UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Check One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED] ---
For The Fiscal Year Ended June 28, 1998
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ___ to ___
Commission File Number: 0-22639
UNIQUE CASUAL RESTAURANTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-3370491
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One Corporate Place, 55 Ferncroft Road, Danvers, MA 01923
(Address of principal executive offices) (Zip Code)
978-774-6606
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. YES X NO
The aggregate market value of the voting stock held by non-affiliates of the
registrant based on the closing price of the Common Stock of the registrant as
quoted on the National Association of Securities Dealers Automated Quotation
System on October 2, 1998 was $38,366,754 (for purposes of calculating this
amount only, directors, officers and beneficial owners of 10% or more of the
Common Stock of the registrant may be deemed affiliates).
Number of shares of Common Stock, $.01 par value, outstanding at October 2,
1998: 11,605,659
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DOCUMENTS INCORPORATED BY REFERENCE
The sections of the Company's definitive Proxy Statement, listed below, which
have been or will be filed by the Company with the Securities and Exchange
Commission, are incorporated in this Annual Report by reference and shall be
deemed to be a part hereof:
The Company's definitive Proxy Statement mailed in connection with its
Annual Meeting of Stockholders to be held on or about January 20, 1999
pursuant to regulation 14A, which involves the election of directors.
Cross Reference Sheet between Items of
Registrant's Proxy Statement and Form 10-K
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FORM 10-K
Item No. Item in Form 10-K Item in Proxy Statement
PART III
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10 Directors and Executive Election of Directors and Directors and Committees in the
Officers of the Registrant Company's Proxy Statement relating to its Annual Meeting of
Stockholders to be held on or about January 20, 1999.
11 Executive Compensation Executive Compensation in the Company's Proxy Statement
relating to its Annual Meeting of Stockholders to be held on
or about January 20, 1999.
12 Security Ownership of Certain Principal Stockholders in the Company's Proxy Statement
Beneficial Owners and Management relating to its Annual Meeting of Stockholders to be held on
or about January 20, 1999.
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Copies of all documents incorporated by reference other than exhibits to such
documents will be provided without charge to each person who receives a copy of
this Annual Report upon written request addressed to Stockholder Relations,
Unique Casual Restaurants, Inc., One Corporate Place, 55 Ferncroft Road,
Danvers, Massachusetts 01923.
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FORM 10-K INDEX
PART I
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Item 1 Business 1
Item 2 Properties 25
Item 3 Legal Proceedings 25
Item 4 Submission of Matters to a Vote of Security Holders 26
PART II
Item 5 Market for the Registrant's Common Stock and Related Stockholder Matters 26
Item 6 Selected Financial Data 27
Item 7 Management's Discussion and Analysis of Results of Operations and
Financial Condition 27
Item 7a Quantitative and Qualitative Disclosure About Market Risk 35
Item 8 Financial Statements and Supplementary Data 36
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 36
PART III
Item 10 Directors and Executive Officers of the Registrant 37
Item 11 Executive Compensation 37
Item 12 Security Ownership of Certain Beneficial Owners and Management 38
Item 13 Certain Relationships and Related Transactions 38
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K 38
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From time to time, the Company may make certain statements that
contain "forward-looking" information (as defined in the Private
Securities Litigation Reform Act of 1995). Words such as
"believe", "anticipate", "estimate", "project", and similar
expressions are intended to identify such forward-looking
statements. Forward-looking statements may be made by management
orally or in writing, including, but not limited to, in press
releases, as part of Management's Discussion and Analysis of
Financial Condition and Results of Operations as contained in this
report and as part of other sections of this Report or other
filings. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of their
respective dates, and are subject to certain risks, uncertainties
and assumptions including those set forth in the Management's
Discussion and Analysis of Financial Condition and Results of
Operations under the heading "Forward-Looking Statements". Should
one or more of these risks or uncertainties materialize, or should
any of the underlying assumptions prove incorrect, actual results
of current and future operations may vary materially from those
anticipated, estimated or projected.
PART I
Item 1. Business.
Unique Casual Restaurants, Inc. (the "Company") is a 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 under the heading "Spin-off Transaction" herein (the "Spin-off"). The
Company's principal executive offices are located at One Corporate Place, 55
Ferncroft Road, Danvers, Massachusetts 01923, and its telephone number is (978)
774-6606. The Company's principal subsidiaries are Fuddruckers, Inc.
("Fuddruckers"), Champps Entertainment, Inc. ("Champps") and The Great Bagel &
Coffee Company ("Great Bagel & Coffee"). The Company's principal business for
the periods covered by this report was to own, operate and franchise
Fuddruckers, Champps Americana and Great Bagel & Coffee Company restaurants
through its subsidiaries.
The Company's Fuddruckers and Champps operations serve customers in casual and
upscale restaurant settings, respectively, throughout the United States and in
Canada and the Middle East. Restaurant operations are conducted through
company-owned and franchised stores. On June 28, 1998, the Company ceased all
operations of the Great Bagel & Coffee business. See "Great Bagel & Coffee
Company". Great Bagel & Coffee served coffee, bagels and sandwich items in a
cafe setting in western locations of the United States.
On July 31, 1998, the Company agreed to sell its Fuddruckers business to King
Cannon, Inc. ("King Cannon"), a private company controlled by Michael Cannon,
for $43.0 million in a transaction expected to close in November, 1998 (the
"Proposed Fuddruckers Transaction"). See "The Proposed Fuddruckers Transaction".
As a result of these events, the Company's ongoing operations will consist
primarily of owning, operating and franchising Champps Americana restaurants.
The Company also owns a 17% passive investment in La Salsa Fresh Mexican Grill
("La Salsa") and a 50% interest in Restaurant Consulting Services, Inc. ("RCS"),
a diversified consulting and technology company offering data processing,
strategic planning and other technology services on an outsource basis to its
customers.
On September 24, 1998, the Company announced it had retained Bear Stearns & Co.,
Inc. to assist the Company's board of directors (the "Board") in evaluating and
seeking financial and strategic alternatives, including a possible sale of the
Company. There can be no assurance, however, that the Company will pursue a sale
or any other specific alternative or that it will be able to reach any agreement
or complete any transaction that it may undertake.
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Although formed on May 27, 1997, for purposes of this Form 10-K and financial
reporting purposes, the Company has been treated as if it was a stand-alone
entity for all periods presented. The Company's results of operations for
periods prior to July 17, 1998, as presented in the accompanying financial
statements, include allocations and estimates of certain expenses, including
corporate accounting, tax, cash management, information technology, legal, risk
management, purchasing and human resources, historically provided to the Company
by DAKA International.
Recent Trends in Operations
The Company reported a net loss of $27.7 million for fiscal 1998. This loss
includes charges for impairment and exit costs associated with its Fuddruckers
and Great Bagel & Coffee businesses of $24.6 million. Excluding these charges,
the Company's results of operations would have been a loss of $3.1 million. For
fiscal 1997, the Company reported a net loss of $39 million, and reported a loss
of $5.7 million in 1996. Refer to the Consolidated Financial Statements and
Management's Discussion and Analysis of Results of Operations and Financial
Condition for information regarding the Company's financial performance in
fiscal 1998, 1997 and 1996.
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 Champps customer's experience is enhanced by the attitude and attention of
restaurant personnel. Accordingly, Champps emphasizes prompt greeting of
arrivals, frequent visits to customer tables to monitor customer satisfaction
and service and friendly treatment of its customers. Service is based upon a
team concept so that customers are made to feel that any employee can help them
and they are never left unattended. Success of the Champps restaurants depends
upon employee adherence to these standards. To maintain these standards, Champps
seeks to hire and train personnel who will work in accordance with Champps'
philosophy and frequently rewards individual and restaurant achievement through
several recognition programs intended to build and maintain employee morale. All
of the service personnel at each Champps restaurant meet with the managers at
two daily pre-shift motivational meetings. Restaurant promotions, specials and
quality control are all discussed and explained during these meetings. Also,
employee enthusiasm is raised so that the employees can help increase the energy
level and excitement of the restaurant.
Champps-owned, franchised and licensed restaurants are designed and decorated in
a casual theme, although they differ somewhat from each other. Existing Champps
restaurants range in size from 7,000 to 12,000 square feet while the new Champps
restaurant prototype is approximately 11,000 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
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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, music
which is changed for the time of day and season of the year. The exposed kitchen
offers customers the opportunity to observe the cooks, and, in certain
locations, a discreetly located game room is provided for arcade games. The
entertainment aspects of the Champps restaurants are designed to encourage
repeat visits, increase the length of a customer's stay and attract customers
outside of normal peak hours. In addition, a variety of creative promotions and
activities are conducted such as "Family Bingo," "Spring Time Big Bike
Give-Away" and Karaoke. These promotions and activities allow for customer
participation and are continually changing. Change of the ambiance is also
experienced in each restaurant when the restaurants are decorated for the
holidays and when the dress of the restaurant staff is changed for the seasons.
The different looks and activities of the restaurant provide customers a
different feel each time they visit, thus encouraging repeat business. Champps
sells merchandise such as T-shirts, hats and sweatshirts bearing the Champps
Americana name. Although not currently a significant source of revenue, the sale
of its merchandise is believed to be an effective means of promoting the Champps
name.
Champps restaurants are generally open from 11:00 a.m. to 1:00 a.m. seven days a
week serving lunch, dinner and late night appetizers. Closing times of Champps
restaurants will vary based upon state laws concerning operating hours. Sunday
brunch is served beginning at 10:00 a.m. Each Champps restaurant maintains
standardized food preparation and service manuals which are designed to enhance
consistency of operations among the restaurants. Although Champps restaurants
differ in some respects, Champps attempts to have each Champps-owned and
franchised restaurant operate under uniform standards and specifications.
Management
The management staff of a Champps restaurant is divided into three areas, the
General Manager, Front-of-House Managers and Back-of-House Managers. The General
Manager has responsibility for the entire restaurant. Front-of-House management
consists of an associate manager, two floor managers and a bar manager.
Back-of-House management consists of a kitchen manager, two to three assistant
kitchen managers and a daily specials chef. All General Managers report directly
to the Directors of Operations. Managers are compensated based on salary plus a
monthly bonus. The bonus is determined by means of monthly restaurant sales and
profit goals.
Marketing
Champps has achieved its historical success while expending minimal amounts on
advertising and marketing. Champps restaurants have relied on location and
customer word-of-mouth. However, Champps-owned restaurants expend a different
amount of resources on in-restaurant marketing and promotions.
Site Selection
Champps uses its own personnel and consultants to analyze markets and sites for
new restaurants, obtain the required zoning and other permits, negotiate the
leasing or real estate purchase and oversee all aspects of the construction
process. Champps believes that location is a key factor in a restaurant's
ability to operate a profitable lunch and dinner business, and considers several
demographic factors in selecting sites, including the average income of the
neighboring residential population, the proximity of retail, office and
entertainment facilities, traffic patterns and the visibility of the location.
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The cost to construct a typical Champps restaurant, where Champps purchases real
estate, depending upon its location, is approximately $4.5 to $5.5 million,
which includes approximately $1.0 million for furniture, fixtures and equipment,
$2.0 to $2.5 million for building and improvements, $1.1 to $1.6 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 cost to construct a new Champps restaurant where Champps enters into a
leasing arrangement is approximately $3.4 to $3.9 million which is comprised of
approximately $1.0 million for furniture, fixtures and equipment, $2.0 to $2.5
million for leasehold improvements, and $400,000 related to pre-opening costs of
the restaurant.
Future development of Champps restaurants will be accomplished primarily through
the development of Champps-owned restaurants. The development of additional
restaurants is contingent upon locating satisfactory sites, financing,
negotiating satisfactory leases or, alternatively, leasing and converting
existing restaurant sites into Champps restaurants. It is also dependent upon
securing appropriate governmental permits and obtaining liquor licenses. During
fiscal 1998, four new Champps Company-owned restaurants were opened, and on
February 2, 1998, the Company sold a Champps Company-owned restaurant in
Minnetonka, Minnesota. The restaurant was sold to Dean Vlahos, a former Director
of the Company and the former President and Chief Executive officer of Champps
Americana, Inc., for $2.9 million representing the fair value of the restaurant
based upon an independent appraisal. The purchase price was settled through a
cash payment by Mr. Vlahos of $1.5 million and the cancellation of Mr. Vlahos'
employment contract. The Company recognized a net gain of approximately $700,000
on this transaction. As part of this transaction, the Company entered into a
separation agreement with Mr. Vlahos which grants Mr. Vlahos the right, subject
to certain restrictions, to develop up to six franchised Champps restaurants in
the United States by February 2, 2006. Under the separation agreement, Mr.
Vlahos will not pay a franchise fee with respect to such restaurants and will
pay a continuing royalty of 1.25% of gross sales. At June 28, 1998, the Company
had three new Champps Company-owned restaurants under construction and one
Champps restaurants under development, which are expected to open in fiscal
1999. 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 location
of Champps restaurants are very important. Potential sites are reviewed for a
variety of factors, including trading-area demographics, such as target
population density and household income levels; an evaluation of site
characteristics, including visibility, accessibility, traffic volume and
available parking; proximity to activity centers, such as shopping malls and
offices; and an analysis of potential competition.
Franchising
Champps has offered franchises in markets where it deems expansion to be
advantageous to the development of the Champps concept and a system of
restaurants. Franchise agreements grant franchisees an exclusive territorial
license to operate a single restaurant within a specified area. Currently, there
are two franchisees operating multiple restaurants.
A typical franchisee pays an initial fee of $75,000 per restaurant, of which a
part may be associated with a development fee, a continuing royalty fee of
3-1/4% of gross sales, and a regional and/or national advertising fee of 1/2% of
gross sales at such time as Champps establishes a regional/national advertising
program. Among the services and materials that Champps provides to franchisees
are site selection assistance, assistance in design development, an operating
manual that includes quality control and service procedures, training, on-site
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pre-opening supervision and consultation relating to the operation of the
franchised restaurants. Champps has granted 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. 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.
Champps Restaurant Locations
The following table sets forth the locations of restaurants operated by Champps
and its franchisees as of October 2, 1998:
Company Owned Restaurant Locations TEXAS
Domestic - Total 16 Addison
CALIFORNIA San Antonio
Irvine VIRGINIA
COLORADO Reston
Denver
FLORIDA Franchised Restaurant Locations
Ft. Lauderdale Domestic - Total 11
ILLINOIS MINNESOTA
Livonia Burnsville
Schaumburg Maple Grove
INDIANA Maplewood
Indianapolis Minnetonka
MICHIGAN New Brighton
Troy St. Paul
MINNESOTA Woodbury
Richfield NEBRASKA
NEW JERSEY Omaha
Edison NORTH CAROLINA
Marlton Charlotte
OHIO SOUTH DAKOTA
Columbus (2) Sioux Falls
Lyndhurst WISCONSIN
Greenfield
Fuddruckers
Operations
Fuddruckers restaurants, with an average bill of $6.50 per person, 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
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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 60% of sales, it also
includes fresh-cut, ribeye steak sandwiches, fresh-cut, ribeye, chopped steak
and chicken platters with baked potatoes, 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, high quality
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 an open warehouse style with neon beverage signs,
wood tables and chairs and, in some instances, original shipping containers from
certain foods sold by the restaurant. The open grill area enables guests to view
the preparation of their meals, all of which are cooked to order.
The 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 since fiscal 1995 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 10:00
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.
In fiscal 1997 and through the first half of fiscal 1998, the Company
experienced negative same store sales and significantly lower margins. The
Company attributed the declining sales to several factors including: poor
operational execution due to a rapid expansion program in 1995 and 1996; poor
real estate selection, and in certain new markets, consumer confusion over the
Fuddruckers core concept of the "World's Greatest Hamburgers"; too narrow of a
base of customers given its relatively high check average for a meal of a
hamburger, fries and soft drink; and, deterioration of its customer base due to
its limited menu offerings.
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In response to these factors, the Company adopted a number of strategies
including: curtailment of expansion; exiting certain restaurants; introduction
of new menu offerings including "platters" in the dinner period; and expanding
its "Kids Eat Free" program from Monday through Thursday after 4:00 pm to seven
days a week from January through Memorial Day in substantially all Company
markets. The Company also introduced kids meals priced everyday at $0.99 after
Memorial Day, which is its current kids meal program in Company-owned
restaurants.
The Company believes these initiatives were successful in improving sales and
profitability over the course of fiscal 1998. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition".
Management
Fuddruckers restaurant operations for fiscal 1998 were divided into two regions,
each supervised by a Senior Vice President of Operations. The two regions were
further divided into a total of fifteen districts, each supervised by a Director
of Operations. On average, each Director of Operations supervises eight
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.
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
$1.5 million, which includes $265,000 for furniture, fixtures and equipment,
$510,000 for building and improvements, $680,000 for land and site work, and
$50,000 related to pre-opening costs of the restaurant. Since 1995, Fuddruckers
has 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.
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The average total cost to construct a new Fuddruckers restaurant where
Fuddruckers enters into a leasing arrangement is approximately $800,000 which is
comprised of $265,000 for furniture, fixtures and equipment, $485,000 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.
If the Proposed Fuddruckers Transaction is not consummated, the Company
anticipates that 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 fiscal 1999. 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 40 Fuddruckers franchisees, 20 operate multiple restaurants,
and 19 have operated Fuddruckers restaurants for more than five years.
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%.
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Fuddruckers Locations - Company Owned
The following table sets forth the locations of restaurants owned and operated
by Fuddruckers as of October 2, 1998:
Domestic - Total 111 Domestic (Cont'd) Domestic (Cont'd)
ALABAMA KANSAS TEXAS
Birmingham Overland Park Austin (3)
ARIZONA KENTUCKY Clearlake
Flagstaff Florence Houston (11)
Glendale MARYLAND Irving
Mesa (2) Annapolis Kingwood
Phoenix (2) Baltimore Plano
Scottsdale Gaithersburg San Antonio (4)
Tempe Pikesville Stafford
Tucson Rockville Woodlands
CALIFORNIA MASSACHUSETTS UTAH
Burbank Boston Layton
Chula Vista MINNESOTA Orem
La Mesa Bloomington Sandy
Lake Forest Brooklyn Center Salt Lake
Lakewood Burnsville VIRGINIA
Pasadena Coon Rapids Alexandria
San Diego Eden Prairie Annandale
COLORADO Maple Grove Chesapeake (2)
Aurora Roseville Fairfax
Marston Park St. Louis Park Fredericksburg
Thornton MISSOURI Herndon
GEORGIA Independence Newport News
Alpharetta Maryland Heights Richmond
Atlanta St. Louis (2) Vienna
Duluth OHIO Virginia Beach
Kennasaw Cincinnati (2) Woodbridge
Marietta Columbus (4) WISCONSIN
Norcross Fields Ertel Brookfield
Peachtree City Forest Park
Snellville Hilliard
Tucker Norwood
ILLINOIS
Addison
Aurora
Calumet City
Downers Grove N
Downers Grove S
Highland Park
Matteson
Orland Park
Palatine
Schaumburg (2)
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Fuddruckers Restaurants - Franchised Locations
The following table sets forth the locations of restaurants operated by
Fuddruckers franchisees as of October 2, 1998:
Domestic - Total 80 Domestic (Cont'd) Domestic (Cont'd)
CALIFORNIA Voorhees TENNESSEE
Buena Park Wayne Kingsport
Citrus Heights NEW YORK Murfreesboro
Concord Amherst Nashville (2)
Walnut Creek Westbury Sevierville
FLORIDA NORTH CAROLINA TEXAS
Altamonte Springs Asheville Beaumont
Clearwater Charlotte Dallas
Coconut Grove Durham Kennewick
Coral Springs Fargo Killeen
Ft. Lauderdale Hickory Laredo
Miami Huntersville Lubbock
N. Miami Beach Jacksonville McAllen
Plantation Matthews Midland
Tallahassee Wilmington San Antonio (2)
Tampa NORTH DAKOTA Temple
LOUISIANA Fargo Waco
Baton Rouge OHIO Washington
MARYLAND Canton
Owings Mills Cleveland International - Total 13
MASSACHUSETTS OREGON
North Andover Lake Oswego BAHRAIN
Saugus Portland Adliya
MICHIGAN PENNSYLVANIA Manama
Detroit Harmarville CANADA
Flint Lancaster Edmonton
Kentwood Philadelphia Saskatoon
Sterling Heights Fairless Hill KUWAIT
MONTANA SOUTH CAROLINA Kuwait City
Billings Columbia OMAN
Missoula Greenville (2) Muscat
NEBRASKA Hilton Head PUERTO RICO
Omaha Myrtle Beach Caguas
NEW JERSEY North Myrtle Beach Carolina
New Brunswick Spartanburg SAUDI ARABIA
Paramus SOUTH DAKOTA Al Khobar
Parsippany Rapids City Jeddah (2)
Tom's River Sioux Falls Riyadh
Turnersville UNITED ARAB EMIRATES
Union Dubai
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The Proposed Fuddruckers Transaction
On July 31, 1998, the Company agreed to sell, subject to shareholder approval,
its Fuddruckers business to King Cannon (the "Proposed Fuddruckers
Transaction"). The Board believes that the sale of Fuddruckers is a key
strategic move for the Company. In July 1997 DAKA International, the Company's
predecessor, sold its foodservice business to alleviate a significant debt
burden and to position the Company for restoring the profitability of its
restaurant businesses, Fuddruckers and Champps. Since then, the Company has
accomplished many of its goals for the continued turnaround of Fuddruckers and
the expansion of Champps. However, such efforts have been constrained by limited
available capital resources. As the Board continued to explore strategic
alternatives to improve shareholder value, it concluded that a sale of
Fuddruckers at this time would allow the Company to realize the benefits of
Fuddruckers' improved performance and provide the capital needed to position the
Company for future growth.
Pursuant to the terms of the Stock Purchase Agreement, the Company proposes to
sell to King Cannon all of the issued and outstanding capital stock of
Fuddruckers (the "Shares"). The purchase price for Fuddruckers is $43 million,
subject to certain adjustments based on, among other things, the level of
Fuddruckers' fiscal 1998 EBITDA and closing date working capital. While the
adjustments are without limit, either the Company or King Cannon may refuse to
consummate the transaction if at the closing the purchase price less estimated
adjustments is less than $40 million, subject to the Company's obligations to
pay to King Cannon liquidated damages of $1,000,000.
The Board considered the following factors in reaching the conclusion to approve
the Stock Purchase Agreement and the transactions contemplated thereby:
The belief of the Company's management, which was adopted by the Board,
that the financial and investor community viewed the businesses of
Fuddruckers and of Champps as targeting very different segments of the
casual dining market and that this viewpoint has had a negative impact
on the price of the Company's common stock as Fuddruckers was perceived
as a constraint on Champp's growth prospects.
The Board's belief that the Proposed Transaction represents a more
desirable alternative than continuing to operate Fuddruckers. In this
connection, the Board gave consideration to the fact that, while
management has made significant progress in the continuing turnaround
of Fuddruckers' operations, continuing to operate Fuddruckers would
subject the Company and its shareholders to the risk of failing to
complete the full turnaround strategy, the burden of a significant
investment of management and financial resources and the uncertainty of
the future long-term performance of Fuddruckers' as a casual restaurant
concept. After evaluating such risks, the Board concluded that, while
the Company's turnaround strategy could ultimately prove successful,
the risk that Fuddruckers will continue to experience operating issues
adversely impacting the performance of the Company's common stock
justifies a sale of Fuddruckers pursuant to the Stock Purchase
Agreement.
The Board's consideration that, while sales trends and same-store sales
at Fuddruckers restaurants have shown improvement in the last fiscal
year and Fuddruckers is an established brand which continues to show
significant consumer acceptance, if the Company were to retain the
Fuddruckers business it would have to commit to the continuing
elimination of under-performing restaurants, the development of new
restaurants and a series of new initiatives aimed at reinvigorating the
Fuddruckers concept, introducing new menu items, increasing check
averages, broadening the guest base and increasing guest frequency. The
Board viewed the Proposed Transaction as a less risky and more
attractive alternative for the Company shareholders than the
development and execution of a long-term operating and growth strategy
for Fuddruckers.
The sale of Fuddruckers will allow the Company's management to focus
its attention and devote adequate capital resources to executing the
Champps operating and growth strategies.
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The consideration to be paid by King Cannon to the Company consists
entirely of cash thereby enabling the Company to have funds available
for the operation and growth of Champps and other general corporate
purposes.
