taxes have not been included in the accompanying combined financial
statements since those assets and liabilities are principally related to DAKA
International's Foodservice Businesses and have not been used in the historical
operation of the Transferred Businesses. Pursuant to the terms of the Additional
Capital Contribution, the Purchaser or its affiliates will act as an agent to
process the accounts receivable and accounts payable related to the Additional
Capital Contribution (the "Contributed Working Capital").
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activities of the Company
Following the consummation of the transactions described in Notes 1 and 2,
which are collectively referred to as "the Transaction" for purposes of these
combined financial statements, the Company will be a diversified restaurant
company serving customers through a variety of venues. The Company's Fuddruckers
and Champps operations serve customers in casual and upscale restaurant
settings, respectively, throughout the United States and in Canada, Australia,
and the Middle East. 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.
During the nine months ended March 29, 1997, the Company incurred a loss
before income tax benefit and minority interests of approximately $12,300.
Management expects to significantly reduce selling, general and administrative
expenses as a percentage of sales, from levels reflected in the Company's
historical combined financial statements, while continuing to increase net
revenues, resulting in improvement in overall operating results. However, the
ultimate attainment of profitable operations is dependent upon favorable events
including obtaining adequate financing to continue to expand Champps and
revitalize the Fuddruckers concept. The Company is negotiating the terms and
conditions of a new bank facility. Management believes that its existing cash
balances, together with the Additional Capital Contribution, will be sufficient
to fund the Company's cash flow requirements and operating activities through
fiscal 1998. Prior to the distribution DAKA International has financed the
Company's operating activities principally through DAKA International's lending
agreements.
Fiscal Year
The Company's fiscal year ends on the Saturday closest to June 30th. For
purposes of these notes to the combined 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.
F-9
<PAGE> 94
UNIQUE CASUAL RESTAURANTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Unaudited Interim Information
In the opinion of management, the combined financial statements for the
unaudited periods presented include all adjustments necessary for a fair
presentation in accordance with generally accepted accounting principles,
consisting solely of normal recurring accruals and adjustments. The results of
operations and cash flows for the nine months ended March 29, 1997 and March 30,
1996 are not necessarily indicative of results which would be expected for a
full year.
Allocation of Certain Expenses
The restaurant operations, as presented herein, include allocations and
estimates of certain expenses, principally corporate accounting and tax, cash
management, corporate information technology, legal, risk management, purchasing
and human resources, historically provided to the Company by DAKA International.
The amount of such allocated expenses in these combined financial statements
have been allocated by management based upon a variety of factors including, for
example, personnel, labor costs and sales volumes. Such allocations have been
reported within selling, general and administrative expenses and aggregate
$7,790, $6,550 and $5,981 for 1996, 1995 and 1994, respectively, and $6,743 and
$5,410 for each of the nine months in the periods ended March 29, 1997 and March
30, 1996, respectively. Management believes these allocations have been made on
a reasonable basis and the expenses associated with such activities should not
increase following the Transaction. However, the financial position and results
of operations, as presented herein, may not be the same as would have occurred
had the restaurant operations been a separate entity.
The accompanying combined financial statements do not include an allocation
of interest expense associated with DAKA International's revolving
line-of-credit agreements as such obligations will be assumed by the Purchaser
pursuant to the terms of the Transaction. Interest on long-term obligations
transferred to the Company has been included in the Company's statement of
operations for all periods presented.
Significant Estimates
In the process of preparing its combined 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 combined financial statements include allowances for potential bad
debts on accounts and notes receivable, the useful lives and recoverability of
its assets such as property and intangibles, fair values of financial
instruments, the realizable value of its tax assets and accruals for workers
compensation, general liability and health insurance programs. Management bases
its estimates on certain assumptions, which they believe are reasonable in the
present 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 financial position
or the results of operations. However, management is reviewing the Company's
restaurant units to determine whether the Company's financial resources after
the Transaction will be sufficient to continue supporting restaurant units with
marginal performance. To the extent that management determines through its
ongoing analysis that the Company will not continue to support such
underperforming restaurants, the Company anticipates recording a charge during
the fourth quarter of fiscal 1997 to provide for exit costs associated with
these restaurant units. Further, the Company anticipates recording additional
charges during the fourth quarter of fiscal 1997 to provide for the costs of
downsizing the Company's corporate and field functions after the Transaction.
Concentration of Credit Risk
The Company extends credit to its franchisees on an unsecured basis in the
normal course of business. No individual franchisee is significant to the
Company's franchisee base. The Company has policies governing the extension of
credit and collection of amounts due from franchisees.
F-10
<PAGE> 95
UNIQUE CASUAL RESTAURANTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's allowance for uncollectible accounts receivable and related
bad debt expense are not material for each period presented.
Inventories
Inventories are stated at the lower of cost, determined using the first-in,
first-out method, or market value. Inventories include the initial cost of
smallwares with replacements charged to expense when purchased.
The components of inventories are as follows:
<TABLE>
<CAPTION>
MARCH 29,
1996 1995 1997
------ ------ ---------
<S> <C> <C> <C>
Food and liquor........................................ $1,109 $ 786 $1,478
Smallwares............................................. 1,970 1,558 2,277
Supplies............................................... 409 289 634
------ ------ ------
$3,488 $2,633 $4,389
====== ====== ======
</TABLE>
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 businesses. 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 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 by DAKA International during the construction of
new, or the expansion and major remodeling of existing restaurants are
capitalized as a component of the cost of the property and allocated to the
Company in the form of a credit to the group equity account. During 1996 and
1995, $653 and $336 of interest costs were capitalized. For the nine months
ended March 29, 1997 and March 30, 1996, the Company capitalized $98 and $478 of
interest costs. There were no interest costs capitalized during 1994.
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. Allocated workers' compensation and general
liability programs by DAKA International were accrued based upon actuarial
studies which determine the estimated amount required to cover incurred
incidents. Management has allocated expenses associated with these liability
programs to the Company based upon labor costs. In connection with the
Transaction, the Company is obligated to indemnify the Purchaser for all claims
arising subsequent to the Transaction, including claims related to employees of
DAKA International not continuing with the Company after the Transaction, that
relate to events occurring prior to the Transaction.
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.
F-11
<PAGE> 96
UNIQUE CASUAL RESTAURANTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Group Equity
Group equity represents the net intercompany activities between the Company
and DAKA International.
Revenue Recognition
The Company records sales from its restaurant operations and franchise and
royalty fees as earned.
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 earned 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. The Company recognized development and franchise fee
revenues of $3,406, $2,205 and $1,036 during 1996, 1995 and 1994, respectively,
and $649 and $3,344 during the nine months ended March 29, 1997 and March 30,
1996, respectively.
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 buy-down agreements are deferred
and recognized at the reduced royalty rate during the royalty buy-down 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.
The Company recognized royalty revenues of $4,299, $3,827 and $3,843 during
1996, 1995, and 1994, respectively, and $3,245 and $3,184 for the nine months
ended March 29, 1997 and March 30, 1996, respectively.
Preopening Expenses
Direct incremental preopening costs associated with the opening of new, or
the expansion and major remodeling of existing restaurants are capitalized and
amortized over twelve months. Unamortized preopening costs included in other
assets amounted to $3,310, $1,782 and $1,871 at June 29, 1996, July 1, 1995, and
March 29, 1997, respectively.
Income Taxes
The restaurant operations of the Transferred Businesses are generally
included in the consolidated U.S. Federal income tax return and certain combined
and separate state and local income tax returns of DAKA International. For
purposes of these combined financial statements, a charge (credit) in lieu of
taxes has been
F-12
<PAGE> 97
UNIQUE CASUAL RESTAURANTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
presented as if the Company was a separate taxpayer. Current income tax
liabilities (assets) are considered to have been paid (received) from DAKA
International and are recorded through the group equity account.
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.
The Company has entered into an indemnification agreement, whereby the
Company has agreed to indemnify Compass against all state and federal income and
other tax liabilities of DAKA International for any period before the
Transaction is consummated as well as any tax consequences resulting from the
Transaction.
Accounting for Stock-Based Compensation
Effective June 30, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation," which requires expanded disclosures of stock-based
compensation arrangements with employees and encourages (but does not require)
compensation cost to be measured based on the fair value of the equity
instrument awarded. Companies are permitted, however, to continue to apply APB
Opinion No. 25, which recognizes compensation cost based on the intrinsic value
of the equity instrument awarded. The Company will continue to apply APB Opinion
No. 25 to its stock-based compensation awards to employees and will disclose the
required pro forma effect on results from operations and earnings (loss) per
share.
Adjustments from the Transaction to stock options for common stock of DAKA
International held by employees of the Company will be determined in accordance
with Emerging Issues Task Force Abstract 90-9 and, accordingly, such adjustments
will have no effect on the Company's financial position or results of
operations.
Cash Flow Information
The Company participates in DAKA International's centralized cash
management system. As a result, the amount reported as cash in the accompanying
combined financial statements consists principally of cash funds held at
restaurant unit levels and funds not transferred into the centralized cash
management system.
Cash payments for interest associated with long-term obligations that will
be transferred to the Company aggregated $641, $331 and $300 in 1996, 1995 and
1994, respectively.
Capital lease obligations of $3,447, $2,225 and $1,435 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 sold a restaurant with a book value of $1,306, in exchange
for a $1,280 promissory note.
1995
----
- The Company sold three Fuddruckers restaurants, with an aggregate book
value of $1,944, in exchange for various notes receivable.
F-13
<PAGE> 98
UNIQUE CASUAL RESTAURANTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Equity and Pro Forma Loss Per Share
The authorized capital stock of the Company consists of 30,000,000 shares
of common stock, of which approximately 11,405,000 shares are expected to be
issued and outstanding upon the consummation of the Transaction, and 5,000,000
shares of preferred stock, of which no shares will be issued and outstanding.
Pro forma loss per share for 1996 and the nine months ended March 29, 1997
is computed using the weighted average number of shares outstanding as of March
29, 1997 for DAKA International after giving effect to the anticipated
conversion, in connection with the Transaction, of 11,912 shares of convertible
preferred stock into 264,701 additional shares of common stock. Outstanding
options which may be exercised prior to the consummation of the Transaction have
been excluded from the calculation of the weighted average number of shares as
such amounts are anti-dilutive.
In March 1997, the FASB issued SFAS No. 128, "Earnings per Share," which
the Company will adopt in fiscal 1998. Had SFAS No. 128 been effective for the
nine months ended March 29, 1997, there would be an immaterial effect to the
Company's reported pro forma loss per share.
Impairment of Long-Lived Assets
In March 1995, the 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 property, 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 pretax charge of
approximately $3.0 million. The provision includes charges for impairments to
the carrying value of certain restaurant assets, reacquired franchise rights,
and certain other assets.
4. MERGER WITH CHAMPPS AND GREAT BAGEL AND COFFEE
On February 21, 1996, CEI Acquisition Corp., a wholly-owned subsidiary of
DAKA International, merged with and into Champps whereupon Champps became a
wholly-owned subsidiary of DAKA International pursuant to an Agreement and Plan
of Merger dated October 10, 1995 (the "Champps Merger Agreement"). Under the
terms of the Champps Merger Agreement, the Champps common stockholders exchanged
their holdings in Champps' common stock for 2,181,722 shares of DAKA
International common stock valued at approximately $49,634 on the merger date.
On April 3, 1996, DAKA International merged with Great Bagel and Coffee whereby
DAKA International exchanged 339,236 shares of its common stock valued at
approximately $8,566 for all outstanding shares of Great Bagel and Coffee common
stock (collectively the "1996 Mergers" and the "1996 Merged Companies").
F-14
<PAGE> 99
UNIQUE CASUAL RESTAURANTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The 1996 Mergers were accounted for as poolings-of-interests and,
accordingly, the accompanying combined financial statements include the accounts
of Champps and Great Bagel and Coffee for all periods presented.
In connection with the 1996 Mergers, 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 transactions, and costs associated
with combining the operations of previously separate companies and instituting
certain operational efficiencies.
The following presents the operations of the previously separate companies
prior to the consummation of the 1996 Mergers:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Revenues:
The Company(1)........................... $167,252(4) $123,498 $ 93,686
CEI...................................... 14,253(2) 12,470 6,489
Great Bagel and Coffee................... 2,250(3) 1,762 502
-------- -------- --------
$183,755 $137,730 $100,677
======== ======== ========
Net income (loss):
The Company.............................. $ (5,764)(4) $ 1,331 $ 616
CEI...................................... (109)(2) 209 620
Great Bagel and Coffee................... 203(3) 258 64
-------- -------- --------
$ (5,670) $ 1,798 $ 1,300
======== ======== ========
</TABLE>
- ---------------
(1) Principally Fuddruckers, ARVI, ADC and CDVI.
(2) For the six-month period ended December 31, 1995.
(3) For the nine-month period 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 the Company and the 1996 Merged Companies prior to the
1996 Mergers were not significant. The Company has not recorded an adjustment to
conform the accounting policies of the 1996 Merged companies to the Company's,
as such policies were generally comparable.
5. 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 combined 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, DAKA International acquired a 50% ownership interest in
ADC, a newly formed company which then acquired from three individuals two
Champps restaurants located in Minnesota for a purchase price of $2,800 plus
100,000 shares of ADC common stock. In addition, DAKA International 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 DAKA International 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 had voting privileges as if converted to common stock,
giving 57% voting control
F-15
<PAGE> 100
UNIQUE CASUAL RESTAURANTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
of ADC; accordingly, ADC has been included in the Company's combined financial
statements (see 1996 Transactions).
On June 7, 1994, the Company 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,
the Company 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.
1995 Transactions
On February 1, 1995, the Company 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, the Company 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.
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.
1996 Transactions
On March 31, 1996, DAKA International 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 DAKA
International. Based upon an independent valuation, the fair market value of the
43% voting interest acquired approximated the consideration given by DAKA
International.
On March 31, 1996, DAKA International sold a restaurant to one of the
Selling Stockholders 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, the book value of the restaurant assets sold
approximated their fair market value at March 31, 1996.
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 and
1995. 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>
1996 1995
-------- --------
(UNAUDITED)
<S> <C> <C>
Revenues............................................ $183,755 $142,168
======== ========
Net income (loss)................................... $ (5,674) $ 1,978
======== ========
Pro forma loss per share............................ $ (0.50)
========
</TABLE>
6. INVESTMENTS
In January 1996, the Company acquired a 16.7% equity interest in the form
of convertible redeemable preferred stock (the "La Salsa Preferred Stock") in La
Salsa Holding Co. ("La Salsa"), a franchisor and
F-16
<PAGE> 101
UNIQUE CASUAL RESTAURANTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
operator of La Salsa Mexican restaurants for approximately $5,000. Each share of
La Salsa 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 the La Salsa
outlets' 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.
7. LONG-TERM DEBT
Obligations Transferred to the Company
The components of long-term debt transferred to the Company are as follows:
<TABLE>
<CAPTION>
MARCH 29,
1996 1995 1997
------- ------ ---------
<S> <C> <C> <C>
Notes payable........................... $ 687 $ 829 $ 581
Capital lease obligations............... 5,679 3,180 4,517
------- ------ ------
6,366 4,009 5,098
Less current portion.................... (1,299) (731) (1,096)
------- ------ ------
Total................................. $ 5,067 $3,278 $4,002
======= ====== ======
</TABLE>
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, at June 29, 1996 are as follows:
<TABLE>
<S> <C>
1997............................................... $1,299
1998............................................... 1,141
1999............................................... 1,114
2000............................................... 1,119
2001............................................... 905
Thereafter......................................... 788
</TABLE>
Company Assets Serving as Collateral
All of the assets of the Company have been pledged as collateral under DAKA
International's various debt agreements and the Company is a guarantor of any
obligations pursuant to such agreements. During June 1996, DAKA International
amended its revolving line-of-credit agreement principally to increase its
borrowing capacity and extend the maturity date to June 30, 1999 (the "June
Agreement"). DAKA International had $92,969 outstanding on the revolving
line-of-credit agreement at June 29, 1996. At June 29, 1996, DAKA International
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, DAKA International 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").
On May 7, 1997, DAKA International renegotiated certain terms and
conditions of a previously amended agreement (the "May Agreement", collectively
the "Principal Credit Agreements") whereby DAKA International's borrowing limit
will be sequentially reduced to $72.5 million by March 31, 1998. The maturity
date was extended to April 2, 1998 and certain loan covenants were amended.
F-17
<PAGE> 102
UNIQUE CASUAL RESTAURANTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with the Transaction, the Purchaser will assume $110 million
of the outstanding DAKA International debt. Any amounts outstanding in excess of
$110 million as of the date the Transaction is consummated will be repaid to the
banks by the Company. At March 29, 1997, DAKA International had approximately
$103.6 million outstanding under its Principal Credit Agreements.
8. OTHER ASSETS
The components of other assets are as follows:
<TABLE>
<CAPTION>
MARCH 29,
1996 1995 1997
------- ------- ---------
<S> <C> <C> <C>
Preopening costs...................................... $ 5,567 $ 2,557 $ 3,690
Reacquired franchise rights........................... 4,488 4,718 4,877
Notes receivable...................................... 3,320 1,544 3,443
Deferred rent......................................... 1,673 416 1,938
Other................................................. 2,332 2,240 2,309
------- ------- -------
17,380 11,475 16,257
Less accumulated amortization......................... (4,445) (2,540) (4,131)
------- ------- -------
$12,935 $ 8,935 $12,126
======= ======= =======
</TABLE>
9. ACCRUED EXPENSES
The components of accrued expenses are as follows:
<TABLE>
<CAPTION>
MARCH 29,
1996 1995 1997
------- ------- ---------
<S> <C> <C> <C>
Salaries, wages and related taxes....................... $3,096 $3,249 $2,890
Taxes................................................... 2,134 2,288 2,146
Advertising............................................. -- -- 1,330
Other................................................... 1,947 3,068 2,066
------ ------ ------
$7,177 $8,605 $8,432
====== ====== ======
</TABLE>
10. 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 combined financial statements rather than by restating prior years'
combined financial statements. The adoption of SFAS No. 109 had no material
impact on net income.
F-18
<PAGE> 103
UNIQUE CASUAL RESTAURANTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense is comprised of the following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------
MARCH 29, MARCH 30,
1996 1995 1994 1997 1996
------- ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C>
Currently (receivable) payable:
Federal......................... $(1,299) $2,328 $1,642 $(3,968) $ 12
State........................... -- 776 547 -- --
Deferred income tax (benefit)
expense...................... 763 (36) 402 247 392
------- ------ ------ ------- ----
Income tax (benefit) expense.... $ (536) $3,068 $2,591 $(3,721) $404
======= ====== ====== ======= ====
</TABLE>
Deferred tax assets and liabilities are comprised of the following
<TABLE>
<CAPTION>
ASSET (LIABILITY)
---------------------------------
MARCH 29,
1996 1995 1997
------- ------- ---------
<S> <C> <C> <C>
CURRENT:
Accrued expenses.................................... $ 321 $ 428 $ 486
Prepaid expenses.................................... (1,467) (821) (1,640)
Net operating loss carryforwards.................... 327 342 327
Other............................................... 591 421 151
------- ------- -------
$ (228) $ 370 $ (676)
======= ======= =======
NONCURRENT:
Net operating loss carryforwards.................... $ 4,876 $ 4,924 $ 5,858
Depreciation and amortization....................... 470 (400) 574
Deferred income..................................... 166 163 169
Accrued expenses.................................... 729 1,184 892
Less valuation allowance............................ (5,559) (5,024) (6,610)
------- ------- -------
$ 682 $ 847 $ 883
======= ======= =======
</TABLE>
The following is a reconciliation of income taxes at the federal statutory
rate to the Company's income tax expense:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------
MARCH 29, MARCH 30,
1996 1995 1994 1997 1996
------- ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C>
Income taxes computed at statutory
federal income tax rates........ $(2,172) $1,703 $1,362 $(4,294) $(1,198)
Non-deductible merger costs....... 1,175 -- -- -- 1,175
State income taxes, net of federal
tax benefit..................... -- 269 215 -- --
Increase in the valuation
allowance....................... 535 822 851 1,051 416
Other, net........................ (74) 274 163 (478) 11
------- ------ ------ ------- -------
Income tax (benefit)
expense............... $ (536) $3,068 $2,591 $(3,721) $ 404
======= ====== ====== ======= =======
</TABLE>
As of June 29, 1996, the Company had federal net operating loss
carryforwards of approximately $11,502 expiring at various dates through 2011.
Approximately $8,646 of the losses are related to Fuddruckers and $2,856 are
related to Fuddruckers' 63% owned subsidiary, ARVI. Both the Fuddruckers' and
ARVI loss
F-19
<PAGE> 104
UNIQUE CASUAL RESTAURANTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
carryforwards are limited on an annual basis. For the nine months ended March
29, 1997 and fiscal years ended 1996, 1995 and 1994, the Company provided a
valuation allowance for the tax benefit of the net operating loss carryforwards
not expected to be utilized based on historical operating results and other
available evidence. During the fiscal years ended 1996, 1995 and 1994, and the
nine months ended March 29, 1997 the valuation allowance was increased by $535,
$822 and $851 and $1,051, respectively, relating to the net operating losses
incurred by both Fuddruckers and ARVI.
11. COMMITMENTS AND CONTINGENCIES
Transaction Indemnifications
The Company has agreed to assume certain liabilities in connection with the
Transaction including any losses or damages incurred related to the purported
class action lawsuit discussed further below. In addition, the Company has
entered into Post-Closing Covenants Agreement which provides for post-closing
payments by the Company under certain circumstances. To the extent there is any
amount owing from the Company to Compass for post-closing payments relating to
any Foodservice Current Asset shortfall, outstanding Share value calculation or
Managed Volume/Profitability Adjustment, Compass will have a right of set-off
against any amounts owing to the Company with respect to Compass's obligations
to remit the net proceeds from the liquidation of the Contributed Working
Capital.
Leases
Pursuant to the terms of the Transaction, the Company will assume the
existing lease obligations and purchase commitments of Daka International.
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. Finally, the Company also leases certain
restaurant and computer equipment under operating leases which expire at various
dates through June 2001.
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, the Company was permitted to
sell and lease back from FFCA up to 20 Fuddruckers restaurants to be
constructed, in which the Company had an ownership interest in the real estate
and pay a commitment fee of 1.5% of the sale price of each property sold to
FFCA. The sale price was limited to the lesser of 80% of the fair market value
of the property or $1,250. The unused commitment expired 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 the Company. The terms and
conditions of the leases are such that they are accounted for as operating
leases. As of June 29, 1996, 11 Fuddruckers restaurants have been sold to FFCA.
In January 1997, the Company obtained $7.5 million of sale-leaseback financing
for the construction of up to six new Fuddruckers restaurants. Any unused
commitment expires on January 30, 1998.
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, the Company will sell and lease back
from AEI Champps restaurants to be constructed in which the Company 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 provide for a fixed minimum rent based
on a percentage of the respective
F-20
<PAGE> 105
UNIQUE CASUAL RESTAURANTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
property's Purchase Price, subject to subsequent increases based on the Consumer
Price Index. 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 leases are such that they are accounted for as operating
leases.
In January, 1996, the Company 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.
Included in property and equipment in 1996, 1995, 1994 and March 29, 1997
are $5,794, $3,271, $1,340 and $5,728, respectively, of equipment held pursuant
to capital lease arrangements. The related accumulated amortization was $1,208,
$424, $133 and $2,237, respectively. Capital lease additions for equipment
totaled $3,447, $2,225 and $1,435 in 1996, 1995 and 1994, respectively and
$1,707 for the nine months ended March 29, 1997.
Future minimum lease payments pursuant to leases with noncancelable lease
terms in excess of one year at June 29, 1996 are as follows:
<TABLE>
<CAPTION>
FISCAL YEARS OPERATING CAPITAL
ENDING LEASES LEASES
------------ --------- -------
<S> <C> <C>
1997............................................. $ 17,155 $1,548
1998............................................. 15,742 1,542
1999............................................. 15,506 1,533
2000............................................. 14,901 1,185
2001............................................. 14,635 615
Thereafter....................................... 99,999 30
-------- ------
Total future minimum lease payments.............. $177,938 6,453
========
Less amount representing interest................ (774)
------
Present value of future minimum lease payments... $5,679
======
</TABLE>
Total rent expense in 1996, 1995 and 1994 amounted to $16,755, $12,182 and
$9,329, respectively, and $15,636 and $12,136 for the nine months ended March
29, 1997 and March 30, 1996, respectively. Contingent rentals included in rent
expense are not material for the periods presented.
Put/Call Agreements
On October 22, 1993, the Company entered into an agreement with a
partnership affiliated with the president of a majority-owned subsidiary of the
Company pursuant to which the partnership has agreed to purchase substantially
all shares of common stock of the subsidiary not currently owned by the Company.
The partnership also invested $1,100 in shares of the subsidiary's preferred
stock. Additionally, the Company and the partnership entered into a put/call
agreement whereby the Company has an option to purchase and the partnership has
the right to require the Company 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 the Company 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 and March
29, 1997, based upon independent valuations, the value of ARVI not owned by the
Company was in excess of the present value of the put/call price.
F-21
<PAGE> 106
UNIQUE CASUAL RESTAURANTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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 and March 29, 1997, the Company's commitments under the
Coffee Agreement were approximately $400 and $370, respectively.
Litigation
On October 18, 1996, a purported class action lawsuit was filed in the
United States District Court for the District of Massachusetts on behalf of
persons who acquired DAKA International's common stock between October 30, 1995
and September 9, 1996 (Venturino et al. V. DAKA International, Inc. and William
H. Baumhauer, Civil Action No. 96-12109-GAO). The complaint alleges violations
of federal and state securities laws by, among other things, allegedly
misrepresenting and/or omitting material information concerning the results and
prospects of Fuddruckers during that period and seeks compensatory damages and
reasonable costs and expenses, including counsel fees. On May 22, 1997, DAKA
International filed with the court a motion to dismiss plaintiffs' complaint.
The Company has agreed to indemnify Compass for any losses or expenses
associated with the complaint. The Company believes this suit is without merit
and intends to defend itself vigorously. While the outcome of the case is not
presently determinable, the Company believes that the ultimate outcome of this
matter will not have a material adverse effect on the Company's financial
condition, results of operations or cash flows.
The Company and DAKA International are also engaged in various other
actions arising in the ordinary course of business. The Company believes, based
upon consultation with legal counsel, that the ultimate collective outcome of
these other matters will not have a material adverse effect on the Company's
financial condition, results of operations or cash flows.
12. STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS
Stock Options
The Company's employees participate in various incentive and non-qualified
stock option plans sponsored by DAKA International (the "Plans"). The Plans have
provided for the granting of options for terms of up to ten years to eligible
employees at exercise prices equal to the fair market value of the DAKA
International common stock on the date of the grant. At June 29, 1996 and March
29, 1997, 539,146 and 580,949 options to purchase shares of DAKA International
common stock under the Plans were exercisable by the Company's employees at
exercise prices ranging from $2.50 to $35.94 per share.
Concurrent with a consummation of the Transaction, a stock option and
restricted stock plan for the benefit of the employee and non-employee directors
of the Company will be adopted. The Company expects to authorize and reserve for
issuance 1,250,000 shares under the Stock Option Plan. Each outstanding option
to acquire DAKA International common stock at the Transaction date will be
converted into an option to acquire one share of common stock of the Company and
one share of common stock of DAKA International (the "Adjusted Options"). In
connection with determining the exercise price of the Adjusted Options, the
exercise prices of the Adjusted Options will be determined so that each option
holder will remain in an equivalent economic position before and after the
Transaction.
F-22
<PAGE> 107
UNIQUE CASUAL RESTAURANTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Employee Benefit Plan
The Company's employees participate in a 401(k) retirement plan sponsored
by DAKA International. The Plan enables employees to contribute up to 15% of
their annual compensation. The Company's discretionary contributions to the Plan
have been determined by DAKA International. The Company contributed $204, $251
and $0 to the Plan in 1996, 1995 and 1994, respectively. The Company has not yet
made a fiscal 1997 discretionary contribution. The Company expects that after
the consummation of the Transaction, plans similar to those presently offered by
DAKA International will be available to the Company's employees.
Long-Term Incentive Plan
Effective July 3, 1994, the Company implemented a long-term incentive
compensation plan ("LTIP") for its Chief Executive Officer whereby a portion of
the increase in the market value of DAKA International's common stock over
predefined amounts, is payable in either cash or stock at the option of the
Company. Amounts payable under the LTIP 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 DAKA International's
common stock on June 29, 1996. Due to the decline in the market value of DAKA
International's common stock, the amount accrued was reversed during the first
quarter of fiscal 1997.
On May 22, 1997, the Board of Directors amended the LTIP. Under the terms
of the amendment, the Chief Executive Officer's right to receive a performance
award was amended to provide for the granting of an option expiring on June 30,
1997 to acquire 228,260 shares of DAKA International Stock at an exercise price
of $12.07 (the "Deemed LTIP Option"). Upon consummation of the Transaction, the
Deemed LTIP Option will be converted in a manner similar to the Adjusted Options
and the Company will purchase the Chief Executive Officer's Deemed LTIP Option.
13. 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,
accounts receivables, 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.
F-23
<PAGE> 108
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ----------------------------------------------------------------------------- ----
<C> <C> <S> <C>
2.1 -- Agreement and Plan of Merger, dated as of May 27, 1997, by and among Compass
Interim, Inc. ("Compass Interim"), Compass Holdings, Inc. ("Purchaser"),
Compass Group PLC ("Parent") and DAKA International, Inc. ("DAKA
International")..............................................................
2.2 -- Reorganization Agreement dated as of May 27, 1997, by and among DAKA
International, Daka, Inc. ("Daka"), the Registrant, Parent and Compass
Holdings.....................................................................
3.1 -- Certificate of Incorporation of the Registrant...............................
3.2 -- By-laws of the Registrant....................................................
3.3 -- Form of Amended and Restated Certificate of Incorporation of the
Registrant...................................................................
3.4 -- Form of Amended and Restated By-laws of the Registrant.......................
4.1 -- Specimen Stock Certificate for shares of the UCRI Common Stock...............
10.1 -- Tax Allocation Agreement dated as of May 27, 1997, by and among DAKA
International, Daka, the Registrant, Champps Entertainment, Inc. ("Champps"),
Fuddruckers, Inc. ("Fuddruckers"), Purchaser and Parent......................
10.2 -- Post-Closing Covenants Agreement, dated as of May 27, 1997, by and among DAKA
International, Daka, the Registrant, Champps, Fuddruckers, Purchaser and
Parent.......................................................................
10.3 -- Stock Purchase Agreement, dated as of May 26, 1997, between DAKA
International, Parent, Compass Interim, First Chicago Equity Corporation,
Cross Creek Partners I and the other holders of Series A Preferred Stock of
DAKA International...........................................................
10.4 -- Form of the Registrant's 1997 Stock Option and Incentive Plan................
10.5 -- Form of the Registrant's 1997 Stock Purchase Plan............................
10.6 -- Form of Indemnification Agreement, by and between the Registrant and
directors and officers of DAKA International.................................
20.1 -- Form of Letter to Stockholders of DAKA International.........................
21.1 -- List of Subsidiaries of the Registrant.......................................
23.1 -- Consent of Deloitte & Touche LLP.............................................
23.2 -- Consent of Arthur Andersen LLP...............................................
27.1 -- Fnancial Data Schedule.......................................................
</TABLE>
<PAGE> 1
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
by and among
COMPASS GROUP PLC,
COMPASS HOLDINGS, INC.,
COMPASS INTERIM, INC.,
and
DAKA INTERNATIONAL, INC.
MAY 27, 1997
A-1
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
ARTICLE I
THE OFFER
<C> <S> <C>
Section 1.1 The Offer.................................................................................... 2
Section 1.2 Actions of International..................................................................... 3
Section 1.3 Stockholder Lists............................................................................ 3
Section 1.4 Series A Preferred Stock..................................................................... 3
Section 1.5 Stock Option and Stock Purchase Plans........................................................ 4
Section 1.6 Offer Closing................................................................................ 5
Section 1.7 Repayment of Funded Debt, Release of Liens................................................... 5
ARTICLE II
THE MERGER
Section 2.1 The Merger................................................................................... 5
Section 2.2 Merger Closing............................................................................... 5
Section 2.3 Merger Effective Time........................................................................ 6
Section 2.4 Stockholders' Meeting........................................................................ 6
Section 2.5 Effects of the Merger........................................................................ 6
Section 2.6 Certificate of Incorporation and Bylaws...................................................... 7
Section 2.7 Directors.................................................................................... 7
Section 2.8 Officers..................................................................................... 7
Section 2.9 Reservation of Right to Revise Transaction Structure......................................... 7
ARTICLE III
EFFECT OF THE MERGER; EXCHANGE OF CERTIFICATES
Section 3.1 Effect on Capital Stock...................................................................... 7
(a) Conversion of Shares..................................................................... 7
(b) Shares of Series A Preferred Stock....................................................... 8
Section 3.2 Dissenting Shares; Exchange of Certificates.................................................. 8
(a) Dissenting Shares of International Common Stock.......................................... 8
(b) Exchange of Shares of International Common Stock......................................... 9
(c) Termination of Exchange Fund............................................................. 9
(d) No Liability............................................................................. 10
(e) Withholding Rights....................................................................... 10
(f) Transfer Taxes........................................................................... 10
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 Certain Definitions.......................................................................... 10
Section 4.2 Representations and Warranties of International.............................................. 11
(a) Organization, Standing, Corporate Power and Subsidiaries................................. 11
(b) Capital Structure........................................................................ 11
(c) Authority; Noncontravention.............................................................. 12
(d) Reports.................................................................................. 14
(e) Schedule 14D-9; Offer Documents; Form 10; Information Statement.......................... 15
(f) Absence of Certain Changes or Events..................................................... 15
(g) Litigation............................................................................... 15
(h) Compliance with Applicable Laws.......................................................... 16
(i) Brokers or Finders....................................................................... 16
</TABLE>
A-2
<PAGE> 3
<TABLE>
<C> <S> <C>
(j) The Foodservice Business................................................................. 16
(k) Material Contracts....................................................................... 17
(l) Benefit Plans, Employment and Labor Relations............................................ 19
(m) Absence of Certain Business Practices.................................................... 23
(n) Intellectual Property.................................................................... 24
(o) Taxes.................................................................................... 25
(p) Insurance Policies....................................................................... 26
(q) Actions Affecting Recent Acquisitions.................................................... 26
(r) Foodservice Business Financial Statements................................................ 26
(s) Indebtedness............................................................................. 26
(t) Properties............................................................................... 27
(u) Real Property............................................................................ 27
(v) Environmental Matters.................................................................... 28
(w) Fraudulent Conveyance; Solvency.......................................................... 28
Section 4.3 Representations and Warranties of Compass, Compass Holdings and Compass Interim.............. 29
(a) Organization, Standing and Corporate Power............................................... 29
(b) Authority; Noncontravention.............................................................. 29
(c) Schedule 14D-1; Offer Documents; Form 10; Information Statement.......................... 30
(d) Sufficient Funds......................................................................... 31
(e) Consummation of Transactions............................................................. 31
(f) Voting Requirements...................................................................... 31
(g) Brokers or Finders....................................................................... 31
ARTICLE V
COVENANTS
Section 5.1 Covenants of International and Daka.......................................................... 31
(a) Ordinary Course.......................................................................... 31
(b) Changes in Stock......................................................................... 32
(c) Governing Documents...................................................................... 33
(d) No Acquisitions.......................................................................... 33
(e) No Dispositions.......................................................................... 33
(f) Indebtedness............................................................................. 33
(g) Benefit Plans; Collective Bargaining Agreements.......................................... 34
(h) Employee Agreements...................................................................... 34
(i) [Reserved]............................................................................... 34
(j) Accounting Policies and Procedures....................................................... 34
(k) Liens.................................................................................... 34
(l) Deferred Tax Assets and Liabilities...................................................... 34
(m) Exclusivity.............................................................................. 35
(n) Confidentiality and Standstill Agreements................................................ 36
(o) Pending Actions.......................................................................... 36
(p) Access to Information; Confidentiality................................................... 36
(q) Corporate Records........................................................................ 37
(r) No Agreement to Prohibited Actions....................................................... 37
Section 5.2 Mutual Covenants............................................................................. 37
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 Fees and Expenses............................................................................ 39
Section 6.2 Ancillary Agreements......................................................................... 39
Section 6.3 Composition of the Board of Directors; Section 14(f)......................................... 40
Section 6.4 Certain Prior Actions........................................................................ 41
</TABLE>
A-3
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 6.5 Tax Treatment................................................................................ 42
Section 6.6 Indemnification of Officers and Directors.................................................... 42
Section 6.7 Offer Closing Date Payments.................................................................. 42
Section 6.8 Non-Waiver of Conditions..................................................................... 42
ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1 Conditions to Each Party's Obligation to Effect the Merger................................... 43
(a) Shareholder Approval..................................................................... 43
(b) No Prohibition........................................................................... 43
(c) Consummation of the Offer................................................................ 43
(d) Consummation of the Distribution......................................................... 43
(e) No Injunctions, Litigation or Restraints................................................. 43
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
Section 8.1 Termination.................................................................................. 43
Section 8.2 Effect of Termination........................................................................ 44
Section 8.3 Amendment.................................................................................... 45
Section 8.4 Extension; Waiver............................................................................ 45
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Survival of Representations and Warranties................................................... 46
Section 9.2 Notices...................................................................................... 46
Section 9.3 Interpretation............................................................................... 47
Section 9.4 Counterparts................................................................................. 47
Section 9.5 Entire Agreement; No Third-party Beneficiaries............................................... 47
Section 9.6 Governing Law................................................................................ 47
Section 9.7 Assignment................................................................................... 47
Section 9.8 Enforcement.................................................................................. 47
(a) Specific Performance..................................................................... 47
(b) Jurisdiction............................................................................. 48
ARTICLE X
DEFINITIONS
Section 10.1 General...................................................................................... 48
Section 10.2 Certain Definitions.......................................................................... 51
</TABLE>
<TABLE>
LIST OF EXHIBITS:
<S> <C> <C>
Exhibit 1.1(a) Conditions of the Offer
Exhibit 1.1(a)(i) Form of Goodwin, Procter & Hoar, LLP Legal Opinion..........................[Omitted]
Exhibit 2.6(a) Certificate of Incorporation of the Surviving Corporation...................[Omitted]
</TABLE>
A-4
<PAGE> 5
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger is dated as of May 27, 1997 (the
"Agreement"), by and among COMPASS GROUP PLC, a public limited company
incorporated in England and Wales ("Compass"), COMPASS HOLDINGS, INC., a
Delaware corporation ("Compass Holdings"), COMPASS INTERIM, INC., a Delaware
corporation ("Compass Interim") and DAKA INTERNATIONAL, INC., a Delaware
corporation ("International").
RECITALS:
WHEREAS, the Board of Directors of Compass has approved a tender offer
whereby Compass Holdings will offer to purchase for cash (the "Offer") any and
all of the common stock, par value $.01 per share, of International (the
"International Common Stock"), subject only to the conditions set forth in
Exhibit 1.1(a) attached hereto (the "Offer Conditions");
WHEREAS, the Board of Directors of International has approved a plan of
contribution and distribution as described in the Reorganization Agreement (as
defined below) pursuant to which, prior to expiration of the Offer, (a) all of
the assets and liabilities of the restaurant business (the "Restaurant
Business") currently operated by International and certain other assets and
liabilities of International or its wholly owned subsidiary, Daka, Inc., a
Massachusetts corporation ("Daka"), together with the shares of the subsidiaries
of International not engaged in the food catering, contract catering and vending
(together, "foodservice") business, will be contributed (the "Contribution") to
Unique Casual Restaurants, Inc., a Delaware corporation and a wholly owned
subsidiary of International ("UCRI"), and (b) all of the stock of UCRI (the
"UCRI Common Stock") will be distributed on a pro rata basis to International's
stockholders as provided in the Reorganization Agreement (the "Distribution");
WHEREAS, following the Contribution and the Distribution, International and
Daka will own the assets and perform the customer and certain other obligations
of the foodservice business currently operated by International and Daka (the
"Foodservice Business");
WHEREAS, Compass Holdings is an indirect, wholly owned subsidiary of
Compass, and Compass Interim is a direct, wholly owned subsidiary of Compass
Holdings; and
WHEREAS, the respective Boards of Directors of Compass, Compass Holdings,
Compass Interim and International have determined that, following the
Contribution and Distribution, the merger of Compass Interim with and into
International (the "Merger") with International as the surviving corporation
(the "Surviving Corporation") would be advantageous and beneficial to their
respective corporations and stockholders;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained in this Agreement, the parties
hereto agree as follows:
ARTICLE I
THE OFFER
Section 1.1 The Offer.
(a) Subject to this Agreement not having been terminated in accordance with
the provisions of Article VIII hereof, Compass Holdings shall, and Compass shall
cause Compass Holdings to, as promptly as practicable, but in no event later
than five business days from the date of the public announcement of the terms of
this Agreement, commence the Offer, subject to the Offer Conditions, at a price
of not less than $7.50 per share (the "Offer Price"), net to the seller in cash.
Compass Holdings shall (i) subject only to the Offer Conditions, accept for
payment and pay for all shares of International Common Stock tendered pursuant
to the terms of the Offer at the earliest possible time on the date (the "Offer
Closing Time") as promptly as practicable following the record date (the "Record
Date") established by International's Board of Directors for eligibility for
receipt of the Distribution, and (ii) subject only to the conditions set forth
in paragraph (ii) of the Offer Conditions, extend the period of time the Offer
is open until the first business day following the Record Date; provided that in
event the conditions set forth in Section (i) of Exhibit 1.1(a) are not
satisfied, Compass Holdings shall extend the period of time the Offer is open
until the time such conditions are satisfied or until July 31, 1997, whichever
is earlier. Subject to the provisions set forth herein and in the Reorganization
Agreement, International's Board of Directors shall
A-5
<PAGE> 6
establish such Record Date and the Distribution Date (as defined in the
Reorganization Agreement) at the earliest reasonably practicable date and as
soon as practicable after having been notified by Compass of the Offer Closing
Time. Compass will not, nor will it permit any of its Affiliates to, tender into
the Offer any shares of International Common Stock beneficially owned by it, nor
subject to the preceding sentence, will Compass or Compass Holdings extend the
expiration date of the Offer beyond the twentieth business day following
commencement thereof without the prior written consent of International unless
one or more of the Offer Conditions shall not be satisfied or unless Compass
Holdings reasonably determines that such extension is necessary to comply with
any legal or regulatory requirement relating to the Offer. Compass Holdings
expressly reserves the right to amend the terms or conditions of the Offer,
provided that no amendment may be made which changes the form of consideration
to be paid or decreases the price per share or the number of shares of
International Common Stock sought in the Offer or which imposes conditions to
the Offer in addition to the Offer Conditions or broadens the scope of such
conditions, and no other amendment may be made in the terms or conditions of the
Offer which is adverse to the holders of International Common Stock.
International agrees that no shares of International Common Stock held by
International or any Subsidiary of International will be tendered pursuant to
the Offer. Notwithstanding anything to the contrary contained in this Agreement,
Compass Holdings shall not be required to commence the Offer in any foreign
country where the commencement of the Offer, in Compass Holdings' reasonable
opinion, would violate the applicable law of such jurisdiction.
(b) On the date of the commencement of the Offer, Compass Holdings shall
file with the Securities and Exchange Commission (the "SEC") a Tender Offer
Statement on Schedule 14D-1 with respect to the Offer which will contain an
offer to purchase and form of the related letter of transmittal (together with
any supplements or amendments thereto, collectively the "Offer Documents").
International and its counsel shall be given a reasonable opportunity to review
and comment on the Offer Documents prior to the filing of such Offer Documents
with the SEC. Compass Holdings agrees to provide International and its counsel
in writing with any comments Compass Holdings and its counsel may receive from
the SEC or its staff with respect to the Offer Documents promptly after the
receipt thereof.
Section 1.2 Actions of International. International hereby approves of and
consents to the Offer and represents that its Board of Directors has unanimously
(i) determined that the Offer, on the terms and conditions set forth herein
(including the Offer Conditions), the Distribution and the Merger are fair to
the stockholders of International and are in the best interests of the
stockholders of International and (ii) resolved to recommend acceptance of the
Offer by the stockholders of International and, if required by applicable law,
the approval and adoption of this Agreement by the stockholders of
International. International further represents that Bear Stearns & Co., Inc.
has delivered to the Board of Directors of International its opinion that, taken
together, the shares of UCRI Common Stock to be received in the Distribution and
the consideration to be received by the holders of shares of International
Common Stock in the Offer and the Merger are fair from a financial point of view
to such holders. International hereby agrees to file a
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9")
containing such recommendations with the SEC (and the information required by
Section 14(f) of the Exchange Act, hereinafter defined, if Compass Holdings
shall have furnished such information to International in a timely manner) and
to mail such Schedule 14D-9 to the stockholders of International immediately
following the commencement of the Offer. International agrees to provide Compass
Holdings and its counsel in writing with any comments International may receive
from the SEC or its staff with respect to such Schedule 14D-9 promptly after
receipt thereof.
Section 1.3 Stockholder Lists. In connection with the Offer, International
will promptly furnish Compass Holdings with mailing labels, security position
listings and any available listing or computer file containing the names and
addresses of the record holders of International Common Stock as of a recent
date and shall furnish Compass Holdings with such information and assistance as
Compass Holdings or its agents may reasonably request in communicating the Offer
to the record and beneficial holders of shares of International Common Stock.
Subject to the requirements of applicable law or regulation, and except for such
steps as are necessary to disseminate the Offer Documents and any other
documents necessary to consummate the Merger, Compass Holdings and its
Affiliates and associates shall hold in confidence the information contained in
any such labels, listings and files, shall use such information only in
connection with the Offer and the Merger, and, if this Agreement is terminated,
shall return to International the originals and all copies of such information
then in their possession.
A-6
<PAGE> 7
Section 1.4 Series A Preferred Stock. Each of Compass, Compass Holdings,
International, First Chicago Equity Corporation, an Illinois corporation
("FCEC"), Cross Creek Partners I, an Illinois general partnership ("Cross
Creek") and the other beneficial holders of all of the issued and outstanding
shares of Series A Preferred Stock, par value $.01 per share, of International
(the "Series A Preferred Stock") (collectively, the "Series A Preferred
Stockholders"), have entered into a certain Stock Purchase Agreement, dated as
of the date hereof (the "Series A Preferred Stock Purchase Agreement"), pursuant
to which Compass Holdings has agreed to purchase, and the Series A Preferred
Stockholders have agreed to sell, all issued and outstanding shares of Series A
Preferred Stock and all of warrants exercisable for shares of International
Common Stock upon redemption of the Series A Preferred Stock (the "Warrants") at
a purchase price equal to the product of the Offer Price by the number of shares
of International Common Stock into which such shares of Series A Preferred Stock
are convertible as of the Offer Closing Time. The sale will occur as soon as
practicable following the Offer Closing Time and is contingent upon the
consummation of the Offer in accordance with its terms and the purchase price
shall be paid in cash in an amount calculated in accordance with the Series A
Preferred Stock Purchase Agreement. The Series A Preferred Stockholders will
receive no consideration in the Offer or in the Merger. In the Series A
Preferred Stock Purchase Agreement, International agreed to distribute to the
Series A Preferred Stockholders the number of shares of UCRI Common Stock to
which they would be entitled if they converted the Series A Preferred Stock into
Common Stock immediately prior to the Record Date and UCRI agreed to pay to the
Series A Preferred Stockholders any and all dividends accrued and unpaid with
respect to the Series A Preferred Stock as of the Offer Closing Date.
Section 1.5 Stock Option and Stock Purchase Plans.
(a) International shall make all adjustments and take all steps set forth
in Section 7.4 of the Reorganization Agreement with respect to outstanding
options ("International Options") to acquire shares of International Common
Stock which are held by any employee or consultant or former employee or
consultant or director or former director of International or any of its
Subsidiaries as a result of the Distribution and other transactions contemplated
hereby and thereby. After taking into account all such adjustments to such
International Options and the other matters set forth in Section 7.4 of the
Reorganization Agreement, all International Options which are outstanding
immediately prior to Compass Holdings' acceptance for payment and payment for
shares of International Common Stock pursuant to the Offer shall, regardless of
whether such International Options are vested and exercisable (including,
without limitation, obtaining any required consents from holders of the
International Options to all of the matters contemplated by this Section) shall
be cancelled as of the Offer Closing Time and the holders thereof shall be
entitled to receive from UCRI, for each share of International Common Stock
subject to such International Option, an amount in cash equal to the positive
difference between the Offer Price and the per share exercise price of such
International Option, less all applicable withholding taxes, which amount shall
be payable by UCRI not later than 30 days after the Offer Closing Time.
(b) International shall make all adjustments and take all steps set forth
in Section 7.4 of the Reorganization Agreement with respect to the DAKA
International Employee Stock Purchase Plan (the "Stock Purchase Plan") regarding
the shares of International Common Stock purchasable by participating employees
of International or its Subsidiaries (the "Participating Employees") under the
Stock Purchase Plan with respect to such Offering (the "Purchasable Shares"). In
lieu of receiving Purchasable Shares the Participating Employees shall be
entitled to receive from UCRI, for each Purchasable Share of International
Common Stock, in addition to the UCRI Common Stock in the Distribution as
provided in Section 7.4 of the Reorganization Agreement, an amount in cash equal
to the positive difference between the Offer Price and the per share purchase
price of such Purchasable Share under the Stock Purchase Plan, less all
applicable withholding taxes, which amount shall be payable by UCRI not later
than 30 days after the Offer Closing Time, whereafter all rights of
Participating Employees under the Stock Purchase Plan shall terminate.
(c) International shall use its reasonable best efforts to ensure that
neither International nor any of its Subsidiaries is or will be bound by any
options, warrants, rights or agreements which would entitle any person, other
than Compass, Compass Holdings, Compass Interim or International or any of their
respective Subsidiaries, to beneficially own, or receive any payments in respect
of, any capital stock of International or the Surviving Corporation (other than
as provided in this Agreement or in the Ancillary Agreements).
Section 1.6 Offer Closing. The closing of the Offer (the "Offer Closing")
will take place immediately prior to the Offer Closing Time upon the
satisfaction or waiver of the Offer Conditions at the offices of Smith Helms
A-7
<PAGE> 8
Mulliss & Moore, L.L.P., 214 North Church Street, Charlotte, North Carolina, or
on such other date or at such other place as is agreed to in writing by the
parties hereto. The parties agree to use reasonable efforts to cause the Offer
Closing to occur on or before June 28, 1997 or, if not reasonably practicable,
then as soon as practicable thereafter. The date of the Offer Closing is
referred to herein as the "Offer Closing Date."
Section 1.7 Repayment of Funded Debt, Release of Liens. Simultaneously with
the Offer Closing Time, Compass Holdings shall, or shall cause International to,
repay the Funded Debt (as defined in Section 5.1(f) (ii) hereof) in accordance
with the document referenced in Section 6.4(b)(ii) hereof and International
shall use its reasonable best efforts to cause the lenders under the Credit
Facility to deliver to UCRI and to Compass Holdings, as appropriate, such
documents or instruments referenced in Section 6.4(b)(ii) hereof necessary to
release or terminate all Liens on assets of International, UCRI or their
respective Subsidiaries securing the Funded Debt.
ARTICLE II
THE MERGER
Section 2.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Delaware General Corporation
Law (the "DGCL"), Compass Interim shall be merged with and into International as
soon as practicable after the Offering Closing Time. Following the Merger, the
separate corporate existence of Compass Interim shall cease, and International
shall continue as the Surviving Corporation and shall succeed to and assume all
the rights and obligations of Compass Interim in accordance with the DGCL.
Section 2.2 Merger Closing. The closing of the Merger (the "Merger
Closing") will take place within five business days after the satisfaction or
waiver of the conditions set forth in Article VII, at the offices of Smith Helms
Mulliss & Moore, L.L.P., 214 North Church Street, Charlotte, North Carolina, or
on such other date or at such other place as established by Compass Holdings and
approved by the Independent Directors as provided in Section 6.3 hereof. If a
sufficient number of shares of International Common Stock is acquired by Compass
Holdings pursuant to the Offer such that a stockholders' meeting pursuant to
Section 2.4 hereof is not required to consummate the Merger, Compass Holdings
shall use reasonable best efforts to cause the Merger Closing to occur
immediately after the Offer Closing Time. Otherwise Compass Holdings agrees to
use reasonable best efforts to cause the Merger Closing to occur as soon as
practicable after the Offer Closing Time. The date of the Merger Closing is
referred to herein as the "Merger Closing Date."
Section 2.3 Merger Effective Time. On the Merger Closing Date, the parties
shall file certificates of merger or other appropriate documents (in any such
case, the "Certificate of Merger") executed in accordance with the relevant
provisions of the DGCL, and shall make all other filings or recordings required
under the DGCL. The Merger shall become effective immediately following the
Distribution upon the filing of the Certificate of Merger with the Delaware
Secretary of State or at such other time as shall be specified in the
Certificate of Merger by agreement of International and Compass Holdings (the
time the Merger becomes effective being the "Merger Effective Time").
Section 2.4 Stockholders' Meeting. If required by applicable law in order
to consummate the Merger, International, acting through its Board of Directors,
shall, in accordance with applicable law, its Certificate of Incorporation and
Bylaws and the rules and regulations of the National Association of Securities
Dealers:
(a) duly call, give notice of, convene and hold a special meeting of its
stockholders as soon as practicable following the consummation of the Offer for
the purpose of considering and taking action upon this Agreement and the Merger;
(b) subject to its fiduciary duties under applicable laws as advised by
counsel, include in the Proxy Statement (as defined in Section 4.2(e) hereof)
the recommendation of its Board of Directors referred to in Section 1.2 hereof;
and
(c) use its best efforts to (i) obtain and furnish the information required
to be included by it in the Proxy Statement, and, after consultation with
Compass Holdings, respond promptly to any comments made by the SEC with respect
to the Proxy Statement and any preliminary version thereof and cause the Proxy
Statement to be mailed to its stockholders following the Offer Closing Time and
(ii) obtain the necessary approvals of this Agreement by its stockholders.
A-8
<PAGE> 9
Compass Holdings will vote, or cause to be voted, all shares of International
Common Stock owned by it or its subsidiaries in favor of approval and adoption
of this Agreement and the Merger.
Section 2.5 Effects of the Merger. The Merger shall have the effects set
forth in the DGCL. Without limiting the generality of the foregoing, and subject
thereto, at the Merger Effective Time, all the properties, rights, privileges,
powers and franchises of Compass Interim and International shall vest in the
Surviving Corporation, and all debts, liabilities, obligations and duties of
Compass Interim and International shall become the debts, liabilities and duties
of the Surviving Corporation.
Section 2.6 Certificate of Incorporation and Bylaws.
(a) The Certificate of Incorporation of International shall be amended at
the Merger Effective Time to read in its entirety as set forth in Exhibit 2.6(a)
attached hereto and as so amended shall be the Certificate of Incorporation of
the Surviving Corporation until thereafter changed or amended as provided
therein or by applicable law.
(b) The Bylaws of Compass Interim as in effect at the Merger Effective Time
shall be the Bylaws of the Surviving Corporation until thereafter changed or
amended as provided therein or by applicable law.
Section 2.7 Directors. The directors of Compass Interim at the Merger
Effective Time shall be the directors of the Surviving Corporation, until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
Section 2.8 Officers. The officers of Compass Interim at the Offer Closing
Time shall be the officers of the Surviving Corporation, until the earlier of
their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be.
Section 2.9 Reservation of Right to Revise Transaction Structure. Compass
may at any time change the method of effecting the Merger to provide for a
merger of a wholly owned Subsidiary (as defined in Section 10.2(f), herein)
other than Compass Interim with International and make conforming changes to the
Offer; provided, however, that no such change shall (a) alter or change the
amount or the kind of the consideration to be received by the holders of
International Common Stock as provided in this Agreement; or (b) adversely
affect the tax treatment to International stockholders as a result of receiving
such consideration (in the opinion of Compass' outside counsel). In the event
Compass determines to exercise its right to substitute a different wholly owned
subsidiary for Compass Interim hereunder, the Merger Agreement shall promptly be
amended to add such subsidiary as a party hereto, and all references in the
Agreement to Compass Interim shall be deemed references to such subsidiary.
ARTICLE III
EFFECT OF THE MERGER; EXCHANGE OF CERTIFICATES
Section 3.1 Effect on Capital Stock.
(a) Conversion of Shares. At the Merger Effective Time:
(i) Each share of International Common Stock issued and outstanding
immediately prior to the Merger Effective Time (other than shares to be
cancelled pursuant to Section 3.1(a)(ii) and Dissenting Shares (as
hereafter defined)), shall, at the Merger Effective Time, by virtue of the
Merger and without any action on the part of the holder thereof, be
converted into the right to receive $7.50 in cash per share of
International Common Stock in the Offer (the "Merger Price"), payable to
the holder thereof, without interest, upon the surrender of the certificate
formerly representing such share.
(ii) Each share of International Common Stock that is owned by
International or by any wholly owned subsidiary of International (but not
any Benefit Plan (as defined in Section 4.2(l)(i)) of International or any
of its subsidiaries) and each share of International Common Stock that is
owned by Compass Holdings, Compass Interim or any other wholly owned
subsidiary of Compass, excluding, in each case, any such shares held by
International, Compass Holdings or any of their wholly owned subsidiaries
in a fiduciary, custodial or similar capacity immediately prior to the
Merger Effective Time shall, at the Merger Effective Time, by virtue of the
Merger and without any action on the part of the holder thereof, be
cancelled and retired and shall cease to exist, and no consideration shall
be delivered in exchange therefor.
A-9
<PAGE> 10
(iii) Each share of common stock, par value $0.01 per share, of
Compass Interim issued and outstanding immediately prior to the Merger
Effective Time shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into and exchangeable for one
share of common stock of the Surviving Corporation.
(b) Shares of Series A Preferred Stock. Each share of Series A Preferred
Stock shall be cancelled and retired by International and shall cease to exist
at the Merger Effective Time, as provided in the Series A Preferred Stock
Purchase Agreement. Holders of Series A Preferred Stock shall receive no
consideration in the Merger by virtue of the cancellation of such shares as
provided herein so long as all outstanding shares of Series A Preferred Stock
were purchased by Compass or any of its Affiliates at the Offer Closing Time.
Section 3.2 Dissenting Shares; Exchange of Certificates.
(a) Dissenting Shares of International Common Stock. Notwithstanding
anything in this Agreement to the contrary, shares of International Common Stock
which are issued and outstanding immediately prior to the Merger Effective Time
and which are held by stockholders who have not voted such shares of
International Common Stock in favor of the Merger or consented thereto in
writing and who shall have demanded properly in writing appraisal for such
shares of International Common Stock in the manner provided by Section 262 of
the DGCL (collectively, the "Dissenting Shares") shall not be converted into or
be exchangeable for the right to receive the consideration provided for in
Section 3.1 of this Agreement, unless and until such holder shall have failed to
perfect or shall have effectively withdrawn or lost such holder's right to
appraisal and payment under the DGCL. If such holder shall have so failed to
perfect or shall have effectively withdrawn or lost such right, such holder's
shares of International Common Stock shall thereupon be deemed to have been
converted into and to have become exchangeable for, at the Merger Effective
Time, the right to receive the consideration provided for in Section 3.1(a) of
this Agreement, without any interest thereon.
(b) Exchange of Shares of International Common Stock.
(i) Prior to the Merger Effective Time, Compass shall designate a bank
or trust company to act as exchange agent in the Merger (the "Exchange
Agent"). Immediately prior to the Merger Effective Time, Compass will
deposit with the Exchange Agent the funds necessary to make the payments
contemplated by Section 3.1 on a timely basis (the "Exchange Fund").
(ii) Promptly after the Merger Effective Time, the Exchange Agent
shall mail to each record holder, as of the Merger Effective Time, of an
outstanding certificate or certificates which immediately prior to the
Merger Effective Time represented shares of International Common Stock (the
"Certificates") a form letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the Exchange
Agent) and instructions for use in effecting the surrender of the
Certificates for payment therefor. Upon surrender to the Exchange Agent of
a Certificate, together with such letter of transmittal duly executed, and
any other required documents, the holder of such Certificate shall be
entitled to receive in exchange therefor the consideration set forth in
Section 3.1(a) hereof, and such Certificate shall forthwith be cancelled.
No interest will be paid or accrued on the cash payable upon the surrender
of the Certificates. If payment is to be made to a person other than the
person in whose name the Certificate surrendered is registered, it shall be
a condition of payment that the Certificate so surrendered shall be
properly endorsed or otherwise in proper form for transfer and that the
person requesting such payment shall pay any transfer or other taxes
required by reason of the payment to a person other than the registered
holder of the Certificate surrendered or establish to the satisfaction of
the Surviving Corporation that such tax has been paid or is not applicable.
Until surrendered in accordance with the provisions of this Section 3.2,
each Certificate (other than Certificates representing shares of
International Common Stock to be cancelled pursuant to Section 3.1(a)(ii)
and Dissenting Shares) shall represent for all purposes only the right to
receive the consideration set forth in Section 3.1(a) hereof, without any
interest thereon.
(iii) After the Merger Effective Time there shall be no transfers on
the stock transfer books of the Surviving Corporation of the shares of
International Common Stock which were outstanding immediately prior to the
Merger Effective Time. If, after the Merger Effective Time, Certificates
are presented to the Surviving Corporation, they shall be cancelled and
exchanged for the consideration provided in this Article III and in
accordance with the procedures set forth in this Article III.
A-10
<PAGE> 11
(c) Termination of Exchange Fund. Any portion of the Exchange Fund that
remains undistributed to the holders of the Certificates for one year after the
Merger Effective Time shall be delivered to the Surviving Corporation
immediately, upon demand, and any holders of the Certificates who have not
theretofore complied with this Article III shall thereafter look only to the
Surviving Corporation (subject to abandoned property, escheat and other similar
laws) for exchange for the consideration provided in this Article III in
accordance with the procedures set forth in this Article III.
(d) No Liability. None of Compass, Compass Holdings, Compass Interim,
International, the Surviving Corporation or the Exchange Agent shall be liable
to any person in respect of any payments from the Exchange Fund delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
(e) Withholding Rights. The Surviving Corporation will be entitled to
deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of International Common Stock such amounts as may be
required to be deducted and withheld with respect to the making of such payment
under the Code, or under any provision of Tax (as defined in the Tax Allocation
Agreement) law. To the extent that amounts are so withheld and paid over to the
appropriate taxing authority, such withheld amounts will be treated for all
purposes of this Agreement as having been paid to the holder of International
Common Stock in respect of which such deduction and withholding was made.
(f) Transfer Taxes. Compass Holdings will pay or cause to be paid any
Transfer Taxes (as defined in the Tax Allocation Agreement), other than Transfer
Taxes imposed on any holder of International Common Stock, imposed in connection
with or as a result of the Merger. Notwithstanding the foregoing, Compass
Holdings shall receive reimbursement from UCRI for 50% of any such Transfer
Taxes which reimbursement shall be paid to Compass Holdings no later than five
business days after UCRI receives notice of any such payment.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 Certain Definitions. As used in Section 4.2 herein, unless
specifically provided otherwise, any reference to International shall assume
that the Contribution and the Distribution had occurred immediately prior to the
date hereof on the terms and conditions set forth in the Reorganization
Agreement and therefore, unless otherwise expressly stated or the context
otherwise clearly requires otherwise, relate only to the Foodservice Business.
As used in this Agreement, any reference to any event, change or effect having a
material adverse effect on or with respect to an entity (or group of entities
taken as a whole if so specified) means such event, change or effect would be
reasonably expected to be materially adverse to the business, properties,
assets, results of operations or consolidated financial condition of such entity
(or, if with respect thereto, of such group of entities taken as a whole) or on
the ability of such entity or group of entities to consummate the transactions
contemplated hereby, including the Contribution, the Distribution and the Merger
(a "Material Adverse Effect"). As used in this Agreement, any reference to any
event, change or effect having a Material Adverse Effect on or with respect to
International at any time prior to the Offer Closing Time means such event,
change or effect would be reasonably expected to be materially adverse to: (i)
the business, properties, assets, results of operations or consolidated
financial condition of International and its Subsidiaries taken as a whole or
(ii) the business, properties, assets, results of operations or consolidated
financial condition of the Foodservice Business; or (iii) the ability of
International to consummate the transactions contemplated hereby, including the
Contribution, the Distribution and the Merger.
Section 4.2 Representations and Warranties of International. In addition to
the representations and warranties contained in Section 1.2 herein,
International represents and warrants to Compass, Compass Holdings and Compass
Interim as follows:
(a) Organization, Standing, Corporate Power and Subsidiaries. Each of
International and Daka is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. Each of
International and Daka is duly qualified or licensed to do business and in good
standing in each jurisdiction in which the property owned, leased or operated by
it or the nature of the business conducted by it makes such qualification or
licensing necessary, except where the failure to be so duly qualified or
licensed and in good standing would not have a material adverse effect on
International and Daka,
A-11
<PAGE> 12
taken as a whole. A list of each jurisdiction in which International or Daka is
qualified is included in Schedule 4.2(a) of the Disclosure Schedule. True,
accurate and complete copies of the Certificate of Incorporation and Bylaws of
International and of Daka, as in effect on the date hereof, including all
amendments thereto, have heretofore been delivered to Compass. International has
made available to legal counsel for Compass true, accurate and complete copies
of the minute books of International and Daka, and such minute books contain
minutes of all meetings of the boards of directors (and all committees thereof)
and stockholders of International or Daka, as appropriate. The capitalization
and the state, country or other jurisdiction of incorporation of Daka and any
Subsidiaries of Daka is accurately described and identified on Schedule 4.2(a)
to the Disclosure Schedule.
(b) Capital Structure.
(i) The authorized capital stock of International consists of
30,000,000 shares of International Common Stock and 1,000,000 shares of
Series A Preferred Stock. At the close of business on April 30, 1997, (i)
11,148,302 shares of International Common Stock were issued and
outstanding, (ii) no shares of International Common Stock were held by
International in its treasury, (iii) 1,250,000 shares of International
Common Stock were reserved for issuance pursuant to the Benefit Plans and
International had commitments to issue up to 768,949 shares of
International Common Stock under the Benefit Plans, exclusive of shares
issuable under the 1996 Employee Stock Purchase Plan with respect to the
offering period beginning April 1, 1997, (iv) 11,911.565 shares of Series A
Preferred Stock were issued and outstanding, and (v) contingent warrants to
purchase 264,701 shares of International Common Stock (the "International
Warrants") were issued and outstanding. Except as set forth above, at the
close of business on April 30, 1997, no shares of capital stock or other
voting securities of International were issued, reserved for issuance or
outstanding. All outstanding shares of capital stock of International are,
and all shares which may be issued pursuant to the Benefit Plans will be,
when issued, duly authorized, validly issued, fully paid and nonassessable
and not subject to preemptive rights. There are not any bonds, debentures,
notes or other indebtedness of International having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote)
on any matters on which stockholders of International may vote. Except as
set forth above or as provided in Section 1.5 hereof, there are not, and
immediately prior to the Offer Closing Time there will not be, any
securities, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind to which International is a party
or by which it is bound obligating International to issue, deliver or sell,
or cause to be issued, delivered or sold, additional shares of capital
stock or other voting securities of International or of Daka or obligating
International or Daka to issue, grant, extend or enter into any such
security, option, warrant, call, right, commitment, agreement, arrangement
or undertaking. Except regarding the Series A Preferred Stock and the
International Warrants or as provided in Section 1.5 hereof, there are not
any outstanding contractual obligations of International or its
Subsidiaries to repurchase, redeem or otherwise acquire any shares of
capital stock of International or its Subsidiaries. International has
delivered to Compass a complete and correct copy of the Series A Preferred
Stock Purchase Agreement, as amended and supplemented to the date of this
Agreement.
(ii) The authorized capital stock of Daka consists of 12,000,000
shares of common stock, $.01 par value, of which 100 shares are issued and
outstanding, which shares were duly authorized, validly issued, fully paid
and nonassessable. All of the outstanding capital stock of Daka is owned by
International. There are no securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which
International or Daka is a party or by which either of them is bound
authorizing or obligating the issuance or sale of additional shares of
capital stock of Daka. At the Offer Closing Time, International will own
all right, title and interest in and to all capital stock and all rights
with respect to all capital stock of Daka and will not otherwise, directly
or indirectly, own or have the right to acquire any capital stock or other
equity interest in any other corporation, partnership, joint venture or
other entity.