The Stock Purchase Agreement does not contain a financing condition for
King Cannon and, accordingly, the Company is less exposed to the risk
that King Cannon will be unable to obtain financing for the Proposed
Transaction. In the Stock Purchase Agreement, King Cannon has agreed to
pay the Company liquidated damages equal to $5 million as the Company's
sole and exclusive remedy if King Cannon fails to consummate the
Proposed Transaction for any reason, including lack of financing,
assuming that all conditions to closing are otherwise satisfied and the
Company has not breached the Stock Purchase Agreement.
The Board's determination that the consideration to be received by the
Company in the Proposed Transaction is fair to the Company's
shareholders from a financial point of view, which determination was
based on the Board's assessment of the business and financial results
of Fuddruckers.
The Board also considered the following risks and uncertainties associated with
consummation of the Proposed Transaction:
Following consummation of the Proposed Transaction, the Company's sole
remaining strategic business will be Champps and the Company's overhead
will have to be covered from a smaller revenue base.
The terms of the Stock Purchase Agreement provide that (i) should the
Board change its recommendation that the Company's stockholders vote
for the Proposed Transaction, the Company would be obligated to pay
King Cannon $1,720,000; and (ii) should the Proposed Transaction fail
to close because the purchase price after estimated adjustments is less
than $40 million or because the Company's shareholders fail to approve
it, the Company would be obligated to pay King Cannon $1,000,000.
In analyzing the Proposed Transaction and related transactions and in its
deliberations regarding the recommendation of the Stock Purchase Agreement, the
Board also considered a number of other factors, including (i) its knowledge of
the business, operations, properties, assets, financial condition and operating
results of Fuddruckers; (ii) judgments as to the Company's future prospects with
and without Fuddruckers; and (iii) the terms of the Stock Purchase Agreement,
which were the product of extensive arm's length negotiations. The Board did not
find it practical to and did not quantify or attempt to attach relative weight
to any of the specific factors considered by it. The Board did, however, find
that the positive factors listed above outweighed the potential risks of the
Proposed Transaction, and found the opportunity to generate increased
shareholder value through the sale of Fuddruckers compelling.
Notwithstanding expectations of the Company's senior management regarding the
benefits to be realized from the Proposed Transaction, no assurance can be given
that the Company will be able to realize such benefits or compete effectively
against certain other competitors that possess significantly greater resources
and marketing capabilities.
Terms of the Stock Purchase Agreement
The following discussion of the terms and conditions of the Stock Purchase
Agreement, while materially complete, is qualified in its entirety by reference
to the provisions of the Stock Purchase Agreement, which is filed as an Exhibit
to this Form 10K. Terms which are not otherwise defined in this summary have the
meaning set forth in the Stock Purchase Agreement, or an Exhibit thereto, as the
case may be. An index to all defined terms is set forth in Section 1.3(c) of the
Stock Purchase Agreement.
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Purchase Price
The aggregate purchase price for the stock of Fuddruckers is $43.0 million in
cash (the "Unadjusted Purchase Price") subject to adjustment as described below.
On the Closing Date (as defined below), the Company will deliver to King Cannon
its good faith statement (the "Closing Statement") of Fuddruckers' Working
Capital (as defined in the Stock Purchase Agreement) as of the Closing Date (the
"Estimated Working Capital"). The Unadjusted Purchase Price shall be (i)
decreased by the amount of the EBITDA Adjustment (as defined in the Stock
Purchase Agreement); (ii) increased by the amount that the Estimated Working
Capital is more than $0 and decreased by the amount that the Estimated Working
Capital is less than $0, as the case may be; (iii) decreased by the amount of
the Maintenance Expenditure Adjustment (as defined in the Stock Purchase
Agreement); (iv) decreased by the amount of the Cash Payment Adjustment (as
defined in the Stock Purchase Agreement); and (v) decreased by the amount of the
Closed Store Adjustment (as defined in the Stock Purchase Agreement) (as so
adjusted, the "Estimated Purchase Price"). On the Closing Date, King Cannon is
required to pay, by wire transfer of immediately available funds, to such
account as the Company shall have designated, an amount equal to the Estimated
Purchase Price less (i) $1.0 million, which will be placed in escrow to support
the Company's indemnification obligations to King Cannon; (ii) if certain
required consents of landlords under leases covering certain Fuddruckers
restaurants are not obtained before the closing, an additional $1.0 million,
which would then be placed in escrow to fund possible losses from the
termination of such leases or increases in rent; and (iii) if certain contingent
and long-term liabilities of Fuddruckers are not settled or satisfied before the
closing, additional amounts to fund the payment thereof which would be placed in
dedicated escrow accounts until payment is required. The term "EBITDA
Adjustment" is defined as an amount equal to five (5) times the amount by which
Fuddruckers' earnings before interest, taxes, depreciation and amortization
(derived from the audited financial statements of Fuddruckers for the fiscal
year ended June 28, 1998, with certain adjustments described in detail in the
Stock Purchase Agreement) is less than $8.5 million. The Company believes its
EBITDA, calculated pursuant to the Stock Purchase Agreement, is in excess of the
minimum required amount of $8.5 million. Either the Company or King Cannon can
refuse to consummate the Proposed Transaction if the purchase price after
estimated adjustments as of the closing date is less than $40 million, subject
to the Company's obligation to pay to King Cannon liquidated damages equal to
$1.0 million.
In addition to the possible reduction in the purchase price as a result of the
various contingent adjustments and the payment of funds in escrow as summarized
above, the Company will be required to use a portion of the cash proceeds from
the Proposed Transaction to satisfy accrued and contingent liabilities which are
required by the Stock Purchase Agreement to be satisfied prior to and as a
condition of closing. The Company currently estimates that, exclusive of the
possible impact of any contingent adjustments and without deduction for amounts
deposited in escrow, it will have net cash proceeds remaining from the Proposed
Transaction between $33.0 million and $35.0 million after settling transaction
costs and obligations of Fuddruckers not assumed by King Cannon.
By no later than 120 days after the Closing Date, King Cannon may in its sole
discretion require that the Company purchase from King Cannon any Current Asset
(as defined in the Stock Purchase Agreement) (other than Inventory (as defined
in the Stock Purchase Agreement), cash and assumable prepaid expenses as of the
Closing Date which are reflected as Current Assets on the Closing Statement)
which had been reflected on the Company's Closing Statement, at an amount equal
to (i) in the case of any Current Receivable (as defined in the Stock Purchase
Agreement), the amount thereof set forth in the Company's Closing Statement
minus 100% of all amounts collected on account of such Current Receivable since
the Closing Date by King Cannon; and (ii) in the case of any other Current
Asset, the book value thereof as of the date on which the purchase thereof by
the Company takes place. The aggregate amount owed by the Company to King Cannon
on account of the foregoing asset transfers is the "Post-Closing Asset Transfer
Adjustment."
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The Estimated Purchase Price shall be (i) if necessary, increased or decreased,
as the case may be, by the amount by which the Estimated Working Capital exceeds
or is exceeded by the Final Working Capital; and (ii) decreased by the amount of
the Post-Closing Asset Transfer Adjustment (as so adjusted, the "Final Purchase
Price").
At the closing, the Company will transfer to Fuddruckers certain furniture,
fixtures and equipment, consisting principally of office furniture, computer
workstations and related equipment located at the Company's corporate
headquarters and used by employees of the Company who will become employees of
Fuddruckers immediately after the closing.
The Closing
Upon the terms and subject to the conditions of the Stock Purchase Agreement,
the closing of the transactions contemplated by the Stock Purchase Agreement
(the "Closing") is scheduled to take place on or about November 2, 1998 (the
"Closing Date").
Representations and Warranties
The Stock Purchase Agreement contains various representations and warranties by
the Company and King Cannon. These include, without limitation, representations
and warranties by the Company as to (i) the organization, good standing, and
capitalization of Fuddruckers and its subsidiaries; (ii) proper corporate
authority, no conflicts, no violations and requisite approvals; (iii) ownership
of the Shares; (iv) accuracy of financial statements, books and records; (v)
absence of undisclosed liabilities and absence of material adverse change; (vi)
material litigation; (vii) compliance with law; (viii) employee benefit plans
and employee matters; (ix) tax matters; (x) title to and condition of assets;
(xi) leases and real property; (xii) certain contracts and licenses; (xiii)
intellectual property matters; (xiv) insurance policies; (xv) brokers, finders
and fees; (xvi) franchises; and (xvii) environmental matters.
The Stock Purchase Agreement also contains representations and warranties of
King Cannon, including, without limitation, representations and warranties as to
(i) the organization and good standing of King Cannon; (ii) proper corporate
authority, no conflicts, no violations and requisite approvals; (iii) minimum
net worth; (iv) capitalization; (v) material litigation; (vi) compliance with
laws; and (vii) brokers, finders and fees.
For a description of the survivability of the representations and warranties and
related indemnification, see "Survival of Representations and Warranties;
Indemnification."
Certain Covenants
The Stock Purchase Agreement also contains various covenants of the Company,
Champps and King Cannon. During the period from the date of the Stock Purchase
Agreement to the Closing Date, the Company will, among other things:
(i) conduct Fuddruckers only in the ordinary course consistent with
past practice, and use its commercially reasonable efforts to (a)
maintain Fuddruckers' assets and those assets of the Company that are
used in Fuddruckers' business in their current condition subject to
additions, deletions and normal wear and tear in the ordinary course,
(b) preserve intact the current business organization of Fuddruckers
and of the Company to the extent related to Fuddruckers' business, (c)
keep available the services of the current officers, employees and
agents of Fuddruckers and those employees of the Company who perform
services for Fuddruckers, and (d) maintain the relations and good will
with suppliers, customers, landlords, creditors, franchisees,
employees, agents, and others having material business relationships
with Fuddruckers or with the Company to the extent related to the
Fuddruckers business;
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(ii) ensure that none of the changes or events listed in Section 4.1(E)
of the Stock Purchase Agreement occurs without the prior written
consent of King Cannon;
(iii) perform, pay or discharge, or cause Fuddruckers to perform, pay
or discharge, certain specified liabilities including (a) the cost of
terminating certain operating leases for equipment used in the
Fuddruckers business, (b) all non-current liabilities of Fuddruckers,
and (c) the anticipated cost of performing certain contingent or
deferred liabilities of Fuddruckers;
(iv) transfer to itself, or otherwise assume responsibility for in a
manner and on terms reasonably satisfactory to King Cannon, all assets
and liabilities relating to any "Fuddruckers" location that is no
longer operating as a "Fuddruckers" restaurant on the Closing Date;
(v) pay and discharge all liabilities in regard to any concluded legal
proceeding (except for any such legal proceeding as to which the
Company is pursuing an appeal) that (a) has been reduced to a judgment
against Fuddruckers or the Company to the extent relating to
Fuddruckers' business, (b) is the subject of an executed settlement
agreement, or (c) is otherwise concluded as of the Closing Date;
(vi) file, or cause to be filed, UCC-3 termination statements and
obtain, or cause to be obtained, any other releases, consents or
similar documents necessary to release liens on Fuddruckers' assets,
the Company's assets related to Fuddruckers' business or the Shares;
and
(vii) spend not less than $250,000 per month (or pro rated for any
partial month) on capital expenditures.
In addition, at the closing, the Company expects to enter into an agreement with
King Cannon covering certain transitional arrangements, including without
limitation (i) causing the Company's data processing and consulting services
provider to provide such services to Fuddruckers after the closing in
consideration of a payment to the Company of $40,000 per month toward the cost
of such services; (ii) providing to Fuddruckers 10,000 square feet of office
space at the Company's corporate headquarters at an all-inclusive monthly rent
of $20 per square foot; (iii) cooperating with Fuddruckers with respect to the
hiring of any Company employees who have been assigned to perform services for
Fuddruckers; and (iv) other miscellaneous transitional matters.
Non-Competition
As part of the consideration under the Stock Purchase Agreement, each of the
Company and Champps agreed that, for a period of ten years following the Closing
Date, neither will (i) directly or indirectly, own, manage, operate, finance,
join, or control, or participate in the ownership, management, operation,
financing or control of, or be associated as a partner or representative in
connection with, any restaurant business that is in the gourmet hamburger
business or whose method of operation or trade dress is similar to that employed
in the operation of the "Fuddruckers" restaurants; or (ii) directly or
indirectly solicit, induce or attempt to induce any person then employed by
Fuddruckers or King Cannon to enter the employ of the Company or Champps, or any
of their respective affiliates.
Nothing contained in the Stock Purchase Agreement limits the right of the
Company or Champps to operate the business of Champps as it is currently
conducted or other restaurant concepts that do not compete directly with
Fuddruckers or to own less than a 5% legal or beneficial ownership in the
outstanding equity securities of any publicly traded corporation.
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The Company's Closing Conditions
The obligation of the Company to consummate the transactions contemplated by the
Stock Purchase Agreement is subject to satisfaction or waiver of the following
conditions:
(i) each of King Cannon's representations and warranties in the Stock
Purchase Agreement must have been accurate in all respects as of the
date of the Stock Purchase Agreement and must be accurate in all
respects as of the Closing Date as if made on the Closing Date, except
for such breaches as would not, in the aggregate, have a material
adverse effect on King Cannon and which King Cannon undertakes to cure
within 30 days following the Closing Date with such obligation to
survive the Closing Date as a covenant of King Cannon;
(ii) each of the covenants and obligations that King Cannon is required
to perform or to comply with pursuant to the Stock Purchase Agreement
on or prior to the Closing Date must be duly performed and complied
with and King Cannon must deliver each of the documents required to be
delivered by it;
(iii) as of the Closing Date, there shall be no effective injunction,
writ or preliminary restraining order or any order of any nature issued
by a court or governmental entity of competent jurisdiction directing
that any of the transactions contemplated in the Stock Purchase
Agreement not be consummated, and no legal proceeding shall have been
commenced or threatened in writing by any person against the Company
seeking to enjoin or obtain damages in respect of the consummation of
any transaction contemplated by the Stock Purchase Agreement;
(iv) the Proposed Transaction shall have been approved and adopted by
the requisite vote of the Company's shareholders; and
(v) the Estimated Purchase Price shall not be less than $40,000,000.
King Cannon's Closing Conditions
The obligation of King Cannon to consummate the transactions contemplated by the
Stock Purchase Agreement are subject to the satisfaction or waiver at or prior
to the Closing Date of the following conditions:
(i) each of the Company's representations and warranties in the Stock
Purchase Agreement must have been accurate in all respects as of the
date of the Stock Purchase Agreement, and must be accurate in all
respects as of the Closing Date as if made on the Closing Date, except
for such breaches as could not reasonably be anticipated to result in,
in the aggregate, a material adverse effect on Fuddruckers' business
and which the Company undertakes to cure within 30 days following the
Closing Date with such cure obligation to survive the Closing as a
covenant of the Company;
(ii) each of the covenants and obligations that the Company is required
to perform or to comply with pursuant to the Stock Purchase Agreement
as of or prior to the Closing Date must be duly performed and complied
with and the Company must deliver each of the documents required to be
delivered by it pursuant to Section 3.2(A) of the Stock Purchase
Agreement;
(iii) as of the Closing Date, there shall be no effective injunction,
writ or preliminary restraining order or any order of any nature issued
by a court or governmental entity of competent jurisdiction directing
that any of the transactions contemplated in the Stock Purchase
Agreement not be consummated, and no legal proceeding shall have been
commenced or threatened in writing by any person against King Cannon or
Fuddruckers seeking to enjoin or obtain damages in respect of the
consummation of any transaction contemplated by the Stock Purchase
Agreement;
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(iv) there must not have been made or threatened in writing by any
person any claim asserting that such person is the holder or the
beneficial owner of, or has the right to acquire or to obtain
beneficial ownership of, any of the Shares, or any equity securities in
Atlantic Restaurant Ventures, Inc. (other than the equity securities
owned by North American Restaurants Limited Partnership);
(v) King Cannon shall have obtained current appraisals from an "MAI"
appraiser selected by the Company and acceptable to the financial
institution providing financing to King Cannon in connection with the
transactions contemplated by the Stock Purchase Agreement of the value
of each of Fuddruckers' owned real properties, which value shall not
be, in the aggregate for all of such owned real properties, less than
$12,500,000;
(vi) King Cannon shall have obtained, at King Cannon's sole cost and
expense, updated Environmental Site Assessment ("ESA") reports for each
of Fuddruckers' owned real properties (the "Updates") and except as set
forth below, such Updates shall either (a) confirm that the conclusions
and/or recommendations set forth in existing ESA reports or (b) set out
modified conclusions and/or recommendations which are determined to be
acceptable to King Cannon in King Cannon's sole discretion; and
(vii) the Estimated Purchase Price shall not be less than $40,000,000.
Termination
The Stock Purchase Agreement may be terminated (subject to a termination fee
under certain circumstances as described below) and the transactions
contemplated by the Stock Purchase Agreement may be abandoned at any time prior
to the Closing Date:
(i) by the mutual consent of King Cannon and the Company;
(ii) by either King Cannon or the Company if a material breach of any
provision of the Stock Purchase Agreement has been committed by the
other party and such breach has not been waived by the terminating
party;
(iii) (a) by King Cannon if any of the conditions precedent to King
Cannon's obligation to close have not been satisfied as of the Closing
Date or if satisfaction of any such condition is or becomes impossible
(other than through the failure of King Cannon to comply with its
obligations under the Stock Purchase Agreement) and King Cannon has not
waived such condition on or before the Closing Date, or (b) by the
Company if any of the conditions precedent to the Company's obligation
to close have not been satisfied as of the Closing Date or if
satisfaction of any such condition is or becomes impossible (other than
through the failure of the Company to comply with its obligations under
the Stock Purchase Agreement) and the Company has not waived such
condition at or before the Closing Date;
(iv) by the Company if (a) the Board withdraws or modifies its approval
or recommendation to the Company's shareholders of, or otherwise fails
to approve or recommend, the Proposed Transaction and the consummation
of the transactions contemplated by the Stock Purchase Agreement, and
(b) the Company pays to King Cannon an alternative transaction fee
equal to $1,720,000, promptly upon such withdrawal, modification or
failure, by wire transfer of immediately available funds to such
account as shall have been designated by King Cannon; or
(v) by either King Cannon or the Company if the Closing has not
occurred (other than through the failure of any party seeking to
terminate the Stock Purchase Agreement to comply fully with its
obligations under the Stock Purchase Agreement) on or before November
2, 1998 (the "Outside Date") or such later date as the parties may
agree upon; provided, however, that notwithstanding anything to the
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contrary in the Stock Purchase Agreement (a) if on November 2, 1998 the
applicable waiting periods under the Hart-Scott-Rodino Act have not
expired or terminated then each of King Cannon and the Company shall
have the independent right, exercisable in its sole discretion by
delivery of written notice thereof to the other on or before November
2, 1998, to extend the Outside Date to the earlier of five (5) business
days after such regulatory approvals have been obtained or December 15,
1998 and (b) if on November 2, 1998 the Company has not obtained the
consents required to be delivered pursuant to Section 3.2(A)(5) of the
Stock Purchase Agreement, then the Company shall have the right
exercisable in its sole discretion by delivery of written notice
thereof to King Cannon on or before November 2, 1998 to extend the
Outside Date to December 15, 1998.
Termination Fees
In the event that the Closing does not occur on or prior to the Outside Date (as
the same may be extended) due to King Cannon's breach of its obligations under
the Stock Purchase Agreement, the Company's sole and exclusive remedy against
King Cannon under the Stock Purchase Agreement and with respect to the
transactions contemplated thereby shall be to exercise its rights to terminate
the Stock Purchase Agreement and to receive the payment from King Cannon of cash
in an amount equal to $5,000,000 as liquidated damages with respect to which
King Cannon has furnished a letter of credit for the benefit of the Company. In
the event that the closing does not occur on or prior to the Outside Date (as
the same may be extended) due to the non-satisfaction of the conditions
contained in Section 8.7 or Section 9.5 of the Stock Purchase Agreement or the
failure of the Company's shareholders to approve the Proposed Transaction where
the Board has approved or recommended the same to the shareholders (without
modification or withdrawal of such approval or recommendation), the Company
shall pay to King Cannon an amount equal to $1,000,000 as liquidated damages
(and not as a penalty) in consideration of the time, the fees and expenses spent
or incurred by King Cannon, or on its behalf, in connection with the Stock
Purchase Agreement and the transactions contemplated hereby.
Survival of Representations and Warranties
All representations and warranties of the parties contained in the Stock
Purchase Agreement will survive the Closing and will expire on December 31, 2000
(the "Survival Period") except that (i) representations and warranties made by
the Company relating to environmental matters will survive the Closing Date
until December 31, 2003, (ii) representations and warranties made by the Company
relating to employee matters and income taxes will survive the Closing Date
until expiration of applicable statutes of limitations and (iii) representations
and warranties made by the Company in (a) Section 4.1(A) of the Stock Purchase
Agreement with respect to the due organization, valid existence and good
standing of the Company and Fuddruckers, as well as with respect to the matters
referred to in the last two sentences of Section 4.1(A), (b) Section 4.1(B)
(except for clause (iv) and the last sentence thereof) of the Stock Purchase
Agreement, and (c) Section 4.1(C) shall survive the Closing indefinitely. In
addition, any covenants or agreements of the Company under the Stock Purchase
Agreement, and any and all indemnification obligations relating thereto shall
survive the Closing indefinitely, unless earlier expiring in accordance with
their respective terms, including, without limitation, the Company's
indemnification obligations with respect to covenants and the items described in
Section 13.14(A)(2), Section 13.14(A)(3), and Section 13.14(A)(4) of the Stock
Purchase Agreement.
King Cannon's representations and warranties under the Stock Purchase Agreement,
and its indemnification obligations arising from such representations and
warranties, will survive the Closing and will expire and terminate on December
31, 2000. Any covenants or agreements of King Cannon under the Stock Purchase
Agreement, and any and all indemnification obligations relating thereto will
survive the Closing indefinitely, unless earlier expiring in accordance with
their respective terms.
18
<PAGE>
The Company's and Champps' Indemnification Obligations
The Company and Champps will jointly and severally indemnify, defend and hold
harmless King Cannon and Fuddruckers, each affiliates of King Cannon and
Fuddruckers, and each of the employees, officers, directors, stockholders,
members, managers, partners and representatives of any one of them, from and
against any losses, assessments, liabilities, claims, obligations, damages,
costs or expenses (including without limitation reasonable attorneys' fees and
disbursements) which arise out of or relate to:
(i) any misrepresentation in, breach of or failure to comply with, any
of the representations, warranties, undertakings, covenants or
agreements of the Company, Fuddruckers or any affiliate of any of them
contained in the Stock Purchase Agreement;
(ii) any Environmental Matters (as defined in Section 13.14 of the
Stock Purchase Agreement);
(iii) any Retained Liabilities (as defined in the Stock Purchase
Agreement); or
(iv) obligations of the Company under Section 2.4 of the Stock Purchase
Agreement with respect to Lease Termination Amounts and Rent Adjustment
Amounts (as such terms are defined in the Stock Purchase Agreement).
The Company shall not have any obligation to indemnify King Cannon on account of
any breach of any representation or warranty as described in clause (1) above
unless and until King Cannon's losses paid or incurred by King Cannon on account
of all such breaches of representations and warranties exceed $100,000 in the
aggregate, in which event King Cannon will be entitled to such indemnification
in respect of all such losses, including without limitation such initial
$100,000.
King Cannon's Indemnification Obligations
King Cannon will indemnify, defend and hold harmless the Company and its
employees, officers, directors, partners and representatives (other than any of
the foregoing as may become employees of Fuddruckers or King Cannon at or after
the Closing) from and against any losses, assessments, liabilities, claims,
obligations, damages, costs or expenses (including without limitation reasonable
attorneys' fees and disbursements) which arise out of or relate to:
(i) any misrepresentation in, breach of or failure to comply with, any
of the representations, warranties, covenants or agreements of King
Cannon contained in the Stock Purchase Agreement; or
(ii) Transferred Liabilities (as defined in the Stock Purchase
Agreement).
King Cannon will not have any obligation to indemnify the Company on account of
any breach of any representation or warranty unless and until the Company's
losses paid, incurred, suffered or accrued on account of all breaches of
representations and warranties exceed $100,000 in the aggregate, in which event
the Company will be entitled to indemnification in respect of all such losses,
including without limitation such initial $100,000.
Indemnification Caps
The maximum aggregate liability of the Company on account of any breach of any
representation or warranty is limited to the amount of the Final Purchase Price.
There is no cap or limit on the liability of the Company to King Cannon on
account of any breach by the Company of any of its covenants or agreements under
the Stock Purchase Agreement or on account of indemnification obligations
covering matters other than breaches of representations and warranties, provided
that, if King Cannon is entitled to recover any losses in excess of the Final
Purchase Price, the Company may either (i) require King Cannon to reconvey to
19
<PAGE>
the Company full ownership and control of the Shares and all assets (to the
extent then owned by King Cannon or Fuddruckers) that are being transferred
pursuant to the Stock Purchase Agreement in such a manner as to rescind the
transactions contemplated by the Stock Purchase Agreement, in which case the
Company will pay King Cannon an amount equal to (x) the Final Purchase Price
plus (y) all additional investments made in Fuddruckers following the Closing
plus (z) an amount equal to an internal rate of return equal to 25% on the sum
of items (x) and (y); or (ii) pay to King Cannon all of the losses with respect
to which King Cannon is entitled to indemnification.
The maximum aggregate liability of King Cannon on account of any breach of any
representation or warranty is limited to $5,000,000. There is no cap or limit on
the liability of King Cannon to the Company on account of any breach by King
Cannon of any of its covenants or agreements under the Stock Purchase Agreement
or on account of indemnification obligations covering matters other than
breaches of representations and warranties.
Expenses
Whether or not the Proposed Transaction is consummated, and except as otherwise
expressly set forth in the Stock Purchase Agreement, all costs and expenses
(including legal and financial advisory fees and expenses) incurred in
connection with, or in anticipation of, the Stock Purchase Agreement and the
transactions contemplated thereby will be paid by the party incurring such
expenses. the Company and King Cannon will each pay one half of the filing fee
required under the Hart-Scott-Rodino Act. the Company will pay all fees and
expenses related to filings with governmental entities relating to business
licenses, which filings are required to be made following the Closing.
Centralized Functions
During fiscal 1998, the Company provided Fuddruckers and Champps with
centralized purchasing, accounting and management information services. The
Company has arranged with King Cannon to "share" certain functions post closing
through June 1999. The shared functions, which can be terminated on 30 days
notice, are purchasing, payroll, accounts payable, risk management and
technology support.
Purchasing
The Company capitalizes on the diversity of its businesses through a centralized
and coordinated purchasing program and food distribution network. On November
15, 1997, the Company entered into a five-year distribution agreement with Sysco
Corporation ("Sysco") pursuant to which Sysco is entitled to distribute not less
than 80% of food and food-related purchases of Fuddruckers and Champps. The
agreement with Sysco is cancelable by either party upon 60 days notice.
Fuddruckers and Champps franchisees also have the option of purchasing from
Sysco.
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.
20
<PAGE>
Accounting and Management Information Systems
During fiscal 1998, the Company provided 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 its centralized accounting, payroll, cash
management and information systems improve its ability to control and manage its
operations efficiently.
Effective July 1, 1997, the Company entered into a sale and services agreement
with RCS whereby the Company sold to RCS for an aggregate purchase price of $2.3
million certain data processing equipment. The purchase price will be satisfied
through the repayment of a promissory note due June 30, 2002 which bears
interest at 6% per annum. The promissory note was contributed to the Company as
part of the Additional Capital Contribution. The Company also received DAKA
International's 50% interest in RCS at the Transaction Date. In connection with
this sale, the Company has entered into a management agreement with RCS whereby
the Company has agreed to provide certain managerial services to RCS. In
addition, the Company has entered into a two year service agreement with RCS for
data processing and consulting services for an annual fee of $1.8 million. The
Company consolidates RCS operations until such time as the obligations of RCS to
the Company are satisfied.
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 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.
21
<PAGE>
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 3.0% of Fuddruckers' and 35% of
Champps' total restaurants sales during fiscal year 1998. 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 $1.0 million per
occurrence subject to a policy aggregate of $25.0 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, through its operating subsidiaries, has registered a number of
trademarks and service marks with the United States Patent and Trademark Office
and with certain states, including the trade names: "Fuddruckers" and the
"Fuddruckers -- World's Greatest Hamburgers" logo; "Champ's", "Champps",
"Champps American Sports Cafe" and "Champps Entertainment"; "The Great Bagel &
Coffee Company"; the "French Quarter Coffee Co.; and, "Leo's Deli", in
connection with providing bar and restaurant services, and in connection with
the sale of related food products (collectively, the "Marks").
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 (0.25%) of the gross
sales of Champps restaurants, but in no event less than $40,000. The maximum fee
payable by Champps is increased annually by the lesser of the increase in the
Consumer Price Index or 4%.
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.
22
<PAGE>
Corporate Offices and Associates
The Company is incorporated under the laws of the State of Delaware and employs
approximately 50 associates on a full-time basis, two of which are executive
officers.
Fuddruckers is incorporated under the laws of the State of Texas and employs
approximately 5,000 associates on a full-time and part-time basis.
Champps is incorporated under the laws of the State of Minnesota and employs
approximately 3,000 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 or its subsidiaries' employees are covered by collective
bargaining agreements. The Company considers its relations with its associates
to be good.
The Company and Fuddruckers maintain their principal executive offices at One
Corporate Place, 55 Ferncroft Road, Danvers, Massachusetts 01923. The telephone
number for the Company is (978) 774-6606.
Champps maintains its principal executive offices at 153 East Lake Street,
Wayzata, Minnesota, 55391. The telephone number for Champps is (602) 449-4841.
Spin-off Transaction
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, a wholly-owned subsidiary of Compass Holdings, Inc., a Delaware
corporation, a wholly-owned subsidiary of Compass Group PLC incorporated in
England and Wales (collectively "Compass"), pursuant to which Compass 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"). The Offer was consummated on July 17, 1997. 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, made 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 which were
contributed to the Company.
Certain non-restaurant operating assets and liabilities of DAKA International
were also contributed to the Company (the "Additional Capital Contribution")
consisting of notes receivable, property and accounts payable, accrued expenses,
and contingent liabilities. These net assets and liabilities, which resulted in
a decrease to stockholders' equity of approximately $1.5 million, were recorded
within their respective captions during fiscal 1998.
Following the consummation of the Offer, Compass merged with and into DAKA
International. Pursuant to the Offer, DAKA International distributed to each
holder 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
stockholder (the "Distribution"). No consideration was paid by DAKA
International's stockholders for the shares of the Company's common stock. As a
result of the Distribution, the Company ceased to be a subsidiary of DAKA
International and began operating as an independent, publicly-held company on
July 17, 1997.
23
<PAGE>
The following summary of certain provisions of the Agreements with Compass does
not purport to be complete and is qualified in its entirety by reference to the
full text of such Agreements (copies of which have been filed as an exhibit to
the Registration Statement No. 000-22639 on Form 10 originally filed June 3,
1997).
The Tax-Allocation Agreement
The Company, DAKA International and Compass have entered into a 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 DAKA International and Daka and the Company 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 Company, and DAKA International
will be responsible for tax liabilities of DAKA International and Daka.
Indemnification by the Company
The Post-Closing Covenants Agreement provides that except as otherwise
specifically provided the Company, will indemnify, defend and hold harmless
Compass, from and against, and pay or reimburse Compass 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 Compass' rights
suffered by Compass ("Indemnifiable Losses"), as incurred relating to or arising
from 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 Spin-off. The scope and amount of such liabilities is subject to a
high degree of uncertainty and risk. Although the Company has estimated the
amount of liabilities due, there can be no assurance that such amounts to be
ultimately paid will not differ from the Company's estimate and such difference
could be material. Under the terms of the Merger Agreement and related
agreements, the Company is required to collateralize or otherwise ensure for the
benefit of Compass its ability to meet its obligations with respect to its
indemnification obligations and other liabilities. Such requirement may reduce
the Company's access to cash balances for a significant period of time after the
Spin-off and may also constrain the Company's cash flow.
Covenant Not to Compete
In the Post-Closing Covenants Agreement, the Company agreed that, for a period
of five years following the Spin-off, it would not 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"); (ii) influence or attempt to influence any
customer of Compass or Daka to divert its business from Compass or Daka to any
person then engaged in any aspect of the Restricted Business in competition with
Compass 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 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
Compass, or Daka.
24
<PAGE>
Item 2. Properties.
As of June 28, 1998, the Company leased approximately 44,000 square feet of
office space at its corporate headquarters in Danvers, Massachusetts, at an
average annual rent of $722,000 through November 30, 2001. Compass subleased
approximately 20,000 square feet from the Company in fiscal 1998 at a rent equal
to one-half the Company's annual rent. Compass is expected to continue to lease
this space on the same terms through December, 1998; and may lease the space for
up to 30 days thereafter. King Cannon has agreed to sub-lease 10,000 square feet
at a monthly rent consistent with the Company's rent on a per square foot basis
for an indefinite period subject to a 120 day termination notification. The
Company will seek a sub-lease tenant to replace Compass in fiscal 1999.
Fuddruckers owns the land and related improvements at 12 of the 111
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 rent
of $70,800.
Item 3. Legal Proceedings.
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 December 19, 1997, the
parties entered into a Stipulation and Agreement of Settlement pursuant to which
defendants deny any wrongdoing, and the parties agree to settle the matter as a
class action, subject to the court's approval, with payment of $3.5 million to
the class. The Company has agreed to indemnify Compass (the successor owner of
DAKA International, Inc.) for any losses or expenses associated with the
complaint. On February 10, 1998, the Company announced that it had agreed to
settle the case for $3.5 million. While defendants deny all of the allegations
in the complaint and any wrongdoing whatsoever, they believe that settlement of
the case was in the best interests of the Company and its shareholders to avoid
the costs and risks of litigation. The settlement had no impact on results of
operations and the settlement payment was funded from restricted cash deposits
previously set aside for this contingency. As a result of the settlement,
approximately $1.5 million in restricted cash deposits were returned to the
Company. On January 27, 1998, the court preliminarily approved the settlement
and set the timetable for granting final approval. The court concluded a final
settlement hearing on April 27, 1998. The court took the matter under advisement
and has not yet made its final determination concerning the settlement. While
the Company cannot predict when the court will make that determination or what
the court's determination ultimately will be, the Company believes that the
ultimate outcome of this matter will not have a material adverse effect on the
Company's consolidated financial condition, results of operations or cash flows.
The Company has agreed to assume certain contingent liabilities of DAKA
International in connection with the Spin-off in addition to the matter
discussed above. Further, the Company is also engaged in various other actions
arising in the ordinary course of business. The Company believes, based upon
consultation with legal counsel, that the ultimate collective outcome of these
other matters will not have a material adverse effect on the Company's
consolidated financial condition, results of operations or cash flows.
25
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted by the Company to a vote of Stockholders,
through the solicitation of proxies or otherwise, during the fourth quarter of
the fiscal year for which this report is filed. The Company expects to submit
the Fuddruckers transaction to a vote of stockholders during October 1998. See
"The Proposed Fuddruckers Transaction."
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholdee
Matters.
The Company's common stock has been listed on the Nasdaq National Market
("Nasdaq") under the symbol "UNIQ" since July 17, 1997, the date on which the
Company became a publicly trade company as a result of its spin-off from DAKA.
The table below sets forth, since such date and for the calendar periods
indicated, the high and low intra-day sales price per share of the Common Stock
as reported on the Nasdaq. The Company has no history of market price for its
common stock prior to such date and data with respect to the common stock of
DAKA, as predecessor of the Company, which was listed on Nasdaq before July 17,
1997, would not be meaningful.
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
Fiscal 1998
First Fiscal Quarter (after July 17, 1997) $ 7.44 $ 6.13
Second Fiscal Quarter 7.06 5.75
Third Fiscal Quarter 7.00 5.81
Fourth Fiscal Quarter 6.50 5.13
Fiscal 1999
First Fiscal Quarter 7.38 4.50
Second Fiscal Quarter (through October 2, 1998) 5.75 4.88
</TABLE>
On October 2, 1998, there were 2,852 holders of record of the Company's Common
Stock .
The Company has never paid cash dividends on shares of its Common Stock and does
not expect to pay dividends in the foreseeable future. The Company intends to
retain all of its otherwise available funds for the operation and expansion of
its business.
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<PAGE>
Item 6. Selected Financial Data.
SELECTED FINANCIAL DATA
The following table presents selected consolidated statements of operations and
balance sheet data of the Company. The balance sheet data as of June 28, 1998
and June 29, 1997 and 1996 and the statements of operations data for each of the
four fiscal years in the period ended June 28, 1998 presented below are derived
from the Company's audited consolidated financial statements. The balance sheet
data as of July 1, 1995 and July 2, 1994, and the statements of operations data
for the fiscal year ended July 2, 1994, have been derived from the Company's
unaudited internal financial statements.
For purposes of this Form 10-K and financial reporting purposes, the Company has
been treated as if it was a stand-alone entity for all periods presented. The
Company's results of operations, as presented in the accompanying financial
statements for periods prior to July 17, 1997, include allocations and estimates
of certain expenses, including corporate accounting, tax, cash management,
information technology, legal, risk management, purchasing and human resources,
historically provided to the Company by DAKA International.
The selected consolidated financial data should be read in conjunction with the
consolidated financial statements and related notes thereto of the Company and
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" included elsewhere in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
As of and for the Fiscal Years Ended
--------------------------------------------------------------
June 28, June 29, June 29, July 1, July 2,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Total revenues $ 215,321 $ 205,884 $ 183,755 $ 137,730 $ 100,677
Income (loss) from continuing operations
before income taxes, minority interests and cumulative
effect of change in accounting for preopening costs
(26,748) (42,832) (6,931) 4,697 3,980
Net income (loss) (27,735) (39,043) (5,670) 1,798 1,300
Basic and diluted loss per share (2.41) -- -- -- --
Pro forma basic and diluted loss per share -- (3.42) -- -- --
Balance Sheet Data:
Total assets 92,546 125,209 142,348 102,431 78,365
Long-term debt, including current portion 6,966 5,128 6,366 4,009 3,372
Total equity 50,398 79,053 108,894 73,979 57,666
</TABLE>
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
General
The following Management's Discussion and Analysis of Results of Operations and
Financial Condition is based upon the historical consolidated financial
statements of the Company, which present the Company's results of operations,
financial position and cash flow. Prior to July 17, 1997, the Company
historically operated as part of DAKA International. These historical
consolidated financial statements include the assets, liabilities, income and
expenses that were directly related to the restaurant business as it was
operated within DAKA International prior to the Spin-off. The Company's
statement of operations includes all of the related costs of doing business,
27
<PAGE>
including charges for the use of facilities and for employee benefits, and
includes an allocation of certain general corporate expenses, including costs
for corporate logistics, information technologies, finance, legal and corporate
executives. These allocations of general corporate expenses 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 preparation of the Company's separate consolidated financial
statements to be reasonable.
Certain other non-restaurant operating assets and liabilities of DAKA
International were contributed to the Company as described in Note 2 to
Financial Statements. Those assets and liabilities consisting of notes
receivable, property, accounts payable, accrued expenses, and contingent
liabilities have been recorded within their respective captions during fiscal
1998 and resulted in a decrease to stockholders' equity of $1.5 million.
Forward-Looking Statements
Except for the historical information contained herein, the matters discussed in
the following Management's Discussion and Analysis of Results of Operations and
Financial Condition of the Company and elsewhere in this Annual Report on Form
10-K are forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. Words such as "believe",
"anticipate", "estimate", "project", and similar expressions are intended to
identify such forward-looking statements. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of their
respective dates. Forward-looking statements involve risks and uncertainties,
many of which may be beyond the Company's control. Should one or more of these
risks or uncertainties materialize, or should any of the underlying assumptions
prove incorrect, actual results of current and future operations may vary
materially from those anticipated, estimated or projected. Factors that may
cause such a difference include, among others, the following: the ability of the
Company to successfully implement strategies to improve overall profitability;
the completion of the sale of Fuddruckers; 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
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.
[Remainder of page left intentionally blank]
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RESULTS OF OPERATIONS
Overview
The Company incurred an operating loss before income tax benefit and minority
interests of $27.7 million for the fiscal year ended June 28, 1998, compared to
a comparable operating loss of $42.8 million last year. Included in the loss
before income tax benefit and minority interest for fiscal 1998 were impairment,
exit and other charges of $24.6 million. Exclusive of these expense charges, the
Company would have reported a net loss of $3.1 million for fiscal 1998. As
discussed further below, results for the current fiscal year include a net gain
of $0.7 million on the sale of a Champps restaurant. 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, successfully reduce selling, general and
administrative expenses as a percentage of sales from historical levels while
continuing to increase net revenues from its existing and continuing restaurants
and successfully execute its growth strategy for the Champps Americana
restaurant chain. While progress has been made in the current fiscal year in
many of these areas, there can be no assurance that the Company will be able to
achieve profitability at all or on a sustained basis.
On September 24, 1998, the Company announced it had retained Bear Stearns & Co.,
Inc. to assist the Company's board of directors (the "Board") in evaluating and
seeking financial and strategic alternatives, including a possible sale of the
Company. There can be no assurance, however, that the Company will pursue a sale
or any other specific alternative or that it will be able to reach any agreement
or complete any transaction that it may undertake.
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 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.
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.
In recent periods the Company's Fuddruckers restaurant chain has experienced
operational difficulties which have impacted its profitability. The Company also
believes certain of its Fuddruckers locations opened in fiscal 1995, 1996 and
1997 have underperformed principally due to poor real estate selection and, in
certain new markets, consumer confusion over the Fuddruckers core concept of the
"World's Greatest Hamburger". The Company believes such consumer confusion was
due in part to design changes to its restaurants opened in the last three fiscal
29
<PAGE>
years which de-emphasized the Butcher Shop and Bakery which, the Company
believes, resulted in new customers not realizing the quality of the ingredients
and freshness of the products used in making its sandwiches and other menu items
when compared with its competitors. The Company believes it has addressed these
issues for future Fuddruckers locations, although no Company Fuddruckers
restaurants are presently planned to open in fiscal 1999. As discussed further
below and under the caption "The Proposed Fuddruckers Transaction", the Company
has decided to sell its Fuddruckers business in a transaction expected to close
in November, 1998.
Notwithstanding these risks, the Company believes that its near-term strategies,
including, but not limited to, continued expansion of Champps, improving
operational excellence, and anticipated continued lower general and
administrative expenses from historical levels resulting from actions taken
since June 29, 1997 and the effects of the Spin-off, the Proposed Fuddruckers
Transaction, and other related transactions, should provide it with the best
opportunity for improved overall profitability.
Overall Results of Operations
Revenues grew $9.4 million, or 4.6%, to $215.3 million in fiscal 1998 compared
with $205.9 million for fiscal 1997. The increase in revenues, as more fully
explained in the segment discussion which follows, resulted from increases in
Champps revenues offset, in part, by decreases in Fuddruckers and Specialty
Concepts revenues. Cost of sales and operating expenses were essentially
unchanged on a consolidated basis at 90.2% of restaurant sales in fiscal 1998
compared with 89.0% in fiscal 1997. However, each segment's results are
separately discussed below.
The Company recorded impairment, exit and other costs of $24.6 million in fiscal
1998, and $21.7 million in fiscal 1997. Included in the fiscal 1998 amounts were
$1.4 million related to the write-off of net assets and exit costs of the Great
Bagel & Coffee business, $17.9 million related to impairment of Fuddruckers
assets, $4.3 million related to the Company's put/call agreement with respect to
a minority interest in 22 Fuddruckers restaurants, and exit costs of $0.3
million associated with closing two Fuddruckers restaurants and impairment
charges of $0.7 million on Fuddruckers stores sold to a franchisee at year end.
The Company expects to incur additional expenses aggregating $6.1 million in
connection with the Proposed Fuddruckers Transaction which will be incurred and
recorded during the first and second quarter of fiscal 1999. The Company
estimates that approximately $12.3 million of these impairment, exit and other
costs represent future cash outlays.
In the fourth quarter of fiscal 1997, the Company made decisions to close its
non-traditional Specialty Concepts segment restaurants and to close or
refranchise certain underperforming Fuddruckers restaurants which resulted in a
pre-tax charge of approximately $16.2 million. Included in these costs were
charges for impairment to the carrying value of assets closed or refranchised
during fiscal 1998, reacquired franchise rights, lease termination fees and
other exit costs, including severance costs, associated with the restaurants to
be closed.
In fiscal 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," which resulted in a pretax
charge of approximately $3.0 million in 1996. The provision included charges for
impairments to the carrying value of certain restaurant assets, reacquired
franchise rights, investments and certain other assets.
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<PAGE>
Champps
The following table sets forth certain financial information for Champps.
<TABLE>
<CAPTION>
(In thousands)
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Restaurant sales $ 73,387 $ 57,832 $ 41,593
========= ========= =========
Sales from Champps restaurants 100.0% 100.0% 100.0%
Operating expenses:
Labor costs (33.0) (33.0) (33.1)
Product costs (29.0) (28.9) (28.8)
Other operating expenses (27.8) (25.7) (23.2)
Depreciation and amortization (4.0) (8.2) (8.6)
Impairment, exit costs and other charges -- -- (0.2)
Merger costs -- -- (6.3)
--------- --------- ---------
Restaurant unit contribution 6.3% 4.2% (0.2)%
========= ========= =========
Restaurant unit contribution $ 4,622 $ 2,435 $ (74)
Gain on sale of franchise 677 -- --
Franchising and royalty income 644 539 555
--------- --------- ---------
Restaurant unit, franchising and royalty contribution $ 5,943 $ 2,974 $ 481
========= ========= =========
</TABLE>
Comparison of Fiscal Years Ended June 28, 1998 and June 29, 1997
Sales in Champps-owned restaurants increased approximately $15.6 million, or
27%, to $73.4 million for fiscal 1998 compared with $57.8 million a year ago.
The increase primarily reflects three new Champps-owned restaurants in fiscal
1997 opened for the full current fiscal year, four new Champps-owned restaurants
opened during 1998, and higher per restaurant average sales volumes ($5.6
million annually for same stores). Same store sales increased approximately 1%
in 1998.
Restaurant unit contribution, for fiscal 1998 increased approximately $2.2
million to $4.6 million compared with $2.4 million in the preceding year.
Operating margins for 1998 were impacted by lower depreciation offset, in part,
by higher occupancy costs. Other operating expenses in 1998 include preopening
costs directly incurred totaling $1.9 million. Preopening costs incurred in 1997
and prior years were capitalized and amortized over 12 months. Such amortization
expense totaled $1.6 million in 1997 and was included in depreciation and
amortization.
Comparison of Fiscal Years Ended June 29, 1997 and June 29, 1996
Sales in Champps-owned restaurants increased approximately $16.2 million, or
39%, to $57.8 million for fiscal 1997 compared with $41.6 million in 1996. The
increase primarily reflected six new Champps-owned restaurants during 1996
opened for all of 1997, three new Champps-owned restaurants opened in 1997, and
higher per restaurant average sales volumes. Same store sales increased
approximately 1% in 1997.
Restaurant unit contribution, excluding impairment, exit costs and other charges
and merger costs, for fiscal 1997 decreased approximately $0.2 million to $2.4
million compared with $2.6 million a year ago. Operating margins for 1997 were
impacted by higher other operating expenses, primarily occupancy, lease and bank
charges and initial higher operating expenses expressed as a percent of sales
for new restaurants opened in 1997 during their first few months of operations
31
<PAGE>
Fuddruckers
The following table sets forth, for the periods presented, certain financial
information for Fuddruckers.
<TABLE>
<CAPTION>
(In thousands)
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Restaurant sales $ 133,858 $ 137,624 $ 131,592
========== ========== ==========
Sales from Fuddruckers-owned restaurants 100.0% 100.0% 100.0%
Operating expenses:
Labor costs (30.2) (32.8) (31.9)
Product costs (27.1) (28.0) (29.0)
Other operating expenses (32.7) (28.1) (23.3)
Depreciation and amortization (4.2) (6.6) (6.1)
Impairment, exit costs and other charges (16.3) (6.6) (1.9)
---------- ---------- ----------
Restaurant unit contribution (10.5)% (2.1)% 7.8%
---------- ---------- ----------
Restaurant unit contribution $ (14,116) $ (2,952) $ 10,323
Franchising and royalty income 3,763 4,021 6,574
---------- ---------- ----------
Restaurant unit, franchising and royalty contribution $ (10,353) $ 1,069 $ 16,897
---------- ---------- ==========
</TABLE>
Comparison of Fiscal Years Ended June 28, 1998 and June 29, 1997
Sales decreased $3.8 million, or 2.7%, in fiscal 1998 compared with the same
period a year ago. This decrease reflects the impact of the Company closing
eight units in fiscal 1998 pursuant to previously announced plans offset, in
part, by an increase in same store sales of 1%. Restaurant unit contribution,
excluding impairment, exit and other charges, was 5.8% in fiscal 1998 compared
with 4.5% in fiscal 1997. This improvement reflects lower labor costs and
product costs offset, in part, by higher discounts and coupons associated with
the Company's "Kids Eat Free Everyday" promotion from January 1, 1998 to
Memorial Day in fiscal 1998, and its subsequent promotion, "Kids Eat for $.99
Everyday", introduced after Memorial Day. Depreciation and amortization expenses
in fiscal 1998 were lower at 4.2% of sales compared with 6.6% last year and
reflect the impact of insignificant amortization of preopening costs in the
current year compared with $2.2 million a year ago, and closure of certain
restaurants in 1998.