(iii) As of the Offer Closing Time, the authorized capital stock of
UCRI will consist of 30,000,000 shares of UCRI Common Stock and 5,000,000
shares of preferred stock, par value $.01 per share. All of the outstanding
capital stock of UCRI is, and until immediately prior to the Distribution
will be, owned by International. (c) Authority; Noncontravention.
(i) Each of International and Daka has, and, in the case of any
Ancillary Agreements (as defined in Section 10.2(b)), to which it is a
party executed at a later time, will have, the requisite corporate power
and
A-12
<PAGE> 13
authority (subject to the approvals described in the next sentence) to
enter into this Agreement and the Ancillary Agreements, as the case may be,
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and the Ancillary Agreements to
which it is a party and the consummation by International and Daka of the
transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of International and Daka, other
than, with respect to the Merger, if required by applicable law after the
Offer Closing Time, the approval and adoption of this Agreement by the
affirmative vote of the holders of International Common Stock representing
not less than two-thirds of the outstanding shares of capital stock of
International entitled to vote thereon (such holders of such shares, the
"Requisite Stockholders"), and formal declaration of the Distribution by
International's Board of Directors (which will occur prior to the Offer
Closing Date). The Board of Directors of International has approved the
Offer, the Merger (subject to approval by the Requisite Stockholders if
required), this Agreement and the Ancillary Agreements, and such approval
is sufficient to render the provisions of Section 203 of the DGCL and any
applicable provisions of International's Certificate of Incorporation or
Bylaws inapplicable to the Offer, the Merger, and the transactions
contemplated by this Agreement and the Ancillary Agreements. This Agreement
has been duly executed and delivered by International and, assuming this
Agreement constitutes a valid and binding obligation of the other parties
thereto constitutes a valid and binding obligation of International,
enforceable against International in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium, fraudulent conveyance, or
other similar laws relating to creditors' rights and general principles of
equity. Each of the Ancillary Agreements has been duly executed and
delivered by each of International, Daka or UCRI, as the case may be, and
constitutes, or upon such execution and delivery will constitute, a valid
and binding obligation of each of International, Daka or UCRI, enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
insolvency, moratorium, fraudulent conveyance, or other similar laws
relating to creditors' rights and general principles of equity.
(ii) None of the execution and delivery of this Agreement and the
Ancillary Agreements or the consummation of the transactions contemplated
hereby or thereby and compliance with the provisions of this Agreement and
the Ancillary Agreements by International, Daka or UCRI will conflict with,
or result in any violation of, or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or the loss of a benefit
under, or result in the creation of any adverse claim, restriction on
voting or transfer, pledge, claim, lien, charge, encumbrance or security
interest of any kind or nature whatsoever (collectively, "Liens") upon any
of the properties or assets of International and/or Daka (i) under either
of their respective Certificates of Incorporation or Bylaws, (ii) except as
set forth on Schedule 4.2(c)(ii) to the Disclosure Schedule, under any
Material Contract (as defined in Section 4.2(k)) to which International
and/or Daka is a party or by which International and/or Daka or any of
their respective assets are bound, or (iii) subject to the governmental
filings and other matters referred to in the following sentence, under any
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to International and/or Daka, or any of their respective
properties or assets, other than any such conflicts, violations, defaults,
rights, losses or Liens (x) that in the aggregate would not (A) have a
Material Adverse Effect on International and Daka, taken as a whole, (B)
materially impair the ability of International to perform its obligations
under this Agreement or any of the Ancillary Agreements to which
International is a party, or (C) prevent the consummation of any of the
transactions contemplated by this Agreement or any of the Ancillary
Agreements, or (y) which become applicable as a result of the business or
activities in which Compass, Compass Holdings or Compass Interim are or
proposed to be engaged (other than the business or activities of the
Foodservice Business, considered independently of the ownership thereof by
Compass, Compass Holdings and Compass Interim) or as a result of other
facts or circumstances specific to Compass, Compass Holdings or Compass
Interim. No consent, approval, order or authorization of, or registration,
declaration or filing with, any Federal, state or local government or any
court, administrative agency or commission or other governmental authority
or agency, or self-regulatory organization, domestic or foreign (a
"Governmental Entity"), is required by or with respect to either
International or Daka in connection with the execution and delivery of this
Agreement and any of the Ancillary Agreements to which it is a party or the
consummation by International or Daka of the transactions contemplated
hereby or thereby, except for (i) the filing with the SEC of such reports
and filings under the Securities Exchange Act of 1934, as amended, and all
rules and regulations thereunder (the "Exchange Act") and the Securities
Act of 1933 and all rules and regulations thereunder (the "Securities Act")
as may be required in connection with
A-13
<PAGE> 14
this Agreement, the Ancillary Agreements and the transactions contemplated
hereby and thereby, (ii) the filing of the Certificate of Merger with the
Delaware Secretary of State and appropriate documents with the relevant
authorities of other states in which International or Daka is qualified to
do business, (iii) expiration of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (iv) expiration of the waiting period under the Exon-Florio
Amendment to the Defense Production Act as currently in effect (the
"Exon-Florio Amendment") (v) such filings and approvals as may be required
under any "takeover" or "blue sky" laws of certain states and as disclosed
in Schedule 4.2(c) of the Disclosure Schedule, (vi) such applicable liquor
license or permit transfers or amendments as may be required by applicable
law, (vii) such other consents, approvals, orders, authorizations,
registrations, declarations and filings, the absence of which could not
reasonably be expected to have a Material Adverse Effect on International
and Daka, taken as a whole, and (viii) such consents, approvals, orders,
authorizations, registrations, declarations or filings which become
applicable as a result of the business or activities in which Compass,
Compass Holdings or Compass Interim are or propose to be engaged (other
than the business or activities of the Foodservice Business, considered
independently of the ownership thereof by Compass, Compass Holdings and
Compass Interim) or as a result of other facts or circumstances specific to
Compass, Compass Holdings or Compass Interim.
(d) Reports.
(i) International has filed all reports, schedules, forms, statements
and other documents required by the Exchange Act or the Securities Act with
the SEC since July 2, 1994 (the "International SEC Documents"). As of their
respective dates, (x) the International SEC Documents complied in all
material respects as to form with the requirements of the Securities Act or
the Exchange Act, as the case may be, and (y) none of the International SEC
Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which
they were made, not misleading.
(ii) As of their respective dates, the financial statements of
International included in the International SEC Documents complied as to
form in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto, were
prepared in accordance with generally accepted accounting principles
(except as permitted by Form 10-Q of the SEC in the case of unaudited
statements) applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly presented the
consolidated financial position of International and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods covered thereby (subject, in the
case of unaudited statements, to normal year-end audit adjustments).
(e) Schedule 14D-9; Offer Documents; Form 10; Information Statement. None
of the information included in the Schedule 14D-9, the Form 10 or the
Information Statement (as those terms are defined in the Reorganization
Agreement), or supplied by International in writing for inclusion in the Offer
Documents, including any amendments thereto, will be false or misleading with
respect to any material fact or will omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading. The Schedule
14D-9, the Form 10 and the Information Statement, including any amendments
thereto, will comply in all material respects with the Exchange Act.
Notwithstanding the foregoing, neither International nor Daka makes any
representation or warranty with respect to any information supplied by Compass,
Compass Holdings or Compass Interim or any of their respective affiliates or
representatives in writing for inclusion in the Schedule 14D-9, Form 10 or the
Information Statement.
(f) Absence of Certain Changes or Events. On the date of this Agreement,
except as disclosed in the International SEC Documents filed and publicly
available prior to the date of this Agreement or the Offer Closing Time, except
as disclosed in the International SEC Documents filed and publicly available
before the Offer Closing Time or in the International Bring Down Certificate (as
defined in the Offer Conditions), since March 29, 1997, each of International
and Daka and its Subsidiaries has conducted the Foodservice Business only in the
ordinary course, consistent with past practice, and there has not been (i) any
Material Adverse Change with respect to International or Daka or any event that
could reasonably be expected to have a Material Adverse Effect on International
or Daka taken as a whole, (ii) any split, combination or reclassification of any
of its capital stock or any issuance or the authorization of any issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock except as provided in Section 1.5 hereof, (iii) any damage,
destruction or
A-14
<PAGE> 15
physical loss, whether or not covered by insurance, that has had or could
reasonably be expected to have a Material Adverse Effect on International and
Daka taken as a whole, (iv) any material change in accounting methods,
principles or practices by International, except insofar as may have been
required (in the opinion of International's independent accountants) by a change
in generally accepted accounting principles, (v) except as permitted or
contemplated hereby or by the Ancillary Agreements, any acquisition or any sale
or disposition of any material assets or properties by International, except in
the ordinary course of business, consistent with past practice, or (vi) any
entry into any agreement, arrangement or commitment to take any of the actions
set forth in this Section 4.2(f).
(g) Litigation. Schedule 4.2(g) of the Disclosure Schedule sets forth, as
of the date hereof, (i) each suit, action, investigation or proceeding that
seeks damages of more than $25,000, except for matters relating to claims
handled by International's or Daka's insurance carriers in the ordinary course
of business, and (ii) each criminal investigation, in each case pending or, to
the Knowledge of International, expressly threatened, against International or
Daka before any Governmental Entity or arbitrator. Except as disclosed in the
International SEC Documents, there is no claim, investigation, suit, action or
proceeding pending or, to the Knowledge of International, expressly threatened,
against International or Daka before or by any Governmental Entity or arbitrator
(including any related to the suspension, debarment or similar preclusion of
International or Daka from doing business with a Governmental Entity) that,
individually or in the aggregate, could reasonably be expected to (x) have a
Material Adverse Effect on International and Daka taken as a whole, (y)
materially impair the ability of International, Daka or UCRI to perform any
obligation under this Agreement or any of the Ancillary Agreements or (z)
prevent or materially delay the consummation of any or all of the transactions
contemplated hereby or thereby. There are no unpaid judgments, injunctions,
orders, arbitration decisions or awards, or, except as set forth in Schedule
4.2(g) of the Disclosure Schedule, other judicial or administrative mandates
outstanding against International or Daka.
(h) Compliance with Applicable Laws. Schedule 4.2(h) of the Disclosure
Schedule sets forth, as of the date hereof, all alcoholic beverage licenses and
licenses issued, granted or otherwise made available to International or Daka by
any Governmental Entity in connection with the Foodservice Business.
International or Daka holds all permits, licenses, variances, exemptions, orders
and approvals of, and has made all filings, applications and registrations with,
all Governmental Entities which individually or in the aggregate are material to
the operation of the Foodservice Business (the "Foodservice Business Permits").
All Foodservice Business Permits are in full force and effect in all material
respects, neither International nor Daka has received any written or oral notice
or indication that any of the Foodservice Business Permits is under review or
consideration for the potential cancellation, revocation or nonrenewal thereof,
and neither International nor Daka has Knowledge of any event or condition that
could reasonably be expected to lead to any such cancellation, revocation or
nonrenewal. International and Daka are in compliance with the terms of the
Foodservice Business Permits, except where the failure so to comply would not
have a Material Adverse Effect on International and Daka taken as a whole. The
business of International and Daka is not being conducted in violation of any
law, ordinance or regulation of any Governmental Entity, except for violations,
if any, that individually or in the aggregate do not, and could not reasonably
be expected to, have a Material Adverse Effect on International and Daka taken
as a whole.
(i) Brokers or Finders. No broker, investment banker, financial advisor or
other person, other than Bear Stearns & Co., Inc., the fees and expenses of
which will be paid by UCRI in accordance with Section 3.4 of the Post-Closing
Covenants Agreement, is entitled to any broker's, finder's, financial advisor's
or other similar fee or commission in connection with the transactions
contemplated by this Agreement and the Ancillary Agreements based upon
arrangements made by or on behalf of International or Daka.
(j) The Foodservice Business.
(i) The Foodservice Assets (as defined in the Reorganization
Agreement) are all the assets used by International and Daka to operate the
Foodservice Business and are sufficient to permit International and Daka
collectively to operate the Foodservice Business from and after the Offer
Closing Time in substantially the same manner as currently conducted;
provided, that the parties acknowledge that the Foodservice Assets do not
include certain assets as described in the Reorganization Agreement.
(ii) At the Offer Closing Time, except as contemplated by the
Ancillary Agreements and the agreements specifically contemplated thereby,
neither UCRI nor any of its Subsidiaries will use in the conduct of its
business or own or have rights to use any material assets or property,
whether tangible, intangible or
A-15
<PAGE> 16
mixed, which have also been heretofore used in the conduct of the business
of the Foodservice Business. At the Offer Closing Time, neither UCRI nor
any of its Subsidiaries will be a party to any contract, agreement,
arrangement or understanding with International (other than the Ancillary
Agreements and the agreements specifically contemplated thereby) relating
to the Foodservice Business or pursuant to which International may have any
obligation or liability. After the Offer Closing Time, International, the
Surviving Corporation, Daka and Compass and its other Subsidiaries will not
have any liability whatsoever, direct or indirect, contingent or otherwise,
in any way relating to the business, operations, indebtedness, assets or
liabilities of UCRI or any of its Subsidiaries, except as expressly
contemplated by the Ancillary Agreements and the agreements specifically
contemplated thereby.
(k) Material Contracts.
(i) On the date of this Agreement and at the Offer Closing Time;
(A) each Material Contract (as defined below), together with all
modifications and amendments thereto, is the valid and binding
obligation of International or Daka, as the case may be, in full force
and effect, enforceable against such party in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, fraudulent
transfer, moratorium and other laws of general application affecting
creditors' rights generally and by equitable principles, other than
Customer Contracts as to which notice of termination has been given but
as to which International has no Knowledge;
(B) neither International nor Daka is in breach or default under
any Material Contract, except for such breaches or defaults that do not,
and will not with the passage of time or the giving of notice, or both,
individually or in the aggregate, have a Material Adverse Effect on
International and Daka taken as a whole and, to the Knowledge of
International, no other party is in material default thereunder;
(C) neither International nor Daka has received any written or oral
notice of any event or condition that constitutes, or with the passage
of time would constitute, a material default by International or Daka
under any Material Contract, which event or condition would reasonably
be expected to have a Material Adverse Effect on International and Daka
taken as a whole; and
(D) neither International nor Daka has received written notice or
other notice or advice of termination, cancellation, nonrenewal or
adverse price adjustment of any Material Contract other than a Customer
Contract.
(ii) Schedule 4.2(k) of the Disclosure Schedule contains a true a
complete list of all Material Contracts, including a list of each Customer
Contract.
(iii) True and complete copies of each Material Contract have been
made available to Compass.
(iv) As used herein, the term "Material Contract," shall mean any
contract, agreement, arrangement or understanding to which International or
Daka is a party or by which International or Daka or any of their
respective assets are bound with respect to the Foodservice Business, that
is or contains any of the following:
(A) a contract to provide contract food and contract catering
services (excluding immaterial vending services contracts) to customers
of International or Daka as to which International or Daka was a party
at any time since June 29, 1996 ("Customer Contracts");
(B) a contract of employment that is other than at will or any
arrangement binding on International or Daka providing any employee with
termination benefits other than those available under International's or
Daka's generally applicable severance policy;
(C) a contract with any labor union or association;
(D) a contract with any affiliate of International or Daka
(including, without limitation, UCRI and its Subsidiaries);
(E) a contract containing a covenant binding International or Daka
not to compete relating to the operations of the Foodservice Business;
A-16
<PAGE> 17
(F) a loan or similar agreement relating to the borrowing of money
of any other Person in excess of $5,000;
(G) any lease or sublease relating to Real Property (as defined in
Section 4.2(u) herein);
(H) any contract not fully performed, including without limitation
contracts for the purchase of any commodity, material, services or
equipment, or fixed assets, for a price in excess of $50,000 in the
aggregate over the life of the contract which does not permit
International or Daka to terminate the contract upon less than 90 days'
notice or expressly requires it to pay liquidated damages of more than
$5,000 upon early termination;
(I) any license agreement (as licensor or licensee) or any
franchise agreement (as franchisor or franchisee);
(J) any vehicle master lease or other personal property master
lease;
(K) any contract that obligates International or Daka to obtain all
or a substantial portion of its requirements of any goods or services
from, or supply all or a substantial portion of the requirements for any
goods or services of, any other person.
(L) Benefit Plans, Employment and Labor Relations.
(i) Schedule 4.2(l) of the Disclosure Schedule contains an accurate
and complete list of all "employee pension benefit plans" (as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")) (sometimes referred to herein as "Pension Plans"),
"employee welfare benefit plans" (as defined in Section 3(1) of ERISA) and
all other plans, agreements, policies or arrangements relating to stock
options, stock purchases, compensation, deferred compensation, severance,
and other employee benefits, in each case maintained or contributed to as
of the date of this Agreement by International or Daka for the benefit of
any current or former employees, officers or directors of International or
Daka or for which International or Daka is or could be liable, as a result
of its status as an ERISA Affiliate (as defined below) (collectively, the
"Benefit Plans"). Benefit Plans shall not include any "multiemployer plan"
as described in Section 37(A) of ERISA (a "Multiemployer Plan"). Each
Multiemployer Plan is so noted in Schedule 4.2(l) of the Disclosure
Schedule. Each Benefit Plan has been duly authorized by all necessary
corporate action by International or any participating Subsidiary or ERISA
Affiliate. International has delivered to Compass true, complete and
correct copies of (A) each Benefit Plan (or, in the case of any unwritten
Benefit Plans, descriptions thereof); (B) the three most recent annual
reports on Form 5500 filed with the Internal Revenue Service (the "IRS")
with respect to each Benefit Plan (if any such report was required); (C)
the most recent summary plan description for each Benefit Plan for which
such summary plan description is required; (D) each trust agreement or
group annuity contract relating to any Benefit Plan; (E) all collective
bargaining agreements pursuant to which contributions to any Benefit Plan
have been made or obligations incurred or are being made or are owed by
International or Daka; (F) all personnel, payroll and employment manuals
and policies; (G) all insurance policies purchased by or to provide
benefits under any Benefit Plan; (H) all contracts with third-party
administrators, actuaries, investment managers, consultants and other
independent contractors that relate to any Benefit Plan, and all reports
submitted within the three years preceding the date of this Agreement by
any such third parties with respect to any such Benefit Plan; and (I)
copies of all notices that were given by International or Daka or any
Benefit Plan to the IRS or the United States Department of Labor (the
"DOL") or any participant or beneficiary pursuant to any statute (including
without limitation notifications pursuant to Section 601 et seq. of ERISA
and Section 4980B of the Code), and copies of all notices that were given
by the IRS, the DOL or the Pension Benefit Guaranty Corporation ("PBGC") to
International or Daka or any Benefit Plan, in each case within the three
years preceding the date of this Agreement (other than benefit statements
to participants in the Benefit Plans). International shall update Schedule
4.2(l) of the Disclosure Schedule and the information shall be made
available to Compass through the Offer Closing Time. "ERISA Affiliate"
means, with respect to any entity, trade or business, any other entity,
trade or business that is a member of a group described in Section 414(b),
(c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA that includes
the first entity, trade or business, or that is a member of the same
"controlled group" as the first entity, trade or business pursuant to
Section 4001(a)(14) of ERISA, at any time.
A-17
<PAGE> 18
(ii) The Benefit Plans are on the date hereof in compliance with the
applicable provisions of ERISA and the Code, the rules and regulations
promulgated thereunder, all other applicable laws and the terms of all
applicable collective bargaining agreements. There are no investigations by
any federal or state entity, or other claims (except routine claims for
benefits payable under the Benefit Plans), suits or proceedings against or
with respect to which any Benefit Plan is a party or asserting any rights
to or claims for benefits under any Benefit Plan that would give rise to
any liability that, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect on International or Daka taken
as a whole. There are no involuntary termination proceedings which have
been instituted against any Pension Plan.
(iii) Each of International and Daka has performed all of its material
obligations under all Benefit Plans and has made appropriate entries in its
financial records and statements prepared in accordance with generally
accepted accounting practices for all obligations and liabilities under
such Benefit Plans that have accrued but are not yet due. Each Pension Plan
that is intended to be a tax-qualified plan is the subject of either a (A)
favorable determination letter from the IRS received in the preceding two
years from the date hereof, or (B) pending determination letter request (a
"Determination Letter Request") filed with the IRS within the remedial
amendment period described under Section 401(b) of the Code, in each case
to the effect that such Pension Plan is qualified under Section 401(a) of
the Code, subject to the customary reservations as to the Pension Plan's
operational compliance with Code requirements. No such determination letter
on any Pension Plan has been revoked, and the IRS has not issued written
notice of its intent to revoke the qualified status of any such Pension
Plan. No event has occurred and no circumstance exists that would
reasonably be expected to result in the disqualification of such Pension
Plan or, with respect to each Determination Letter Request, would
reasonably be expected to cause the IRS not to issue a favorable
determination letter. International has delivered to Compass Holdings a
copy of the most recent determination letter received with respect to each
Pension Plan for which a letter has been issued, as well as any
Determination Letter Request still pending.
(iv) No statement, either written or oral, has been made by
International or Daka to any individual with regard to any Benefit Plan
that was not in accordance with the respective Benefit Plan and that could
have material adverse economic consequences to the Surviving Corporation or
Compass Holdings.
(v) Each Benefit Plan is and has been administered, and International
and Daka, with respect to all Benefit Plans are, in compliance in all
material respects with ERISA, the Code and other applicable laws and with
applicable collective bargaining agreements. This statement specifically
means, but is not limited to, the following matters:
(A) No transaction prohibited by Section 406 of ERISA and no
"prohibited transaction" under Section 4975 of the Code have occurred
with respect to any Benefit Plan.
(B) International and Daka have had no liability to the PBGC with
respect to any plan or have any liability under Sections 502 or 4071(c)
of ERISA. All filings required by ERISA and the Code as to each Benefit
Plan have been timely filed, and all notices and disclosures to
participants under such Benefit Plans required by either ERISA or the
Code have been timely provided.
(vi) Each of the following statements is true and correct regarding
each Benefit Plan:
(A) No event or circumstance specific to International or Daka (as
opposed to general economic or industry events that impact International
or Daka as members of an affected group or class of business
enterprises), except for ordinary course matters such as workers
compensation adjustments, has occurred or exists that could result in a
material increase in premium costs of any Benefit Plan that are insured,
or material increase in benefit costs of such Benefit Plans that are
self-insured.
(B) Except for any Multiemployer Plan, no Benefit Plan must report
to the PBGC.
(C) Neither International nor Daka has received any notice from any
Multiemployer Plan that it is in reorganization or is insolvent, that
increased contributions may be required to avoid a reduction in plan
benefits or to avoid the imposition of any excise tax, or that such
Multiemployer Plan intends to terminate or has terminated. To the
Knowledge (as defined in 10.2(c) herein, of International and/or
A-18
<PAGE> 19
Daka, no Multiemployer Plan listed in Schedule 4.2(l) to the Disclosure
Schedule to which International or Daka contributes or has contributed
is a party to any pending merger or asset or liability transfer or is
subject to any proceeding brought by the PBGC.
(D) Except to the extent required under Section 601 et seq. of
ERISA and Section 4980B of the Code, neither International nor Daka
provides health or welfare benefits for any retired or former employee
or is obligated to provide health or welfare benefits to any active
employee or beneficiary following such employee's retirement or other
termination of service.
(E) International or Daka has the right to modify and terminate
benefits to retirees (other than benefits provided under Pension Plans)
with respect to both retired and active employees. Each Benefit Plan has
complied with the provisions of Section 601 et seq. of ERISA and Section
4980B of the Code.
(vii) Except as set forth on Schedule 4.2(l) of the Disclosure
Schedule, neither International nor Daka now sponsors, maintains,
contributes to or has an obligation to contribute to, and has not at any
time since January 1, 1990, sponsored, maintained, contributed to, or been
obligated to contribute to, any single employer, multiple employer or
Multiemployer Plan subject to the provisions of Section 302 or Title IV of
ERISA or Sections 412 or 4971 of the Code. Other than with respect to the
Multiemployer Plans set forth on Schedule 4.2(l) to the Disclosure
Schedule, no liability currently exists, and under no circumstances could
International or any of its ERISA Affiliates incur a liability pursuant to
the provisions of Title I, II or IV of ERISA or Section 412, 4971 or 4980B
of the Code that could become a liability of the Surviving Corporation or
Compass Holdings after the Offer and the Merger. Without limiting the
generality of the foregoing, neither International nor any of its ERISA
Affiliates has engaged in any transaction described in Section 4069 or
Section 4204 of ERISA for the purpose of evading liability under subtitle D
of Title IV of ERISA. Neither International nor Daka has incurred a
"complete withdrawal" or a "partial withdrawal" (as such terms are defined
in Section 4203 and Section 4205, respectively, of ERISA) with respect to
any Multiemployer Plan (within the meaning of Section 4001(a)(3) of ERISA)
that has led to or could lead to the imposition of a material withdrawal
liability under Section 4201 of ERISA that remains unpaid as of the date
hereof.
(viii) Neither International nor Daka has incurred any material
liability, nor has any event occurred that could reasonably result in any
material liability, under Title I or Title IV of ERISA (other than to a
Pension Plan for contributions not yet due or to the PBGC for payment of
premiums not yet due) or under Section 412 or Chapter 43 of the Code that
has not been fully paid as of the date hereof.
(ix) Except as set forth in Schedule 4.2(l) of the Disclosure
Schedule, neither International nor Daka is a party to, or bound by, any
contract with any labor union or association, including, without
limitation, any collective bargaining, labor or similar agreement. Neither
the execution and delivery of this Agreement or the Ancillary Agreements,
nor the consummation of the transactions contemplated hereby or thereby
will (A) constitute a breach or default under any such agreement, (B) give
rise to any right to terminate, amend or modify any such agreement or (C)
create any withdrawal liability. Except as set forth in Section 4.2(l) of
the Disclosure Schedule, since January 1, 1996, there has not been, and
there is not currently, pending or existing and there is not and has not
been threatened (A) any strike, slow-down, picketing, work stoppage or
formal employee grievance or arbitration process; (B) any proceeding
against International or Daka relating to the alleged violation of any
legal requirement pertaining to labor relations or employment matters,
including any charge, claim or action or complaint filed by an employee or
union with the National Labor Relations Board, the Equal Employment
Opportunity Commission, the DOL or any other federal or state governmental
body, any organizational activity or other labor or unemployment dispute
against International, Daka or the Surviving Corporation; (C) any
application for certification of a collective bargaining agent; or (D) any
formal or to the Knowledge of International or Daka other organizational
activity by International's or Daka's employees. To the Knowledge of
International or Daka, no event has occurred or circumstance exists that
could provide the basis for any work stoppage or other labor dispute. There
is no lockout of any employees by International or Daka, and no such action
is contemplated by International or Daka. International and Daka are in
compliance with all applicable laws relating to employment and employment
practices, terms and conditions of employment, wages and hours,
nondiscrimination, employee leave, hours, benefits, the payment of social
security taxes, and occupational health, and is not engaged in any unfair
A-19
<PAGE> 20
labor practice except where the failure to so comply or the result of such
unfair labor practice, as the case may be, would not have a Material
Adverse Effect on International or Daka taken as a whole.
(x) As of the date of this Agreement, there are no employees who have
been laid off from facilities of International or Daka and who have recall
rights under any collective bargaining agreement.
(xi) Except as disclosed in the International SEC Documents, since the
date of the most recent audited financial statements included in the
International SEC Documents, there has not been any adoption of or
amendment in any collective bargaining agreement or any Benefit Plan other
than any adoption or amendment of a Benefit Plan permitted under Section
5.1(g).
(m) Absence of Certain Business Practices. Since July 2, 1994, neither
International or Daka, nor, to the Knowledge of International or Daka (other
than solely as a result of the Knowledge of any individual who engages in such
conduct), any officer, employee or agent thereof, or any other person acting on
either of their behalf, has, directly or indirectly, given or agreed to give any
gift or similar benefit to any customer, supplier, governmental employee or
other person who is or may be in a position to help or hinder the Foodservice
Business (or assist International or Daka in connection with any actual or
proposed transaction relating to the Foodservice Business) (i) which subjected
or might have subjected International or Daka to any damage or penalty in any
civil, criminal or governmental litigation or proceeding, (ii) which if not
given, might have had a Material Adverse Effect on International and Daka taken
as a whole, (iii) which if not continued in the future, might have a Material
Adverse Effect on International and Daka taken as a whole, or subject
International or Daka to suit or penalty in any private or governmental
litigation, (iv) which, in case of a payment made directly or indirectly to an
official or employee of any government or of an agency or instrumentality of any
government, constitutes an illegal bribe or kickback (or, if made to an official
or employee of a foreign government, is unlawful under the Foreign Corrupt
Practices Act of 1977) or, in the case of a payment made directly or indirectly
to a person other than an official or employee of a government or of an agency
or instrumentality of a government, constitutes an illegal bribe, illegal
kickback or other illegal payment under any law of the United States or under
the law of any state which subjects the payor to a criminal penalty or the loss
of a license or privilege to engage in a trade or business or the termination of
a Customer Contract.
(n) Intellectual Property.
(i) For purposes of this Agreement, "Intellectual Property" shall mean
all of the following (in whatever form or medium) that are owned by or
licensed to International or Daka, whether domestic or foreign, and are
used in the conduct of the Foodservice Business as conducted currently:
patents, trademarks, service marks and copyrights (whether registered or
unregistered); applications for patents and for registration of trademarks,
service marks and copyrights; trade secrets and trade names; know how,
research and other technical information; and invention disclosures to be
filed or awaiting filing determinations; but not including any commercially
available "off-the-shelf" software licenses, the loss of which would not
have a Material Adverse Effect on International or Daka, taken as a whole.
(ii) Schedule 4.2(n) of the Disclosure Schedule sets forth a complete
list of all Intellectual Property applications and registrations therefor
which are unexpired or uncancelled as of the date hereof. Except for such
matters that individually or in the aggregate have not had and could not
reasonably be expected to have a Material Adverse Effect on International
and Daka taken as a whole, (A) the Intellectual Property owned by
International or Daka is valid and enforceable, free and clear of all
Liens; (B) International or Daka has taken all reasonable actions necessary
to maintain and protect its rights to the Intellectual Property; (C) there
has been no claim made against International or Daka asserting the
invalidity, misuse, unregistrability or unenforceability of any of the
Intellectual Property or challenging its right to use or ownership of any
of the Intellectual Property; (D) neither International nor Daka has any
Knowledge of any infringement or misappropriation of any of the owned
Intellectual Property; (E) to the Knowledge of International or Daka, the
conduct of the Foodservice Business has not infringed or misappropriated
and does not infringe or misappropriate any intellectual property or
proprietary right of any other entity; (F) no loss of any of the
Intellectual Property is pending or to the Knowledge of International or
Daka threatened; (G) the owned Intellectual Property, and to the Knowledge
of International and Daka the licensed Intellectual Property, as it is
currently used in the Foodservice Business, is sufficient to operate the
Foodservice Business as it is currently conducted; (H) the consummation of
the transactions contemplated by this Agreement will not alter, impair
A-20
<PAGE> 21
or extinguish any of the Intellectual Property; (I) International has not
licensed or in any other way authorized any other party to use the
Intellectual Property; and (J) to the Knowledge of International or Daka,
each of the agreements under which International or Daka licenses any
Intellectual Property is a valid and binding obligation of the licensor,
enforceable in accordance with its terms. (o) Taxes. Except as disclosed in
Schedule 4.2(o) of the Disclosure
Schedule:
(i) No material Liens for Taxes exist with respect to any of the
assets or properties of any of International or Daka, except for statutory
liens for Taxes not yet due or payable or that are being contested in good
faith.
(ii) All material Tax Returns (as defined in the Tax Allocation
Agreement) required to be filed by or on behalf of International or Daka,
or any consolidated, combined, affiliated or unitary group of which
International or Daka is or has ever been a member (together the
"International Affiliated Group"), have been timely filed or requests for
extensions have been timely filed and any such extensions have been granted
and have not expired.
(iii) Each such Tax Return was complete and correct in all material
respects.
(iv) All material Taxes with respect to taxable periods for which
International or Daka is or might otherwise be liable (together "Relevant
Taxes") have been paid in full, or reserves therefor have been established
in accordance with generally accepted accounting principles on the balance
sheets contained in the International SEC Documents, and on a basis
consistent with past practice.
(v) All Federal income Tax Returns filed by or on behalf of the
International Affiliated Group have been examined by and settled with the
IRS, or the statute of limitations with respect to the relevant Tax
liability has expired, for all taxable periods through and including the
period ended July 1, 1995.
(vi) All Taxes due with respect to any completed and settled audit,
examination or deficiency litigation with any Taxing Authority (as defined
in the Tax Allocation Agreement) have been paid in full.
(vii) There is no audit, examination, deficiency or refund litigation
pending with respect to any material Relevant Taxes, and no Taxing
Authority has given written notice of the commencement of any audit,
examination or deficiency litigation, with respect to any material Relevant
Taxes.
(viii) Neither International nor Daka is a party to a tax allocation
agreement other than the Tax Allocation Agreement.
(ix) Neither International nor Daka shall be required to include in a
taxable period ending after the date on which the Offer Closing Time
occurs, a material amount of taxable income attributable to income that
economically accrued in a prior taxable period as a result of Section 481
of the Code or any comparable provision of state or local Tax law.
(x) (A) No person has made with respect to International or Daka, or
with respect to any property held by International or Daka, any consent
under Section 341 of the Code and (B) neither International nor Daka is a
party to any lease made pursuant to Section 168(f)(8) of the Internal
Revenue Code of 1954, as amended and in effect prior to the date of
enactment of the Tax Equity and Fiscal Responsibility Act of 1982.
(xi) Neither International or Daka, nor any member of any controlled
group (within the meaning of Section 993(a)(3) of the Code) that includes
International or Daka, nor any of their respective officers, directors,
employees or independent contractors acting on their behalf, has in any tax
year ended after July 1, 1995, participated in or cooperated with an
international boycott (within the meaning of Section 999(b)(3) of the
Code).
(xii) Neither International nor any of its Subsidiaries has waived any
statute of limitation in respect of Taxes or agreed to any extension of
time with respect to a Tax assessment or deficiency.
(p) Insurance Policies. Insurance policy numbers 485-31-39 and 485-31-40,
each issued by National Union Fire Insurance Company of Pittsburgh, PA, are in
full force and effect, all premiums have been paid in full, there are no factual
or legal grounds for the cancellation of either policy and no contractual
agreements exist between International and the carrier which would effect or
modify the availability of such coverages.
A-21
<PAGE> 22
(q) Actions Affecting Recent Acquisitions. Schedule 4.2(q) of the
Disclosure Schedule is a true and complete list of all Tax-free transactions
within the meaning of Section 368 of the Code in which International or its
Subsidiaries was or is a party since June 27, 1992. International and its
Subsidiaries have complied in all material respects with all of the terms and
obligations of all such agreements and International has not taken, and has not
permitted any of its Subsidiaries to take, any action that would disqualify
those acquisitions as tax-free transactions within the meaning of Section 368 of
the Code.
(r) Foodservice Business Financial Statements. Attached to Schedule 4.2(r)
of the Disclosure Schedule is the unaudited statement of assets and liabilities
as of March 29, 1997 (the "Foodservice Proforma Balance Sheet"), both actual and
a pro forma basis after giving effect to the Contribution and Distribution. Also
attached to Schedule 4.2(r) of the Disclosure Schedule is the unaudited actual
Foodservice Segment Income for the period June 30, 1996 through March 29, 1997
for the Foodservice Business. (Collectively, Schedule 4.2(r) represents the
"Foodservice Business Financial Statements"). The Foodservice Business Financial
Statements were prepared in accordance with generally accepted accounting
principles and such procedures as are set forth on Schedule 4.2(r) of the
Disclosure Schedule, consistently applied, fairly present the financial
condition and results of operations of the Foodservice Business as of March 29,
1997 and for the nine months then ended.
(s) Indebtedness. Set forth on the Foodservice Business Balance Sheet or on
Schedule 4.2(s) to the Disclosure Schedule is a complete and correct record of
all outstanding indebtedness for borrowed money or any other obligation
evidenced by a promissory note or other instrument or guarantee or letter of
credit or a capitalized lease or a swap, cap or collar agreement or similar
hedging arrangement to mitigate risks of interest rates or commodity prices for
which International or Daka or any of its Subsidiaries is the account party or
otherwise obligated ("Indebtedness") as of March 29, 1997. Since March 29, 1997,
there has been no material change in the amount, interest rates, sinking funds,
installment payments or maturities of such Indebtedness. International has
delivered to Compass a complete and correct copy of the Credit Facility (as
defined in Section 5.1(f)(ii)), as amended and supplemented to the date of this
Agreement.
(t) Properties.
(i) Except (A) as may be reflected in the Foodservice Business Balance
Sheet, (B) for any Lien for current taxes not yet delinquent, (C) for Liens
with respect to Funded Debt (as defined in Section 5.1(f)(ii), hereof) to
be released as of the Offer Closing Time pursuant to Section 6.4(b) (ii)
hereof, (D) for Liens set forth in Schedule 4.2(t) to the Disclosure
Schedule and (E) for such other Liens as do not materially affect the value
of the property reflected in the Foodservice Business Balance Sheet or
acquired since the date of the Foodservice Business Balance Sheet and which
do not, individually or in the aggregate, materially interfere with or
impair the present and continued use of such property, International or
Daka has good title, free and clear of any Liens, to all of the property
reflected in the Foodservice Business Balance Sheet, and all property
acquired since the date of the Foodservice Business Balance Sheet, except
such property as has been disposed of (or, in the case of receivables,
collected or paid) in the ordinary course of business consistent with past
practice.
(ii) As of the date of the Foodservice Business Balance Sheet, all the
material tangible Foodservice Assets were in generally good working
condition (normal wear and tear excepted) and were suitable in all material
respects for the purposes for which they were being used except where the
loss of such assets would not have a Material Adverse Effect on
International and Daka taken as a whole.
(u) Real Property.
(i) Neither International nor Daka owns any real property. Schedule
4.2(u) of the Disclosure Schedule, consisting of a report prepared from the
accounting records, sets forth all real property leased or used by
International or Daka in connection with the Foodservice Business (the
"Real Property").
(ii) Except as set forth on Schedule 4.2(k) of the Disclosure
Schedule, neither International nor Daka is a party to any lease of Real
Property.
(iii) All buildings and improvements located on the Real Property are
in generally good operating condition and repair, ordinary wear and tear
excepted, and do not violate any zoning or building regulations or
ordinances where located, except for violations that do not materially
impair the use of the Real Property,
A-22
<PAGE> 23
except where such condition or violation would not have a Material Adverse
Effect on International and Daka taken as a whole.
(iv) True, correct and complete copies of title reports, surveys and
leases in International's or Daka's possession relating to the Real
Property have been furnished or made available to Compass.
(v) None of the Real Property, or any portion thereof, is currently
condemned, requisitioned or otherwise taken by any public authority, and,
to International's Knowledge, no such condemnation, requisition or taking
is threatened.
(v) Environmental Matters.
(i) Except as set forth in Schedule 4.2 (v) of the Disclosure
Schedule, (A) International and Daka, with respect to the Foodservice
Business and the Real Property, are in material compliance with all
applicable laws and regulations for the protection of the environment and
are subject to no continuing agreements, orders or judgments with respect
to compliance with environmental protection laws; (B) International and
Daka, with respect to the Foodservice Business and the Real Property, have
received no notices of unremedied violations from any Governmental Entity,
and there are no governmental investigations or audits, whether pending,
threatened or otherwise with respect thereto, the violation of which could
result in the imposition of a fine, penalty, liability, cost or expense;
and (C) International and Daka, with respect to the Foodservice Business,
have obtained or have made or will, before Closing, make application and
pay for all permits, licenses, orders and approvals of governmental or
administrative authorities which either are required by applicable
environmental protection laws or regulations to permit it to carry on the
Foodservice Business in substantially the same manner as currently
conducted, or which are applicable to the Real Property, and International
and Daka are in material compliance with the requirements set out in such
permits, licenses, orders and approvals.
(ii) Neither International nor Daka in the operation of the
Foodservice Business has used, stored, disposed or released any Hazardous
Material (as defined in the Post-Closing Covenant Agreement), except such
substances as are normally used in the conduct of the Foodservice Business,
and then in such quantities as are appropriate to the Foodservice Business
and in compliance in all material respects with Environmental Laws (as
defined in the Post-Closing Covenants Agreement).
(w) Fraudulent Conveyance; Solvency.
(i) The transactions contemplated by this Agreement and the Ancillary
Agreements have not been undertaken by International or its Subsidiaries
with an intent to hinder, delay or defraud any creditors of International
or its Subsidiaries. Based on the assumption that (A) the Funded Debt (as
defined in Section 5.1(f) (ii) will be repaid in full simultaneously with
the Offer Closing Time and (B) Compass intends to provide International and
Daka after the Offer Closing Time with sufficient capital with which to
conduct the Foodservice Business as such business is now conducted and is
proposed by Compass to be conducted, International and Daka (X) will be
able to pay their debts and liabilities, direct, subordinated, contingent
or otherwise, as such debts and liabilities become absolute and matured and
(Y) will not have unreasonably small capital with which to conduct their
business after the Offer Closing Time.
(ii) (A) The fair value of the assets of UCRI and its Subsidiaries
will exceed the debts and liabilities, direct, subordinated, contingent or
otherwise, of UCRI and its Subsidiaries, (B) the present fair salable value
of the property of UCRI and its Subsidiaries will be greater than the
amount that will be required to satisfy any probable liability of UCRI and
its Subsidiaries on its debts and other liabilities, direct, subordinated,
contingent or otherwise, as such debts and other liabilities become
absolute and matured; (C) UCRI and its Subsidiaries will be able to pay
their debts and liabilities, direct, subordinated, contingent or otherwise,
as such debts and liabilities become absolute and matured; and (D) UCRI and
its Subsidiaries will not have unreasonably small capital with which to
conduct the businesses in which they are engaged as such business is now
conducted and is proposed to be conducted, in each case, following the
Offer Closing Time.
(iii) UCRI does not intend to incur debts beyond its ability to pay
such debts as they mature, taking into account the timing and amounts of
cash to be received by it and the timing and amounts of cash to be payable
on or in respect of its Indebtedness.
A-23
<PAGE> 24
Section 4.3 Representations and Warranties of Compass, Compass Holdings and
Compass Interim. Each of Compass, Compass Holdings and Compass Interim
represents and warrants to International as follows:
(a) Organization, Standing and Corporate Power. Compass is a public limited
liability company duly incorporated and registered under the laws of England and
Wales. Each of Compass Holdings and Compass Interim is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Each of Compass, Compass Holdings and Compass Interim has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted. Each of Compass, Compass
Holdings and Compass Interim is duly qualified or licensed to do business and is
validly existing or in good standing, as appropriate, in each jurisdiction in
which the property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or licensing necessary, except where
the failure to be so duly qualified or licensed and validly existing or in good
standing, as appropriate, would not in the aggregate have a Material Adverse
Effect on Compass and its Subsidiaries taken as a whole. True, accurate and
complete copies of Compass' Memorandum and Articles of Association, as in effect
on the date hereof, including all amendments thereto, have heretofore been made
available to International.
(b) Authority; Noncontravention. Each of Compass, Compass Holdings and
Compass Interim has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the Ancillary Agreements to which
it is a party and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the part
of each of Compass, Compass Holdings and Compass Interim. This Agreement has
been duly executed and delivered by each of Compass, Compass Holdings and
Compass Interim and, assuming this Agreement constitutes a valid and binding
obligation of International, constitutes a valid and binding obligation of each
of Compass, Compass Holdings and Compass Interim, enforceable against it in
accordance with its terms. None of the execution and delivery of this Agreement,
the Ancillary Agreements to which Compass, Compass Holdings or Compass Interim
is a party or the consummation of the transactions contemplated hereby and
thereby (at the time of each such consummation) and compliance with the
provisions of this Agreement or such Ancillary Agreements will conflict with, or
result in any violation of, or default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or the loss of a benefit under, or result in the
creation of any Lien upon any of the properties or assets of Compass, Compass
Holdings or Compass Interim under, (i) the memorandum and articles of
association of Compass or the certificate of incorporation or bylaws of Compass
Holdings or Compass Interim , (ii) any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit, concession,
franchise or license to which Compass or any of its Subsidiaries is a party or
by which Compass or any of its subsidiaries or any of their respective assets
are bound or (iii) subject to the governmental filings and other matters
referred to in the following sentence, any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to Compass, or any of its
Subsidiaries or their respective properties or assets other than, in the case of
clauses (ii) and (iii), any such conflicts, violations, defaults, rights or
Liens that individually or in the aggregate would not (x) have a Material
Adverse Effect on Compass and its Subsidiaries taken as a whole, (y) materially
impair the ability of Compass to perform its obligations under this Agreement or
the Ancillary Agreements to which it is a party or (z) prevent or materially
delay the consummation of any of the transactions contemplated by this Agreement
or such Ancillary Agreements to which it is party. No consent, approval, order
or authorization of, or registration, declaration or filing with, any
Governmental Entity is required by or with respect to Compass or any Subsidiary
of Compass in connection with the execution and delivery of this Agreement and
any of the Ancillary Agreements to which it is a party, or the consummation by
Compass or any of its Subsidiaries of any of the transactions contemplated
hereby and thereby, except for (i) the filing with the SEC such reports and
filings under the Securities Act and the Exchange Act, as applicable, as may be
required in connection with this Agreement, the Ancillary Agreements and the
transactions contemplated hereby and thereby (ii) the filing of the Certificate
of Merger with the Delaware Secretary of State and appropriate documents with
the relevant authorities of other states in which International is qualified to
do business, (iii) expiration of the waiting period under the HSR Act, (iv)
expiration of the waiting period under the Exon-Florio Amendment, (v) such
filings and approvals as may be required under any "takeover" or "blue sky" laws
of certain states, and (vi) such other consents, approvals, orders,
authorizations, registrations, declarations and filings, the failure of which to
obtain or make could not reasonably be expected to have a Material Adverse
Effect on Compass and its Subsidiaries taken as a whole.
A-24
<PAGE> 25
(c) Schedule 14D-1; Offer Documents; Form 10; Information Statement. None
of the information included in the Offer Documents and none of the information
supplied by Compass for inclusion in the Schedule 14D-9, the Form 10 or the
Information Statement, including any amendments thereto, will be false or
misleading with respect to any material fact or will omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. Except for information supplied by International in writing for
inclusion in the Offer Documents will comply in all material respects with the
Exchange Act. Notwithstanding the foregoing, Compass makes no representation or
warranty with respect to any information supplied by International or Daka or
any of their respective affiliates or representatives in writing for inclusion
in the Schedule 14D-1 or the Offer Documents.
(d) Sufficient Funds. Compass Holdings has, or will have prior to the
satisfaction of the Offer Conditions, sufficient funds available to purchase all
shares of International Common Stock on a fully diluted basis at the Offer Price
and the Merger Price.
(e) Consummation of Transactions. As of the date of this Agreement, Compass
has not received written notice from any Federal or state governmental agency or
authority indicating that such agency or authority would oppose or refuse to
grant or issue its consent or approval, if required, with respect to the
transactions contemplated by this Agreement or the Ancillary Agreements.
(f) Voting Requirements. No action by the ordinary shareholders of Compass
is required to approve this Agreement or the Ancillary Agreements and the
transactions contemplated hereby or thereby.
(g) Brokers or Finders. No broker, investment banker, financial advisor or
other person, other than Patricof & Co. Capital Corp. and NationsBanc Capital
Markets, Inc., the fees and expenses of which will be paid by Compass, is
entitled to any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Compass.
ARTICLE V
COVENANTS
Section 5.1 Covenants of International and Daka. During the period from the
date of this Agreement and continuing until the Offer Closing Time,
International, on behalf of International and its Subsidiaries, agrees that,
except for the Contribution, the Distribution and the other transactions
expressly provided for in the Ancillary Agreements or any other agreements
contemplated thereby or as contemplated or permitted by this Agreement
(including, without limitation, Section 5.1(m)), or to the extent that Compass
shall otherwise consent in writing (which consent shall not be unreasonably
withheld or delayed):
(a) Ordinary Course. International and Daka shall conduct the Foodservice
Business in the ordinary course, consistent with past practice (including
without limitation, not taking any actions out of the ordinary course to
generate cash, such as delaying payables or accelerating receivables) using
reasonable efforts to preserve beneficial relationships between the Foodservice
Business and its suppliers, employees and customers. Without limiting the
generality of the foregoing, except with the prior written consent of Compass
(which consent shall not be unreasonably withheld or delayed), International and
Daka will, with respect to the Foodservice Business:
(i) not commence or commit to any capital projects having an
individual cost of $50,000 or more, or with an aggregate cost for all such
projects of $250,000 or more, other than as required under the terms of any
Customer Contracts;
(ii) not enter into any contracts or agreements relating to or
obligating the Foodservice Business that involve amounts in excess of
$50,000 individually or $250,000 in the aggregate other than (A) Customer
Contracts or (B) in the ordinary course of the Foodservice Business unless
such contracts or agreements are cancelable on 30 days or less notice
without penalty or premium;
(iii) maintain overall sales incentive programs for all of
International's and Daka's Foodservice Business handled by salesmen that
will provide compensation to salesmen at a rate that is at least equal to
those maintained by International or Daka during the comparable period
during the last fiscal year; and
A-25
<PAGE> 26
(iv) not enter into any amendment to the Credit Facility (as defined
in Section 5.1(f) (ii) herein).
(b) Changes in Stock.
(i) Other than as contemplated by Section 1.5 hereof, or with respect
to any Subsidiary which is not engaged in the Foodservice Business,
International shall not, nor shall International permit Daka to, issue,
transfer or sell, or authorize or propose or agree to the issuance,
transfer or sale by International or Daka of, any shares of its capital
stock of any class or other equity interests or any securities convertible
into, or any rights, warrants, calls, subscriptions, options or other
rights or agreements, commitments or understandings to acquire, any such
shares, equity interests or convertible securities, other than the issuance
of shares of International Common Stock (i) upon the exercise of stock
options outstanding as of the date of this Agreement pursuant to any
Benefit Plan, or (ii) to make any payment under any Benefit Plan that is
required as of the date of this Agreement to be made in the form of shares
of International Common Stock.
(ii) Other than with respect to any Subsidiary which is not engaged in
the Foodservice Business, International shall not (A) split, combine or
reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock or (B) other than in
connection with the exercise of stock options outstanding as of the date of
this Agreement under any Benefit Plan, repurchase, redeem or otherwise
acquire, or permit any subsidiary to repurchase, redeem or otherwise
acquire, any shares of capital stock of International or any of its
subsidiaries.
(iii) Compass Holdings shall, subject to the terms and conditions of
the Series A Preferred Stock Purchase Agreement, purchase all of the
outstanding shares of Series A Preferred Stock and all of the International
Warrants simultaneously with the Offer Closing Time.
(c) Governing Documents. International shall not, nor shall it permit Daka
to, amend or propose to amend its Articles of Incorporation (or, if applicable,
its Certificate of Incorporation or other charter document) or Bylaws.
(d) No Acquisitions. Except as provided in Schedule 5.1(d) to the
Disclosure Schedule, International shall not, nor shall it permit Daka to, (i)
acquire or agree to acquire by merging or consolidating with, or by purchasing
any equity interest in or substantial portion of the assets of, or by any other
manner, any business or any corporation or other business organization that
would be directly or indirectly acquired by Compass in the Merger or that would
create liabilities or obligations that would be binding upon Compass or its
Subsidiaries, including Daka or the Surviving Corporation following the Offer
Closing Time, or (ii) except as provided in the Reorganization Agreement, make
any other investment in any Person (whether by means of loan, capital
contribution, purchase of capital stock, obligations or other securities,
purchase of all or any integral part of the business of the person or any
commitment or option to make an investment or otherwise) which acquisition would
be directly or indirectly acquired by Compass in the Merger or that would create
liabilities or obligations that would be binding upon Compass or its
Subsidiaries, including Daka or the Surviving Corporation following the Offer
Closing Time other than pursuant to Customer Contracts in the ordinary course of
business.
(e) No Dispositions. International shall not, nor shall it permit any of
its Subsidiaries to, sell, lease, license, encumber or otherwise dispose of, or
agree to sell, lease, license, encumber or otherwise dispose of, any of the
assets of the Foodservice Business (including, without limitation, any Real
Property, inventory, equipment or Intellectual Property) other than (except with
respect to Intellectual Property) in the ordinary course of business consistent
with past practice and the sale or other disposition of obsolete equipment.
(f) Indebtedness.
(i) International shall take such action as may be necessary so that,
as of the Offer Closing Time, International and Daka, taken as a whole,
shall not have any Indebtedness other than: (A) the Funded Debt (as defined
below), and (B) Indebtedness incurred pursuant to a written agreement that
provides that such Indebtedness will be assumed by UCRI or a Subsidiary of
UCRI at or prior to the Offer Closing Time and that, upon such assumption,
International and Daka shall have no obligation or liability in respect of
such Indebtedness.
(ii) The term "Funded Debt" means the amount of Indebtedness
outstanding plus any accrued but unpaid interest and fees under the terms
of the Third Amended and Restated Credit Agreement dated as of
A-26
<PAGE> 27
October 15, 1996 among International, Subsidiary Guarantors, the Banks
Party Thereto and The Chase Manhattan Bank, as Agent, as amended through
the date hereof (the "Credit Facility"), together with the amount of
Indebtedness outstanding (consisting of market to market exposure) plus all
other amounts due under any Interest Rate Protection Agreement (as defined
in the Credit Facility) which aggregate amount shall not exceed
$110,000,000.
(g) Benefit Plans; Collective Bargaining Agreements. Except as contemplated
by the Reorganization Agreement or Section 1.5 hereof, International shall not,
nor shall it permit Daka to: (i) except to the extent required by law, adopt any
Benefit Plan or amend any Benefit Plan to the extent such adoption or amendment
(x) would create or increase any liability or obligation on the part of
International or Daka that will not either (A) be fully performed or satisfied
prior to the Offer Closing Time or (B) be assumed by UCRI pursuant to the
Reorganization Agreement with no remaining obligation on the part of
International or Daka, or (y) would increase the number of shares of
International Common Stock (if any) to be issued under such Benefit Plan; (ii)
except for normal increases in the ordinary course of business consistent with
past practice, increase the base salary of any employee of the Foodservice
Business; or (iii) enter into or modify in any material respect any collective
bargaining agreement governing employees of the Foodservice Business except as
required for good faith bargaining in connection with new or expiring Customer
Contracts.
(h) Employee Agreements. Prior to the Distribution, each of International
and Daka shall use its best efforts to assign to UCRI or terminate all
employment agreements with officers of International or Daka who are not
Foodservice Employees (the "Employment Agreements") and all severance agreements
with officers of International or Daka who are not Foodservice Employees (the
"Severance Agreements"). The parties hereto acknowledge and agree that,
regardless of whether such Employment Agreements and Severance Agreements are so
assigned or terminated, all liabilities and obligations under or arising from
such Employment Agreements and Severance Agreements shall be deemed to be "UCRI
Liabilities" as such term is defined in the Reorganization Agreement, with
respect to which UCRI shall indemnify Compass, International and Daka as
provided therein.
(i) [Reserved].
(j) Accounting Policies and Procedures. International will not and will not
permit Daka to change any of its accounting principles, policies or procedures,
except such changes as may be required, in the opinion of International's
independent accountants, by generally accepted accounting principles or changes
that in the opinion of said accountants are not material to International's
consolidated financial statements and would not be material if applicable to the
Foodservice Business Financial Statements (as to which changes and opinion
International shall promptly notify Compass).
(k) Liens. International shall not, and shall not permit Daka to, create,
incur or assume any Lien on the Foodservice Assets (as defined in the
Reorganization Agreement), except for Liens created, incurred or assumed in the
ordinary course of business consistent with the past practices of International
and its subsidiaries, which Liens would not have a Material Adverse Effect on
International and Daka taken as a whole.
(l) Deferred Tax Assets and Liabilities. Prior to the Offer Closing Time,
International will not, and will not permit any of its Subsidiaries to, take any
action that would increase the amount of deferred Tax liabilities, or decrease
the amount of deferred Tax assets, of International or its Subsidiaries (as
determined for financial accounting purposes), other than an action in the
ordinary course of business consistent with past practice or as required by
applicable law or as contemplated by the Reorganization Agreement.
(m) Exclusivity.
(i) Neither International nor any of its directors, officers or
employees shall, and International shall use its best efforts to ensure
that none of its agents, advisors or representatives (collectively,
"Representatives"), shall, directly or indirectly, solicit, initiate or
encourage any inquiries or proposals from or with any Person (other than
Compass and its Subsidiaries) or such Person's directors, officers,
employees, representatives and agents that constitute, or would reasonably
be expected to lead to a Third Party Acquisition. For purposes of this
Agreement, a "Third Party Acquisition" shall mean (A) the acquisition by
any Person of more than 20% of the total assets of the Foodservice
Business, (B) the acquisition by any Person of 20% or more of (x) the
International Common Stock or (y) the total number of votes that may be
cast in the election of directors of International at any meeting of
stockholders of International assuming all shares of International Common
Stock and all other securities of International, if any, entitled to vote
generally in the election of
A-27
<PAGE> 28
directors were present and voted at such meeting, or (C) any merger,
consolidation or other combination of International or Daka with any
Person; provided, however, that the term "Third Party Acquisition" shall
not include any transactions which relate solely to the businesses to be
owned by UCRI and its Subsidiaries following the Distribution and which
would not have a Material Adverse Effect on the consummation of the Offer,
the Merger, the Distribution or the transactions contemplated hereby,
including the obligations of UCRI under the Post-Closing Covenants
Agreement. International has, prior to the execution of this Agreement,
ceased or caused to be terminated any discussions or negotiations with any
parties other than Compass and its Subsidiaries conducted prior to the date
hereof with respect to any Third Party Acquisition.
(ii) Notwithstanding the foregoing or any other provision of this
Agreement, International may furnish or cause to be furnished information
(pursuant to confidentiality arrangements no less favorable to
International than the Confidentiality Agreement (as hereinafter defined),
unless already in existence on the date hereof) and may participate in such
discussions and negotiations directly or through its representatives if
another Person or group makes an offer or proposal which International's
Board of Directors believes, in the good faith exercise of its business
judgment and based upon advice of its outside legal and financial advisors,
could reasonably be expected to be consummated and represents a transaction
more favorable to its stockholders than the transactions contemplated by
this Agreement (a "Higher Offer").
(iii) Unless the Board of Directors of International determines in
good faith, after receiving advice of its outside legal counsel, that doing
so could reasonably be expected to be a breach of the directors' fiduciary
duties, International shall notify Compass as soon as practicable (x) if
any such inquiries or proposals are received by, any such information is
requested from, or any such negotiations or discussions are sought to be
initiated or continued with it, (y) of the identity of the third party or
parties and (z) of the terms of any such proposal or proposals.
International's Board of Directors may fail to recommend or fail to
continue to recommend the Offer, or this Agreement in connection with any
vote of its stockholders, or withdraw, modify, or change any such
recommendation, or recommend or enter into an agreement regarding a Higher
Offer, if International's Board of Directors, after receiving advice of its
outside counsel, determines in good faith that making such recommendation,
or the failure to recommend any other offer or proposal, or the failure to
so withdraw, modify, or change its recommendation, or the failure to
recommend or enter into an agreement regarding a Higher Offer, could
constitute a breach of the directors' fiduciary duties under applicable
law. In such event, notwithstanding anything contained in this Agreement to
the contrary, any such failure to recommend, withdrawal, modification, or
change of recommendation or recommendation of such other offer or proposal,
or the entering by International into an agreement with respect to a Higher
Offer (provided that International shall have provided Compass notice of
its intention to so enter, the terms of the Higher Offer and the identity
of the other party thereto), shall not constitute a breach of this
Agreement by International. Notwithstanding the foregoing, International
shall not enter into an agreement with a third party with respect to, or
take any action to approve such transaction under any antitakeover
provision of International's certificate of incorporation or state law in
connection with, any Third Party Acquisition unless and until this
Agreement is terminated in accordance with the provisions of Article VIII.
(n) Confidentiality and Standstill Agreements. International will not
amend, waive or modify any provision of any confidentiality or standstill
agreement entered into with any other party in connection with such party's
interest in acquiring International or the Foodservice Business or any
substantial portion of the Foodservice Business, except in connection with any
action permitted to be taken by International pursuant to Section 5.1(m).
(o) Pending Actions. International will continue to defend in the ordinary
course, consistent with past practice, the litigation and other proceedings set
forth in Schedule 4.2(g) to the Disclosure Schedule, including resolving any
such litigation and other proceedings as can be resolved prior to the Offer
Closing Time on a commercially reasonable basis and consistent with past
practice.
(p) Access to Information; Confidentiality.
(i) International shall, and shall cause its Subsidiaries to, afford
to Compass and its officers, employees, accountants, counsel, financial
advisors and other representatives of Compass, reasonable access during the
period prior to the Offer Closing Time to all its properties, books,
contracts, commitments, personnel and records relating to the Foodservice
Business. During the period prior to the Offer Closing Time, International
shall, and shall cause its Subsidiaries to, furnish promptly to Compass (A)
a copy of each report,
A-28
<PAGE> 29
schedule, registration statement and other document filed by it during such
period pursuant to the requirements of Section 13(a) and 15(d) of the
Exchange Act, (B) each press release issued by it, and (C) all other
information relating to the Foodservice Business as Compass may reasonably
request.
(ii) Except as required by law, each of International and Compass will
hold, and will cause its respective officers, employees, accountants,
counsel, financial advisors and other representatives and affiliates to
hold, any nonpublic information in confidence in accordance with the
confidentiality agreement, dated January 2, 1997 (the "Confidentiality
Agreement"), between Compass and International.
(q) Corporate Records. International shall deliver to, or make available
to, Compass all certificates of incorporation and authority, minute books,
corporate stock records and corporate seals of International and Daka and all
other books and records, account records, tax records and other business records
related to International, Daka or the Foodservice Business.
(r) No Agreement to Prohibited Actions. International will not, and will
not permit any of its Subsidiaries to, agree or commit to take any action that
is prohibited under this Section 5.1.
Section 5.2 Mutual Covenants.
(a) International and Compass shall promptly advise the other party of any
change or event having, or which, insofar as can reasonably be foreseen, could
reasonably be expected to have, a Material Adverse Effect on such party and its
Subsidiaries taken as a whole.
(b) (i) Subject to the terms and conditions herein provided, the parties
hereto agree to use their reasonable best efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement and the Ancillary Agreements
and to cooperate with each other in connection with the foregoing,
including, but not limited to, (A) defending all lawsuits or other legal
proceedings challenging this Agreement, the Ancillary Agreements or the
transactions contemplated hereby or thereby, (B) attempting to lift or
rescind any injunction or restraining order or other order adversely
affecting the ability of the parties to consummate the transactions
contemplated hereby, and (C) effecting all necessary filings and
submissions of information requested by governmental authorities.
(ii) Without limiting the foregoing, the parties hereto shall, as soon
as reasonably practicable, make all requisite filings with each
Governmental Entity in connection with the transactions contemplated hereby
and the Ancillary Agreements, including under the HSR Act and the
Exon-Florio Amendment, and shall promptly make any further filings
requested pursuant thereto or which may be necessary to consummate the
transactions contemplated herein. Each party shall furnish to the other,
upon request, such information as shall reasonably be required in
connection with the preparation of the requesting party's filings under the
HSR Act and the Exon-Florio Amendment.
(iii) Each of Compass and International shall promptly provide to the
other (or its counsel) copies of all filings (other than those filings, or
portions thereof, which the other party has no reasonable interest in
obtaining in connection with the Offer, the Merger or the transactions
contemplated hereby) made with any Federal, state or foreign Governmental
Entity in connection with this Agreement and the transactions contemplated
hereby.
(iv) Notwithstanding the foregoing or any other provision of this
Agreement, (A) neither International nor any of its Subsidiaries will,
without Compass' prior written consent, agree or commit to any divestiture,
hold-separate order or other restriction relating to the Foodservice
Business and (B) neither Compass nor any of its Subsidiaries will be
required to agree or commit to any divestiture, hold-separate order or
other restriction relating to the Foodservice Business or to any of its
existing businesses or any other governmental order or obligation that
otherwise imposes any conditions or limitations in connection with Compass'
acquisition of the Foodservice Business or its operation of its existing
business and operations or the Foodservice Business after the Offer Closing
Time.
(c) Compass and International shall cooperate in connection with efforts to
secure a renewal or extension of the Smithsonian Contract prior to the Offer
Closing Time on terms reasonably satisfactory to Compass.
A-29
<PAGE> 30
(d) Following the date hereof and prior to the Offer Closing Time, each of
International and Compass shall designate a senior officer (the "International
Representative" and the "Compass Representative", respectively) to consult with
each other with respect to major business decisions to be made concerning the
operation of the Foodservice Business. Such consultation shall be made on as
frequent a basis as may be reasonably requested by Compass. The parties hereto
acknowledge and agree that the agreements set forth in this Section 5.2(d) shall
be subject to any restrictions or limitations under applicable law.
(e) (i) Each of the parties hereto agrees to use its best efforts to take,
or cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this
Agreement and the Ancillary Agreements including, without limitation,
taking all reasonable actions to achieve the successful completion of the
Offer, cooperating in the preparation and filing of the Offer Documents,
the Schedule 14D-1, the Schedule 14D-9, the Form 10, the Information
Statement and the Proxy Statement and any amendments to any thereof, and
executing any additional instruments necessary to consummate the
transactions contemplated hereby. In case at any time after the Offer
Closing Time any further action is necessary to carry out the purposes of
this Agreement, the proper officers and directors of each party hereto
shall use their best efforts to take all such necessary action.
(ii) Subject to the terms and conditions hereof, each of the parties
hereto (A) shall use reasonable best efforts to comply promptly with all
legal and regulatory requirements which may be imposed on itself or its
Subsidiaries with respect to the Offer, the Merger and the transactions
contemplated thereby and by this Agreement and (B) will, and will cause its
Subsidiaries to, promptly use its reasonable best efforts to obtain any
consent, authorization, order or approval of, or any exemption by, and to
satisfy any condition or requirement imposed by, any Governmental Entity or
other public or private third party, required to be obtained, made or
satisfied by itself or any of its Subsidiaries in connection with the
Merger or the taking of any action contemplated thereby or by this
Agreement or the Ancillary Agreements. Each of International and Compass
will promptly cooperate with and furnish information to each other in
connection with any such requirements imposed upon any of them or any of
their respective subsidiaries in connection with the Contribution, the
Distribution or the Merger.
(f) Until the Offer Closing Time, Compass and International will consult
with each other before issuing, and provide each other the opportunity to review
and comment upon, any press release or other public statements with respect to
the transactions contemplated by this Agreement and the Ancillary Agreements,
including the Merger, and shall not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
applicable law, court process or by obligations pursuant to any listing
agreement with any national securities exchange.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 Fees and Expenses. Except as provided in Section 8.2(c), all
fees and expenses incurred in connection with the Merger, the Contribution, the
Distribution, this Agreement, the Offer and the transactions contemplated by
this Agreement and the Ancillary Agreements shall be paid by the party incurring
such fees or expenses, whether or not the Merger is consummated. In accordance
with the foregoing sentence, International agrees to pay the fees and expenses
of Bear Stearns & Co., Inc. and Compass Holdings agrees to pay the fees and
expenses of Patricof & Co. Capital Corp., NationsBanc Capital Markets, Inc., The
Bank of New York, as Offer Depositary, Mackenzie Partners, Inc., as Offer
Information Agent, and the filing fee for the HSR Filing.
Section 6.2 Ancillary Agreements.
(a) Simultaneously with the execution of this Agreement, International and
certain of its Subsidiaries are entering into the Reorganization Agreement, the
Tax Allocation Agreement and the Post-Closing Covenants Agreement. From and
after the Offer Closing Time, Compass shall cause the Surviving Corporation to
perform any and all obligations and agreements of International set forth herein
or in the Ancillary Agreements or in any other agreement contemplated herein or
therein.
A-30
<PAGE> 31
(b) Each of Compass, Compass Holdings and Compass Interim accept and agree
that, subject to the provisions of the Reorganization Agreement, the form of
certificate of incorporation and Bylaws of UCRI adopted in contemplation of the
Distribution shall be as agreed to by International and UCRI in their sole
discretion; provided, that nothing in the certificate of incorporation and
Bylaws shall adversely affect or otherwise limit UCRI's ability to perform its
obligations under the Ancillary Agreements or the other agreements contemplated
by the Reorganization Agreement.
(c) In no event shall Compass, Compass Holdings or Compass Interim or any
of their Subsidiaries be entitled to receive any shares of UCRI Common Stock as
a distribution with respect to shares of International Common Stock purchased
upon consummation of the Offer. If, for any reason, any shares of UCRI Common
Stock distributed in the Distribution are received by Compass, Compass Holdings,
or Compass Interim or any of their Subsidiaries with respect to shares of
International Common Stock acquired by Compass Interim in the Offer, then
Compass, Compass Holdings or Compass Interim shall convey, on behalf of
International, such shares of UCRI Common Stock to the stockholders of
International who would have otherwise received such shares of UCRI Common Stock
pursuant to the Reorganization Agreement; provided, that the foregoing
provisions shall not apply with respect to shares of International Common Stock
held by Compass or any of its Subsidiaries prior to the date hereof.
Section 6.3 Composition of the Board of Directors; Section 14(f). In the
event that Compass Holdings acquires at least two-thirds of the International
Common Stock outstanding pursuant to the Offer, Compass Holdings shall be
entitled to designate for appointment or election to International's Board of
Directors, upon written notice to International, such number of persons so that
the designees of Compass Holdings constitute the same percentage (but in no
event less than five) of International's Board of Directors (rounded up to the
next whole number) as the percentage of International Common Stock acquired in
connection with the Offer. Prior to the Offer Closing Time, the Board of
Directors of International will obtain the resignation of such number of
directors as is necessary to enable such number of Compass Holdings' designees
to be so elected and will take all action required to appoint or elect such
individuals to such positions. In connection therewith, International will mail
to its stockholders the information required by Section 14(f) of the Exchange
Act and Rule 14f-1 thereunder unless such information has previously been
provided to such stockholders in the Schedule 14D-9. Compass Holdings will
provide to International in writing, and be solely responsible for, any
information with respect to such companies and their nominees, officers,
directors and affiliates required by such Section 14(f) and Rule 14f - 1. In the
event that Compass Holdings'designees are elected to the Board of Directors of
International, until the Merger Effective Time, such Board of Directors shall
have at least two directors who are directors on the date hereof (the
"Independent Directors"), provided that, in such event, if the number of
Independent Directors shall be reduced below two for any reason whatsoever, any
remaining Independent Directors (or Independent Director, if there is only one
remaining) shall be entitled to designate persons to fill such vacancies who
shall be deemed to be Independent Directors for purposes of this Agreement or,
if no Independent Director then remains, the other directors shall designate two
persons to fill such vacancies who shall not be stockholders, affiliates or
associates of Compass, Compass Holdings or Compass Interim and such persons
shall be deemed to be Independent Directors for purposes of this Agreement.
Notwithstanding anything in this Agreement to the contrary, in the event that
Compass Holdings' designees are elected to the Board of Directors of
International after the acceptance for payment of shares of International Common
Stock pursuant to the Offer and prior to the Merger Effective Time, the
affirmative vote of a majority of the Independent Directors shall be required to
(a) amend or terminate this Agreement by International, (b) exercise or waive
any of International's rights, benefits or remedies hereunder, (c) extend the
time for performance of Compass', Compass Holdings' or Compass Interim's
respective obligations hereunder, (d) take any other action by the Board of
Directors of International under or in connection with this Agreement or any of
the transactions contemplated hereby or by any of the Ancillary Agreements, or
(e) approve any other action by International which could adversely affect the
interests of the stockholders of International (other than Compass, Compass
Holdings or Compass Interim and their affiliates) with respect to the
transactions contemplated hereby.
Section 6.4 Certain Prior Actions.
(a) The following agreements have been executed and delivered by the
applicable parties thereto to be effective at the Offer Closing Time:
(i) The Reorganization Agreement;
A-31
<PAGE> 32
(ii) The Tax Allocation Agreement;
(iii) The Post-Closing Covenants Agreement;
(iv) The Transition Agreement;
(v) Employment Agreement between International, Daka and Allen R.
Maxwell; and
(vi) The Series A Preferred Stock Purchase Agreement.
(b) The following documents have been delivered by International to
Compass:
(i) A Certificate of International's chief executive officer delivered
to Compass to the effect that International has taken all necessary action
to render inapplicable to the Offer, the Merger, the Distribution and the
other transactions contemplated by this Agreement and the Ancillary
Agreements (i) any "fair price," "moratorium," "control share acquisition"
or similar antitakeover statute or regulation enacted under any applicable
state or federal law in the United States; or (ii) any antitakeover
provision in its Certificate of Incorporation, Bylaws or other governing
corporate documents.
(ii) Evidence reasonably satisfactory to Compass that (x) the
remittance by Compass to The Chase Manhattan Bank of the Funded Debt in
immediately available funds by wire transfer simultaneously with the
Closing will result in the payment in full of the Funded Debt and all other
liabilities and Indebtedness of International under the Credit Facility and
the termination of the Credit Facility and all related promissory notes,
security instruments and loan documents and (y) immediately upon such
remittance the lenders under the Credit Facility or under other
Indebtedness shall deliver to Compass or UCRI, as applicable, originally
signed UCC-3 terminations or releases, United States Patent and Trademark
filings and all other instruments as determined by Compass or UCRI, as
applicable, to be necessary or advisable to release or terminate, or
evidence the release or termination, of all Liens on the assets and
properties of International, UCRI and their respective Subsidiaries,
whether such Liens secure or are intended to secure the Funded Debt, the
Credit Facility or any other Indebtedness. Simultaneously with the Closing,
all letters of credit outstanding under the Credit Facility shall be
returned in their original form by the beneficiary of each letter of
credit.
(iii) A certified copy of resolutions of the Board of Directors of
International and Daka authorizing the Contribution, the Distribution, the
Merger, and the transactions contemplated thereby, including the execution
and delivery of the Merger Agreement and the Ancillary Agreements.
Section 6.5 Tax Treatment. Compass and Compass Holdings each shall,
and shall cause the Surviving Corporation to, treat the Distribution for
purposes of all federal and state taxes as an integrated transaction with
the Offer and the Merger and will report the Distribution as a distribution
in redemption of International Common Stock subject to the provisions of
Sections 302 and 311 of the Code.
Section 6.6 Indemnification of Officers and Directors. For a period of
3 years after the Offer Closing Time, Compass will not modify the rights of
Joe O'Donnell, Erline Belton, Alan D. Schwartz or E. L. Cox to
indemnification and shall cause International and the Surviving Corporation
to maintain substantially similar provisions in such respect as set forth
in the Certificate of Incorporation and Bylaws of International as of the
date hereof. Notwithstanding anything to the contrary provided herein, an
indemnified party shall use its best efforts to obtain indemnification from
any source other than International or Daka from which it may be entitled
thereto, including without limitation, any indemnification agreements
between UCRI and such indemnified party, before seeking indemnification
from International or Daka. Nothing contained in this Section shall limit
any lawful rights to indemnification existing independently of this
Section.
Section 6.7 Offer Closing Date Payments.
(a) At the Offer Closing, International shall deliver to Compass in
cash or cash equivalent an amount equal to
(i) $1,500,000, plus
(ii) $7.50 multiplied by the sum of (A) the number of outstanding
shares of International Common Stock and (B) the outstanding shares of
International Common Stock into which the Series A Preferred Stock is
convertible, minus $85,000,000.
A-32
<PAGE> 33
(b) At the Offer Closing, Compass shall deliver to UCRI in cash or cash
equivalent any amount by which the Funded Debt outstanding at the Offer Closing
Time is less than $110,000,000.
Section 6.8 Non-Waiver of Conditions. If International refuses to effect
the Distribution because one or more of the conditions to International's
obligation to consummate the Distribution has not been satisfied or waived, then
Compass Holdings shall not waive the Offer Condition set forth in paragraph
(ii)(m) of Exhibit 1.1(a), shall terminate the Offer and shall not accept for
payment or pay for any shares of International Common Stock validly tendered.
ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Merger Closing Date of the following
conditions:
(a) Shareholder Approval. This Agreement and the Merger shall have been
adopted and approved by the affirmative vote of the stockholders of
International by the requisite vote in accordance with applicable law, if
required by applicable law as provided in Section 2.4 hereof;
(b) No Prohibition. No statute, rule, regulation, order, decree, or
injunction shall have been enacted, entered, promulgated or enforced by any
court or governmental authority which prohibits or restricts the consummation of
the Merger.
(c) Consummation of the Offer. The Offer shall have been consummated.
(d) Consummation of the Distribution. The Distribution shall have become
effective in accordance with the terms of the Reorganization Agreement and each
of the agreements contemplated thereby.
(e) No Injunctions, Litigation or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger, the Contribution or the Distribution shall be in
effect and no such litigation or legal action other than the Venturino Claim
shall have been threatened or shall be pending. No action, suit or other
proceeding shall be pending by any Governmental Entity that, if successful,
would restrict or prohibit the consummation of the Merger, the Contribution or
the Distribution; provided, however, that International will not unreasonably
withhold its waiver of the condition set forth in this sentence upon Compass'
request in the event such an action, suit or other proceeding is pending with
respect to the Merger alone.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
Section 8.1 Termination. This Agreement may be terminated at any time prior
to the Offer Closing Time, notwithstanding any approval of this Agreement by the
stockholders of International:
(a) by mutual written consent of Compass and International; or
(b) by either Compass or International:
(i) if there has been a failure to perform an obligation or satisfy a
condition precedent (regardless of materiality) or a material breach of
this Agreement by a party and such breach has not been waived by the other
party, provided that only the non-breaching party may so terminate;
(ii) if the Offer shall expire or have been terminated in accordance
with its terms without any shares of International Common Stock being
purchased thereunder, or Compass Holdings shall not have accepted for
payment or paid for shares of International Common Stock validly tendered
pursuant to the Offer (as a result of the Offer Condition not being
satisfied or waived by Compass Holdings in accordance with Article I
hereof) prior to July 31, 1997, unless the failure to consummate the Offer
is the result of a willful and material breach by the party seeking to
terminate this Agreement;
A-33
<PAGE> 34
(iii) if any Governmental Entity shall have issued an order, decree or
ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the Offer and such order, decree, ruling or other
action shall have become final and nonappealable; or
(c) by Compass if (i) the Board of Directors of International shall have
withdrawn, or modified or changed, in a manner adverse to Compass, its approval
or recommendation of the transactions contemplated by this Agreement and the
Ancillary Agreements or shall have recommended another offer or proposal with
respect to a Third Party Acquisition, or (ii) a Third Party Acquisition has
occurred or any person shall have entered into a definitive agreement with
International with respect to a Third Party Acquisition; or
(d) by International if International's Board of Directors shall have
failed to recommend to its stockholders the approval of the transactions
contemplated by this Agreement and the Ancillary Agreements or shall have
withdrawn, modified or changed such recommendation, in a manner permitted by
Section 5.1(m)(iii), or shall have taken any other action permitted by Section
5.1(m)(iii).
Section 8.2 Effect of Termination.
(a) In the event of termination of this Agreement by either International
or Compass as provided in Section 8.1, this Agreement shall forthwith become
void and have no effect, without any liability or obligation on the part of the
parties hereto, other than the provisions of Section 4.2(i), Section 4.3(g),
Section 5.1(p), Section 6.1, this Section 8.2 and Sections 9.2 through 9.8 and
except to the extent that such termination results from the willful and material
breach by a party of any of its representations, warranties, covenants or
agreements set forth in this Agreement, the Ancillary Agreements, or any
agreement contemplated hereby or thereby.
(b) If the transactions contemplated by this Agreement are terminated as
provided herein:
(i) Compass shall return all documents and other material received
from International or its representatives relating to the transactions
contemplated hereby, whether so obtained before or after the execution
hereof, to International; and
(ii) all confidential information received by Compass with respect to
the businesses of International shall be treated in accordance with the
Confidentiality Agreement, which shall remain in full force and effect
notwithstanding the termination of this Agreement.
(c) In the event that: (i) Compass terminates this Agreement pursuant to
Section 8.1(c), or (ii) International terminates this Agreement pursuant to
Section 8.1(d) and, at the time of termination there shall have been made a
proposal relating to a Third Party Acquisition that has become public and,
within 12 months following such termination, International or Daka shall enter
into a definitive agreement with respect to (X) the sale of the Foodservice
Business, (Y) the sale of substantially all of the assets of International or
Daka, or (Z) the merger of International or Daka with or into any other entity,
or International or Daka shall recommend any other Third Party Acquisition to
its stockholders, then International or Daka shall promptly pay to Compass (by
wire transfer to an account designated by Compass for this purpose) an amount
equal to the sum of (i) $5,800,000 and (ii) notwithstanding the provisions of
Section 6.4, the fees and expenses actually incurred by Compass in connection
with the negotiation and preparation of this Agreement and the Ancillary
Agreements to which Compass is a party, the performance of Compass' covenants
herein and therein, and the transactions contemplated hereby and thereby,
including, without limitation, all fees and disbursements of Compass' financial
advisors, legal counsel, accountants and other advisors, up to a maximum of an
additional $2,000,000, provided, however, that in no event shall International
or Daka collectively be required to pay either of the amounts set forth in this
Section 8.2(c) (i) or (ii) more than once.
Section 8.3 Amendment. Except as provided in Section 6.3 hereof, this
Agreement may be amended by the parties at any time before or after any required
approval of matters presented in connection with the Merger by the stockholders
of International; provided, however, that after any such approval, there shall
be made no amendment that by law requires further approval by such stockholders
without the further approval of such stockholders. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties.
Section 8.4 Extension; Waiver. At any time prior to the Offer Closing Time,
the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other party, (b) waive any inaccuracies in the
representations and warranties of the other party contained in this Agreement or
in any document delivered
A-34
<PAGE> 35
pursuant to this Agreement, or (c) subject to the proviso of Section 8.3, waive
compliance by the other party with any of the agreements or conditions contained
in this Agreement. Any agreement on the part of a party to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. The failure of any party to this Agreement to assert any
of its rights under this Agreement or otherwise shall not constitute a waiver of
such rights.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Survival of Representations and Warranties.
(a) Except as set forth below, all representations and warranties in this
Agreement, the Ancillary Agreements and any other certificate or document
delivered pursuant hereto or thereto will survive the Offer Closing Time until
5:00 p.m. on December 31, 1998; provided, however that, any representation and
warranty by a party that relates to any obligation to be performed by such party
under this Agreement or an Ancillary Agreement shall survive until the one year
anniversary of the final and complete performance of such obligation.
(b) The representations and warranties contained herein shall survive as to
any Tax covered thereby for so long as any statute of limitations for such Tax
remains open, in whole or in part, including without limitation by reason of
waiver of such statute of limitations.
(c) The representations and warranties contained in Section 4.2(b)(ii) and
(l) shall survive for a period of five years after the Offer Closing Time.
(d) The representations and warranties contained in Sections 4.2(m), (p)
and (v) shall survive without limitation after the Offer Closing Time.
(e) Neither this Section 9.1 nor any of the Ancillary Agreements shall
limit any covenant or agreement of the parties which by its terms contemplates
performance after the Offer Closing Time.
Section 9.2 Notices. Any notice, request, instruction or other document to
be given hereunder by any party to any other party shall be in writing and shall
be deemed to have been duly given (a) on the first business day occurring on or
after the date of transmission if transmitted by facsimile (upon confirmation of
receipt by journal or report generated by the facsimile machine of the party
giving such notice), (b) on the first business day occurring on or after the
date of delivery if delivered personally, or (c) on the first business day
following the date of dispatch if dispatched by Federal Express or other
next-day courier service. All notices hereunder shall be given as set forth
below, or pursuant to such other instructions as may be designated in writing by
the party to receive such notice:
(a) if to Compass, Compass Holdings or Compass Interim, to:
Compass Group USA, Inc.
2400 Yorkmont Road
Charlotte, North Carolina 28217
Attention: General Counsel
(b) if to International or Daka, to:
Daka International, Inc.
One Corporate Place
55 Ferncroft Road
Danvers, Massachusetts 01923-4001
Attention: General Counsel
Section 9.3 Interpretation. When a reference is made in this Agreement to a
Section, Exhibit or Schedule, such reference shall be to a Section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
A-35
<PAGE> 36
Section 9.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
Section 9.5 Entire Agreement; No Third-party Beneficiaries. This Agreement,
the Ancillary Agreements and the agreements referred to herein and therein or
required to be delivered in connection with the transactions contemplated by the
Ancillary Agreements constitute the entire agreement, and supersede all prior
agreements (other than the Confidentiality Agreement) and understandings, both
written and oral, among the parties with respect to the subject matter of this
Agreement and is not intended to confer upon any person other than the parties
hereto or thereto any rights or remedies.
Section 9.6 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE REGARDLESS OF
THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF
LAWS THEREOF. EACH OF THE PARTIES HERETO AGREES (a) THAT THIS AGREEMENT INVOLVES
AT LEAST $100,000.00 AND (b) THAT THIS AGREEMENT HAS BEEN ENTERED INTO BY THE
PARTIES HERETO IN EXPRESS RELIANCE UPON 6 DEL. C. (section mark) 2708.
Section 9.7 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and permitted assigns.
Section 9.8 Enforcement.
(a) Specific Performance. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement, this being in addition to any other
remedy to which they are entitled at law or in equity. Any requirements for the
securing or posting of any bond with respect to such remedy are hereby waived by
each of the parties hereto.
(b) Jurisdiction. Each of the parties hereto irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the courts
of the Commonwealth of Massachusetts and of the United States of America located
in the Commonwealth of Massachusetts (the "Massachusetts Courts") for any
litigation arising out or relating to this Agreement and the transactions
contemplated hereby (and agrees not to commence any litigation relating thereto
except in such courts), waives any objection to the laying of venue of any such
litigation in the Massachusetts Courts and agrees not to plead or claim in any
Massachusetts Court that such litigation brought therein has been brought in any
inconvenient forum. Each of the parties hereto agrees, (a) to the extent such
party is not otherwise subject to service of process in the Commonwealth of
Massachusetts, to appoint and maintain an agent in the Commonwealth of
Massachusetts as such party's agent for acceptance of legal process. and (b)
that service of process may also be made on such party by prepaid certified mail
with a proof of mailing receipt validated by the United States Postal Service
constituting evidence of valid service. Service made pursuant to (a) or (b)
above shall have the same legal force and effect as if served upon such party
personally within the Commonwealth of Massachusetts. For purposes of
implementing the parties' agreement to appoint and maintain an agent for service
of process in the Commonwealth of Massachusetts, each such party does hereby
appoint CT Corporation System, 2 Oliver Street, Boston, Massachusetts 02109, as
such agent.
A-36
<PAGE> 37
ARTICLE X
DEFINITIONS
Section 10.1 General. The following terms are defined in the Sections of
this Agreement indicated below:
<TABLE>
<CAPTION>
Term Section Location
<S> <C>
Exhibit
A Converted Shares............................................................................... 1.1(a)(d)
Affiliate........................................................................................ 10.2(a)
Agreement........................................................................................ Introduction
Ancillary Agreements............................................................................. 10.2(b)
Benefit Plans.................................................................................... 4.2(l)(i)
Certificate of Merger............................................................................ 2.3
Certificates..................................................................................... 3.2(b)(ii)
Compass.......................................................................................... Introduction
Compass Holdings................................................................................. Introduction
Compass Interim.................................................................................. Introduction
Compass Representative........................................................................... 5.2(d)
Confidentiality Agreement........................................................................ 5.1(p)(ii)
Contribution..................................................................................... Recitals
Credit Facility.................................................................................. 5.1(f)(ii)
Cross Creek...................................................................................... 1.4
Customer Contracts............................................................................... 4.2(k)(iv)(A)
Daka............................................................................................. Recitals
Determination Letter Request..................................................................... 4.2(l)(iii)
DGCL............................................................................................. 2.1
Dissenting Shares................................................................................ 3.2(a)
Distribution..................................................................................... Recitals
DOL.............................................................................................. 4.2(l)(i)
Employment Agreements............................................................................ 5.1(h)
ERISA............................................................................................ 4.2(l)(i)
ERISA Affiliate.................................................................................. 4.2(l)(i)
Exchange Act..................................................................................... 4.2(c)(ii)
Exchange Agent................................................................................... 3.2(b)(i)
Exchange Fund.................................................................................... 3.2(b)(i)
Exon-Florio Amendment............................................................................ 4.2(c)(ii)
FCEC............................................................................................. 1.4
Foodservice Business............................................................................. Recitals
Foodservice Business Balance Sheet............................................................... 4.2(r)
Foodservice Business Financial Statements........................................................ 4.2(r)
Foodservice Business Permits..................................................................... 4.2(h)
Funded Debt...................................................................................... 5.1(f)(ii)
Governmental Entity.............................................................................. 4.2(c)(ii)
Hazardous Material............................................................................... 4.2(v)(ii)
Higher Offer..................................................................................... 5.1(m)(ii)
HSR Act.......................................................................................... 4.2(c)(ii)
Indebtedness..................................................................................... 4.2(s)
Independent Directors............................................................................ 6.3
Intellectual Property............................................................................ 4.2(n)(i)
International.................................................................................... Introduction
International Affiliated Group................................................................... 4.2(o)(ii)
Exhibit
International Bring Down Certificate............................................................. 1.1(a)(i)
International Common Stock....................................................................... Recitals
Exhibit
International Filings............................................................................ 1.1(a)(ii)
</TABLE>
A-37
<PAGE> 38
<TABLE>
<S> <C>
International Options............................................................................ 1.5(a)
Exhibit
International Preferred Stock.................................................................... 1.1(a)(i)2
International Representative..................................................................... 5.2(d)
International SEC Documents...................................................................... 4.2(d)(i)
International Warrants........................................................................... 4.2(b)(i)
IRS.............................................................................................. 4.2(l)(i)
Knowledge........................................................................................ 10.2(c)
Liens............................................................................................ 4.2(c)(ii)
Massachusetts Courts............................................................................. 9.8(b)
Material Adverse Change.......................................................................... 10.2(d)
Material Adverse Effect.......................................................................... 4.1
Material Contract................................................................................ 4.2(k)(iv)
Merger........................................................................................... Recitals
Merger Closing................................................................................... 2.2
Merger Closing Date.............................................................................. 2.2
Merger Effective Time............................................................................ 2.3
Merger Price..................................................................................... 3.1(a)(i)
Exhibit
Minimum Shares................................................................................... 1.1(a)(i)(c)
Multiemployer Plan............................................................................... 4.2(l)(i)
Offer............................................................................................ Recitals
Offer Closing.................................................................................... 1.6
Offer Closing Date............................................................................... 1.6
Offer Closing Time............................................................................... 1.1(a)
Offer Conditions................................................................................. Recitals
Offer Documents.................................................................................. 1.1(b)
Offer Price...................................................................................... 1.1(a)
Exhibit
Options.......................................................................................... 1.1(a)(ii)
Participating Employee........................................................................... 1.5(b)
PBGC............................................................................................. 4.2(l)(i)
Pension Plans.................................................................................... 4.2(l)(i)
Person........................................................................................... 10.2(e)
Post-Closing Convenants Agreement................................................................ 10.2(f)
Purchasable Shares............................................................................... 1.5(b)
Record Date...................................................................................... 1.1(a)(i)
Real Property.................................................................................... 4.2(u)(i)
Relevant Taxes................................................................................... 4.2(o)(iv)
Reorganization Agreement......................................................................... 10.2(g)
Representatives.................................................................................. 5.1(m)(i)
Requisite Stockholders........................................................................... 4.2(c)(i)
Restaurant Business.............................................................................. Recitals
Schedule 14D-9................................................................................... 1.2
SEC.............................................................................................. 1.1(b)
Securities Act................................................................................... 4.2(c)(ii)
Series A Preferred Stock......................................................................... 1.4
Series A Preferred Stockholders.................................................................. 1.4
Series A Preferred Stock Purchase Agreement...................................................... 1.4
Severance Agreements............................................................................. 5.1(h)
Subsidiary....................................................................................... 10.2(i)
Surviving Corporation............................................................................ Recitals
Tax Allocation Agreement......................................................................... 10.2(h)
Third Party Acquisition.......................................................................... 5.1(m)(i)
UCRI............................................................................................. Recitals
</TABLE>
A-38
<PAGE> 39
<TABLE>
<S> <C>
UCRI Common Stock................................................................................ Recitals
UCRI Liabilities................................................................................. 5.1(h)
Warrants......................................................................................... 1.4
</TABLE>
Section 10.2 Certain Definitions. In addition to the foregoing, for
purposes of this Agreement:
(a) an "Affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person.
(b) "Ancillary Agreements" means the Reorganization Agreement, the Tax
Allocation Agreement, the Post-Closing Covenants Agreement, and the Transition
Agreement referred to in Section 3.2 of the Post-Closing Covenants Agreement.
(c) "Knowledge" means the actual knowledge of any director, officer or
employee at the district manager level or above of the applicable party.
(d) "Material Adverse Change" with respect to International or Daka means
the occurrence of any of the following events:
(i) any events, actions or occurrences which would result in a Managed
Volume/Profit Adjustment (as defined in Section 5.3 of the Post-Closing
Covenants Agreement) in an amount in excess of $19,500,000; or
(ii) any claim, investigation, suit, action or proceeding pending or,
to the Knowledge of International, expressly threatened, against
International or Daka before or by any court, Governmental Entity or
arbitrator (including any related to the suspension, debarment or similar
preclusion of International or Daka from doing business with a Governmental
Entity) other than the Venturino Claim that, individually or in the
aggregate, could reasonably be expected to (A) have a Material Adverse
Effect on International and Daka, taken as a whole, (B) materially impair
the ability of International, Daka or UCRI to perform any obligation under
this Agreement or any Ancillary Agreement or (Z) prevent or materially
delay or alter the consummation of any or all of the transactions
contemplated hereby or by the Ancillary Agreements.
(e) "Person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity.
(f) the "Post-Closing Convenants Agreements" means that certain
Post-Closing Convenants Agreement dated as of the date hereof, by and among Daka
International, Inc., Daka, Inc., Champps Entertainment, Inc., Fuddruckers, Inc.,
UCRI, Inc., Compass Group PLC and Compass Holdings, Inc.
(g) the "Reorganization Agreement" means that certain Reorganization
Agreement dated as of the date hereof, by and among Daka International, Inc.,
Daka, Inc., UCRI, Inc., Compass Group PLC and Compass Holdings, Inc.
(h) the "Tax Allocation Agreement" means that certain Tax Allocation
Agreement dated as of the date hereof, by and among Daka International, Inc.,
UCRI, Inc. and Compass Group PLC.
(i) a "Subsidiary" of any person means another person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly by such first
person.
A-39
<PAGE> 40
IN WITNESS WHEREOF, Compass, Compass Holdings, Compass Interim and
International have each caused this Agreement to be signed by their respective
officers thereunto duly authorized, all as of the date first written above.
COMPASS GROUP PLC
By: /s/ Michael J. Bailey
Michael J. Bailey
Director
COMPASS HOLDINGS, INC.
By: /s/ Michael J. Bailey
Michael J. Bailey
Director
COMPASS INTERIM, INC.
By: /s/ Michael J. Bailey
Michael J. Bailey
President
DAKA INTERNATIONAL, INC.
By: /s/ Donald C. Moore
Donald C. Moore
Senior Vice-President
A-40
<PAGE> 41
EXHIBIT 1.1(a)(i)
CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Offer, Compass Holdings shall
not be required to purchase any shares of International Common Stock tendered,
and may terminate the Offer, if
(i) immediately prior to the expiration of the Offer (as extended in
accordance with the terms of the Offer),
(a) any applicable waiting period under the HSR Act or the Exon-Florio
Amendment shall not have expired or been terminated,
(b) the Record Date shall not have been set by International's Board
of Directors, or
(c) the number of shares of International Common Stock validly
tendered (including for this purpose shares that remain subject to
guaranteed delivery procedures) and not withdrawn when added to the shares
of International Common Stock then beneficially owned by Compass, Compass
Holdings and its Affiliates or Compass Interim, including the shares of
International Common Stock into which the shares of Series A Preferred
Stock acquired by Compass Holdings pursuant to the Series A Preferred Stock
Purchase Agreement are convertible (the "A Converted Shares"), shall not
constitute at least two-thirds of the sum of the shares of International
Common Stock then outstanding and the A Converted Shares and represent at
least two-thirds of the voting power of all shares of capital stock of
International that would be entitled to vote with respect to the Merger
(the "Minimum Shares"), or
(ii) prior to the acceptance for payment of shares of International Common
Stock, any of the following events shall occur:
(a) any of the representations or warranties of International
contained in the Merger Agreement shall not have been true and correct at
the date when made or (except for those representations and warranties made
as of a particular date which need only be true and correct as of such
date) shall cease to be true and correct at any time prior to consummation
of the Offer, except (i) where International has delivered to Compass a
certificate (the "International Bring-Down Certificate") dated as of the
Offer Closing Date that (x) updates any section of the Disclosure Schedule
previously delivered to Compass pursuant to the Merger Agreement so long as
such updated schedules taken as a whole do not constitute a Material
Adverse Change (as defined in the Merger Agreement) compared to the
original schedules, or (y) sets forth events or conditions that have
occurred since the date of the Merger Agreement which, if they had occurred
or been in existence as of the date of the Merger Agreement, would be
required to be disclosed, so long as such events or conditions taken as a
whole do not constitute a Material Adverse Change or (ii) where the failure
to be so true and correct would not have a Material Adverse Effect on
International and Daka, taken as a whole, and Compass shall not have
received a certificate signed on behalf of International by the chief
executive officer and the chief financial officer to such effect; or
(b) any of the representations or warranties of International
contained in Sections 4.2(b), (c), (d), (e), (p) and (s) the Merger
Agreement shall not have been true and correct at the date when made or
(except for those representations and warranties made as of a particular
date which need only be true and correct as of such date) shall cease to be
true and correct at any time prior to consummation of the Offer, and
Compass shall not have received a certificate signed on behalf of
International by the chief executive officer and the chief financial
officer to such effect; or
(c) International shall have breached any of its covenants or
agreements contained in the Merger Agreement or any Ancillary Agreements,
provided, however, that if any such breach is curable by International or
Daka through the exercise of best efforts within five business days and so
long as International or Daka continue to use such best efforts, Compass
Holdings may not terminate the Offer until such five business day period
has expired without the breach being cured; or
(d) there shall be any statute, rule, regulation, decree, order or
injunction promulgated, enacted, entered or enforced, or any legal or
administrative proceeding initiated by any United States federal or state
government, governmental authority or court (other than the routine
application to the Offer, the Merger or the Distribution of waiting periods
under the HSR Act, the Exon-Florio Amendment or review by the SEC of
A-41
<PAGE> 42
the Schedule 14D-1, Schedule 14D-9 or Form 10) which would (i) prohibit
Compass Holdings from consummating the Offer or the Merger, (ii) prohibit
New International from consummating the Distribution, or (iii) have a
Material Adverse Effect on International and Daka as a whole (provided that
the provisions of this clause (iii) shall only apply in the event of any
statute, rule, regulation, decree, order or injunction (A) which is enacted
or entered into following the date of the Merger Agreement and (B) the
substantive provisions of which were initially proposed for enactment
following the date of the Merger Agreement); or
(e) there shall have occurred (i) any general suspension of trading in
securities on the New York Stock Exchange, Inc. or NASDAQ, (ii) a
declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States, or (iii) a commencement of a war or
armed hostilities involving the United States, which in the case of any of
the foregoing clauses (i), (ii) or (iii) would have a material adverse
effect on International and Daka taken as a whole; or
(f) either the Merger Agreement or the Reorganization Agreement shall
have been terminated in accordance with its terms.
(g) International shall have failed to enter into license agreements
for each of the "French Quarter Coffee", "Leo's Deli" and "Good Natured
Cafe" names and marks, as provided in Section 5.2(d) of the Reorganization
Agreement.
(h) Compass shall not have received an opinion dated the Closing Date
of Goodwin, Procter & Hoar LLP, counsel to International, in substantially
the form of Exhibit 1.1(a)(i).
(i) There shall have been a Material Adverse Change, or an event shall
have occurred which could reasonably be expected to result in a Material
Adverse Change.
(j) Compass shall not have received all consents or releases related
to the Foodservice Business or otherwise, necessary or appropriate to
effect the Contribution, the Distribution and the Merger and to release
International, Daka, Compass, Compass Holdings and Compass Interim and the
assets of the Foodservice Business from any obligations or liability,
including, without limitation, the Indebtedness, except as may be otherwise
expressly set forth herein or in the Ancillary Agreements.
(k) Any approval by a Governmental Entity in connection with the
transactions contemplated hereby and by the Ancillary Agreements, including
without limitation any approval under the HSR Act or the Exon-Florio
Amendment shall contain a requirement for the sale or disposition of assets
or conditions or limitations in connection with Compass' acquisition of the
Foodservice Business or operation of its existing business and operations
or the Foodservice Business after the Offer Closing Time.
(l) Allen R. Maxwell shall have indicated to International, Daka or
Compass that he does not intend to abide by the terms of the Employment
Agreement between International, Daka and Allen R. Maxwell.
(m) The Distribution shall not have become effective in accordance
with the terms of the Reorganization Agreement and each of the agreements
contemplated thereby.
(n) UCRI shall fail to have delivered to Compass Indemnification
Agreements in substantially the form attached as Exhibit 5.1(b) to the
Reorganization Agreement concerning each executive officer and director of
UCRI.
(o) Compass shall be unable to pay in full the aggregate amount of
principle, accrued but unpaid interest and fees due under the Credit
Facility or such amount shall exceed $110,000,000.
(p) Releases of claims and indemnification rights in forms reasonably
satisfactory to Compass from each of William H. Baumhauer, Allen R.
Maxwell, Charles W. Redepenning, Jr., David G. Parker, Louis A. Kaucic,
Donald Moore and Dean P. Vlahos shall not have been delivered to Compass.
(q) Letters of resignation from each executive officer and director of
International, except Erline Belton and Joseph O'Donnell, shall not have
been delivered to Compass.
(r) International shall not have paid to Compass the amounts set forth
in Section 6.7 net of any amounts due from Compass thereunder.
A-42
<PAGE> 43
(s) UCRI shall have failed to enter into a Transition Agreement as
provided in Section 3.2 of the Post-Closing Convenants Agreement, including
Exhibit 3.2 thereof.
(t) International shall have failed to have assigned or transferred to
New International the Headquarters Lease (as defined in the Post-Closing
Convenants Agreement).
The foregoing conditions are for the sole benefit of Compass and may be
asserted by Compass regardless of the circumstances giving rise to such
conditions, or may be waived by Compass in whole or in part at any time and from
time to time in its sole discretion; provided that the conditions set forth in
clauses (i)(A), (B) and (C), or (ii)(e) above may be waived or modified only by
mutual consent of Compass Holdings and International.
A-43
<PAGE> 44
*******************************************************************************
*******************************************************************************
*******************************************************************************
*******************************************************************************
*******************************************************************************
*******************************************************************************
*******************************************************************************
*******************************************************************************
***************************
<PAGE> 1
Exhibit 2.2
REORGANIZATION AGREEMENT
BY AND AMONG
DAKA INTERNATIONAL, INC.
DAKA, INC.
UNIQUE CASUAL RESTAURANTS, INC.
COMPASS GROUP PLC
AND
COMPASS HOLDINGS, INC.
MAY 27, 1997
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
ARTICLE I
DEFINITIONS
<S> <C> <C>
Section 1.1 General......................................................................................... 2
Section 1.2 References to Time.............................................................................. 5
ARTICLE II
CONTRIBUTION AND ASSUMPTION OF ASSETS AND LIABILITIES
Section 2.1 Contribution.................................................................................... 5
Section 2.2 Transfer and Assumption......................................................................... 6
Section 2.3 Nonassignable Contracts......................................................................... 6
Section 2.4 Pro-Ration of Items as of the Offer Closing Date................................................ 7
ARTICLE III
RECAPITALIZATION OF UCRI; THE DISTRIBUTION
Section 3.1 UCRI Capitalization............................................................................. 7
Section 3.2 Recapitalization of UCRI........................................................................ 7
Section 3.3 Effectiveness of the Distribution............................................................... 7
Section 3.4 Mechanics of the Distribution................................................................... 7
Section 3.5 Cooperation..................................................................................... 8
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 Representations and Warranties of UCRI.......................................................... 9
Section 4.2 Representations and Warranties of International and Daka........................................ 9
ARTICLE V
CERTAIN ADDITIONAL COVENANTS
Section 5.1 UCRI Board...................................................................................... 10
Section 5.2 Contractual Arrangements........................................................................ 10
Section 5.3 Intercompany Services........................................................................... 11
Section 5.4 Insurance....................................................................................... 11
ARTICLE VI
ACCESS TO INFORMATION
Section 6.1 Provision of Corporate Records.................................................................. 11
Section 6.2 Access to Information........................................................................... 12
Section 6.3 Retention of Records............................................................................ 13
Section 6.4 Confidentiality................................................................................. 13
Section 6.5 Reimbursement................................................................................... 14
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
ARTICLE VII
EMPLOYMENT; EMPLOYEE BENEFITS; LABOR MATTERS
<S> <C> <C>
Section 7.1 Employment Matters.............................................................................. 14
Section 7.2 Daka Savings Plan............................................................................... 14
Section 7.3 Welfare Plans................................................................................... 14
Section 7.4 Stock Options and Employee Stock Purchase Plan.................................................. 16
(a) Employee and Director Stock Options......................................................... 16
(b) Adjustment of International Options......................................................... 16
Section 7.5 Transfer to UCRI of Corporate-Owned Life Insurance Policies..................................... 17
Section 7.6 Vacation Pay and Sick Leave Pay................................................................. 17
Section 7.7 Change of Plan Sponsor.......................................................................... 17
Section 7.8 Severance Pay................................................................................... 18
Section 7.9 Collective Bargaining Agreements; Labor Relations Matters; Withdrawal Liability................. 18
Section 7.10 Preservation of Rights to Amend or Terminate Benefit Plans...................................... 19
Section 7.11 Other Liabilities............................................................................... 19
Section 7.12 Compliance...................................................................................... 19
ARTICLE VIII
TAX MATTERS
Section 8.1 Tax Matters..................................................................................... 20
ARTICLE IX
CONDITIONS
Section 9.1 Conditions to Obligations of International...................................................... 20
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Further Assurances.............................................................................. 21
Section 10.2 Survival of Agreements.......................................................................... 22
Section 10.3 Entire Agreement................................................................................ 22
Section 10.4 Expenses........................................................................................ 22
Section 10.5 Governing Law................................................................................... 22
Section 10.6 Notices......................................................................................... 22
Section 10.7 Amendment and Modification...................................................................... 23
Section 10.8 Successors and Assigns; No Third-Party Beneficiaries............................................ 23
Section 10.9 Enforcement..................................................................................... 23
(a) Specific Performance........................................................................ 23
(b) Jurisdiction................................................................................ 23
Section 10.10 Counterparts.................................................................................... 23
Section 10.11 Interpretation.................................................................................. 23
Section 10.12 Termination..................................................................................... 24
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
List of Schedules:
Schedule 1.1(a) List of Foodservice Assets
Schedule 1.1(b) List of Foodservice Employees
Schedule 7.6 List of Benefit Plans
Schedule 7.8 List of Collective Bargaining Agreements retained by International and the International
Affiliated Group
List of Exhibits:
Exhibit 5.1(b) Form of Indemnification Agreement
Exhibit 9.1(c)(i) Form of Smith Helms Mulliss & Moore, L.L.P. Legal Opinion
Exhibit Form of Freshfields Legal Opinion
9.1(c)(ii)
</TABLE>
iii
<PAGE> 5
REORGANIZATION AGREEMENT
This Reorganization Agreement (the "Agreement") is dated as of May 27,
1997, by and among DAKA INTERNATIONAL, INC., a Delaware corporation
("International"), DAKA, INC., a Massachusetts corporation ("Daka"), UNIQUE
CASUAL RESTAURANTS, INC., a Delaware corporation ("UCRI"), COMPASS GROUP PLC, a
public limited company incorporated in England and Wales ("Compass") and COMPASS
HOLDINGS, INC., a Delaware corporation ("Compass Holdings").
RECITALS:
WHEREAS, International owns all of the issued and outstanding capital stock
of Daka and all of the issued and outstanding capital stock of UCRI; and
WHEREAS, the Boards of Directors of International and Daka each have
approved, and International has entered into, an Agreement and Plan of Merger,
dated as of the date hereof (the "Merger Agreement") by and among International,
Compass, Compass Holdings and Compass Interim, Inc., a Delaware corporation
("Compass Interim"), pursuant to which this Agreement and certain other related
agreements will be executed to accomplish the following transactions:
(i) Compass Holdings will offer to purchase for cash all of the shares
of International Common Stock subject only to the Offer Conditions
set forth in Exhibit 1.1(a) of the Merger Agreement (the "Offer");
(ii) Immediately prior to the Distribution (as defined below), (a)
Daka will distribute certain assets to International as
dividends; (b) International will assume certain liabilities of
Daka; (c) International will contribute certain assets to UCRI as
capital contributions; and (d) UCRI will assume certain
liabilities of International (the transactions described in
clauses (a), (b), (c) and (d) above are referred to collectively
as the "Contribution");
(iii) International will distribute on a pro rata basis (the
"Distribution") all of the issued and outstanding shares of $.01
par value common stock, of UCRI (the "UCRI Common Stock") to the
holders of $.01 par value common stock of International (the
"International Common Stock"); and
(iv) Compass Interim will merge with and into International (the
"Merger").
WHEREAS, the purpose of the Contribution and the Distribution is to make
possible the Merger by divesting International and Daka of businesses and
operations to be conducted by UCRI and the Restaurant Subsidiaries (as defined
below), which Compass is unwilling to acquire;
WHEREAS, for Federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization under Section 368(a)(1)(A) of the Internal
Revenue Code of 1986, as amended (the "Code"), and this Agreement is intended to
be and is adopted as a plan of reorganization thereunder;
WHEREAS, the parties hereto have determined that it is necessary and
desirable to set forth the principal corporate transactions required to effect
the Contribution, the Distribution and the other transactions contemplated
hereby and to set forth other agreements and the relationship of the parties
following the Contribution, the Distribution, and such other transactions;
NOW THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained in this Agreement, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 GENERAL. Capitalized terms used in this Agreement not otherwise
defined herein shall have the meanings assigned thereto in the Merger Agreement.
As used in this Agreement, the following terms shall have the following meanings
(such meanings to be equally applicable to both the singular and plural forms of
the terms defined):
"Action" means any action, claim, suit, arbitration, inquiry, proceeding or
investigation by or before any court, governmental or other regulatory or
administrative agency or commission or any arbitration or other tribunal.
"Assignment and Assumption Agreement" has the meaning set forth in Section
5.2 of this Agreement.
<PAGE> 6
"Assumed Daka Liabilities" means, collectively, all Liabilities of Daka,
including but not limited to those Liabilities of Daka reflected within the
financial ledgers of Daka denoted as companies 11 and 14, except the Foodservice
Liabilities.
"Business Day" means any day other than a Saturday, a Sunday or a day on
which banking institutions located in the Commonwealth of Massachusetts are
obligated by law or executive order to close.
"CDV" means Casual Dining Ventures, Inc., a Delaware corporation.
"Champps" means Champps Entertainment, Inc., a Minnesota corporation.
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended.
"Collective Bargaining Agreement" means those collective bargaining and
other labor agreements listed on Schedule 4.2(k)(iv)(C).
"Contributed Assets" means, collectively, all of those assets and
properties, tangible or intangible, of any kind and description of International
other than the Foodservice Assets (including but not limited to the Distributed
Assets and the stock of the Restaurant Subsidiaries
"Daka Bill of Sale" has the meaning set forth in Section 5.2(a) of this
Agreement.
"Distributed Assets" means all of the assets and properties, tangible or
intangible of any kind and description of Daka other than Foodservice Assets.
"Foodservice Assets" means all of the assets and properties, tangible and
intangible, listed on Schedule 1.1(a).
"Foodservice Employee" means (i) any individual who at the Offer Closing
Time is an officer or employee of any member of either Group and who is set
forth on Schedule 1.1(b) hereof (which Schedule will be updated by mutual
agreement of UCRI and Compass prior to the Offer Closing Time), and (ii) all
employees of Daka as of the Offer Closing Time, a list of whom shall be provided
by International to Compass prior to the Offer Closing Time pursuant to Section
7.1(b) excluding any employee of International or Daka located at each such
company's headquarters in Danvers, Massachusetts unless included on Schedule
1.1(b). Schedule 1.1(b) and the list provided under Section 7.1(b) shall include
a list of officers or employees actively at work and a list of individuals not
actively at work but on (i) approved leave (including, without limitation,
leaves of absence granted by reason of family leave, medical leave, short-term
disability leave, and maternity or paternity leave, in all cases which began
before the Offer Closing Time) who may become Foodservice Employees upon their
written notice to International that they are available to work or (ii) layoff
(with recall rights) from active employment, other than any individual who, as
of the Offer Closing Time, has been determined to be permanently disabled under
existing Benefit Plans of International.
"Foodservice Liabilities" means the following liabilities: (i) the Funded
Debt (as defined in Section 5.1(f) (ii) of the Merger Agreement), (ii) all
obligations of performance or payment relating to or arising after the Offer
Closing Time from the Foodservice Assets and the conduct of the Foodservice
Business (as defined in the preamble to the Merger Agreement) to be performed or
paid by the terms thereof after the Offer Closing Time, except for each of those
purchase contracts between International and Coca-Cola, Lamb Weston and Bunge,
(iii) all Liabilities relating to the employment of all Foodservice Employees
after the Offer Closing Time, and (iv) the monetary obligations of Compass under
the Series A Preferred Stock Purchase Agreement (as defined in the Merger
Agreement).
"French Quarter" means French Quarter Coffee Co., a Delaware corporation.
"Fuddruckers" means Fuddruckers, Inc., a Texas corporation.
"Great Bagel" means The Great Bagel and Coffee Company, a Delaware
corporation.
"Group" means the UCRI Group or the International Group.
"Information" has the meaning set forth in Section 6.2 of this Agreement.
"Information Statement" means the information statement to be sent to the
holders of International Common Stock in connection with the Distribution.
"Intellectual Property Agreement" means those agreements pursuant to which
International and UCRI are providing for the right of Daka to use the "French
Quarter Coffee," "Good Natured Cafe" and "Leo's Deli" names and marks.
2
<PAGE> 7
"International Bill of Sale" has the meaning set forth in Section 5.2(b) of
this Agreement.
"International Board" means the Board of Directors of International and
their duly elected or appointed successors.
"International Business" means any business conducted by any member of the
International Group immediately following the Offer Closing Time.
"International Documents" has the meaning set forth in Section 4.2(b) of
this Agreement.
"International Group" means International, Daka and Daka's Subsidiaries.
"International Options" has the meaning set forth in Section 7.4 of this
Agreement.
"La Salsa" means La Salsa Holding Co., a California corporation.
"Liabilities" means collectively claims, debts, liabilities, royalties,
license fees, losses, costs, expenses, deficiencies, litigation proceedings,
taxes, levies, imposts, duties, deficiencies, assessments, attorneys' fees,
charges, allegations, demands, damages, judgments or obligations, whether
absolute or contingent, matured or unmatured, liquidated or unliquidated,
accrued or unaccrued, known or unknown and whether or not the same would
properly be reflected on a balance sheet, including all costs and expenses
relating thereto.
"Pulseback" means Pulseback, Inc., a Vermont corporation.
"Qualified Plan" means a Benefit Plan which is an employee pension benefit
plan (within the meaning of Section 3(2) of ERISA) and which constitutes or is
intended in good faith to constitute a qualified plan under Section 401(a) of
the Code.
"Record Date" means the date to be determined by the International Board,
as the record date for determining shareholders of International Common Stock
entitled to receive the Distribution.
"Restaurant Subsidiaries" means, collectively, CDV, Champps, French
Quarter, Fuddruckers, Great Bagel, Pulseback, Specialty Concepts, and La Salsa
and their Subsidiaries.
"Specialty Concepts" means Specialty Concepts, Inc., a Delaware
corporation.
"UCRI Assets" means all of the assets and properties, tangible and
intangible, of any kind, nature and scope, used or held by any member of either
Group immediately prior to the Offer Closing Time, except for the Foodservice
Assets.
"UCRI Business" means all businesses and activities conducted by any member
of either Group immediately prior to the Offer Closing Time, except for the
Foodservice Business.
"UCRI Documents" has the meaning set forth in Section 4.1(b) of this
Agreement.
"UCRI Employee" means any individual who at any time is or was an officer
or employee of any member of either Group, other than an Foodservice Employee.
"UCRI Group" means UCRI and all other Subsidiaries of UCRI.
"UCRI Liabilities" means (i) all Liabilities of either Group as of the
Offer Closing Time except the Foodservice Liabilities, (ii) all Liabilities
relating to or arising from the UCRI Business, (iii) all Liabilities relating to
the employment of all employees of either Group prior to the Offer Closing Time,
and (iv) all Assumed Daka Liabilities.
"Welfare Plan" means any Benefit Plan, which is not a Qualified Plan and
which provides medical, health, dental, disability, accident, life insurance,
death, dependent care or other welfare benefits, including any post-employment
non-cash benefits or retiree medical benefits.
SECTION 1.2 REFERENCES TO TIME. All references to times of the day in this
Agreement shall refer to Boston, Massachusetts time.
3
<PAGE> 8
ARTICLE II
CONTRIBUTION AND ASSUMPTION OF ASSETS AND LIABILITIES
SECTION 2.1 CONTRIBUTION. Subject to the terms and conditions of this
Agreement, International and UCRI shall cause, immediately prior to the
Distribution:
(a) all of Daka's right, title and interest in the Distributed Assets
to be conveyed, assigned, transferred and delivered to International as a
dividend;
(b) all of Daka's duties, obligations and responsibilities under the
Assumed Daka Liabilities to be assumed by International;
(c) all of International's equity interests in the Restaurant
Subsidiaries and any other direct Subsidiaries of International other than
Daka to be conveyed, assigned, transferred and delivered to UCRI as a
capital contribution;
(d) all of International's right, title and interest in the
Contributed Assets to be conveyed, assigned, transferred and delivered to
UCRI as a capital contribution;
(e) all of the UCRI Liabilities and duties, obligations and
responsibilities thereunder to be assumed by UCRI or its Subsidiaries.
SECTION 2.2 TRANSFER AND ASSUMPTION.
(a) In connection with the conveyance, assignment, transfer and
delivery of the assets and properties and the assumption of the Liabilities
as contemplated by this Article II, (i) International and UCRI shall
execute or cause to be executed by the appropriate parties and delivered to
the appropriate parties such deeds, bills of sale, stock powers,
certificates of title, assignments of leases and contracts and other
instruments of conveyance, assignment, transfer and delivery necessary to
evidence such conveyance, assignment, transfer and delivery and (ii)
International and UCRI will execute and deliver such instruments of
assumption as and to the extent necessary to evidence such assumption.
(b) Each of the parties shall use its best efforts prior to, as of and
after the Offer Closing Time to take, or cause to be taken, all actions,
and to do, or cause to be done, all things, reasonably necessary, proper or
advisable under applicable laws, regulations and agreements to consummate
and make effective the transactions contemplated by this Article II.
SECTION 2.3 NONASSIGNABLE CONTRACTS. Anything contained herein to the
contrary notwithstanding, this Agreement shall not constitute an agreement to
assign any lease, license agreement, contract, agreement, sales order, purchase
order, open bid or other commitment or asset if an assignment or attempted
assignment of the same without the consent of the other party or parties thereto
would constitute a breach thereof or in any way impair the rights of either
Group thereunder. International shall, prior to the Contribution, use its
reasonable best efforts to obtain all consents and waivers and to resolve all
impracticalities of assignments or transfers necessary to convey to UCRI and the
Restaurant Subsidiaries the assets discussed in Section 2.1. If any such consent
is not obtained or if an attempted assignment would be ineffective or would
impair either Group's rights under any such lease, license agreement, contract,
agreement, sales order, purchase order, open bid or other commitment or asset so
that UCRI or the Restaurant Subsidiaries would not receive such rights, then (i)
International shall use its reasonable best efforts to provide or cause to be
provided to UCRI or the appropriate Restaurant Subsidiary, to the extent
permitted by law, the benefits of any such lease, license agreement, contract,
agreement, sales order, purchase order, open bid or other commitment or asset,
and shall pay or cause to be paid to UCRI or the appropriate Restaurant
Subsidiary when received all moneys received by the International Group with
respect to any such lease, license agreement, contract, agreement, sales order,
purchase order, open bid or other commitment or asset and (ii) in consideration
thereof, UCRI or the appropriate Restaurant Subsidiary shall pay, perform and
discharge on behalf of the International Group all of the International Group's
debts, liabilities, obligations and commitments thereunder in a timely manner
and in accordance with the terms thereof. In addition, International shall take
such other actions as may be reasonably requested by UCRI in order to place
UCRI, insofar as reasonably possible, in the same position as if such lease,
license agreement, contract, agreement, sales order, purchase order, open bid or
other commitment or Asset had been transferred as contemplated hereby and so all
the benefits and burdens relating thereto shall inure to the UCRI Group. If and
when such consents and approvals are obtained, the transfer of the applicable
Asset shall be effected in accordance with the terms of this Agreement.
4
<PAGE> 9
SECTION 2.4 PRO-RATION OF ITEMS AS OF THE OFFER CLOSING DATE. In connection
with all determinations to be made pursuant to this Agreement, the following
principles shall be applied with respect to the allocation of items between the
UCRI Business and the International Business:
(a) All accrued operating income and operating expense items of the
Foodservice Business shall be adjusted and allocated between UCRI and
International to the extent necessary to reflect the principle that all
such income and expenses attributable to the operation of the Foodservice
Business on or before the Offer Closing Time shall be for the account of
UCRI and all such income and expenses attributable to the operation of the
Foodservice Business after the Offer Closing Time shall be for the account
of International;
(b) All expenses that relate to services, facilities, personnel or
other matters provided for in the Transition Agreement as defined in the
Post-Closing Covenants Agreement shall be allocated in accordance with such
agreement without regard to generally accepted accounting principles or
other criteria; and
(c) to the extent not inconsistent with the express provisions of this
Agreement, the allocation provided in clause (a) above shall be made in
accordance with GAAP (as defined in the Post-Closing Covenants Agreement).
ARTICLE III
RECAPITALIZATION OF UCRI; THE DISTRIBUTION
SECTION 3.1 UCRI CAPITALIZATION. The authorized number of shares of capital
shares of capital stock of UCRI is 35,000,000 shares, consisting of 5,000,000
shares of Preferred Stock, $.01 par value, and 30,000,000 shares of UCRI Common
Stock. The current equity capitalization of UCRI consists of 1,000 issued and
outstanding shares of UCRI Common Stock (the "Existing UCRI Common Stock"), all
of which is owned beneficially and of record by International.
SECTION 3.2 RECAPITALIZATION OF UCRI. Immediately prior to the Offer
Closing Time, International shall cause UCRI to exchange the Existing UCRI
Common Stock owned by International for a total number of shares of UCRI Common
Stock equal to the total number of shares of International Common Stock
outstanding as of the Record Date.
SECTION 3.3 EFFECTIVENESS OF THE DISTRIBUTION. The Distribution shall be
effective as of the Offer Closing Time.
SECTION 3.4 MECHANICS OF THE DISTRIBUTION. Immediately before the Offer
Closing Time, International shall distribute all outstanding shares of UCRI
Common Stock to holders of record of International Common Stock on the Record
Date on the basis of one share of UCRI Common Stock for each share of
International Common Stock outstanding on the Record Date. All shares of UCRI
Common Stock issued in the Distribution shall be duly authorized, validly
issued, fully paid and nonassessable.
SECTION 3.5 COOPERATION.
(a) As promptly as practicable after the date hereof and not later than 10
business days prior to the Offer Closing Time:
(i) International and UCRI shall prepare, and International shall file
with the SEC and mail to the holders of the equity securities of the
International, the Information Statement, which shall set forth appropriate
disclosure concerning UCRI and its Subsidiaries, the UCRI Assets, the
Contribution, the Distribution and certain other matters. International and
UCRI shall also prepare, and International shall file with the SEC, the
Form 10 which shall include or incorporate by reference the Information
Statement and International and UCRI shall use reasonable efforts to cause
the Form 10 to be declared effective under the Exchange Act.
(ii) International and UCRI shall cooperate in preparing, filing with
the SEC and causing to become effective any registration statements or
amendments thereto which are appropriate to reflect the establishment of,
or amendments to, any employee benefit and other plans contemplated by this
Agreement.
(iii) International and UCRI shall take all such action as may be
necessary or appropriate under state securities or "Blue Sky " laws in
connection with the transactions contemplated by this Agreement.
(iv) International and UCRI shall prepare, and UCRI shall file and
seek to make effective, an application to permit listing of the UCRI Common
Stock on the Nasdaq National Market.
5
<PAGE> 10
(b) In addition to the actions specifically provided for elsewhere in this
Agreement, each of the parties hereto shall use its best efforts prior to, as of
and after the Offer Closing Time to take, or cause to be taken, all actions, and
to do, or cause to be done, all things, reasonably necessary, proper or
advisable under applicable laws, regulations and agreements to consummate and
make effective the transactions contemplated by this Agreement, including,
without limitation, using its best efforts to obtain the consents and approvals,
to enter into any amendatory agreements and to make the filings and applications
necessary or desirable to have been obtained, entered into or made in order to
consummate the transactions contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.1 REPRESENTATIONS AND WARRANTIES OF UCRI. UCRI hereby represents
and warrants to International, Daka and Compass as follows:
(a) ORGANIZATION, STANDING AND POWER. UCRI is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware. UCRI has all requisite corporate power and authority
to own, lease and operate its properties and to carry on its business as
now being conducted.
(b) AUTHORITY. UCRI has all requisite power and authority to
execute this Agreement and the Ancillary Agreements to which it is or
will be party (collectively, the "UCRI Documents") and to consummate the
transactions contemplated hereby and thereby. The execution and delivery
of this Agreement and the other UCRI Documents and the consummation of
the transactions contemplated hereby and thereby have been duly
authorized by all necessary action on the part of UCRI. This Agreement
has been duly executed and delivered by UCRI, and each of the other UCRI
Documents will be duly executed and delivered by UCRI at or prior to the
Offer Closing Time, and when so executed and delivered will constitute,
a legal, valid and binding obligation of UCRI enforceable against it in
accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium, fraudulent conveyance, or similar laws relating to
creditors' rights and general principles of equity.
(c) NO CONFLICT. The execution, delivery and performance by UCRI of
this Agreement and by UCRI of the other UCRI Documents will not
contravene, violate, result in a breach of or constitute a default under
(i) any provision of applicable law or of the articles of incorporation
or bylaws of UCRI or any other member of the UCRI Group or (ii) any
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to UCRI or any other member of the UCRI Group or any of their
properties or Assets.
(d) APPROVALS. No consent, approval, order, authorization of, or
registration, declaration or filing with, any governmental entity is
required in connection with the making or performance by UCRI of this
Agreement or the other UCRI Documents, except as set forth in the Merger
Agreement.
SECTION 4.2 REPRESENTATIONS AND WARRANTIES OF INTERNATIONAL AND DAKA. Each
of International and Daka, jointly and severally, hereby represents and warrants
to UCRI as follows:
(a) ORGANIZATION, STANDING AND POWER. Each of International and
Daka is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation. Each of
International and Daka has all requisite corporate power and authority
to own, lease and operate its properties and to carry on its business as
now being conducted.
(b) AUTHORITY. Each of International and Daka has all requisite
power and authority to execute this Agreement and the Ancillary
Agreements to which it is or will be party (collectively, the
"International Documents") and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this
Agreement and the other International Documents and the consummation of
the transactions contemplated hereby and thereby have been duly
authorized by all necessary action on the part of International or Daka,
as appropriate. This Agreement has been duly executed and delivered by
each of International and Daka, and each of the other International
Documents will be duly executed and delivered by International and/or
Daka, as appropriate, at or prior to the Offer Closing Time, and when so
executed and delivered will constitute, a legal, valid and binding
obligation of International and/or Daka enforceable against
International and/or Daka in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium, fraudulent conveyance, or
similar laws relating to creditors' rights and general principles of
equity.
6
<PAGE> 11
(c) NO CONFLICT. The execution, delivery and performance by
International and Daka of this Agreement and by International and Daka
of the other International Documents will not contravene, violate,
result in a breach of or constitute a default under (i) any provision of
applicable law or of the articles of incorporation or bylaws of
International or Daka or (ii) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to International or Daka or any
of their properties or assets.
(d) APPROVALS. No consent, approval, order, authorization of, or
registration, declaration or filing with, any governmental entity is
required in connection with the making or performance by International
or Daka of this Agreement or the other International Documents, except
as set forth in the Merger Agreement.
ARTICLE V
CERTAIN ADDITIONAL COVENANTS
SECTION 5.1 UCRI BOARD. Prior to the Offer Closing Time, International
shall (a) take such actions as are necessary such that UCRI's Board of Directors
is comprised of those individuals named as directors in the Information
Statement and (b) execute for the benefit of all directors and officers named in
Schedule 5.1(b) an indemnification agreement substantially in the form of
Exhibit 5.1(b) hereto.
SECTION 5.2 CONTRACTUAL ARRANGEMENTS. At the Closing, effective immediately
prior to the Offer Closing Time,
(a) Daka shall execute and deliver to International a Bill of Sale,
in a form mutually reasonably agreed to between UCRI and Compass (the
"Daka Bill of Sale");
(b) International shall execute and deliver to UCRI a Bill of Sale,
in a form mutually reasonably agreed to between UCRI and Compass (the
"International Bill of Sale");
(c) UCRI, International and Daka shall enter into an Assignment and
Assumption Agreement in a form mutually reasonably agreed to between
UCRI and Compass regarding the UCRI Assets and the UCRI Liabilities (the
"Assignment and Assumption Agreement");
(d) UCRI, International, Daka and Compass shall enter into license
agreements in forms mutually reasonably agreed to among them with regard
to the use, without charge, by Compass or its Subsidiaries of the
"French Quarter Coffee," "Good Natured Cafe" and "Leo's Deli" names and
marks.
SECTION 5.3 INTERCOMPANY SERVICES. All intercompany services provided by
the UCRI Group to the International Group or by the International Group to the
UCRI Group shall terminate as of the Offer Closing Time unless otherwise
provided in any Ancillary Agreement or any other agreement contemplated thereby
or hereby.
SECTION 5.4 INSURANCE.
(a) Prior to the Offer Closing Time, UCRI will amend or otherwise
modify all insurance policies and related insuring agreements pertaining
to the Foodservice Assets (the "Insurance Policies") to reflect that all
reimbursement, premium payment or other obligations and assets, as
applicable, of International based on occurrences prior to the Offer
Closing Time will become obligations of UCRI under the Insurance
Policies as of the Offer Closing Time. UCRI will pay all required
premiums and other payment or reimbursement obligations arising under
the Insurance Policies and will be responsible for all correspondence
with the insurance companies and will provide assistance to the
insurance companies with the administration of any and all claims under
the Insurance Policies.
(b) Notwithstanding the provisions of subparagraph (a) above, UCRI
shall cause each of International and Daka to remain as named insureds
without cost to such entities under the Insurance Policies.
ARTICLE VI
ACCESS TO INFORMATION
SECTION 6.1 PROVISION OF CORPORATE RECORDS.
(a) Prior to or as promptly as practicable after the Offer Closing
Time, International shall deliver to UCRI all corporate books and
records of the UCRI Group as well as copies or, to the extent not
detrimental
7
<PAGE> 12
in the reasonable opinion of International to the interests of
International, originals, of all books, records and data relating
exclusively to the UCRI Assets, the UCRI Business, or the UCRI
Liabilities, including, but not limited to, all books, records and data
relating to the purchase of materials, supplies and services, financial
results, sale of products, records of the UCRI Employees, commercial
data, research done by or for UCRI, catalogues, brochures, training and
other manuals, sales literature, advertising and other sales and
promotional materials, maintenance records and drawings, all active
agreements, active litigation files and government filings. To the
extent that originals of such books, records and data are provided to
UCRI, UCRI shall provide International copies thereof as reasonably
requested in writing by International. Notwithstanding the above,
International shall provide copies of customer information, invoices and
credit information only to the extent reasonably requested in writing by
UCRI, and International shall provide such copies of all books, records
and data only to the extent that such action is not prohibited by the
terms of any agreements pertaining to such information or is not
prohibited by law. International or UCRI agrees to advise Compass of any
such contractual or legal prohibitions and to indemnify Compass pursuant
to Article II of the Post-Closing Covenants Agreement for any
Indemnifiable Losses incurred by Compass as a result thereof. After the
Offer Closing Time, all books, records and copies so delivered shall be
the property of UCRI. Notwithstanding the above, International shall not
be required to make copies, other than pursuant to Section 6.2 of this
Agreement, of any portion of any books, records or data to the extent
such portion relates exclusively to the Foodservice Assets, the
Foodservice Business or to Foodservice Liabilities.
(b) Prior to or as promptly as practicable after the Offer Closing
Time, UCRI shall deliver to International all corporate books and
records of International Group as well as copies or, to the extent not
detrimental in the reasonable opinion of UCRI to the interests of UCRI,
originals, of all books, records and data relating exclusively to the
Foodservice Assets; the Foodservice Business, or the Foodservice
Liabilities, including, but not limited to, all books, records and data
relating to the purchase of materials, supplies and services, financial
results, sale of products, records of the Foodservice Employees,
commercial data, research done by or for International, catalogues,
brochures, training and other manuals, sales literature, advertising and
other sales and promotional materials, maintenance records and drawings,
all active agreements, active litigation files and government filings.
To the extent that originals of such books, records and data are
provided to International, International shall provide UCRI copies
thereof as reasonably requested in writing by UCRI. Notwithstanding the
above, UCRI shall provide copies of customer information, invoices and
credit information only to the extent reasonably requested in writing by
International, and UCRI shall provide such copies of all books, records
and data only to the extent that such action is not prohibited by the
terms of any agreements pertaining to such information or is not
prohibited by law. From and after the Offer Closing Time, all books,
records and copies so delivered shall be the property of International.
Notwithstanding the above, UCRI shall not be required to make copies,
other than pursuant to Section 6.2 of this Agreement, of any portion of
any books, records or data to the extent such portion relates
exclusively to the UCRI Assets, the UCRI Business or to UCRI
Liabilities.
SECTION 6.2 ACCESS TO INFORMATION. After the Offer Closing Time, each of
International and UCRI shall afford to the other and to the other's agents,
employees, accountants, counsel and other designated representatives, reasonable
access and duplicating rights during normal business hours to all records,
books, contracts, instruments, computer and other information ("Information")
within such party's (including all Subsidiaries') possession relating to such
other party's businesses, assets or liabilities, insofar as such access is
reasonably required by such other party. Without limiting the foregoing, such
Information may be requested under this Section for audit, accounting, claims,
litigation and tax purposes, as well as for purposes of fulfilling disclosure
and reporting obligations.
SECTION 6.3 RETENTION OF RECORDS. Except as otherwise required by law or
agreed in writing, or as otherwise provided in the Tax Allocation Agreement,
each of International and UCRI shall retain, for a period of at least one year
following the Offer Closing Time, all significant Information in such party's
possession or under its control relating to the business, assets or liabilities
of the other party and, after the expiration of such one-year period, prior to
destroying or disposing of any of such Information, (a) the party proposing to
dispose of or destroy any such Information shall provide no less than 30 days
prior written notice to the other party, specifying the Information proposed to
be destroyed or disposed of, and (b) if, prior to the scheduled date for such
destruction or disposal, the other party requests in writing that any of the
Information proposed to be destroyed or disposed of be delivered to such other
party, the party proposing to dispose of or destroy such Information promptly
shall arrange for the delivery of the requested Information to a location
specified by, and at the expense of, the requesting party.