Franchising and royalty income decreased approximately $0.2 million for fiscal
1998. During fiscal 1998, the Company did not execute any international
multi-unit development agreements. Royalty income from domestic franchised
restaurants remained consistent for fiscal 1998 compared to the previous year.
Comparison of Fiscal Years Ended June 29, 1997 and June 29, 1996
Sales from Fuddruckers-owned restaurants increased approximately $6.0 million,
or 4.6%, to $137.6 million for fiscal 1997 compared with $131.6 million for
fiscal 1996. This increase reflects the addition of six new Fuddruckers-owned
restaurants during fiscal 1997 and the impact of a full year of operations of 26
restaurants opened in fiscal 1996, offset by a 6.6% decline in comparable
restaurant sales.
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<PAGE>
Restaurant unit contribution, excluding impairment, exit costs and other
charges, decreased approximately $6.6 million. Operating margins continued to be
negatively impacted by poor sales levels, higher labor and other non-food
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 as a percentage of sales. Changes
between years in labor costs, other non-food operating expenses and depreciation
and amortization expressed as a percent of sales reflect the impact of lower
average sales which reduced the ability of the Company to leverage these
relatively fixed expenses.
Franchising and royalty income decreased approximately $2.6 million for fiscal
1997. During fiscal 1997, the Company did not execute any international
multi-unit development agreements. Royalty income from domestic franchised
restaurants remained consistent for fiscal 1997 compared to 1996.
Specialty Concepts
On June 28, 1998, the Company ceased the operations of its Great Bagel & Coffee
business, which represented the sole remaining business of its former "Specialty
Concepts" segment. This decision resulted in a charge of $1.4 million for exit
costs associated with the termination of leases, severance and write-downs of
fixed assets abandoned. Specialty Concepts has historically included the
operations of the Great Bagel & Coffee Company and the operations of certain
non-traditional foodservice venues such as restaurant operations conducted by
the Company in Home Depot locations under the names Leo's Delicatessen and Fudd
Cafes. During the fourth quarter of fiscal 1997, the Company decided to
terminate its non-traditional restaurant operations leaving only the Great Bagel
& Coffee business operating. The Specialty Concepts segment generated restaurant
sales of $3.3 million in 1998, $5.3 million in 1997, and $2.9 million in 1996.
Selling, General and Administrative Expenses
Comparison of Fiscal Year Ended June 28, 1998 and June 29, 1997
Selling, general and administrative expenses were 9.2% of revenues in fiscal
1998 compared with 15.8% in fiscal 1997. This improvement relates primarily to
head count and other reductions taken in 1998 coupled with the actual costs of
maintaining the corporate overhead of the Company when compared with the
allocation of DAKA International's overhead estimated in fiscal 1997 as
previously discussed. The decrease in the current year also reflects lower
marketing costs at Fuddruckers during 1998 as compared to 1997 as the Company's
strategy in this segment in fiscal 1998 was to utilize the kid's meal promotion
in lieu of marketing.
Comparison of Fiscal Year Ended June 29, 1997 and June 29, 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 $8.4 million to $32.6 million
for fiscal 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. Amounts for 1997 also include
establishment of legal and other reserves.
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<PAGE>
Income Taxes
Prior to July 17, 1997, the operations of the Company were 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 benefit in lieu of
taxes for 1997 and 1996 has been presented as if the Company was a separate
taxpayer. Given the Company's history of losses, no benefit for net operating
losses were recognized in fiscal 1998. The Company's effective tax benefit rate
was approximately 8.7% for 1997, compared with an effective tax benefit rate of
approximately 7.7% for the comparable period of 1996. As of June 28, 1998, the
Company had net operating loss carryforwards of approximately $24.5 million. The
carryforwards expire at various dates through 2012 and a portion of such
carryforwards can only be applied against the taxable income of Fuddruckers and
a portion against the earnings of the Company's 63% owned subsidiary, Atlantic
Restaurant Ventures, Inc.
Accounting Pronouncements Not Yet Adopted
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." In June 1998, the FASB issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities." The Company will adopt SFAS
No.'s 130 and 131 during fiscal year 1999 and SFAS No. 133 during fiscal year
2000. Management does not expect that the adoption of these statements will have
a material impact on the consolidated financial statements.
Year 2000 Compliance
The Company has an Information Technology Steering Committee (the "Committee")
which has been given the assignment of evaluating year 2000 compliance for all
of the Company's primary and mission critical software and hardware assets
("core systems") to correct or mitigate year 2000 compliance exposure. Based on
the Committee's review, the Company has segregated its core systems into the
following categories: consolidated accounting and financial reporting; payroll;
restaurant sales and accounting; data transmission; office support; and banking
services. Except for banking services, the Committee has completed its review of
each of these categories and, as discussed further below, has identified several
areas of non-compliance including Fuddruckers point of sale devices (cash
registers) and payroll processing hardware and software as systems requiring
upgrades and/or replacement in order to be year 2000 compliant.
With respect to consolidated accounting and financial reporting core systems,
the Company utilizes nationally recognized systems such as Oracle, Windows,
Novell and Xcellenet which are, or with readily available upgrades will be, year
2000 compliant. The Company estimates the costs to upgrade these systems are
insignificant and its exposure to catastrophic year 2000 risk to be highly
unlikely.
With respect to its payroll core systems, the Company's version of Ceridian
software and the related hardware are year 2000 deficient. Ceridian and the
Company are working together to provide a solution and the Company expects the
solution to be in place by January 1, 1999. The Company presently estimates the
cost to bring its payroll core systems year 2000 compliant to be approximately
$200,000. The payroll core system is important to the Company's day to day
operations. A failure of the payroll core system will be mitigated, however, by
the reduction in force that will occur after the proposed Fuddruckers
transaction closes. The Company believes that it could manage its payroll
processes manually after the sale is completed.
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<PAGE>
The Company's restaurant sales and accounting core systems are segregated
between Champps and Fuddruckers. The Champps systems are year 2000 compliant.
The Fuddruckers systems will require upgrades of hardware and software which are
currently available and are estimated to cost approximately $250,000. However,
pending the sale of Fuddruckers, no action is planned at this time.
The Company's data transmission and office support core systems are year 2000
compliant in all significant respects. An analysis of the Company's banking
services core systems will be delayed until after the pending Fuddruckers
transaction is completed. The Company believes the size of the remaining
business will greatly reduce any exposure in these core systems.
The Company has not completed its evaluation of year 2000 compliance of its
primary vendors for impact on the Company. However, the Committee does not
believe the Company faces any significant exposure from any vendor year 2000
issues given the availability of inventory, the size and stature of its primary
vendors, and the relatively low technology nature of its business.
FINANCIAL CONDITION AND LIQUIDITY
At June 28, 1998, the Company had a working capital deficiency of $13.9 million.
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. The Company has been unable to
obtain a line-of-credit with a bank during fiscal 1998, although equipment lease
financing was obtained and remains available for future construction projects,
if necessary. Given the Company's plans for the sale 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 for its primary business over the next twelve months. However, should
the Proposed Fuddruckers Transaction fail to close, the effect on the Company's
near-term liquidity could be adversely affected. Nonetheless, the Company
believes its financial resources are sufficient to sustain operations through
fiscal 1999. In the event that such resources are less than anticipated, the
Company has the ability to curtail its Champps expansion program and further
reduce non-essential operating costs to conserve working capital. Further, the
Company believes that certain of its existing restaurant units can be used as
collateral for obtaining loans and could provide working capital within a
relatively short timeframe.
Capital expenditures for restaurant expansion during fiscal 1998 were funded
primarily through $16.5 million of sale-leaseback and equipment financing under
existing facilities and $5.7 million in cash contributions from operations and
proceeds from the sale of property and equipment.
In December 1995, Champps obtained $40.0 million of sale-leaseback financing for
the construction of new Champps restaurants. As of June 28, 1998, the
construction of four Champps restaurants had been fully funded under this
commitment and two had been partially funded. At June 28, 1998, $20.9 million
was available for use. Any unused commitment expires on December 31, 1998.
During the first and second quarters of fiscal 1999, the Company expects to
incur $6.1 million additional expenses related to the Proposed Fuddruckers
Transaction. The Company estimates that it will expend $12.3 million in cash
related to charges recorded during fiscal 1998 and the aforementioned additional
expenses.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
As of June 28, 1998, the Company maintains a portion of its cash and cash
equivalents in financial instruments with original maturities of three months or
less. These financial instruments are subject to interest rate risk, and will
decline in value if interest rates increase. Due to the short duration of these
financial instruments, an immediate 10 percent increase in interest rates would
not have a material effect on the Company's financial condition.
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<PAGE>
The Company's outstanding long-term debt at June 28, 1998 bears interest at
fixed rates; therefore, the Company's results of operations would only be
affected by interest rate changes to the extent that variable rate short-term
notes payable are outstanding. Due to the short-term nature and insignificant
amount of the Company's notes payable, an immediate 10 percent change in
interest rates would not have a material effect on the Company's results of
operations over the next fiscal year.
The Company's put obligations related to an obligations to repurchase the
remaining 37% interest in Atlantic Restaurant Ventures, Inc. ("ARVI") is subject
to market risk if the historical operations of ARVI improve. Based on historical
trends and anticipated continued poor operational performance, the Company
believes that the likelihood of an increase to the minimum put obligation of
$5.4 million is not likely to occur.
Item 8. Financial Statements and Supplementary Data.
The information required under this Item 8 is set forth on pages F-1 through
F-28 of this Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
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<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
Directors of the Registrant
There is incorporated in this Item 10 by reference that portion of the Company's
definitive Proxy Statement relating to its Annual Meeting to be held on or about
January 20, 1999, appearing therein under the captions "Election of Directors"
and "Directors and Committees."
Executive Officers of the Registrant
Certain information is set forth below concerning the executive officers of the
Company, each of whom has been elected to serve until the regular meeting of the
Board of Directors and until his successor is duly elected and qualified. The
executive officers of the Company are as follows:
Name Age Position
- ---- --- --------
Donald C. Moore 44 Director, Chief Executive Officer,
Chief Financial Officer and Treasurer
Donna L. Depoian 38 Vice President,
General Counsel and Secretary
Donald C. Moore has served as Chief Executive Officer and a Director of the
Company since July 21, 1998. He has served as Executive Vice President and Chief
Financial Officer and Treasurer of the Company since June 1998 and was Senior
Vice President and Chief Financial Officer and Treasurer from May 1997. He
served as Senior Vice President and Chief Financial Officer and Treasurer of
DAKA International from January 1997 to May 1997. From November 1995 through
October 1996 he served as Senior Vice President and Chief Financial Officer for
Al Copeland Investments, a multi-business, privately held corporation. From
August 1990 until August 1995 he served principally as Senior Vice President and
Chief Financial Officer of Rally's Hamburgers, Inc., a publicly held multi-unit
quick service hamburger operator and franchiser.
Donna L. Depoian has served as Secretary, Vice President and General Counsel of
the Company since May 1998. She served as Assistant Secretary and Acting General
Counsel from February 1998 to May 1998 and as Assistant Secretary and Corporate
Counsel since July 1997. Ms. Depoian also served as Assistant Secretary and
Corporate Counsel for DAKA International, Inc. since April 1994. From May 1989
to April 1994, she practiced as an attorney for Bass & Doherty, P.C., a Boston
law firm concentrating in business and commercial real estate. From February
1988 to April 1989 she practiced as an attorney for Rossman, Rossman and
Eschelbacher, a Boston based law firm.
Item 11. Executive Compensation.
There is incorporated in this Item 11 by reference that portion of the Company's
definitive Proxy Statement relating to its Annual Meeting to be held on or about
January 20, 1999, appearing therein under the caption "Executive Compensation."
37
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
There is incorporated in this Item 12 by reference that portion of the Company's
definitive Proxy Statement relating to its Annual Meeting to be held on or about
January 20, 1999, appearing therein under the caption "Principal Stockholders."
Item 13. Certain Relationships And Related Transactions.
There is incorporated in this Item 13 by reference that portion of the Company's
definitive proxy statement relating to it Annual Meeting to be held on or about
January 20, 1999, appearing therein under the caption "Certain Relationships and
Related Transactions".
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
The following are being filed as part of this Annual Report on Form 10-K.
A. Financial Statements:
Independent Auditors' Report
Consolidated Balance Sheets - June 28, 1998 and June 29, 1997
Consolidated Statements of Operations - Years ended June 28, 1998, June
29, 1997 and 1996.
Consolidated Statements of Cash Flows - Years ended June 28, 1998, June
29, 1997 and 1996.
Consolidated Statements of Changes in Stockholders' Equity - Years
ended June 28, 1998, June 29, 1997 and 1996.
Notes to Consolidated Financial Statements - Years ended June 28, 1998,
June 29, 1997 and 1996.
B. Financial Statement Schedules:
There are no Financial Statement Schedules required to be filed.
Information required by Article 12 of Regulation S-X with respect to
Valuation and Qualifying Accounts has been included in the Notes to the
Consolidated Financial Statements.
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<PAGE>
C. Exhibits:
* 2.1 Agreement and Plan of Merger, dated as of May 27, 1997, by and among
Compass Interim, Inc. ("Compass Interim"), Compass Holdings, Inc.
("Purchaser"), Compass Group PLC ("Parent") and DAKA International,
Inc. ("DAKA International").
* 2.2 Reorganization Agreement dated as of May 27, 1997, by and among
DAKA International, Daka, Inc. ("Daka"), the Company, Parent and
Compass Holdings, together with certain exhibits thereto.
* 2.3 Agreement and Plan of Merger among Champps Entertainment, Inc.
("Champps"), DAKA and CEI Acquisition Corp., dated as of October 10,
1995, incorporated herein by reference to DAKA's Registration
Statement on Form S-4 (File No. 33-65425) ("1996 DAKA Form S-4").
** 2.4 Series D Convertible Preferred Stock and Warrant Purchase Agreement,
dated as of January 12, 1996, by and among La Salsa Holding Co. and
Casual Dining Ventures, Inc. Pursuant to Item 601(b)(2) of Regulation
S-K, the Schedules to the Series D Convertible Preferred Stock and
Warrant Purchase Agreement are omitted. The Company hereby undertakes
to furnish supplementally a copy of any omitted Schedule to the
Commission upon request.
** 2.5 Stock Purchase Agreement, dated as of March 18, 1996, by and among
Casual Dining Ventures, Inc., DAKA, Champps Development Group, Inc.,
Steven J. Wagenheim, Arthur E. Pew, III, PDS Financial Corporation,
Douglas B. Tenpas and certain other stockholders of Americana Dining
Corp. Pursuant to Item 601(b)(2) of Regulation S-K, the Schedules to
the Stock Purchase Agreement are omitted. The Company hereby
undertakes to furnish supplementally a copy of any omitted Schedule
to the Commission upon request.
** 2.6 Asset Purchase Agreement, dated March 18, 1996, between Americana
Dining Corp., as Seller, and New Brighton Ventures, Inc., as Buyer.
Pursuant to Item 601(b)(2) of Regulation S-K, the Schedules to the
Asset Purchase Agreement are omitted. The Company hereby undertakes
to furnish supplementally a copy of any omitted Schedule to the
Commission upon request.
** 2.7 Stock Purchase Agreement, dated as of March 29, 1996, by and among
DAKA, The Great Bagel & Coffee Franchising Corp., GBC Credit Company,
Gemini Production Facility, Inc., The Great Bagel & Coffee Company,
Mark C. Gordon, Brian H. Loeb, Jason R. Olivier, Michael F. Zerbib,
Nicholas D. Zerbib, and Thierry E. Zerbib. Pursuant to Item 601(b)(2)
of Regulation S-K, the Schedules to the Stock Purchase Agreement are
omitted. The Company hereby undertakes to furnish supplementally a
copy of any omitted Schedule to the Commission upon request.
** 2.8 Stock Purchase Agreement, dated as of March 31, 1996, by and among
Casual Dining Ventures, Inc., DAKA and Edgebrook, Inc. Pursuant to
Item 601(b)(2) of Regulation S-K, the Schedules to the Stock Purchase
Agreement are omitted. The Company hereby undertakes to furnish
supplementally a copy of any omitted Schedule to the Commission upon
request.
* 3.1 Certificate of Incorporation of the Company.
* 3.2 By-laws of the Company
* 3.3 Form of Amended and Restated Certificate of Incorporation of the
Company.
39
<PAGE>
* 3.4 Form of Amended and Restated By-laws of the Company.
3.5 Certificate of Designations, Preferences and Rights of a Series of
Preferred Stock of the Company, dated January 30, 1998, incorporated
herein by reference to the Company's Current Report on Form 8-K filed
February 2, 1998.
4.2 Amended and Restated Shareholder Rights Agreement, dated as of
January 30, 1998, between the Company and American Stock Transfer and
Trust Company, as Rights Agent, incorporated herein by reference to
the Company's Current Report on Form 8-K filed February 2, 1998.
* 4.1 Specimen Stock Certificate for shares of the UCRI Common Stock.
* 10.1 Tax Allocation Agreement dated as of May 27, 1997, by and among DAKA,
the Company, and Parent.
* 10.2 Post-Closing Covenants Agreement, dated as of May 27, 1997, by and
among DAKA, Daka, Inc., the Company, Champps, Fuddruckers, Inc.,
Purchaser and Parent.
* 10.3 Stock Purchase Agreement, dated as of May 26, 1997, between DAKA,
Parent, Purchaser, First Chicago Equity Corporation, Cross Creek
Partners I and the other holders of Series A Preferred Stock of DAKA.
* 10.4 Form of the Company's 1997 Stock Option and Incentive Plan.
* 10.5 Form of the Company's 1997 Stock Purchase Plan.
* 10.6 Form of Indemnification Agreement, by and between the Company and
directors and officers of DAKA.
* 10.7 Employment Agreement, dated as of January 1, 1997, by and between
DAKA and William H. Baumhauer.
* 10.8 Employment Agreement, dated as of January 1, 1997, by and between
DAKA and Allen R. Maxwell.
* 10.9 Employment Agreement, dated as of February 21, 1996, by and among
Dean P. Vlahos, DAKA and Champps.
**10.10 Third Amended and Restated Registration Rights Agreement, dated
as of January 12, 1996, by and among La Salsa Holding Co., FMA High
Yield Income L.P., WSIS Flexible Income Partners L.P., WSIS High
Income L.P., Howdy S. Kabrins, La Salsa, Inc., Crown Associates III,
L.P., Crown-Glynn Associates, L.P., Nueberger & Berman as Trustee for
the Crown Trust, Theodore H. Ashford, Noro-Moseley Partners II, L.P.,
Seidler Salsa, L.P., Bankers Trust Company as Master Trustee for
Hughes Aircraft Retirement Plans, Charles A. Lynch, Sienna Limited
Partnership I, Sienna Limited Partnership II, Sienna Holdings, Inc.,
as Nominee, InterWest Partners IV, Donald Benjamin, Vicki Tanner,
Ronald D. Weinstock, Inc., Frank Holdraker, and Casual Dining
Ventures, Inc.
40
<PAGE>
**10.11 Fourth Amended and Restated Restricted Stock Agreement, dated as
of January 12, 1996, by and among La Salsa Holding Co., Howdy S.
Kabrins, La Salsa, Inc., InterWest Partners IV, Sienna Holding, Inc.,
Sienna Limited Partnership I, Charles A. Lynch, Theodore H. Ashford,
Crown Associates III, L.P., Crown-Glynn Associates, L.P., Nueberger &
Berman as Trustee for The Crown Trust, Noro-Moseley Partners II,
L.P., Seidler Salsa, L.P., Bankers Trust Company, as Master Trustee,
for Hughes Aircraft Retirement Plans, FMA High Yield Income L.P.,
WSIS Flexible Income Partners L.P., WSIS High Yield Income L.P.,
Sienna Limited Partnership II, Donald Benjamin, Vicki Tanner, Ronald
D. Weinstock, Inc., Frank Holdraker, and Casual Dining Ventures, Inc.
**10.12 La Salsa Holding Co. Warrant to Purchase Shares of Series D
Convertible Preferred Stock, dated as of January 12, 1996, issued to
Casual Dining Ventures, Inc. by La Salsa Holding Co.
**10.13 Severance, Non-Competition and Confidentiality Agreement, dated as
of March 18, 1996, between Steven J. Wagenheim and Americana Dining
Corp.
**10.14 La Salsa License Agreement, dated as of February 14, 1996, by and
between La Salsa Franchise, Inc. and La Salsa Holding Co.
10.15 Separation Agreement, dated as of February 2, 1998, by and among Dean
P. Vlahos, the Company and Champps.
10.16 Asset Purchase Agreement, dated as of February 2, 1998, by and
between Dean P. Vlahos and Champps.
10.17 Champps Restaurant Development Agreement, dated as of February 2,
1998, by and between Dean P. Vlahos and Champps.
10.18 Venturino Settlement Agreement, dated as of December, 1997, by and
among Rita Venturino, Cosmos Phillips and Matthew Minogue, et. al.
and DAKA International, Inc. and William H. Baumhauer.
10.19 Stock Purchase Agreement, dated as of July 31, 1998, by and between
King Cannon, Inc. and Unique Casual. Restaurants, Inc.
10.20 Employment Agreement, dated as of August 12, 1998, by and between
Unique Casual Restaurants, Inc. and Donald C. Moore.
21.1 Subsidiaries of the Company.
23.1 Consent of Deloitte & Touche LLP
24.1 Powers of Attorney.
* Incorporated herein by reference to the Company's Registration Statement
on Form 10 filed June 3, 1997, as amended.
** Incorporated herein by reference to the Annual Report on Form 10-K of DAKA
International for the year ended June 29, 1996.
D. Reports on Form 8-K
Not applicable.
41
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
UNIQUE CASUAL RESTAURANTS, INC.
(Registrant)
By: /s/Donald C. Moore
Donald C. Moore
Director, Chief Executive Officer,
Chief Financial Officer and Treasurer
(Principal Executive, Financial and
Accounting Officer)
Date: October 9, 1998
Pursuant to the requirement of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant, and
in the capacities and on the date indicated.
Signature Title
E. L. Cox* Chairman of the Board
Joseph W. O'Donnell* Director
Erline Belton* Director
Alan D. Schwartz* Director
/s/Donald C. Moore Director, Chief Executive Officer,
- ------------------------ Chief Financial Officer and Treasurer
Donald C. Moore (Principal Executive, Financial and
Accounting Officer)
*By: /s/Donna L. Depoian Date: October 9, 1998
--------------------
Donna L. Depoian
Attorney-In-Fact
42
<PAGE>
INDEPENDENT AUDITORS' REPORT
Unique Casual Restaurants, Inc.:
We have audited the accompanying consolidated balance sheets of Unique Casual
Restaurants, Inc. and subsidiaries as of June 28, 1998 and June 29, 1997 and the
related consolidated statements of operations, cash flows and changes in
stockholders' equity for each of the three years in the period ended June 28,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the companies as of June 28, 1998
and June 29, 1997 and the results of their operations and their cash flows for
each of the three years in the period ended June 28, 1998, in conformity with
generally accepted accounting principles.
As discussed in Note 4 to the consolidated financial statements, during the year
ended June 28, 1998, the Company adopted the provisions of Statement of Position
98-5, "Reporting on the Costs of Start-up Activities."
Deloitte & Touche LLP
Boston, Massachusetts
October 2, 1998
F-1
<PAGE>
UNIQUE CASUAL RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
As of June 28, 1998 and June 29, 1997
(In thousands)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents (overdraft) $ (646) $ 172
Restricted cash (Note 4) 2,602 5,000
Accounts receivable, net 2,652 4,376
Inventories (Note 4) 4,168 3,975
Prepaid expenses and other current assets 1,567 1,387
-------- --------
Total current assets 10,343 14,910
Property and equipment, net (Note 7) 73,723 94,673
Investments (Note 6) 5,000 5,000
Other assets, net (Note 9) 3,480 10,626
-------- --------
Total assets $ 92,546 $125,209
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 10,811 $ 10,397
Accrued expenses (Note 10) 9,418 11,548
Accrued transaction costs (Note 4) 1,800 6,347
Current portion of long-term debt (Note 8) 2,209 1,102
-------- --------
Total current liabilities 24,238 29,394
Long-term debt, net of current portion (Note 8) 4,757 4,026
Other long-term liabilities 7,753 11,636
-------- --------
Total liabilities 36,748 45,056
-------- --------
Minority interests and obligations under put agreement (Note 12) 5,400 1,100
-------- --------
Commitments and contingencies (Note 12)
Stockholders' equity (Note 2):
Group equity -- 79,053
Common stock ($.01 par value per share; authorized 30,000
shares and 11,593 and 1 issued and outstanding at June 28, 1998,
and June 29, 1997, respectively) 116 --
Additional paid-in capital 78,017 --
Accumulated deficit (27,735) --
-------- --------
Total stockholders' equity 50,398 79,053
-------- --------
Total liabilities and stockholders' equity $ 92,546 $125,209
======== ========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
UNIQUE CASUAL RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Years Ended June 28, 1998, June 29, 1997 and 1996
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues:
Sales $ 210,569 $ 200,741 $ 176,050
Franchising and royalty income 4,752 5,143 7,705
--------- --------- ---------
Total 215,321 205,884 183,755
--------- --------- ---------
Costs and expenses:
Cost of sales and operating expenses 189,834 178,638 148,155
Selling, general and administrative expenses 19,859 32,603 24,181
Depreciation and amortization 8,724 15,547 12,136
Impairment, exit costs and other charges 24,625 21,671 3,026
Gain on sale of restaurant to related party (Note 3) (677) -- --
Merger costs -- -- 2,900
Interest expense 494 744 641
Interest income (790) (487) (353)
--------- --------- ---------
Total 242,069 248,716 190,686
--------- --------- ---------
Loss before income tax benefit, minority interests and cumulative
effect of change in accounting for
preopening costs (26,748) (42,832) (6,931)
Income tax benefit -- (3,721) (536)
Minority interests -- (68) (725)
--------- --------- ---------
Loss before cumulative effect of change in accounting for
preopening costs (26,748) (39,043) (5,670)
Cumulative effect of change in accounting for preopening costs (Note 4) (987) -- --
--------- --------- ---------
Net loss $ (27,735) $ (39,043) $ (5,670)
========= ========= =========
Basic and diluted loss per share before cumulative effect of
change in accounting for preopening costs $ (2.33)
Cumulative effect per share of change in accounting for
preopening costs (0.08)
---------
Basic and diluted loss per share $ (2.41)
=========
Pro forma basic and diluted loss per share $ (3.42)
=========
Weighted average shares outstanding 11,489
Pro forma weighted average shares outstanding 11,425
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
UNIQUE CASUAL RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Years Ended June 28, 1998, June 29, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(27,735) $(39,043) $ (5,670)
Cumulative effect of change in accounting for preopening costs 987 -- --
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 10,227 15,547 12,136
Non-cash compensation 265 -- --
Gain on sale of property and equipment (56) -- --
Gain on sale of restaurant to related party (677) -- --
Impairment, exit costs and other charges 24,625 21,671 3,026
Deferred income taxes -- 454 763
Minority interests -- (68) (725)
Changes in assets and liabilities, net of acquisitions and impairments:
Restricted cash 2,398 (5,000) --
Accounts receivable, net 314 1,133 (2,733)
Inventories (193) (1,312) (855)
Prepaid expenses and other assets (4,838) (1,428) (7,849)
Accounts payable and accrued expenses (6,263) 8,481 (845)
Other long-term and deferred liabilities 2,473 398 1,385
-------- -------- --------
Net cash provided by (used in) operating activities 1,527 833 (1,367)
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment (7,318) (23,865) (51,572)
Proceeds from sale of restaurant to related party 1,515 -- --
Investment in affiliate -- -- (5,000)
-------- -------- --------
Net cash used in investing activities (5,803) (23,865) (56,572)
-------- -------- --------
Cash flows from financing activities:
Proceeds from equipment financing 3,642 -- --
Proceeds from sale-leaseback facility 1,338 11,489 18,651
Proceeds from issuance of common stock 343 -- --
Contributed capital -- 9,080 39,932
Repayments of long-term debt (Note 8) (1,865) (2,646) (1,090)
-------- -------- --------
Net cash provided by financing activities 3,458 17,923 57,493
-------- -------- --------
Net decrease in cash and cash equivalents (818) (5,109) (446)
Cash and cash equivalents, beginning of year 172 5,281 5,727
-------- -------- --------
Cash and cash equivalents (overdraft), end of year $ (646) $ 172 $ 5,281
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
UNIQUE CASUAL RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Fiscal Years Ended June 29, 1996 and 1997 and June 28, 1998
(Amounts in thousands)
<TABLE>
<CAPTION>
Additional
Common Paid-in Accumulated Group
Shares Stock Capital Deficit Equity Total
------ ----- ------- ------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1995 -- $ -- $ -- $ -- $ 73,979 $ 73,979
Contributed capital:
Cash -- -- -- -- 39,932 39,932
Non-cash -- -- -- -- 653 653
Net loss -- -- -- -- (5,670) (5,670)
--------- --------- --------- --------- --------- ---------
Balance, June 29, 1996 -- -- -- -- 108,894 108,894
Contributed capital:
Cash -- -- -- -- 9,080 9,080
Non-cash -- -- -- -- 122 122
Net loss -- -- -- -- (39,043) (39,043)
Common shares issued 1 -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Balance, June 29, 1997 1 -- -- -- 79,053 79,053
Net liabilities contributed by
former Parent -- -- -- -- (1,528) (1,528)
Common stock issued in connection
with distribution by former
Parent 11,425 114 77,411 -- (77,525) --
Common shares issued 167 2 606 -- -- 608
Net loss -- -- -- (27,735) -- (27,735)
--------- --------- --------- --------- --------- ---------
Balance, June 28, 1998 11,593 $ 116 $ 78,017 $ (27,735) $ -- $ 50,398
========= ========= ========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
UNIQUE CASUAL RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Years Ended June 28, 1998, June 29, 1997 and 1996
1. Background, Basis of Presentation and Description of Business
Background
Unique Casual Restaurants, Inc. (the "Company") is a Delaware corporation formed
on May 27, 1997 which was spun-off to holders of the common stock of DAKA
International, Inc. ("DAKA International") pursuant to the transactions
described below in Note 2 (the "Spin-off" or "Spin-off Transaction"). The
Company's principal business activities are to own and operate the restaurant
operations previously operated by various subsidiaries and divisions of DAKA
International prior to the formation and the Spin-off of the Company.
Basis of Presentation
The accompanying consolidated financial statements for fiscal 1998 include the
accounts of Fuddruckers, Inc. ("Fuddruckers"), Champps Entertainment, Inc.
("CEI" or "Champps"), The Great Bagel & Coffee Company ("Great Bagel & Coffee"),
Casual Dining Ventures, Inc. ("CDVI"), Atlantic Restaurant Ventures, Inc.
("ARVI") and Restaurant Consulting Services, Inc. ("RCS") (collectively, the
"Spun-off Operations"). The historical DAKA International basis in the assets
and liabilities of the Spun-off Operations transferred to the Company in
connection with the transactions described in Note 2 have been recorded as the
Company's initial cost basis. The accompanying 1996 and 1997 financial
statements are combined financial statements which present the combined
financial position, results of operations and cash flows of the Spun-off
Operations in a manner similar to a pooling-of-interests. Minority stockholders'
equity in earnings (losses) of less than 100% owned subsidiaries is presented as
minority interests in the accompanying consolidated financial statements (see
Note 10). Significant intercompany balances and transactions have been
eliminated in consolidation.
Business Activities of the Company
The Company's Fuddruckers and Champps operations serve customers in casual and
upscale restaurant settings, respectively, throughout the United States, Canada,
and the Middle East. Restaurant operations are conducted through Company-owned
and franchised stores. The Great Bagel & Coffee operations provided coffee,
bagels and sandwich items in a cafe setting in western locations of the United
States. As discussed more fully in Note 3, the Company ceased all operations of
the Great Bagel & Coffee Company on June 28, 1998. Also, as discussed more fully
in Note 3, on July 31, 1998, the Company agreed to sell, subject to shareholder
approval, its Fuddruckers subsidiaries to King Cannon, Inc. for $43.0 million,
subject to adjustment, in a transaction expected to close in November 1998. As a
result, the operations of the Company in the future are expected to be primarily
the ownership, operations and franchising of Champps.
At June 28, 1998, the Company had a working capital deficiency of $13.9 million.
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. The Company has been unable to
obtain a line-of-credit with a bank during fiscal 1998, although equipment lease
financing was obtained and remains available for future construction projects,
if necessary. Given the Company's plans for the sale 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 for its primary business over the next twelve months. However, should
the Fuddruckers transaction fail to close, the effect on the Company's near-term
liquidity could be adversely affected. Nonetheless, the Company believes its
financial resources are sufficient to sustain operations through fiscal 1999. In
the event that such resources are less than anticipated, the Company has the
ability to curtail its Champps expansion program and further reduce
non-essential operating costs to conserve working capital. Further, the Company
believes that certain of its existing restaurant units can be used as collateral
for obtaining loans and could provide working capital within a relatively short
timeframe.
F-6
<PAGE>
Subsequent to June 28, 1998, the Company announced it had retained Bear Stearns
& Co., Inc. to assist the Board of Directors in evaluating and seeking strategic
alternatives for the Company in light of the pending Fuddruckers transaction,
including a possible sale of the Company. There can be no assurance, however,
that the Company will pursue a sale or any other specific alternative or that it
will be able to reach any agreement or complete any transaction that it may
undertake.
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, a wholly-owned subsidiary of Compass Holdings, Inc., a Delaware
corporation, a wholly-owned subsidiary of Compass Group PLC (collectively
"Compass"), pursuant to which Compass 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"). The Offer was
consummated on July 17, 1997 (the "Spin-off Transaction Date"). 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 made
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 which were contributed to the Company.
During 1998, certain remaining non-restaurant operating assets and liabilities
of DAKA International were also contributed to the Company (the "Additional
Capital Contribution") consisting of notes receivable, property and equipment,
and accounts payable, accrued expenses and certain contingent liabilities. These
assets and liabilities resulted in a net decrease to group equity of
approximately $1.5 million and have been recorded within their respective
captions during fiscal 1998.
Following the consummation of the Offer, Compass merged with and into DAKA
International. Pursuant to the Offer, DAKA International distributed to each
holder 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
stockholder (the "Distribution"). No consideration was paid by DAKA
International's stockholders for the shares of the Company's common stock. As a
result of the Distribution, the Company ceased to be a subsidiary of DAKA
International and began operating as an independent, publicly-held company on
July 17, 1997.
Effective July 1, 1997, the Company entered into a sale and services agreement
with RCS whereby the Company sold to RCS for an aggregate purchase price of $2.3
million certain data processing equipment. The purchase price will be satisfied
through the repayment of a promissory note due June 30, 2002 which bears
interest at 6% per annum. The promissory note was contributed to the Company as
part of the Additional Capital Contribution. The Company also received DAKA
International's 50% interest in RCS at the Spin-off Transaction Date. In
connection with this sale, the Company has entered into a management agreement
with RCS whereby the Company has agreed to provide certain managerial services
to RCS. In addition, the Company has entered into a two year service agreement
with RCS for data processing and consulting services for an annual fee of $1.8
million. The Company consolidates RCS' operations until such time as the
obligations of RCS to the Company are satisfied.
F-7
<PAGE>
3. Acquisition and Disposition Transactions
Pending Sale of Fuddruckers
On July 31, 1998, the Company agreed to sell all of the issued and outstanding
stock of Fuddruckers, Inc. and subsidiaries to King Cannon, Inc. (the
"Fuddruckers Sale"). The purchase price for Fuddruckers is $43.0 million,
subject to certain adjustments based on, among other things, the level of
Fuddruckers fiscal 1998 earnings before interest, taxes, depreciation and
amortization (EBITDA), calculated pursuant to the Stock Purchase Agreement, and
closing date working capital. The transaction is subject to the Company's
stockholders' approval and certain other closing conditions. The Company expects
the transaction will close in November, 1998, although there can be no assurance
that the transaction will close.
Pursuant to the Stock Purchase Agreement, the Company has agreed to settle
certain cash obligations not assumed by the buyer, including equipment lease
termination costs. Such expenses are expected to aggregate $6.1 million and will
be recorded as incurred during the first and second quarters of fiscal 1999.
Closure of Great Bagel and Coffee
On June 28, 1998, the Company ceased all operations of the Great Bagel & Coffee
business. Previously, on December 30, 1997, Great Bagel & Coffee had acquired
the assets and liabilities of one of its former franchisees, then operating a
commissary and eight Great Bagel & Coffee restaurants in Phoenix, Arizona. The
Company had hoped that this transaction would help Great Bagel & Coffee improve
sales and margins, and also provide the best opportunity for a possible sale of
the business. However, the business did not improve and no buyer or strategic
partner could be located. Accordingly, a decision was reached to close the
business. The Company has recorded impairment and exit costs associated with
this decision of $1.4 million in the accompanying consolidated financial
statements. Of this amount, $200,000 is estimated to represent future cash
obligations.
Other Transactions
On March 31, 1996, DAKA International entered into separate Stock Purchase
Agreements (the "Stock Agreements") with two stockholders of Americana Dining
Corporation ("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 $1.3 million 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 of $1.2 million 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.
F-8
<PAGE>
On February 2, 1998, the Company sold a Champps restaurant in Minnetonka,
Minnesota to Dean Vlahos, a former Director of the Company and the former
President and Chief Executive officer of Champps Americana, Inc., for $2.9
million representing the fair value of the restaurant based upon an independent
appraisal. The purchase price was settled through a cash payment by Mr. Vlahos
of $1.5 million and the cancellation of Mr. Vlahos' employment contract. The
Company recognized a net gain of approximately $700,000 on this transaction.
4. Summary of Significant Accounting Policies
Fiscal Year
Beginning in fiscal 1997, the Company's fiscal year ends on the Sunday closest
to June 30th. Prior to fiscal 1997, the Company's fiscal year ended on the
Saturday closest to June 30th. For purposes of these notes to the consolidated
financial statements, the fiscal years ended June 28, 1998, June 29, 1997 and
1996 are referred to as 1998, 1997 and 1996, respectively. Fiscal 1998, 1997 and
1996 each contain 52 weeks.
Allocation of Certain Expenses
The 1997 and 1996 operations of the Spun-off 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
consolidated financial statements were 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 $9.8 million and $7.8 million for 1997 and
1996, respectively. Management believes these allocations were made on a
reasonable basis. However, the accompanying 1997 and 1996 consolidated financial
statements may not necessarily be indicative of the conditions that would have
existed, the financial position, or results of operations, if the Spun-off
Operations had been operated as a separate entity.
The accompanying 1997 and 1996 consolidated financial statements do not include
an allocation of interest expense associated with DAKA International's revolving
line-of-credit agreements as such obligations were assumed by Compass pursuant
to the terms of the Spin-off Transaction. Interest on long-term obligations
transferred to the Company has been included in the Company's 1997 and 1996
consolidated statement of operations.
Significant Estimates
In the process of preparing its consolidated financial statements in accordance
with generally accepted accounting principles, 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 consolidated financial statements include allowances for potential bad
debts on accounts and notes receivable, the useful lives and recoverability of
its assets such as property, equipment 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 consolidated
financial position or the results of operations.
F-9
<PAGE>
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.
The Company's allowance for uncollectible accounts receivable and related bad
debt expense are not material for each period presented.
Cash Equivalents and Restricted Cash
Cash equivalents consist of highly liquid investments with a maturity of three
months or less at date of purchase. These investments are carried at cost, which
approximates fair value. The Company placed certificates of deposit to serve as
cash collateral for stand-by letters of credit in the amount of $2.6 million and
$5.0 million at June 28, 1998 and June 29, 1997, respectively. Such collateral
commitments begin to expire during 1999 and accordingly they have been
classified as current assets in the accompanying consolidated financial
statements.
Inventories
Inventories are stated at the lower of cost, principally 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.
Approximately 80% of the Company's food products and supplies are purchased
under a distribution contract with Sysco Corporation.
The components of inventories are as follows:
(In thousands)
1998 1997
---- ----
Food and liquor products $ 1,252 $ 1,234
Smallwares 2,185 1,871
Supplies 731 870
-------- --------
$ 4,168 $ 3,975
======== ========
Prepaid Expenses and Other Current Assets
Through June 29, 1997, the Company had capitalized direct incremental preopening
costs associated with the opening of new or the expansion and major remodeling
of existing restaurants with such costs being amortized over twelve months. In
April 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-5, "Reporting on the Costs of Start-up
Activities" ("SOP 98-5") which requires companies to expense all costs
associated with preopening activities. The effect of adopting the provisions of
SOP 98-5 during 1998 was to expense approximately $987,000 of capitalized costs
existing at June 29, 1997 as of June 30, 1997. The Company has reported this
expense as the cumulative effect of an accounting change in the accompanying
consolidated financial statements.
F-10
<PAGE>
Property and Equipment
Property and equipment is stated at cost. The cost assigned to assets acquired
in connection with acquisition transactions 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 initial lease term, contract
term or the estimated useful life. Useful lives range from 15 to 30 years for
buildings and leasehold improvements and three to ten years for equipment.
Accrued Transaction Costs
Accrued Transaction costs included legal, accounting and other costs associated
with completing the Spin-off Transaction at June 28, 1998 and June 29, 1997.
Accrued Insurance Costs
The Company has purchased commercial insurance to cover workers' compensation,
general liability, and various other risks for claims incurred after June 29,
1997. Through June 29, 1997, the Company was self-insured for workers'
compensation, general liability, and various other risks up to specified limits.
The Company's share of prior workers' compensation and general liability
programs of DAKA International through June 29, 1997 were allocated using labor
costs and the aggregate costs of such programs were determined through actuarial
studies which determined the estimated amount required to be provided for
incurred incidents. In connection with the Spin-off Transaction, the Company is
obligated to indemnify Compass for all claims arising subsequent to the Spin-off
Transaction, including claims related to employees of DAKA International not
continuing with the Company after the Spin-off Transaction, that relate to
events occurring prior to the Spin-off Transaction Date. The Company believes
that any claims related to its obligation to further indemnify Compass after
June 28, 1998 are not material.
Other Long-Term Liabilities
Other long-term liabilities are comprised of deferred royalty buy-down payments,
the liability under long-term incentive compensation plan, deferred rent
liabilities and management's estimate of the non-current portion of the
liability related to the Company's workers' compensation and general liability
self-insurance program.
Deferred Rent Assets and Liabilities
Deferred rent assets, included in other assets, represent the difference between
the cost and the net proceeds received from 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
Prior to the Distribution, group equity represented the net intercompany
activities between the Company and DAKA International. As of June 29, 1997, the
Company had issued 1,000 shares of its common stock, par value $.01 per share,
to DAKA International for $.01 in connection with its formation. Such shares
were reported within group equity for purposes of the 1997 consolidated
financial statements.
F-11
<PAGE>
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 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 for each unit opened. 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 $438,000, $690,000 and
$3,406,000 during 1998, 1997 and 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 $4,314,000, $4,453,000 and $4,299,000
during 1998, 1997, and 1996, respectively.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the future tax
consequences attributable to differences between the carrying value for
financial reporting purposes and the tax basis of assets and liabilities in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes." Deferred tax assets and liabilities are recorded
using the enacted tax rates expected to apply to taxable income in the years in
which such differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities, resulting from a change in tax rates, is
recognized as a component of income tax expense (benefit) 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.
Prior to the Distribution, the Spun-off Operations were 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 the 1997 and 1996 financial statements, a credit in lieu of taxes has been
presented as if the Company was a stand alone taxpayer. Current income tax
liabilities (assets) were considered to have been paid (received) from DAKA
International and were recorded through the group equity account.
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 Spin-off
Transaction Date as well as any tax consequences resulting from the Spin-off
Transaction. The Company believes that any amounts due to Compass under this
indemnification agreement after June 28, 1998, if any, will not be material.
F-12
<PAGE>
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
Accounting Principles Board ("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 has elected to disclose the required pro
forma effect on results from operations and net income (loss) per share.
Options to purchase shares of DAKA International common stock held by employees
remaining with the Company after the Distribution was converted into options to
purchase shares of the Company's common stock in accordance with Emerging Issues
Task Force Abstract 90-9 and, accordingly, such conversion had no effect on the
Company's consolidated financial position or results of operations.
During 1998, the Company recorded compensation expense of $236,000 related to
the repurchase from certain option holders of an aggregate of 172,044 common
stock options at of $1.37 per option.
Cash Flow Information
Through the Distribution, the Company participated in DAKA International's
centralized cash management system. As a result, the amount reported as cash in
the accompanying 1997 and 1996 consolidated 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 aggregated $494,000, $454,000 and $641,000 in 1998,
1997 and 1996, respectively.
Capital lease obligations of $1,605,000 and $3,447,000 were incurred when the
Company entered into leases for new restaurant and office equipment in 1997 and
1996, respectively.
Significant other non-cash investing and financing transactions are as follows:
1998
The Company entered into direct financing operating leases totaling
$16.5 million.
Certain non-restaurant operating assets and liabilities were
contributed to the Company in connection with the Spin-off Transaction
resulting in a net decrease to stockholders' equity of $1,528,000.
The Company also increased its obligations under a minority interest
put obligation by $4.3 million.
1997
The Company sold a restaurant under construction with a book value of
$1,205,000, in exchange for a $1,200,000 promissory note.
1996
The Company sold a restaurant with a book value of $1,306,000, in
exchange for a $1,280,000 promissory note.
F-13
<PAGE>
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 11,593,000 and 1,000 shares were issued and outstanding
as of June 28, 1998 and June 29, 1997, respectively, and 5,000,000 shares of
preferred stock, of which no shares are issued and outstanding. Approximately
11,425,000 shares were issued upon the consummation of the Spin-off Transaction.
During 1998 the Company adopted SFAS No. 128, "Earnings per Share." The pro
forma loss per share for 1997 was computed using the weighted average number of
shares outstanding as of June 29, 1997 for DAKA International after giving
effect to the conversion, in connection with the Spin-off Transaction, of
11,912,000 shares of convertible preferred stock into 264,701 additional shares
of common stock.
For purposes of the fiscal 1998 earnings per share calculations, stock options
have been excluded from the diluted computation as they are anti-dilutive. Had
such options been included in the computation. The weighted average shares would
have increased by approximately 166,000.
Impairment of Long-Lived Assets, Exit Costs and Other Charges
The Company evaluates 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 in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." 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 1998, the Company recorded a provision of $24.6 million of which $17.9
million represents the impairment of certain Fuddruckers assets, $4.3 million
relates to the Company's put/call agreement with respect to a minority interest
in 22 Fuddruckers restaurants, $1.4 million represents exit costs associated
with closing the Great Bagel & Coffee business, and $1.0 million relates to the
exit costs for two closed stores and the disposition of two stores.
In 1997, the Company recorded a provision of $21.7 million of which $13.7
million represented impairment of net assets at restaurants which had been or
were to be closed, $2.6 million related to exit costs associated with lease
settlements and identified employee termination benefits, and $5.4 million
consisting primarily of legal costs associated with the Spin-off and the sale of
the Foodservice business.
In 1996, the Company recorded an approximate $3.0 million provision for
impairments to the carrying value of certain restaurant assets, reacquired
franchise rights, and certain other assets.
Reclassifications
Certain amounts in the 1997 and 1996 consolidated financial statements have been
reclassified to conform to the 1998 presentation.
F-14
<PAGE>
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Accounting Financial Standards ("SFAS") No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." In June 1998, the FASB issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities." The Company will adopt SFAS
No.'s 130 and 131 during fiscal year 1999, and SFAS No. 133 during fiscal year
2000 and does not expect that the adoption of these statements will have a
material impact on the consolidated financial statements.
5. Merger with Champps and Great Bagel & 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 $49,634,000 on the merger
date. On April 3, 1996, DAKA International merged with Great Bagel & Coffee
whereby DAKA International exchanged 339,236 shares of its common stock valued
at approximately $8,566,000 for all outstanding shares of Great Bagel & Coffee
common stock (collectively the "1996 Mergers" and the "1996 Merged Companies").
The 1996 Mergers were accounted for as poolings-of-interests and, accordingly,
the accompanying 1996 financial statements include the accounts of Champps and
Great Bagel & Coffee for all periods presented.
In connection with the 1996 Mergers, the Company recorded a charge for merger
costs of $2,900,000. 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.
Transactions between the Company and the Merged Companies prior to the Mergers
were not significant. The Company did not record an adjustment to conform the
accounting policies of the Merged companies to the Company's, as such policies
were generally comparable.
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 operator of La Salsa Mexican
restaurants for approximately $5.0 million. 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.