8
<PAGE> 13
SECTION 6.4 CONFIDENTIALITY.
(a) Except as required by law or regulation, each Group will hold,
and will cause its respective officers, employees, accountants, counsel,
financial advisors and other representatives and affiliates to hold, any
nonpublic information in confidence in accordance with the
Confidentiality Agreement, dated January 2, 1997, between Compass and
International.
(b) After the Offer Closing Time, each Group shall hold, in strict
confidence, all Information obtained from the other Group prior to the
Offer Closing Time or furnished to it pursuant to this Agreement or any
other agreement referred to herein which relates to or concerns the
business conducted by such other Group, and such Information shall not
be used by it to the detriment of the other Group, or disclosed by it or
its agents, officers, employees or directors without the prior written
consent of such other Group unless and to the extent that (a) disclosure
is compelled by judicial or administrative process or, in the opinion of
such Group's counsel, by other requirements of law, or (b) such Group
can show that such Information was (i) available to such Group on a
nonconfidential basis prior to its disclosure by the other Group, (ii)
in the public domain through no fault of such Group, (iii) lawfully
acquired by such Group from other sources after the time that it was
furnished to such Group pursuant to this Agreement or any other
agreement referred to herein, or (iv) independently developed by such
Group. Notwithstanding the foregoing, each Group shall be deemed to have
satisfied its obligations of confidentiality under this Section with
respect to any Information concerning or supplied by the other Group if
it exercises substantially the same care with regard to such Information
as it takes to preserve confidentiality for its own similar Information.
SECTION 6.5 REIMBURSEMENT. Each member of any Group providing Information
pursuant to Sections 6.2 or 6.3 to any member of the other Group shall be
entitled to receive from the recipient, upon presentation of an invoice
therefor, payment of all out-of-pocket costs and expenses as may reasonably be
incurred in providing such Information.
ARTICLE VII
EMPLOYMENT; EMPLOYEE BENEFITS; LABOR MATTERS
SECTION 7.1 EMPLOYMENT MATTERS.
(a) Compass Holdings agrees to cause International or Daka to offer
to retain all Foodservice Employees as of 12:01 a.m. on the Offer
Closing Date. Notwithstanding the foregoing, nothing contained herein
shall be construed as obligating Compass Holdings, International or any
of its affiliates (i) to offer employment after the Offer Closing Date
to any employee whose employment with International or Daka terminates
for any reason prior to the Offer Closing Date, (ii) to offer any term
or condition of employment (including base salary and other benefits)
except as provided by this Article or to maintain any such term or
condition for any period following the Offer Closing Date, or (iii) to
recall any employee who does not have recall rights.
(b) Prior to the Offer Closing Time, International shall furnish
Compass or Compass Holdings with (i) a list of all officers or employees
of Daka as of the Offer Closing Time and (ii) information as to (x) the
rate of base salary in effect for each Foodservice Employee immediately
before the Offer Closing Time, (y) each Foodservice Employee's position
with International immediately before the Offer Closing Time and (z)
each Foodservice Employee's prior service with International or Daka as
of the Offer Closing Time.
SECTION 7.2 DAKA SAVINGS PLAN. International shall take, or cause to be
taken, all actions necessary and appropriate to amend the Daka Savings and
Retirement Plan (the "Daka Savings Plan") to remove International as sponsor and
named fiduciary and shall name UCRI as sponsor and named fiduciary of the Daka
Savings Plan prior to the Offer Closing Time. International shall also take such
actions as necessary to fully vest as of the Offer Closing Time each participant
who is an Foodservice Employee in his or her account balance under the Daka
Savings Plan.
SECTION 7.3 WELFARE PLANS.
(a) International shall take, or cause to be taken, all actions
necessary and appropriate to amend each and every Welfare Plan covering
its employees ("International Welfare Plans") to remove International as
sponsor and named fiduciary and shall name UCRI as sponsor and named
fiduciary of each such Benefit Plan prior to the Offer Closing Time.
Compass shall take, or cause to be taken, all actions necessary and
appropriate to cause either (i) its existing welfare benefit plans to be
amended, or (ii) new welfare benefit plans to be
9
<PAGE> 14
adopted which will cover the Foodservice Employees who were covered by
the International Welfare Plans as of the Offer Closing Time (and their
dependents as appropriate) immediately following the Offer Closing Time
(the "New Welfare Plans"). Compass shall cause the New Welfare Plans to
provide benefits similar to the benefits available to the eligible
Foodservice Employees under the International Welfare Plans on the date
immediately preceding the Offer Closing Time including waiving any
pre-existing condition requirement unless such requirement applied to
such Foodservice Employee under the International Welfare Plans. Compass
shall also cause the New Welfare Plans, to the extent applicable, to
credit such Foodservice Employees with the term of service credited to
such employees as of the Offer Closing Time under the terms of the
applicable International Welfare Plan. Compass will cause the
Foodservice Employees to receive credit for payments made under any of
the International Welfare Plans during the plan year in which the Offer
Closing Time occurs for purposes of satisfying the applicable
deductibles, employee co-payments and maximum out-of-pocket limits of
the applicable New Welfare Plans during the plan year in which the Offer
Closing Time occurs.
(b) Except as otherwise noted in this Section 7.3, International
shall cause one or more members of the UCRI Group to assume and be
solely responsible for, or cause its insurance carriers or agents to be
responsible for, all liabilities for welfare benefit claims incurred
prior to the Offer Closing Time under the International Welfare Plans.
For purposes of this Section 7.3, disability claims are incurred on the
date on which the disability is incurred or, in the case of a disability
which is not incurred on a single, identifiable date, the date on which
the disability was diagnosed; medical and dental services are incurred
when an individual is provided with medical or dental care; death
benefit claims are incurred at the time of death of the insured, all
notwithstanding any other provision of any welfare benefit plan to the
contrary. At the Offer Closing Time, the Foodservice Employees will
cease participation in the International Welfare Plans, except to the
extent (i) that a Foodservice Employee or a covered dependent of a
Foodservice Employee is hospitalized or otherwise not actively at work
and on approved leave as of the Offer Closing Time, in which case such
individual shall continue to be covered under the appropriate
International Welfare Plan until the individual is discharged from the
hospital or returns from approved leave or (ii) they elect continued
coverage under such plans pursuant to COBRA or other provisions of the
International Welfare Plans. UCRI shall be responsible for all
qualifying events under COBRA and COBRA claims incurred under the
International Welfare Plans prior to the Offer Closing Time or as a
result of the consummation of the transactions contemplated by this
Agreement or the Merger Agreement.
(c) UCRI and UCRI Group shall be responsible for any retiree
medical, life insurance or other benefits that are now or may hereafter
become payable with respect to any former employee of International or
one of its Affiliates who retired from the UCRI Group or the
International Group prior to the Offer Closing Time and who met the
eligibility requirements for such benefits at that time. The Foodservice
Employees who retire from International or Compass after the Offer
Closing Time shall not be entitled to retiree medical and life insurance
benefits from either the International Welfare Plans or the New Welfare
Plans.
SECTION 7.4 STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN.
(a) EMPLOYEE AND DIRECTOR STOCK OPTIONS. Effective as of the Offer
Closing Time, UCRI shall adopt (and International, as sole shareholder
of UCRI, shall approve) a stock option and restricted stock plan (the
"UCRI Stock Plan") for the benefit of employees of UCRI, Foodservice
Employees and non-employee directors of UCRI (including those
non-employee directors of International who, following the Distribution,
will become non-employee directors of UCRI (the "Non-Employee
Directors")), which plan shall permit the adjustments contemplated in
Section 7.4(b) hereof and shall be administered so as to qualify under
Rule 16b-3 promulgated under the Exchange Act. Options to acquire
International Common Stock, regardless of whether such options have
vested in the individual holding such option, which have been granted to
UCRI Employees, Non-Employee Directors, Foodservice Employees and former
employees of International (other than UCRI Employees) pursuant to
International's 1994 Equity Incentive Plan, the 1988 Incentive Stock
Option Plan, the 1988 Nonqualified Stock Option Plan or the Senior
Executive Stock Option Plan (collectively, the "International Plans")
and which have not been exercised immediately prior to the Distribution
(collectively, the "International Options") shall, pursuant to the
equitable adjustment provisions of the applicable plan under which such
options were granted and effective as of the Offer Closing Time, be
treated as provided in this Section 7.4.
10
<PAGE> 15
(b) ADJUSTMENT OF INTERNATIONAL OPTIONS. Each (X) International
Option not intending to qualify as an "incentive stock option" under
Section 422 of the Code (a "Nonqualified Stock Option") granted pursuant
to any of the International Plans and held by a UCRI Employee,
Foodservice Employee or Non-Employee Director , and (Y) International
Option intending to qualify as an "incentive stock option" under Section
422 of the Code (an "Incentive Stock Option") granted pursuant to any of
the International Plans and held by a UCRI Employee or a Foodservice
Employee , shall be adjusted to provide the option holder with an
adjusted Nonqualified Stock Option from the relevant International Plan
and a Nonqualified Stock Option from the UCRI Stock Plan, by the
following procedure (i) the option holder shall receive an adjusted
International Option under the relevant International Plan for the
number of shares of International Common Stock relating to the
Nonqualified Stock Option or Incentive Stock Option but at an exercise
price per share to be determined as described hereinafter, and (ii) the
option holder also shall receive an option under the UCRI Stock Plan to
acquire shares of UCRI Common Stock (a "UCRI Option"), in an amount
equal to the number of shares of International Common Stock relating to
the Nonqualified Stock Option or Incentive Stock Option at an exercise
price per share to be determined as described hereinafter. The exercise
price per share of each International Option which becomes an adjusted
Nonqualified Stock Option under the relevant International Plan shall be
equal to the quotient obtained by dividing (w) the exercise price per
share of such Nonqualified Stock Option or Incentive Stock Option prior
to adjustment (the "Pre-Adjustment Exercise Price") by (x) the
International Plan Adjustment Factor (as hereinafter defined), and the
exercise price per share of each Nonqualified Stock Option which, as a
result of the adjustments in this Section 7.4(b), provides the option
holder with an option under the UCRI Stock Plan to purchase UCRI Common
Stock, shall be equal to the quotient obtained by dividing (y) the
Pre-Adjustment Exercise Price by (z) the UCRI Stock Plan Adjustment
Factor (as hereinafter defined). In each case the resulting exercise
price per share shall be rounded up or down to the nearest cent. The
"International Plan Adjustment Factor " shall mean an amount equal to
the quotient obtained by dividing (1) the sum of (A) the Offer Price (as
defined in the Merger Agreement), plus (B) the per share fair market
value of UCRI Common Stock, determined based on the average closing
price of the UCRI Common Stock over the three-consecutive-day trading
period immediately following the Offer Closing Time (such per share fair
market value being referred to as the "UCRI Value"), by (2) the Offer
Price. The "UCRI Stock Plan Adjustment Factor" shall mean an amount
equal to the quotient obtained by dividing (1) the sum of (A) the Offer
Price plus (B) the UCRI Value, by (2) the UCRI Value. Each International
Option which becomes an adjusted Nonqualified Stock Option under the
relevant International Plan as a result of the adjustments in this
Section 7.4(b) shall remain subject to the same terms and conditions as
such Nonqualified Stock Option or Incentive Stock Option prior to such
adjustment, except that all International Options which prior to the
adjustments in this Section 7.4(b) were Incentive Stock Options shall be
Nonqualified Stock Options after such adjustment.
(c) DISPOSITION OF INTERNATIONAL OPTIONS. Following the adjustments
described in Section 7.4(b), all International Options shall be
cancelled and the option holders shall receive payment from UCRI for the
value of each option holders' International Options as provided in
Section 1.5 of the Merger Agreement.
(d) EMPLOYEE STOCK PURCHASE PLAN. Prior to the Offer Closing Time,
International shall take all actions necessary or appropriate under the
DAKA International Employee Stock Purchase Plan (the "Stock Purchase
Plan") to (i) cause the Offering (as that term is defined in the Stock
Purchase Plan) beginning on April 1, 1997 to end on the business day
immediately preceding the Record Date, (ii) permit no additional
Offerings under the Stock Purchase Plan to occur after the Record Date
and (iii) cause all shares of International Common Stock purchasable by
participating employees of International or its Subsidiaries (the
"Participating Employees") under the Stock Purchase Plan with respect to
such Offering (the "Purchasable Shares") to be deemed issued and
outstanding for purposes of the Distribution as of the Record Date,
whereby such participating employees will receive shares of UCRI as if
they had held the Purchasable Shares on the Record Date. No Purchasable
Shares will actually be issued by International to the Participating
Employees and in lieu thereof the Participating Employees shall be
entitled to receive from International, for each Purchasable Share of
International Common Stock, cash payment from UCRI of the amount
provided in Section 1.5 of the Merger Agreement.
SECTION 7.5 TRANSFER TO UCRI OF CORPORATE-OWNED LIFE INSURANCE POLICIES.
International shall take, or cause to be taken, all actions necessary and
appropriate to transfer ownership of any life insurance policies on the lives of
its executives (other than Allen R. Maxwell) owned by International to UCRI.
Section 7.6 Vacation Pay and Sick Leave
11
<PAGE> 16
Pay. UCRI shall assume all liability for earned or accrued vacation pay and
banked or earned/accrued sick leave pay accrued by Foodservice Employees and
UCRI Employees through the Offer Closing Time. Vacation pay and sick leave for
Foodservice Employees after the Offer Closing Time will be provided pursuant to
Compass' vacation and sick leave policies.
SECTION 7.7 CHANGE OF PLAN SPONSOR. Prior to the Offer Closing Time,
International shall take such action as necessary to remove International or
Daka as sponsor and, if applicable, named fiduciary of the Benefit Plans listed
in Schedule 7.7, and name UCRI sponsor and named fiduciary of such Benefit
Plans.
SECTION 7.8 SEVERANCE PAY.
(a) The cessation of employment by individuals who, in connection
with the Distribution, cease to be employees of the International Group
and become employees of the UCRI Group, shall not be deemed a severance
of employment from either Group for purposes of any Benefit Plan that
provides for the payment of severance, salary continuation or similar
benefits. International, UCRI and Compass agree that none of the
transactions contemplated by this Agreement or the Merger Agreement
shall result in or be deemed a severance of employment from either Group
for purposes of any Benefit Plan other than the DAKA Savings Plan that
provides for payment of severance, salary continuation or similar
benefits and International shall take, or cause to be taken, all action
necessary and appropriate to amend the Daka International, Inc.
Severance Program for Eligible Associates (and any other similar Benefit
Plan) as may be necessary to assure compliance with this Section.
(b) UCRI and the UCRI Group shall assume and be solely responsible
for all liabilities and obligations whatsoever in connection with claims
for severance pay benefits without regard to when such claims are made
under the terms of the Daka International, Inc. Severance Pay Program
for Eligible Associates or any other severance plan or policy sponsored
by any member of the International Group prior to the Offering Closing
Time, including, without limitation, claims made by any individuals who,
in connection with the Distribution, cease to be employees of the
International Group, whether or not such individuals are offered or
accept employment with either Group. International shall be responsible
for the payment of severance pay benefits payable pursuant to any New
Welfare Plan that may be established after the Offer Closing Time to
provide severance pay benefits to Foodservice Employees at the time of
their termination.
SECTION 7.9 COLLECTIVE BARGAINING AGREEMENTS; LABOR RELATIONS MATTERS;
WITHDRAWAL LIABILITY.
(a) As of the Offer Closing Time, International and the
International Group shall retain and be responsible only for the
Collective Bargaining Agreements, and only to the extent such agreements
relate to the terms and conditions of employment of the Foodservice
Employees. UCRI and UCRI Group shall assume and be solely responsible
for all liabilities or claims made or arising under any collective
bargaining agreement covering the terms and conditions of any employee
of either Group relating to any period of time prior to the Offer
Closing Time, including, but not limited to, any back pay or benefits
due for periods prior to the Offer Closing Time as a result of good
faith bargaining without regard to when such agreement is reached.
(b) As of the Offer Closing Time, UCRI and the UCRI Group shall
assume and be solely responsible for any and all claims or proceedings
against International or Daka relating to the alleged violation of any
legal requirement pertaining to labor relations or employment matters,
including but not limited to any charge, claim or action or complaint
filed by an employee or union with the National Labor Relations Board,
the Equal Employment Opportunity Commission, the DOL or any other
federal or state body, any organizational activity or other labor or
unemployment dispute against International or Daka without regard to
when such charge, claim or action or complaint is brought or filed to
the extent that the allegations relate to any period prior to the Offer
Closing Time.
(c) As of the Offer Closing Time, UCRI and the UCRI Group shall
assume and be solely responsible for that portion of any withdrawal
liabilities arising at any time prior to and within five years following
the Offer Closing Time in connection with a Multiemployer Plan to which
International or Daka is required to contribute pursuant to the terms of
a Collective Bargaining Agreement listed on Schedule 7.9, which portion
is equal to the greater of (A) the "potential withdrawal liability"
disclosed in Schedule 4.2(l) of the Disclosure Schedule under Section
4.2(l) (i) of the Merger Agreement, if any amount is disclosed, and (B)
an amount that bears the same proportion to the total withdrawal
liability as the number of Foodservice Employees covered by such
Multiemployer Plan at the Offer Closing Time bears to the total number
of International or Daka
12
<PAGE> 17
employees covered by such Multiemployer Plan on the date of notification
by such plan of such withdrawal liability.
SECTION 7.10 PRESERVATION OF RIGHTS TO AMEND OR TERMINATE BENEFIT PLANS.
Subject to the provisions of this Article, no provision of this Agreement,
including the agreement of International or UCRI that it or any member of the
International Group or the UCRI Group will make a contribution or payment to or
under any Benefit Plan herein referred to for any period or the agreement of
Compass to permit participation in or provide similar benefits to Foodservice
Employees, shall be construed as a limitation on the right of International or
UCRI, or any member of the International Group or the UCRI Group, or of Compass,
to amend such Benefit Plan or terminate its participation therein or change the
level or value of benefits provided thereunder, and no provision of this
Agreement shall be construed to create a right in any employee or former
employee or beneficiary of such employee or former employee under a Benefit Plan
which such employee or former employee or beneficiary would not otherwise have
under the terms of the Benefit Plan itself. Notwithstanding the above, however,
International and UCRI each agree that it shall not make or cause to be made any
amendments to any Benefit Plan, nor shall it terminate any Benefit Plan, in a
manner which would violate the covenants set forth in this Agreement, except as
may be required to comply with applicable law, but subject to the provisions of
this Article.
SECTION 7.11 OTHER LIABILITIES. As of the Offer Closing Time, UCRI shall
assume and be solely responsible for all earned salaries, wages, bonuses,
severance payments or other current or deferred compensation retirement, welfare
or fringe benefits of all UCRI Employees, regardless of whether earned or
accrued before or after the Offer Closing Time and of all Foodservice Employees
to the extent earned or accrued prior to the Offer Closing Time.
SECTION 7.12 COMPLIANCE. Notwithstanding anything to the contrary in this
Article, to the extent any actions of the parties contemplated in this Article
are determined prior to the Distribution to violate law or result in unintended
tax liability for Foodservice Employees or UCRI Employees, such action may be
modified to avoid such violation of law or unintended tax liability.
ARTICLE VIII
TAX MATTERS
SECTION 8.1 TAX MATTERS. Notwithstanding anything to the contrary in this
Agreement, liabilities of the parties for Taxes (as defined in the Tax
Allocation Agreement) are subject to the terms of the Tax Allocation Agreement.
ARTICLE IX
CONDITIONS
SECTION 9.1 CONDITIONS TO OBLIGATIONS OF INTERNATIONAL. The obligations of
International to consummate the Contribution and the Distribution hereunder
shall be subject to the fulfillment of each of the following conditions:
(a) All of the transactions contemplated by Article II shall have
been consummated.
(b) Compass, Compass Holdings and Compass Interim shall have
performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing Date,
and International shall have received a certificate signed on behalf of
Compass by the chief executive officer and the chief financial officer
of Compass to such effect.
(c) International shall have received opinions of Smith Helms
Mulliss & Moore, L.L.P. and Freshfields, each dated the Closing Date, in
substantially the forms of EXHIBIT 9.1(C)(I) and EXHIBIT 9.1(C)(II),
respectively.
(d) Simultaneously with the Offer Closing, Compass shall have paid
to The Chase Manhattan Bank on behalf of International all Funded Debt
under the Credit Facility and secured a release of all Liens with
respect to Funded Debt.
(e) No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction
or other legal restraint or prohibition preventing the consummation of
the Contribution or the Distribution shall be in effect and no such
litigation or legal action shall have been threatened or shall be
pending. No action, suit or other proceeding shall be pending by any
Governmental Entity that, if successful, would restrict or prohibit the
consummation of the Contribution or the Distribution.
13
<PAGE> 18
(f) Any applicable waiting periods under the HSR Act or the
Exon-Florio Amendment shall have expired or been terminated.
(g) The Form 10 shall have been declared effective by the
Securities and Exchange Commission.
(h) Compass Holdings shall have accepted for payment pursuant to
the Offer a number of validly tendered shares of International Common
Stock which, when added to the shares of International Common Stock then
beneficially owned by Compass, Compass Holdings and its affiliates or
Compass Interim, constitutes two-thirds of the shares of International
Common Stock then outstanding and represents two-thirds of the voting
power of the shares of International Common Stock then outstanding on a
fully diluted basis on the date of purchase.
(i) The representations and warranties of Compass contained in the
Merger Agreement shall be true and correct in all material respects.
(j) No statute, rule, regulation, decree, order or injunction shall
have been promulgated, enacted, entered, or enforced or any legal or
administrative proceeding initiated by any United States federal or
state government, governmental authority or court which would prohibit
the consummation of the Contribution, the Distribution, the Offer, or
the Merger.
(k) There shall not have been a Material Adverse Change (as defined
in the Merger Agreement) or any event that could reasonably be expected
to result in a Material Adverse Change.
(l) Allen Maxwell shall have entered into an employment agreement
with International and Daka in form and substance satisfactory to
Compass and Allen Maxwell shall not have indicated to International,
Daka or Compass that he does not intend to abide by the terms of such
agreement.
(m) Compass shall have paid to International the amount due under
Section 6.7(b) of the Merger Agreement.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 FURTHER ASSURANCES. Each party hereto shall cooperate
reasonably with the other parties, and execute and deliver, or use its
reasonable best efforts to cause to be executed and delivered, all instruments,
including instruments of conveyance, assignment and transfer, and to make all
filings with, and to obtain all consents, approvals or authorizations of, any
governmental or regulatory authority or any other Person under any permit,
license, agreement, indenture or other instrument, and take all such other
actions as such party may reasonably be requested to take by any other party
hereto from time to time, consistent with the terms of this Agreement, in order
to effectuate the provisions and purposes of this Agreement and the transfers of
assets and Liabilities and the other transactions contemplated hereby or in any
of the Ancillary Agreements.
SECTION 10.2 SURVIVAL OF AGREEMENTS. All covenants and agreements of the
parties hereto contained in this Agreement shall survive the Offer Closing Time.
SECTION 10.3 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules
hereto, the Merger Agreement and the Ancillary Agreements shall constitute the
entire agreement between the parties hereto with respect to the subject matter
hereof, superseding all previous negotiations, commitments and writings with
respect to such subject matter.
SECTION 10.4 EXPENSES. All fees and expenses incurred in connection with
the Merger, the Distribution, this Agreement, the Merger Agreement and the
transactions contemplated by this Agreement, the Merger Agreement and the
Ancillary Agreements shall be paid in accordance with Section 6.1 of the Merger
Agreement and Section 3.4 of the Post-Closing Covenants Agreement, whether or
not the Distribution is consummated.
SECTION 10.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE,
WITHOUT REGARD TO ITS CONFLICTS OF LAW PRINCIPLES, AS TO ALL MATTERS, INCLUDING
MATTERS OF VALIDITY, CONSTRUCTION, EFFECT, PERFORMANCE AND REMEDIES.
14
<PAGE> 19
SECTION 10.6 NOTICES. Any notice, request, instruction or other document to
be given hereunder by any party to any other party shall be in writing and shall
be deemed to have been duly given (a) on the first business day occurring on or
after the date of transmission if transmitted by facsimile (upon confirmation of
receipt by journal or report generated by the facsimile machine of the party
giving such notice), (b) on the first business day occurring on or after the
date of delivery if delivered personally, or (c) on the first business day
following the date of dispatch if dispatched by Federal Express or other
next-day courier service. All notices hereunder shall be given as set forth
below, or pursuant to such other instructions as may be designated in writing by
the party to receive such notice:
If to a member of the International Group or Compass:
Compass Group USA, Inc.
2400 Yorkmont Road
Charlotte, North Carolina 28217
Attention: General Counsel
If to a member of the UCRI Group:
Daka International, Inc.
One Corporate Place
55 Ferncroft Road
Danvers, Massachusetts 01923-4001
Attention: General Counsel
SECTION 10.7 AMENDMENT AND MODIFICATION. This Agreement may be amended,
modified or supplemented, and rights hereunder may be waived, only by a written
agreement signed by International, UCRI, Daka and Compass. No waiver of any
term, provision or condition of or failure to exercise or delay in exercising
any rights or remedies under this Agreement, in one or more instances, shall be
deemed to be, or construed as, a further or continuing waiver of such term,
provision, condition, right or remedy or as a waiver of any other term,
provision or condition of, or right or remedy under, this Agreement.
SECTION 10.8 SUCCESSORS AND ASSIGNS; NO THIRD-PARTY BENEFICIARIES. This
Agreement and all of the provisions hereof shall be binding upon and inure to
the benefit of each party hereto and each of their respective successors and
permitted assigns, which shall include the entity resulting from the Merger, but
neither this Agreement nor any of the rights, interests and obligations
hereunder shall be assigned by (i) the UCRI Group without the prior written
consent of Compass or the International Group (which consent shall not be
unreasonably withheld) and (ii) the International Group or Compass, as the case
may be, without the prior written consent of the UCRI Group (which consent shall
not be unreasonably withheld). This Agreement is solely for the benefit of each
Group and is not intended to confer upon any other Person any rights or remedies
hereunder. The covenants and agreements of UCRI and its Subsidiaries contained
herein are an inducement to Compass and International to enter into the Merger
and may be endorsed by either entity following the Contribution and Distribution
and the Merger.
SECTION 10.9 ENFORCEMENT.
(a) SPECIFIC PERFORMANCE. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions of this
Agreement, this being in addition to any other remedy to which they are
entitled at law or in equity.
(b) JURISDICTION. To the extent a court action is authorized above,
the parties hereby consent to the jurisdiction of the United States
District Court of Delaware. Each of the parties waives personal service
to any and all process upon them and each consent that all such service
of process be made by certified mail directed to them at their address
shown in Section 10.6 hereof. THE PARTIES WAIVE TRIAL BY JURY AND WAIVE
ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER.
SECTION 10.10 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 10.11 INTERPRETATION. When a reference is made in this Agreement to
a Section, Exhibit or Schedule, such reference shall be to a Section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
15
<PAGE> 20
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
SECTION 10.12 TERMINATION. In the event the Merger Agreement is terminated,
notwithstanding any provision hereof, this Agreement may be terminated and the
Distribution abandoned at any time prior to the Offer Closing Time by and in the
sole discretion of the International Board without the approval of any other
party hereto or of International's shareholders. In the event of such
termination, no party hereto shall have any Liability to any Person by reason of
this Agreement.
16
<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
DAKA INTERNATIONAL, INC.
By: /s/ DONALD C. MOORE
DONALD C. MOORE
SENIOR VICE PRESIDENT
UNIQUE CASUAL RESTAURANTS, INC.
By: /s/ DONALD C. MOORE
DONALD C. MOORE
SENIOR VICE PRESIDENT
DAKA, INC.
By: /s/ DONALD C. MOORE
DONALD C. MOORE
SENIOR VICE PRESIDENT
COMPASS GROUP PLC
By: /s/ MICHAEL J. BAILEY
MICHAEL J. BAILEY
DIRECTOR
COMPASS HOLDINGS, INC.
By: /s/ MICHAEL J. BAILEY
MICHAEL J. BAILEY
DIRECTOR
17
<PAGE> 1
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
UNIQUE CASUAL RESTAURANTS, INC.
1. The name of the corporation is Unique Casual Restaurants, Inc.
2. The address of its registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
3. The purpose of the corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of Delaware.
4. The total number of shares of stock which the corporation
shall have authority to issue is Three Thousand (3,000) shares of Common Stock.
The par value of each of share is $.01.
5. The name and mailing address of the incorporator is as
follows:
Name Mailing Address
---- ---------------
Eric G. Kevorkian c/o Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
The powers of the incorporator shall terminate upon the filing of this
Certificate of Incorporation.
6. The name and mailing address of each person who is to serve as
a director until the first annual meeting of the stockholders or until a
successor is elected and qualified, is as follows:
Name Mailing Address
---- ---------------
William H. Baumhauer c/o DAKA International, Inc.
One Corporate Place
55 Ferncroft Road
Danvers, MA 01923-4001
7. In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized to adopt, amend or
repeal the by-laws of the corporation.
<PAGE> 2
8. Elections of directors need not be by written ballot unless
the by-laws of the corporation shall so provide.
9. A director of the corporation shall not be personally liable
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived any
improper personal benefit. No amendment or repeal of this Section shall
adversely affect the rights and protection afforded to a director of the
corporation under this Section for acts or omissions occurring prior to such
amendment or repeal.
10. No action on a matter to be taken by stockholders without a
meeting under Section 228 of the Delaware General Corporation Law may be taken
without the written consent of the holders of all of the outstanding stock
entitled to vote on the matter.
11. The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
12. Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
2
<PAGE> 3
THE UNDERSIGNED incorporator, for the purpose of forming a corporation
pursuant to the General Corporation Law of the State of Delaware, does hereby
make this certificate, hereby declaring and certifying that it is his free act
and deed and the facts herein stated are true, and accordingly he has hereunto
set his hand this 27th day of May, 1997.
/s/ Eric G. Kevorkian, Esq.
---------------------------
Eric G. Kevorkian, Esq.
3
<PAGE> 1
Exhibit 3.2
BY-LAWS
of
UNIQUE CASUAL RESTAURANTS, INC.
ARTICLE I
---------
STOCKHOLDERS
------------
1. ANNUAL MEETING. The annual meeting of stockholders shall be held on
the first day of October in each year after 1997 (or if that be a legal holiday
in the place where the meeting is to be held, on the next succeeding full
business day) at the principal office of the corporation at 10:00 A.M. unless a
different hour or place within or without the State of Delaware is fixed by the
Board of Directors or the President or Chairman. The purposes for which the
annual meeting is to be held, in addition to those prescribed by law, by the
Certificate of Incorporation or by these By-laws, may be specified by the Board
of Directors or the President or Chairman. If no annual meeting has been held on
the date fixed above, a special meeting in lieu thereof may be held or there may
be action by written consent of the stockholders on matters to be voted on at
the annual meeting, and such special meeting or written consent shall have for
the purposes of these By-Laws or otherwise all the force and effect of an annual
meeting.
2. SPECIAL MEETINGS. Special meetings of stockholders may be called by
the President or Chairman or by the Board of Directors. Special meetings shall
be called by the Secretary, or in case of death, absence, incapacity or refusal
of the Secretary, by any other officer, upon written application of one or more
stockholders who hold at least twenty-five percent in interest of the capital
stock entitled to vote at such meeting. The call for the meeting shall state the
place, date, hour and purposes of the meeting. Only the purposes specified in
the notice of special meeting shall be considered or dealt with at such special
meeting.
3. NOTICE OF MEETINGS. A written notice stating the place, date and hour
of all meetings of stockholders, and in the case of special meetings, the
purposes of the meeting shall be given by the Secretary (or other person
authorized by these By-Laws or by law) not less than ten nor more than sixty
days before the meeting to each stockholder entitled to vote thereat and to each
stockholder who, under the Certificate of Incorporation or under these By-laws
is entitled to such notice, by delivering such notice to him or by mailing it,
postage prepaid, and addressed to such stockholder at his address as it appears
in the records of the corporation. Notice need not be given to a stockholder if
a written waiver of notice is executed before or after the meeting by such
stockholder, if communication with such stockholder is unlawful, or if such
stockholder attends the meeting in question, unless such attendance was for the
express purpose of objecting, at the beginning of the meeting, to the
<PAGE> 2
transaction of any business because the meeting was not lawfully called or
convened. If a meeting is adjourned to another time or place, notice need not be
given of the adjourned meeting if the time and place are announced at the
meeting at which the adjournment is taken, except that if the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
4. QUORUM. The holders of a majority in interest of all stock issued,
outstanding and entitled to vote at a meeting shall constitute a quorum. Any
meeting may be adjourned from time to time by a majority of the votes properly
cast upon the question, whether or not a quorum is present. The stockholders
present at a duly constituted meeting may continue to transact business until
adjournment notwithstanding the withdrawal of enough stockholders to reduce the
voting shares below a quorum.
5. VOTING AND PROXIES. Stockholders shall have one vote for each share of
stock entitled to vote owned by them of record according to the books of the
corporation unless otherwise provided by law or by the Certificate of
Incorporation. Stockholders may vote either in person or by written proxy or
express directly or by written proxy their consent or dissent to a corporate
action taken without a meeting, but no proxy shall be voted or acted upon after
three years from its date, unless the proxy provides for a longer period or is
irrevocable and coupled with an interest. Proxies shall be filed with the
Secretary of the meeting, or of any adjournment thereof. Except as otherwise
limited therein, proxies shall entitle the persons authorized thereby to vote at
any adjournment of such meeting.
6. ACTION AT MEETING. When a quorum is present, any matter before the
meeting shall be decided by vote of the holders of a majority of the shares of
stock voting on such matter except where a larger vote is required by law, by
the Certificate of Incorporation or by these By-laws. Any election by
stockholders shall be determined by a plurality of the votes cast, except where
a larger vote is required by law, by the Certificate of Incorporation or by
these By-laws. The corporation shall not directly or indirectly vote any share
of its own stock; provided, however, that the corporation may vote shares which
it holds in a fiduciary capacity to the extent permitted by law.
7. ACTION WITHOUT A MEETING. Any action required or permitted by law to
be taken at any annual or special meeting of stockholders, may be taken without
a meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holders of
all of the outstanding shares of stock entitled to vote on the matter
[outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted] and shall be delivered to the
corporation by delivery to its registered office, by hand or by certified mail,
return receipt requested or to the corporation's principal place of business or
to the officer of the corporation having custody of the minute book. Every
written consent shall bear the date of signature and no written consent shall be
effective unless, within sixty days of the earliest dated consent delivered
pursuant to these
2
<PAGE> 3
By-laws, written consents signed by all of the stockholders entitled to take
action are delivered to the corporation in the manner set forth in these
By-laws.
8. STOCKHOLDER LISTS. The officer who has charge of the stock ledger of
the corporation shall prepare and make, at least ten days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
ARTICLE II
----------
DIRECTORS
---------
1. POWERS. The business of the corporation shall be managed by or under
the direction of a Board of Directors who may exercise all the powers of the
corporation except as otherwise provided by law, by the Certificate of
Incorporation or by these By-laws. In the event of a vacancy in the Board of
Directors, the remaining Directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
2. ELECTION AND QUALIFICATION. Unless otherwise provided in the
Certificate of Incorporation or in these By-laws, the number of Directors which
shall constitute the whole board shall be determined by vote of the Board of
Directors or by the stockholders at the annual meeting. Directors need not be
stockholders.
3. VACANCIES; REDUCTION OF BOARD. A majority of the Directors then in
office, although less than a quorum, or a sole remaining Director, may fill
vacancies in the Board of Directors occurring for any reason and newly created
directorships resulting from any increase in the authorized number of Directors.
In lieu of filling any vacancy the stockholders or the Board of Directors may
reduce the number of Directors.
4. ENLARGEMENT OF THE BOARD. The Board of Directors may be enlarged by
the stockholders at any meeting or by vote of a majority of the Directors then
in office.
5. TENURE. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-laws, Directors shall hold office until their
successors are elected and qualified or until their earlier resignation or
removal. Any Director may resign by delivering his written resignation to the
corporation. Such resignation shall be effective upon
3
<PAGE> 4
receipt unless it is specified to be effective at some other time or upon the
happening of some other event.
6. REMOVAL. To the extent permitted by law, a Director may be removed
from office with or without cause by vote of the holders of a majority of the
shares of stock entitled to vote in the election of Directors. A Director may be
removed for cause only after reasonable notice and opportunity to be heard
before the body proposing to remove him.
7. MEETINGS. Regular meetings of the Board of Directors may be held
without notice at such time, date and place as the Board of Directors may from
time to time determine. Special meetings of the Board of Directors may be
called, orally or in writing, by the President, Chairman, Treasurer or two or
more Directors, designating the time, date and place thereof. Directors may
participate in meetings of the Board of Directors by means of conference
telephone or similar communications equipment by means of which all Directors
participating in the meeting can hear each other, and participation in a meeting
in accordance herewith shall constitute presence in person at such meeting.
8. NOTICE OF MEETINGS. Notice of the time, date and place of all special
meetings of the Board of Directors shall be given to each Director by the
Secretary, or Assistant Secretary, or in case of the death, absence, incapacity
or refusal of such persons, by the officer or one of the Directors calling the
meeting. Notice shall be given to each Director in person or by telephone or by
telegram sent to his business or home address at least twenty-four hours in
advance of the meeting, or by written notice mailed to his business or home
address at least forty-eight hours in advance of the meeting. Notice need not be
given to any Director if a written waiver of notice is executed by him before or
after the meeting, or if communication with such Director is unlawful. A notice
or waiver of notice of a meeting of the Board of Directors need not specify the
purposes of the meeting.
9. QUORUM. At any meeting of the Board of Directors, a majority of the
Directors then in office shall constitute a quorum. Less than a quorum may
adjourn any meeting from time to time and the meeting may be held as adjourned
without further notice.
10. ACTION AT MEETING. At any meeting of the Board of Directors at which a
quorum is present, a majority of the Directors present may take any action on
behalf of the Board of Directors, unless a larger number is required by law, by
the Certificate of Incorporation or by these By-laws.
11. ACTION BY CONSENT. Any action required or permitted to be taken at any
meeting of the Board of Directors may be taken without a meeting if a written
consent thereto is signed by all the Directors and filed with the records of the
meetings of the Board of Directors. Such consent shall be treated as a vote of
the Board of Directors for all purposes.
12. COMMITTEES. The Board of Directors, by vote of a majority of the
Directors then in office, may establish one or more committees, each committee
to consist of one or
4
<PAGE> 5
more Directors, and may delegate thereto some or all of its powers except those
which by law, by the Certificate of Incorporation, or by these By-laws may not
be delegated. Except as the Board of Directors may otherwise determine, any such
committee may make rules for the conduct of its business, but in the absence of
such rules its business shall be conducted so far as possible in the same manner
as is provided in these By-laws for the Board of Directors. All members of such
committees shall hold their committee offices at the pleasure of the Board of
Directors, and the Board may abolish any committee at any time. Each such
committee shall report its action to the Board of Directors who shall have power
to rescind any action of any committee without retroactive effect.
ARTICLE III
-----------
OFFICERS
--------
1. ENUMERATION. The officers of the corporation shall consist of a
Chairman, a President, a Treasurer, a Secretary, and such other officers,
including one or more Vice Chairmen, Vice Presidents, Assistant Treasurers and
Assistant Secretaries, as the Board of Directors may determine.
2. ELECTION. The Chairman, President, Treasurer and Secretary shall be
elected annually by the Board of Directors at their first meeting following the
annual meeting of stockholders. Other officers may be chosen by the Board of
Directors at such meeting or at any other meeting.
3. QUALIFICATION. No officer need be a stockholder or Director. Any two
or more offices may be held by the same person. Any officer may be required by
the Board of Directors to give bond for the faithful performance of his duties
in such amount and with such sureties as the Board of Directors may determine.
4. TENURE. Except as otherwise provided by the Certificate of
Incorporation or by these By-laws, each of the officers of the corporation shall
hold his office until his successor is elected and qualified or until his
earlier resignation or removal. Any officer may resign by delivering his written
resignation to the corporation, and such resignation shall be effective upon
receipt unless it is specified to be effective at some other time or upon the
happening of some other event.
5. REMOVAL. The Board of Directors may remove any officer with or without
cause by a vote of a majority of the entire number of Directors then in office;
provided, that an officer may be removed for cause only after reasonable notice
and opportunity to be heard by the Board of Directors.
6. VACANCIES. Any vacancy in any office may be filled for the unexpired
portion of the term by the Board of Directors.
5
<PAGE> 6
7. CHAIRMAN OF THE BOARD AND VICE CHAIRMAN. The Chairman of the Board
shall be the chief executive officer of the corporation and shall have general
supervision and control of its business and affairs, subject to the direction of
the Board of Directors. Unless otherwise provided by the Board of Directors, the
Chairman shall preside, when present, at all meetings of the stockholders and
the Board of Directors.
Any Vice Chairman of the Board shall have such powers and shall perform
such duties as the Board of Directors may from time to time designate.
8. PRESIDENT AND VICE PRESIDENTS. The President shall have general charge
of the corporation's business operations, subject to the direction of the Board
of Directors. In the absence of the Chairman, the President shall preside, when
present, at all meetings of stockholders and the Board of Directors. The Board
of Directors shall have the authority to appoint a temporary presiding officer
to serve at any meeting of the stockholders or Board of Directors if the
Chairman or the President is unable to do so for any reason.
Any Vice President shall have such powers and shall perform such duties as
the Board of Directors may from time to time designate. In the absence of the
President or in the event of his inability or refusal to act, the Vice President
(or in the event there be more than one Vice President, the Vice Presidents in
the order designated by the directors, or in the absence of any designation,
then in the order of their election) shall perform the duties of the President,
and when so acting, shall have all the powers and responsibility of and be
subject to all the restrictions upon the President.
9. TREASURER AND ASSISTANT TREASURERS. The Treasurer shall, subject to
the direction of the Board of Directors, have general charge of the financial
affairs of the corporation and shall cause to be kept accurate books of account.
He shall have custody of all funds, securities, and valuable documents of the
corporation, except as the Board of Directors may otherwise provide.
Any Assistant Treasurer shall have such powers and perform such duties as
the Board of Directors may from time to time designate.
10. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall record the
proceedings of all meetings of the stockholders and the Board of Directors in
books kept for that purpose. In his absence from any such meeting an Assistant
Secretary, or if he is absent, a temporary secretary chosen at the meeting,
shall record the proceedings thereof.
The Secretary shall have charge of the stock ledger (which may, however, be
kept by any transfer or other agent of the corporation) and shall have such
other duties and powers as may be designated from time to time by the Board of
Directors or the President.
Any Assistant Secretary shall have such powers and perform such duties as
the Board of Directors may from time to time designate.
6
<PAGE> 7
11. OTHER POWERS AND DUTIES. Subject to these By-laws, each officer of the
corporation shall have in addition to the duties and powers specifically set
forth in these By-laws, such duties and powers as are customarily incident to
his office, and such duties and powers as may be designated from time to time by
the Board of Directors.
ARTICLE IV
----------
CAPITAL STOCK
-------------
1. CERTIFICATES OF STOCK. Each stockholder shall be entitled to a
certificate of the capital stock of the corporation in such form as may from
time to time be prescribed by the Board of Directors. Such certificate shall be
signed by the Chairman, Vice Chairman, President or a Vice President and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary.
Such signatures may be facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed on such
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the corporation with the
same effect as if he were such officer, transfer agent or registrar at the time
of its issue. Every certificate for shares of stock which are subject to any
restriction on transfer and every certificate issued when the corporation is
authorized to issue more than one class or series of stock shall contain such
legend with respect thereto as is required by law. The corporation shall be
permitted to issue fractional shares.
2. TRANSFERS. Subject to any restrictions on transfer, shares of stock
may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate therefor properly endorsed
or accompanied by a written assignment or power of attorney properly executed,
with transfer stamps (if necessary) affixed, and with such proof of the
authenticity of signature as the corporation or its transfer agent may
reasonably require.
3. RECORD HOLDERS. Except as may otherwise be required by law, by the
Certificate of Incorporation or by these By-laws, the corporation shall be
entitled to treat the record holder of stock as shown on its books as the owner
of such stock for all purposes, including the payment of dividends and the right
to vote with respect thereto, regardless of any transfer, pledge or other
disposition of such stock, until the shares have been transferred on the books
of the corporation in accordance with the requirements of these By-laws.
It shall be the duty of each stockholder to notify the corporation of his
post office address.
4. RECORD DATE. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to consent to corporate action in writing without a
meeting, or entitled to receive payment of any
7
<PAGE> 8
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not precede the date on which it is
established, and which shall not be more than sixty nor less than ten days
before the date of such meeting, more than ten days after the date on which the
record date for stockholder consent without a meeting is established, nor more
than sixty days prior to any other action. In such case only stockholders of
record on such record date shall be so entitled notwithstanding any transfer of
stock on the books of the corporation after the record date.
If no record date is fixed, (a) the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held, (b) the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors is necessary,
shall be the first date on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the corporation by delivery
to its registered office in this state, to its principal place of business, or
to an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded, and (c) the record date
for determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto.
5. REPLACEMENT OF CERTIFICATES. In case of the alleged loss, destruction
or mutilation of a certificate of stock, a duplicate certificate may be issued
in place thereof, upon such terms as the Board of Directors may prescribe.
ARTICLE V
---------
INDEMNIFICATION
---------------
1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The corporation shall
indemnify, to the fullest extent permitted by the General Corporation Law of the
State of Delaware any person who was or is a party or is threatened to be made a
party to or is otherwise involved in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative,
investigative or otherwise, and whether by or in the right of the corporation,
its stockholders, a third party or otherwise (a "Proceeding"), by reason of the
fact that he is or was a Director or officer of the corporation, or is or was a
Director or officer of the corporation serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against all expense (including, but not limited to,
attorneys' fees), liability, loss, judgments, fines, excise taxes, penalties and
amounts paid in settlement actually and reasonably incurred by him in connection
with such Proceeding, including expenses incurred in seeking such
indemnification. In addition, the corporation shall grant such indemnification
to each of its Directors and officers with respect to
8
<PAGE> 9
any matter in a Proceeding as to which his liability is limited pursuant to
Section 9 of the Certificate of Incorporation of the corporation. However, such
indemnification shall exclude (i) indemnification with respect to any improper
personal benefit which a Director or officer is determined to have received and
of the expenses of defending against an improper personal benefit claim unless
the Director or officer is successful on the merits in said defense, and (ii)
indemnification of present or former officers, directors, employees or agents of
a constituent corporation absorbed in a merger or consolidation transaction with
this corporation with respect to their activities prior to said transaction,
unless specifically authorized by the Board of Directors or stockholders of this
corporation. Such indemnification shall include prompt payment of expenses
incurred by a Director or officer in defending a Proceeding in advance of the
final disposition of such Proceeding, upon receipt of an undertaking by or on
behalf of the Director or officer to repay such amounts if it shall ultimately
be determined that he is not entitled to be indemnified by the corporation under
this Article V, which undertaking shall be an unsecured general obligation of
the Director or officer and may be accepted without regard to his ability to
make repayment.
2. INDEMNIFICATION OF EMPLOYEES AND AGENTS. The corporation may, to the
extent authorized from time to time by the Board of Directors, grant rights to
indemnification and to an advancement of expenses, pursuant to the provisions of
this Article V, to any person who was or is a party or is threatened to be made
a party to or is otherwise involved in any Proceeding by reason of the fact that
he is or was an employee or agent of the corporation or is or was serving at the
request of the corporation, as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise.
3. NATURE OF INDEMNIFICATION RIGHTS. The indemnification rights provided
in this Article V shall be a contract right and shall not be deemed exclusive of
any other rights to which any person, whether or not entitled to be indemnified
hereunder, may be entitled under any statute, by-law, agreement, vote of
stockholders or Directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a Director, officer, employee
or agent and inure to the benefit of the heirs, executors and administrators of
such a person. A Director or officer shall be entitled to the benefit of any
amendment of the Delaware General Corporation Law which enlarges indemnification
rights hereunder, but any such amendment which adversely affects indemnification
rights with respect to prior activities shall not apply to him without his
consent unless otherwise required by law. Each person who is or becomes a
Director or officer of the corporation shall be deemed to have served or to have
continued to serve in such capacity in reliance upon the indemnity provided for
in this Article V.
4. AMENDMENT. The provisions of this Article may be amended as provided
in Article VI; however, no amendment or repeal of such provisions which
adversely affects the rights of a Director or officer under this Article V with
respect to his acts or omissions prior to such amendment or repeal, shall apply
to him without his consent.
9
<PAGE> 10
ARTICLE VI
----------
MISCELLANEOUS PROVISIONS
------------------------
1. FISCAL YEAR. Except as otherwise determined by the Board of Directors,
the fiscal year of the corporation shall end on June 30 of each year.
2. SEAL. The Board of Directors shall have power to adopt and alter the
seal of the corporation.
3. EXECUTION OF INSTRUMENTS. All deeds, leases, transfers, contracts,
bonds, notes and other obligations authorized to be executed by an officer of
the corporation in its behalf shall be signed by the Chairman, President or
Treasurer, or by any other officer of the corporation designated by the Board of
Directors, except as the Board of Directors may generally or in particular cases
otherwise determine.
4. VOTING OF SECURITIES. Unless otherwise provided by the Board of
Directors, the Chairman or President or Treasurer may waive notice of and act on
behalf of this corporation, or appoint another person or persons to act as proxy
or attorney in fact for this corporation with or without discretionary power
and/or power of substitution, at any meeting of stockholders or shareholders of
any other corporation or organization, any of whose securities are held by this
corporation.
5. RESIDENT AGENT. The Board of Directors may appoint a resident agent
upon whom legal process may be served in any action or proceeding against the
corporation.
6. CORPORATE RECORDS. The original or attested copies of the Certificate
of Incorporation, By-laws and records of all meetings of the incorporators,
stockholders and the Board of Directors and the stock and transfer records,
which shall contain the names of all stockholders, their record addresses and
the amount of stock held by each, shall be kept at the principal office of the
corporation, at the office of its counsel, or at an office of its transfer
agent.
7. CERTIFICATE OF INCORPORATION. All references in these By-laws to the
Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
8. AMENDMENTS. These By-laws may be amended or repealed or additional
By-laws adopted by the stockholders or by the Board of Directors; provided, that
(a) the Board of Directors may not amend or repeal Article V or this Section 8
of Article VI or any provision of these By-laws which by law, by the Certificate
of Incorporation or by these By-laws requires action by the stockholders, (b)
any amendment or repeal of these By-laws by the Board of Directors and any
By-law adopted by the Board of Directors may be amended or repealed by the
stockholders.
10
<PAGE> 1
Exhibit 3.3
FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
UNIQUE CASUAL RESTAURANTS, INC.
Unique Casual Restaurants, Inc., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
1. The name of the Corporation is Unique Casual Restaurants, Inc. The
date of the filing of its original Certificate of Incorporation with the
Secretary of State of the State of Delaware was May 27, 1997. The name under
which the Corporation filed its original Certificate of Incorporation was Unique
Casual Restaurants, Inc.
2. This Amended and Restated Certificate of Incorporation amends,
restates and integrates the provisions of the Certificate of Incorporation of
the Corporation filed with the Secretary of State of the State of Delaware on
May 27, 1997 (the "Certificate of Incorporation"), was duly adopted by the Board
of Directors of the Corporation in accordance with the provisions of Sections
141(f), 242 and 245 of the General Corporation Law of the State of Delaware (the
"DGCL") and was duly adopted by the written consent of the sole stockholder of
the Corporation in accordance with the applicable provisions of Sections 228,
242 and 245 of the DGCL.
3. The text of the Certificate of Incorporation is hereby amended and
restated in its entirety to provide as herein set forth in full.
ARTICLE I
NAME
----
The name of the Corporation is Unique Casual Restaurants, Inc.
ARTICLE II
REGISTERED OFFICE
-----------------
The address of the registered office of the Corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
<PAGE> 2
ARTICLE III
PURPOSES
--------
The nature of the business or purposes to be conducted or promoted by
the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the DGCL.
ARTICLE IV
CAPITAL STOCK
-------------
SECTION 1. NUMBER OF SHARES.
The total number of shares of capital stock which the Corporation shall
have the authority to issue is 35,000,000 shares, of which (a) 5,000,000 shares
shall be preferred stock, par value $.01 per share (the "Undesignated Preferred
Stock") and (b) 30,000,000 shares shall be common stock, par value $.01 per
share (the "Common Stock"). As set forth in this Article IV, the Board of
Directors or any authorized committee thereof is authorized from time to time to
establish and designate one or more series of Undesignated Preferred Stock, to
fix and determine the variations in the relative rights and preferences as
between the different series of Undesignated Preferred Stock in the manner
hereinafter set forth in this Article IV, and to fix or alter the number of
shares comprising any such series and the designation thereof to the extent
permitted by law.
The number of authorized shares of the class of Undesignated Preferred
Stock may be increased or decreased (but not below the number of shares
outstanding) by the affirmative vote of the holders of a majority of the Common
Stock entitled to vote, without a vote of the holders of the Undesignated
Preferred Stock, pursuant to the resolution or resolutions establishing the
class of Undesignated Preferred Stock or this Amended and Restated Certificate
of Incorporation, as it may be amended from time to time.
SECTION 2. GENERAL.
The designations, powers, preferences and rights of, and the
qualifications, limitations and restrictions upon, each class or series of stock
shall be determined in accordance with, or as set forth below in, Sections 3 and
4 of this Article IV.
2
<PAGE> 3
SECTION 3. COMMON STOCK.
Subject to all of the rights, powers and preferences of the
Undesignated Preferred Stock, and except as provided by law or in this Article
IV (or in any certificate of designation of any series of Undesignated Preferred
Stock) or by the Board of Directors or any authorized committee thereof pursuant
to this Article IV:
(a) the holders of the Common Stock shall have the exclusive
right to vote for the election of directors and on all other matters requiring
stockholder action, each share being entitled to one vote;
(b) dividends may be declared and paid or set apart for
payment upon the Common Stock out of any assets or funds of the Corporation
legally available for the payment of dividends, but only when and as declared by
the Board of Directors or any authorized committee thereof; and
(c) upon the voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, the net assets of the Corporation shall be
distributed pro rata to the holders of the Common Stock in accordance with their
respective rights and interests.
SECTION 4. UNDESIGNATED PREFERRED STOCK.
Subject to any limitations prescribed by law, the Board of Directors or
any authorized committee thereof is expressly authorized to provide for the
issuance of the shares of Undesignated Preferred Stock in one or more series of
such stock, and by filing a certificate pursuant to applicable law of the State
of Delaware, to establish or change from time to time the number of shares to be
included in each such series, and to fix the designations, powers, preferences
and the relative, participating, optional or other special rights of the shares
of each series and any qualifications, limitations and restrictions thereof. Any
action by the Board of Directors or any authorized committee thereof under this
Section 4 shall require the affirmative vote of a majority of the directors then
in office or a majority of the members of such committee. The Board of Directors
or any authorized committee thereof shall have the right to determine or fix one
or more of the following with respect to each series of Undesignated Preferred
Stock to the extent permitted by law:
(a) The distinctive serial designation and the number of
shares constituting such series;
(b) The dividend rates or the amount of dividends to be paid
on the shares of such series, whether dividends shall be cumulative and, if so,
from which date or dates, the payment date or dates for dividends, and the
participating and other rights, if any, with respect to dividends;
3
<PAGE> 4
(c) The voting powers, full or limited, if any, of the shares
of such series;
(d) Whether the shares of such series shall be redeemable and,
if so, the price or prices at which, and the terms and conditions on which, such
shares may be redeemed;
(e) The amount or amounts payable upon the shares of such
series and any preferences applicable thereto in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation;
(f) Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such fund and the
manner of its application, including the price or prices at which such shares
may be redeemed or purchased through the application of such fund;
(g) Whether the shares of such series shall be convertible
into, or exchangeable for, shares of any other class or classes or of any other
series of the same or any other class or classes of stock of the Corporation
and, if so convertible or exchangeable, the conversion price or prices, or the
rate or rates of exchange, and the adjustments thereof, if any, at which such
conversion or exchange may be made, and any other terms and conditions of such
conversion or exchange;
(h) The price or other consideration for which the shares of
such series shall be issued;
(i) Whether the shares of such series which are redeemed or
converted shall have the status of authorized but unissued shares of
Undesignated Preferred Stock (or series thereof) and whether such shares may be
reissued as shares of the same or any other class or series of stock; and
(j) Such other powers, preferences, rights, qualifications,
limitations and restrictions thereof as the Board of Directors or any authorized
committee thereof may deem advisable.
ARTICLE V
STOCKHOLDER ACTION
------------------
Any action required or permitted to be taken by the stockholders of the
Corporation at any annual or special meeting of stockholders of the Corporation
must be effected at a duly called annual or special meeting of stockholders and
may not be taken or effected by a written consent of stockholders in lieu
thereof.
4
<PAGE> 5
ARTICLE VI
DIRECTORS
---------
SECTION 1. GENERAL.
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors except as otherwise provided
herein or required by law.
SECTION 2. ELECTION OF DIRECTORS.
Election of directors need not be by written ballot unless the By-laws
of the Corporation shall so provide.
SECTION 3. TERMS OF DIRECTORS.
The number of directors of the Corporation shall be fixed by resolution
duly adopted from time to time by the Board of Directors. The directors, other
than those who may be elected by the holders of any series of Undesignated
Preferred Stock of the Corporation, shall be classified, with respect to the
term for which they severally hold office, into three classes, as nearly equal
in number as possible. The initial Class I Directors of the Corporation shall be
E.L. Cox and Allen R. Maxwell; the initial Class II Directors of the Corporation
shall be Erline Belton, Joseph W. O'Donnell and Dean P. Vlahos; and the initial
Class III Directors of the Corporation shall be William H. Baumhauer and Alan D.
Schwartz. The initial Class I Directors shall serve for a term expiring at the
annual meeting of stockholders to be held in 1997; the initial Class II
Directors shall serve for a term expiring at the annual meeting of stockholders
to be held in 1998; and the initial Class III Directors shall serve for a term
expiring at the annual meeting of stockholders to be held in 1999. At each
annual meeting of stockholders, the successor or successors of the class of
directors whose term expires at that meeting shall be elected by a plurality of
the votes of the shares present in person or represented by proxy at such
meeting and entitled to vote on the election of directors, and shall hold office
for a term expiring at the annual meeting of stockholders held in the third year
following the year of their election. The directors elected to each class shall
hold office until their successors are duly elected and qualified or until their
earlier resignation or removal.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
Article IV of this Amended and Restated Certificate of Incorporation, the
holders of any one or more series of Undesignated Preferred Stock shall have the
right, voting separately as a series or together with holders of other such
series, to elect directors at an annual or special meeting of stockholders, the
election, term of office, filling of vacancies and other features of such
directorships shall be governed by the terms of this Amended and Restated
Certificate of Incorporation and any certificates of designation applicable
thereto, and such directors so elected shall not be divided into classes
pursuant to this Section 3.
5
<PAGE> 6
During any period when the holders of any series of Undesignated
Preferred Stock have the right to elect additional directors as provided for or
fixed pursuant to the provisions of Article IV hereof, then upon commencement
and for the duration of the period during which such right continues: (a) the
then otherwise total authorized number of directors of the Corporation shall
automatically be increased by such specified number of directors, and the
holders of such Undesignated Preferred Stock shall be entitled to elect the
additional directors so provided for or fixed pursuant to said provisions, and
(b) each such additional director shall serve until such director's successor
shall have been duly elected and qualified, or until such director's right to
hold such office terminates pursuant to said provisions, whichever occurs
earlier, subject to such director's earlier death, disqualification, resignation
or removal. Except as otherwise provided by the Board in the resolution or
resolutions establishing such series, whenever the holders of any series of
Undesignated Preferred Stock having such right to elect additional directors are
divested of such right pursuant to the provisions of such stock, the terms of
office of all such additional directors elected by the holders of such stock, or
elected to fill any vacancies resulting from the death, resignation,
disqualification or removal of such additional directors, shall forthwith
terminate and the total and authorized number of directors of the Corporation
shall be reduced accordingly.
SECTION 4. VACANCIES.
Subject to the rights, if any, of the holders of any series of
Undesignated Preferred Stock to elect directors and to fill vacancies in the
Board of Directors relating thereto, any and all vacancies in the Board of
Directors, however occurring, including, without limitation, by reason of an
increase in size of the Board of Directors, or the death, resignation,
disqualification or removal of a director, shall be filled solely by the
affirmative vote of a majority of the remaining directors then in office, even
if less than a quorum of the Board of Directors. Any director appointed in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of directors in which the new directorship was
created or the vacancy occurred and until such director's successor shall have
been duly elected and qualified or until his or her earlier resignation or
removal. Subject to the rights, if any, of the holders of any series of
Undesignated Preferred Stock to elect directors, when the number of directors is
increased or decreased, the Board of Directors shall determine the class or
classes to which the increased or decreased number of directors shall be
apportioned; provided, however, that no decrease in the number of directors
shall shorten the term of any incumbent director. In the event of a vacancy in
the Board of Directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full Board of Directors until the vacancy is
filled.
SECTION 5. REMOVAL.
Subject to the rights, if any, of any series of Undesignated Preferred
Stock to elect directors and to remove any director whom the holders of any such
stock have the right to elect, any director (including persons elected by
directors to fill vacancies in the Board of
6
<PAGE> 7
Directors) may be removed from office (a) only with cause and (b) only by the
affirmative vote of the holders of two-thirds of the shares then entitled to
vote at an election of directors. At least 30 days prior to any meeting of
stockholders at which it is proposed that any director be removed from office,
written notice of such proposed removal shall be sent to the director whose
removal will be considered at the meeting. For purposes of this Amended and
Restated Certificate of Incorporation, "cause," with respect to the removal of
any director shall mean only (i) conviction of a felony, (ii) declaration of
unsound mind by order of court, (iii) gross dereliction of duty, (iv) commission
of any action involving moral turpitude, or (v) commission of an action which
constitutes intentional misconduct or a knowing violation of law if such action
in either event results both in an improper substantial personal benefit and a
material injury to the Corporation.
ARTICLE VII
LIMITATION OF LIABILITY
-----------------------
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (a) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (b) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (c) under Section 174 of the DGCL or (d) for any transaction
from which the director derived an improper personal benefit. If the DGCL is
amended after the effective date of this Amended and Restated Certificate of
Incorporation to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the DGCL, as so amended.
Any repeal or modification of this Article VII by either of (i) the
stockholders of the Corporation or (ii) an amendment to the DGCL, shall not
adversely affect any right or protection existing at the time of such repeal or
modification with respect to any acts or omissions occurring before such repeal
or modification of a person serving as a director at the time of such repeal or
modification.
7
<PAGE> 8
ARTICLE VIII
AMENDMENT OF BY-LAWS
--------------------
SECTION 1. AMENDMENT BY DIRECTORS
Except as otherwise provided by law, the By-laws of the Corporation may
be amended or repealed by the Board of Directors by the affirmative vote of a
majority of the directors then in office.
SECTION 2. AMENDMENT BY STOCKHOLDERS
The By-laws of the Corporation may be amended or repealed at any annual
meeting of stockholders, or special meeting of stockholders called for such
purpose, by the affirmative vote of at least two-thirds of the shares present in
person or represented by proxy at such meeting and entitled to vote on such
amendment or repeal, voting together as a single class; provided, however, that
if the Board of Directors recommends that stockholders approve such amendment or
repeal at such meeting of stockholders, such amendment or repeal shall only
require the affirmative vote of the majority of the shares present in person or
represented by proxy at such meeting and entitled to vote on such amendment or
repeal, voting together as a single class.
ARTICLE IX
AMENDMENT OF CERTIFICATE OF INCORPORATION
-----------------------------------------
The Corporation reserves the right to amend or repeal this Amended and
Restated Certificate of Incorporation in the manner now or hereafter prescribed
by statute and this Amended and Restated Certificate of Incorporation, and all
rights conferred upon stockholders herein are granted subject to this
reservation. No amendment or repeal of this Amended and Restated Certificate of
Incorporation shall be made unless the same is first approved by the Board of
Directors pursuant to a resolution adopted by the Board of Directors in
accordance with Section 242 of the DGCL, and, except as otherwise provided by
law, thereafter approved by the stockholders. Whenever any vote of the holders
of voting stock is required to amend or repeal any provision of this Amended and
Restated Certificate of Incorporation, and in addition to any other vote of the
holders of voting stock that is required by this Amended and Restated
Certificate of Incorporation or by law, the affirmative vote of a majority of
the outstanding shares entitled to vote on such amendment or repeal, and the
affirmative vote of a majority of the outstanding shares of each class entitled
to vote thereon as a class, shall be required to amend or repeal any provision
of this Amended and Restated Certificate of Incorporation; provided, however,
that the affirmative vote of not less than two-thirds of the outstanding
8
<PAGE> 9
shares entitled to vote on such amendment or repeal, and the affirmative vote of
not less than two-thirds of the outstanding shares of each class entitled to
vote thereon as a class, shall be required to amend or repeal any of the
provisions of Article V, Article VI, Article VII or Article IX of this Amended
and Restated Certificate of Incorporation.
9
<PAGE> 10
I, Charles W. Redepenning, Jr., Secretary of the Corporation, for the
purpose of amending and restating the Corporation's Certificate of Incorporation
pursuant to the General Corporation Law of the State of Delaware, do make this
certificate, hereby declaring and certifying that this is my act and deed on
behalf of the Corporation this __ day of June, 1997.
----------------------------------
Name: Charles W. Redepenning, Jr.
Title: Secretary
10
<PAGE> 1
Exhibit 3.4
FORM OF
AMENDED AND RESTATED
BY-LAWS
OF
UNIQUE CASUAL RESTAURANTS, INC.
(the "Corporation")
ARTICLE I
Stockholders
SECTION 1. Annual Meeting. The annual meeting of stockholders shall be
held at the hour, date and place within or without the United States which is
fixed by the majority of the Board of Directors, the Chairman of the Board, if
one is elected, or the President, which time, date and place may subsequently be
changed at any time by vote of the Board of Directors. If no annual meeting has
been held for a period of thirteen months after the Corporation's last annual
meeting of stockholders, a special meeting in lieu thereof may be held, and such
special meeting shall have, for the purposes of these By-laws or otherwise, all
the force and effect of an annual meeting. Any and all references hereafter in
these By-laws to an annual meeting or annual meetings also shall be deemed to
refer to any special meeting(s) in lieu thereof.
SECTION 2. Matters to be Considered at Annual Meetings. At any annual
meeting of stockholders or any special meeting in lieu of annual meeting of
stockholders (the "Annual Meeting"), only such business shall be conducted, and
only such proposals shall be acted upon, as shall have been properly brought
before such Annual Meeting. To be considered as properly brought before an
Annual Meeting, business must be: (a) specified in the notice of meeting, (b)
otherwise properly brought before the meeting by, or at the direction of, the
Board of Directors, or (c) otherwise properly brought before the meeting by any
holder of record (both as of the time notice of such proposal is given by the
stockholder as set forth below and as of the record date for the Annual Meeting
in question) of any shares of capital stock of the Corporation entitled to vote
at such Annual Meeting who complies with the requirements set forth in this
Section 2.
In addition to any other applicable requirements, for business to be
properly brought before an Annual Meeting by a stockholder of record of any
shares of capital stock entitled to vote at such Annual Meeting, such
stockholder shall: (i) give timely notice as required by this Section 2 to the
Secretary of the Corporation and (ii) be present at such meeting, either in
person or by a representative. For all Annual Meetings, a stockholder's notice
shall be timely
Form 10
<PAGE> 2
if delivered to, or mailed to and received by, the Corporation at its principal
executive office not less than 75 days nor more than 120 days prior to the
anniversary date of the immediately preceding Annual Meeting (the "Anniversary
Date"); provided, however, that in the event the Annual Meeting is scheduled to
be held on a date more than 30 days before the Anniversary Date or more than 60
days after the Anniversary Date, a stockholder's notice shall be timely if
delivered to, or mailed to and received by, the Corporation at its principal
executive office not later than the close of business on the later of (1) the
75th day prior to the scheduled date of such Annual Meeting or (2) the 15th day
following the day on which public announcement of the date of such Annual
Meeting is first made by the Corporation.