Warrants to acquire shares of convertible redeemable preferred stock a 13.3%
equity interest for approximately $7.1 million expired during fiscal 1997. The
Company accounts for its investment in La Salsa on the cost method as the
Company does not have the ability to exercise significant influence or control.
F-15
<PAGE>
7. Property, Plant and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
(In thousands)
1998 1997
---- ----
<S> <C> <C>
Land $ 5,861 $ 8,039
Buildings and leasehold improvements 68,647 82,260
Equipment 34,978 35,084
Construction in progress 549 --
--------- ---------
110,035 125,383
Accumulated depreciation (36,312) (30,710)
--------- ---------
$ 73,723 $ 94,673
========= =========
</TABLE>
Interest costs incurred by DAKA International during the construction of new, or
the expansion and major remodeling of existing restaurants were 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 1997 and 1996, $122 and $653,
respectively, of DAKA International interest costs were capitalized. No interest
costs were capitalized in 1998.
8. Long-Term Debt
The components of long-term debt are as follows:
<TABLE>
<CAPTION>
(In thousands)
1998 1997
---- ----
<S> <C> <C>
Notes payable $ 439 $ 442
Capital lease obligations 6,527 4,686
------- -------
6,966 5,128
Less current portion (2,209) (1,102)
------- -------
Total $ 4,757 $ 4,026
======= =======
</TABLE>
Maturities of long-term debt, including capital lease obligations, at June 28,
1998 are as follows:
(In thousands)
1999 $ 2,209
2000 1,954
2001 1,665
2002 673
2003 465
-------
$ 6,966
=======
In connection with the Spin-off Transaction, Compass assumed $110 million of the
outstanding DAKA International debt, the security interests in the Company's
assets were released in connection with the Spin-off Transaction, the Company
has pledged eight Fuddruckers restaurants, furniture, fixtures and equipment of
certain Champps and Fuddruckers restaurants and future royalties as collateral
to creditors and to Compass pending the Company's release of certain guarantees
(see Note 11) and the Company's payment of deposits and trade payables which
will be satisfied at the close of the Fuddruckers sale.
F-16
<PAGE>
9. Other Assets
The components of other assets are as follows:
<TABLE>
<CAPTION>
(In thousands)
1998 1997
---- ----
<S> <C> <C>
Preopening costs, net $ -- $ 987
Reacquired franchise rights (1) -- 2,862
Notes receivable 2,427 4,558
Deferred rent (1) -- 1,983
Other 1,053 1,528
-------- --------
3,480 11,918
Less accumulated amortization -- (1,292)
-------- --------
$ 3,480 $ 10,626
======== ========
</TABLE>
Notes receivable include two notes from franchisees bearing interest at 8.5% and
10%, require monthly payments and interest, and mature in 2003 and 2004.
(1) Certain other assets at June 28, 1998, are recorded at their net book
value after giving effect for the impairments charges recorded during
1998 (see Note 4).
10. Accrued Expenses
The components of accrued expenses are as follows:
<TABLE>
<CAPTION>
(In thousands)
1998 1997
---- ----
<S> <C> <C>
Salaries, wages and related taxes $ 4,258 $ 4,163
Taxes 2,722 3,511
Other 2,438 3,874
------- -------
$ 9,418 $11,548
======= =======
</TABLE>
11. Income Taxes
The income tax benefit is comprised of the following:
<TABLE>
<CAPTION>
(In thousands)
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Currently (receivable) payable:
Federal $-- $(4,175) $(1,299)
Deferred income tax expense -- 454 763
----- ------- -------
Income tax benefit $-- $(3,721) $ (536)
===== ======= =======
</TABLE>
F-17
<PAGE>
Deferred tax assets and (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
(In thousands)
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current:
Accrued expenses $ 282 $ 1,635 $ 321
Prepaid expenses (366) (330) (1,467)
Net operating loss carryforwards -- 327 327
Other 526 412 591
Less valuation allowance (442) (2,044) --
-------- -------- --------
$ 0 $ 0 $ (228)
-------- -------- --------
Noncurrent:
Net operating loss carryforwards $ 9,457 $ 4,704 $ 4,876
Depreciation and amortization 12,215 6,069 470
Deferred income 268 300 166
Accrued expenses -- 1,967 729
Less valuation allowance (21,940) (13,040) (5,559)
-------- -------- --------
$ 0 $ 0 $ 682
======== ======== ========
</TABLE>
The following is a reconciliation of income taxes at the federal statutory rate
to the Company's income tax expense (benefit):
<TABLE>
<CAPTION>
(In thousands)
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income tax provision (benefit) computed at statutory federal
income tax rates $ (9,707) $(14,970) $ (2,172)
Non-deductible costs 162 865 1,175
Increase in the valuation allowance 7,298 9,525 535
Other, net 2,247 859 (74)
-------- -------- --------
Income tax benefit $ 0 $ (3,721) $ (536)
======== ======== ========
</TABLE>
As of June 28, 1998, the Company had federal net operating loss carryforwards of
approximately $24.5 million, expiring at various dates through 2013.
Approximately $9.6 million of the losses relate to Fuddruckers and $4.0 million
relate to Fuddruckers' 63% owned subsidiary, ARVI that are limited on an annual
basis. For the fiscal years ended 1998, 1997 and 1996, the Company provided a
valuation allowance for the tax benefit of the deferred tax assets not expected
to be utilized based on historical operating results and other available
evidence. During the fiscal years ended 1998, 1997 and 1996 the valuation
allowance was increased by $7.3 million, $9.5 million and $0.5 million,
respectively, principally as a result of the Company's losses.
F-18
<PAGE>
12. Commitments and Contingencies
Spin-Off Indemnifications
The Company agreed to assume certain liabilities in connection with the Spin-off
including all losses or damages related to the purported class action lawsuit
discussed further below. In addition, the Company entered into a Post-Closing
Covenants Agreement which provides for post-closing payments by the Company to
Compass under certain circumstances. Further, the Company agreed to a $15.0
million settlement with Compass pursuant to the Post-Closing Covenants Agreement
and to reimburse Compass an additional $3.8 million for liabilities assumed by
the Company but paid by Compass. The effect of this settlement has been
reflected in the net distribution recorded in the accompanying consolidated
financial statements. The Company also agreed to indemnify Compass for certain
losses on liabilities existing prior to the Spin-off Transaction Date but
unidentified at such date. This indemnification begins to expire on December 31,
1998. The Company believes the risk of a significant claim for indemnification
being presented by Compass is remote.
Leases
Pursuant to the terms of the Spin-off Transaction, the Company assumed the
existing lease obligations and purchase commitments of DAKA International
consisting principally of the corporate headquarters in Danvers, Massachusetts
which expires during 2001.
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 December 1995, Champps obtained a commitment for a $40.0 million development
and sale-leaseback financing facility from AEI Fund Management, Inc. ("AEI").
Pursuant to the terms of the agreement, the Company would sell and lease-back
from AEI, Champps restaurants to be constructed and would pay a commitment fee
of 1% of the sale price of each property sold to AEI. The purchase price would
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
expires on December 31, 1998. The leases provide for a fixed minimum rent based
on a percentage of the respective 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 Champps. As of June 28, 1998, four Champps restaurants had been
fully funded under this commitment and two had been partially funded.
F-19
<PAGE>
Future minimum lease payments pursuant to leases with noncancelable lease terms
in excess of one year at June 28, 1998 are as follows:
<TABLE>
<CAPTION>
Fiscal (In thousands)
Years Operating Capital
Ending Leases Leases
- ------ ------ ------
<S> <C> <C>
1999 $ 17,857 $ 2,135
2000 17,374 1,982
2001 17,108 1,344
2002 16,097 904
2003 14,895 667
Thereafter 111,828 --
-------- --------
Total future minimum lease payments $195,159 7,032
======== --------
Less amount representing interest (505)
--------
Present value of future minimum lease payments $ 6,527
========
</TABLE>
Total rent expense in 1998, 1997 and 1996 approximated $20.0 million, $21.0
million and $16.8 million, respectively. Contingent rentals included in rent
expense are not material for the periods presented.
Included in property and equipment in 1998, 1997 and 1996 are approximately $9.3
million, $5.8 million and $5.8 million, respectively, of equipment held pursuant
to capital lease arrangements. The related accumulated amortization was
approximately $2.6 million, $1.9 million and $1.2 million, respectively.
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 agreed to purchase substantially all shares of
common stock of the subsidiary not currently owned by the Company. The
subsidiary operates 22 Fuddruckers restaurants. The partnership also invested
$1.1 million in shares of the subsidiary's preferred stock which has been
recorded as minority interest at June 29, 1997. 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 $5.4 million 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 January 1,
2000, and, if exercised, is payable on January 31, 2000.
On the initial date of the put/call agreement and through June 29, 1997, 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
$5.4 million based upon an independent valuation of the common stock obtained by
the Company from an investment banking firm. At June 28, 1998, management of the
Company believed that the market value of the Fuddruckers assets held by the
subsidiary and not owned by the Company had decreased to a nominal level and,
accordingly, the Company recorded a charge of $4.3 million to reflect the
minority interest at its estimated purchase price under the put/call agreement.
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 were based on commodity market
exchange prices.
F-20
<PAGE>
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 legal fees. On December 19, 1997, the
parties entered into a Stipulation and Agreement of Settlement pursuant to which
defendants deny any wrongdoing, and the parties agreed to settle the matter as a
class action, subject to the court's approval, with payment of $3.5 million to
the class. The Company has agreed to indemnify Compass for any losses or
expenses associated with the complaint. On February 10, 1998, the Company
announced that it had agreed to settle the case for $3.5 million. While
defendants deny all of the allegations in the complaint and any wrongdoing
whatsoever, they believed that settlement of the case was in the best interests
of the Company and its stockholders to avoid the costs and risks of litigation.
The settlement had no impact on results of operations and the settlement payment
was funded from restricted cash deposits previously set aside for this
contingency. As a result of the settlement, approximately $1.5 million in
restricted cash deposits were returned to the Company. On January 27, 1998, the
court preliminarily approved the settlement and set the timetable for granting
final approval. The court concluded a final settlement hearing on April 27,
1998. The court took the matter under advisement and has not yet made its final
determination concerning the settlement. While the Company cannot predict when
the court will make that determination or what the court's determination
ultimately will be, the Company believes that the ultimate outcome of this
matter will not have a material adverse effect on the Company's consolidated
financial condition, results of operations or cash flows.
The Company is also engaged in various other actions arising in the ordinary
course of business or pursuant to agreement with Compass as previously
discussed. The Company believes, based upon consultation with legal counsel,
that the ultimate collective outcome of these other matters will not have a
material adverse effect on the Company's consolidated financial condition,
results of operations or cash flows.
13. Stock Options and Employee Benefit Plans
Stock Options
On July 17, 1998, the Company adopted a stock option and restricted stock plan
for the benefit of the employee and non-employee directors of the Company
whereby the Company authorized and reserved for issuance 1,250,000 shares of
common stock. In connection with the Spin-off Transaction, each outstanding
option held by a Company employee to acquire DAKA International common stock was
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"). The
exercise prices of the Adjusted Options were determined such that each option
holder will remain in an equivalent economic position before and after the
Spin-off Transaction.
Through the date of the Spin-off Transaction, the Company's employees
participated in various incentive and non-qualified stock option plans sponsored
by DAKA International (the "Plans"). The Plans 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, 1997 and 1996, 445,980 and 539,146 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.
F-21
<PAGE>
The following table presents activity under the Company's stock option plan:
<TABLE>
<CAPTION>
Weighted
Number of Average Grant Date
Options Exercixe Price Fair Value
------- -------------- ----------
<S> <C> <C> <C>
Outstanding at July 17, 1997 -- --
DAKA International adjusted options 597,554 $ 6.10
Granted 569,850 6.31 $ 1.28 - 1.63
Exercised (70,280) 2.93
Forfeited (245,894) 10.92
-------- --------
Outstanding at June 28, 1998 851,230 $ 5.11
======== ========
</TABLE>
The number of options exercisable at the dates presented below and their
weighted average exercise price were as follows:
<TABLE>
<CAPTION>
Weighted
Average
Options Exercisable
Exercisable Price
----------- -----
<S> <C> <C>
July 17, 1997 487,689 $ 6.40
June 28, 1998 246,265 3.16
</TABLE>
The following table sets forth information regarding options outstanding at June
28, 1998:
<TABLE>
<CAPTION>
Weighted
Average Weighted
Number Remaining Average Price
Number of Range of Currently Weighted Contractual for Currently
Options Prices Exercisable Average Price Life Exercisable
------- ------ ----------- ------------- ---- -----------
<S> <C> <C> <C> <C> <C>
268,405 $1.21 - 4.86 208,405 $ 2.30 4 $ 2.28
25,225 5.19 - 5.85 11,225 5.46 4 5.66
15,100 6.03 - 6.28 11,100 6.21 6 6.19
513,600 6.31 -- 6.31 9 --
28,900 6.50 - 13.80 15,535 9.03 6 11.00
</TABLE>
F-22
<PAGE>
The Company applies APB Opinion No. 25 to account for various stock plans.
Accordingly, pursuant to the terms of the plans, no compensation cost has been
recognized for the stock plans. However, if compensation cost for stock option
grants issued to Company employees during 1998, 1997 and 1996 had been
determined using the fair value method under the provisions of SFAS No. 123, the
Company's net loss and pro forma net loss per share would have been increased to
the pro forma amounts shown below:
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net loss:
As reported $ 27,735 $ 39,043 $ 5,670
Pro forma 28,869 39,943 6,470
Net loss per share:
As reported $ 2.41 $ 3.42
Pro forma - as adjusted 2.51 3.50
</TABLE>
The pro forma net loss reflects the compensation cost only for those options
granted during 1998, 1997 and 1996. Compensation cost is reflected over a stock
option's vesting period and compensation cost for options granted prior to July
2, 1995 is not considered. Therefore, the full potential impact of compensation
cost of the Company's and DAKA International's stock plans under SFAS No. 123 is
not reflected in the pro forma net loss amounts presented above for the Company.
The fair value of each stock option granted in 1998, 1997 and 1996 under DAKA
International stock option plans was estimated on the date of grant using the
Black-Scholes option-pricing model. The following key assumptions were used to
value grants issued for each year:
<TABLE>
<CAPTION>
Weighted- Average
Average Expected Dividend
Risk Free Rate Life Volatility Yield
-------------- ---- ---------- -----
<S> <C> <C> <C> <C>
1996 6.28% 4 years 50.00% 0%
1997 6.28% 4 years 50.00% 0%
1998 5.36% 4 years 14.73% 0%
</TABLE>
The weighted-average fair values per share of stock options granted during 1998,
1997 and 1996 were $2.14, $4.13 and $10.74, respectively. It should be noted
that the option pricing model used was designed to value readily tradable stock
options with relatively short lives. The options granted to employees are not
tradable and have contractual lives of up to ten years. However, management
believes that the assumptions used and the model applied to value the awards
yields a reasonable estimate of the fair value of the grants made under the
circumstances.
Employee Stock Purchase Plan
The Company has reserved 400,000 shares of its common stock to be offered under
its 1997 Stock Purchase Plan (the "Plan"). Under the Plan, eligible employees of
the Company may participate in quarterly offerings of shares made by the
Company. The participating employees purchase shares at a discount from the
lower of fair value at the beginning or end of each quarterly offering period
through payroll deductions.
F-23
<PAGE>
Shareholders' Rights Plan
On January 30, 1998, the Company adopted a Shareholder Rights Plan designed to
enhance the Company's ability to protect all of its shareholders' interests and
the ensure that all shareholders receive fair treatment in the event of any
potential sale of the Company. In connection with this plan, the Board of
Directors declared a dividend distribution of one preferred stock purchase right
for each outstanding share of common stock to shareholders of record as of the
close of business on February 11, 1998. These rights become exercisable after
January 30, 1998 or if a person who owns 10% or more of the common stock of the
Company is determined to be an "adverse person" by the Board of Directors, or if
a person commences a tender offer that would result in that person owning 15% or
more of the common stock of the Company. In the event the rights become
exercisable, after January 30, 1998 each holder of a right (other than the
person causing the exercise) would be entitled to acquire such number of shares
of preferred stock which are equivalent to the Company's common stock having a
value of twice the then-current exercise price of the right. If the Company is
acquired in a merger or other business combination transaction after any such
event, each holder of a right would then be entitled to purchase, at the
then-current exercise price, shares of the acquiring company's common stock
having a value of twice the exercise price of the right.
Employee Benefit Plan
The Company sponsors a 401(k) retirement plan and, prior to the Transaction
Date, the Company's employees participated in a 401(k) retirement plan sponsored
by DAKA International. Both plans enabled employees to contribute up to 15% of
their annual compensation. The Company's discretionary contributions to the Plan
have been determined by the Board for fiscal 1998, and by DAKA International
before the Spin-off Transaction. The Company contributed $25,000 and $204,000 to
the Plan in 1997 and 1996, respectively. No contribution was paid in 1998
although the Company plans to contribute $50,000 subsequent to year end.
Long-Term Incentive Plan
Effective July 3, 1994, the Company implemented a long-term incentive
compensation plan ("LTIP") for its former Chief Executive Officer whereby a
portion of the increase in the market value of DAKA International's common stock
over predefined amounts, was payable in either cash or stock at the option of
the Company. Amounts payable under the LTIP were scheduled to vest on June 30,
1997.
On May 22, 1997, the Board of Directors of DAKA International amended the LTIP.
Under the terms of the amendment, the former Chief Executive Officer's right to
receive a performance award was amended to provide for the granting of an option
which would vest on June 30, 1997 to acquire 228,260 shares of DAKA
International Common Stock at an exercise price of $12.07 (the "Deemed LTIP
Option"). Upon consummation of the Spin-off Transaction, the Deemed LTIP Option
was converted in a manner similar to the Adjusted Options and the Company
purchased the former Chief Executive Officer's Deemed LTIP Option. At June 29,
1997, $265,000 had been accrued representing the expected payment to be made
after the consummation of the Spin-off Transaction. During 1998, the Company
obligation to the former Chief Executive Officer was settled through the
issuance of 37,973 shares of common stock of the Company.
F-24
<PAGE>
14. 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
receivable, 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 was 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.
Capital lease obligations - The carrying value of capital lease obligations
approximates fair value based upon current market interest rates.
Investments in La Salsa Preferred Stock - The carrying cost of La Salsa
Preferred Stock approximates fair value given the relative illiquidity of La
Salsa Preferred Stock in the private equity market.
[Remainder of page left intentionally blank]
F-25
<PAGE>
15. Business Information
Income from restaurant and franchising operations have been determined applying
the accounting policies in Note 4. Revenue and costs as shown below are directly
related to each business and do not include an allocation of corporate expenses,
non-operating income, interest expense and income taxes. There are no sales
among the Company's three businesses. The table below presents certain financial
information for the Company's Champps, Fuddruckers and Specialty Concepts
businesses for 1998, 1997 and 1996:
<TABLE>
<CAPTION>
(In thousands)
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Total Revenues:
Sales from Champps-owned restaurants $ 73,387 $ 57,832 $ 41,593
Franchising and royalty income - Champps 644 539 555
Sales from Fuddruckers-owned restaurants 133,858 137,624 131,592
Franchising and royalty income - Fuddruckers 3,763 4,021 6,574
Sales from Specialty Concepts unit operations 3,324 5,285 2,865
Franchising and royalty income - Specialty Concepts 345 583 576
--------- --------- ---------
Total revenues $ 215,321 $ 205,884 $ 183,755
========= ========= =========
Champps:
Sales from Champps-owned restaurants $ 73,387 $ 57,832 $ 41,593
Operating expenses:
Labor costs 24,212 19,048 13,797
Product costs 21,276 16,735 11,981
Other operating expenses 20,363 14,880 9,631
Depreciation and amortization 2,914 4,734 3,596
Impairment and exit costs -- -- 62
Merger costs -- -- 2,600
--------- --------- ---------
Restaurant unit contribution 4,622 2,435 (74)
Franchising and royalty income 644 539 555
Gain on sale of franchise 677 -- --
--------- --------- ---------
Restaurant unit, franchising and royalty contribution $ 5,943 $ 2,974 $ 481
========= ========= =========
Fuddruckers:
Sales from Fuddruckers-owned restaurants $ 133,858 $ 137,624 $ 131,592
Operating expenses:
Labor costs 40,396 45,204 41,944
Product costs 36,316 38,524 38,203
Other operating expenses 43,814 38,731 30,719
Depreciation and amortization 5,644 9,010 7,953
Impairment and exit costs 21,804 9,107 2,450
--------- --------- ---------
Restaurant unit contribution (14,116) (2,952) 10,323
Franchising and royalty income 3,763 4,021 6,574
--------- --------- ---------
Restaurant unit, franchising and royalty contribution $ (10,353) $ 1,069 $ 16,897
========= ========= =========
</TABLE>
F-26
<PAGE>
<TABLE>
<CAPTION>
(In thousands)
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Specialty Concepts:
Restaurant unit, franchising and royalty contribution (1) $ (1,401) $ (7,756) $ 595
========= ========= =========
Total restaurant unit, franchising and royalty contributions $ (5,811) $ (3,713) $ 17,973
Selling, general and administrative expenses (2) 19,848 33,423 24,616
Other charges 1,385 5,439 --
Interest expense 494 744 641
Interest income (790) (487) (353)
--------- --------- ---------
Loss before income taxes, minority interests, and cumulative effect of change
in accounting for preopening costs $ (26,748) $ (39,043) $ (5,670)
========= ========= =========
</TABLE>
(1) Depreciation expense included in the contribution from Specialty Concepts
totaled $166,000, $985,000, and $152,000 in 1998, 1997 and 1996,
respectively.
(2) Selling, general and administrative expenses include depreciation expense
on corporate assets of $1,503,000, $820,000 and $435,000 in 1998, 1997 and
1996, respectively.
The following table presents total assets for each of the businesses of the
Company excluding any intercompany balances:
<TABLE>
<CAPTION>
(In thousands)
1998 1997
---- ----
<S> <C> <C>
Champps $ 31,830 $ 30,512
Fuddruckers 52,379 86,080
Corporate and other (3) 8,637 8,617
-------- --------
$ 92,846 $125,209
======== ========
</TABLE>
(3) Corporate assets include computer equipment and deposits.
F-27
<PAGE>
16. Quarterly Results (Unaudited)
The following unaudited quarterly financial data should be read in conjunction
with the audited consolidated financial statements, related notes and
Management's Discussion and Analysis of Results of Operations and Financial
Condition:
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
1998:
Revenues $ 52,442 $ 52,266 $ 54,834 $ 55,779 $ 215,321
Gross profit 14,473 14,093 14,627 15,631 58,824
Income (loss) before income taxes, minority
interests and cumulative effect of change in
accounting for preopening costs (1) (895) (456) 798 (26,195) (26,748)
Cumulative effect of change in accounting for
preopening costs (987) -- -- -- (987)
Net loss $ (1,882) $ (456) $ 798 $ (26,195) $ (27,735)
========= ========= ========= ========= =========
Per share data:
Basic and diluted income (loss) before
cumulative effect of change in accounting
for preopening costs $ (0.08) $ (0.04) $ 0.07 $ (2.28) $ (2.33)
Basic and diluted net income (loss) (0.16) (0.04) 0.07 (2.28) (2.41)
</TABLE>
(1) See Note 4, "Impairment of Long-Lived Assets, Exit Costs and Other Charges"
for a description of certain fourth quarter adjustments.
Certain amounts previously reported in the Company's Form 10-Q for the quarters
ended September 28, 1997, December 28, 1997 and March 28, 1998 have been
restated to reflect the Company's adoption of SOP 98-5 subsequent to its release
in April 1998.
F-28
Exhibit 10.15
SEPARATION AGREEMENT
This Separation Agreement (the "Agreement") is entered into between
Dean P. Vlahos ("Vlahos"), on the one hand, and Unique Casual Restaurants, Inc.,
a Delaware corporation (the "Company"), and Champps Entertainment, Inc., a
Minnesota corporation ("CEI"), on the other hand, as of February 2, 1998.
In exchange for the mutual promises contained in this Agreement,
Vlahos, the Company and CEI agree as follows:
1. Resignation as Director of the Company
Vlahos hereby resigns as a Director of the Company effective as of
February 2, 1998 (the "Effective Date").
2. Resignation as Chairman and Chief Executive Officer of Champps
Entertainment, Inc. and Termination of Employment Agreement
Vlahos hereby resigns as Chairman of the Board of Directors (and
therefore as a director) and Chief Executive Officer of CEI effective on the
Effective Date. Vlahos agrees that the Employment Agreement by and between
Vlahos and DAKA International, Inc., dated October 10, 1995 (as amended to
date), shall be terminated as of the Effective Date and neither the Company (as
successor to DAKA International, Inc.) nor CEI nor Vlahos shall have any further
obligations thereunder.