For purposes of these By-laws, "public announcement" shall mean: (a)
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service, (b) a report or other document filed
publicly with the Securities and Exchange Commission (including, without
limitation, a Form 8-K), or (c) a letter or report sent to stockholders of
record of the Corporation at the time of the mailing of such letter or report.
A stockholder's notice to the Secretary shall set forth as to each
matter proposed to be brought before an Annual Meeting: (i) a brief description
of the business the stockholder desires to bring before such Annual Meeting and
the reasons for conducting such business at such Annual Meeting, (ii) the name
and address, as they appear on the Corporation's stock transfer books, of the
stockholder proposing such business, (iii) the class and number of shares of the
Corporation's capital stock beneficially owned by the stockholder proposing such
business, (iv) the names and addresses of the beneficial owners, if any, of any
capital stock of the Corporation registered in such stockholder's name on such
books, and the class and number of shares of the Corporation's capital stock
beneficially owned by such beneficial owners, (v) the names and addresses of
other stockholders known by the stockholder proposing such business to support
such proposal, and the class and number of shares of the Corporation's capital
stock beneficially owned by such other stockholders, and (vi) any material
interest of the stockholder proposing to bring such business before such meeting
(or any other stockholders known to be supporting such proposal) in such
proposal.
If the Board of Directors or a designated committee thereof determines
that any stockholder proposal was not made in a timely fashion in accordance
with the provisions of this Section 2 or that the information provided in a
stockholder's notice does not satisfy the information requirements of this
Section 2 in any material respect, such proposal shall not be presented for
action at the Annual Meeting in question. If neither the Board of Directors nor
such committee makes a determination as to the validity of any stockholder
proposal in the manner set forth above, the presiding officer of the Annual
Meeting shall determine whether the stockholder proposal was made in accordance
with the terms of this Section 2. If the presiding officer determines that any
stockholder proposal was not made in a timely fashion in accordance with the
provisions of this Section 2 or that the information provided in a
2
<PAGE> 3
stockholder's notice does not satisfy the information requirements of this
Section 2 in any material respect, such proposal shall not be presented for
action at the Annual Meeting in question. If the Board of Directors, a
designated committee thereof or the presiding officer determines that a
stockholder proposal was made in accordance with the requirements of this
Section 2, the presiding officer shall so declare at the Annual Meeting and
ballots shall be provided for use at the meeting with respect to such proposal.
Notwithstanding the foregoing provisions of this By-Law, a stockholder
shall also comply with all applicable requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the rules and regulations
thereunder with respect to the matters set forth in this Section 2, and nothing
in this Section 2 shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the Corporation's proxy statement pursuant to
Rule 14a-8 under the Exchange Act.
SECTION 3. Special Meetings. Except as otherwise required by law and
subject to the rights, if any, of the holders of any series of preferred stock,
special meetings of the stockholders of the Corporation may be called only by
the Board of Directors pursuant to a resolution approved by the affirmative vote
of a majority of the directors then in office.
SECTION 4. Matters to be Considered at Special Meetings. Only those
matters set forth in the notice of the special meeting may be considered or
acted upon at a special meeting of stockholders of the Corporation, unless
otherwise provided by law.
SECTION 5. Notice of Meetings; Adjournments. A written notice of each
Annual Meeting stating the hour, date and place of such Annual Meeting shall be
given by the Secretary or an Assistant Secretary (or other person authorized by
these By-laws or by law) not less than 10 days nor more than 60 days before the
Annual Meeting, to each stockholder entitled to vote thereat and to each
stockholder who, by law or under the Amended and Restated Certificate of
Incorporation of the Corporation (as the same may hereafter be amended and/or
restated, the "Certificate") or under these By-laws, is entitled to such notice,
by delivering such notice to him or by mailing it, postage prepaid, addressed to
such stockholder at the address of such stockholder as it appears on the
Corporation's stock transfer books. Such notice shall be deemed to be delivered
when hand delivered to such address or deposited in the mail so addressed, with
postage prepaid.
Notice of all special meetings of stockholders shall be given in the
same manner as provided for Annual Meetings, except that the written notice of
all special meetings shall state the purpose or purposes for which the meeting
has been called.
Notice of an Annual Meeting or special meeting of stockholders need not
be given to a stockholder if a written waiver of notice is signed before or
after such meeting by such stockholder or if such stockholder attends such
meeting, unless such attendance was for the
3
<PAGE> 4
express purpose of objecting at the beginning of the meeting to the transaction
of any business because the meeting was not lawfully called or convened. Neither
the business to be transacted at, nor the purpose of, any Annual Meeting or
special meeting of stockholders need be specified in any written waiver of
notice.
The Board of Directors may postpone and reschedule any previously
scheduled Annual Meeting or special meeting of stockholders and any record date
with respect thereto, regardless of whether any notice or public disclosure with
respect to any such meeting has been sent or made pursuant to Section 2 of this
Article I or Section 3 of Article II hereof or otherwise. In no event shall the
public announcement of an adjournment, postponement or rescheduling of any
previously scheduled meeting of stockholders commence a new time period for the
giving of a stockholder's notice under Section 2 of Article I and Section 3 of
Article II of these By-laws.
When any meeting is convened, the presiding officer may adjourn the
meeting if (a) no quorum is present for the transaction of business, (b) the
Board of Directors determines that adjournment is necessary or appropriate to
enable the stockholders to consider fully information which the Board of
Directors determines has not been made sufficiently or timely available to
stockholders, or (c) the Board of Directors determines that adjournment is
otherwise in the best interests of the Corporation. When any Annual Meeting or
special meeting of stockholders is adjourned to another hour, date or place,
notice need not be given of the adjourned meeting other than an announcement at
the meeting at which the adjournment is taken of the hour, date and place to
which the meeting is adjourned; provided, however, that if the adjournment is
for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote thereat and each stockholder who, by
law or under the Certificate or these By-laws, is entitled to such notice.
SECTION 6. Quorum. A majority of the shares entitled to vote, present
in person or represented by proxy, shall constitute a quorum at any meeting of
stockholders. If less than a quorum is present at a meeting, the holders of
voting stock representing a majority of the voting power present at the meeting
or the presiding officer may adjourn the meeting from time to time, and the
meeting may be held as adjourned without further notice, except as provided in
Section 5 of this Article I. At such adjourned meeting at which a quorum is
present, any business may be transacted which might have been transacted at the
meeting as originally noticed. The stockholders present at a duly constituted
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
SECTION 7. Voting and Proxies. Stockholders shall have one vote for
each share of stock entitled to vote owned by them of record according to the
books of the Corporation, unless otherwise provided by law or by the
Certificate. Stockholders may vote either in person
4
<PAGE> 5
or by written proxy, but no proxy shall be voted or acted upon after three years
from its date, unless the proxy provides for a longer period. Proxies shall be
filed with the Secretary of the meeting before being voted. Except as otherwise
limited therein or as otherwise provided by law, proxies shall entitle the
persons authorized thereby to vote at any adjournment of such meeting, but they
shall not be valid after final adjournment of such meeting. A proxy with respect
to stock held in the name of two or more persons shall be valid if executed by
or on behalf of any one of them unless at or prior to the exercise of the proxy
the Corporation receives a specific written notice to the contrary from any one
of them. A proxy purporting to be executed by or on behalf of a stockholder
shall be deemed valid, and the burden of proving invalidity shall rest on the
challenger.
SECTION 8. Action at Meeting. When a quorum is present, any matter
before any meeting of stockholders shall be decided by the affirmative vote of
the majority of shares present in person or represented by proxy at such meeting
and entitled to vote on such matter, except where a larger vote is required by
law, by the Certificate or by these By-laws. Any election by stockholders shall
be determined by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors, except where a larger vote is required by law, by the Certificate or
by these By-laws. The Corporation shall not directly or indirectly vote any
shares of its own stock; provided, however, that the Corporation may vote shares
which it holds in a fiduciary capacity to the extent permitted by law.
SECTION 9. Stockholder Lists. The Secretary or an Assistant Secretary
(or the Corporation's transfer agent or other person authorized by these By-laws
or by law) shall prepare and make, at least 10 days before every Annual Meeting
or special meeting of stockholders, a complete list of the stockholders entitled
to vote at the meeting, arranged in alphabetical order, and showing the address
of each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least 10 days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the hour, date and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 10. Presiding Officer. The Chairman of the Board, if one is
elected, or if not elected or in his or her absence, the President, shall
preside at all Annual Meetings or special meetings of stockholders and shall
have the power, among other things, to adjourn such meeting at any time and from
time to time, subject to Sections 5 and 6 of this Article I. The order of
business and all other matters of procedure at any meeting of the stockholders
shall be determined by the presiding officer.
5
<PAGE> 6
SECTION 11. Voting Procedures and Inspectors of Elections. The
Corporation shall, in advance of any meeting of stockholders, appoint one or
more inspectors to act at the meeting and make a written report thereof. The
Corporation may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate is able to act at a
meeting of stockholders, the presiding officer shall appoint one or more
inspectors to act at the meeting. Any inspector may, but need not, be an
officer, employee or agent of the Corporation. Each inspector, before entering
upon the discharge of his or her duties, shall take and sign an oath faithfully
to execute the duties of inspector with strict impartiality and according to the
best of his or her ability. The inspectors shall perform such duties as are
required by the General Corporation Law of the State of Delaware, as amended
from time to time (the "DGCL"), including the counting of all votes and ballots.
The inspectors may appoint or retain other persons or entities to assist the
inspectors in the performance of the duties of the inspectors. The presiding
officer may review all determinations made by the inspectors, and in so doing
the presiding officer shall be entitled to exercise his or her sole judgment and
discretion and he or she shall not be bound by any determinations made by the
inspectors. All determinations by the inspectors and, if applicable, the
presiding officer, shall be subject to further review by any court of competent
jurisdiction.
ARTICLE II
Directors
SECTION 1. Powers. The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors except as otherwise
provided by the Certificate or required by law.
SECTION 2. Number and Terms. The number of directors of the Corporation
shall be fixed by resolution duly adopted from time to time by the Board of
Directors. The directors shall hold office in the manner provided in the
Certificate.
SECTION 3. Director Nominations. Nominations of candidates for election
as directors of the Corporation at any Annual Meeting may be made only (a) by,
or at the direction of, a majority of the Board of Directors or (b) by any
holder of record (both as of the time notice of such nomination is given by the
stockholder as set forth below and as of the record date for the Annual Meeting
in question) of any shares of the capital stock of the Corporation entitled to
vote at such Annual Meeting who complies with the timing, informational and
other requirements set forth in this Section 3. Any stockholder who has complied
with the timing, informational and other requirements set forth in this Section
3 and who seeks to make such a nomination, or his, her or its representative,
must be present in person at the Annual Meeting. Only persons nominated in
accordance with the procedures set forth in this Section 3 shall be eligible for
election as directors at an Annual Meeting.
6
<PAGE> 7
Nominations, other than those made by, or at the direction of, the
Board of Directors, shall be made pursuant to timely notice in writing to the
Secretary of the Corporation as set forth in this Section 3. For all Annual
Meetings, a stockholder's notice shall be timely if delivered to, or mailed to
and received by, the Corporation at its principal executive office not less than
75 days nor more than 120 days prior to the Anniversary Date; provided, however,
that in the event the Annual Meeting is scheduled to be held on a date more than
30 days before the Anniversary Date or more than 60 days after the Anniversary
Date, a stockholder's notice shall be timely if delivered to, or mailed and
received by, the Corporation at its principal executive office not later than
the close of business on the later of (x) the 75th day prior to the scheduled
date of such Annual Meeting or (y) the 15th day following the day on which
public announcement of the date of such Annual Meeting is first made by the
Corporation.
A stockholder's notice to the Secretary shall set forth as to each
person whom the stockholder proposes to nominate for election or re-election as
a director: (1) the name, age, business address and residence address of such
person, (2) the principal occupation or employment of such person, (3) the class
and number of shares of the Corporation's capital stock which are beneficially
owned by such person on the date of such stockholder notice, and (4) the consent
of each nominee to serve as a director if elected. A stockholder's notice to the
Secretary shall further set forth as to the stockholder giving such notice: (a)
the name and address, as they appear on the Corporation's stock transfer books,
of such stockholder and of the beneficial owners (if any) of the Corporation's
capital stock registered in such stockholder's name and the name and address of
other stockholders known by such stockholder to be supporting such nominee(s),
(b) the class and number of shares of the Corporation's capital stock which are
held of record, beneficially owned or represented by proxy by such stockholder
and by any other stockholders known by such stockholder to be supporting such
nominee(s) on the record date for the Annual Meeting in question (if such date
shall then have been made publicly available) and on the date of such
stockholder's notice, and (c) a description of all arrangements or
understandings between such stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by such stockholder.
If the Board of Directors or a designated committee thereof determines
that any stockholder nomination was not made in accordance with the terms of
this Section 3 or that the information provided in a stockholder's notice does
not satisfy the informational requirements of this Section 3 in any material
respect, then such nomination shall not be considered at the Annual Meeting in
question. If neither the Board of Directors nor such committee makes a
determination as to whether a nomination was made in accordance with the
provisions of this Section 3, the presiding officer of the Annual Meeting shall
determine whether a nomination was made in accordance with such provisions. If
the presiding officer determines that any stockholder nomination was not made in
accordance with the terms of this Section 3 or that the information provided in
a stockholder's notice does not satisfy the informational requirements
7
<PAGE> 8
of this Section 3 in any material respect, then such nomination shall not be
considered at the Annual Meeting in question. If the Board of Directors, a
designated committee thereof or the presiding officer determines that a
nomination was made in accordance with the terms of this Section 3, the
presiding officer shall so declare at the Annual Meeting and ballots shall be
provided for use at the meeting with respect to such nominee.
Notwithstanding anything to the contrary in the second paragraph of
this Section 3, in the event that the number of directors to be elected to the
Board of Directors of the Corporation is increased and there is no public
announcement by the Corporation naming all of the nominees for director or
specifying the size of the increased Board of Directors at least 75 days prior
to the Anniversary Date, a stockholder's notice required by this Section 3 shall
also be considered timely, but only with respect to nominees for any new
positions created by such increase, if such notice shall be delivered to, or
mailed to and received by, the Corporation at its principal executive office not
later than the close of business on the 15th day following the day on which such
public announcement is first made by the Corporation.
No person shall be elected by the stockholders as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section. Election of directors at an Annual Meeting need not be by written
ballot, unless otherwise provided by the Board of Directors or presiding officer
at such Annual Meeting. If written ballots are to be used, ballots bearing the
names of all the persons who have been nominated for election as directors at
the Annual Meeting in accordance with the procedures set forth in this Section
shall be provided for use at the Annual Meeting.
SECTION 4. Qualification. No director need be a stockholder of the
Corporation.
SECTION 5. Vacancies. Subject to the rights, if any, of the holders of
any series of preferred stock to elect directors and to fill vacancies in the
Board of Directors relating thereto, any and all vacancies in the Board of
Directors, however occurring, including, without limitation, by reason of an
increase in size of the Board of Directors, or the death, resignation,
disqualification or removal of a director, shall be filled solely by the
affirmative vote of a majority of the remaining directors then in office, even
if less than a quorum of the Board of Directors. Any director appointed in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of directors in which the new directorship was
created or the vacancy occurred and until such director's successor shall have
been duly elected and qualified or until his or her earlier resignation or
removal. Subject to the rights, if any, of the holders of any series of
preferred stock to elect directors, when the number of directors is increased or
decreased, the Board of Directors shall determine the class or classes to which
the increased or decreased number of directors shall be apportioned; provided,
however, that no decrease in the number of directors shall shorten the term of
any incumbent director. In the event of a vacancy in the Board of Directors, the
remaining directors, except as otherwise provided by law, may exercise the
powers of the full Board of Directors until the vacancy is filled.
8
<PAGE> 9
SECTION 6. Removal. Directors may be removed from office in the manner
provided in the Certificate.
SECTION 7. Resignation. A director may resign at any time by giving
written notice to the Chairman of the Board, if one is elected, the President or
the Secretary. A resignation shall be effective upon receipt, unless the
resignation otherwise provides.
SECTION 8. Regular Meetings. The regular annual meeting of the Board of
Directors shall be held, without notice other than this Section 8, on the same
date and at the same place as the Annual Meeting following the close of such
meeting of stockholders. Other regular meetings of the Board of Directors may be
held at such hour, date and place as the Board of Directors may by resolution
from time to time determine without notice other than such resolution.
SECTION 9. Special Meetings. Special meetings of the Board of Directors
may be called, orally or in writing, by or at the request of a majority of the
directors, the Chairman of the Board, if one is elected, or the President. The
person calling any such special meeting of the Board of Directors may fix the
hour, date and place thereof.
SECTION 10. Notice of Meetings. Notice of the hour, date and place of
all special meetings of the Board of Directors shall be given to each director
by the Secretary or an Assistant Secretary, or in case of the death, absence,
incapacity or refusal of such persons, by the Chairman of the Board, if one is
elected, or the President or such other officer designated by the Chairman of
the Board, if one is elected, or the President. Notice of any special meeting of
the Board of Directors shall be given to each director in person, by telephone,
or by facsimile, telex, telecopy, telegram, or other written form of electronic
communication, sent to his or her business or home address, at least 24 hours in
advance of the meeting, or by written notice mailed to his or her business or
home address, at least 48 hours in advance of the meeting. Such notice shall be
deemed to be delivered when hand delivered to such address, read to such
director by telephone, deposited in the mail so addressed, with postage thereon
prepaid if mailed, dispatched or transmitted if faxed, telexed or telecopied, or
when delivered to the telegraph company if sent by telegram.
When any Board of Directors meeting, either regular or special, is
adjourned for 30 days or more, notice of the adjourned meeting shall be given as
in the case of an original meeting. It shall not be necessary to give any notice
of the hour, date or place of any meeting adjourned for less than 30 days or of
the business to be transacted thereat, other than an announcement at the meeting
at which such adjournment is taken of the hour, date and place to which the
meeting is adjourned.
9
<PAGE> 10
A written waiver of notice signed before or after a meeting by a
director and filed with the records of the meeting shall be deemed to be
equivalent to notice of the meeting. The attendance of a director at a meeting
shall constitute a waiver of notice of such meeting, except where a director
attends a meeting for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because such meeting is not lawfully
called or convened. Except as otherwise required by law, by the Certificate or
by these By-laws, neither the business to be transacted at, nor the purpose of,
any meeting of the Board of Directors need be specified in the notice or waiver
of notice of such meeting.
SECTION 11. Quorum. At any meeting of the Board of Directors, a
majority of the directors then in office shall constitute a quorum for the
transaction of business, but if less than a quorum is present at a meeting, a
majority of the directors present may adjourn the meeting from time to time, and
the meeting may be held as adjourned without further notice, except as provided
in Section 10 of this Article II. Any business which might have been transacted
at the meeting as originally noticed may be transacted at such adjourned meeting
at which a quorum is present.
SECTION 12. Action at Meeting. At any meeting of the Board of Directors
at which a quorum is present, a majority of the directors present may take any
action on behalf of the Board of Directors, unless otherwise required by law, by
the Certificate or by these By-laws.
SECTION 13. Action by Consent. Any action required or permitted to be
taken at any meeting of the Board of Directors may be taken without a meeting if
all members of the Board of Directors consent thereto in writing. Such written
consent shall be filed with the records of the meetings of the Board of
Directors and shall be treated for all purposes as a vote at a meeting of the
Board of Directors.
SECTION 14. Manner of Participation. Directors may participate in
meetings of the Board of Directors by means of conference telephone or similar
communications equipment by means of which all directors participating in the
meeting can hear each other, and participation in a meeting in accordance
herewith shall constitute presence in person at such meeting for purposes of
these By-laws.
SECTION 15. Committees. The Board of Directors, by vote of a majority
of the directors then in office, may elect from its number one or more
committees, including, without limitation, an Executive Committee, a
Compensation Committee, a Stock Option Committee and an Audit Committee, and may
delegate thereto some or all of its powers except those which by law, by the
Certificate or by these By-laws may not be delegated. Except as the Board of
Directors may otherwise determine, any such committee may make rules for the
conduct of its business, but unless otherwise provided by the Board of Directors
or in such rules, its business shall be conducted so far as possible in the same
manner as is provided by these By-laws for the Board of Directors. All members
of such committees shall hold such
10
<PAGE> 11
offices at the pleasure of the Board of Directors. The Board of Directors may
abolish any such committee at any time. Any committee to which the Board of
Directors delegates any of its powers or duties shall keep records of its
meetings and shall report its action to the Board of Directors. The Board of
Directors shall have power to rescind any action of any committee, to the extent
permitted by law, but no such rescission shall have retroactive effect.
SECTION 16. Compensation of Directors. Directors shall receive such
compensation for their services as shall be determined by a majority of the
Board of Directors provided that directors who are serving the Corporation as
employees and who receive compensation for their services as such, shall not
receive any salary or other compensation for their services as directors of the
Corporation.
ARTICLE III
Officers
SECTION 1. Enumeration. The officers of the Corporation shall consist
of a President, a Treasurer, a Secretary and such other officers, including,
without limitation, a Chairman of the Board of Directors, a Chief Executive
Officer and one or more Vice Presidents (including Executive Vice Presidents or
Senior Vice Presidents), Assistant Vice Presidents, Assistant Treasurers and
Assistant Secretaries, as the Board of Directors may determine.
SECTION 2. Election. At the regular annual meeting of the Board
following the Annual Meeting of stockholders, the Board of Directors shall elect
the President, the Treasurer and the Secretary. Other officers may be elected by
the Board of Directors at such regular annual meeting of the Board of Directors
or at any other regular or special meeting.
SECTION 3. Qualification. No officer need be a stockholder or a
director. Any person may occupy more than one office of the Corporation at any
time. Any officer may be required by the Board of Directors to give bond for the
faithful performance of his or her duties in such amount and with such sureties
as the Board of Directors may determine.
SECTION 4. Tenure. Except as otherwise provided by the Certificate or
by these By-laws, each of the officers of the Corporation shall hold office
until the regular annual meeting of the Board of Directors following the next
Annual Meeting of stockholders and until his or her successor is elected and
qualified or until his or her earlier resignation or removal.
11
<PAGE> 12
SECTION 5. Resignation. Any officer may resign by delivering his or her
written resignation to the Corporation addressed to the President or the
Secretary, and such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
SECTION 6. Removal. Except as otherwise provided by law, the Board of
Directors may remove any officer with or without cause by the affirmative vote
of a majority of the directors then in office.
SECTION 7. Absence or Disability. In the event of the absence or
disability of any officer, the Board of Directors may designate another officer
to act temporarily in place of such absent or disabled officer.
SECTION 8. Vacancies. Any vacancy in any office may be filled for the
unexpired portion of the term by the Board of Directors.
SECTION 9. President. The President shall, subject to the direction of
the Board of Directors, have general supervision and control of the
Corporation's business. If there is no Chairman of the Board or if he or she is
absent, the President shall preside, when present, at all meetings of
stockholders and of the Board of Directors. The President shall have such other
powers and perform such other duties as the Board of Directors may from time to
time designate.
SECTION 10. Chairman of the Board. The Chairman of the Board, if one is
elected, shall preside, when present, at all meetings of the stockholders and of
the Board of Directors. The Chairman of the Board shall have such other powers
and shall perform such other duties as the Board of Directors may from time to
time designate.
SECTION 11. Chief Executive Officer. The Chief Executive Officer, if
one is elected, shall have such powers and shall perform such duties as the
Board of Directors may from time to time designate.
SECTION 12. Vice Presidents and Assistant Vice Presidents. Any Vice
President (including any Executive Vice President or Senior Vice President) and
any Assistant Vice President shall have such powers and shall perform such
duties as the Board of Directors or the Chief Executive Officer may from time to
time designate.
SECTION 13. Treasurer and Assistant Treasurers. The Treasurer shall,
subject to the direction of the Board of Directors and except as the Board of
Directors or the Chief Executive Officer may otherwise provide, have general
charge of the financial affairs of the Corporation and shall cause to be kept
accurate books of account. The Treasurer shall have custody of all funds,
securities, and valuable documents of the Corporation. He or she shall have such
other
12
<PAGE> 13
duties and powers as may be designated from time to time by the Board of
Directors or the Chief Executive Officer.
Any Assistant Treasurer shall have such powers and perform such duties
as the Board of Directors or the Chief Executive Officer may from time to time
designate.
SECTION 14. Secretary and Assistant Secretaries. The Secretary shall
record all the proceedings of the meetings of the stockholders and the Board of
Directors (including committees of the Board) in books kept for that purpose. In
his or her absence from any such meeting, a temporary secretary chosen at the
meeting shall record the proceedings thereof. The Secretary shall have charge of
the stock ledger (which may, however, be kept by any transfer or other agent of
the Corporation). The Secretary shall have custody of the seal of the
Corporation, and the Secretary, or an Assistant Secretary, shall have authority
to affix it to any instrument requiring it, and, when so affixed, the seal may
be attested by his or her signature or that of an Assistant Secretary. The
Secretary shall have such other duties and powers as may be designated from time
to time by the Board of Directors or the Chief Executive Officer. In the absence
of the Secretary, any Assistant Secretary may perform his or her duties and
responsibilities.
Any Assistant Secretary shall have such powers and perform such duties
as the Board of Directors or the Chief Executive Officer may from time to time
designate.
SECTION 15. Other Powers and Duties. Subject to these By-laws and to
such limitations as the Board of Directors may from time to time prescribe, the
officers of the Corporation shall each have such powers and duties as generally
pertain to their respective offices, as well as such powers and duties as from
time to time may be conferred by the Board of Directors or the Chief Executive
Officer.
ARTICLE IV
Capital Stock
SECTION 1. Certificates of Stock. Each stockholder shall be entitled to
a certificate of the capital stock of the Corporation in such form as may from
time to time be prescribed by the Board of Directors. Such certificate shall be
signed by the Chairman of the Board of Directors, the President or a Vice
President and by the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary. The Corporation seal and the signatures by the
Corporation's officers, the transfer agent or the registrar may be facsimiles.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed on such certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he or she
13
<PAGE> 14
were such officer, transfer agent or registrar at the time of its issue. Every
certificate for shares of stock which are subject to any restriction on transfer
and every certificate issued when the Corporation is authorized to issue more
than one class or series of stock shall contain such legend with respect thereto
as is required by law.
SECTION 2. Transfers. Subject to any restrictions on transfer and
unless otherwise provided by the Board of Directors, shares of stock may be
transferred only on the books of the Corporation by the surrender to the
Corporation or its transfer agent of the certificate theretofore properly
endorsed or accompanied by a written assignment or power of attorney properly
executed, with transfer stamps (if necessary) affixed, and with such proof of
the authenticity of signature as the Corporation or its transfer agent may
reasonably require.
SECTION 3. Record Holders. Except as may otherwise be required by law,
by the Certificate or by these By-laws, the Corporation shall be entitled to
treat the record holder of stock as shown on its books as the owner of such
stock for all purposes, including the payment of dividends and the right to vote
with respect thereto, regardless of any transfer, pledge or other disposition of
such stock, until the shares have been transferred on the books of the
Corporation in accordance with the requirements of these By-laws.
It shall be the duty of each stockholder to notify the Corporation of
his or her post office address and any changes thereto.
SECTION 4. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which record date: (a) in the case of
determination of stockholders entitled to vote at any meeting of stockholders,
shall, unless otherwise required by law, not be more than sixty nor less than
ten days before the date of such meeting and (b) in the case of any other
action, shall not be more than sixty days prior to such other action. If no
record date is fixed: (i) the record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held and (ii) the record date for determining stockholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
SECTION 5. Replacement of Certificates. In case of the alleged loss,
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms as the Board of Directors may
prescribe.
14
<PAGE> 15
ARTICLE V
Indemnification
SECTION 1. Definitions. For purposes of this Article:
(a) "Director" means any person who serves or has served the
Corporation as a director on the Board of Directors of the Corporation.
(b) "Officer" means any person who serves or has served the Corporation
as an officer appointed by the Board of Directors of the Corporation;
(c) "Non-Officer Employee" means any person who serves or has served as
an employee of the Corporation, but who is not or was not a Director or Officer;
(d) "Proceeding" means any threatened, pending or completed action,
suit, arbitration, alternate dispute resolution mechanism, inquiry,
investigation, administrative hearing or other proceeding, whether civil,
criminal, administrative, arbitrative or investigative;
(e) "Expenses" means all reasonable attorneys' fees, retainers, court
costs, transcript costs, fees of expert witnesses, private investigators and
professional advisors (including, without limitation, accountants and investment
bankers), travel expenses, duplicating costs, printing and binding costs, costs
of preparation of demonstrative evidence and other courtroom presentation aids
and devices, costs incurred in connection with document review, organization,
imaging and computerization, telephone charges, postage, delivery service fees,
and all other disbursements, costs or expenses of the type customarily incurred
in connection with prosecuting, defending, preparing to prosecute or defend,
investigating, being or preparing to be a witness in, settling or otherwise
participating in, a Proceeding;
(f) "Corporate Status" describes the status of a person who (i) in the
case of a Director, is or was a director of the Corporation (or, prior to
consummation of the tender offer (the "Offer") for shares of common stock of
DAKA International, Inc., the former parent corporation of the Corporation (the
"Former Parent Corporation"), commenced by Compass Holdings, Inc. on May 29,
1997 pursuant to that certain Agreement and Plan of Merger dated May 27, 1997
(the "Merger Agreement"), was a director of the Former Parent Corporation or
Daka, Inc., a wholly owned subsidiary of the Former Parent Corporation ("Daka"),
or was an Independent Director (as such term is defined in the Merger Agreement)
of the Former Parent Corporation prior to consummation of the merger
contemplated by the Merger Agreement) and is or was acting in such capacity,
(ii) in the case of an Officer, is or was an officer, employee or agent of the
Corporation (or, prior to consummation of the Offer, was an officer, employee
15
<PAGE> 16
or agent of the Former Parent Corporation or Daka) or is or was a director,
officer, employee or agent of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise which such Officer is or was
serving at the request of the Corporation (or, prior to consummation of the
Offer, was serving at the request of the Former Parent Corporation or Daka), and
(iii) in the case of a Non-Officer Employee, is or was an employee of the
Corporation (or, prior to consummation of the Offer, was a Non-Officer Employee
of the Former Parent Corporation or Daka) or is or was a director, officer,
employee or agent of any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise which such Non-Officer Employee is or
was serving at the request of the Corporation (or, prior to consummation of the
Offer, was serving at the request of the Former Parent Corporation or Daka); and
(g) "Disinterested Director" means, with respect to each Proceeding in
respect of which indemnification is sought hereunder, a Director of the
Corporation who is not and was not a party to such Proceeding.
SECTION 2. Indemnification of Directors and Officers. Subject to the
operation of Section 4 of this Article V, each Director and Officer shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the DGCL, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than such law
permitted the Corporation to provide prior to such amendment) against any and
all Expenses, judgments, penalties, fines and amounts reasonably paid in
settlement that are incurred by such Director or Officer or on such Director or
Officer's behalf in connection with any threatened, pending or completed
Proceeding or any claim, issue or matter therein, which such Director or Officer
is, or is threatened to be made, a party to or participant in by reason of such
Director or Officer's Corporate Status, if such Director or Officer acted in
good faith and in a manner such Director or Officer reasonably believed to be in
or not opposed to the best interests of the Corporation and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The rights of indemnification provided by this Section 2 shall
continue as to a Director or Officer after he or she has ceased to be a Director
or Officer and shall inure to the benefit of his or her heirs, executors,
administrators and personal representatives. Notwithstanding the foregoing, the
Corporation shall indemnify any Director or Officer seeking indemnification in
connection with a Proceeding initiated by such Director or Officer only if such
Proceeding was authorized by the Board of Directors of the Corporation.
SECTION 3. Indemnification of Non-Officer Employees. Subject to the
operation of Section 4 of this Article V, each Non-Officer Employee may, in the
discretion of the Board of Directors of the Corporation, be indemnified by the
Corporation to the fullest extent authorized by the DGCL, as the same exists or
may hereafter be amended, against any or all Expenses, judgments, penalties,
fines and amounts reasonably paid in settlement that are incurred by such
16
<PAGE> 17
Non-Officer Employee or on such Non-Officer Employee's behalf in connection with
any threatened, pending or completed Proceeding, or any claim, issue or matter
therein, which such Non-Officer Employee is, or is threatened to be made, a
party to or participant in by reason of such Non-Officer Employee's Corporate
Status, if such Non-Officer Employee acted in good faith and in a manner such
Non-Officer Employee reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal proceeding, had
no reasonable cause to believe his or her conduct was unlawful. The rights of
indemnification provided by this Section 3 shall continue as to a Non-Officer
Employee after he or she has ceased to be a Non-Officer Employee and shall inure
to the benefit of his or her heirs, personal representatives, executors and
administrators. Notwithstanding the foregoing, the Corporation may indemnify any
Non-Officer Employee seeking indemnification in connection with a Proceeding
initiated by such Non-Officer Employee only if such Proceeding was authorized by
the Board of Directors of the Corporation.
SECTION 4. Good Faith. Unless ordered by a court, no indemnification
shall be provided pursuant to this Article V to a Director, to an Officer or to
a Non-Officer Employee unless a determination shall have been made that such
person acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Corporation and, with respect to
any criminal Proceeding, such person had no reasonable cause to believe his or
her conduct was unlawful. Such determination shall be made by (a) a majority
vote of the Disinterested Directors, even though less than a quorum of the Board
of Directors, (b) if there are no such Disinterested Directors, or if a majority
of Disinterested Directors so direct, by independent legal counsel in a written
opinion, or (c) by the stockholders of the Corporation.
SECTION 5. Advancement of Expenses to Directors Prior to Final
Disposition. The Corporation shall advance all Expenses incurred by or on behalf
of any Director in connection with any Proceeding in which such Director is
involved by reason of such Director's Corporate Status within ten days after the
receipt by the Corporation of a written statement from such Director requesting
such advance or advances from time to time, whether prior to or after final
disposition of such Proceeding. Such statement or statements shall reasonably
evidence the Expenses incurred by such Director and shall be preceded or
accompanied by an undertaking by or on behalf of such Director to repay any
Expenses so advanced if it shall ultimately be determined that such Director is
not entitled to be indemnified against such Expenses.
SECTION 6. Advancement of Expenses to Officers and Non-Officer
Employees Prior to Final Disposition. The Corporation may, in the discretion of
the Board of Directors of the Corporation, advance any or all Expenses incurred
by or on behalf of any Officer or Non-Officer Employee in connection with any
Proceeding in which such Officer or Non-Officer Employee is involved by reason
of such Officer or Non-Officer Employee's Corporate Status upon the receipt by
the Corporation of a statement or statements from such Officer or Non-Officer
Employee requesting such advance or advances from time to time, whether prior to
or
17
<PAGE> 18
after final disposition of such Proceeding. Such statement or statements shall
reasonably evidence the Expenses incurred by such Officer or Non-Officer
Employee and shall be preceded or accompanied by an undertaking by or on behalf
of such Officer or Non-Officer Employee to repay any Expenses so advanced if it
shall ultimately be determined that such Officer or Non-Officer Employee is not
entitled to be indemnified against such Expenses.
SECTION 7. Contractual Nature of Rights. The foregoing provisions of
this Article V shall be deemed to be a contract between the Corporation and each
Director and Officer who serves in such capacity at any time while this Article
V is in effect, and any repeal or modification thereof shall not affect any
rights or obligations then existing with respect to any state of facts then or
theretofore existing or any Proceeding theretofore or thereafter brought based
in whole or in part upon any such state of facts. If a claim for indemnification
or advancement of Expenses hereunder by a Director or Officer is not paid in
full by the Corporation within (a) 60 days after the Corporation's receipt of a
written claim for indemnification, or (b) in the case of a Director, 10 days
after the Corporation's receipt of documentation of Expenses and the required
undertaking, such Director or Officer may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim, and if
successful in whole or in part, such Director or Officer shall also be entitled
to be paid the expenses of prosecuting such claim. The failure of the
Corporation (including its Board of Directors or any committee thereof,
independent legal counsel, or stockholders) to make a determination concerning
the permissibility of such indemnification or, in the case of a Director,
advancement of Expenses, under this Article V shall not be a defense to the
action and shall not create a presumption that such indemnification or
advancement is not permissible.
SECTION 8. Non-Exclusivity of Rights. The rights to indemnification and
advancement of Expenses set forth in this Article V shall not be exclusive of
any other right which any Director, Officer or Non-Officer Employee may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
or these By-laws, agreement, vote of stockholders or Disinterested Directors or
otherwise.
SECTION 9. Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any Director, Officer or Non-Officer Employee
against any liability of any character asserted against or incurred by the
Corporation or any such Director, Officer or Non-Officer Employee, or arising
out of any such person's Corporate Status, whether or not the Corporation would
have the power to indemnify such person against such liability under the DGCL or
the provisions of this Article V.
18
<PAGE> 19
SECTION 10. Severability. If any provision of this Article V shall be
held by a court of competent jurisdiction to be invalid, illegal or
unenforceable for any reason whatsoever, (a) the validity, legality and
enforceability of the remaining provisions of this Article V (including, without
limitation, each portion of any Section of this Article V containing any such
provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall not in any way be affected or impaired
thereby, (b) such invalid, illegal or unenforceable provision shall be deemed
reformed to the extent necessary to conform to applicable law and to give
maximum effect to the intent of the parties hereto, and (c) to the fullest
extent possible, the provisions of this Article V (including, without
limitation, each portion of any Section of this Article V containing any such
provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested by the provision held invalid, illegal or unenforceable.
ARTICLE VI
Miscellaneous Provisions
SECTION 1. Fiscal Year. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
SECTION 2. Seal. The Board of Directors shall have power to adopt and
alter the seal of the Corporation.
SECTION 3. Execution of Instruments. All deeds, leases, transfers,
contracts, bonds, notes and other obligations to be entered into by the
Corporation in the ordinary course of its business without director action may
be executed on behalf of the Corporation by the Chairman of the Board, if one is
elected, the President or the Treasurer or any other officer, employee or agent
of the Corporation as the Board of Directors or Executive Committee may
authorize.
SECTION 4. Voting of Securities. Unless the Board of Directors
otherwise provides, the Chairman of the Board, if one is elected, the President
or the Treasurer may waive notice of and act on behalf of this Corporation, or
appoint another person or persons to act as proxy or attorney in fact for this
Corporation with or without discretionary power and/or power of substitution, at
any meeting of stockholders or shareholders of any other corporation or
organization, any of whose securities are held by this Corporation.
SECTION 5. Resident Agent. The Board of Directors may appoint a
resident agent upon whom legal process may be served in any action or proceeding
against the Corporation.
SECTION 6. Corporate Records. The original or attested copies of the
Certificate, By-laws and records of all meetings of the incorporators,
stockholders and the Board of
19
<PAGE> 20
Directors and the stock transfer books, which shall contain the names of all
stockholders, their record addresses and the amount of stock held by each, may
be kept outside the State of Delaware and shall be kept at the principal office
of the Corporation, at the office of its counsel or at an office of its transfer
agent or at such other place or places as may be designated from time to time by
the Board of Directors.
SECTION 7. Amendment of By-laws.
(a) Amendment by Directors. Except as provided otherwise by law, these
By-laws may be amended or repealed by the Board of Directors by the affirmative
vote of a majority of the directors then in office.
(b) Amendment by Stockholders. These By-laws may be amended or repealed
at any Annual Meeting of stockholders, or special meeting of stockholders called
for such purpose, by the affirmative vote of at least two-thirds of the shares
present in person or represented by proxy at such meeting and entitled to vote
on such amendment or repeal, voting together as a single class; provided,
however, that if the Board of Directors recommends that stockholders approve
such amendment or repeal at such meeting of stockholders, such amendment or
repeal shall only require the affirmative vote of the majority of the shares
present in person or represented by proxy at such meeting and entitled to vote
on such amendment or repeal, voting together as a single class.
Adopted June __, 1997 and effective as of June __, 1997.
20
<PAGE> 1
EXHIBIT 4.1
INCORPORATED UNDER THE LAWS OF THE
STATE OF DELAWARE
NUMBER SHARES
UCRI
UNIQUE CASUAL RESTAURANTS, INC.
COMMON STOCK COMMON STOCK
PAR VALUE $0.01 CUSIP 90915K100
---------
SEE REVERSE FOR CERTAIN DEFINITIONS
This certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF THE PAR VALUE
OF ONE CENT ($.01) EACH OF
UNIQUE CASUAL RESTAURANTS, INC.
(hereinafter called the "Company") transferable, to the extent permitted by the
Amended and Restated Certificate of Incorporation and the Amended and Restated
Bylaws of the Company, upon the books of the Company by the holder in person or
by a duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate and the shares represented hereby are issued and
shall be subject to all of the provisions of the Amended and Restated
Certificate Incorporation and the Amended and Restated Bylaws of the Company as
from time to time amended (copies of which are on file with the Company) to all
the terms and conditions of which the holder, by acceptance hereof, assents.
This certificate is not valid unless countersigned by the Transfer Agent and
registered by the Registrar.
IN WITNESS WHEREOF, the Company has caused this certificate to be signed
by the facsimile signatures of its duly authorized officers and its facsimile
corporate seal to be hereunto affixed.
Dated:
UNIQUE CASUAL RESTAURANTS, INC.
CORPORATE
SEAL
1997
DELAWARE
/s/ Donald C. Moore /s/ William H. Baumhauer
- ---------------------------- -----------------------------
DONALD C. MOORE WILLIAM H. BAUMHAUER
TREASURER PRESIDENT AND CHIEF EXECUTIVE
OFFICER
COUNTERSIGNED AND REGISTERED.
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE> 2
UNIQUE CASUAL RESTAURANTS, INC.
THE CORPORATION WILL FURNISH TO THE HOLDER UPON REQUEST WITHOUT CHARGE A
COPY OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF
AUTHORIZED TO BE ISSUED AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF
SUCH PREFERENCES AND/OR RIGHTS.
The following abbreviations, when used in the inscription in the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- _______________ Custodian _________________
(Cust) (Minor)
under Uniform Gifts to Minors
Act________________________________________
(State)
Additional abbreviations may also be used though not in the above list.
For value received, _______________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_______________________________________
_______________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL
ZIP CODE OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocable constitute and appoint
______________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated __________________________
________________________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S)
GUARANTEED: __________________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKHOLDERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE> 1
Exhibit 10.1
TAX ALLOCATION AGREEMENT
BY AND AMONG
DAKA INTERNATIONAL, INC.
UNIQUE CASUAL RESTAURANTS, INC.
AND
COMPASS GROUP PLC
MAY 27, 1997
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
<CAPTION>
ARTICLE I
DEFINITIONS
<S> <C> <C>
1.1 Definitions..................................................................................... 1
ARTICLE II
FILING OF TAX RETURNS
2.1 Preparation of Tax Returns...................................................................... 5
2.2 Pre-Distribution Tax Returns.................................................................... 5
2.3 Post-Distribution Tax Returns................................................................... 6
ARTICLE III
PAYMENT OF TAXES
3.1 Allocation of Tax Liabilities................................................................... 6
3.2 Tax Refunds, Carrybacks and Carryforwards....................................................... 7
ARTICLE IV
ALLOCATION AND CALCULATION OF TAXES
4.1 Straddle Period Taxes........................................................................... 8
4.2 Calculations and Determinations................................................................. 9
4.3 Principles of Determination..................................................................... 10
ARTICLE V
TAX INDEMNIFICATION; TAX CONTESTS
5.1 Indemnification................................................................................. 10
5.2 Notice of Indemnity............................................................................. 12
5.3 Tax Contests.................................................................................... 12
5.4 Timing Adjustments.............................................................................. 13
5.5 Gross up for Taxes.............................................................................. 13
5.6 Right to Offset................................................................................. 14
ARTICLE VI
COOPERATION AND EXCHANGE OF INFORMATION
6.1 Cooperation and Exchange of Information......................................................... 14
6.2 Record Retention................................................................................ 14
ARTICLE VII
GENERAL PROVISIONS
7.1 Further Assurances.............................................................................. 15
7.2 Entire Agreement................................................................................ 15
7.3 Governing Law................................................................................... 15
7.4 Notices......................................................................................... 15
7.5 Amendment and Modification...................................................................... 16
7.6 Assignment...................................................................................... 16
7.7 No Third Party Beneficiaries.................................................................... 16
7.8 Enforcement..................................................................................... 16
7.9 Counterparts.................................................................................... 17
7.10 Interpretation.................................................................................. 17
7.11 Severability.................................................................................... 17
7.12 Termination..................................................................................... 17
7.13 Agent........................................................................................... 18
</TABLE>
i
<PAGE> 3
TAX ALLOCATION AGREEMENT
This TAX ALLOCATION AGREEMENT (the "Agreement") is dated as of May 27,
1997, among DAKA INTERNATIONAL, INC., a Delaware corporation ("International"),
UNIQUE CASUAL RESTAURANTS, INC., a Delaware corporation ("UCRI"), and COMPASS
GROUP PLC, a public limited company incorporated in England and Wales
("Compass").
RECITALS
WHEREAS, International, Compass, Compass Holdings, Inc., a Delaware
corporation ("Compass Holdings"), and Compass Interim, Inc., a wholly owned
subsidiary of Compass Holdings ("Compass Interim"), have entered into an
Agreement and Plan of Merger dated as of May 27, 1997 (the "Merger Agreement"),
providing for the Offer and the Merger (each as defined in the Merger Agreement)
of Compass Interim with and into International;
WHEREAS, International, Daka, Compass and Compass Holdings have entered
into a Reorganization Agreement dated as of the date hereof (the "Reorganization
Agreement");
WHEREAS, the execution and delivery of this Agreement by the parties hereto
is a condition to the obligations of the parties to the Merger Agreement to
consummate the Offer;
WHEREAS, the execution and delivery of this Agreement by the parties hereto
is a condition to the obligations of the parties to the Reorganization Agreement
to consummate the Contribution and the Distribution (each as defined in the
Reorganization Agreement); and
WHEREAS, Compass and International, on behalf of each of them and the
International Group (as defined herein) and UCRI, on behalf of itself and the
UCRI Group (as defined herein), wish to provide for the allocation between the
International Group and the UCRI Group of all responsibilities, liabilities and
benefits relating to or affecting Taxes (as hereinafter defined) paid or payable
by either of them for all taxable periods, whether beginning before, on or after
the Closing Date (as hereinafter defined) and to provide for certain other
matters;
NOW, THEREFORE, in consideration of the premises and of the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. Capitalized terms used in this Agreement and not otherwise
defined herein shall have the meanings assigned to such terms in the Merger
Agreement or the Reorganization Agreement, as the case may be. As used in this
Agreement, the following terms shall have the following respective meanings:
"Actually Realized" or "Actually Realizes" means, with respect to any Tax
Refund, the earlier of (i) the date on which the relevant party receives a
payment from a Taxing Authority, (ii) if the relevant party may elect to apply a
payment against any liability to the Taxing Authority, the date on which the
party would receive the payment in the absence of such election, or (iii) the
date on which the relevant party makes a payment to a Taxing Authority (or, if
earlier, the date on which such payment is due), the amount of which is reduced
by the Tax Refund or any portion thereof (including any deemed payment the
amount of which has been netted to zero). With respect to any Taxes, Income Tax
Benefit or Income Tax Detriment, "Actually Realized" or "Actually Realizes"
means the date on which the relevant party makes a payment to a Taxing Authority
(or, if earlier, the date on which such payment is due), the amount of which is
increased or decreased (or netted to zero) by the effect of such item, or, if
the effect of the item is to increase or decrease the amount of a Tax Refund,
the date determined as if the item were a Tax Refund.
"Affiliated Group" means the Affiliated group of which International is the
common parent.
"Carryforward Item" means any tax credit or loss carryforward of the
International Group or the UCRI Group, or any of their members, arising in the
Tax Indemnification Period.
"Closing Date" means the date on which the Distribution occurs or is deemed
to occur for Federal Income Tax purposes. Solely for purposes of this Agreement,
the Distribution shall be deemed effective as of the close of business on the
Closing Date.
<PAGE> 4
"Combined Taxes" means all Taxes due with respect to any combined,
consolidated or unitary state, local or foreign corporate Tax liability for all
Pre-Distribution Taxable Periods and Straddle Periods with respect to Joint Tax
Returns.
"Group" means either the International Group or the UCRI Group, as the
context provides.
"Income Tax Benefit" means for any taxable period the excess of (i) the
hypothetical Income Tax liability of the taxpayer for the taxable period
calculated as if the Timing Difference, Reverse Timing Difference or
Carryforward Item, as the case may be, had not occurred or not been available
but with all other facts unchanged, over (ii) the actual Income Tax liability of
the taxpayer for the taxable period, taking into account the Timing Difference,
Reverse Timing Difference or Carryforward Item, as the case may be (treating an
Income Tax Refund as a negative Income Tax liability for purposes of such
calculation).
"Income Tax Detriment" means for any taxable period the excess of (i) the
actual Income Tax liability of the taxpayer for the taxable period, calculated
taking into account the Timing Difference or Reverse Timing Difference, as the
case may be, over (ii) the hypothetical Income Tax liability of the taxpayer for
the taxable period, calculated as if the Timing Difference or Reverse Timing
Difference, as the case may be, had not occurred but with all other facts
unchanged (treating an Income Tax Refund as a negative Income Tax liability for
purposes of such calculation).
"Income Taxes" means any Tax based upon, measured by, or calculated with
respect to (i) net income or profits (including, but not limited to, any capital
gains, minimum Tax and any Tax on items of Tax preference, but not including
sales, use, real property gains, real or personal property, gross or net
receipts, transfer or similar Taxes) or (ii) multiple bases (including, but not
limited to, corporate franchise, doing business or occupation Taxes) if one or
more of the bases upon which such Tax may be based upon, measured by, or
calculated with respect to, is described in clause (i) above.
"Indemnitee" has the meaning set forth in Section 5.2.
"Indemnitor" has the meaning set forth in Section 5.2.
"Indemnity Issue" has the meaning set forth in Section 5.2.
"International Group" means International, Daka and Daka's Subsidiaries.
"International Tax Item" means a Tax Item that is attributable to the
International Group and is not a UCRI Tax Item.
"Joint Tax Return" means any Tax Return that includes a member of the
International Group and a member of the UCRI Group.
"UCRI Group" means UCRI and all other Subsidiaries of UCRI, determined
immediately after the Distribution and the Merger.
"UCRI Tax Item" means a Tax Item solely attributable to the UCRI Group.
"Non-Filing Party" means the group or member of a group which is included
in any Tax Return but is not the Responsible Party or a member of the
Responsible Party's group with respect to such Tax Return.
"Other Taxes" has the meaning set forth in Section 3.1(c).
"Post-Distribution Taxable Period" means a taxable period beginning after
the Closing Date.
"Post-Tax Indemnification Period" means any Post-Distribution Taxable
Period and that portion, beginning on the day after the Closing Date, of any
Straddle Period.
"Pre-Distribution Taxable Period" means a taxable period ending on (and
including) or before the Closing Date.
"Responsible Party" means the party responsible for the filing of a Tax
Return as determined under Section 2.2.
"Reverse Timing Difference" means an increase in income, gain or recapture,
or a decrease in deduction, loss or credit, as calculated for Income Tax
purposes, of the taxpayer for the Tax Indemnification Period coupled with an
increase in deduction, loss or credit, or a decrease in income, gain or
recapture, of the taxpayer for any Post-Tax Indemnification Period.
"Straddle Period" means a taxable period that includes but does not end on
the Closing Date.
2
<PAGE> 5
"Tax" or "Taxes" means all forms of taxation, whenever created or imposed,
and whether of the United States or elsewhere, and whether imposed by a local,
municipal, governmental, state, foreign, federal or other body, and without
limiting the generality of the foregoing, shall include income, sales, use, ad
valorem, gross receipts, license, value added, franchise, transfer, recording,
withholding, payroll, wage withholding, employment, excise, occupation,
unemployment insurance, social security, business license, business
organization, stamp, environmental, premium and property taxes, together with
any related interest (including the actual interest that would have accrued if
there were no netting of Taxes), penalties and additions to any such tax, or
additional amounts imposed by any Taxing Authority (domestic or foreign) upon
the International Group, the UCRI Group, Compass or any of their respective
members or divisions or branches or Affiliates.
"Tax Audit Proceeding" means any audit or other examination, judicial or
administrative proceeding relating to liability for or refunds or adjustments
with respect to Taxes.
"Tax Deficiency" means a net increase in Taxes payable as a result of a Tax
Audit Proceeding or an amendment of a Tax Return or an event having a similar
effect.
"Tax Indemnification Period" means any Pre-Distribution Taxable Period and
that portion, ending on the Closing Date, of any Straddle Period.
"Tax Item" means any item of income, gain, loss, deduction, credit,
provisions for reserves, recapture of credits or any other item which is taken
into account in determining taxable income or is otherwise taken into account in
determining Taxes paid or payable, including an adjustment under Section 481 of
the Code resulting from a change in accounting method.
"Tax Records" has the meaning set forth in Section 6.3.
"Tax Refund" means a refund of Taxes (including a reduction in Taxes as a
result of any credit or any offset against Taxes or Tax Items) reduced (but not
below zero) by any net increase in Taxes Actually Realized by the recipient (or
its Affiliate) thereof as a result of the receipt thereof.
"Tax Return" means any return, filing, questionnaire, information return or
other document required to be filed, including requests for extensions of time,
filings made with respect to estimated tax payments, claims for refund and
amended returns that may be filed, for any period with any Taxing Authority
(whether domestic or foreign) in connection with any Tax or Taxes (whether or
not a payment is required to be made with respect to such filing).
"Taxing Authority" means any governmental or quasi-governmental body
exercising any Taxing authority or Tax regulatory authority.
"Timing Difference" means an increase in income, gain or recapture, or a
decrease in deduction, loss or credit, as calculated for Income Tax purposes, of
the taxpayer for any Post-Tax Indemnification Period coupled with an increase in
deduction, loss or credit, or a decrease in income, gain or recapture, of the
taxpayer for the Tax Indemnification Period.
"Transfer Taxes" means all transfer, documentary, sales, use, registration,
value-added and other similar Taxes (including all applicable real estate
transfer Taxes and real property transfer gains Taxes) and related amounts
(including any penalties, interest and additions to Tax) arising as a result of
or otherwise incurred in connection with any of the transactions contemplated by
the Merger Agreement or the Ancillary Agreements.
ARTICLE II
FILING OF TAX RETURNS
2.1 PREPARATION OF TAX RETURNS. All Tax Returns described in Section 2.2
hereof filed after the date of this Agreement, in the absence of a controlling
change in law or circumstances, shall be prepared on a basis consistent with the
elections, accounting methods, conventions and principles of taxation used for
the most recent taxable periods for which Tax Returns involving similar Tax
Items have been filed and in a manner that does not unreasonably accelerate
deductions or defer income between Tax Indemnification Periods and Post-Tax
Indemnification Periods. Notwithstanding the foregoing, either Group may prepare
Tax Returns inconsistent with such elections, accounting methods, conventions
and principles to the extent that such Tax Returns would not increase the
economic burden of or a reduction in Tax attributes of the other party.
3
<PAGE> 6
2.2 PRE-DISTRIBUTION TAX RETURNS.
(a) CONSOLIDATED FEDERAL TAX RETURNS. Subject to the provisions of Section
4.2, the Affiliated Group consolidated Federal Tax Returns (including amendments
thereto) required to be filed or actually filed for any Pre-Distribution Taxable
Period after the date hereof shall be prepared and filed or caused to be
prepared and filed by UCRI.
(b) OTHER PRE-DISTRIBUTION TAXABLE PERIOD AND STRADDLE PERIOD TAX RETURNS.
Subject to the provisions of Section 4.2:
(i) All Tax Returns (including amendments thereto) other than those
described in Section 2.2(a), 2.2(b)(ii), and 2.2(b)(iii), which include a
member of the Affiliated Group that are required to be filed or are
actually filed for a Pre-Distribution Taxable Period shall be prepared and
filed or caused to be prepared and filed by UCRI;
(ii) All Tax Returns (including amendments thereto) other than those
described in Section 2.2(a) and 2.2(b)(i), which include, after the Closing
Date, a member of the International Group that are required to be filed or
are actually filed for a Straddle Period shall be prepared and filed or
caused to be prepared and filed by International;
(iii) All Tax Returns (including amendments thereto) other than those
described in Section 2.2(a) and 2.2(b)(ii), which include a member of the
UCRI Group that are required to be filed or are actually filed for a
Straddle Period shall be prepared and filed or caused to be prepared and
filed by UCRI; and
(iv) In the event that the Non-Filing Party reasonably determines that
the Responsible Party will not be able to timely file any Tax Return and
that such inability of the Responsible Party is not attributable to the
failure of the Non-Filing Party to perform under this Agreement, the
Non-Filing Party may, after giving the Responsible Party written notice,
prepare and file or cause to be prepared and filed such Tax Return. If the
Non-Filing Party elects to file any such Tax Return, the Non-Filing Party
shall be deemed to be the Responsible Party for purposes of this Agreement
other than this Section 2.2(b)(iv).
2.3 POST-DISTRIBUTION TAX RETURNS. All Tax Returns for all
Post-Distribution Taxable Periods shall be the responsibility of the UCRI Group
if such Tax Returns relate to a member or members of the UCRI Group or their
respective assets or businesses, and shall be the responsibility of the
International Group if such Tax Returns relate to a member or members of the
International Group or their respective assets or businesses.
ARTICLE III
PAYMENT OF TAXES
3.1 ALLOCATION OF TAX LIABILITIES.
(a) CONSOLIDATED FEDERAL TAX LIABILITIES. UCRI shall pay or cause to be
paid, on a timely basis, all Taxes due with respect to the consolidated Federal
Tax liability for all Pre-Distribution Taxable Periods of the Affiliated Group.
(b) OTHER TAXES. Except as otherwise provided in this Agreement, the
Responsible Party shall pay or cause to be paid, on a timely basis, all Other
Taxes. In the event that UCRI is the Non-Filing Party, UCRI hereby assumes and
agrees to pay directly to or at the direction of International, at least two
days prior to the date payment (including estimated payment) thereof is due,
those Other Taxes for all Pre-Distribution Taxable Periods and the portion,
ending on the Closing Date, of any Straddle Period which have not been paid on
or before the Closing Date. The Non-Filing Party hereby assumes and agrees to
pay directly or at the direction of the Responsible Party, at least two days
prior to the date payment (including estimated payments) thereof is due, the
Non-Filing Party's allocable share of those Other Taxes for the portion,
commencing on the day after the Closing Date, of any Straddle Period which have
not been paid on or before the Closing Date.
(c) POST-DISTRIBUTION TAXES. Except as provided otherwise in this
Agreement, all Taxes for all Post-Distribution Taxable Periods shall be paid or
caused to be paid by the party responsible under this Agreement for filing the
Tax Return pursuant to which such Taxes are due or, if no such Tax Returns are
due, by the party liable for such Taxes.
3.2 TAX REFUNDS, CARRYBACKS AND CARRYFORWARDS.
(a) RETENTION AND PAYMENT OF TAX REFUNDS. Except as otherwise provided in
this Agreement, International shall be entitled to retain the portion of all Tax
Refunds of Taxes of which the International Group bears the economic
4
<PAGE> 7
burden under the terms of this Agreement, and UCRI shall be entitled to receive
within ten days after Actually Realized by the International Group, the portion
of all Tax Refunds of Taxes of which the UCRI Group bears the economic burden
under the terms of this Agreement. Notwithstanding the foregoing, all Tax
Refunds resulting from the carryback of any International Tax Item arising in a
Post-Tax Indemnification Period to a Tax Indemnification Period (determined in a
manner analogous to the determination of an Income Tax Benefit) shall be for the
account and benefit of the International Group.
(b) CARRYBACKS. Except as otherwise provided in this Agreement, any Tax
Refund resulting from the carryback of any UCRI Tax Item arising in a Post-Tax
Indemnification Period to a Tax Indemnification Period (determined in a manner
analogous to the determination of an Income Tax Benefit) shall be for the
account of UCRI, and International shall pay over to UCRI any such Tax Refund
within ten days after it is Actually Realized by International or any member of
the International Group (including for this purpose Compass and its Affiliates).
(c) CARRYFORWARDS. Except as otherwise provided in this Agreement,
International shall pay over to UCRI the amount of the Income Tax Benefit
associated with any Carryforward Item within ten days after such Income Tax
Benefit is Actually Realized by International or any member of the International
Group (including for this purpose Compass and its Affiliates)
(d) REFUND CLAIMS.
(i) UCRI shall file or cause to be filed, and International shall
reasonably cooperate with UCRI in connection with, any claims for Tax
Refund to which UCRI is entitled pursuant to this Section 3.2 or any other
provision of this Agreement. UCRI shall reimburse International for any
reasonable out-of-pocket costs and expenses incurred by any member of the
International Group in connection with such cooperation.
(ii) International shall be permitted to file at International's sole
expense, and UCRI shall reasonably cooperate with International in
connection with, any claims for Tax Refund to which International is
entitled pursuant to this Section 3.2 or any other provision of this
Agreement. International shall reimburse UCRI for any reasonable
out-of-pocket costs and expenses incurred by any member of the UCRI Group
in connection with such cooperation.
(iii) Any claim for a Tax Refund, other than Tax Refunds which are
attributable solely to a member of the UCRI Group, to which UCRI is
entitled under this Agreement shall be subject to the International Group's
consent (such consent not to be unreasonably withheld or delayed), to be
exercised in a manner analogous to that set forth in Section 4.2.
(iv) Any claim for a Tax Refund, other than Tax Refunds which are
attributable solely to a member of the International Group, to which the
International Group is entitled under this Agreement shall be subject to
the UCRI Group's consent (such consent not to be unreasonably withheld or
delayed), to be exercised in a manner analogous to that set forth in
Section 4.2.
ARTICLE IV
ALLOCATION AND CALCULATION OF TAXES
4.1 STRADDLE PERIOD TAXES. In the case of any Straddle Period:
(a) the periodic Taxes of the International Group and the UCRI Group that
are not based on income or receipts (e.g., property Taxes) for the portion,
ending on the Closing Date, of any Straddle Period shall be computed based on
the ratio of the number of days in such portion of the Straddle Period and the
number of days in the entire taxable period;
(b) Taxes of the International Group and the UCRI Group for the portion,
ending on the Closing Date, of any Straddle Period (other than Taxes described
in Section 4.1(a) above) shall be computed as if such taxable period ended as of
the close of business on the Closing Date, and, in the case of any Taxes of the
International Group and the UCRI Group attributable to the ownership by any
member of the International Group and the UCRI Group of any equity interest in
any partnership or other "flowthrough" entity, as if a taxable period of such
partnership or other "flowthrough" entity ended as of the close of business on
the Closing Date; and
5
<PAGE> 8
(c) with respect to any Joint Tax Return for the portion, beginning on the
day after the Closing Date, of a Straddle Period, the allocation of Tax
liability between the International Group, on the one hand, and the UCRI Group,
on the other hand, shall be determined in a manner analogous to that set forth
in Treasury Regulation Section 1.1552-1(a)(2).
4.2 CALCULATIONS AND DETERMINATIONS.
(a) All calculations and determinations, including the preparation of Tax
Returns, required to be made pursuant to this Agreement, shall be made in good
faith by the Responsible Party on a basis consistent with prior years and in a
manner that does not unreasonably accelerate or defer deductions or income
between Tax Indemnification Periods and Post-Tax Indemnification Periods. The
Responsible Party will prepare and submit to the Non-Filing Party preliminary
drafts of any calculations (including calculations of the amount for which the
Non-Filing Party will be liable under this Agreement) no later than 90 days
prior to the due date (taking into account any extensions). Notwithstanding the
foregoing, in the event that the first day of such 90 day period is less than 45
days after the close of the Taxable Period, such time period shall be reduced to
the number of days remaining prior to the due date of such Tax Return after
subtracting 45 days after the close of the Taxable Period. Such calculations and
Returns determinations shall be subject to the written approval of the
Non-Filing Party, which approval shall not be unreasonably withheld or delayed.
If the Non-Filing Party's written approval of such calculations and
determinations is withheld, the Non-Filing Party shall so notify the Responsible
Party by the later of (i) the date that is 65 days prior to the date on which
the applicable Tax Returns are to be filed or (ii) the date that is 10 days
after the Non-Filing Party receives preliminary drafts of such calculations or
determinations. Notwithstanding the foregoing, no party shall be required to
submit to the other any calculations, determinations or Tax Returns with respect
to Post-Distribution Taxable Periods.
(b) Whenever the Non-Filing Party is required to make any calculations or
determinations in support of the calculations and determinations referred to in
Section 4.2(a), the Non-Filing Party shall, and shall cause each appropriate
member of its group to, prepare and submit to the Responsible Party, at the
Responsible Party's expense, no later than 120 days prior to the due date
(taking into account any extensions), preliminary drafts of any material
calculations (including calculations of the amount for which the Non-Filing
Party will be liable under this Agreement) or determinations and such other
information as the Responsible Party shall reasonably request, and if requested
by the Responsible Party, access (during reasonable business hours and upon
reasonable advance notice) to copies of the relevant portions of any Tax
Returns, reports or other statements. Notwithstanding the foregoing, in the
event that the first day of such 120 day period is less than 45 days after the
close of the Taxable Period, such time period shall be reduced to the number of
days remaining prior to the due date of such Tax Return after subtracting 45
days after the close of the Taxable Period.
(c) If International and UCRI are unable to agree upon any such
calculations and determinations in the manner set forth in this Section 4.2,
such dispute shall be submitted to Deloitte & Touche, L.L.P., Charlotte, North
Carolina, no later than 60 days prior to the date on which the applicable Tax
Returns are to be filed. Deloitte & Touche, L.L.P. shall then determine a
resolution to such dispute and shall notify International and UCRI of its
resolution no later than 45 days prior to the date on which the applicable Tax
Returns are to be filed. In the event that International or UCRI are unable to
accept any resolution determined by Deloitte & Touche, L.L.P., the party that
does not accept Deloitte & Touche, L.L.P.'s determination may select another
nationally recognized accounting firm to make such determination and such
nationally recognized accounting firm shall notify International and New
International of its resolution no later than 30 days prior to the date on which
the applicable Tax Returns are to be filed. In the event that the resolutions of
Deloitte & Touche, L.L.P. and the nationally recognized accounting firm do not
agree, a third mutually acceptable nationally recognized accounting firm,
jointly selected by Deloitte & Touche, L.L.P. and the second accounting firm,
shall make the final resolution, which resolution shall be final and binding on
International and UCRI, and shall notify International and UCRI of its
resolution no later than two weeks prior to the date on which the applicable Tax
Returns are to be filed. The determinations of the accounting firms shall be in
accordance with tax practices normally used in similar matters and similar
industries. The fees of the accounting firms incurred in resolving the dispute
shall be shared equally by International and UCRI.
4.3 PRINCIPLES OF DETERMINATION. In implementing this Agreement, except as
otherwise specifically provided, the parties shall make any adjustments that are
necessary to ensure that, with respect to Taxes for Straddle Periods or Pre-
Distribution Taxable Periods, payments and reimbursements between the parties
reflect the principles that International is to bear responsibility for Taxes
for International Group (and any Affiliates) that are attributable to the
portion, after the Closing Date, of any Straddle Period (calculated by treating
the day after the Closing Date as the first day of a
6
<PAGE> 9
taxable period), and that UCRI is to bear responsibility for all other Taxes for
Straddle Periods and Pre-Distribution Taxable Periods.