(a) Accrued Salary
To the extent that the Company and CEI have not already done so by the
Effective Date, the Company and CEI shall pay to Vlahos all base salary accrued
to and including the Effective Date at the current salary rate of $350,000 per
year.
(b) Benefits
(i) The Company and CEI shall not make any severance
payments or other payments in consideration of the termination of Vlahos
employment with the Company and CEI.
(ii) Vlahos may elect to continue the current group
medical and/or dental insurance coverage for up to 18 months following the
Effective Date provided Vlahos or his eligible dependent(s) remain eligible for
such coverage under the federal law known as "COBRA". In the event that Vlahos
elects to continue such coverage, Vlahos shall pay the full cost of such
insurance.
<PAGE>
(iii) Except as expressly provided herein, Vlahos'
participation in all Company and CEI employee benefit plans shall terminate as
of the Effective Date in accordance with the terms of those plans.
(iv) Vlahos will not receive any options to purchase
common stock of the Company on account of his service as an officer or director
of the Company or CEI for any period ending on, before or after the Effective
Date.
(v) Vlahos acknowledges that of the Effective Date he
had no right to receive compensation or other consideration for, on account of
or in lieu of any of the following: accrued but unused vacation time, bonus, car
allowance, reimbursable business expenses, 401(k) or similar plans, the
Company's 1997 Employee Stock Purchase Plan, the Company's 1997 Stock Option and
Incentive Plan or other similar plans or arrangements with the Company, CEI or
their predecessors, affiliates or subsidiaries.
3. Purchase of Minnetonka Restaurant
Vlahos and CEI shall enter into an asset purchase agreement
substantially in the form attached hereto as Exhibit A (the "Asset Purchase
Agreement") pursuant to which Vlahos shall purchase, and CEI shall sell, that
certain Champps Americana restaurant located at 1641 Plymouth Road, Minnetonka,
Minnesota (the "Minnetonka Restaurant"). Such terms shall include the payment by
Vlahos of $1,500,000, in the form of a wire transfer or cashier's check to the
Company on the Closing Date (as defined in the Asset Purchase Agreement).
4. Right to Develop Eden Prairie Restaurant
CEI hereby grants to Vlahos the right to develop and operate a
franchised Champps Americana restaurant to be located at a site within the city
limits of Eden Prairie, Minnesota, that is approved in writing by CEI (the "Eden
Prairie Restaurant"), provided that such development right shall expire if the
Eden Prairie Restaurant is not developed and open to the public prior to the
eighth anniversary of the date hereof. Vlahos and CEI shall enter into a
franchise agreement with respect to the Eden Prairie Restaurant on terms
substantially equivalent to the terms of the franchise agreement with respect to
the Minnetonka Restaurant which is attached hereto as Exhibit B (the "Eden
Prairie Franchise Agreement").
5. Development Agreement
Vlahos and CEI shall enter into a development agreement in the form
attached hereto as Exhibit C (the "Development Agreement") which shall grant to
Vlahos the right to develop and operate up to five (5) additional Champps
Americana restaurants (in addition to the Minnetonka and Eden Prairie
restaurants), subject to the terms and conditions set forth in the Development
Agreement. The Development Agreement shall set forth the franchise fees to be
paid by Vlahos (and any successor) to CEI.
<PAGE>
6. Covenants
Vlahos acknowledges that, as part of the consideration for the
Company's and CEI's agreements herein and in the Asset Purchase Agreement and
the Development Agreement, Vlahos agrees to be bound by the following covenants:
(a) Vlahos acknowledges that CEI owns all right, title and
interest in and to the Champps System (as defined in the Development Agreement).
Vlahos further acknowledges that: the Champps System consists of trade secrets
and confidential and proprietary information and know-how that gives CEI a
competitive advantage; CEI has taken measures to protect the trade secrets and
the confidentiality of the proprietary information and know-how comprising the
Champps System; all material or other information now or hereafter provided or
disclosed to Vlahos regarding the Champps System is disclosed in confidence;
Vlahos has no right to disclose any part of the Champps System to anyone who is
not an employee, agent, consultant or counsel of Vlahos; Vlahos will disclose to
his employees, agents, consultants or counsel only those parts of the Champps
System that an employee, agent, consultant or counsel needs to know; and if
requested by CEI, Vlahos shall obtain from those of his employees, agents,
consultants or counsel designated by CEI an executed Confidential Disclosure
Agreement in the form reasonably prescribed by CEI. Vlahos further acknowledges
that he will not, other than as a Champps franchisee, acquire any interest in
the Champps System and that the use or duplication of the Champps System or any
part of the Champps System in any other business would constitute an unfair
method of competition.
Vlahos shall not communicate or disclose any trade secrets or
confidential or proprietary information or know-how of the Champps System to any
unauthorized person, or do or perform, directly or indirectly, any other acts
injurious or prejudicial to the Proprietary Marks (as defined in the Development
Agreement) or the Champps System. Any and all information, knowledge, know-how
and techniques, including all drawings, materials, equipment, specifications,
recipes, techniques and other data that CEI designates as confidential shall be
deemed confidential for purposes of this Agreement. Provided however, that none
of the preceding or foregoing provisions shall apply to any information,
documents or know-how which is then generally known to the public or is
disclosed in accordance with an order of a court of competent jurisdiction or in
a manner otherwise required by law.
If Vlahos develops any new concepts, processes or improvements relating
to the Champps franchised restaurant(s) and the Champps System, Vlahos promptly
shall notify CEI and provide CEI with all information regarding the new concept,
process or improvement, all of which shall become the property of CEI and which
may be incorporated into the Champps System without any payment to Vlahos.
<PAGE>
(b) Vlahos acknowledges that he has had and will under the
various agreements contemplated hereby continue to have access to valuable trade
secrets, specialized training and confidential information from CEI regarding
the development, operation, purchasing, sales and marketing methods and
techniques of CEI and the Champps System; the Champps System and the
opportunities, associations and experience established and acquired by Vlahos
under this Agreement and the other agreements contemplated hereby are of
substantial and material value; in developing the Champps System, CEI has made
and continues to make substantial investments of time, technical and commercial
research and money; CEI would be unable adequately to protect the Champps System
and its trade secrets and confidential and proprietary information against
unauthorized use or disclosure and would be unable adequately to encourage a
free exchange of ideas and information among Champps Restaurants if franchisees
or developers were permitted to hold interests in competitive businesses; and
restrictions on Vlahos' right to hold interests in, or perform services for,
competitive businesses will not hinder his activities.
Accordingly, Vlahos covenants and agrees that during the Development
Term (as defined in the Development Agreement), and for a period of 2 years
following its expiration or earlier termination, Vlahos shall not, either
directly or indirectly, for himself, or through, on behalf of, or in conjunction
with, any person, firm, partnership, corporation, or other entity:
(i) divert or attempt to divert any business or
customer, or potential business or customer, of any Champps Restaurant to any
competitor, by direct or indirect inducement or otherwise;
(ii) knowingly employ or seek to employ any person
then employed by CEI or any franchisee of CEI as a manager, or otherwise
directly or indirectly induce such person to leave his or her employment without
CEI's prior written consent; or
(iii) own, maintain, operate, engage in, advise,
help, make loans to, or have any interest in, either directly or indirectly, any
restaurant business: (A) that is the same as, or substantially similar to, a
Champps Restaurant or a Fuddruckers restaurant; or (B) whose method of operation
or trade dress is similar to that employed in the Champps System or in the
operation of Fuddruckers restaurants. The "Champps" or "Champps Americana" trade
dress includes, without limitation, the use of several of the following elements
in the design and operation of the restaurant: extensive use of televisions,
patio with fireplace, open kitchen, dining on multiple levels, disc jockey at
restaurant. While it is understood that the use of some of these items are used
in "casual dining" restaurants (i.e. Houston's, Bandera, P.F. Chang's, TGI
Friday's, Houlihan's, Landry's Seafood, Applebee's, Capitol Grille, Macaroni
Grill, Cheesecake Factory, Z-Tejas, Palomino, Rock Bottom, J. Alexander's,
etc.), the way in which several of these items are used in combination by
Champps constitutes its distinctive trade dress. This covenant is not intended
to cover all "casual dining" or sports-themed concepts. During the Development
Term, there is no geographical limitation on this restriction. Following the
expiration or earlier termination of the Development Term, this restriction
shall apply within twenty (20) miles of any then-existing Champps Restaurant or
Fuddruckers restaurant, except as otherwise approved in writing by CEI. This
restriction shall not apply to the Minnetonka and Eden Prairie Restaurants or
any restaurant or foodservice operations contemplated by the Development
Agreement.
<PAGE>
The Company and CEI acknowledge and agree that, notwithstanding
anything to the contrary herein, Vlahos may be engaged in and is hereby
permitted to engage in the ownership operation and management of new restaurant
businesses including but not limited to "casual dining," formal dining,
sports-themed and fast food restaurants, some of which may have elements of the
trade dress of the Champps system (other than the extensive use of televisions),
provided that those restaurants are not substantially similar to Champps or
Fuddruckers restaurants.
If any part of these restrictions is found to be unreasonable in time
or distance, each month of time or mile of distance may be deemed a separate
unit so that the time or distance may be reduced by appropriate order of the
court to that deemed reasonable. If CEI files suit to enforce the
post-termination portion of these restrictions, the 2-year period shall begin
running upon the entry of a final, non-appealable judgment.
(c) CEI shall have the right, in its sole discretion, to reduce the
scope of any covenant in this Section 6 effective immediately upon Vlahos'
receipt of written notice, and Vlahos agrees that he shall comply forthwith with
any covenant as so modified, which shall be fully enforceable so long as any
such reduction does not add additional burden, limitation or restriction on
Vlahos.
(d) The restrictions contained in this Section 6 shall not apply to
ownership of less than a 5% legal or beneficial ownership in outstanding equity
securities of any publicly held corporation by Vlahos. The existence of any
claim Vlahos may have against CEI or the Company, whether or not arising from
this Agreement, shall not constitute a defense to the enforcement by the Company
and CEI of the covenants in this Section 6.
(e) Vlahos acknowledges that any failure to comply with the
requirements of this Section 6 will cause CEI and the Company irreparable
injury, and Vlahos hereby accordingly consents to the entry of an order by any
court of competent jurisdiction for specific performance of, or for an
injunction against violation of, the requirements of this Section 6. The Company
and CEI may further avail themselves of any other legal or equitable rights and
remedies that in may have under this Agreement or otherwise.
7. Non-Interference with Business of the Company and CEI. Vlahos hereby
agrees that he will not, without the express written consent of the Company,
directly or indirectly, knowingly (a) hire or attempt to hire for or on behalf
of himself or any other person or business organization (whether as owner,
part-owner, shareholder, partner, director, officer, trustee, employee, agent,
or consultant, or in any other capacity) any officer or other employee of the
Company, CEI or any of their respective subsidiaries or affiliates, (b)
encourage for or on behalf of himself or any such other person or business
organization any such officer or other employee to terminate his or her
relationship or employment with the Company, CEI or any of their respective
subsidiaries or affiliates or (c) solicit for or on behalf of himself or any
such other person or business organization any supplier, licensee, franchisee,
lender, or other person with whom the Company, CEI or any of their respective
subsidiaries or affiliates has a business relationship to modify, terminate or
otherwise modify his, her or its relationship with the Company, CEI or any of
their respective subsidiaries or affiliates.
<PAGE>
8. Sale of Restaurants
In the event that Vlahos or any entity that owns or operates Champps
Americana restaurants, which entity must in any event be owned and controlled by
Vlahos (an "Obligated Party"), wishes to dispose of or receives an offer to
purchase, directly or indirectly, one or more Champps Americana restaurants so
owned or operated (which shall be deemed to include a sale of equity interests
in any such entity, a merger, consolidation or other change of control of such
entity, as well as a sale of assets), Vlahos shall or shall cause the relevant
Obligated Party to give notice thereof to the Company and CEI. No Champps
Americana restaurant can be sold or otherwise transferred by any Obligated Party
to any purchaser that, in the reasonable judgment of the Company and CEI, does
not meet CEI's applicable franchisee standards in effect as of the date of such
proposed sale. As a condition of precedent of such sale, the purchaser shall
enter into the then standard form of franchise agreement used by CEI for Champps
Americana franchisees, except that the royalty rate applicable to such
restaurant shall be the lesser of 1.75% or the then applicable rate for new
Champps franchisees, and such other customary instruments as CEI may reasonably
request consistent with its franchising program at the time. Failure by an
Obligated Party to comply with the provisions of this Section 8 shall constitute
a breach of the applicable franchise agreement and result in a termination
thereof. Notwithstanding the foregoing provisions of this Section 8 or the
Development Agreement or Franchise Agreements, the Company and CEI acknowledge
that Vlahos may incorporate one or more corporations to operate the Champps
Restaurants, and that Vlahos contemplates transferring up to 50% of the equity
interests in such corporations to one or more third parties and the Company and
CEI hereby consent to such transfers provided that Vlahos (i) continues to be
the beneficial and actual owner of at least 50% of the equity interests in each
such corporation and (ii) retains at all times control of and operating
responsibility with respect to the each such restaurant (it being understood and
agreed that the failure of Vlahos to satisfy any of the conditions set forth in
the foregoing clauses (i) and (ii) shall constitute a "sale" of the applicable
restaurant for purposes of Section 8 hereof).
9. Litigation Cooperation
Vlahos agrees to cooperate fully with the Company and CEI in the
defense or prosecution of any claims or actions which already have been brought
or which may be brought in the future against or on behalf of the Company and
CEI which relate to events or occurrences that transpired during Vlahos'
employment by the Company, CEI or any of their predecessors which may transpire
during Vlahos' future relationship with the Company or CEI. Vlahos' full
cooperation in connection with such claims or actions shall include, but not be
limited to, being available to meet with counsel to prepare for discovery or
trial and to act as a witness when requested by the Company and CEI at
reasonable times designated by the Company and CEI. The Company agrees to
reimburse Vlahos for any reasonable out-of-pocket expenses incurred in
connection with such cooperation, subject to reasonable documentation.
<PAGE>
10. Venturino v. DAKA International, Inc
Vlahos hereby releases and discharges the Company and CEI of and from
any and all causes of action, claims, suits, charges, debts, liens, contracts,
agreements, covenants and demands whatsoever, in law or equity, which were or
could have been asserted by Vlahos, his heirs, executors, administrators,
successors and assigns in the pending litigation captioned Venturino et al. v.
DAKA International, Inc. and William H. Baumhauer, Civil Action No. 96-12109-GAO
(United States Court for the District of Massachusetts) (the "Venturino
Action"). Vlahos hereby further agrees that he will not participate in any
manner in the Venturino Action as a plaintiff or, in the event a class of
plaintiffs is certified by the United States District Court (D. Mass.) or by any
other court of competent jurisdiction, as a member of that certified class of
plaintiffs.
11. General Releases
As part of the consideration for reaching this Agreement, Vlahos
unconditionally and irrevocably releases and discharges the Company and CEI (and
their directors, officers, employees, agents, successors, assigns, affiliates,
stockholders, predecessors and successors) (collectively, the "Released
Parties") from any and all charges, complaints, claims, promises, agreements,
causes of action, damages, and debts of any nature whatsoever, known or unknown
("Claims") which Vlahos now has or could claim to have against Unique. This
general release of Claims includes, without implication of limitation, all
Claims related to Vlahos' service as a Director and employee of the Company and
CEI, Vlahos' activities on behalf of the Company, CEI and their affiliates and
their respective predecessors and the resignation of Vlahos as a Director and
employee of the Company and CEI, including, without implication of limitation,
any Claims of intentional or negligent misrepresentation, any Claims of
discrimination under the common law or any statute (including, without
implication of limitation, Title VII of the Civil Rights Act of 1964 and the Age
Discrimination in Employment Act). Vlahos also waives any Claim for attorneys'
fees or costs. Without limiting the foregoing, Vlahos agrees that Vlahos will
not bring any lawsuits or charges against the Company, CEI or their
representatives or any of them concerning Vlahos' service as a Director and
employee, Vlahos' resignation or any other events that have occurred or matters
that have arisen at any time up to the present.
As part of the consideration for reaching this Agreement, the Company
and CEI unconditionally and irrevocably release and discharge Vlahos from any
and all Claims which they now have or could claim to have against Vlahos,
including all Claims arising out of that certain $100,000 advance paid by CEI to
Vlahos and that certain $39,000 loan by CEI to Vlahos. This general release of
Claims includes, without implication of limitation, all Claims related to
Vlahos' service as a Director and employee of the Company and CEI, Vlahos'
activities on behalf of the Company, CEI and their affiliates and their
respective predecessors and the resignation of Vlahos as a Director and employee
of the Company and CEI. The Company and CEI also waive any Claim for attorneys'
fees or costs. Notwithstanding the foregoing, the Company's and CEI's release
and discharge of Claims does not include any Claims based on intentional
tortious conduct, intentional breach of any fiduciary duty or any other
intentional misconduct (collectively, "Intentional Misconduct Claims") except to
the extent that an Intentional Misconduct Claim is currently known to the
Company and CEI. For purposes of this Section 10, a Claim shall be considered to
be known to the Company and CEI if and only if one of the Company's or CEI's
officers knows of or has reason to believe facts that would give the Company or
CEI a basis for initiating legal proceedings against Vlahos.
<PAGE>
Without limiting the foregoing and subject to the exception applicable
to Intentional Misconduct Claims not known to the Company or CEI, the Company
and CEI agree that they will not bring any lawsuits or charges against Vlahos
based on any Claims concerning Vlahos' service as a Director or employee of the
Company or CEI, Vlahos' resignation or any other events that have occurred or
matters that have arisen at any time up to the present, including the $100,000
advance paid by CEI to Vlahos and the $39,000 loan by CEI to Vlahos.
12. Entire Agreement
Except as set forth herein, this Agreement and the agreements
comtemplated hereby constitute the entire agreement between Vlahos and the
Company and CEI and all previous agreements, arrangements, or promises between
Vlahos and the Company and CEI are superseded, null and void. If and to the
extent that the provisions hereof or of any agreement or instrument contemplated
hereby conflict with or may be construed to constitute a breach of that certain
Agreement and Plan of Merger among CEI, DAKA International, Inc. and CEI
Acquisition Corp. dated as of October 10, 1995 or any agreement or instrument
contemplated thereby or executed in connection therewith, the provisions of this
Agreement or the applicable agreement or instrument contemplated hereby shall
prevail so as to eliminate such potential conflict or breach.
13. Confidentiality.
(a) In the course of performing services hereunder and
otherwise, Vlahos has had access to confidential plans, reports, records, data,
customer lists, trade secrets and similar confidential information owned or used
in the course of business by the Company, CEI, their predecessors, subsidiaries
and affiliates (the "Confidential Information"). Vlahos agrees (i) to hold the
Confidential Information in strict confidence, (ii) not to disclose the
Confidential Information to any person, and (iii) not to use, directly or
indirectly, any of the Confidential Information for any competitive or
commercial purpose other than as permitted by the Development and License
Agreement; provided, however, that the limitations set forth above shall not
apply to any Confidential Information which is then generally known to the
public or is disclosed in accordance with an order of a court of competent
jurisdiction or applicable law. Vlahos hereby agrees that all documents, data,
memoranda, customer lists, notes, programs and other papers and items, and
reproductions thereof relating to the foregoing matters in Vlahos' possession or
control, shall be returned to the Company or CEI and remain in their possession.
The term "person" as used in this letter agreement shall be interpreted broadly
to include the media and any corporation, partnership, group, individual or
other entity.
<PAGE>
(b) In the event that Vlahos is requested or required (by oral
questions, interrogatories, requests for information or documents in legal
proceedings, subpoena, civil investigative demand or other similar process) to
disclose any of the Confidential Information, Vlahos shall provide the Company
with prompt written notice of any such request or requirement so that the
Company may seek a protective order or other appropriate remedy or waive
compliance with the provisions of this Agreement. If the Company or CEI waives
compliance with the provisions of this Agreement with respect to a specific
request or requirement, Vlahos shall disclose only that portion of the
Confidential Information that is covered by such waiver and which is necessary
to disclose in order to comply with such request or requirement. If, in the
absence of a protective order or other remedy or a waiver by the Company and
CEI, Vlahos is nonetheless, in the opinion of counsel, legally compelled to
disclose Confidential Information to any tribunal or else stand liable for
contempt or suffer other censure or penalty, Vlahos may, without liability
hereunder, disclose to such tribunal only that portion of the Confidential
Information which such counsel advises Vlahos is legally required to be
disclosed. Notwithstanding the foregoing, in the event that Vlahos discloses
Confidential Information under the terms of this subsection, Vlahos shall
exercise his best efforts to preserve the confidentiality of the Confidential
Information, including, without limitation, by cooperating with the Company and
CEI to obtain an appropriate protective order or other reliable assurance that
confidential treatment will be accorded the Confidential Information.
14. Specific Performance; Severability.
(a) It is specifically understood and agreed that any breach
of the provisions of this Agreement by either party is likely to result in
irreparable injury to the other party and its affiliates, that the remedy at law
alone will be an inadequate remedy for such breach and that, in addition to any
other remedy it may have, such other party shall be entitled to enforce the
specific performance of this Agreement by the breaching party and to seek both
temporary and permanent injunctive relief (to the extent permitted by law),
without the necessity of proving actual damages. Such remedies shall not be
deemed to be the exclusive remedies for a breach by such party of this
Agreement, but shall be in addition to all other remedies available at law or
equity to the other party. In the event of litigation relating to this
Agreement, if a court of competent jurisdiction determines that one of the
parties has breached this Agreement, such party shall be liable for and pay to
the other party on demand the legal fees and expenses incurred by such other
party in connection with such litigation, including any appeal therefrom.
(b) In case any of the provisions contained in this Agreement
shall for any reason be held to be invalid, illegal or unenforceable in any
respect, any such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement, but this Agreement shall be construed as
if such invalid, illegal or unenforceable provision had been limited or modified
(consistent with its general intent) to the extent necessary to make it valid,
legal and enforceable, or if it shall not be possible to so limit or modify such
invalid, illegal or unenforceable provision or part of a provision, this
Agreement shall be construed as if such invalid, illegal or unenforceable
provision or part of a provision had never been contained in this Agreement.
<PAGE>
15. Standstill. Vlahos agrees that, for a period of three (3) years
from the Effective date, unless specifically requested by the Company in
writing, neither Vlahos nor any of his affiliates (as such term is defined under
the Securities Exchange Act of 1934, as amended (the "1934 Act")) or agents will
in any manner, directly or indirectly, (a) effect or seek, offer or propose
(whether publicly or otherwise) to effect, or cause or participate in or in any
way assist any other person to effect or seek, offer or propose (whether
publicly or otherwise) to effect, or cause or participate in, (i) any
acquisition of any securities (or beneficial ownership thereof) or assets of the
Company; (ii) any tender or exchange offer, merger or other business combination
involving the Company; (iii) any recapitalization, restructuring, liquidation,
dissolution or other extraordinary transaction with respect to the Company; or
(iv) any "solicitation" of "proxies" (as such terms are used in the proxy rules
of the Securities and Exchange Commission) to vote any voting securities of the
Company; (b) form, join or in any way participate in a "group" (as defined in
the 1934 Act) or otherwise act, alone or in concert with others, to seek to
control or influence the management, Board of Directors or policies of the
Company; (c) take any action which might force the Company to make a public
announcement regarding any of the types of matters set forth in subsection (a)
above; or (d) enter into any discussions or arrangements with any third party
with respect to any of the foregoing. Vlahos also agrees during such period not
to request that the Company, directly or indirectly, amend or waive any
provision of this subsection (including this sentence). The provisions of clause
(a)(i) of this Section 16 shall not prohibit Vlahos from acquiring securities of
the Company for investment purposes only, provided that Vlahos shall be
prohibited from purchasing securities of the Company if, immediately following
such purchase, Vlahos would own, directly or indirectly, more than five percent
(5%) of such class of securities.