ARTICLE V
TAX INDEMNIFICATION; TAX CONTESTS
5.1 INDEMNIFICATION.
(a) UCRI INDEMNIFICATION. Except as otherwise provided in Section 5.1(b),
UCRI and the UCRI Group shall be liable for and shall indemnify, defend and hold
harmless the members of the International Group and Compass and each of their
respective Affiliates and representatives from and against (A) all Taxes of the
International Group and the UCRI Group for Pre-Distribution Taxable Periods, (B)
all Taxes of the International Group and the UCRI Group for the portion, ending
on the Closing Date, of any Straddle Period, (C) all Taxes of the UCRI Group for
the portion, beginning on the day after the Closing Date (calculated by treating
the day after the Closing Date as the first day of a taxable period), of any
Straddle Period, (D) all Taxes of the UCRI Group for Post-Distribution Taxable
Periods, (E) all liability (as a result of Treasury Regulation Section
1.1502-6(a) or otherwise) for Income Taxes of any person (other than a member of
the International Group or of the UCRI Group or any of Compass or its
Affiliates) which is or has ever been Affiliated with any member of the UCRI
Group or with which any member of the UCRI Group joins or has ever joined (or is
or has ever been required to join) in filing any consolidated, combined or
unitary Tax Return for any Pre-Distribution Taxable Period or Straddle Period,
(F) all liability (as a result of Treasury Regulation Section 1.1502-6(a) or
otherwise) for Income Taxes of any person (other than a member of the
International Group or of the UCRI Group) which has been on or before the
Closing Date Affiliated with any member of the International Group or with which
any member of the International Group joins or has joined on or before the
Closing Date in filing any consolidated, combined or unitary Tax Return for any
Pre-Distribution Taxable Period or Straddle Period, (G) any Transfer Taxes
imposed in connection with or as a result of the Contribution and/or the
Distribution, and one-half of any Transfer Taxes imposed in connection with or
as a result of the Merger, (H) all Taxes for any taxable period (whether
beginning before, on or after the Closing Date) that would not have been payable
but for the breach by any member of the UCRI Group of any representation,
warranty or obligation under this Agreement, (I) all Taxes for any taxable
period (whether beginning before, on or after the Closing Date) that would not
have been payable but for the inaccuracy of the representations and warranties
contained in clauses (ix) or (xii) of Section 4.2(o) of the Merger Agreement or
the breach of the covenant contained in Section 5.1(l) of the Merger Agreement,
(J) all liability for Taxes resulting from the Contribution or Distribution and
(K) all liability for any reasonable legal, accounting, appraisal, consulting or
similar fees and expenses relating to the foregoing.
(b) INTERNATIONAL AND COMPASS INDEMNIFICATION. Except as otherwise provided
in Section 5.1(a), International and Compass shall be liable for and shall
indemnify, defend and hold harmless the members of UCRI Group and each of their
respective Affiliates and representatives from and against (A) all Taxes of
International Group (which, for purposes of all clauses of this Section 5.1(b),
shall include Compass and its Affiliates) for Post-Distribution Taxable Periods,
(B) all Taxes of International Group for the portion, beginning on the day after
the Closing Date (calculated by treating the day after the Closing Date as the
first day of a taxable period), of any Straddle Period, (C) all Taxes for any
taxable period (whether beginning before, on or after the Closing Date) that
would not have been payable but for the breach by any member of International
Group of any representation, warranty or obligation under this Agreement, (D)
all liability for any reasonable legal, accounting, appraisal, consulting or
similar fees and expenses relating to the foregoing, and (E) one-half of any
Transfer Taxes imposed in connection with or as a result of the Merger.
(c) PAYMENTS. Any indemnity payment required to be made pursuant to this
Section 5.1 shall be paid within 30 days after the indemnified party makes
written demand upon the indemnifying party, but in no case earlier than five
business days prior to the date on which the relevant Taxes are required to be
paid (or would be required to be paid if no such Taxes are due) to the relevant
Taxing Authority (including estimated Tax payments).
5.2 NOTICE OF INDEMNITY. Whenever a party hereto (hereinafter an
"Indemnitee") becomes aware of the existence of an issue raised by any Taxing
Authority which could reasonably be expected to result in a determination that
would increase the liability for any Tax of the other party hereto or any member
of such party's Group for any Post-Tax Indemnification Period (in the case of
International Group) or for any Tax Indemnification Period (in the case of the
UCRI Group) or require a payment hereunder to the other party (hereinafter an
"Indemnity Issue"), the Indemnitee shall in good faith promptly give notice to
such other party (hereinafter the "Indemnitor") of such Indemnity Issue. The
7
<PAGE> 10
failure of any Indemnitee to give such notice shall not relieve any Indemnitor
of its obligations under this Agreement except to the extent such Indemnitor or
its Affiliate is actually prejudiced by such failure to give notice.
5.3 TAX CONTESTS. The Indemnitor and its representatives, at the
Indemnitor's expense, shall be entitled to participate (A) in all conferences,
meetings or proceedings with any Taxing Authority, the subject matter of which
is or includes an Indemnity Issue and (B) in all appearances before any court,
the subject matter of which is or includes an Indemnity Issue. The Responsible
Party for the Tax Return with respect to which there could be an increase in
liability for any Tax or with respect to which a payment could be required
hereunder shall have the right to decide as between the parties hereto how such
matter is to be dealt with and finally resolved with the appropriate Taxing
Authority and shall control all audits and similar proceedings. If no Tax Return
is or was required to be filed in respect of an Indemnity Issue, the Indemnitor
shall be treated as the Responsible Party with respect thereto. The Responsible
Party agrees to cooperate in the settlement of any Indemnity Issue with the
other party and to take such other party's interests into account. If the
Indemnitor is not the Responsible Party, such cooperation may include permitting
the Indemnitor, at the Indemnitor's sole expense, to litigate or otherwise
resolve any Indemnity Issue. If UCRI is the Responsible Party and if the Taxes
at issue in the aggregate may equal or exceed $25,000 (computed taking into
account reasonably anticipated future year Tax costs on a present value basis),
(i) UCRI shall not settle any such Indemnity Issue without the prior written
consent of Compass, which consent shall not be unreasonably withheld, (ii)
Compass, and counsel of its own choosing, shall have the right to participate
fully, at its own expense, in all aspects of the defense of such Indemnity
Issue, (iii) UCRI shall inform Compass, reasonably promptly in advance, of the
date, time and place of all administrative and judicial meetings, conferences,
hearings and other proceedings relating to such Indemnity Issue, (iv) Compass
shall, at its own expense, be entitled to have its representatives (including
counsel, accountants and consultants) attend and participate in any such
administrative and judicial meetings, conferences, hearings and other
proceedings relating to such Indemnity Issue, (v) UCRI shall provide to Compass
all information, document requests and responses, proposed notices of
deficiency, notices of deficiency, revenue agent's reports, protests, petitions
and any other documents relating to such Indemnity Issue promptly upon receipt
from, or in advance of submission to (as the case may be), the relevant Taxing
Authority or courts and (vi) UCRI shall not file or submit any protests, briefs,
responses, petitions or other documents relating to such Indemnity Issue with
such relevant Taxing Authority or courts without the prior written consent of
Compass, which consent shall not be unreasonably withheld or delayed, provided
that UCRI may make such filing or submission if required to comply with any
deadline imposed by law (including by order of a court or administrative
authority) if UCRI has made commercially reasonable efforts to obtain such prior
consent.
5.4 TIMING ADJUSTMENTS.
(a) TIMING DIFFERENCES. If a Tax Audit Proceeding, an amendment of a Tax
Return, or any payment adjustment described in Section 2.6 of the Post-Closing
Covenants Agreement results in a Timing Difference, and such Timing Difference
results in a decrease in an indemnity obligation UCRI has or would otherwise
have under Section 5.1 and/or an increase in the amount of a Tax Refund to which
UCRI is entitled to under Section 3.2, then in each Post-Tax Indemnification
Period in which International Group Actually Realizes an Income Tax Detriment,
UCRI shall pay to International an amount equal to such Income Tax Detriment;
provided, however, that the aggregate payments which UCRI shall be required to
make under this Section 5.4(a) with respect to any Timing Difference shall not
exceed the aggregate amount of the Income Tax Benefits realized by the UCRI
Group for all taxable periods. UCRI shall make all such payments within ten days
after International notifies UCRI that the relevant Income Tax Detriment has
been Actually Realized.
(b) REVERSE TIMING DIFFERENCES. If a Tax Audit proceeding, an amendment of
a Tax Return or any payment adjustment described in Section 2.6 of the
Post-Closing Covenants Agreement results in a Reverse Timing Difference, and
such Reverse Timing Difference results in an increase in an indemnity obligation
of UCRI under Section 5.1 and/or a decrease in the amount of a Tax Refund to
which UCRI is or would otherwise be entitled to under Section 3.2, then in each
Post-Tax Indemnification Period in which International Group Actually Realizes
an Income Tax Benefit, International shall pay to UCRI within ten days after
International has Actually Realized such Income Tax Benefit an amount equal to
such Income Tax Benefit; provided, however, that the aggregate payments which
International shall be required to make under this Section 5.4(b) which respect
to any Reverse Timing Difference shall not exceed the aggregate amount of the
Income Tax Detriments realized by the UCRI Group for all taxable periods and by
the International Group for all Tax Indemnification Periods as a result of such
Reverse Timing Difference.
5.5 GROSS UP FOR TAXES. It is the intention of the parties that payments
and asset transfers made pursuant to this Agreement are to be treated as
relating back to the Contribution as an adjustment to the assets and liabilities
contributed
8
<PAGE> 11
thereunder, and the parties shall not take any position inconsistent with such
intention before any Taxing Authority, unless, with respect to any payment, any
party receives an opinion of counsel to the effect that there is no substantial
authority for such position or unless a final determination (as defined in
Section 1313 of the Code), with respect to the recipient party, causes any such
payment not to be so treated. To the extent that any Taxing Authority makes such
a final determination, any amount received by the Indemnitee, to the extent that
it is treated as an item of income or gain for federal income tax purposes and
is not offset by the amount of any tax benefit allowed to the Indemnitee for the
payment or incurrence of any liability from which the Indemnity Issue arises,
shall be increased by 40%. For purposes of this Section 5.5, the Indemnity Issue
amount shall not, in any case, include the gross-up determined under this
Section 5.5.
5.6 RIGHT TO OFFSET. Any party making a payment under this Agreement shall
have the right to reduce any such payment by any amounts owed to it by the other
party to this Agreement pursuant to the Merger Agreement or any other Ancillary
Agreement.
ARTICLE VI
COOPERATION AND EXCHANGE OF INFORMATION
6.1 COOPERATION AND EXCHANGE OF INFORMATION.
(a) Each party hereto, on behalf of itself and its Affiliates, agrees to
provide the other party hereto with such cooperation and information as such
other party shall reasonably request in connection with the preparation or
filing of any Tax Return or claim for Tax Refund not inconsistent with this
Agreement or in conducting any audit or other proceeding in respect to Taxes or
to carry out the provisions of this Agreement.
(b) To the extent necessary to carry out the purposes of this Agreement and
subject to the other provisions of this Agreement, such cooperation and
information shall include without limitation the designation of an officer of
International for the purpose of (i) signing Tax Returns, cashing refund checks,
pursuing refund claims, (ii) attending meetings with Taxing Authorities, (iii)
defending audits and (iv) promptly forwarding copies of appropriate notices and
forms or other communications received from or sent to any Taxing Authority
which relate to the Tax Indemnification Period and providing copies of all
relevant Tax Returns for the Tax Indemnification Period, together with
accompanying schedules and related workpapers, documents relating to rulings or
other determinations by Taxing Authorities, including without limitation,
foreign Taxing Authorities, and records concerning the ownership and Tax basis
of property, which either party may possess. Such officer shall have the
authority, subject to the rights of UCRI under this Agreement and at UCRI's
direction, to execute powers of attorney (including Form 2848) on behalf of each
member of the Affiliated Group with respect to Tax Returns and Taxes for the Tax
Indemnification Period. The services of such officer shall not be unreasonably
withheld.
(c) Each party to this Agreement shall make, or shall cause its Affiliates
to make, their employees and facilities available on a mutually convenient basis
to provide an explanation of any documents or information provided hereunder.
6.2 RECORD RETENTION. Notwithstanding Section 6.3 of the Reorganization
Agreement, International and UCRI agree to (i) retain all Tax Returns, related
schedules and workpapers, and all material records and other documents as
required under Section 6001 of the Code and the regulations promulgated
thereunder relating thereto ("Tax Records") existing on the date hereof or
created through the Closing Date, for 10 years from the Closing Date and (ii)
allow the other parties to this Agreement and their representatives (and
representatives of any of its Affiliates), at times and dates reasonably
acceptable to the retaining party, to inspect, review and make copies of such
records, and have access to such employees, as International and UCRI may
reasonably deem necessary or appropriate from time to time, such activities to
be conducted during normal business hours and without disruption to either of
its businesses. At the end of the 10-year period described in clause (i),
International or UCRI, as the case may be, shall transfer such records (or cause
such records to be transferred) to the other party (at such other party's sole
expense), unless such other party notifies International or UCRI, as the case
may be, within 90 days prior to the expiration of the 10-year period, that such
other party does not desire to receive such Tax Records, in which case
International or UCRI, as the case may be, may destroy or otherwise dispose of
such undesired documents. Notwithstanding the foregoing, International and UCRI
may mutually agree in writing that such records and other documents may be
destroyed or otherwise disposed of before the end of the 10-year period.
9
<PAGE> 12
ARTICLE VII
GENERAL PROVISIONS
7.1 FURTHER ASSURANCES. Each party hereto shall cooperate reasonably with
the other parties, and execute and deliver, or use its reasonable best efforts
to cause to be executed and delivered, all instruments, including instruments of
conveyance, assignment and transfer, and to make all filings with, and to obtain
all consents, approvals or authorizations of, any governmental or regulatory
authority or any other Person under any permit, license, agreement, indenture or
other instrument, and take all such other actions as such party may reasonably
be requested to take by any other party hereto from time to time, consistent
with the terms of this Agreement, in order to effectuate the provisions and
purposes of this Agreement and the other transactions contemplated hereby or in
any of the Ancillary Agreements.
7.2 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules hereto,
the Merger Agreement and the Ancillary Agreements shall constitute the entire
agreement between the parties hereto with respect to the subject matter hereof,
superseding all previous negotiations, commitments and writings with respect to
such subject matter.
7.3 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, REGARDLESS OF THE LAWS THAT
MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
7.4 NOTICES. Any notice, request, instruction or other document to be given
hereunder by any party to any other party shall be in writing and shall be
deemed to have been duly given (a) on the first business day occurring on or
after the date of transmission if transmitted by facsimile (upon confirmation of
receipt by journal or report generated by the facsimile machine of the party
giving such notice), (b) on the first business day occurring on or after the
date of delivery if delivered personally, or (c) on the first business day
following the date of dispatch if dispatched by Federal Express or other
next-day courier service. All notices hereunder shall be given as set forth
below, or pursuant to such other instructions as may be designated in writing by
the party to receive such notice:
(a) if to Compass or International after the Closing Date, to
Compass Group USA, Inc.
2400 Yorkmont Road
Charlotte, North Carolina 28217
Attention: General Counsel
(b) if to UCRI or International before the Closing Date, to
Daka International, Inc.
One Corporate Place
55 Ferncroft Road
Danvers, Massachusetts 01923-4001
Attention: General Counsel
7.5 AMENDMENT AND MODIFICATION. This Agreement may be amended, modified or
supplemented, and rights hereunder may be waived, only by a written agreement
signed by duly authorized officers of the respective parties. No waiver of any
term, provision or condition of or failure to exercise or delay in exercising
any rights or remedies under this Agreement, in one or more instances, shall be
deemed to be, or construed as, a further or continuing waiver of such term,
provision, condition, right or remedy or as a waiver of any other term,
provision or condition of, or right or remedy under, this Agreement.
7.6 ASSIGNMENT. No party to this Agreement shall convey, assign or
otherwise transfer any of its rights or obligations under this Agreement without
the express written consent of the other parties hereto in their sole and
absolute discretion, except that any party hereto may assign any of its rights
hereunder to a successor to all or any part of its business. Except as
aforesaid, any such conveyance, assignment or transfer without the express
written consent of the other parties shall be void ab initio. No assignment of
this Agreement shall relieve the assigning party of its obligations hereunder.
7.7 NO THIRD PARTY BENEFICIARIES. Nothing contained in this Agreement is
intended to confer upon any person or entity other than the parties hereto and
their respective successors and permitted assigns, any benefit, right or
remedies.
10
<PAGE> 13
7.8 ENFORCEMENT.
(a) The parties agree that irreparable damage would occur in the event that
any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached. It is accordingly agreed that
the parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
of this Agreement, this being in addition to any other remedy to which they are
entitled at law or in equity.
(b) Except for claims barred by the applicable statute of limitations
(which may not be pursued by the parties in any judicial, arbitral or other
forum), any and all disputes between the parties that arise out of or relate to
this Agreement or any other agreement between the parties entered into in
connection herewith or the transactions contemplated hereby or thereby, and
which cannot be amicably settled, shall be determined solely and exclusively by
arbitration administered by the American Arbitration Association ("AAA") under
its commercial arbitration rules for such disputes at its office in Boston,
Massachusetts. The parties expressly, unconditionally and irrevocably waive any
right to recision, repudiation or any similar remedy in any legal action
hereunder. The arbitration panel (the "Panel") shall be formed of three
arbitrators approved by the AAA, one to be appointed by Compass, one to be
appointed by UCRI, and the third to be appointed by the first two or, in the
event of failure to agree within 30 days, by the President of the AAA. Judgment
on the award rendered by the Panel may be entered in any court having
jurisdiction thereof.
(c) To the extent a court action is authorized above, the parties hereby
consent to the jurisdiction of the United States District Court of
Massachusetts. Each of the parties waives personal service to any and all
process upon them and each consent that all such service of process be made by
certified mail directed to them at their address shown in Section 7.4 hereof.
THE PARTIES WAIVE TRIAL BY JURY AND WAIVE ANY OBJECTION TO VENUE OF ANY ACTION
INSTITUTED HEREUNDER.
7.9 COUNTERPARTS. For the convenience of the parties, this Agreement may be
executed in any number of separate counterparts, each such counterpart being
deemed to be an original instrument, and all such counterparts shall together
constitute the same agreement.
7.10 INTERPRETATION. When a reference is made in this Agreement to a
Section, Exhibit or Schedule, such reference shall be to a Section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
7.11 SEVERABILITY. If any provision of this Agreement or the application
thereof to any person or circumstance is determined by a court of competent
jurisdiction to be invalid, void or unenforceable, the remaining provisions
hereof, or the application of such provision to persons or circumstances other
than those as to which it has been held invalid or unenforceable, shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated thereby, so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner adverse to any
party. Upon any such determination, the parties shall negotiate in good faith in
an effort to agree upon a suitable and equitable substitute provision to effect
the original intent of the parties.
7.12 TERMINATION. In the event the Merger Agreement is terminated,
notwithstanding any provision hereof, this Agreement may be terminated and the
Distribution abandoned at any time prior to the Closing Date by and in the sole
discretion of the International Board without the approval of any other party
hereto or of International's shareholders. In the event of such termination, no
party hereto shall have any Liability to any Person by reason of this Agreement.
7.13 AGENT. Any consent rights of members of the UCRI Group under this
Agreement shall be exercised by UCRI on behalf of the UCRI Group, and any
notices given by International Group to UCRI shall be deemed to be given to each
member of the UCRI Group. Any consent rights of International Group under this
Agreement shall be exercised by Compass on behalf of International Group, and
any notices given by UCRI to Compass shall be deemed to be given to each member
of International Group.
11
<PAGE> 14
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto on the date first hereinabove
written.
DAKA INTERNATIONAL, INC.
By: /s/ DONALD C. MOORE
DONALD C. MOORE
SENIOR VICE PRESIDENT
UNIQUE CASUAL RESTAURANTS, INC.
By: /s/ DONALD C. MOORE
DONALD C. MOORE
SENIOR VICE PRESIDENT
COMPASS GROUP PLC
By: /s/ MICHAEL J. BAILEY
MICHAEL J. BAILEY
DIRECTOR
12
<PAGE> 1
Exhibit 10.2
POST-CLOSING COVENANTS AGREEMENT
BY AND AMONG
DAKA INTERNATIONAL, INC.
DAKA, INC.
UNIQUE CASUAL RESTAURANTS, INC.
CHAMPPS ENTERTAINMENT, INC.
FUDDRUCKERS, INC.
COMPASS GROUP PLC
AND
COMPASS HOLDINGS, INC.
MAY 27, 1997
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
ARTICLE I
DEFINITIONS
<S> <C> <C>
Section 1.1 Definitions..................................................................................... 2
ARTICLE II
INDEMNIFICATION
Section 2.1 Indemnification by UCRI......................................................................... 3
Section 2.2 Indemnification by Compass and Compass Holdings................................................. 5
Section 2.3 Procedures Relating to Indemnification.......................................................... 7
Section 2.4 Certain Limitations............................................................................. 8
Section 2.5 Absence of Contribution......................................................................... 10
Section 2.6 Gross up for Taxes.............................................................................. 10
Section 2.7 Exclusivity of Tax Allocation Agreement......................................................... 10
ARTICLE III
OTHER AGREEMENTS
Section 3.1 Transfer Taxes.................................................................................. 10
Section 3.2 Transition Matters.............................................................................. 10
Section 3.3 Insurance....................................................................................... 10
Section 3.4 Expenses........................................................................................ 11
Section 3.5 Covenant Not to Compete......................................................................... 11
Section 3.6 Performance by UCRI of Certain Merger Agreement Covenants; Further Assurances................... 12
Section 3.7 Surety Bonds.................................................................................... 12
Section 3.8 Net Worth....................................................................................... 12
Section 3.9 Duty to Defend.................................................................................. 12
Section 3.10 Guaranty by Champps and Fuddruckers............................................................. 13
Section 3.11 Pending Litigation.............................................................................. 13
ARTICLE IV
TRADE RECEIVABLES AND OBLIGATIONS
Section 4.1 Authorization................................................................................... 13
Section 4.2 Collection of Trade Receivables................................................................. 14
Section 4.3 Payment of Obligations.......................................................................... 14
Section 4.4 Settlement Payments............................................................................. 15
Section 4.5 Reporting....................................................................................... 15
Section 4.6 Billing......................................................................................... 15
Section 4.7 Right of Setoff................................................................................. 15
Section 4.8 Termination of Compass' Obligations............................................................. 16
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
ARTICLE V
POST-CLOSING PAYMENTS
<S> <C> <C>
Section 5.1 Definitions..................................................................................... 16
Section 5.2 Balance Sheet Adjustments....................................................................... 19
Section 5.3 Managed Volume/Profitability Adjustment......................................................... 20
Section 5.4 Determination of Adjustments.................................................................... 21
ARTICLE VI
MISCELLANEOUS AND GENERAL
Section 6.1 Modification or Amendment....................................................................... 22
Section 6.2 Waiver; Remedies................................................................................ 22
Section 6.3 Counterparts.................................................................................... 22
Section 6.4 Governing Law................................................................................... 22
Section 6.5 Notices......................................................................................... 22
Section 6.6 Entire Agreement................................................................................ 23
Section 6.7 Certain Obligations............................................................................. 23
Section 6.8 Assignment...................................................................................... 23
Section 6.9 Severability.................................................................................... 23
Section 6.10 No Third Party Beneficiaries.................................................................... 23
Section 6.11 Enforcement..................................................................................... 24
</TABLE>
<TABLE>
<S> <C>
List of Schedules:
Schedule 4.2 Trade Receivables
Schedule 4.3(a) Types of Obligations
Schedule 5.1(a) Customer Contract Contribution Calculation Methodology
Schedule 5.1(b) Nonrecurring Item Intangible Assets
Schedule 5.3(a) Calculation of Foodservice Segment Income as of March 29, 1997
</TABLE>
ii
<PAGE> 4
POST-CLOSING COVENANTS AGREEMENT
THIS POST-CLOSING COVENANTS AGREEMENT is dated as of May 27, 1997 (the
"Agreement"), among DAKA INTERNATIONAL, INC., a Delaware corporation
("International"), DAKA, INC., a Massachusetts corporation ("Daka"), CHAMPPS
ENTERTAINMENT, INC., a Minnesota corporation ("Champps"), FUDDRUCKERS, INC., a
Texas corporation ("Fuddruckers"), UNIQUE CASUAL RESTAURANTS, INC., a Delaware
corporation ("UCRI"), COMPASS GROUP PLC, a public limited company incorporated
in England and Wales ("Compass"), and COMPASS HOLDINGS, INC., a Delaware
corporation ("Compass Holdings").
RECITALS:
WHEREAS, International, Compass, Compass Holdings and Compass Interim,
Inc., a Delaware corporation ("Compass Interim"), have entered into an Agreement
and Plan of Merger dated as of the date hereof (the "Merger Agreement"),
providing for the Merger (as defined in the Merger Agreement) of Compass Interim
with and into International;
WHEREAS, each of the respective Boards of Directors of International and
Compass has approved a tender offer whereby Compass Holdings will offer to
purchase for cash any and all of the common stock, par value $.01 per share, of
International (the "International Common Stock") subject only to the conditions
set forth in Exhibit 1.1(a) to the Merger Agreement (the "Offer");
WHEREAS, International, Daka, UCRI, Compass and Compass Holdings have
entered into a Reorganization Agreement dated as of the date hereof (the
"Reorganization Agreement"), pursuant to which (a) UCRI or its Subsidiaries will
acquire from International or Daka the UCRI Assets (as defined in the
Reorganization Agreement) and will assume the UCRI Liabilities (as defined in
the Reorganization Agreement) (the "Contribution"), and (b) all of the issued
and outstanding shares of common stock, par value $.01 per share, of UCRI (the
"UCRI Common Stock") will be distributed on a pro rata basis to International's
stockholders (the "Distribution");
WHEREAS, Champps and Fuddruckers will become the principal restaurant
subsidiaries of UCRI and as such will have a direct economic interest and
financial benefits from the transactions described in the Merger Agreement and
desire to induce Compass, Compass Holdings and Compass Interim to enter into the
Merger Agreement and Offer;
WHEREAS, the parties to this Agreement have determined that it is necessary
and desirable to set forth certain agreements that will govern certain matters
that may arise following the Offer, the Contribution, the Distribution and the
Merger.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS. Capitalized terms used in this Agreement and not
otherwise defined herein shall have the meanings assigned to such terms in the
Merger Agreement or the Reorganization Agreement, as the case may be. The
following terms are defined in the Sections of this Agreement indicated below:
<TABLE>
<CAPTION>
TERM SECTION LOCATION
<S> <C>
AAA.............................................................................. 6.11(b)
Basket Amount.................................................................... 2.4(d)
Calculation Memorandum........................................................... 5.2(e)
Champps.......................................................................... Introduction
Closing Date Financial Statements................................................ 5.1(b)
Closing Date Current Asset Shortfall............................................. 5.1(a)
Compass Indemnities.............................................................. 2.1
Criminal Matters................................................................. 2.1(e)
Differential..................................................................... 5.2(b)
Filings.......................................................................... 2.1(b)
Foodservice Current Assets....................................................... 5.1(a)
French Quarter Rebates........................................................... 5.2(a)(viii)
Fuddruckers...................................................................... Introduction
GAAP............................................................................. 5.1
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
TERM SECTION LOCATION
<S> <C>
Headquarters Lease............................................................... 2.1(k)
Indemnifiable Losses............................................................. 2.1
Indemnitee....................................................................... 2.3(a)
Lost Customer Contract Managed Volume............................................ 5.2(a)(ii)
Lost Customer Contract Profit.................................................... 5.2(a)(iii)
Lost Customer Contracts.......................................................... 5.2(a)(i)
Managed Volume/Profit Adjustment................................................. 5.2(d)
Managed Volume Differential...................................................... 5.2(c)
Minimum Net Worth................................................................ 3.9(a)
New Customer Contract............................................................ 5.2(a)(iv)
New Customer Contract Managed Volume............................................. 5.2(a)(v)
New Customer Contract Profit..................................................... 5.2(a)(vi)
Nonrecurring Items............................................................... 5.2(a)(vii)
Obligations...................................................................... 4.3(a)
Panel............................................................................ 6.11(b)
Profit Differential.............................................................. 5.2(b)
Restricted Business.............................................................. 3.6(a)
Smithsonian Contract Adjustment.................................................. 5.3
Special Liabilities.............................................................. 2.1(d)
Special Liability Claim.......................................................... 2.3(b)
Termination Date................................................................. 4.8
Third Party Claim................................................................ 2.1(b)
Trade Receivables................................................................ 4.2(a)
Transition Agreement............................................................. 3.2
UCRI Indemnitees................................................................. 2.1(b)
UCRI Obligations................................................................. 3.8
Venturino Claim.................................................................. 2.1(d)
</TABLE>
ARTICLE II
INDEMNIFICATION
SECTION 2.1 INDEMNIFICATION BY UCRI. Except as otherwise specifically
provided in the Merger Agreement or an Ancillary Agreement and subject to the
provisions of this Article II and Article V, UCRI hereby agrees to indemnify,
defend and hold harmless Compass, each Affiliate of Compass, including any of
its Subsidiaries (including, after the Offer Closing Time, International, Daka
and any Subsidiary of Daka) (the "Compass Indemnitees") from and against, and
pay or reimburse the Compass Indemnitees for, all losses, liabilities, damages
(including punitive damages), deficiencies, obligations, fines, taxes, expenses,
claims, claims for benefits, demands, actions, suits, proceedings, judgments or
settlements, whether or not (except as provided in Section 2.1(b)) resulting
from Third Party Claims (as defined in Section 2.1(b) herein), including
interest and penalties recovered by a third party with respect thereto and
out-of-pocket expenses and reasonable attorneys' and accountants' fees and
expenses incurred in the investigation or defense thereof or in asserting,
preserving or enforcing any of the rights hereunder ("Indemnifiable Losses"), as
incurred:
(a) relating to or arising from the UCRI Assets or the UCRI
Liabilities (as defined in the Reorganization Agreement), including without
limitation the Special Liabilities, as defined below (including the failure
by UCRI or any of its Subsidiaries to pay, perform or otherwise discharge
such UCRI Liabilities in accordance with their terms), whether such
Indemnifiable Losses relate to or arise from events, occurrences, actions,
omissions, facts or circumstances occurring, existing or asserted before,
at or after the Offer Closing Time;
(b) relating to or arising from a claim by any Person who is not UCRI
or an Affiliate of UCRI (other than International or Daka) (collectively,
the "UCRI Indemnitees") or one of the Compass Indemnitees (a "Third Party
Claim") that there is any untrue statement or alleged untrue statement of a
material fact contained in any of the Schedule 14D-1, Schedule 14D-9, the
Form 10, the Information Statement, the Proxy Statement or any other
document filed or required to be filed with the SEC in connection with the
transactions contemplated by the
2
<PAGE> 6
Merger Agreement or Reorganization Agreement, or any preliminary or final
form thereof or any amendment or supplement thereto (the "Filings"), or any
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; but only (i)
in the case of the Schedule 14D-1 with respect to information provided by
UCRI, International or Daka in writing relating to UCRI, International or
Daka, as the case may be, contained in or omitted from such Filings or (ii)
in the case of the Proxy Statement, information that is derived from
filings made by International with the SEC prior to the Offer Closing Time;
(c) relating to or arising from the breach by UCRI or any of its
Subsidiaries of any agreement or covenant or from an inaccuracy in any
representation or warranty of International or Daka contained in the Merger
Agreement or an Ancillary Agreement which does not by its express terms
expire at the Offer Closing Time;
(d) (i) any civil Action or (ii) any action by a Governmental Entity
where such Indemnifiable Losses relate to or arise from events,
occurrences, actions, omissions, facts or circumstances occurring or
existing prior to the Offer Closing Time and relating to International,
including, but not limited to, (w) Rita Venturino et al. v. Daka
International, Inc. and William H. Baumhauer, Civil Action No. 96-12109-GAO
(D. Mass.) (the "Venturino Claim"), including all claims for relief
asserted in the Venturino Claim, any amended complaint or any action which
is consolidated with the Venturino Claim, and including any claims similar
to the Venturino Claim (as amended), including but not limited to any civil
actions in state or federal court or claims in arbitration, brought by
shareholders who purchased or sold securities within the class period
described in the Venturino Claim, whether individually or as a group by
reason of "opting out" of or being excluded from the Venturino Claim or by
reason of the Venturino Claim not being certified or being decertified as a
class action, (x) any other class or individual securities action relating
to a time period prior to the Offer Closing Time, (y) any claim or action
relating to or arising from any events, occurrences, actions, omissions,
facts or circumstances occurring prior to the Offer Closing Time by
International, Daka or their Affiliates in connection with the performance
of the transactions contemplated by the Merger Agreements or Ancillary
Agreements, or (z) relating to or arising from any matter set forth on
Schedule 4.2(g) to the Disclosure Schedule (collectively, the "Special
Liabilities");
(e) relating to or arising from any actual or alleged criminal
violation of any law, rule or regulation of any Governmental Entity
("Criminal Matters") by International or any of its Subsidiaries, including
Daka, or any director, officer, employee or agent of International or any
of its Subsidiaries, including Daka, occurring or alleged to have occurred
prior to the Offer Closing Time or any Criminal Matters by UCRI or any of
its Subsidiaries, or any director, officer, employee or agent of UCRI or
any of its Subsidiaries occurring or alleged to have occurred prior to or
after the Offer Closing Time;
(f) relating to or arising from any claim that the execution, delivery
or performance by UCRI, International or Daka of each of the Merger
Agreement or the Ancillary Agreements to which it is or will be a party or
the consummation of the transactions contemplated thereby results in a
violation or breach of, or constitutes a default or impermissible transfer
under, or gives rise to any right of termination, first refusal or consent
under or gives rise to any right of amendment, cancellation or acceleration
of any material benefit under, any Material Contract other than a Customer
Contract;
(g) relating to or arising from (i) the Benefit Plans or Multiemployer
Plans sponsored or contributed to by any member of the International
Affiliated Group, but only with regard to events, occurrences, actions,
omissions, facts or circumstances occurring, existing or asserted (A) prior
to the Offer Closing Time, (B) in connection with or as a result of the
consummation of the transactions contemplated by the Merger Agreement or
any Ancillary Agreement including but not limited to Section 1.5 of the
Merger Agreement or Section 7.4 of the Reorganization Agreement or (C) with
respect to Multiemployer Plans to the extent provided in Section 7.9 of the
Reorganization Agreement, (ii) the employment of any Foodservice Employee
prior to the Offer Closing Time, (iii) the employment or termination of any
UCRI Employee whether before, on or after the Offer Closing Time;
(h) relating to or arising from the collection of Trade Receivables or
the payment of Obligations (each as defined below) pursuant to Article IV;
provided, that UCRI shall have no obligation to indemnify under this
Section 2.1(h) for Indemnifiable Losses that are finally determined to have
resulted primarily from the gross negligence or willful misconduct of
Compass or its Subsidiaries;
3
<PAGE> 7
(i) relating to or arising from the Stock Purchase Agreement dated as
of May 26, 1997, by and among Compass, Compass Holdings, International, and
the Stockholders named therein other than monetary obligations thereunder
relating to the purchase of the Series A Preferred Stock;
(j) relating to or arising from the repayment by Compass or its
Subsidiaries of any bonus or similar payments paid to International or Daka
prior to the Offer Closing Time required under the various purchasing
contracts set forth on Schedule 4.2(k)(iv)(H) or 4.2(k)(iv)(K) of the
Disclosure Schedule; provided, that UCRI shall be liable only for a
prorated portion of any such repayments based on the proportion of the
total period over which the relevant parameter for calculating such bonus
or payment under the terms of the relevant contract is calculated
represented by the portion of such period ending as of the Offer Closing
Time; or
(k) relating to or arising from that lease agreement to which
International is lessee and relating to the real property located at One
Corporate Place, 55 Ferncroft Place, Danvers, Massachusetts (the
"Headquarters Lease"), except for Compass' rental payment obligations as
sublessee to UCRI pursuant to the Transition Agreement (as defined in
Section 3.2).
SECTION 2.2 INDEMNIFICATION BY COMPASS AND COMPASS HOLDINGS. Except as
otherwise specifically provided in the Merger Agreement or any Ancillary
Agreement and subject to the provisions of this Article II, Compass and Compass
Holdings (jointly and severally) shall indemnify, defend and hold harmless the
UCRI Indemnitees from and against, and pay or reimburse the UCRI Indemnitees
for, all Indemnifiable Losses, as incurred:
(a) relating to or arising from the Food service Assets, Foodservice
Liabilities or the conduct of the Foodservice Business where such
Indemnifiable Losses relate to or arise from events, occurrences, actions,
omissions, facts or circumstances occurring, existing and asserted after
the Offer Closing Time;
(b) relating to or arising from a Third Party Claim that there is any
untrue statement or alleged untrue statement of a material fact contained
in any of the Filings, or any omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; but only in the case of the Schedule 14D-9, Form 10,
Information Statement or Proxy Statement with respect to information
provided by Compass or its Subsidiaries (excluding International and Daka
prior to the Offer Closing Time) in writing relating to Compass or its
Subsidiaries contained in or omitted from such Filings;
(c) relating to or arising from the breach by Compass or its
Subsidiaries (other than International or Daka) of any agreement or
covenant, or from an inaccuracy in any representation or warranty of
Compass or its Subsidiaries (other than International or Daka) contained in
the Merger Agreement or an Ancillary Agreement (other than an agreement or
covenant assumed by UCRI pursuant to an Ancillary Agreement) which does not
by its express terms expire at the Offer Closing Time;
(d) relating to or arising from any actual or alleged Criminal Matters
by Compass or any of its Subsidiaries, including International or Daka, or
any director, officer, employee or agent of Compass or any of its
Subsidiaries, including International or Daka, after the Offer Closing
Time, occurring or alleged to have occurred prior to or after the Offer
Closing Time, but, in the case of International or Daka, only where such
matters do not relate to a pattern or course of conduct commencing prior to
the Offer Closing Time;
(e) relating to or arising from the employment of any Foodservice
Employee, but only with regard to events, occurrences, actions, omissions,
facts or circumstances occurring, existing or asserted after the Offer
Closing Time;
(f) relating to or arising from the collection of Trade Receivables or
the payment of Obligations by Compass or its Subsidiaries pursuant to
Article IV, but only in the event that such Indemnifiable Losses are
finally determined to have resulted primarily from the gross negligence or
willful misconduct of Compass or its subsidiaries; or
(g) relating to or arising from the repayment by UCRI of any bonus or
similar payments paid to Compass or its Subsidiaries after the Offer
Closing Time required under the various purchasing contracts set forth on
Schedule 4.2(k)(iv)(H) or 4.2(k)(iv)(K) of the Disclosure Schedule;
provided, that Compass or its Subsidiaries shall be liable only for a
prorated portion of any such repayments based on the proportion of the
total period over which the relevant parameter for calculating such bonus
or payment under the terms of the relevant contract is calculated
represented by the portion of such period beginning as of the Offer Closing
Time.
4
<PAGE> 8
SECTION 2.3 PROCEDURES RELATING TO INDEMNIFICATION.
(a) In order for a Compass Indemnitee or a UCRI Indemnitee (together,
the "Indemnitees") to be entitled to any indemnification provided for under
this Agreement in respect of, arising out of or involving a Third Party
Claim, such Indemnitee must notify the party who may become obligated to
provide indemnification hereunder (the "indemnifying party") in writing,
and in reasonable detail, of the Third Party Claim reasonably promptly, and
in any event within 20 business days after receipt by such Indemnitee of
written notice of the Third Party Claim; provided, however, that failure to
give such notification shall not affect the indemnification provided
hereunder except to the extent the indemnifying party shall have been
actually prejudiced as a result of such failure (except that the
indemnifying party shall not be liable for any expenses incurred during the
period in which the Indemnitee failed to give such notice); and provided
further, however, that with respect to any matter for which UCRI is the
indemnifying party, UCRI shall be deemed to have received notice with
respect to all matters by or against Compass or any of its Subsidiaries
notice of which was actually received by an officer of International prior
to the Offer Closing Time. After any required notification (if applicable),
the Indemnitee shall deliver to the indemnifying party, promptly after the
Indemnitee's receipt thereof, copies of all notices and documents
(including court papers) received by the Indemnitee relating to the Third
Party Claim.
(b) If a Third Party Claim is against an Indemnitee, the indemnifying
party will be entitled to participate in the defense thereof and, if it so
chooses, to assume the defense thereof (at the expense of the indemnifying
party) with counsel selected by the indemnifying party and reasonably
satisfactory to the Indemnitee; provided, however, that in case of a claim
made by any person against an Indemnitee relating to a Special Liability (a
"Special Liability Claim"), UCRI (at UCRI's expense) shall assume the
defense thereof with defense counsel selected by UCRI. Should the
indemnifying party so elect (or, in the case of a Special Liability Claim,
be obligated) to assume the defense of a Third Party Claim, the
indemnifying party will not be liable to the Indemnitee for any legal
expenses subsequently incurred (or, in the case of a Special Liability
Claim, incurred) by the Indemnitee in connection with the defense thereof.
If the indemnifying party assumes (or, in the case of a Special Liability
Claim, is obligated to assume) such defense, the Indemnitee shall have the
right to participate in the defense thereof and to employ counsel, at its
own expense, separate from the counsel employed by the indemnifying party,
it being understood that the indemnifying party shall control such defense,
and the indemnifying party shall promptly, at its expense, provide to the
Indemnitee copies of all relevant filings, correspondence, memoranda and
related documents. The indemnifying party shall be liable for the fees and
expenses of counsel employed by the Indemnitee for any period during which
the indemnifying party has not assumed (or, in the case of a Special
Liability Claim, is in breach of its obligation to assume) the defense
thereof (other than during any period in which the Indemnitee shall have
failed to give notice of the Third Party Claim as provided above) or in the
event that there has been a breach of the terms of the insurance policies
related to any Special Liability Claims and as to which Compass or its
Subsidiaries is a beneficiary. If the indemnifying party chooses (or, in
the case of a Special Liability Claim, is obligated) to defend or prosecute
a Third Party Claim, all the parties hereto shall cooperate in the defense
or prosecution thereof, which cooperation shall include the retention in
accordance with the Reorganization Agreement and (upon the indemnifying
party's request) the provision to the indemnifying party of records and
information which are reasonably relevant to such Third Party Claim, and
making employees available on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder.
If the indemnifying party chooses (or, in the case of a Special Liability
Claim, is obligated) to defend or prosecute any Third Party Claim, the
Indemnitee will agree to any settlement, compromise or discharge of such
Third Party Claim which the indemnifying party may recommend and which by
its terms obligates the indemnifying party to pay the full amount of
liability in connection with such Third Party Claim; provided, however,
that, without the Indemnitee's consent, the indemnifying party shall not
consent to entry of any judgment or enter into any settlement (w) that
provides for injunctive or other nonmonetary relief having a material
adverse effect on the Foodservice Business, (x) that involves a Criminal
Matter or (y) that involves an allegation of conduct which could result in
the suspension or debarment of the Indemnitee from contracting with any
Governmental Entity. UCRI shall reimburse Compass on a monthly basis for
any reasonable out-of-pocket expenses actually incurred by Compass or its
Subsidiaries in providing support or other resources at UCRI's request
relating to any Special Liability Claim in an amount equal to Compass'
costs thereof.
(c) In order for an Indemnitee to be entitled to any indemnification
provided for under this Agreement in respect of a claim that does not
involve a Third Party Claim, the Indemnitee shall deliver notice of such
claim with reasonable promptness to the indemnifying party. The failure by
any Indemnitee so to notify the indemnifying
5
<PAGE> 9
party shall not relieve the indemnifying party from any liability which it
may have to such Indemnitee under this Agreement, except to the extent that
the indemnifying party shall have been actually prejudiced by such failure.
If the Indemnitee has provided the indemnifying party two such notices not
less than 30 days apart and the indemnifying party does not notify the
Indemnitee prior to the expiration of a 30-calendar-day period following
its receipt of the second such notice that the indemnifying party disputes
its liability to the Indemnitee under this Agreement, such claim specified
by the Indemnitee in such notice shall be automatically submitted for
arbitration pursuant to Section 6.11(b) hereof. If the indemnifying party
has timely disputed its liability with respect to such claim, as provided
above, the indemnifying party and the Indemnitee shall proceed in good
faith to negotiate a resolution of such dispute and, if not resolved
through negotiations, such dispute shall be resolved by arbitration as
provided in Section 6.11.
SECTION 2.4 CERTAIN LIMITATIONS.
(a) The amount of any Indemnifiable Losses or other liability for
which indemnification is provided under this Agreement shall be net of any
amounts actually recovered by the Indemnitee from third parties (including,
without limitation, amounts actually recovered under insurance policies)
with respect to such Indemnifiable Losses or other liability. Any
indemnifying party hereunder shall be subrogated to the rights of the
Indemnitee upon payment in full of the amount of the relevant Indemnifiable
Loss. An insurer who would otherwise be obligated to pay any claim shall
not be relieved of the responsibility with respect thereto or, solely by
virtue of the indemnification provisions hereof, have any subrogation
rights with respect thereto. If any Indemnitee recovers an amount from a
third party in respect of an Indemnifiable Loss for which indemnification
is provided in this Agreement after the full amount of such Indemnifiable
Loss has been paid by an indemnifying party or after an indemnifying party
has made a partial payment of such Indemnifiable Loss and the amount
received from the third party exceeds the remaining unpaid balance of such
Indemnifiable Loss, then the Indemnitee shall promptly remit to the
indemnifying party the excess (if any) of (i) the sum of the amount
theretofore paid by the indemnifying party in respect of such Indemnifiable
Loss plus the amount received from the third party in respect thereof, less
(ii) the full amount of such Indemnifiable Loss or other liability.
(b) The amount of any Indemnifiable Losses or other Liability for
which indemnification is provided under this Agreement or any other amounts
payable or reimbursable by one party to another under this Agreement shall
be increased or decreased to take account of any net Tax (as defined in the
Tax Allocation Agreement) cost or any net Tax benefit in a manner analogous
to that described in Section 5.5 of the Tax Allocation Agreement.
(c) Notwithstanding any other provisions of the Merger Agreement or
any of the Ancillary Agreements, the Compass Indemnitees shall not have any
right to make claims for indemnification pursuant to Section 2.1 with
respect to (i) any matter which is the basis of an adjustment pursuant to
Article V hereof, it being understood that such adjustments constitute the
Compass Indemnitees' sole recourse and remedy with respect to such matters
to the exclusion of this Article II, or (ii) breaches of representations
and warranties in the Merger Agreement after the period for which such
representations or warranties survive pursuant to Section 9.1 of the Merger
Agreement.
(d) (i) Neither UCRI nor Compass shall have any liability under
Section 2.1 or Section 2.2, respectively, unless the aggregate of all
Indemnifiable Losses for which UCRI or Compass would, but for this Section
2.4, be liable under Section 2.1 or Section 2.2, respectively, exceeds on a
cumulative pre-tax basis an amount equal to $250,000 (the "Basket Amount"),
and then only the amount by which such Indemnifiable Losses exceed the
Basket Amount; provided that the Basket Amount shall not apply to amounts
paid in connection with the Venturino Claim (which amounts shall be paid in
their entirety).
(ii) No Indemnifiable Losses actually paid by UCRI or Compass pursuant
to any provision other than Section 2.1 or Section 2.2, respectively, or in
connection with the Venturino Claim, shall be deemed to be an Indemnifiable
Loss for purposes of determining whether the aggregate amount of
Indemnifiable Losses exceeds the Basket Amount. Neither UCRI nor Compass
shall have any liability under Section 2.1 or Section 2.2, respectively,
with respect to the breach of or inaccuracy in any representation or
warranty unless notice of any such breach or inaccuracy is given pursuant
to Section 2.3 prior to the expiration of the survival period provided in
the Merger Agreement for the relevant representation or warranty.
SECTION 2.5 ABSENCE OF CONTRIBUTION. In no event shall UCRI have a right of
contribution against International or Daka in connection with the indemnities of
International and Daka found in this Article II, the Merger Agreement or any of
the Ancillary Agreements.
6
<PAGE> 10
SECTION 2.6 GROSS UP FOR TAXES. It is the intention of the parties to this
Agreement that payments and asset transfers made by the parties to each other
after the Offer Closing Time pursuant to the Post-Closing Covenants Agreement
are to be treated as relating back to the Contribution as an adjustment to the
assets and liabilities contributed thereunder, and the parties shall take
positions consistent with such intention with any Taxing Authority (as defined
in the Tax Allocation Agreement), unless with respect to any payment any party
receives an opinion of counsel to the effect that there is no substantial
authority for such a position or unless a final determination (as defined in
Section 1313 of the Code) with respect to the recipient party causes any such
payment not to be so treated. To the extent that any Taxing Authority makes such
a final determination, any amount received by the Indemnitee, to the extent that
it is treated as an item of income or gain for federal income tax purposes and
is not offset by the amount of any tax benefit allowed to the Indemnitee for the
payment or incurrence of any liability from which the payment arises, shall be
increased by 40%. For purposes of this Section 2.6, the Indemnifiable Loss
amount shall not, in any case, include the gross-up determined in this Section
2.6.
SECTION 2.7 EXCLUSIVITY OF TAX ALLOCATION AGREEMENT. Notwithstanding
anything in this Agreement, the Merger Agreement or the Reorganization Agreement
to the contrary, the Tax Allocation Agreement shall be the exclusive agreement
among the parties with respect to all Tax matters, including indemnification in
respect of Tax matters and including Timing Adjustments in Section 5.4 of the
Tax Allocation Agreement.
SECTION 2.8 EXCLUSIVITY OF THIS ARTICLE. The indemnification rights of the
parties provided in this Article II constitute the exclusive remedy of the
parties with respect to all matters described in this Article II.
ARTICLE III
OTHER AGREEMENTS
SECTION 3.1 TRANSFER TAXES. UCRI and Compass shall comply with Section
3.2(f) of the Merger Agreement.
SECTION 3.2 TRANSITION MATTERS. UCRI and Compass shall prior to the Offer
Closing Time enter into a Transition Agreement in a mutually agreeable form
which addresses the matters set forth in EXHIBIT 3.2.
SECTION 3.3 INSURANCE.
(a) UCRI will abide by the terms of the Insurance Policies and will
fulfill its obligations as provided in Section 5.4 of the Reorganization
Agreement.
(b) Except as otherwise specifically provided in the Merger Agreement,
the Reorganization Agreement or any other Ancillary Agreement, with respect
to any loss, liability or damage relating to the Foodservice Assets arising
out of events occurring prior to the Offer Closing Time, UCRI will assert
any such claims under the Insurance Policies with respect to such loss,
liability or damage in accordance with the terms thereof. Upon the request
of UCRI, Compass will use reasonable best efforts to assist UCRI in
resolving any such claims under the Insurance Policies with respect to such
loss, liability or damage. Notwithstanding the foregoing sentence, UCRI
shall have full responsibility to assert any claim with respect to the
Foodservice Assets arising out of events occurring prior to the Offer
Closing Time and UCRI assumes full responsibility for all costs, payment
obligations and reimbursement obligations relating to such claims.
SECTION 3.4 EXPENSES. Except as otherwise expressly provided in the
Ancillary Agreements, UCRI shall be responsible for and agree to pay such
expenses which, as provided in Section 6.1 of the Merger Agreement, are the
responsibility of International or Daka, but only to the extent they were
incurred before the Offer Closing Time; provided that International may, prior
to the Offer Closing Time, pay any such expenses that would otherwise be or
become otherwise the responsibility of UCRI.
SECTION 3.5 COVENANT NOT TO COMPETE. In consideration of the payment of the
Merger Consideration (as defined in the Merger Agreement) and the parties'
respective representations, warranties, covenants and agreements contained in
the Merger Agreement and the Ancillary Agreements, UCRI agrees that, for a
period of five years following the Offer Closing Time, neither it nor any of its
Subsidiaries will directly or indirectly, either individually or as an agent,
partner, shareholder, investor, consultant or in any other capacity:
(a) Participate or engage in, or assist others in participating or
engaging in, the business of providing contract catering, contract food and
vending services to business and industry, educational institutions,
airports, healthcare, museums or other similar leisure facilities in the
continental United States but excluding the foodservice provided
7
<PAGE> 11
at retail outlets such as cinemas, theaters, stores, shopping centers and
the like (the "Restricted Business"); PROVIDED, HOWEVER, that UCRI without
violating this Section 3.6, may own a passive investment of in the
aggregate not more than 2% of the issued and outstanding stock of a
publicly held corporation, partnership or other entity engaged in the
business of providing food service or vending services;
(b) Influence or attempt to influence any customer of Compass, Compass
Holdings, International or Daka to divert its business from Compass,
International or Daka to any Person then engaged in any aspect of the
Restricted Business in competition with Compass, International or Daka; or
(c) Solicit or hire any of the Foodservice Employees at the district
manager level or above, either during the term of such person's employment
by Compass, International or Daka or within 12 months after such person's
employment has ceased for any reason, to work for UCRI or any Person in any
aspect of Foodservice (including vending service) in competition with
Compass, International or Daka; provided, that this subsection (c) shall
not apply to Foodservice Employees (i) terminated by Compass, International
or Daka after the Offer Closing Time or (ii) who have been employed by
Persons other than Compass, International or Daka for at least six months
prior to being hired by UCRI or its Subsidiaries.
SECTION 3.6 PERFORMANCE BY UCRI OF CERTAIN MERGER AGREEMENT COVENANTS;
FURTHER ASSURANCES. The parties hereto agree that UCRI, as successor to
International and Daka subsequent to the Contribution, will perform in all
respects the covenants applicable to International or Daka in the Merger
Agreement and will receive in all respects the benefits applicable to
International or Daka thereunder.
SECTION 3.7 SURETY BONDS. UCRI represents it has no surety bonds relating
to any UCRI Asset, the UCRI Business or any UCRI Liability.
SECTION 3.8 NET WORTH.
(a) For a period ending on the later of three years following the
Offer Closing Time or the resolution of all claims for indemnification
under Section 2.1, UCRI and its Subsidiaries, on a consolidated basis, will
maintain at all times a net worth (determined in accordance with generally
accepted accounting principles, consistently applied) of not less than
$50,000,000 (the "Minimum Net Worth").
(b) During the foregoing period, UCRI will provide to Compass, within
45 days following the end of each of UCRI's fiscal quarters, a certificate
of the Chief Financial Officer of UCRI certifying UCRI's continuing
compliance with the foregoing covenant.
(c) In the event that UCRI shall fail to meet the Minimum Net Worth,
it shall immediately provide alternate secured collateral for any such
claims for indemnification in a form reasonably satisfactory to Compass.
SECTION 3.9 DUTY TO DEFEND.
(a) UCRI covenants and agrees that it will vigorously and in good
faith defend the Compass Indemnitees in any proceeding or claim of which it
has assumed the defense (or is required to assume the defense) pursuant to
Section 2.1 or Section 2.3, including but not limited to the Special
Liabilities and any Third Party Claim.
(b) In the event that UCRI determines to settle any claim, including
but not limited to the Special Liabilities or any Third Party Claim, the
Compass Indemnitees shall have no duty or obligation to contribute to any
settlement, and the failure of any Compass Indemnitee to contribute to any
settlement shall in no way excuse or discharge the duties and obligations
of UCRI pursuant to Section 2.1 or Section 2.3.
SECTION 3.10 GUARANTY BY CHAMPPS AND FUDDRUCKERS.
(a) Each of Champps and Fuddruckers hereby, jointly and severally,
continuously and unconditionally guarantees to Compass and its Subsidiaries
the full and prompt payment and performance of all obligations of UCRI
under the Ancillary Agreements, including, without limitation, any and all
amounts owed or to be owed under Article II or Article V hereof, whenever
the same, or any part thereof, shall become due and payable in accordance
with the terms of the Ancillary Agreements (the "Guaranty").
(b) Notwithstanding the foregoing Section 3.10(a), the Guaranty shall
be limited to those obligations of UCRI that become due for payment or for
which performance shall have begun and as to which UCRI has been properly
put on notice of a potential claim of Indemnifiable Loss on or before
December 31, 1998.
8
<PAGE> 12
(c) Champps and Fuddruckers each hereby agree that Compass or its
Subsidiaries may at any time and from time to time without notice to
Champps or Fuddruckers renew, amend, modify or extend the time of payment
or performance of any obligations guaranteed by this Section 3.10 one or
more times and grant and allow such indulgences or compromises in
connection therewith as it may deem advisable without discharging,
releasing or in any manner affecting the liability of Champps or
Fuddruckers under this Section 3.10.
(d) Champps and Fuddruckers agree that this is a Guaranty of payment
and performance and not of collection, and each hereby waives any right it
may have to require that any action be brought against UCRI or to require
that resort be had to any security.
SECTION 3.11 PENDING LITIGATION. In defending and reaching resolution of
the pending litigation, the Company will consider International's name, existing
goodwill, and reputation in the foodservice industry.
ARTICLE IV
TRADE RECEIVABLES AND OBLIGATIONS
SECTION 4.1 AUTHORIZATION. Under the terms of the Reorganization Agreement,
the Trade Receivables (as defined below) and the Obligations (as defined below)
have been assigned and transferred to UCRI. UCRI hereby appoints Daka as its
agent, after the Offer Closing Time, for purposes of collection of the Trade
Receivables and payment of the Obligations, with the power and authority to act
in the name and on behalf of UCRI as fully as UCRI may act on its own behalf.
UCRI hereby authorizes and directs Daka to pay the Obligations and to collect
the Trade Receivables, as described in this Article IV.
SECTION 4.2 COLLECTION OF TRADE RECEIVABLES.
(a) Commencing at the Offer Closing Time and continuing thereafter for
a period of not more than four months, Daka will use prompt, diligent and
reasonable efforts, in the same manner as its regular collection practices
for its own trade receivables, to collect those trade receivables owned by
UCRI and to be set forth on a schedule to be delivered to Daka by UCRI at
the Offer Closing Time (the "Trade Receivables"). The existing Daka credit
manager will be made available by UCRI on a basis reasonably acceptable to
it to Compass during the first eight weeks following the Offer Closing Time
and will be given access to the necessary records and International
personnel to ensure that such regular collection practices are followed.
Compass shall assign adequate personnel to the collection of Trade
Receivables.
(b) Notwithstanding anything to the contrary contained herein, Daka
shall have no obligation to institute any action or other litigation before
any court, agency, arbitrator or tribunal to collect, or enforce any rights
of UCRI with respect to the Trade Receivables. In each instance where the
institution of an action or lawsuit is appropriate, Daka will allow UCRI to
collect such Trade Receivables and to pursue any such remedies. Daka shall
not, without UCRI's prior written consent, compromise or settle for less
than full face value any of the Trade Receivables unless Daka pays UCRI the
full amount of any deficiency.
(c) Daka acknowledges that UCRI is prepared to assist Daka with
special collection efforts for selected Trade Receivables. In the event
that Daka, in its reasonable discretion, requests such efforts, UCRI shall
to the extent it deems such efforts appropriate make its personnel
available therefor; provided, that Daka shall have no obligation to
undertake any such special collection efforts. In the event UCRI offers
assistance to Daka with respect to the collection of the Trade Receivables,
Daka shall (i) grant UCRI access to relevant personnel and records and (ii)
to the extent Daka deems appropriate, if any, allow UCRI to communicate
directly with any customer.
(d) Subject to the following sentences, any payment received from any
customer shall be applied to the invoice specified by the customer or, if a
payment amount equals an invoice amount for such customer, then to that
invoice. If the customer shall fail to specify the invoice to which such
payment shall be applied and payment does not equal an invoice, then the
payment shall be applied to the oldest invoice existing for such customer.
If an older invoice is outstanding for a customer but the customer
specifies that a payment should be applied to a newer invoice, then Daka
shall be obligated to do one of the following: (i) apply the payment to the
older receivable for the benefit of UCRI or (ii) turn over the older
receivable to UCRI so as to permit UCRI to pursue collection and all
available remedies.
9
<PAGE> 13
SECTION 4.3 PAYMENT OF OBLIGATIONS.
(a) Commencing at the Offer Closing Time and continuing thereafter for
a period of not more than four months, Daka shall pay from the collected
Trade Receivables those obligations of UCRI to be set forth on a schedule
to be delivered to Daka by UCRI at the Offer Closing Time (the
"Obligations"), but which schedule shall consist only of the types of
obligations set forth on Schedule 4.3(a) hereto (the "Obligations"). The
obligation of Daka to pay Obligations shall be limited to the actual amount
of Trade Receivables collected by it.
(b) UCRI may elect to provide to Daka from time to time a schedule
setting forth the priority and timing of proposed payments of the
Obligations. If such schedule has been provided, Daka will follow that
schedule unless it determines that adherence to the schedule will have a
material adverse effect on its ability to operate the Foodservice Business
in the ordinary course or impair the credit of Daka.
(c) The amount of accrued but unpaid vacation and sick leave pay
reflected in the Closing Date Financial Statements (which amount shall be a
UCRI Liability (as defined in the Reorganization Agreement)) shall be paid
by UCRI to Compass as provided in Section 4.4(b), whereupon Compass shall
release UCRI from any further liability or obligation in connection
therewith.
SECTION 4.4 SETTLEMENT PAYMENTS.
(a) For the period commencing as of the Offer Closing Time and ending
eight weeks thereafter, Compass shall have no obligation to remit any
collected Trade Receivables to UCRI.
(b) Not later than the Business Day next following the last day of the
eighth week after the Offer Closing Time, Compass shall remit to UCRI the
amount, if any, by which the aggregate of the collected Trade Receivables
exceeds the aggregate amount of the Obligations actually paid by Daka plus
any adjustments determined in good faith and derived from the Closing Date
Financial Statements by Compass pursuant to Section 5.4(a) (but prior to
any final resolution by arbitration pursuant to Section 5.4(b)).
Thereafter, Compass shall remit any such net amount to UCRI not later than
the Business Day next following the end of each succeeding two-week period.
SECTION 4.5 REPORTING. On or before the fifth business day after the end of
each two-week period during the period which Daka is acting as UCRI's agent
hereunder, Daka shall produce a report showing all collections of Trade
Receivables and payments of Obligations during the relevant two-week period and
on a cumulative basis since the Offer Closing Time.
SECTION 4.6 BILLING. Daka will separately bill each customer for goods and
services provided through the Offer Closing Time promptly after the Offer
Closing Time in accordance with prior practice, which amount shall be part of
the Trade Receivables.
SECTION 4.7 RIGHT OF SETOFF. In addition to, but without duplication of,
its rights pursuant to Section 4.4(b), Compass shall have the right to setoff
against (a) any amounts owing to UCRI under Section 4.4 and (b) any obligation
to turn over outstanding Trade Receivables under Section 4.8(a) (i) any or all
amounts which have been finally determined to be actually due from UCRI to
Compass pursuant to Article V (including Section 5.4(b) thereof).
SECTION 4.8 TERMINATION OF COMPASS' OBLIGATIONS.
(a) Notwithstanding anything contained herein to the contrary, not
later than the fifth Business Day following the date that is four months
after the Closing Date (the "Termination Date"), (i) Daka shall turn over
all outstanding Trade Receivables and Obligations to UCRI for collection or
payment by UCRI, at which time all of Daka's and Compass' obligations under
this Article IV shall cease except the obligation to make payments as
provided under Sections 4.4, and the obligations under Section 4.8(b) and
(ii) UCRI shall remit promptly to Compass the amount, if any, by which the
aggregate of the Obligations paid by Daka exceeds the Trade Receivables
collected by Daka through the Termination Date.
(b) For the 12-month period following the Termination Date, Compass
agrees to make available to UCRI, at no cost, on a mutually convenient
basis, copies of such records and information (and access to such employees
as may be reasonably necessary to explain such records and information) as
UCRI may reasonably request in connection with its collection of the Trade
Receivables or payment of the Obligations; provided, that UCRI shall
reimburse Compass for any reasonable out-of-pocket expenses actually
incurred by Compass or its Subsidiaries in providing such records,
information or employees in an amount equal to Compass' actual costs
thereof within five business days following receipt by UCRI from Compass of
notice thereof.
10
<PAGE> 14
ARTICLE V
POST-CLOSING PAYMENTS
SECTION 5.1 DEFINITIONS.
When used in this Article V, the following terms have the following
meaning:
"APPLIED PERCENTAGE" means the difference of (i) the percentage calculated
by dividing (A) the sum of (x) excess allocations to the extent actually
reflected in the Closing Date Financial Statements and (y) purchasing rebates to
the extent actually reflected in the Closing Date Financial Statements by (B)
the Total Foodservice Managed Volume minus (ii) 2% (see Schedule 5.3(a) for
illustration purposes).
"CLOSING DATE FINANCIAL STATEMENTS" means the financial statements prepared
in accordance with Section 5.4 in accordance with GAAP (as defined below) with
respect to the Foodservice Business for the period beginning on June 30, 1996
and ending on the earlier of June 28, 1997 or the Offer Closing Time, which
financial statements shall be prepared as if the Offer Closing Time were the end
of a fiscal year (with usual year-end accruals or expenses).
"CUSTOMER CONTRACT CONTRIBUTION" means (i) with respect to any foodservice
contract that is a so-called "profit and loss" contract, the difference between
total revenues and direct operating costs (excluding general and administrative
fees), in each case determined in accordance with GAAP and (ii) with respect to
any foodservice contract that is a so-called "management fee" contract, the sum
of management fees and support fees, minus any costs incurred in connection with
any guaranteed budgeted subsidy, in each case determined in accordance with
GAAP. Schedule 5.1(a) sets forth the methodology to be used in determining
"Customer Contract Contribution" with respect to a typical contract based on
Daka's customary profit and loss statement for contract administration and
internal financial reporting purposes. The parties understand and acknowledge
that for purposes of calculating any Profit Differential pursuant to Section
5.3(a) hereof, Customer Contract Contribution with respect to a particular
contract may be a positive or a negative amount and will be counted in both
cases.
"FRENCH QUARTER COFFEE REBATE" means an amount calculated by multiplying
(A) the total rebates with respect to French Quarter Coffee purchases actually
reflected in the Closing Date Financial Statements by (B) a fraction the
numerator of which is the actual usage of French Quarter Coffee by the
Foodservice Business and the denominator of which is the total usage of French
Quarter Coffee by International and all Subsidiaries (including the Restaurant
Business) during the period covered by the Closing Date Financial Statements.
"GAAP" means generally accepted accounting principles consistently applied
and, to the extent consistent with generally accepted accounting principles,
International's past policies and practices with respect to its historical
consolidated financial statements and the Foodservice Business Financial
Statements (as defined in the Merger Agreement); provided, however, that the
scope of materiality will be adjusted to reflect the relative size of the
Foodservice Business compared to International prior to the Distribution.
"INVENTORY" means all inventories, supplies and materials of any kind used
or held for use in the Foodservice Business, including food, paper supplies,
packaging materials, small wares, and the like, but excluding all inventory
that, under the terms of the applicable Customer Contract, is owned by the
college, university, school, academy or business to which food services are
provided. Inventory shall be valued at its book value determined in accordance
with GAAP (as defined above).
"LOST CUSTOMER CONTRACT" means any Customer Contract which is terminated or
cancelled between June 29, 1996 and the Offer Closing Time, or as to which
during such period any officer of International or Daka at the level of Regional
Vice-President or above has received written or oral notice that (i) the
customer party thereto plans or intends to terminate or cancel such Customer
Contract, or (ii) one or more separate locations under such contract will be
eliminated (whereupon all amounts calculated by reference to a Lost Customer
Contract will be prorated to reflect only such eliminated locations); provided
that the term Lost Customer Contract shall not include (A) any Customer Contract
where the customer party thereto enters into a foodservice contract with or
awards a foodservice contract to Compass or any of its Affiliates after May 1,
1997, or (B) the Customer Contracts with the Smithsonian Institute with respect
to the Museum of Natural History and Museum of American History in Washington,
D.C.
"LOST CUSTOMER CONTRACT MANAGED VOLUME" means the Managed Volume with
respect to the relevant Lost Customer Contract to the extent actually reflected
in the Closing Date Financial Statements.
11
<PAGE> 15
"LOST CUSTOMER CONTRACT PROFIT" means the algebraic sum of (a) the Customer
Contract Contribution with respect to the relevant Lost Customer Contract to the
extent actually reflected in the Closing Date Financial Statements and (b) the
product of the Applied Percentage multiplied by the Lost Customer Contract
Managed Volume. The parties acknowledge and understand that for purposes of
calculating any Profit Differential pursuant to Section 5.3(a) hereof, Lost
Customer Contract Profit may be a positive or a negative amount and will be
counted in both cases.
"MANAGED VOLUME" means the total revenues, determined in accordance with
GAAP, from the particular contract, arrangement or other agreement relating to
the Foodservice Business to which reference is made (for those accounts operated
on a management fee basis, the amount of total revenues shall be calculated as
if such account had been operated on a profit and loss basis), plus any subsidy
paid to the contract foodservice provider or payable by any party under any such
contract, arrangement or agreement.
"NEW CUSTOMER CONTRACT" means any foodservice contract that is or would be
included in the list of Customer Contracts delivered pursuant to the Merger
Agreement if in effect as of the date hereof which (i) is entered into by Daka
or International between June 29, 1996 and the Offer Closing Date, or (ii) as to
which during such period any officer of Daka or International at the level of
Regional Vice-President or above has received written or oral notice that (A)
the relevant customer has awarded the contract to or intends to enter into such
contract with Daka or International or (B) one or more separate locations will
be added under such contract (whereupon the amount calculated as a New Customer
Contract will be prorated to reflect only such new locations).
"NEW CUSTOMER CONTRACT MANAGED VOLUME" means the projected annualized
Managed Volume with respect to the relevant New Customer Contract for the first
12 months of operation as mutually agreed between International and Compass (but
if not agreed, then subject to arbitration pursuant to Section 6.11) and
determined on the basis of the bid package submitted by Daka or International
and, if available, the actual terms, conditions and schedules of the actual New
Customer Contract, net of the Managed Volume with respect to such New Customer
Contract to the extent actually reflected in the Closing Date Financial
Statements.
"NEW CUSTOMER CONTRACT PROFIT" means the algebraic sum of (a) the projected
annualized Customer Contract Contribution with respect to the relevant New
Customer Contract for the first 12 months of operation as mutually agreed
between International and Compass (but if not agreed, then subject to
arbitration pursuant to Section 6.11) and determined on the basis of the bid
package submitted by Daka or International and, if available, the actual terms,
conditions and schedules of the actual New Customer Contract, net of the
Customer Contract Contribution with respect to such New Customer Contract to the
extent actually reflected in the Closing Date Financial Statements and (b) the
product of the Applied Percentage multiplied by the New Customer Contract
Managed Volume (adjusted to the extent the Applied Percentage has already been
reflected in the bid package).
"NONRECURRING ITEMS" means the net algebraic sum of (A) International's
amortization expense for those intangible assets described on Schedule 5.1(b) as
reflected in the Closing Date Financial Statements, plus (B) any expenditures
actually reflected in the Closing Date Financial Statements where the nature of
the relevant transaction, entry or reported item is deemed either infrequent,
extraordinary or nonrecurring or is outside the ordinary course of the
Foodservice Business as historically conducted by International and Daka (such
as, for example, litigation settlements paid in excess of reserves, if any,
which relate to an incident which arose in a prior year) minus (C) any income
actually reflected in the Closing Financial Statements that cannot be replicated
in future periods in the ordinary course of the Foodservice Business as
historically conducted by International and Daka (such as, for example,
reduction in cost of sales resulting from duplicate payments arising prior to
June 30, 1996). Nonrecurring Items will exclude normal fluctuations in the
Foodservice Business, such as school enrollment or closure for renovations, and
Lost Customer Contracts. With respect to (B) and (C) above, any such item will
be excluded unless such item individually exceeds $50,000.
"OPERATING CASH" means all cash on hand at individual sites where the
Foodservice Business is conducted, including, without limitation, cash held in
registers, petty cash and the like, but excluding all cash held in bank accounts
or at financial institutions and checks, negotiable instruments, credit card
receivables and the like.
"PREPAID EXPENSES" means all prepaid expenses relating to the Foodservice
Business as reflected in the Closing Date Financial Statements.
"TOTAL FOODSERVICE MANAGED VOLUME" means the total managed volume of the
Foodservice Business as reflected in the Closing Date Financial Statements.
Attached hereto as Schedule 5.3(a) is the calculation of such amount as of March
29, 1997 for illustration purposes.
12
<PAGE> 16
"TOTAL FOODSERVICE SEGMENT MEASURE" means the total segment income for the
Foodservice Business as reflected in the Closing Date Financial Statements.
Attached hereto as Schedule 5.3(a) is the calculation of such amount as of March
29, 1997 for illustration purposes.
SECTION 5.2 BALANCE SHEET ADJUSTMENTS.
(a) To appropriately adjust the Contribution, the sum of the following
shall be determined as of the Offer Closing Time: (i) Inventory (based on a
physical count completed within two business days after the Offer Closing
Time but subject to audit by Deloitte & Touche, LLP), (ii) Operating Cash
(based on an actual counting and reconciliation completed within two
business days after the Offer Closing Time) and (iii) Prepaid Expenses (the
sum of (i), (ii) and (iii); the "Foodservice Current Assets"). If the
Foodservice Current Assets are less than $10,000,000, then UCRI shall pay
to Compass as provided in Section 5.4 an amount equal to such shortfall, if
any.
(b) To appropriately adjust the aggregate Offer Price and Merger
Price, the following shall be determined: (i) the product of $7.50 times
the sum of (A) the total number of issued and outstanding shares of
International Common Stock as of the Offer Closing Time plus (B) the total
number of shares of International Common Stock into which all shares of
Series A Preferred Stock issued and outstanding as of the Offer Closing
Time are convertible, minus (ii) the sum of (A) $85,000,000 plus (B) the
amount paid by International to Compass pursuant to Section 6.7(a) (ii) of
the Merger Agreement. UCRI shall pay to Compass as provided in Section 5.4
such amount, if any.
SECTION 5.3 MANAGED VOLUME/PROFITABILITY ADJUSTMENT.
(a) The Profit Differential shall be calculated as follows:
(i) Determine the Total Foodservice Segment Income;
(ii) Subtract the aggregate Lost Customer Contract Profit of all
Lost Customer Contracts;
(iii) Add the aggregate New Customer Contract Profit for all New
Customer Contracts;
(iv) Add the French Quarter Coffee Rebate;
(v) Add or subtract, as appropriate, the Nonrecurring Items; and
(vi) Subtract $20,500,000 from the amount calculated in (i)
through (v) (whether a positive or a negative amount, the
"Profit Differential");
(b) The Managed Volume Differential shall be calculated as follows:
(i) Determine the Total Foodservice Managed Volume;
(ii) Subtract the aggregate Lost Customer Contract Managed Volume
for all Lost Customer Contracts;
(iii) Add the aggregate New Customer Contract Managed Volume for
all New Customer Contracts; and
(iv) Subtract $289,300,000 from the amount calculated in (i)
through (iii) (whether a positive or a negative amount, the
"Managed Volume Differential");
(c) The Managed Volume/Profit Adjustment shall be calculated as
follows:
(i) Divide the Managed Volume Differential by $289,300,000 and
multiply the resulting fraction by 50%;
(ii) Divide the Profit Differential by $20,500,000 and multiply
the resulting fraction by 50%; and
(iii) Add (algebraically) the results of (i) and (ii) and multiply
that fraction by $195,000,000 (the "Managed Volume/Profit
Adjustment").
(d) Not later than five business days after the Managed Volume/Profit
Adjustment is finally determined pursuant to Section 5.4, the parties shall
cause the Managed Volume/Profit Adjustment to be paid as follows:
(i) If the Managed Volume/Profit Adjustment is a negative number,
then UCRI shall pay such amount to Compass;
13
<PAGE> 17
(ii) If the Managed Volume/Profit Adjustment is a positive number,
then Compass shall pay such amount to UCRI.
SECTION 5.4 DETERMINATION OF ADJUSTMENTS.
(a) As soon as practicable and in any event not later than 40 days
after the Offer Closing Date, Compass shall deliver to UCRI unaudited
Closing Date Financial Statements and an itemized list (the "Proposed
Adjustment List") setting forth all amounts calculated pursuant to Sections
5.2 and 5.3, with a brief explanation in reasonable detail thereof. Such
list shall show the net amount credited to or charged against the account
of UCRI (the "Proposed Adjustment Amount"). International shall give UCRI
access to relevant records, workpapers and accounting personnel. Subject to
the dispute resolution provisions set forth below, if the Proposed
Adjustment Amount is a credit to the account of UCRI, Compass shall pay
such amount in cash to UCRI; if the Proposed Adjustment Amount is a charge
to the account of UCRI, UCRI shall pay such amount in cash to Compass.
Except as provided otherwise below, payment of the Proposed Adjustment
Amount shall be made in cash not later than five business days following
the delivery of the Proposed Adjustment List.
(b) Not later than 10 days following the delivery of the unaudited
Closing Date Financial Statements and the Proposed Adjustment List, UCRI
may furnish Compass with written notification of any dispute concerning any
items shown thereon or omitted therefrom together with a brief explanation
in reasonable detail in support of UCRI's position in respect thereof. UCRI
and Compass shall consult to resolve any such dispute for a period of 10
days following the notification thereof. If such 10-day consultation period
expires and the dispute has not been resolved, Compass and International
shall submit the unaudited Closing Date Financial Statements to the Boston
office of Deloitte & Touche, LLP, for audit and the Proposed Adjustment
List for review. Deloitte & Touche, LLP, shall deliver the audited Closing
Date Financial Statements, its calculation of the final adjustment amount
based thereon (the "Final Adjustment Amount") (together with a brief
explanation of the basis thereof) to UCRI and Compass not later than 45
days following its receipt of the unaudited Closing Date Financial
Statements and the Proposed Adjustment List. The Final Adjustment Amount
shall be paid in cash by the party required to pay the same within five
business days after the delivery of a copy of such report to UCRI and
Compass.
(c) The Proposed Adjustment List (to the extent not disputed within
the specified period by UCRI), any mutually agreed written settlement of
any dispute concerning the Proposed Adjustment List, or any determination
of disputed items and specification of the Final Adjustment Amount and the
audited Closing Date Financial Statements shall be final, conclusive and
binding on the parties hereto for purposes of determining the adjustment
amount to be paid pursuant to this Article V, if any.
(d) Compass Holdings and New International shall each pay 50% of the
fees and expenses of Deloitte & Touche, LLP in connection with the audit of
the Closing Date Financial Statements.
ARTICLE VI
MISCELLANEOUS AND GENERAL
SECTION 6.1 MODIFICATION OR AMENDMENT. The parties hereto may modify or
amend this Agreement only by written agreement executed and delivered by duly
authorized officers of the respective parties.
SECTION 6.2 WAIVER; REMEDIES. No delay on the part of any party hereto in
exercising any right, power or privilege hereunder will operate as a waiver
thereof, nor will any waiver on the part of any party hereto of any right, power
or privilege hereunder operate as a waiver of any other right, power or
privilege hereunder, nor will any single or partial exercise of any right, power
or privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder. No waiver will be
effective hereunder unless it is in writing. Unless otherwise provided, the
rights and remedies herein provided are cumulative and are not exclusive of any
rights or remedies which the parties may otherwise have at law or in equity.
SECTION 6.3 COUNTERPARTS. For the convenience of the parties, this
Agreement may be executed in any number of separate counterparts, each such
counterpart being deemed to be an original instrument, and all such counterparts
shall together constitute the same agreement.
14
<PAGE> 18
SECTION 6.4 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE,
WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES OF SUCH STATE.
SECTION 6.5 NOTICES. Any notice, request, instruction or other
communication to be given hereunder by any party to any other shall be in
writing and shall be deemed to have been duly given (i) on the date of delivery
if delivered personally, or by telecopy or telefacsimile, upon confirmation of
receipt, (ii) on the first business day following the date of dispatch if
delivered by Federal Express or other nationally reputable next-day courier
service, or (iii) on the third business day following the date of mailing if
delivered by registered or certified mail, return receipt requested, postage
prepaid. All notices hereunder shall be delivered as set forth below, or
pursuant to such other instructions as may be designated in writing by the party
to receive such notice:
(a) If to UCRI:
New Daka International, Inc.
One Corporate Place
55 Ferncroft Place
Danvers, Massachusetts 09123-4001
Attention: General Counsel
(b) If to Compass, International or Daka:
Compass Group USA, Inc.
2400 Yorkmont Road
Charlotte, North Carolina 28217
Attention: General Counsel
SECTION 6.6 ENTIRE AGREEMENT. The Merger Agreement, the Ancillary
Agreements and the Confidentiality Agreement constitute the entire agreement,
and supersede all other prior agreements, understandings, representations and
warranties, both written and oral, among the parties, with respect to the
subject matter hereof and thereof.
SECTION 6.7 CERTAIN OBLIGATIONS. Whenever this Agreement requires any of
the Subsidiaries of any party to take any action, this Agreement will be deemed
to include an undertaking on the part of such party to cause such Subsidiary to
take such action.
SECTION 6.8 ASSIGNMENT. No party to this Agreement shall convey, assign or
otherwise transfer any of its rights or obligations under this Agreement without
the express written consent of the other parties hereto in their sole and
absolute discretion, except that any party hereto may assign any of its rights
hereunder to a successor to all or any part of its business. Except as
aforesaid, any such conveyance, assignment or transfer without the express
written consent of the other parties shall be void ab initio. No assignment of
this Agreement shall relieve the assigning party of its obligations hereunder.
SECTION 6.9 SEVERABILITY. If any provision of this Agreement or the
application thereof to any person or circumstance is determined by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions hereof, or the application of such provision to persons or
circumstances other than those as to which it has been held invalid or
unenforceable, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby, so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon any such determination, the parties shall negotiate
in good faith in an effort to agree upon a suitable and equitable substitute
provision to effect the original intent of the parties.
SECTION 6.10 NO THIRD PARTY BENEFICIARIES. Nothing contained in this
Agreement is intended to confer upon any person or entity other than the parties
hereto and their respective successors and permitted assigns, any benefit, right
or remedies.
SECTION 6.11 ENFORCEMENT.
15
<PAGE> 19
(a) The parties agree that irreparable damage would occur in the event
that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement, this being in
addition to any other remedy to which they are entitled at law or in
equity.
(b) Except for claims barred by the applicable statute of limitations
(which may not be pursued by the parties in any judicial, arbitral or other
forum), any and all disputes between the parties that arise out of or
relate to this Agreement or any other agreement between the parties entered
into in connection herewith or the transactions contemplated hereby or
thereby, and which cannot be amicably settled, shall be determined solely
and exclusively by arbitration administered by the American Arbitration
Association ("AAA") under its commercial arbitration rules for such
disputes at its office in Boston, Massachusetts. The parties expressly,
unconditionally and irrevocably waive any right to recision, repudiation or
any similar remedy in any legal action hereunder. The arbitration panel
(the "Panel") shall be formed of three arbitrators approved by the AAA, one
to be appointed by Compass, one to be appointed by UCRI, and the third to
be appointed by the first two or, in the event of failure to agree within
30 days, by the President of the AAA. Judgment on the award rendered by the
Panel may be entered in any court having jurisdiction thereof.
(c) To the extent a court action is authorized above, the parties
hereby consent to the jurisdiction of the United States District Court of
Delaware. Each of the parties waives personal service to any and all
process upon them and each consent that all such service of process be made
by certified mail directed to them at their address shown in Section 6.5
hereof. THE PARTIES WAIVE TRIAL BY JURY AND WAIVE ANY OBJECTION TO VENUE OF
ANY ACTION INSTITUTED HEREUNDER.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto on the date first hereinabove
written.
DAKA INTERNATIONAL, INC.
By: /s/ DONALD C. MOORE
DONALD C. MOORE
SENIOR VICE PRESIDENT
UNIQUE CASUAL RESTAURANTS, INC.
By: /s/ DONALD C. MOORE
DONALD C. MOORE
SENIOR VICE PRESIDENT
DAKA, INC.
By: /s/ DONALD C. MOORE
DONALD C. MOORE
SENIOR VICE PRESIDENT
CHAMPPS ENTERTAINMENT, INC.
By: /s/ DONALD C. MOORE
TITLE: SENIOR VP
FUDDRUCKERS, INC.
By: /s/ DONALD C. MOORE
TITLE: SENIOR VP
16
<PAGE> 20
COMPASS GROUP PLC
By: /s/ MICHAEL J. BAILEY
MICHAEL J. BAILEY
DIRECTOR
COMPASS HOLDINGS, INC.
By: /s/ MICHAEL J. BAILEY
MICHAEL J. BAILEY
CHIEF EXECUTIVE OFFICER
17
<PAGE> 1
Exhibit 10.3
STOCK PURCHASE AGREEMENT
------------------------
This STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of May 26,
1997, is between DAKA International, Inc., a Delaware corporation
("International"), Compass Group PLC, a public limited company incorporated in
England and Wales ("Compass"), Compass Holdings, Inc., a Delaware corporation
("Compass Holdings" or "Purchaser"), First Chicago Equity Corporation (f/k/a
First Capital Corporation of Chicago) an Illinois corporation ("FCEC"), Cross
Creek Partners I, an Illinois general partnership ("Cross Creek") and certain
other parties signatory hereto (collectively with FCEC and Cross Creek, the
"Stockholders" and each a "Stockholder").
RECITALS
--------
WHEREAS, International and the Stockholders entered into a Preferred
Stock Purchase Agreement dated as of October 23, 1991 and amended on December
19, 1991 (the "Preferred Stock Purchase Agreement"), pursuant to which
International issued and sold to the Stockholders, and the Stockholders
purchased from International, shares of Series A Preferred Stock, par value $.01
per share, of International (the "International Preferred Stock") and warrants
(the "Warrants") exercisable for shares of Common Stock, par value $.01 per
share, of International (the "International Common Stock") upon redemption of
the International Preferred Stock;
WHEREAS, the Board of Directors of Compass has approved a tender offer
pursuant to which Compass Holdings will offer to purchase for cash (the "Offer")
any and all of the International Common Stock, subject to the terms and
conditions contained in an Agreement and Plan of Merger (the "Merger Agreement")
to be entered into by and among Compass, Compass Holdings, International and
certain other parties;
WHEREAS, the Board of Directors of International has approved a plan of
contribution and distribution pursuant to a Reorganization Agreement (the
"Reorganization Agreement") to be entered into by and among International, Daka,
Inc., a wholly owned subsidiary of International ("Daka"), a newly formed,
wholly owned subsidiary of International ("New International"), Compass and
Compass Holdings, pursuant to which, prior to consummation of the Offer, (a) all
of the assets and liabilities of the restaurant business currently operated by
International and certain other assets and liabilities (other than in each case
any funded indebtedness) of International, together with the shares of its
subsidiaries not engaged in the food catering, contract catering and vending
business, will be contributed to New International (the "Contribution"), and (b)
all of the Common Stock, par value $.01 per share, of New International (the
"New International Common Stock") will be distributed on a pro rata basis to the
holders of International Common Stock, including the holders of International
Preferred Stock on an as-converted basis (the "Distribution");
<PAGE> 2
WHEREAS, as of the date hereof, the Stockholders beneficially own
11,911.545 shares of International Preferred Stock (the "Stockholder Shares")
and Warrants to purchase 264,701 shares of International Common Stock upon
redemption of the Stockholder Shares (the "Stockholder Warrants"); and
WHEREAS, as a condition to the willingness of Compass to enter into the
Merger Agreement and make the Offer, and of International, Daka and New
International to enter into the Reorganization Agreement and effect the
Contribution and Distribution, Compass Holdings has agreed to purchase from the
Stockholders, and the Stockholders have agreed to sell to Compass Holdings, all
of the Stockholder Shares and all of the Stockholder Warrants on the terms and
conditions provided for herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and intending to be legally bound, Purchaser and the
Stockholders hereby agree as follows:
ARTICLE 1. PURCHASE AND SALE
1.1 PURCHASE AND SALE OF STOCKHOLDER SHARES.
(a) On the Closing Date (as hereinafter defined) and subject
to the terms and conditions set forth herein, (i) the Stockholders shall
transfer, assign and deliver to Purchaser, and Purchaser shall purchase from the
Stockholders, all of the Stockholder Shares and all of the Stockholder Warrants
then beneficially owned by the Stockholders, and (ii) Purchaser shall pay or
cause to be paid to the Stockholders in exchange therefor cash in an aggregate
amount (the "Purchase Price") equal to the total number of shares of Conversion
Stock (which, as defined in the Certificate of Designation, Preferences and
Rights of Preferred Stock establishing and designating the International
Preferred Stock (the "Certificate of Designation"), equals 264,701 as of the
date hereof and is subject to adjustment as provided therein) into which the
Stockholder Shares are convertible as of the Closing Date, multiplied by the
Offer Price (which, as defined in the Merger Agreement, equals $7.50 and is
subject to increase (but not decrease) as provided therein).
(b) On the business day immediately preceding the Offer
Closing Date (as defined in the Merger Agreement), International shall pay or
cause to be paid and shall deliver or cause to be delivered to the Stockholders
all accrued and unpaid dividends on the International Preferred Stock,
including, without limitation, any and all accrued and unpaid cash dividends and
stock dividends payable in shares of International Common Stock calculated
through the Closing Date (collectively, the "Accrued Dividends"); provided,
however, that any accrued and unpaid stock dividends relating to the
Distribution shall be paid, and International shall deliver or cause to be
delivered to the Stockholders certificates therefor, on the payment date
established by the Board of Directors of the Company for such dividends.
2
<PAGE> 3
1.2 DIVIDENDS. The parties acknowledge that, in accordance with Section
1D of the Certificate of Designation, the Stockholders are entitled to receive
from International on an as-converted basis any and all dividends (whether
payable in cash, securities or other property) declared upon the International
Common Stock (whether payable in cash, securities or other property, a "Common
Stock Dividend")), provided that the record date for any such Common Stock
Dividend is a date prior to the Closing Date, including, without limitation, the
dividend to be declared by International in connection with the Distribution.
Purchaser and International acknowledge and agree that the record date (the
"Record Date") for the dividend to be declared by International in connection
with the Distribution shall be a date prior to the Closing and that the
Stockholders shall be entitled to receive shares of New International Common
Stock in connection therewith on account of their shares of International
Preferred Stock on an as-converted basis. International represents and warrants
to the Stockholders that its Board of Directors has fixed the Record Date as the
close of business on June 24, 1997; provided, however, that the Board of
Directors of International reserves the right to change the Record Date to a
date after (but not before) June 24, 1997, subject to the terms and conditions
of the Reorganization Agreement and the Merger Agreement. International agrees
that in the event that its Board of Directors (or authorized committee thereof)
resolves to change the Record Date, International shall provide the Stockholders
with notice of such change on the date on which International's Board of
Directors (or authorized committee thereof) so resolves.
1.3 CLOSING. Subject to the terms and conditions of this Agreement, the
closing of the purchase and sale of the Stockholder Shares (the "Closing") shall
take place (a) at the offices of Smith Helms Mulliss & Moore, L.L.P., 214 North
Church Street, Charlotte, North Carolina, on the day immediately following the
day on which Compass Holdings accepts for payment and pays for shares of
International Common Stock pursuant to the Offer, or (b) at such other time,
date or place as the parties hereto may agree. The date on which the Closing
occurs is hereinafter referred to as the "Closing Date." At the Closing,
Purchaser shall pay the Purchase Price to the Stockholders (by wire transfer of
immediately available funds to one or more accounts designated in writing by the
Stockholders) and, subject to the proviso of Section 1.1(b), on the business day
immediately preceding the Offer Closing Date International shall pay or cause to
be paid and deliver or cause to be delivered to the Stockholders all Accrued
Dividends to the same accounts, against, in the case of the Purchase Price,
delivery to Purchaser of (i) certificates for the Stockholder Shares so
purchased, duly endorsed or accompanied by stock powers duly executed in blank,
and (ii) properly completed assignments in the form of Exhibit II to the Daka
International, Inc. Stock Purchase Warrant dated January 17, 1992.
1.4 WAIVER. Each of the Stockholders agrees that upon the Closing, each
of the Stockholders shall be deemed to have waived all rights or claims of any
nature whatsoever which any such Stockholder had or may have had under the
Preferred Stock Purchase Agreement.
3
<PAGE> 4
1.5 CONVERSION OF PREFERRED STOCK. Notwithstanding anything to the
contrary provided herein, the Stockholders may sell or otherwise transfer any of
the Stockholder Shares or Stockholder Warrants prior to the earlier of the
Closing or the termination of this Agreement only (A) upon the conversion of
such Stockholder Shares into shares of International Common Stock at the
election of the Stockholders, or (B) in connection with the sale of such shares
of International Common Stock issued to the Stockholders upon such conversion in
a transaction pursuant to Rule 144 promulgated under the Securities Act of 1933,
as amended (the "Securities Act"). In the event that any Stockholder converts
any Stockholder Shares pursuant to this Section 1.5, International shall deliver
or cause to be delivered to such Stockholder, within two (2) days following
notice of conversion of such Stockholder Shares and delivery to International of
the certificates representing such Stockholder Shares, certificates for the
number of Conversion Shares into which such Stockholder Shares are then
convertible, and such certificates shall not bear any restrictive legend. Each
of the Stockholders (i) represents that as of the date hereof it is not, and
covenants that as of any date on which such Stockholder sells or transfers
Stockholder Shares pursuant to this Section 1.5 it shall not be, an "affiliate"
(as that term is defined in Rule 144 promulgated under the Securities Act) of
International and represents that it has not been, and covenants that as of any
date on which such Stockholder sells or transfers Stockholder Shares pursuant to
this Section 1.5 it will not have been, an affiliate of International during the
preceding three months, and (ii) represents that a period of two (2) years has
elapsed since the later of the date such Stockholder Shares were acquired from
International or from an affiliate of International, as calculated as described
in Rule 144(d) promulgated under the Securities Act.
ARTICLE 2. REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES OF COMPASS AND COMPASS
HOLDINGS. Each of Compass and Compass Holdings hereby represent and warrant to
the Stockholders as follows:
(a) ORGANIZATION AND GOOD STANDING. Compass is a public
limited company duly incorporated and registered under the laws of England and
Wales. Compass Holdings is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
(b) POWER AND AUTHORIZATION. Each of Compass and Compass
Holdings has the legal right, power and authority to enter into and perform its
obligations under this Agreement and the other agreements and documents required
to be delivered by it hereunder. The execution, delivery and performance by
Compass and Compass Holdings of this Agreement and the Merger Agreement have
been duly authorized by all necessary corporate action on the part of each of
Compass and Compass Holdings. This Agreement and the Merger Agreement constitute
the legal, valid and binding obligation of each of Compass and Compass Holdings,
enforceable against it in accordance with its terms.
4
<PAGE> 5
(c) CONSENTS AND APPROVALS; NO VIOLATION. Neither the
execution and delivery of this Agreement by Compass and Compass Holdings nor
consummation of the transactions contemplated hereby will (i) conflict with or
result in any breach of any provision of the Memorandum and Articles of
Association of Compass or the certificate of incorporation or bylaws of Compass
Holdings, (ii) require any consent, approval, authorization or permit of, or
filing with or notification to, any governmental or regulatory authority, or
(iii) violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Compass, any of its Subsidiaries or any of their respective
assets.
(d) NO BROKERS. Neither Compass nor any of its Subsidiaries
has entered into any contract, arrangement or understanding with any person or
firm which may result in the obligation of such entity or the Stockholders to
pay any finder's fees, brokerage or agent's commissions or other like payments
in connection with the negotiations leading to this Agreement or consummation of
the transactions contemplated hereby, except that Compass has engaged Patricof &
Co. Capital Corp. and NationsBanc Capital Markets, Inc. as its financial
advisors in connection with the transactions contemplated by the Merger
Agreement and is responsible for all fees, commissions, and like payments
arising from such engagements, and International has engaged Bear Stearns & Co.,
Inc. as its financial advisor in connection with the transactions contemplated
by the Merger Agreement and is responsible for all fees, commissions, and like
payments arising from such engagement. Other than the foregoing arrangements,
neither Compass nor Compass Holdings is aware of any claim for payment of any
finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or consummation of
the transactions contemplated hereby, and each of Compass and Compass Holdings
shall indemnify and hold each of the Stockholders harmless against any such
claim.
2.2 REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS. Each
Stockholder hereby severally (and not jointly with respect to the other
Stockholders) represents and warrants to Compass and Compass Holdings as
follows:
(a) OWNERSHIP OF SHARES. As of the date of this Agreement and,
except to the extent of any conversion, sale or transfer of any Stockholder
Shares in accordance with Section 1.5, as of the Closing Date, such Stockholder
owns or shall own of record or beneficially the Stockholder Shares and the
Stockholder Warrants set forth on EXHIBIT A opposite such Stockholder's name and
such shares and warrants constitute all of the shares of International Preferred
Stock and warrants to purchase shares of International Common Stock upon
redemption of Stockholder Shares, respectively, owned of record or beneficially
by such Stockholder. Such Stockholder will not sell or transfer any Stockholder
Shares or Stockholder Warrants prior to the earlier of the Closing or the
termination of this Agreement (except as provided in Section 1.5). Upon transfer
and delivery by such Stockholder to Purchaser of the Stockholder Shares and the
Stockholder Warrants owned by such Stockholder pursuant to this
5
<PAGE> 6
Agreement, Purchaser shall acquire ownership of such shares and warrants, free
and clear of all adverse claims (other than any created by or through
Purchaser).
(b) ORGANIZATION AND GOOD STANDING. Each of FCEC and Cross
Creek is duly organized, validly existing and in good standing under the laws of
the State of Illinois.
(c) POWER AND AUTHORIZATION. Such Stockholder has full legal
right, power and authority to enter into and perform its obligations under this
Agreement and the other agreements and documents required to be delivered by it
hereunder. The execution, delivery and performance by such Stockholder of this
Agreement have been duly authorized by all necessary action on the part of such
Stockholder. This Agreement constitutes the legal, valid and binding obligation
of such Stockholder, enforceable against it in accordance with its terms.
(d) CONSENTS AND APPROVALS: NO VIOLATION. Neither the
execution and delivery of this Agreement by such Stockholder nor consummation by
such Stockholder of the transactions contemplated hereby will conflict with any
of the organizational documents of such Stockholder.
(e) NO BROKERS. Such Stockholder has not entered into any
contract, arrangement or understanding with any person or firm which may result
in the obligation of such entity or Purchaser to pay any finder's fees,
brokerage or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or consummation of the transactions
contemplated hereby, and such Stockholder shall indemnify and hold each of
Compass and Compass Holdings harmless against any such claim.
ARTICLE 3. CONDITIONS PRECEDENT
3.1 MUTUAL CONDITION. The obligations of the parties hereto to
enter into and consummate the transactions contemplated hereby are subject to
the acceptance for payment and payment by Purchaser of shares of International
Common Stock pursuant to the Offer.
3.2 CERTAIN CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS. The
obligations of Purchaser to enter into and consummate the transactions
contemplated hereby are further subject to the fulfillment (or waiver in writing
by Purchaser in its sole discretion) on or prior to the Closing Date of the
conditions that:
(a) the representations and warranties of the Stockholders
contained in this Agreement shall be true and correct on and as of the date
hereof and in all material respects on and as of the Closing Date with the same
force and effect as though made on and as of the Closing Date (except to the
extent of any changes or developments expressly contemplated by the terms of
this Agreement); and
6
<PAGE> 7
(b) the Stockholders shall have performed and complied in all
material respects with all covenants and agreements required by this Agreement
to be performed or complied with by the Stockholders on or prior to the Closing
Date.
3.3 CERTAIN CONDITIONS PRECEDENT TO THE STOCKHOLDERS' OBLIGATIONS.
The obligations of the Stockholders to enter into and complete the transactions
contemplated hereby are further subject to the fulfillment (or waiver in writing
by the Stockholders in its sole discretion) on or prior to the Closing Date of
the conditions that:
(a) the representations and warranties of Compass and Compass
Holdings contained in this Agreement shall be true and correct on and as of the
date hereof and in all material respects on and as of the Closing Date with the
same force and effect as though made on and as of the Closing Date;
(b) Each of Compass and Compass Holdings shall have performed
and complied in all material respects with all covenants and agreements required
by this Agreement to be performed or complied with by it on or prior to the
Closing Date; and
(c) The Stockholders shall be entitled to receive shares of
New International Common Stock pursuant to the Distribution as contemplated by
Section 1.2.
(d) International shall have caused to be delivered to the
Stockholders a letter from Goodwin, Procter & Hoar LLP permitting the
Stockholders to rely on the opinion of Goodwin, Procter & Hoar LLP delivered to
Compass pursuant to the Merger Agreement to the effect that registration of the
Distribution is not required under Section 5 of the Securities Act, as such
opinion relates to the shares of New International Common Stock to be issued to
the Stockholders pursuant to the Distribution.
ARTICLE 4. MISCELLANEOUS
4.1 FURTHER ACTION. The parties hereto shall, subject to the
fulfillment at or before the Closing Date of each of the conditions of
performance set forth herein or the waiver thereof, perform such further acts
and execute such documents as may reasonably be required to effect the
transactions contemplated hereby, in any case at the expense of the requesting
party.
4.2 PARTIES IN INTEREST; ASSIGNMENT. Except as provided in Section
2.2(a), none of the parties to this Agreement may assign any of its rights or
obligations under this Agreement without the prior written consent of the other
parties hereto. This Agreement shall be binding upon, inure to the benefit of
and be enforceable by the parties hereto and their respective successors and
permitted assigns.
7
<PAGE> 8
4.3 ENTIRE AGREEMENT; AMENDMENTS; WAIVER. This Agreement contains
the entire understanding between the parties hereto with respect to its specific
subject matter. This Agreement may be amended only by written instrument duly
executed by the parties hereto. No party may waive any term, provision, covenant
or restriction of this Agreement except by a duly signed writing referring to
the specific provision to be waived.
4.4 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be delivered personally
or transmitted by telex, fax or telegram, to the respective parties as follows:
(a) If to the Stockholders:
First Chicago Equity Corporation
Three First National Plaza, Suite 1210
Chicago, IL 60670
Attn: Eric C. Larson
Cross Creek Partners I
c/o First Capital Corporation of Chicago
Three First National Plaza, Suite 1210
Chicago, IL 60670
Attn: Eric C. Larson
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attn: Ted H. Zook, Esq.
(b) If to Compass or Compass Holdings:
Compass Group USA, Inc.
2400 Yorkmont Road
Charlotte, NC 28271
Attn: General Counsel
8
<PAGE> 9
(c) If to International:
DAKA International, Inc.
One Corporate Place
55 Ferncroft Road
Danvers, MA 01923
Attn: General Counsel
with a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attn: Ettore A. Santucci, P.C.
or to such other address as any party may have furnished to the others in
writing.
4.5 GOVERNING LAW. This Agreement will be governed by and
construed in accordance with the internal laws of the State of Delaware.
4.7 Termination.
-----------
(a) This Agreement may be terminated and the transactions
contemplated herein may be abandoned at any time prior to the Closing:
(i) by Purchaser, International or the
Stockholders, if the Merger Agreement shall have been terminated;
(ii) by mutual consent of Purchaser,
International and the Stockholders;
(iii) by the Stockholders, if any of Compass or
Compass Holdings has failed to perform in any material respect any of
its respective obligations required to be performed by it under this
Agreement unless failure to so perform has been caused by or results
from a breach of this Agreement by the Stockholders;
(iv) by Purchaser, if any of the Stockholders
shall have failed to perform in any material respect any of the
obligations required to be performed by it under this Agreement unless
failure to so perform has been caused by or results from a breach of
this Agreement by any of Compass or Compass Holdings;
(v) by Purchaser or the Stockholders, if the
Closing does not occur
9
<PAGE> 10
on or prior to July 31, 1997;
(vi) by the Stockholders, if the Stockholders
have sold or transferred all of the Stockholder Shares pursuant to Section 1.5
hereof; or
(vii) by the Stockholders, if the Merger Agreement
is not entered into by the parties thereto within three business days after the
date of this Agreement.
(b) A party terminating this Agreement pursuant to
Section 4.7 shall give written notice thereof to each other party hereto,
whereupon this Agreement shall terminate and the transactions contemplated
hereby shall be abandoned without further action by any party; PROVIDED,
however, that if such termination is by Purchaser pursuant to Section 4.7(a)(iv)
or if such termination is by the Stockholders pursuant to Section 4.7(a)(iii),
nothing herein shall affect the non-breaching party's or parties' right to
damages on account of such other party's or parties' breach.
4.8 REMEDIES. The Stockholders acknowledge that the Stockholder
Shares are unique and that Purchaser will not have an adequate remedy at law if
the Stockholders fail to perform any of their obligations hereunder, and the
Stockholders agree that Purchaser shall have the right, in addition to any other
right it has, to specific performance or equitable relief by way of injunction
if the Stockholders fail to perform any of their obligations hereunder.
4.9 COUNTERPARTS; HEADINGS. This Agreement may be executed in two
or more counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same document. The article and
section headings contained herein are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.
4.10 EXPENSES. Each of the parties hereto shall pay the fees and
expenses it incurs in connection with this Agreement, other than as a result of
the breach hereof by any other party hereto, except that the parties acknowledge
that International shall pay to the Stockholders at the Closing (or promptly
upon written demand by the Stockholders if the Closing does not occur for any
reason other than breach of this Agreement by the Stockholders) an amount of
cash equal to the Stockholders' documented out-of-pocket fees and expenses
(including legal fees and expenses) actually incurred by them in connection with
this Agreement. International shall cause New International to become jointly
and severally obligated with International under this Section 4.10 and shall
provide the Stockholders with written evidence thereof promptly upon demand. The
provisions of this Section 4.10 shall survive any termination of this Agreement
pursuant to Section 4.7.
4.11 CERTAIN DEFINITIONS. For purposes of the Agreement:
10
<PAGE> 11
(a) "beneficially owned" shall have the meaning set forth in
Rule 13d-3 promulgated under the Exchange Act, as such Rule is in effect on the
date hereof.
(b) "business day" means any day which is neither a Saturday
or Sunday nor a legal holiday on which banks are authorized or required to be
closed in New York, New York.
(c) As used in this Agreement, the word "Subsidiary" or
"Subsidiaries" when used with respect to any party means any corporation,
partnership, joint venture, business trust or other entity, of which such party
directly or indirectly owns or controls at least a majority of the securities or
other interests having by their terms ordinary voting power to elect a majority
of the board of directors or others performing similar functions with respect to
such corporation or other organization.
(d) As used in this Agreement, the word "person" means an
individual, a corporation, a partnership, an association, a joint-stock company,
a trust, a limited liability company, any unincorporated organization or any
other entity.
(e) As used in this Agreement, the word "affiliate" shall have
the meaning set forth in Rule 144 of the Securities Act.
11
<PAGE> 12
{Signature Page to Stock Purchase Agreement}
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written.
DAKA INTERNATIONAL, INC.
By: /s/ Donald C. Moore
----------------------------------------
Name:
Title:
COMPASS GROUP, PLC
By: /s/ Michael J. Bailey
----------------------------------------
Name:
Title:
COMPASS HOLDINGS, INC.
By: /s/ Michael J. Bailey
----------------------------------------
Name:
Title:
FIRST CHICAGO EQUITY CORPORATION
By: /s/ Timothy A. Dugan
----------------------------------------
Name: Timothy A. Dugan
Title: Attorney-in-Fact
CROSS CREEK PARTNERS I
By: /s/ Timothy A. Dugan
----------------------------------------
Name: Timothy A. Dugan
Title: Attorney-in-Fact
*
--------------------------------------------
John G. Schreiber
12
<PAGE> 13
**
--------------------------------------------
Jennifer C. Schreiber Trust
**
--------------------------------------------
Heather E. Schreiber Trust
**
--------------------------------------------
Amy D. Schreiber Trust
**
--------------------------------------------
Michael D. Schreiber Trust
**
--------------------------------------------
Matthew D. Schreiber Trust
**
--------------------------------------------
Nicholas J. Schreiber Trust
**
--------------------------------------------
Molly E. Schreiber Trust
**
--------------------------------------------
Kaitlin E. Schreiber Trust
* /s/ Timothy A. Dugan
--------------------------------------------
by: Timothy A. Dugan
-----------------------------------------
pursuant to a Power of Attorney dated
May 23, 1997
** /s/ Timothy A. Dugan
--------------------------------------------
by: Timothy A. Dugan
-----------------------------------------
pursuant to a Power of Attorney dated
May 23, 1997
13
<PAGE> 14
<TABLE>
EXHIBIT A
---------
<CAPTION>
Stockholder Stockholder Shares Stockholder Warrants
- ----------- ------------------ --------------------
<S> <C> <C>
FCEC 9,926.400 220,587.000
Cross Creek 1,323.415 29,409.000
John G. Schreiber 330.865 7,352.556
(c/o Mayer, Brown & Platt)
Jennifer C. Schreiber Trust 41.425 920.556
(c/o Mayer, Brown & Platt)
Heather E. Schreiber Trust 41.425 920.556
(c/o Mayer, Brown & Platt)
Amy D. Schreiber Trust 41.425 920.556
(c/o Mayer, Brown & Platt)
Michael D. Schreiber Trust 41.470 921.556
(c/o Mayer, Brown & Platt)
Matthew D. Schreiber Trust 41.280 917.333
(c/o Mayer, Brown & Platt)
Nicholas J. Schreiber Trust 41.280 917.333
(c/o Mayer, Brown & Platt)
Molly E. Schreiber Trust 41.280 917.333
(c/o Mayer, Brown & Platt)
Kaitlin E. Schreiber Trust 41.280 917.333
(c/o Mayer, Brown & Platt)
</TABLE>
14
<PAGE> 1
Exhibit 10.4
UNIQUE CASUAL RESTAURANTS, INC.
1997 STOCK OPTION AND INCENTIVE PLAN
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS
The name of the plan is the Unique Casual Restaurants, Inc. 1997 Stock
Option and Incentive Plan (the "Plan"). The purpose of the Plan is to encourage
and enable the officers, employees, Independent Directors and other key persons
(including consultants) of Unique Casual Restaurants, Inc. (the "Company") and
its Subsidiaries, and certain employees of DAKA International, Inc., upon whose
judgment, initiative and efforts the Company largely depends for the successful
conduct of its business to acquire a proprietary interest in the Company. It is
anticipated that providing such persons with a direct stake in the Company's
welfare will assure a closer identification of their interests with those of the
Company, thereby stimulating their efforts on the Company's behalf and
strengthening their desire to remain with the Company.
The following terms shall be defined as set forth below:
"Act" means the Securities Exchange Act of 1934, as amended.
"Administrator" is defined in Section 2(a).
"Award" or "Awards," except where referring to a particular category of
grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock
Options, Restricted Stock Awards, Unrestricted Stock Awards and Performance
Share Awards.
"Board" means the Board of Directors of the Company.
"Change of Control" is defined in Section 13.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"Committee" means the Committee of the Board referred to in Section 2.
"Effective Date" means the date on which the Plan is approved by
stockholders as set forth in Section 15.
"Fair Market Value" of the Stock on any given date means the fair
market value of the Stock determined in good faith by the Administrator;
provided, however, that (i) if the Stock is admitted to quotation on the
National Association of Securities Dealers Automated Quotation System
("NASDAQ"), the Fair Market Value on any given date shall not be less than the
<PAGE> 2
average of the highest bid and lowest asked prices of the Stock reported for
such date or, if no bid and asked prices were reported for such date, for the
last day preceding such date for which such prices were reported, or (ii) if the
Stock is admitted to trading on a national securities exchange or the NASDAQ
National Market System, the Fair Market Value on any date shall not be less than
the closing price reported for the Stock on such exchange or system for such
date or, if no sales were reported for such date, for the last date preceding
the date for such a sale was reported.
"Incentive Stock Option" means any Stock Option designated and
qualified as an "incentive stock option" as defined in Section 422 of the Code.
"Independent Director" means a member of the Board who is not also an
employee of the Company or any Subsidiary.
"Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
"Option" or "Stock Option" means any option to purchase shares of Stock
granted pursuant to Section 5.
"Performance Share Award" means Awards granted pursuant to Section 8.
"Restricted Stock Award" means Awards granted pursuant to Section 6.
"Stock" means the Common Stock, par value $.01 per share, of the
Company, subject to adjustments pursuant to Section 3.
"Subsidiary" means any corporation or other entity (other than the
Company) in any unbroken chain of corporations or other entities beginning with
the Company if each of the corporations or entities (other than the last
corporation or entity in the unbroken chain) owns stock or other interests
possessing 50% or more of the economic interest or the total combined voting
power of all classes of stock or other interests in one of the other
corporations or entities in the chain.
"Unrestricted Stock Award" means any Award granted pursuant to Section
7.
SECTION 2. ADMINISTRATION OF PLAN; ADMINISTRATOR AUTHORITY TO SELECT
PARTICIPANTS AND DETERMINE AWARDS
(a) Committee. The Plan shall be administered by either the Board or a
committee of not less than two Independent Directors (in either case, the
"Administrator"). Each member of the Committee shall be an "outside director"
within the meaning of Section 162(m) of the Code and the regulations promulgated
thereunder and a "non-employee director" within the
2
<PAGE> 3
meaning of Rule 16b-3(b)(3)(i) promulgated under the Act, or any successor
definition under said rule.
(b) Powers of Administrator. The Administrator shall have the power and
authority to grant Awards consistent with the terms of the Plan, including the
power and authority:
(i) to select the individuals to whom Awards may from time to
time be granted;
(ii) to determine the time or times of grant, and the extent,
if any, of Incentive Stock Options, Non-Qualified Stock Options,
Restricted Stock Awards, Unrestricted Stock Awards and Performance
Share Awards, or any combination of the foregoing, granted to any one
or more participants;
(iii) to determine the number of shares of Stock to be covered
by any Award;
(iv) to determine and modify from time to time the terms and
conditions, including restrictions, not inconsistent with the terms of
the Plan, of any Award, which terms and conditions may differ among
individual Awards and participants, and to approve the form of written
instruments evidencing the Awards;
(v) to accelerate at any time the exercisability or vesting of
all or any portion of any Award;
(vi) subject to the provisions of Section 5(a)(iii), to extend
at any time the period in which Stock Options may be exercised;
(vii) to determine at any time whether, to what extent, and
under what circumstances distribution or the receipt of Stock and other
amounts payable with respect to an Award shall be deferred either
automatically or at the election of the participant and whether and to
what extent the Company shall pay or credit amounts constituting
interest (at rates determined by the Administrator) or dividends or
deemed dividends on such deferrals; and
(viii) at any time to adopt, alter and repeal such rules,
guidelines and practices for administration of the Plan and for its own
acts and proceedings as it shall deem advisable; to interpret the terms
and provisions of the Plan and any Award (including related written
instruments); to make all determinations it deems advisable for the
administration of the Plan; to decide all disputes arising in
connection with the Plan; and to otherwise supervise the administration
of the Plan.
All decisions and interpretations of the Administrator shall be binding
on all persons, including the Company and Plan participants.
3
<PAGE> 4
SECTION 3. STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION
(a) Stock Issuable. The maximum number of shares of Stock reserved and
available for issuance under the Plan shall be 1,250,000 shares; provided that
not more than 250,000 shares shall be issued in the form of Unrestricted Stock
Awards, Restricted Stock Awards, or Performance Share Awards except to the
extent such Awards are granted in lieu of cash compensation or fees. For
purposes of this limitation, the shares of Stock underlying any Awards which are
forfeited, cancelled, reacquired by the Company, satisfied without the issuance
of Stock or otherwise terminated (other than by exercise) shall be added back to
the shares of Stock available for issuance under the Plan. Subject to such
overall limitation, shares of Stock may be issued up to such maximum number
pursuant to any type or types of Award; provided, however, that Stock Options
with respect to no more than 100,000 shares of Stock may be granted to any one
individual participant during any calendar year period. The shares available for
issuance under the Plan may be authorized but unissued shares of Stock or shares
of Stock reacquired by the Company and held in its treasury.
(b) Changes in Stock. If, as a result of any reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar change in the Company's capital stock, the outstanding
shares of Stock are increased or decreased or are exchanged for a different
number or kind of shares or other securities of the Company, or additional
shares or new or different shares or other securities of the Company or other
non-cash assets are distributed with respect to such shares of Stock or other
securities, the Administrator shall make an appropriate or proportionate
adjustment in (i) the maximum number of shares reserved for issuance under the
Plan, (ii) the number of Stock Options that can be granted to any one individual
participant, (iii) the number and kind of shares or other securities subject to
any then outstanding Awards under the Plan, and (iv) the price for each share
subject to any then outstanding Stock Options under the Plan, without changing
the aggregate exercise price (i.e., the exercise price multiplied by the number
of Stock Options) as to which such Stock Options remain exercisable. The
adjustment by the Administrator shall be final, binding and conclusive. No
fractional shares of Stock shall be issued under the Plan resulting from any
such adjustment, but the Administrator in its discretion may make a cash payment
in lieu of fractional shares.
The Administrator may also adjust the number of shares subject to
outstanding Awards and the exercise price and the terms of outstanding Awards to
take into consideration material changes in accounting practices or principles,
extraordinary dividends, acquisitions or dispositions of stock or property or
any other event if it is determined by the Administrator that such adjustment is
appropriate to avoid distortion in the operation of the Plan.
(c) Mergers. Upon consummation of a consolidation or merger or sale of
all or substantially all of the assets of the Company in which outstanding
shares of Stock are exchanged for securities, cash or other property of an
unrelated corporation or business entity or in the event of a liquidation of the
Company (in each case, a "Transaction"), the Board, or the board of directors of
any corporation assuming the obligations of the Company, may, in its
4
<PAGE> 5
discretion, take any one or more of the following actions, as to outstanding
Awards: (i) provide that such Awards shall be assumed or equivalent awards shall
be substituted, by the acquiring or succeeding corporation (or an affiliate
thereof), (ii) upon written notice to the participants, provide that all
unexercised or unvested Awards will terminate immediately prior to the
consummation of the Transaction, and/or (iii) make or provide for a payment, in
cash or in kind, to the participants equal to the value (as determined by the
Administrator) of the consideration payable per share of Stock pursuant to the
business combination (the "Merger Price") in the case of Restricted Stock or
deferred Unrestricted Stock and in the case of Stock Options, payment, in cash
or in kind equal to the difference between (A) the Merger Price times the number
of shares of Stock subject to such outstanding Stock Options (to the extent then
exercisable at prices not in excess of the Merger Price) and (B) the aggregate
exercise price of all such outstanding Stock Options, in exchange for the
termination of such Awards. In the event Awards will terminate upon the
consummation of the Transaction, all vested Awards, other than Stock Options,
shall be fully settled in cash or in kind, and each participant shall be
permitted, within a specified period determined by the Administrator, to
exercise all outstanding Stock Options, including those that are not then
exercisable, subject to the consummation of the Transaction.
(d) Substitute Awards. The Administrator may grant Awards under the
Plan in substitution for stock and stock based awards held by employees of
another corporation who become employees of the Company or a Subsidiary as the
result of a merger or consolidation of the employing corporation with the
Company or a Subsidiary or the acquisition by the Company or a Subsidiary of
property or stock of the employing corporation. The Administrator may also grant
Awards under the Plan in substitution for stock options granted to employees of
DAKA International, Inc. prior to its divestiture of the Company. The
Administrator may direct that any such substitute awards be granted on such
terms and conditions as the Administrator considers appropriate in the
circumstances. Any awards granted under this Section 3(d) shall not count
towards the reserved shares set forth in Section 3(a).
SECTION 4. ELIGIBILITY
Participants in the Plan will be such full or part-time officers and
other employees, Independent Directors and key persons of the Company and its
Subsidiaries who are responsible for or contribute to the management, growth or
profitability of the Company and its Subsidiaries as are selected from time to
time by the Administrator in its sole discretion.
SECTION 5. STOCK OPTIONS
Any Stock Option granted under the Plan shall be in such form as the
Administrator may from time to time approve.
Stock Options granted under the Plan may be either Incentive Stock
Options or Non-Qualified Stock Options. Incentive Stock Options may be granted
only to employees of the Company or any Subsidiary that is a "subsidiary
corporation" within the meaning of Section
5
<PAGE> 6
424(f) of the Code. To the extent that any Option does not qualify as an
Incentive Stock Option, it shall be deemed a Non-Qualified Stock Option.
No Incentive Stock Option shall be granted under the Plan after
_______, 2007.
(a) Stock Options Granted to Employees and Key Persons. The
Administrator in its discretion may grant Stock Options to eligible employees
and key persons of the Company or any Subsidiary. Stock Options granted pursuant
to this Section 5(a) shall be subject to the following terms and conditions and
shall contain such additional terms and conditions, not inconsistent with the
terms of the Plan, as the Administrator shall deem desirable:
(i) Exercise Price. The exercise price per share for the Stock
covered by a Stock Option granted pursuant to this Section 5(a) shall
be determined by the Administrator at the time of grant but, except as
otherwise provided in Section 5(a)(ii), shall not be less than 100% of
the Fair Market Value on the date of grant. If an employee owns or is
deemed to own (by reason of the attribution rules of Section 424(d) of
the Code) more than 10% of the combined voting power of all classes of
stock of the Company or any parent or subsidiary corporation and an
Incentive Stock Option is granted to such employee, the option price of
such Incentive Stock Option shall be not less than 110% of the Fair
Market Value on the grant date.
(ii) Grant of Discount Options in Lieu of Cash Bonus. Upon the
request of an eligible employee and with the consent of the Committee,
such employee may elect each calendar year to receive a Non-Qualified
Stock Option in lieu of cash bonus to which he may become entitled
during the following calendar year pursuant to any other plan of the
Company, but only if such employee makes an irrevocable election to
waive receipt of all or a portion of such cash bonus. Such election
shall be made on or before the date set by the Committee which date
shall be no later than 15 days preceding January 1 of the calendar year
in which the cash bonus would otherwise be paid. A Non-Qualified Stock
Option shall be granted to each employee who made such an irrevocable
election on the date the waived cash bonus would otherwise be paid. The
exercise price per share shall be determined by the Committee but shall
not be less than 50% of the Fair Market Value of the Stock on the date
the Stock Option is granted. The number of shares of Stock subject to
the Stock Option shall be determined by dividing the amount of the
waived cash bonus by the difference between the Fair Market Value of
the Stock on the date the Stock Option is granted and the exercise
price per Stock Option. The Stock Option shall be granted for whole
number of shares so determined; the value of any fractional share shall
be paid in cash.
(iii) Option Term. The term of each Stock Option shall be
fixed by the Administrator, but no Incentive Stock Option shall be
exercisable more than ten years after the date the option is granted.
If an employee owns or is deemed to own (by reason of the attribution
rules of Section 424(d) of the Code) more than 10% of the combined
voting power of all classes of stock of the Company or any parent or
subsidiary corporation and an Incentive Stock Option is granted to such
employee, the term of such option shall be no more than five years from
the date of grant.
(iv) Exercisability; Rights of a Stockholder. Stock Options
shall become exercisable at such time or times, whether or not in
installments, as shall be determined by the Administrator at or after
the grant date; provided, however, that Stock Options granted in lieu
of compensation shall be exercisable in full as of the grant date. The
Administrator may at any time accelerate the exercisability of all or
any portion of any Stock Option. An optionee shall have the rights of a
stockholder only as to shares acquired upon the exercise of a Stock
Option and not as to unexercised Stock Options.
(v) Method of Exercise. Stock Options may be exercised in
whole or in part, by giving written notice of exercise to the Company,
specifying the number of shares to be purchased. Payment of the
purchase price may be made by one or more of the following methods:
(A) In cash, by certified or bank check or other
instrument acceptable to the Administrator;
6
<PAGE> 7
(B) In the form of shares of Stock that are not then
subject to restrictions under any Company plan and that have
been beneficially owned by the optionee for at least six
months, if permitted by the Administrator in its discretion.
Such surrendered shares shall be valued at Fair Market Value
on the exercise date; or
(C) By the optionee delivering to the Company a
properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Company
cash or a check payable and acceptable to the Company for the
purchase price; provided that in the event the optionee
chooses to pay the purchase price as so provided, the optionee
and the broker shall comply with such procedures and enter
into such agreements of indemnity and other agreements as the
Administrator shall prescribe as a condition of such payment
procedure.
Payment instruments will be received subject to collection. The
delivery of certificates representing the shares of Stock to be
purchased pursuant to the exercise of a Stock Option will be contingent
upon receipt from the optionee (or a purchaser acting in his stead in
accordance with the provisions of the Stock Option) by the Company of
the full purchase price for such shares and the fulfillment of any
other requirements contained in the Stock Option or applicable
provisions of laws.
(vi) Annual Limit on Incentive Stock Options. To the extent
required for "incentive stock option" treatment under Section 422 of
the Code, the aggregate Fair Market Value (determined as of the time of
grant) of the shares of Stock with respect to which Incentive Stock
Options granted under this Plan and any other plan of the Company or
its parent and subsidiary corporations become exercisable for the first
time by an optionee during any calendar year shall not exceed $100,000.
To the extent that any Stock Option exceeds this limit, it shall
constitute a Non-Qualified Stock Option.
(b) Reload Options. At the discretion of the Administrator, Options
granted under the Plan may include a "reload" feature pursuant to which an
optionee exercising an option by the delivery of a number of shares of Stock in
accordance with Section 5(a)(v)(B) hereof would automatically be granted an
additional Option (with an exercise price equal to the Fair Market Value of the
Stock on the date the additional Option is granted and with such other terms as
the Administrator may provide) to purchase that number of shares of Stock equal
to the number delivered to exercise the original Option.
(c) Stock Options Granted to Independent Directors.
(i) Automatic Grant of Options.
(A) Each Independent Director who is serving as
Director of the Company on the fifth business day after each
annual meeting of shareholders,
7
<PAGE> 8
beginning with the 1997 annual meeting, shall automatically be
granted on such day a Non-Qualified Stock Option to acquire
1,500 shares of Stock.
(B) The exercise price per share for the Stock
covered by a Stock Option granted under this Section 5(c)
shall be equal to the Fair Market Value of the Stock on the
date the Stock Option is granted.
(C) The Administrator, in its discretion, may grant
additional Non-Qualified Stock Options to Independent
Directors. Any such grant may vary among individual
Independent Directors.
(ii) Exercise; Termination.
(A) Except as provided in Section 13, an Option
granted under Section 5(c) shall be exercisable after the
first anniversary of the grant date. An Option issued under
this Section 5(c) shall not be exercisable after the
expiration of ten years from the date of grant.
(B) Options granted under this Section 5(c) may be
exercised only by written notice to the Company specifying the
number of shares to be purchased. Payment of the full purchase
price of the shares to be purchased may be made by one or more
of the methods specified in Section 5(a)(v). An optionee
shall have the rights of a stockholder only as to shares
acquired upon the exercise of a Stock Option and not as to
unexercised Stock Options.
(d) Non-transferability of Options. No Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of descent
and distribution and all Stock Options shall be exercisable, during the
optionee's lifetime, only by the optionee. Notwithstanding the foregoing, the
Administrator may permit the optionee to transfer, without consideration for the
transfer, his Non-Qualified Stock Options to members of his immediate family, to
trusts for the benefit of such family members, or to partnerships in which such
family members are the only partners, provided that the transferee agrees in
writing with the Company to be bound by all of the terms and conditions of this
Plan and the applicable Option.
SECTION 6. RESTRICTED STOCK AWARDS
(a) Nature of Restricted Stock Awards. A Restricted Stock Award is an
Award entitling the recipient to acquire, at par value or such other purchase
price determined by the Administrator, shares of Stock subject to such
restrictions and conditions as the Administrator may determine at the time of
grant ("Restricted Stock"). Conditions may be based on continuing employment (or
other business relationship) and/or achievement of pre-established performance
goals and objectives.
8
<PAGE> 9
(b) Rights as a Stockholder. Upon execution of a written instrument
setting forth the Restricted Stock Award and payment of any applicable purchase
price, a participant shall have the rights of a stockholder with respect to the
voting of the Restricted Stock, subject to such conditions contained in the
written instrument evidencing the Restricted Stock Award. Unless the
Administrator shall otherwise determine, certificates evidencing the Restricted
Stock shall remain in the possession of the Company until such Restricted Stock
is vested as provided in Section 6(d) below.
(c) Restrictions. Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided herein or in the written instrument evidencing the
Restricted Stock Award. If a participant's employment (or other business
relationship) with the Company and its Subsidiaries terminates for any reason,
the Company shall have the right to repurchase Restricted Stock that has not
vested at its purchase price, from the participant or the participant's legal
representative.
(d) Vesting of Restricted Stock. The Administrator at the time of grant
shall specify the date or dates and/or the attainment of pre-established
performance goals, objectives and other conditions on which the
non-transferability of the Restricted Stock and the Company's right of
repurchase or forfeiture shall lapse. Subsequent to such date or dates and/or
the attainment of such pre-established performance goals, objectives and other
conditions, the shares on which all restrictions have lapsed shall no longer be
Restricted Stock and shall be deemed "vested." Except as may otherwise be
provided by the Administrator at any time, a participant's rights in any shares
of Restricted Stock that have not vested shall automatically terminate upon the
participant's termination of employment (or other business relationship) with
the Company and its Subsidiaries and such shares shall be repurchased by the
Company.
(e) Waiver, Deferral and Reinvestment of Dividends. The written
instrument evidencing the Restricted Stock Award may require or permit the
immediate payment, waiver, deferral or investment of dividends paid on the
Restricted Stock.
SECTION 7. UNRESTRICTED STOCK AWARDS
(a) Grant or Sale of Unrestricted Stock. The Administrator may, in its
sole discretion, grant (or sell at a purchase price determined by the
Administrator) an Unrestricted Stock Award to any participant pursuant to which
such participant may receive shares of Stock free of any restrictions
("Unrestricted Stock") under the Plan. Unrestricted Stock Awards may be granted
or sold as described in the preceding sentence in respect of past services or
other valid consideration, or in lieu of cash compensation due to such
participant.
(b) Elections to Receive Unrestricted Stock In Lieu of Compensation.
With the consent of the Administrator, a participant may, pursuant to an advance
written election delivered to the Company no later than the date specified by
the Administrator, receive a
9
<PAGE> 10
portion of the cash compensation otherwise due to such participant in the form
of shares of Unrestricted Stock either currently or on a deferred basis.
(c) Restrictions on Transfers. The right to receive shares of
Unrestricted Stock on a deferred basis may not be sold, assigned, transferred,
pledged or otherwise encumbered, other than by will or the laws of descent and
distribution.
SECTION 8. PERFORMANCE SHARE AWARDS
(a) Nature of Performance Share Awards. A Performance Share Award is an
Award entitling the recipient to acquire shares of Stock upon the attainment of
specified performance goals. The Administrator may make Performance Share Awards
independent of or in connection with the granting of any other Award under the
Plan. The Administrator in its sole discretion shall determine whether and to
whom Performance Share Awards shall be made, the performance goals, the periods
during which performance is to be measured, and all other limitations and
conditions.
(b) Rights as a Stockholder. A participant receiving a Performance
Share Award shall have the rights of a stockholder only as to shares actually
received by the participant under the Plan and not with respect to shares
subject to the Award but not actually received by the participant. A participant
shall be entitled to receive a stock certificate evidencing the acquisition of
shares of Stock under a Performance Share Award only upon satisfaction of all
conditions specified in the written instrument evidencing the Performance Share
Award (or in a performance plan adopted by the Administrator).
(c) Termination. Except as may otherwise be provided by the
Administrator at any time prior to termination of employment (or other business
relationship), a participant's rights in all Performance Share Awards shall
automatically terminate upon the participant's termination of employment (or
business relationship) with the Company and its Subsidiaries for any reason.
(d) Acceleration, Waiver, Etc. At any time prior to the participant's
termination of employment (or other business relationship) by the Company and
its Subsidiaries, the Administrator may in its sole discretion accelerate, waive
or, subject to Section 11, amend any or all of the goals, restrictions or
conditions applicable to a Performance Share Award.
SECTION 9. TAX WITHHOLDING
(a) Payment by Participant. Each participant shall, no later than the
date as of which the value of an Award or of any Stock or other amounts received
thereunder first becomes includable in the gross income of the participant for
Federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Administrator regarding payment of, any Federal, state, or
local taxes of any kind required by law to be withheld with respect to
10
<PAGE> 11
such income. The Company and its Subsidiaries shall, to the extent permitted by
law, have the right to deduct any such taxes from any payment of any kind
otherwise due to the participant.
(b) Payment in Stock. Subject to approval by the Administrator, a
participant may elect to have such tax withholding obligation satisfied, in
whole or in part, by (i) authorizing the Company to withhold from shares of
Stock to be issued pursuant to any Award a number of shares with an aggregate
Fair Market Value (as of the date the withholding is effected) that would
satisfy the withholding amount due, or (ii) transferring to the Company shares
of Stock owned by the participant with an aggregate Fair Market Value (as of the
date the withholding is effected) that would satisfy the withholding amount due.
SECTION 10. TRANSFER, LEAVE OF ABSENCE, ETC.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or
from the Company to a Subsidiary, or from one Subsidiary to another; or
(b) an approved leave of absence for military service or sickness, or
for any other purpose approved by the Company, if the employee's right to
re-employment is guaranteed either by a statute or by contract or under the
policy pursuant to which the leave of absence was granted or if the
Administrator otherwise so provides in writing.
SECTION 11. AMENDMENTS AND TERMINATION
The Board may, at any time, amend or discontinue the Plan and the
Administrator may, at any time, amend or cancel any outstanding Award for the
purpose of satisfying changes in law or for any other lawful purpose, but no
such action shall adversely affect rights under any outstanding Award without
the holder's consent. The Administrator may provide substitute Awards at the
same or reduced exercise or purchase price or with no exercise or purchase price
in a manner not inconsistent with the terms of the Plan, but such price, if any,
must satisfy the requirements which would apply to the substitute or amended
Award if it were then initially granted under this Plan, but no such action
shall adversely affect rights under any outstanding Award without the holder's
consent. If and to the extent determined by the Administrator to be required by
the Code to ensure that Incentive Stock Options granted under the Plan are
qualified under Section 422 of the Code or to ensure that compensation earned
under Stock Options and Stock Appreciation Rights qualifies as performance-based
compensation under Section 162(m) of the Code, Plan amendments shall be subject
to approval by the Company stockholders entitled to vote at a meeting of
stockholders.
11
<PAGE> 12
SECTION 12. STATUS OF PLAN
With respect to the portion of any Award that has not been exercised
and any payments in cash, Stock or other consideration not received by a
participant, a participant shall have no rights greater than those of a general
creditor of the Company unless the Administrator shall otherwise expressly
determine in connection with any Award or Awards. In its sole discretion, the
Administrator may authorize the creation of trusts or other arrangements to meet
the Company's obligations to deliver Stock or make payments with respect to
Awards hereunder, provided that the existence of such trusts or other
arrangements is consistent with the foregoing sentence.
SECTION 13. CHANGE OF CONTROL PROVISIONS
Upon the occurrence of a Change of Control as defined in this Section
13:
(a) Each outstanding Stock Option shall automatically become fully
exercisable notwithstanding any provision to the contrary contained herein.
(b) Each outstanding Restricted Stock Award and Performance Share Award
shall be subject to such terms, if any, with respect to a Change of Control as
have been provided by the Administrator in connection with such Award.
(c) "Change of Control" shall mean the occurrence of any one of the
following events:
(i) any "person," as such term is used in Sections 13(d) and
14(d) of the Act (other than the Company, any of its Subsidiaries, or
any trustee, fiduciary or other person or entity holding securities
under any employee benefit plan or trust of the Company or any of its
Subsidiaries), together with all "affiliates" and "associates" (as such
terms are defined in Rule 12b-2 under the Act) of such person, shall
become the "beneficial owner" (as such term is defined in Rule 13d-3
under the Act), directly or indirectly, of securities of the Company
representing 50% or more of the combined voting power of the Company's
then outstanding securities having the right to vote in an election of
the Company's Board of Directors ("Voting Securities") (in such case
other than as a result of an acquisition of securities directly from
the Company); or
(ii) persons who, as of the Effective Date, constitute the
Company's Board of Directors (the "Incumbent Directors") cease for any
reason, including, without limitation, as a result of a tender offer,
proxy contest, merger or similar transaction, to constitute at least a
majority of the Board, provided that any person becoming a director of
the Company subsequent to the Effective Date whose election was
approved by a vote of at least a majority of the Incumbent Directors or
whose nomination for election was approved by the Nominating Committee
comprised of Incumbent Directors shall, for purposes of this Plan, be
considered an Incumbent Director; or
12
<PAGE> 13
(iii) the stockholders of the Company shall approve (A) any
consolidation or merger of the Company where the stockholders of the
Company, immediately prior to the consolidation or merger, would not,
immediately after the consolidation or merger, beneficially own (as
such term is defined in Rule 13d-3 under the Act), directly or
indirectly, shares representing in the aggregate 80% or more of the
voting shares of the corporation issuing cash or securities in the
consolidation or merger (or of its ultimate parent corporation, if
any), (B) any sale, lease, exchange or other transfer (in one
transaction or a series of transactions contemplated or arranged by any
party as a single plan) of all or substantially all of the assets of
the Company or (C) any plan or proposal for the liquidation or
dissolution of the Company.
Notwithstanding the foregoing, a "Change of Control" shall not be
deemed to have occurred for purposes of the foregoing clause (i) solely as the
result of an acquisition of securities by the Company which, by reducing the
number of shares of Voting Securities outstanding, increases the proportionate
number of shares of Voting Securities beneficially owned by any person to 50% or
more of the combined voting power of all then outstanding Voting Securities;
provided, however, that if any person referred to in this sentence shall
thereafter become the beneficial owner of any additional shares of Voting
Securities (other than pursuant to a stock split, stock dividend, or similar
transaction or as a result of an acquisition of securities directly from the
Company), then a "Change of Control" shall be deemed to have occurred for
purposes of the foregoing clause (i).
SECTION 14. GENERAL PROVISIONS
(a) No Distribution; Compliance with Legal Requirements. The
Administrator may require each person acquiring Stock pursuant to an Award to
represent to and agree with the Company in writing that such person is acquiring
the shares without a view to distribution thereof.
No shares of Stock shall be issued pursuant to an Award until all
applicable securities law and other legal and stock exchange or similar
requirements have been satisfied. The Administrator may require the placing of
such stop-orders and restrictive legends on certificates for Stock and Awards as
it deems appropriate.
(b) Delivery of Stock Certificates. Stock certificates to participants
under this Plan shall be deemed delivered for all purposes when the Company or a
stock transfer agent of the Company shall have mailed such certificates in the
United States mail, addressed to the participant, at the participant's last
known address on file with the Company.
(c) Other Compensation Arrangements; No Employment Rights. Nothing
contained in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, including trusts, and such arrangements may be either
generally applicable or applicable only in specific cases. The adoption of this
Plan and the grant of Awards do not
13
<PAGE> 14
confer upon any employee any right to continued employment with the Company or
any Subsidiary.
SECTION 15. EFFECTIVE DATE OF PLAN
This Plan shall become effective upon approval by the holders of a
majority of the votes cast at a meeting of stockholders at which a quorum is
present or by a unanimous consent of the stockholders entitled to vote on such
matter. Subject to such approval by the stockholders and to the requirement that
no Stock may be issued hereunder prior to such approval, Stock Options and other
Awards may be granted hereunder on and after adoption of this Plan by the Board.
SECTION 16. GOVERNING LAW
This Plan shall be governed by the law of the Commonwealth of
Massachusetts except to the extent such law is preempted by federal law.
DATE APPROVED BY BOARD OF DIRECTORS:
DATE APPROVED BY STOCKHOLDERS:
14
<PAGE> 1
Exhibit 10.5
UNIQUE CASUAL RESTAURANTS, INC.
1997 STOCK PURCHASE PLAN
The purpose of the Unique Casual Restaurants, Inc. 1997 Stock Purchase
Plan ("the Plan") is to provide eligible associates of Unique Casual
Restaurants, Inc. (the "Company") and certain of its subsidiaries with
opportunities to purchase shares of the Company's common stock, par value $0.01
per share (the "Common Stock"). Four hundred thousand (400,000) shares of Common
Stock in the aggregate have been approved and reserved for this purpose. The
Plan is intended to constitute an "employee stock purchase plan" within the
meaning of Section 423(b) of the Internal Revenue Code of 1986, as amended (the
"Code"), and shall be interpreted in accordance with that intent.
1. Administration. The Plan will be administered by the person or
persons (the "Administrator") appointed by the Company's Board of Directors (the
"Board") for such purpose. The Administrator has authority to make rules and
regulations for the administration of the Plan, and its interpretations and
decisions with regard thereto shall be final and conclusive. No member of the
Board or individual exercising administrative authority with respect to the Plan
shall be liable for any action or determination made in good faith with respect
to the Plan or any option granted hereunder.
2. Offerings. The Company will make one or more offerings to eligible
associates to purchase Common Stock under the Plan ("Offerings"). Unless
otherwise determined by the Administrator, the initial Offering will begin on
the first business day following the closing of the tender offer by Compass
Holdings, Inc., a Delaware corporation and wholly owned subsidiary of Compass
Group PLC, a public limited company incorporated in England and Wales, for all
of the outstanding shares of common stock of DAKA International, Inc., a
Delaware corporation, and will end on September 30, 1997. Thereafter, unless
otherwise determined by the Administrator, an Offering will begin on the first
business day occurring on or after each October 1, January 1, April 1 and July 1
and will end on the last business day occurring on or before the following
December 31,
<PAGE> 2
March 31, June 30 and September 30, respectively. The Administrator may, in its
discretion, designate a different period for any Offering, provided that no
Offering shall exceed one year in duration or overlap any other Offering.
3. Eligibility. All associates (i.e., employees) of the Company
(including associates who are also directors of the Company) and all associates
of each Designated Subsidiary (as defined in Section 11) are eligible to
participate in any one or more of the Offerings under the Plan, provided that as
of both the first day of the applicable Offering (the "Offering Date") and such
earlier date, not more than fifteen (15) business days prior to the Offering
Date, as shall be established for the Offering, they are customarily employed by
the Company or a Designated Subsidiary for more than twenty (20) hours a week.
Notwithstanding the foregoing, participation in the Plan will neither be
permitted nor be denied contrary to the requirements of the Code.
4. Participation. An associate eligible for any Offering may
participate in such Offering by submitting an enrollment form to his appropriate
payroll location at least fifteen (15) business days before the Offering Date
(or by such other deadline as shall be established for the Offering). The form
will (a) state an amount to be deducted from his Compensation (as defined in
Section 11) per pay period, (b) authorize the purchase of Common Stock for him
in each Offering in accordance with the terms of the Plan and (c) specify the
exact name or names in which shares of Common Stock purchased for him are to be
issued pursuant to Section 10. An associate who does not enroll in accordance
with these procedures will be deemed to have waived his right to participate.
Unless an associate files a new enrollment form or withdraws from the Plan, his
deductions and purchases will continue at the same amount of Compensation
2
<PAGE> 3
for future Offerings, provided he remains eligible. Notwithstanding the
foregoing, participation in the Plan will neither be permitted nor be denied
contrary to the requirements of the Code.
5. Associate Contributions. Each eligible associate may authorize
payroll deductions at a minimum of ten dollars ($10.00) per week up to a maximum
of fifty percent (50%) of his Compensation for each pay period. The Company will
maintain book accounts showing the amount of payroll deductions made by each
participating associate for each Offering. No interest will accrue or be paid on
payroll deductions.
6. Deduction Changes. Except as may be determined by the Administrator
in advance of an Offering, an associate may not increase or decrease his payroll
deduction during any Offering, but may increase or decrease his payroll
deduction with respect to the next Offering (subject to the limitations of
Section 5) by filing a new enrollment form at least fifteen (15) business days
before the next Offering Date (or by such other deadline as shall be established
for the Offering). The Administrator may, in advance of any Offering, establish
rules permitting an associate to increase, decrease or terminate his payroll
deduction during an Offering.
7. Withdrawal. An associate may withdraw from participation in the Plan
by delivering a written notice of withdrawal to his appropriate payroll
location. If received at least fifteen (15) business days before the last day of
an Offering (or by such other deadline as shall be established in advance of the
Offering), the associate's withdrawal will be effective as of the next business
day; if received after such deadline, the associate's withdrawal will be
effective on the first day of the next Offering. Following an associate's
withdrawal, the
3
<PAGE> 4
Company will promptly refund to him his entire account balance under the Plan
(after payment for any Common Stock purchased before the effective date of
withdrawal). Partial withdrawals are not permitted. The associate may not begin
participation again during the remainder of the Offering, but may enroll in a
subsequent Offering in accordance with Section 4.
8. Grant of Options. On each Offering Date, the Company will grant to
each eligible associate who has not previously waived his right to participate
in such Offering an option ("Option") to purchase on the last day of such
Offering (the "Exercise Date"), at the Option Price hereinafter provided for, a
maximum of one thousand (1,000) shares of Common Stock reserved for the purposes
of the Plan, or such other maximum number of shares as shall have been
established by the Administrator in advance of the Offering. The purchase price
for each share purchased under such Option (the "Option Price") will be a
certain percentage of the Fair Market Value of the Common Stock on the Offering
Date or the Exercise Date, whichever is less. Such percentage will be determined
by the Board in advance of such Offering Date and will be between 85% and 100%
of the Fair Market Value of the Common Stock, inclusive.
Notwithstanding the foregoing, no associate may be granted an option
hereunder if such associate, immediately after the option was granted, would be
treated as owning stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any
Parent or Subsidiary (as defined in Section 11). For purposes of the preceding
sentence, the attribution rules of Section 424(d) of the Code shall apply in
determining the stock ownership of an associate, and all stock which the
associate has a contractual right to purchase shall be treated as stock owned by
the associate. In addition, no
4
<PAGE> 5
associate may be granted an Option which permits his rights to purchase stock
under the Plan, and any other employee stock purchase plan of the Company and
its Parents and Subsidiaries, to accrue at a rate which exceeds $25,000 of the
fair market value of such stock (determined on the option grant date or dates)
for each calendar year in which the Option is outstanding at any time. The
purpose of the limitation in the preceding sentence is to comply with Section
423(b)(8) of the Code.
9. Exercise of Option and Purchase of Shares. Each associate who
continues to be a participant in the Plan on the Exercise Date shall be deemed
to have exercised his Option on such date and shall acquire from the Company
such number of whole shares of Common Stock reserved for the purpose of the Plan
as his accumulated payroll deductions on such date will purchase at the Option
Price, subject to any other limitations contained in the Plan. Except as
otherwise determined by the Administrator in advance of an Offering, any amount
remaining in an associate's account at the end of an Offering solely by reason
of the inability to purchase a fractional share will be carried forward to the
next Offering; any other balance remaining in an associate's account at the end
of an Offering will be refunded to the associate promptly.
10. Issuance of Certificates. Certificates representing shares of
Common Stock purchased under the Plan may be issued only in the name of the
associate, in the name of the associate and another person of legal age as joint
tenants with rights of survivorship, or in the name of a broker authorized by
the associate to be his, or their, nominee for such purpose.
11. Definitions.
The term "Compensation" means the amount of base pay, prior to salary
reduction pursuant to either Section 125 or 401(k) of the Code, but excluding
overtime, commissions,
5
<PAGE> 6
incentive or bonus awards, allowances and reimbursements for expenses such as
relocation allowances or travel expenses, income or gains on the exercise of
Company stock options, and similar items.
The term "Designated Subsidiary" means any present or future Subsidiary
(as defined below) that has been designated by the Board to participate in the
Plan. The Board may so designate any Subsidiary, or revoke any such designation,
at any time and from time to time, either before or after the Plan is approved
by the stockholders.
The term "Fair Market Value of the Common Stock" means (i) if the
Common Stock is admitted to trading on a national securities exchange or the
Nasdaq National Market, the closing price reported for the Common Stock on such
exchange or system for such date or, if no sales were reported for such date,
for the next preceding date for which a sale was reported, or (ii) if clause (i)
does not apply but the Common Stock is admitted to quotation on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"), the
average of the highest bid and lowest asked prices reported for the Common Stock
on NASDAQ for such date or, if no bid and asked prices were reported for such
date, for the next preceding date for which such prices were reported.
The term "Parent" means a "parent corporation" with respect to the
Company, as defined in Section 424(e) of the Code.
The term "Subsidiary" means a "subsidiary corporation" with respect to
the Company, as defined in Section 424(f) of the Code.
12. Rights on Termination of Employment. If a participant's employment
terminates for any reason before the Exercise Date for any Offering, no payroll
deduction will
6
<PAGE> 7
be taken from any pay due and owing to the participant and the balance in his
account will be paid to him as if he had withdrawn from the Plan under Section
7. An associate will be deemed to have terminated employment, for this purpose,
if the corporation that employs him, having been a Designated Subsidiary, ceases
to be a Subsidiary, or if the associate is transferred to any corporation other
than the Company or a Designated Subsidiary.
13. Special Rules. Notwithstanding anything herein to the contrary, the
Administrator may adopt special rules applicable to the associates of a
particular Designated Subsidiary, whenever the Administrator determines that
such rules are necessary or appropriate for the implementation of the Plan in a
jurisdiction where such Designated Subsidiary has associates; provided that such
rules are consistent with the requirements of Section 423(b) of the Code. Such
special rules may include (by way of example, but not by way of limitation) the
establishment of a method for associates of a given Designated Subsidiary to
fund the purchase of shares other than by payroll deduction, if the payroll
deduction method is prohibited by local law or is otherwise impracticable. Any
special rules established pursuant to this Section 13 shall, to the extent
possible, result in the associates subject to such rules having substantially
the same rights as other participants in the Plan.
14. Optionees Not Stockholders. Neither the granting of an Option to an
associate nor the deductions from his pay shall constitute such associate a
holder of the shares of Common Stock covered by an Option under the Plan until
such shares have been purchased by and issued to him.
7
<PAGE> 8
15. Rights Not Transferable. Rights under the Plan are not transferable
by a participant other than by will or the laws of descent and distribution, and
are exercisable during the associate's lifetime only by the associate.
16. Application of Funds. All funds received or held by or on behalf of
the Company under the Plan may be combined with other corporate funds and may be
used for any corporate purpose.
17. Adjustment in Case of Changes Affecting Common Stock. In the event
of a subdivision of outstanding shares of Common Stock, or the payment of a
dividend in Common Stock, the number of shares approved for the Plan, and the
share limitation set forth in Section 8, shall be increased proportionately, and
such other adjustment shall be made as may be deemed equitable by the
Administrator. In the event of any other change affecting the Common Stock, such
adjustment shall be made as may be deemed equitable by the Administrator to give
proper effect to such event.
18. Amendment of the Plan. The Board may at any time, and from time to
time, amend the Plan in any respect, except that without the approval, within
twelve (12) months of such Board action, by the holders of a majority of the
shares of stock of the Company present or represented and entitled to vote at a
meeting of stockholders, no amendment shall be made increasing the number of
shares approved for the Plan or making any other change that would require
stockholder approval in order for the Plan, as amended, to qualify as an
"employee stock purchase plan" under Section 423(b) of the Code.
19. Insufficient Shares. If the total number of shares of Common Stock
that would otherwise be purchased on any Exercise Date plus the number of shares
purchased under
8
<PAGE> 9
previous Offerings under the Plan exceeds the maximum number of shares issuable
under the Plan, the shares then available shall be apportioned among
participants in proportion to the amount of payroll deductions accumulated on
behalf of each participant that would otherwise be used to purchase Common Stock
on such Exercise Date.
20. Termination of the Plan. The Plan may be terminated at any time by
the Board. Upon termination of the Plan, all amounts in the accounts of
participants shall be promptly refunded.
21. Governmental Regulations. The Company's obligation to sell and
deliver Common Stock under the Plan is subject to obtaining all governmental
approvals required in connection with the authorization, issuance, or sale of
such stock.
The Plan shall be governed by the law of the Commonwealth of
Massachusetts except to the extent that such law is preempted by federal law.
22. Issuance of Shares. Shares may be issued upon exercise of an Option
from authorized but unissued Common Stock, from shares held in the treasury of
the Company, or from any other proper source.
23. Tax Withholding. Participation in the Plan is subject to any
required tax withholding on income of the participant in connection with the
Plan. Each associate agrees, by entering the Plan, that the Company and its
Subsidiaries shall have the right to deduct any such taxes from any payment of
any kind otherwise due to the associate, including shares issuable under the
Plan.
9
<PAGE> 10
24. Notification Upon Sale of Shares. Each associate agrees, by
entering the Plan, to give the Company prompt notice of any disposition of
shares purchased under the Plan where such disposition occurs within two years
after the date of grant of the Option pursuant to which such shares were
purchased.
25. Effective Date and Approval of Shareholders. The Plan shall take
effect on the later of the date it is adopted by the Board or the date it is
approved by the holders of a majority of the shares of stock of the Company
present or represented and entitled to vote at a meeting of stockholders, which
approval must occur within twelve (12) months of the adoption of the Plan by the
Board.
10
<PAGE> 1
Exhibit 13
[Director Form]
AGREEMENT
---------
This Agreement, made and entered into as of the ____ day of __________,
1997 (this "Agreement"), by and between Unique Casual Restaurants, Inc., a
Delaware corporation (the "Company"), and __________________________ (the
"Indemnitee").
WHEREAS, the Board of Directors of Compass Group, plc, a public limited
company incorporated in England and Wales ("Compass"), has approved a tender
offer pursuant to which Compass Holdings, Inc., a Delaware corporation and
wholly owned subsidiary of Compass ("Compass Holdings"), will offer to purchase
for cash (the "Offer") any and all of the shares of common stock, par value $.01
per share (the "International Common Stock"), of DAKA International, Inc., a
Delaware corporation and the parent corporation of the Company
("International"), subject to the terms and conditions contained in that certain
Agreement and Plan of Merger dated as of May __, 1997 (the "Merger Agreement")
by and among Compass, Compass Holdings, Compass Interim, Inc., a Delaware
corporation and wholly owned subsidiary of Compass Holdings ("Compass Interim"),
and International; and
WHEREAS, the Board of Directors of International has approved a plan of
contribution and distribution as described in that certain Reorganization
Agreement dated as of May __, 1997 (the "Reorganization Agreement") by and among
International, Daka, Inc., a Massachusetts corporation and wholly owned
subsidiary of International ("Daka"), the Company, Compass and Compass Holdings,
pursuant to which, prior to consummation of the Offer, (a) all of the assets and
liabilities of the restaurant business currently operated by International and
certain other assets and liabilities of International, together with the shares
of its subsidiaries not engaged in the food catering, contract catering and
vending business, will be contributed (all such assets and liabilities being
referred to herein collectively as the "Restaurant Business") to the Company
(the "Contribution"), and (b) all of the Common Stock, par value $.01 per share,
of the Company (the "Company Common Stock") will be distributed on a pro rata
basis to the holders of International Common Stock (the "Distribution"); and
WHEREAS, the directors (including the Independent Directors (as defined
in the Merger Agreement)) and officers of International are entitled to
indemnification and advancement of expenses pursuant to and in accordance with
the terms and conditions of International's Certificate of Incorporation, as
amended, as in effect on the date hereof (the "International Certificate
Indemnification Provisions"), and International's Bylaws, as amended, as in
effect on the date hereof (the "International Bylaws Indemnification Provisions"
and, together with the International Certificate Indemnification Provisions, the
"International Indemnification Provisions"); and
WHEREAS, the directors and officers of Daka are entitled to
indemnification and advancement of expenses pursuant to and in accordance with
the terms and conditions of the International Indemnification Provisions by
virtue of their serving as directors and officers of Daka at the request of
International; and
<PAGE> 2
WHEREAS, certain of the directors and officers of International and
Daka prior to consummation of the Offer and the Independent Directors are or
will be directors and officers of the Company following consummation of the
Offer (the "Company Directors and Officers"); and
WHEREAS, International is a party in the action entitled VENTURINO ET
AL. V. DAKA INTERNATIONAL, INC. AND WILLIAM H. BAUMHAUER in the United States
District Court for the District of Massachusetts, Civil Action No. 96-12109-GAO
(the "District Court Action"), which District Court Action relates to facts and
circumstances that occurred prior to the date of the Reorganization Agreement
and the Merger Agreement and does not relate to the Contribution, Distribution
or Merger or any of the other transactions contemplated thereby; and
WHEREAS, the Board of Directors of International has determined that
the District Court Action is without merit and that it is in the best interests
of International and its stockholders that International vigorously defend
itself in the District Court Action; and
WHEREAS, in connection with the District Court Action, the Company
Directors and Officers who are or were directors or officers of International
and/or Daka prior to consummation of the Offer may incur expenses in connection
with their defense, if required, in the District Court Action or with serving as
a witness in the District Court Action, or for other reasons arising in
connection with or resulting from their service as a director or officer of
International and/or Daka; and
WHEREAS, as a condition to the willingness of Compass to enter into the
Merger Agreement and make the Offer, Compass has required the Company Directors
and Officers to first seek indemnification from the Company for any losses or
expenses incurred by any of them arising out of their service to and activities
on behalf of International and Daka; and
WHEREAS, the Boards of Directors of Compass, Compass Holdings, Compass
Interim, International, the Company and Daka have determined that, following the
Contribution and Distribution, the merger of Compass Interim with and into
International (the "Merger") with International as the surviving corporation
(the "Surviving Corporation") would be advantageous and beneficial to and in the
best interests of their respective corporations and stockholders; and
WHEREAS, highly competent persons justifiably are reluctant to serve
publicly-held corporations as directors or in other capacities unless they are
provided with adequate protection through insurance and adequate indemnification
against inordinate risks of claims and actions against them arising out of their
service to and activities on behalf of the corporation; and
2
<PAGE> 3
WHEREAS, the Company Directors and Officers are reluctant to serve the
Company as directors, officers or in other capacities unless they are provided
with adequate protection through adequate indemnification against inordinate
risks of claims and actions against them arising out of their service to and
activities on behalf of International (as the parent corporation to the Company,
and as the corporation from whom all of the assets of the Company will be
contributed pursuant to the Contribution) prior to consummation of the Offer
and, in the case of the Company Directors and Officers who also are or were
Independent Directors, prior to the effective time of the Merger; and
WHEREAS, Section 145 of the Delaware General Corporation Law (the
"DGCL") provides that for purposes of said Section, references to "the
corporation" shall include, in addition to the resulting corporation, any
constituent corporation absorbed in a consolidation or merger which, if its
separate existence had continued, would have had the power and authority to
indemnify its directors and officers, so that any person who is or was a
director or officer of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director or officer of another
corporation, shall stand in the same position under said Section with respect to
the resulting or surviving corporation as he or she would have with respect to
such constituent corporation if its separate existence had continued; and
WHEREAS, Section 145 of the DGCL and the International Indemnification
Provisions provide that a person shall be entitled to indemnification and
advancement of expenses by reason of the fact that he is or was serving as a
director or officer of International or is or was serving at the request of
International as a director or officer of another corporation, including Daka;
and
WHEREAS, as of the date hereof, International is the parent of the
Company and the Company is a wholly owned subsidiary of International, and
International will be a predecessor corporation to the Company and the Company
will be a successor corporation to International by virtue of the Contribution,
pursuant to which all of the assets and liabilities of the Restaurant Business
of International will be contributed to the Company pursuant to the
Contribution; and
WHEREAS, in connection with the Distribution, all of the Company Common
Stock will be distributed on a pro rata basis to the holders of International
Common Stock such that, immediately following the Distribution, all of the
stockholders of International will also be stockholders of the Company; and
WHEREAS, prior to consummation of the Offer, the Company Directors and
Officers were serving as directors and/or officers of the Company at the request
of International; and
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that, if necessary to attract and retain qualified individuals, the
Company may from time to time attempt to maintain, at its sole expense,
directors and officers liability insurance to protect persons serving the
Company and its subsidiaries from certain liabilities. Although the
3
<PAGE> 4
furnishing of such insurance has been a customary and widespread practice among
United States-based corporations and other business enterprises, the Company
believes that, given current market conditions and trends, such insurance may be
available to it in the future only at higher premiums and with more exclusions
and as such, the procurement and maintenance of such insurance may or may not be
in the best interests of the Company. At the same time, directors, officers, and
other persons in service to corporations and other business enterprises are
frequently subjected to expensive and time-consuming litigation relating to,
among other things, matters that traditionally would have been brought only
against the corporation or business enterprise itself; and
WHEREAS, directors and officers liability insurance, even when in
effect, is not always sufficient in and of itself to provide adequate
indemnification to directors and officers; and
WHEREAS, the expense and burden of defending against claims made
against directors and officers may be so prohibitive as to render it practically
impossible or unfairly burdensome for directors and officers to wholly or even
partially fund the defense of such claims even if the director or officer is
wholly innocent of any wrongdoing and acted properly and prudently in his or her
service to and activities on behalf of the corporation, thereby making mandatory
advancement of expenses in such litigation an essential element of
indemnification; and
WHEREAS, highly competent persons justifiably are reluctant to serve as
directors and officers without assurance that adequate indemnification,
including advancement of expenses, will continue to be available in the event of
a change in control of the corporation; and
WHEREAS, the uncertainties relating to such insurance and to
indemnification have increased the difficulty of attracting and retaining
qualified persons; and
WHEREAS, the Board has determined that the increased difficulty in
attracting and retaining qualified persons is detrimental to the best interests
of the Company's stockholders and the Company should act to assure such
qualified persons that there will be increased certainty of protection in the
future; and
WHEREAS, the Company's By-laws require the Company to indemnify its
directors and officers to the fullest extent permitted by law and permits it to
make other indemnification arrangements and agreements; and
WHEREAS, the Company desires to provide Indemnitee with specific
contractual assurance of Indemnitee's rights to indemnification against
litigation risks and expenses (regardless, among other things, of any amendment
to or revocation of the Company's By-laws or any change in the ownership of the
Company or the composition of the Board), which indemnification is intended to
supplement that which is afforded by the Company's By-laws and, to the extent
insurance is available, the coverage of Indemnitee under the Company's directors
and officers liability insurance policy; and
4
<PAGE> 5
WHEREAS, for all of the foregoing reasons, it is reasonable, prudent
and necessary for the Company to obligate itself contractually to indemnify its
directors and officers to the fullest extent permitted by applicable law so that
they will serve or continue to serve the Company free from undue concern that
they will not be so indemnified, whether claims against such directors and
officers may arise from or relate to service as a director or officer of the
Company from and after consummation of the Offer or as a director or officer of
International prior to consummation of the Offer or as an Independent Director;
and
WHEREAS, Indemnitee is willing to serve, to continue to serve and to
take on additional service for or on behalf of the Company on the condition that
Indemnitee be so indemnified.
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
Section 1. SERVICES BY INDEMNITEE. In consideration of the Company's
covenants and commitments hereunder, Indemnitee agrees to serve or to continue
to serve as a director of the Company. Notwithstanding the foregoing, this
Agreement shall not impose any obligation on Indemnitee or the Company to
continue Indemnitee's service to the Company beyond any period otherwise
required by law or by other agreements or commitments of the parties, if any.
The foregoing notwithstanding, this Agreement shall continue in force after
Indemnitee has ceased to serve as a director of the Company.
Section 2. INDEMNIFICATION - GENERAL. The Company shall advance
Expenses (as hereinafter defined) to and indemnify Indemnitee as provided in
this Agreement and (subject to the provisions of this Agreement) to the fullest
extent permitted by applicable law in effect on the Effective Date (as
hereinafter defined) and to such greater extent as applicable law may thereafter
from time to time permit. In the event that a change in applicable law after the
Effective Date permits such broader indemnification, this Agreement shall be
deemed to be amended to such extent.
Section 3. PROCEEDINGS OTHER THAN PROCEEDINGS BY OR IN THE RIGHT OF THE
COMPANY OR INTERNATIONAL. Indemnitee shall be entitled to the rights of
indemnification provided in this Section 3 if, by reason of Indemnitee's
Corporate Status (as hereinafter defined), Indemnitee is, or is threatened to be
made, a party to or participant in any threatened, pending or completed
Proceeding (as hereinafter defined), other than a Proceeding by or in the right
of the Company (or International, in connection with any Proceeding or any
claim, issue or matter therein relating to Indemnitee's Corporate Status as a
person who was an Independent Director or a director, officer, employee or agent
of International prior to consummation of the Offer or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
which such person was serving at the request of International prior to
consummation of the Offer and, in the case of the Independent Directors, prior
to the effective time of the Merger). Pursuant to this Section 3, Indemnitee
shall be indemnified against Expenses, judgments, penalties, fines and amounts
paid in settlement actually and reasonably incurred by
5
<PAGE> 6
Indemnitee or on Indemnitee's behalf in connection with such Proceeding or any
claim, issue or matter therein, if Indemnitee acted in good faith and in a
manner Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company (or International, in connection with any Proceeding or
any claim, issue or matter therein relating to Indemnitee's Corporate Status as
a person who was an Independent Director or a director, officer, employee or
agent of International prior to consummation of the Offer or of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise which such person was serving at the request of International prior
to consummation of the Offer and, in the case of the Independent Directors,
prior to the effective time of the Merger), and, with respect to any criminal
Proceeding, had no reasonable cause to believe Indemnitee's conduct was
unlawful.
Section 4. PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY OR
INTERNATIONAL. Indemnitee shall be entitled to the rights of indemnification
provided in this Section 4 if, by reason of Indemnitee's Corporate Status,
Indemnitee is, or is threatened to be made, a party to or participant in any
threatened, pending or completed Proceeding brought by or in the right of the
Company (or International, in connection with any Proceeding or any claim, issue
or matter therein relating to Indemnitee's Corporate Status as a person who was
an Independent Director or a director, officer, employee or agent of
International prior to consummation of the Offer or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
which such person was serving at the request of International prior to
consummation of the Offer and, in the case of the Independent Directors, prior
to the effective time of the Merger) to procure a judgment in its favor.
Pursuant to this Section 4, Indemnitee shall be indemnified against Expenses
actually and reasonably incurred by Indemnitee or on Indemnitee's behalf in
connection with such Proceeding if Indemnitee acted in good faith and in a
manner Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company (or International, in connection with any Proceeding or
any claim, issue or matter therein relating to Indemnitee's Corporate Status as
a person who was an Independent Director or a director, officer, employee or
agent of International prior to consummation of the Offer or of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise which such person was serving at the request of International prior
to consummation of the Offer and, in the case of the Independent Directors,
prior to the effective time of the Merger). Notwithstanding the foregoing, no
indemnification against such Expenses shall be made in respect of any claim,
issue or matter in such Proceeding as to which Indemnitee shall have been
adjudged to be liable to the Company (or International, in connection with any
Proceeding or any claim, issue or matter therein relating to Indemnitee's
Corporate Status as a person who was an Independent Director or a director,
officer, employee or agent of International prior to consummation of the Offer
or of any other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which such person was serving at the request of
International prior to consummation of the Offer and, in the case of the
Independent Directors, prior to the effective time of the Merger) if applicable
law prohibits such indemnification; PROVIDED, HOWEVER, that, if applicable law
so permits, indemnification against Expenses shall nevertheless be made by the
Company in such event if and only to the extent
6
<PAGE> 7
that the Court of Chancery of the State of Delaware (the "Delaware Court"), or
another court in which such Proceeding shall have been brought or is pending,
shall determine.
Section 5. INDEMNIFICATION FOR EXPENSES OF A PARTY WHO IS WHOLLY OR
PARTLY SUCCESSFUL. Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is successful, on the merits or otherwise, in (a)
defending any Proceeding brought against Indemnitee by reason of Indemnitee's
Corporate Status or (b) prosecuting any Proceeding described in the second
sentence of Section 14 hereof, Indemnitee shall be indemnified against all
Expenses actually and reasonably incurred by Indemnitee or on Indemnitee's
behalf in connection therewith. If Indemnitee is not wholly successful in any
such Proceeding but is successful, on the merits or otherwise, as to one or more
but less than all claims, issues or matters in any such Proceeding, the Company
shall indemnify Indemnitee against all Expenses actually and reasonably incurred
by Indemnitee or on Indemnitee's behalf in connection with each successfully
resolved claim, issue or matter. For purposes of this Section 5 and without
limitation, the termination of any claim, issue or matter in such a Proceeding
by dismissal, with or without prejudice, shall be deemed to be a successful
result as to such claim, issue or matter.
Section 6. INDEMNIFICATION FOR EXPENSES OF A WITNESS. Notwithstanding
any other provision of this Agreement, to the extent that Indemnitee is, by
reason of Indemnitee's Corporate Status, a witness in any Proceeding, Indemnitee
shall be indemnified against all Expenses actually and reasonably incurred by
Indemnitee or on Indemnitee's behalf in connection therewith.
Section 7. ADVANCEMENT OF EXPENSES. The Company shall advance all
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding in which Indemnitee is involved by reason of Indemnitee's
Corporate Status within ten days after the receipt by the Company of a statement
or statements from Indemnitee requesting such advance or advances from time to
time, whether prior to or after final disposition of such Proceeding. Such
statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses so advanced if it shall
ultimately be determined that Indemnitee is not entitled to be indemnified
against such Expenses. Such undertaking shall be an unlimited general obligation
of Indemnitee, shall be accepted by the Company without regard to the financial
ability of Indemnitee to make repayment, and in no event shall be required to be
secured.
Section 8. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO
INDEMNIFICATION.
a. To obtain indemnification under this Agreement,
Indemnitee shall submit to the Company a written request, including therein or
therewith such documentation and information as is reasonably available to
Indemnitee and is reasonably necessary to determine whether and to what extent
Indemnitee is entitled to indemnification. The Secretary of the
7
<PAGE> 8
Company shall, promptly upon receipt of such a request for indemnification,
advise the Board in writing that Indemnitee has requested indemnification.
b. Upon written request by Indemnitee for
indemnification pursuant to the first sentence of Section 8(a) above, a
determination, if required by applicable law, with respect to Indemnitee's
entitlement thereto shall be made in the specific case:
(i) if a Change in Control (as hereinafter defined) shall
have occurred, by Independent Counsel (as hereinafter defined) in a
written opinion to the Board, a copy of which shall be delivered to
Indemnitee (unless Indemnitee shall request that such determination be
made by a majority vote of the Disinterested Directors (as hereinafter
defined) even though less than a quorum of the Board or by the
stockholders, in which case by the person or persons or in the manner
provided for in clause (ii) or (iii) of this Section 8(b));
(ii) if a Change of Control shall not have occurred or if
Indemnitee shall make the request referred to in clause (i) above, (A)
by a majority vote of the Disinterested Directors even though less than
a quorum of the Board, or (B) if there are no such Disinterested
Directors or if such Disinterested Directors so direct, by Independent
Counsel in a written opinion to the Board, a copy of which shall be
delivered to Indemnitee, or (C) by the stockholders of the Company; or
(iii) as provided in Section 9(b) of this Agreement;
and, if it is so determined that Indemnitee is entitled to indemnification,
payment to Indemnitee shall be made within ten (10) days after such
determination. Indemnitee shall cooperate with the person, persons or entity
making such determination with respect to Indemnitee's entitlement to
indemnification, and shall provide to such person, persons or entity upon
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
Expenses incurred by Indemnitee in so cooperating with the person, persons or
entity making such determination shall be borne by the Company (irrespective of
the determination as to Indemnitee's entitlement to indemnification) and the
Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
c. In the event that, pursuant to Section 8(b) hereof,
the determination of entitlement to indemnification is to be made by Independent
Counsel, the Independent Counsel shall be selected as provided in this Section
8(c). If a Change of Control shall not have occurred, the Independent Counsel
shall be selected by the Board, and the Company shall give written notice to
Indemnitee advising Indemnitee of the identity of the Independent Counsel so
selected. If a Change of Control shall have occurred, the Independent Counsel
shall be selected by Indemnitee and Indemnitee shall give written notice to the
Company advising it of the identity of the Independent Counsel so selected
(unless Indemnitee shall request that such selection be made by the Board, in
which event the preceding sentence shall apply). In either
8
<PAGE> 9
event, Indemnitee or the Company, as the case may be, may, within 7 days after
such written notice of selection shall have been given, deliver to the Company
or to Indemnitee, as the case may be, a written objection to such selection.
Such objection may be asserted only on the ground that the Independent Counsel
so selected does not meet the requirements of "Independent Counsel" as defined
in Section 17 of this Agreement, and the objection shall set forth with
particularity the factual basis of such assertion. If such written objection is
made, the Independent Counsel so selected may not serve as Independent Counsel
unless and until a court of competent jurisdiction has determined that such
objection is without merit. If a determination of entitlement to indemnification
is to be made by Independent Counsel and, 20 days after submission by Indemnitee
of a written request for indemnification pursuant to Section 8(a) hereof, no
Independent Counsel shall have been selected and not objected to, either the
Company or Indemnitee may petition the Delaware Court or another court of
competent jurisdiction for resolution of any objection which shall have been
made by the Company or Indemnitee to the other's selection of Independent
Counsel and/or for the appointment as Independent Counsel of a person selected
by such court or by such other person as such court shall designate, and the
person with respect to whom an objection is so resolved or the person so
appointed shall act as Independent Counsel under Section 8(b) hereof. The
Company shall pay any and all reasonable fees and expenses of Independent
Counsel incurred by such Independent Counsel in connection with determining
entitlement to indemnification pursuant to Section 8(b) hereof. In addition, the
Company shall pay all reasonable Expenses incurred by Indemnitee in connection
with the procedures of this Section 8(c) (regardless of the manner in which such
Independent Counsel was selected or appointed and irrespective of the
determination as to Indemnitee's entitlement to indemnification) and the Company
hereby indemnifies and agrees to hold Indemnitee harmless therefrom. Upon the
due commencement of any judicial proceeding or arbitration pursuant to Section
10(a)(iii) of this Agreement, Independent Counsel shall be discharged and
relieved of any further responsibility in such capacity (subject to the
applicable standards of professional conduct then prevailing).
Section 9. PRESUMPTION AND EFFECT OF CERTAIN PROCEEDINGS.
a. If a Change of Control shall have occurred, in making
a determination with respect to entitlement to indemnification hereunder, the
person or persons or entity making such determination shall presume that
Indemnitee is entitled to indemnification under this Agreement if Indemnitee has
submitted a request for indemnification in accordance with Section 8(a) of this
Agreement, and the Company shall have the burden of proof to overcome that
presumption in connection with the making by any person, persons or entity of
any determination contrary to that presumption.
b. If the person, persons or entity empowered or
selected under Section 8 of this Agreement to determine whether Indemnitee is
entitled to indemnification shall not have made a determination within 60 days
after receipt by the Company of Indemnitee's request therefor, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and Indemnitee shall be entitled to such indemnification, absent (i) a
misstatement by Indemnitee of a material fact, or an omission of a material fact
necessary to make
9
<PAGE> 10
Indemnitee's statements not materially misleading, in connection with the
request for indemnification, or (ii) a prohibition of such indemnification under
applicable law; PROVIDED, HOWEVER, that such 60-day period may be extended for a
reasonable time, not to exceed an additional 30 days, if the person, persons or
entity making the determination with respect to entitlement to indemnification
in good faith requires such additional time for the obtaining or evaluating of
documentation and/or information relating thereto and gives notice to Indemnitee
thereof; and PROVIDED, FURTHER, that the foregoing provisions of this Section
9(b) shall not apply if (i) the determination of entitlement to indemnification
is to be made by the stockholders pursuant to Section 8(b) of this Agreement and
(A) within 15 days after receipt by the Company of the request for such
determination the Board has resolved to submit such determination to the
stockholders for their consideration at an annual meeting thereof to be held
within 75 days after such receipt and such determination is made thereat, or (B)
a special meeting of stockholders is called within 15 days after such receipt
for the purpose of making such determination, such meeting is held for such
purpose within 60 days after having been so called and such determination is
made thereat, or (ii) the determination of entitlement to indemnification is to
be made by Independent Counsel pursuant to Section 8(b) of this Agreement.
c. The settlement or termination of any Proceeding or of
any claim, issue or matter therein, by judgment, order, settlement or
conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not
(except as otherwise expressly provided in this Agreement) of itself adversely
affect the right of Indemnitee to indemnification or create a presumption that
Indemnitee did not act in good faith and in a manner which Indemnitee reasonably
believed to be in or not opposed to the best interests of the Company (or
International, in connection with any Proceeding or any claim, issue or matter
therein relating to Indemnitee's Corporate Status as a person who was an
Independent Director or a director, officer, employee or agent of International
prior to consummation of the Offer or of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise which such
person was serving at the request of International prior to consummation of the
Offer and, in the case of the Independent Directors, prior to the effective time
of the Merger) or, with respect to any criminal Proceeding, that Indemnitee had
reasonable cause to believe that Indemnitee's conduct was unlawful.
Section 10. REMEDIES OF INDEMNITEE.
a. In the event that:
(i) a determination is made pursuant to Section 8 of this
Agreement that Indemnitee is not entitled to indemnification under this
Agreement;
(ii) advancement of Expenses pursuant to Section 7 of this
Agreement is not made on a timely basis;
10
<PAGE> 11
(iii) a determination of entitlement to indemnification is
to be made by Independent Counsel pursuant to Section 8(b) of this
Agreement and such determination shall not have been made and delivered
in a written opinion within 90 days after receipt by the Company of
Indemnitee's request for indemnification;
(iv) payment of indemnification pursuant to Section 5,
Section 6, the last sentence of Section 8(b) or the penultimate
sentence of Section 8(c) is not made within ten (10) days after receipt
by the Company of a written request therefor; or
(v) payment of indemnification pursuant to Section 3 or
Section 4 of this Agreement is not made within ten (10) days after a
determination has been made that Indemnitee is entitled to
indemnification pursuant to Section 8 of this Agreement or such
determination is deemed to have been made pursuant to Section 9(b) of
this Agreement;
Indemnitee shall be entitled to an adjudication in the Delaware Court of
Indemnitee's entitlement to such advancement of Expenses or indemnification.
Alternatively, Indemnitee, at Indemnitee's option, may seek an award in
arbitration to be conducted by a single arbitrator pursuant to the rules of the
American Arbitration Association. Indemnitee shall commence such proceeding
seeking an adjudication or an award in arbitration within 180 days following the
date on which Indemnitee first has the right to commence such proceeding
pursuant to this Section 10(a); PROVIDED, HOWEVER, that the foregoing clause
shall not apply in respect of a proceeding brought by Indemnitee to enforce
Indemnitee's rights under Section 5 of this Agreement. The Company shall not
oppose Indemnitee's right to seek any such adjudication or award in arbitration.
b. In the event that a determination shall have been
made pursuant to Section 8 of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 10 shall be conducted in all respects as a DE NOVO trial, or
arbitration, on the merits and Indemnitee shall not be prejudiced by reason of
that adverse determination. If a Change of Control shall have occurred, in any
judicial proceeding or arbitration commenced pursuant to this Section 10, the
Company shall have the burden of proving that Indemnitee is not entitled to
advancement of Expenses or indemnification, as the case may be.
c. If a determination that Indemnitee is entitled to
indemnification shall have been made or shall have been deemed to have been made
pursuant to Section 8 or Section 9 of this Agreement, the Company shall be bound
by such determination in any judicial proceeding or arbitration commenced
pursuant to this Section 10, absent (i) a misstatement by Indemnitee of a
material fact, or an omission of a material fact necessary to make Indemnitee's
statements not materially misleading, in connection with the request for
indemnification, or (ii) a prohibition of such indemnification under applicable
law.
11
<PAGE> 12
d. The Company shall be precluded from asserting in any
judicial proceeding or arbitration commenced pursuant to this Section 10 that
the procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Company is bound by all the provisions of this Agreement.
e. In the event that Indemnitee, pursuant to this
Section 10, seeks a judicial adjudication of or an award in arbitration to
enforce Indemnitee's rights under, or to recover damages for breach of, this
Agreement, Indemnitee shall be entitled to recover from the Company, and shall
be indemnified by the Company against, any and all expenses (of the types
described in the definition of Expenses in Section 17 of this Agreement)
actually and reasonably incurred by Indemnitee in such judicial adjudication or
arbitration, but only if and to the extent Indemnitee prevails therein. If it
shall be determined in such judicial adjudication or arbitration that Indemnitee
is entitled to receive part but not all of the advancement of Expenses or
indemnification sought, the expenses incurred by Indemnitee in connection with
such judicial adjudication or arbitration shall be appropriately prorated.
Section 11. NON-EXCLUSIVITY; INSURANCE; SUBROGATION.
a. The rights of indemnification and to receive
advancement of Expenses provided by this Agreement shall not be deemed exclusive
of any other rights to which Indemnitee may at any time be entitled under
applicable law, the Company's Certificate of Incorporation or By-laws, any
agreement, any vote of stockholders or resolution of directors, or otherwise.
b. To the extent that the Company maintains an insurance
policy or policies providing liability insurance for directors, officers,
employees, agents or fiduciaries of the Company or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
which such person serves at the request of the Company (or for any person who
was an Independent Director or a director, officer, employee or agent of
International prior to consummation of the Offer or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
which such person was serving at the request of International prior to
consummation of the Offer and, in the case of the Independent Directors, prior
to the effective time of the Merger), Indemnitee shall be covered by such policy
or policies in accordance with its or their terms to the maximum extent of the
coverage available for any such director, officer, employee or agent under such
policy or policies.
c. In the event of any payment to Indemnitee under this
Agreement, the Company shall be subrogated to the extent of such payment to all
of the rights of recovery of Indemnitee, who, at the written request of the
Company, shall take all reasonable action necessary to secure such rights,
including the execution of such documents as are necessary to enable the Company
to bring suit to enforce such rights.
12
<PAGE> 13
d. The Company shall not be liable under this Agreement
to make any payment of amounts otherwise indemnifiable hereunder or for which
advancement is provided hereunder if and to the extent that Indemnitee has
otherwise actually received such amounts from another source under an insurance
policy, contract, agreement or otherwise.
e. The Company's obligation hereunder to advance
Expenses to or indemnify Indemnitee as a result of Indemnitee's service at the
request of the Company as a director, officer, employee or agent of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise (or, prior to consummation of the Offer, at the request of
International and, in the case of the Independent Directors, at the request of
International prior to the effective time of the Merger) shall be reduced by any
amount Indemnitee actually collects as advancement of Expenses or
indemnification from such other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise.
Section 12. DURATION OF AGREEMENT; SUCCESSORS. This Agreement shall be
effective as of the Effective Date and shall continue until and terminate upon
the later of (a) the date that is 10 years after the date that Indemnitee shall
have ceased to serve as a director, or (b) the date of the final termination
(including all appeals) of all pending Proceedings in respect of which
Indemnitee may be entitled to advancement of Expenses or indemnification
hereunder and of any proceeding commenced by Indemnitee pursuant to Section 10
of this Agreement relating thereto. This Agreement shall be binding upon the
Company and its successors and assigns (including any transferee of all or a
substantial portion of the business, stock and/or assets of the Company and any
direct or indirect successor by merger or consolidation or otherwise by
operation of law ) and shall insure to the benefit of Indemnitee and
Indemnitee's heirs, executors, personal representatives and administrators. This
Agreement shall continue for the benefit of Indemnitee and such heirs, personal
representatives, executors and administrators after Indemnitee has ceased to
have Corporate Status.
Section 13. SEVERABILITY. If any provision of this Agreement shall be
held by a court of competent jurisdiction to be invalid, illegal or
unenforceable for any reason whatsoever, (a) the validity, legality and
enforceability of the remaining provisions of this Agreement (including, without
limitation, each portion of any Section of this Agreement containing any such
provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall not in any way be affected or impaired
thereby, (b) such invalid, illegal or unenforceable provision shall be deemed
reformed to the extent necessary to conform to applicable law and to give
maximum effect to the intent of the parties hereto, and (c) to the fullest
extent possible, the provisions of this Agreement (including, without
limitation, each portion of any Section of this Agreement containing any such
provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested by the provision held invalid, illegal or unenforceable.
Section 14. EXCEPTION TO RIGHT TO ADVANCEMENT OF EXPENSES AND
INDEMNIFICATION. Notwithstanding any other provision of this Agreement (but
without limiting the operation of
13
<PAGE> 14
Section 10(e) and subject to the next sentence), and except as otherwise
prohibited by law or by the Company's Certificate of Incorporation or By-laws,
Indemnitee shall not be entitled to advancement of Expenses or indemnification
under this Agreement with respect to any Proceeding, or any claim therein,
brought or made by Indemnitee against the Company unless such Proceeding, or
claim therein, shall have been approved in writing in advance of the filing of
such Proceeding, or claim therein, by or at the direction of the Board.
Notwithstanding the preceding sentence, Indemnitee shall be entitled to
advancement of Expenses and indemnification under this Agreement with respect to
any Proceeding, or any claim therein, brought or made by Indemnitee against the
Company to recover and receive any amounts or benefits due to Indemnitee
pursuant to (a) the Company's Certificate of Incorporation or By-laws, (b) any
agreement, arrangement or understanding between Indemnitee and the Company, or
(c) any agreement, arrangement or understanding between the Company and any
third party for Indemnitee's benefit to the extent Indemnitee is successful
therein. The limitation contained in the first sentence of this Section 14 shall
not apply to counterclaims or affirmative defenses asserted by Indemnitee in an
action brought against Indemnitee.
Section 15. PRIORITY OF INDEMNIFICATION RIGHTS AGAINST INTERNATIONAL.
Notwithstanding anything to the contrary contained in this Agreement, Indemnitee
agrees to pursue Indemnitee's rights to indemnification and advancement of
Expenses under this Agreement before pursuing or seeking to enforce any other
rights to indemnification or advancement of Expenses against or from
International or any of its successors, assigns or affiliates (excluding the
Company), as to which Indemnitee may be entitled under applicable law, the
Company's Certificate of Incorporation or Bylaws, any other agreement, any vote
of stockholders or resolution of directors, or otherwise.
Section 16. IDENTICAL COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall for all purposes be deemed to be
an original but all of which together shall constitute one and the same
Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.
Section 17. HEADINGS. The headings of the paragraphs of this Agreement
are inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction thereof.
Section 18. DEFINITIONS. For purposes of this Agreement:
a. "Change in Control" means a change in control of the
Company occurring after the Effective Date of a nature that would be required to
be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in
response to any similar item on any similar schedule or form) promulgated under
the Securities Exchange Act of 1934 (the "Act"), whether or not the Company is
then subject to such reporting requirement; PROVIDED, HOWEVER, that, without
limitation, such a Change in Control shall be deemed to have occurred if after
the Effective Date (i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Act) is
14
<PAGE> 15
or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act),
directly or indirectly, of securities of the Company representing 25% or more of
the combined voting power of the Company's then outstanding securities without
the prior approval of at least two-thirds of the members of the Board in office
immediately prior to such person attaining such percentage interest, (ii) the
Company is a party to a merger, consolidation, sale of assets or other
reorganization, or a proxy contest, as a consequence of which members of the
Board in office immediately prior to such transaction or event constitute less
than a majority of the Board thereafter, or (iii) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board (including for this purpose any new director whose election or
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds of the directors then still in office who were directors at
the beginning of such period) cease for any reason to constitute at least a
majority of the Board.
b. "Corporate Status" describes the status of a person
who is or was a director, officer, employee or agent of the Company (or, prior
to consummation of the Offer, of International) or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
which such person is or was serving at the request of the Company (or who was,
prior to consummation of the Offer, serving at the request of International,
and, in the case of the Independent Directors, serving at the request of
International prior to the effective time of the Merger) or who is or was an
Independent Director.
c. "Disinterested Director" means a director of the
Company who is not and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee.
d. "Effective Date" means _______ __, 199_.
e. "Expenses" shall include all reasonable attorneys'
fees, retainers, court costs, transcript costs, fees of expert witnesses,
private investigators and professional advisors (including, without limitation,
accountants and investment bankers), travel expenses, duplicating costs,
printing and binding costs, costs of preparation of demonstrative evidence and
other courtroom presentation aids and devices, costs incurred in connection with
document review, organization, imaging and computerization, telephone charges,
postage, delivery service fees, and all other disbursements, costs or expenses
of the type customarily incurred in connection with prosecuting, defending,
preparing to prosecute or defend, investigating, being or preparing to be a
witness in, or otherwise participating in, a Proceeding.
f. "Independent Counsel" means a law firm, or a member
of a law firm, that is experienced in matters of corporation law and neither
presently is, nor in the past five years has been, retained to represent (i) the
Company, International (in the case of an Indemnitee who was an Independent
Director or a director, officer, employee or agent of International prior to
consummation of the Offer or of any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise which such person was
serving at the request of International prior to consummation of the Offer and,
in the case of the Independent Directors, prior to the effective time of the
Merger) or Indemnitee in any matter material to
15
<PAGE> 16
either such party, or (ii) any other party to the Proceeding giving rise to a
claim for indemnification hereunder. Notwithstanding the foregoing, the term
"Independent Counsel" shall not include any person who, under the applicable
standards of professional conduct then prevailing, would have a conflict of
interest in representing either the Company, International (in the case of an
Indemnitee who was an Independent Director or a director, officer, employee or
agent of International prior to consummation of the Offer or of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise which such person was serving at the request of International prior
to consummation of the Offer and, in the case of the Independent Directors,
prior to the effective time of the Merger) or Indemnitee in an action to
determine Indemnitee's rights under this Agreement.
g. "Proceeding" includes any action, suit, arbitration,
alternate dispute resolution mechanism, investigation, administrative hearing or
any other proceeding, whether civil, criminal, administrative or investigative,
except one initiated by Indemnitee pursuant to Section 10 of this Agreement to
enforce Indemnitee's rights under this Agreement.
Section 19. MODIFICATION AND WAIVER. Except as specifically provided in
Section 2 of this Agreement with respect to changes in applicable law, no
supplement, modification or amendment of this Agreement shall be binding unless
executed in writing by both of the parties hereto. No waiver of any provision of
this Agreement shall be deemed or shall constitute a waiver of any other
provision hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver. No amendment, alteration or termination of this Agreement or
any provision hereof shall be effective as to Indemnitee with respect to any
action taken or omitted by Indemnitee in Indemnitee's Corporate Status prior to
such amendment, alteration or termination.
Section 20. NOTICE BY INDEMNITEE. Indemnitee agrees to notify the
Company in writing promptly upon being served with any summons, citation,
subpoena, complaint, indictment, information or other document relating to any
Proceeding or matter which may result in advancement of Expenses or
indemnification hereunder; PROVIDED, HOWEVER, that the failure to give any such
notice shall not disqualify Indemnitee from the right to receive advancements of
Expenses or to be indemnified hereunder unless the Company's ability to defend
in such Proceeding is materially and adversely prejudiced.
Section 21. NOTICES IN GENERAL. All notices, requests, demands and
other communications hereunder shall be in writing and shall be deemed to have
been duly given if (a) delivered by hand and receipted for by the party to whom
such notice or other communication shall have been directed, (b) transmitted by
facsimile and receipt is acknowledged, or (c) mailed by certified or registered
mail with postage prepaid, on the third business day after the date on which it
is so mailed:
If to Indemnitee, to:
---------------------
---------------------
---------------------
16
<PAGE> 17
Attn:
----------------
If to the Company to:
---------------------
---------------------
---------------------
Attn:
----------------
or such other address as may have been furnished in the manner provided in this
Section 20 to Indemnitee by the Company or to the Company by Indemnitee, as the
case may be.
Section 22. CONTRIBUTION. If the indemnification provided for in this
Agreement is unavailable to Indemnitee for any reason whatsoever, the Company,
in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by
Indemnitee to the fullest extent permissible under applicable law, whether for
judgments, fines, penalties, excise taxes, amounts paid or to be paid in
settlement and/or for Expenses, in connection with any claim relating to an
indemnifiable event under this Agreement, in such proportion as is deemed fair
and reasonable in light of all of the circumstances of such Proceeding in order
to reflect (a) the relative benefits received by the Company and Indemnitee as a
result of the events and transactions giving rise to such Proceeding, and (b)
the relative fault of the Company (and its directors, officers, employees and
agents) and Indemnitee in connection with such events and transactions.
Section 23. GOVERNING LAW; SUBMISSION TO JURISDICTION; APPOINTMENT OF
AGENT FOR SERVICE OF PROCESS. This Agreement and the legal relations among the
parties shall be governed by, and construed and enforced in accordance with, the
laws of the State of Delaware, without regard to its conflict of laws rules.
Except with respect to any arbitration commenced by Indemnitee pursuant to
Section 10(a) of this Agreement, each of the Company and Indemnitee hereby
irrevocably and unconditionally (a) agrees that any action or proceeding arising
out of or in connection with this Agreement shall be brought only in the
Delaware Court and not in any other state or federal court in the United States
of America or any court in any other country, (b) consents to submit to the
exclusive jurisdiction of the Delaware Court for purposes of any action or
proceeding arising out of or in connection with this Agreement, irrevocably
appoints, to the extent such party is not a resident of the State of Delaware,
___________________________________ as its agent in the State of Delaware as
such party's agent for acceptance of legal process in connection with any such
action or proceeding against such party, with the same legal force and validity
as if served upon such party personally within the State of Delaware, (d) waives
any objection to the laying of venue of any such action or proceeding in the
Delaware Court, and (e) waives, and agrees not to plead or to make, any claim
that any such action or proceeding brought in the Delaware Court has been
brought in an improper or otherwise inconvenience forum.
Section 24. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to Indemnitee that (a) the Company has all
necessary power and authority to enter into, and be bound by the terms of, this
Agreement, and the execution,
17
<PAGE> 18
delivery and performance of the undertakings contemplated by this Agreement have
been duly authorized by the Company, and (b) this Agreement, when executed and
delivered by the Company in accordance with the provisions hereof, shall be a
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, moratorium, reorganization or
similar laws affecting the enforcement of creditors' rights generally.
Section 25. DEFENSE OF UNDERLYING PROCEEDINGS.
a. NOTICE BY INDEMNITEE. Indemnitee agrees to notify the
Company promptly upon being served with any summons, citation, subpoena,
complaint, indictment, information, or other document relating to any Proceeding
which may result in the Company being obligated to indemnify Indemnitee or
advance Indemnitee Expenses as provided in this Agreement; provided, however,
that the failure to give any such notice shall not disqualify Indemnitee from
the right to receive such indemnification or advancement of Expenses unless the
Company's ability to defend in such Proceeding is materially and adversely
prejudiced.
b. DEFENSE BY COMPANY. Subject to the provisions of the
last sentence of this Section 24(b) and of Section 24(c) hereof, the Company
shall have the right to defend Indemnitee in any Proceeding which may result in
the Company being obligated to indemnify Indemnitee or advance Indemnitee
Expenses as provided in this Agreement; provided, however that the Company shall
notify Indemnitee of any such decision to defend within ten (10) days of receipt
of notice of any such Proceeding under Section 24(a) hereof. The Company shall
not, without the prior written consent of Indemnitee, consent to the entry of
any judgment against Indemnitee or enter into any settlement or compromise which
does not include, as an unconditional term thereof, the full release of
Indemnitee from all liability in respect of such Proceeding, which release shall
be in form and substance satisfactory to Indemnitee. This Section 24(b) shall
not apply to a Proceeding brought by Indemnitee under Sections 10 or 14 hereof.
c. INDEMNITEE'S RIGHT TO COUNSEL. Notwithstanding the
provisions of Section 24(b) hereof, if in a Proceeding to which Indemnitee is a
party by reason of Indemnitee's Corporate Status, Indemnitee has separate
defenses or counterclaims to assert with respect to any issue which may not be
consistent with the position of other defendants in such Proceeding, Indemnitee
shall be entitled to be represented by separate legal counsel of Indemnitee's
choice at the expense of the Company. In addition, if the Company fails to
comply with any of its obligations under this Agreement or in the event that the
Company or any other person takes any action to declare this Agreement void or
unenforceable, or institutes any action, suit or proceeding to deny or to
recover from Indemnitee the benefits intended to be provided to Indemnitee
hereunder, Indemnitee shall have the right to retain counsel of Indemnitee's
choice, at the expense of the Company, to represent Indemnitee in connection
with any such matter.
18
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
ATTEST: UNIQUE CASUAL RESTAURANTS, INC.
By: By:
------------------------------ ------------------------------------
Name:
Title:
INDEMNITEE
----------------------------------------
Name:
19
<PAGE> 1
[DAKA INTERNATIONAL LOGO]
ONE CORPORATE PLACE
55 FERNCROFT ROAD
DANVERS, MA 01923-4001
June 3, 1997
Dear DAKA International Stockholder:
I am pleased to inform you that on May 27, 1997, DAKA International, Inc.
(the "Company") entered into an Agreement and Plan of Merger providing for the
acquisition by Compass Holdings, Inc. ("Compass"), a wholly owned subsidiary of
Compass Group PLC, of the Company's contract catering and vending business (the
"Foodservice Business"), which is primarily operated by Daka, Inc., a wholly
owned subsidiary of the Company, for approximately $195 million in cash
(including the repayment by Compass of up to $110 million in indebtedness of the
Company). In connection with this transaction, the Board of Directors of the
Company has unanimously approved a proposed spin-off of the Company's businesses
other than the Foodservice Business.
As required by the Agreement and Plan of Merger, Compass has commenced a
cash tender offer (the "Offer") to purchase all outstanding shares of the
Company's Common Stock (the "Company Shares") at a price of $7.50 net per share
payable in cash at the closing. Immediately prior to the consummation of the
Offer, the Company will (i) transfer the businesses of the Company and its
subsidiaries other than the Foodservice Business, including the Fuddruckers and
Champps Americana restaurant chains, to Unique Casual Restaurants, Inc.
("UCRI"), a newly formed Delaware corporation that was established to hold all
of the assets of the Company other than those related to the Foodservice
Business and (ii) declare a dividend (conditioned upon the satisfaction or
waiver by Compass of all of the conditions to the Offer other than the condition
that the Distribution (as defined below) be consummated) of one share of common
stock of UCRI for each Company Share held of record on June 24, 1997 (or such
later date as the Board of Directors of the Company may determine subject to the
terms of the Offer if the expiration date of the Offer is extended by Compass
past June 25, 1997) (collectively, the "Distribution").
The Offer is conditioned upon, among other things, satisfaction of the
condition that there be validly tendered and not withdrawn prior to the
expiration of the Offer, a number of Company Shares that represents two-thirds
of the total voting power of the Company.
As a result, in the Offer and Distribution taken together, each stockholder
who tenders Company Shares pursuant to the Offer will receive $7.50 per share in
cash from Compass and one share of UCRI from the Company for each share
tendered. UCRI will apply for listing of its common stock on Nasdaq and it is
expected that a "when-issued" trading market will develop on or about the record
date for the Distribution. There can be no assurance as to prices at which such
common stock will trade before or after the date the shares of common stock of
UCRI are distributed. After giving effect to the Distribution, the assets of the
Company will consist only of the Foodservice Business. UCRI will own and operate
the Company's restaurant businesses, consisting primarily of its Fuddruckers and
Champps Americana casual dining restaurants and its Great Bagel and Coffee
Company business.
<PAGE> 2
June 3, 1997
Page 2
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE OFFER, THE
MERGER AND THE DISTRIBUTION AND HAS DETERMINED THAT THE OFFER, THE MERGER AND
THE DISTRIBUTION ARE FAIR TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF
THE COMPANY.
Over the past few months, the Board of Directors of the Company has been
exploring strategic alternatives to improve stockholder value, alleviate the
Company's significant debt and provide the best opportunity to return to
profitability. The Board of Directors of the Company believes the Offer, Merger
and Distribution, taken together, accomplish these objectives. The price to be
paid by Compass for the Foodservice Business of approximately $195 million is
fair and, through the Offer and the Distribution, some of the value of the
Company will be distributed to its stockholders. Although the Foodservice
Business has been very profitable for the Company, the Company's significant
short term debt has crippled its ability to grow and has significantly impacted
overall profitability. As a result of this transaction, management will be able
to concentrate on the continued turnaround of Fuddruckers and the expansion of
Champps Americana. UCRI is anticipated to have a net worth of over $100 million
and will be basically debt-free.
Enclosed is an Information Statement explaining the proposed Distribution
in detail and providing information about UCRI and certain other matters. You
are urged to read the Information Statement in its entirety. A stockholder vote
is not necessary in connection with the Distribution and, accordingly, your
proxy is not being solicited. Therefore, no action on your part is being
requested. Shortly after the date of the proposed Distribution you will receive
one share of common stock of UCRI for each Company Share held by you on the
record date. The proposed Distribution is subject to a number of conditions
described in the Information Statement and in any event will not occur until
immediately prior to the time on which Company Shares are accepted for purchase
by Compass pursuant to the Offer.
On behalf of the Board of Directors and management of the Company, we thank
you for your support and look forward to your participation as a stockholder of
Unique Casual Restaurants, Inc.
Sincerely,
/s/ William H. Baumhauer
--------------------------------
William H. Baumhauer
Chairman, Chief Executive
Officer and President
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
STATE OF
INCORPORATION
-------------
<S> <C>
- - FUDDRUCKERS, INC. (100% equity interest) Texas
- ATLANTIC RESTAURANT VENTURES, INC. (63% equity interest) Virginia
- ARVI-Rockville, Inc. (100% equity interest) Maryland
- ARVI-Pikesville, Inc. (100% equity interest) Maryland
- FUDDRUCKERS EUROPE, INC. (95.5% equity interest) Texas
- - CHAMPPS ENTERTAINMENT, INC. (100% equity interest) Minnesota
- CHAMPPS AMERICANA, INC. (formerly Champps Entertainment
of Wayzata, Inc.) (100% equity interest) Minnesota
- CHAMPPS ENTERTAINMENT of Edison, Inc. (100% equity interest) New Jersey
- CHAMPPS ENTERTAINMENT of Texas, Inc. (100% equity interest) Texas
- - CASUAL DINING VENTURES, INC. (100% equity interest) Delaware
- AMERICANA DINING CORP. (100% equity interest) Delaware
- La Salsa Holding Co. (16.7% equity interest) Delaware
- - SPECIALTY CONCEPTS, INC. (100% equity interest) Delaware
- - FRENCH QUARTER COFFEE COMPANY (100% equity interest) Delaware
- - THE GREAT BAGEL AND COFFEE COMPANY (100% equity interest) Delaware
- - PULSEBACK CORPORATION (50% equity interest) Vermont
</TABLE>
<PAGE> 1
EXHIBIT 23.1
This consent is being given with respect to our report on the Combined
Financial Statements of Unique Casual Restaurants, Inc. which have been
prepared to give effect to the legal transfer of the "Transferred Businesses"
to the Registrant which will not occur until immediately before effectiveness
of the Registrant's Registration Statement on Form 10. On the effective date of
the Registration Statement covering shares of common stock to be distributed,
we will issue the following consent.
"INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Unique Casual
Restaurants, Inc. on Form 10 of our report dated ___________, 1997 (which refers
to a report of other auditors with respect to the consolidated financial
statements of Champps Entertainment, Inc. included in the Company's combined
financial statements as of July 1, 1995 and the years ended July 1, 1995 and
July 2, 1994 and includes an explanatory paragraph with respect to the Company's
adoption during the year ended June 29, 1996, of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to Be Disposed Of"), appearing in the Information
Statement, which is part of this Registration Statement.
Boston, Massachusetts
___________, 1997"
Deloitte & Touche LLP
Boston Massachusetts
May 30, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated April 5, 1996 on the consolidated financial statements of
Champps Entertainment, Inc. (which are included in the financial statements of
New International, Inc.) in this Form 10 of New International, Inc. It should
be noted that we have not audited any financial statements of Champps
Entertainment, Inc. subsequent to July 2, 1995, or performed any audit
procedures subsequent to the date of our report.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
May _____, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> JUN-29-1996 JUN-28-1997
<PERIOD-START> JUL-02-1995 JUN-30-1996
<PERIOD-END> JUN-29-1996 MAR-29-1997
<EXCHANGE-RATE> 1 1
<CASH> 5,281 3,798
<SECURITIES> 0 0
<RECEIVABLES> 5,509 5,460
<ALLOWANCES> 0 0
<INVENTORY> 3,488 4,389
<CURRENT-ASSETS> 16,452 16,501
<PP&E> 133,447 147,533
<DEPRECIATION> 26,168 34,080
<TOTAL-ASSETS> 142,348 147,963
<CURRENT-LIABILITIES> 15,009 19,923
<BONDS> 5,067 4,002
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 108,894 110,612
<TOTAL-LIABILITY-AND-EQUITY> 142,348 147,963
<SALES> 176,050 148,466
<TOTAL-REVENUES> 183,755 152,360
<CGS> 163,317 142,906
<TOTAL-COSTS> 163,317 142,906
<OTHER-EXPENSES> 24,181 21,495
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 641 613
<INCOME-PRETAX> (6,931) (12,333)
<INCOME-TAX> (536) (3,721)
<INCOME-CONTINUING> (5,670) (8,548)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,670) (8,548)
<EPS-PRIMARY> (0.50) (0.75)
<EPS-DILUTED> (0.50) (0.75)
</TABLE>