16. Choice of Law/Consent to Jurisdiction. The validity,
interpretation, performance and enforcement of this Agreement shall be governed
by the laws of the State of Minnesota. All parties hereto hereby irrevocably and
unconditionally consent to the jurisdiction of the courts of the State of
Minnesota and the United States District Court for the State of Minnesota for
any action, suit or proceeding arising out of or relating to this Agreement or
the transactions contemplated hereby, and agree not to commence any action, suit
or proceeding related thereto except in such courts. All parties hereto further
hereby irrevocably and unconditionally waive any objection to the laying of
venue of any action, suit or proceeding arising out of or relating to this
Agreement in the courts of the State of Minnesota and the United States District
Court for the State of Minnesota, and hereby further irrevocably and
unconditionally waive and agree not to plead or claim in any such court that any
such action, suit or proceeding brought in any such court has been brought in an
inconvenient forum. All parties hereto further agree that service of any
process, summons, notice or document by U.S. registered mail to their respective
addresses shall be effective service of process for any action, suit or
proceeding brought against them in any such court.
<PAGE>
17. Review of Agreement
Vlahos acknowledges that Vlahos has been given the opportunity, if
Vlahos so desired, to consider this Agreement for twenty-one (21) days before
executing it. If not signed by Vlahos and returned to the Company so that the
Company receives it within twenty-one (21) days of Vlahos' receipt of the
Agreement, this Agreement will not be valid. In the event that Vlahos executes
and returns this Agreement within less than twenty-one (21) days of the date of
its delivery to Vlahos, Vlahos acknowledges that such decision was entirely
voluntary and that Vlahos had the opportunity to consider this letter agreement
for the entire twenty-one (21) day period. The Company acknowledges that for a
period of seven (7) days from the date of the execution of this Agreement,
Vlahos shall retain the right to revoke this Agreement by written notice that
the Company receives at or before the end of such period, and that this
Agreement shall not become effective or enforceable until the expiration of such
revocation period.
By signing this Agreement, Vlahos acknowledges that Vlahos is doing so
voluntarily. Vlahos also acknowledges that Vlahos is not relying on any
representations by the Company or CEI concerning the meaning of any aspect of
this Agreement. Vlahos also acknowledges that Vlahos has been advised by the
Company to obtain the advice of an attorney concerning this Agreement.
18. Interpretation and Amendment
In the event of any dispute, this Agreement will be construed as a
whole, will be interpreted in accordance with its fair meaning, and will not be
construed strictly for or against either Vlahos or the Company and CEI. The law
of Minnesota will govern any dispute about this Agreement, including any
interpretation or enforcement of this Agreement. This Agreement may be modified
by a written agreement signed by Vlahos and an authorized representative of the
Company and CEI.
19. Nondisparagement, Cooperation and Communications
(a) Vlahos agrees to avoid making, uttering, circulating or
otherwise disseminating any facts, comments or opinions (i) which might
reasonably be construed as disparaging to the Company or CEI, any members of
their management, any members of their Boards of Directors, or any of their
employees or agents, (ii) which might reasonably be construed as disparaging
with respect to any of the Company's or CEI's business practices, strategies or
performance or (iii) which disrupts or impairs the Company's or CEI's normal
operations or harms their reputation, including actions or statements that would
result in the filing of any claims, lawsuits, or charges against the Company,
CEI or any of their affiliates. Additionally, Vlahos agrees not to cooperate
with any person or party who brings, or threatens to bring, or has brought any
action against the Company, CEI or any of their affiliates and will furnish
information to such adverse person or party only to the extent required by law
or by duly issued legal process. Vlahos agrees that from the date of Vlahos'
receipt of this Agreement, Vlahos will cooperate fully with the Company and CEI
in arranging for an orderly and professional transition of Vlahos'
responsibilities.
<PAGE>
(b) The Company and CEI agree to avoid making, uttering,
circulating or otherwise disseminating any facts, comments or opinions (i) which
might reasonably be construed as disparaging to Vlahos or any of his employees
or agents, (ii) which might reasonably be construed as disparaging with respect
to any of Vlahos' business practices, strategies or performance or (iii) which
disrupts or impairs the normal operations of Vlahos' business or harms its
reputation, including actions or statements that would result in the filing of
any claims, lawsuits, or charges against Vlahos or any of his affiliates.
Additionally, the Company and CEI agree not to cooperate with any person or
party who brings, or threatens to bring, or has brought any action against
Vlahos or any of his affiliates and will furnish information to such adverse
person or party only to the extent required by law or by duly issued legal
process.
(c) Vlahos shall promptly deliver to the Company a resignation
letter in the form of Exhibit D. Any statement that Vlahos makes concerning the
reason for termination of Vlahos' employment or service as a Director of the
Company shall be consistent with Exhibit E.
(d) This Section 19 shall not be considered to be violated by
any statements made (i) in testimony in legal proceedings; or (ii) to the extent
reasonably necessary in the course of prosecution or defense of a legal action
arising from an alleged breach of this Agreement.
20. Waiver
No waiver of any provision hereof shall be effective unless made in
writing and signed by the waiving party. The failure of either party to require
the performance of any term or obligation of this Agreement, or the waiver by
either party of any breach of this Agreement, shall not prevent any subsequent
enforcement of such term or obligation or be deemed a waiver of any subsequent
breach.
21. Notices
Any notices, requests, demands, and other communications provided for
by this Agreement shall be sufficient if in writing and delivered in person or
sent by registered or certified mail, postage prepaid, to Vlahos at the last
address Vlahos has filed in writing with the Company or, in the case of the
Company or CEI, at their main offices, attention of the General Counsel.
<PAGE>
22. Successors: Binding Agreement.
The Company and CEI will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company or CEI expressly to
assume and agree to perform this Agreement to the same extent that the Company
or CEI would be required to perform it if no such succession had taken place.
This Agreement may not be assigned by Vlahos and shall be binding on Vlahos'
heirs, executors and administrators.
[end of text]
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Company and CEI, by their duly authorized officer, and by Dean
P. Vlahos, as of the date first above written.
UNIQUE CASUAL RESTAURANTS, INC.
By: _________________________________
Name:
Title:
CHAMPPS ENTERTAINMENT, INC.
By: _________________________________
Name:
Title:
-------------------------------------
Dean P. Vlahos
<PAGE>
EXHIBIT A
MINNETONKA RESTAURANT ASSET PURCHASE AGREEMENT
<PAGE>
EXHIBIT B
FORM OF MINNETONKA AND EDEN PRAIRIE FRANCHISE AGREEMENT
<PAGE>
EXHIBIT C
CHAMPPS RESTAURANT DEVELOPMENT AGREEMENT
<PAGE>
EXHIBIT D
LETTER OF RESIGNATION
<PAGE>
EXHIBIT E
PRESS RELEASE
Exhibit 10.16
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement") is made and entered
into as of the 2nd day of February, 1998, by and between Champps Entertainment,
Inc., a Minnesota corporation (the "Seller"), and Dean P. Vlahos (the "Buyer").
RECITALS
WHEREAS, Seller presently operates a restaurant and on-sale beverage
business (collectively, the "Restaurant") located at 1641 Plymouth Road,
Minnetonka, Minnesota 55305 (the "Location").
WHEREAS, Seller owns furniture, fixtures, equipment and leasehold
improvements, goodwill and other general intangibles at the Location. Buyer
desires to purchase and have assigned and transferred to it such assets.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, it is hereby agreed by and between the parties
as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section I.1 Definitions. For purposes of this Agreement, the following
terms shall have the meanings set forth below:
(a) "Assumed Obligations" means all claims, debts, liabilities and
obligations of any type kind or nature accruing from and after the Effective
Time (as defined in Section 6.1 hereof) related to the Restaurant, including
without limitation obligations arising under:
(i) The Lease and the other leases, contracts, purchase
agreements, permits, licenses and other obligations described on Schedule I
attached hereto and other similar or replacement agreements entered into by
Seller in the ordinary course of business of operating the Restaurant in
accordance with past practice between the date hereof and the Effective Time,
including, without limitation, all base rent, common area charges, operating
expenses and other similar costs, expenses, obligations and liabilities accruing
under such agreements from and after the Effective Time.
(ii) All Taxes (as defined below) incurred by or on behalf of
Buyer from and after the Effective Time in connection with the operation of the
Restaurant from and after the Effective Time.
(iii) The fees and expenses payable by Buyer under Section
14.8 below.
(iv) Any and all debts, liabilities and obligations which
arise, result from, or relate in any way to the operation of the Restaurant by
Buyer following the Effective Time, including all amounts due any employees
employed in connection with the operation of business conducted on the Location
from and after the Effective Time, including, without limitation, all salaries,
wages and other amounts due such employees and all employee payroll deductions
such as FICA, state and federal withholding taxes, unemployment compensation
taxes, union or other required payments or deductions and all vacation or sick
leave benefits or pay.
(b) "Lease" means the Lease Agreement for Bonaventure dated as of June
2, 1989, as amended through the date hereof, between Bonaventure Associates
Limited partnership, as Landlord (the "Lessor") and Champps of Minnetonka, as
Tenant.
(c) "Retained Obligations" means all claims, debts, liabilities and
obligations of any type kind or nature which arose, result from or relate in any
way to the operation of the Restaurant prior the Effective Time, including
without limitation obligations arising under:
(i) The Lease and the other leases, contracts, purchase
agreements, permits, licenses and other obligations described on Schedule I
attached hereto and other similar or replacement agreements entered into by
Seller in the ordinary course of business of operating the Restaurant in
accordance with past practice between the date hereof and the Effective Time,
including, without limitation, all base rent, common area charges, operating
expenses and other similar costs, expenses, obligations and liabilities accruing
under such agreements prior to the Effective Time.
(ii) All Taxes (as defined below) incurred by or on behalf of
Seller prior to the Effective Time in connection with the operation of the
Restaurant prior to the Effective Time.
(iii) The fees and expenses payable by Seller under Section
14.8 below.
(v) Except as otherwise provided in Section 7.4 hereof, any
and all debts, liabilities and obligations which arise, result from, or relate
in any way to the operation of the Restaurant by Seller before the Effective
Time, including all amounts due any employees employed in connection with the
operation of business conducted on the Location prior to the Effective Time,
including, without limitation, all salaries, wages and other amounts due such
employees and all employee payroll deductions such as FICA, state and federal
withholding taxes, unemployment compensation taxes, union or other required
payments or deductions and all vacation or sick leave benefits or pay.
(d) "Taxes" means all federal, state, local, foreign, and other taxes,
including, without limitation, income taxes, estimated taxes, alternative
minimum taxes, excise taxes, sales taxes, use taxes, value-added taxes, gross
receipts taxes, franchise taxes, capital stock taxes, employment and
payroll-related taxes, withholding taxes, stamps taxes, transfer taxes and
windfall profit taxes, whether or not measured in whole or in part by net
income, and all deficiencies, or other additions, including interest, fines and
penalties
ARTICLE II
SALE AND PURCHASE OF ASSETS
Section II.1 Property to be Sold. Seller, in consideration of the
covenants and agreements of Buyer hereinafter set forth, does hereby agree to
sell, transfer, assign and convey unto Buyer, its successors and assigns, the
business and goodwill of the Restaurant and the tangible operating assets
located at the Location and used in the operation of the Restaurant
(collectively, the "Assets") (exclusive, however, of the assets described in
Section 2.3 below), including, but not limited to the following:
(a) The furniture fixtures and equipment described on Schedule II
attached hereto and all furniture, fixtures, equipment, furnishings, maintenance
equipment and leasehold improvements, all trade fixtures, furnishings, machinery
and equipment, cooking utensils, glassware, dishes, silverware, and supplies and
other personal property located on or about the Location which is owned by
Seller.
(b) Vendor lists, operating paper goods and business forms, rights to
telephone numbers and directory listings and goodwill associated with the
Restaurant.
(c) The Seller's interest, if any, in the service and maintenance
contracts, real estate and equipment leases, permits and licenses and other
contracts, permits and licenses pertaining to the operation of the Restaurant at
the Location and described on Schedule I hereto.
Section II.2 "AS-IS" PURCHASE. IT IS EXPRESSLY UNDERSTOOD AND AGREED
THAT BUYER HAS FULLY EXAMINED THE ASSETS AND HAS RELIED ON ITS OWN DISCRETION
AND JUDGMENT WITH REGARD TO THE TRANSACTIONS CONTEMPLATED HEREUNDER. EXCEPT AS
EXPRESSLY PROVIDED HEREIN, THE ASSETS HAVE BEEN SOLD ON AN "AS IS" AND "WHERE
IS" BASIS, WITH NO REPRESENTATIONS OR WARRANTIES OF SELLER OF ANY KIND, TYPE OR
NATURE, INCLUDING, WITHOUT LIMITATION, ANY REPRESENTATION OR WARRANTY REGARDING
THE VALUE, PAST, PRESENT OR FUTURE INCOME, COMPLIANCE WITH SPECIFICATIONS, SIZE,
LOCATION, AGE, USE, MERCHANTABILITY, DESIGN, QUALITY, DESCRIPTION, DURABILITY,
OPERATION OR CONDITIONS OF THE ASSETS, WHETHER VISIBLE OR NOT.
Section II.3 Excluded Assets. Buyer and Seller expressly understand and
agree that Seller has not agreed to sell, assign, transfer or convey (a)
Seller's corporate minute book, stock books, accounts receivable and other
rights to payment, bonds and savings certificates and bank accounts, (b) all
trade names, trademarks, service marks, symbols, logos, copyrights and other
proprietary materials or trade rights used by Seller in the operation of the
Restaurant and all registrations, applications and licenses for any of the
foregoing, it being understood that Buyer and Seller will, on the Date of
Closing, enter into a Franchise Agreement in the form attached hereto as Exhibit
A (the "Franchise Agreement") whereby Buyer will obtain certain rights to use
the foregoing in the operation of the Restaurant under the terms and conditions
set forth in the Franchise Agreement, and (c) all cash and cash equivalents
except as otherwise provided in Article IV hereof.
Section II.4 Assets to be Transferred Free and Clear. The Assets to be
transferred by Seller to Buyer shall be transferred free and clear of all
liabilities, obligations, security interests, and encumbrances, except for the
security interests and encumbrances ("Permitted Encumbrances") set forth on
Schedule III attached hereto.
Section II.5 Assumption of Liabilities. Buyer, in consideration of the
covenants and agreements of Seller hereinafter set forth, does hereby agree to
assume and perform the Assumed Obligations.
ARTICLE III
PURCHASE PRICE
Section III.1 Purchase Price and Payment. Buyer, in consideration of
the covenants and agreements of Seller, hereby agrees to pay to Seller as and
for the purchase price for the Assets (exclusive of the price of inventory and
cash-on-hand as provided in Article IV hereof) the sum of ONE MILLION FIVE
HUNDRED THOUSAND AND NO/100 DOLLARS ($1,500,000) (the "Purchase Price"):
(a) The entire sum of $1,500,000 shall be due and payable by wire
transfer on the Date of Closing.
Section III.2 Allocation of Purchase Price. Buyer and Seller shall
attempt in good faith to reach an agreement on or before the Date of Closing
with regard to the allocation of the Purchase Price between the Assets to be
acquired hereunder. The Purchase Price shall be allocated among the Assets in
accordance with the agreement of the parties. Seller and Buyer shall prepare
their federal, state, local and foreign tax returns in a manner which is
consistent with allocation to be prepared in accordance with this Agreement,
and, to the extent applicable, shall comply with, and furnish information
required by, Section 1060 of the Tax Code of 1986 and the treasury regulations
thereunder.
ARTICLE IV
INVENTORY AND CASH-ON-HAND
(a) Buyer shall purchase, and Seller shall sell, all of Seller's
inventory of food, miscellaneous saleable products and beverages (which may or
may not include alcoholic beverages, which shall be sold at such time in
accordance with applicable laws) (the "Inventory") located within the Location
as of the Effective Time (as defined in Section 6.1), based on an inventory
taken after the close of business on the Date of Closing by representatives of
Buyer and Seller. Such inventory of assets and supplies shall be in writing and
shall describe the quantity of each item constituting a part of the Inventory.
The Inventory shall be valued at the Seller's invoice prices. The price of the
Inventory, as determined in accordance with this Article IV, shall be paid by
Buyer, in cash, not later than thirty (30) days after the Date of Closing.
(b) In addition to the foregoing, the Buyer shall tender cash to Seller
on the Date of Closing in the amount of $15,000, which amount shall be equal to
the Restaurant's cash-on-hand (consisting of so-called "change funds" at the
Location) as of the Effective Time, which cash-on-hand shall be transferred to
Buyer as of the Effective Time.
ARTICLE V
PRORATION
The following items relating to the Assets will be prorated between
Buyer and Seller as of the Effective Time:
(a) Pre-paid lease and service contracts and other items assumed by
Buyer.
(b) Water and other utility charges, assignable deposits, rent and all
other common area maintenance charges due under the Lease.
(c) Prepaid liquor and food license fees and other fees and other
charges for licenses and permits assigned by Seller to Buyer (but only to the
extent that such licenses and permits are assignable by Seller to Buyer under
applicable law).
(d) Vacation pay and employee wages.
(e) All other items customarily prorated and adjusted in connection
with the sale of property of the type contemplated by this Agreement.
All prorations required under this Article V shall be allocated so that
items relating to time periods prior to the Effective Time will be allocated to
Seller and items relating to time periods beginning on or after the Effective
Time will be allocated to Buyer (but only to the extent that such assets are
part of the Assets acquired by Buyer hereunder and such liabilities are part of
the Assumed Obligations assumed by Buyer).
Seller shall provide Buyer with its written estimate of the amount
payable by Buyer to Seller under this Article V within twenty (20) days after
the Date of Closing. Buyer shall pay the prorations within thirty (30) days
after the Date of Closing. In the event Buyer disputes a proration, Buyer and
Seller shall negotiate in good faith to resolve any disagreements concerning the
adjustments contemplated under this Article V prior to the Date of Closing. In
the event that the parties are unable to resolve any such disagreement within
fifteen (15) days following delivery to Buyer of Seller's estimate, then, in
such event, the parties shall submit the dispute to a mutually accepted
independent accountant (the "Reviewing Accountant") to resolve such
disagreement. Any determination by the Reviewing Accountant shall be completed
by no later than ninety (90) days following the submission of the matter and
shall be final, binding and conclusive with respect to the matters in dispute,
absent fraud or manifest error. The fees of the Reviewing Accountant shall be
proportioned equally between Buyer and Seller.
In the event these matters are submitted to the Reviewing Accountant,
the party owing money in accordance with the Reviewing Accountant's decision
shall pay such sum within five (5) days following receipt of the report of the
Reviewing Accountant.
If any terms prorated as of the Date of Closing are based on estimates
(including, without limitation, percentage rents and common area charges under
the Lease) such proration shall be adjusted at such time as the final
adjustments of such payments are made and any amounts due Seller or Buyer, as
the case may be, on account thereof shall be paid in cash within ten (10) days
following such adjustment.
ARTICLE VI
CLOSING
Section VI.1 Date of Closing. The closing of the transactions
contemplated hereby shall occur at 9:00 a.m. on February 3, 1998 ("Date of
Closing" or "Closing Date"). The closing shall take place at the offices of
Goodwin, Procter & Hoar LLP, Exchange Place, Boston, Massachusetts, or at such
other place as the parties may agree. Seller shall keep control of and operate
the Restaurant through the close of business on the Date of Closing. Immediately
after the Restaurant closes for business on the Date of Closing (the "Effective
Time"), Buyer shall assume possession of the Restaurant and Assets at the
Location and shall control and operate the Restaurant beginning as of the
opening of business on the day after the Date of Closing.
Section VI.2 Deliveries of Seller. At the closing, Seller shall deliver
the following documents to Buyer:
(a) An executed Bill of Sale, Assumption of Liabilities and Assignment
Agreement substantially in the form of Exhibit B..
(b) An executed Franchise Agreement, substantially in the form of
Exhibit A, as soon as practicable after approval of the franchise offering
circular by the State of Minnesota.
Section VI.3 Deliveries of Buyer. At the closing, the Buyer shall
deliver to Seller the following:
(a) The Franchise Agreement duly executed by Buyer.
(b) Consent to Assignment of Lease and Unconditional Release of Seller
from the Lease, in the form of Exhibit C attached hereto, duly executed by the
Landlord of the Lease.
(c) Such other documents, certificates and instruments as may be
reasonably requested by Seller in connection with the transactions contemplated
hereby.
ARTICLE VII
CONDUCT OF BUSINESS
Section VII.1 Conduct of Business up to Effective Time. During the
period between the date hereof and the Effective Time, Seller agrees that it
will continue to operate the Restaurant diligently and only in the ordinary
course of business. Seller will not take any action which will cause any
material change in the operations of the Restaurant or in the properties
utilized in its operations, other than changes in the ordinary course of
business.
Section VII.2 Authorization from Others. Prior to the Effective Time,
Seller and Buyer will use their best efforts, but without cost to Seller, to
obtain the consent of the Lessor to the Assignment of Lease contemplated under
sub-paragraph (d) of Section 6.2 above and all other authorizations, consents
and permits of others required to permit the consummation by Seller of the
transactions contemplated by this Agreement.
Section VII.3 Consummation of Agreement. Seller shall use its best
efforts, but without cost to Seller, to perform and fulfill all conditions and
obligations on its part to be performed and fulfilled under this Agreement, to
the end that the transactions contemplated by this Agreement shall be fully
carried out.
Section VII.4 Employees.
(a) Seller shall terminate the employment of all of its employees
employed at the Location with respect to the Restaurant (the "Subject
Employees") as of the Effective Time. The Buyer shall hire all Subject Employees
as of the Effective Time on terms and conditions equivalent (including without
limitation identical salary or hourly compensation rates) to those of Seller
immediately prior to the Effective Time. Except as may be otherwise agreed by
the parties as a result of good faith negotiation, Seller shall use its best
efforts, but without cost to Seller, to insure that all Subject Employees shall
accept such employment by Buyer following the Effective Time. As between Seller
and the Buyer, it is agreed that the Subject Employees will become employees of
the Buyer as of the Effective Time. The parties acknowledge and agree that the
Buyer shall not acquire any rights or interests of Seller in, or assume or have
any obligations or liabilities of Seller under, any employee benefit plans of
Seller with the exception of vacations accrued but not taken as of the Effective
Time, for which Buyer shall be liable after the Effective Time. However, Buyer
shall not be obligated to continue the employment of any Subject Employees for a
fixed term or any guaranteed length of time following the Effective Time.
(b) Buyer acknowledges that Seller has not provided the Subject
Employees with a notice of employment loss under the Worker Adjustment and
Retraining Notification Act, 29 U.S.C. ss.2101, et. seq. on the basis of the
understanding and agreement of the parties that the transaction contemplated
hereunder will not result in an "employment loss" within the meaning of such
statute.
Section VII.5 Removal of Assets. Seller shall not remove from the
Location any of the physical Assets to be purchased hereunder (except for items
replaced in the ordinary course of business with items of equivalent value).
Section VII.6 Access. Seller shall permit the Buyer, and its agents or
employees, to have access to the Restaurant during ordinary business hours for
the purpose of observing the operation of the Restaurant and reviewing the books
and records of the Restaurant, all at the sole cost and expense of Buyer. Under
no circumstances shall Buyer participate in the management of the Restaurant
prior to closing.
ARTICLE VIII
ASSUMPTION OF LIABILITIES
Buyer shall assume as of the Effective Time all obligations, duties and
liabilities arising under or with respect to any of the Assumed Obligations.
Seller and Buyer acknowledge and agree that Buyer has not agreed to
assume any of Seller's liabilities and obligations except for the Assumed
Obligations. The assumption of the Assumed Obligations by Buyer hereunder shall
not enlarge any rights of third parties under contracts or arrangements with
Buyer or Seller and nothing herein shall prevent any party from contesting in
good faith with any third party any of said liabilities.
ARTICLE IX
CONDITIONS
Section IX.1 Conditions to Obligations of Seller. Unless waived by
Seller in writing, the obligations of Seller to sell the Assets are subject to
the satisfaction on or prior to the Closing Date of each of the following
conditions:
(a) Buyer shall have delivered to Seller the documents and items
identified in Section 6.3 hereof.
(b) Buyer shall have complied in all material respects with the
covenants, agreements and conditions of Buyer contained herein to be performed
at or prior to the closing.
(c) The representations and warranties of Buyer contained herein shall
be true and correct in all material respects on and as of the Closing Date with
the same effect as though made on and as of the Closing Date and all actions,
proceedings, instruments and documents required to carry out this Agreement and
the transactions contemplated hereby and all related legal matters contemplated
by this Agreement shall have been approved by counsel for Seller, and such
counsel shall have received on behalf of Seller such other certificates, and
documents in form satisfactory to counsel for Seller, as Seller may reasonably
require from Buyer to evidence compliance with the terms and conditions hereof
as of the closing and the correctness as of the closing of the representations
and warranties of Buyer. Seller shall also have received all required
authorizations, waivers, consents and permits to permit the transactions
contemplated by this Agreement, in form and substance reasonably satisfactory to
Seller, from all third parties, including without limitation applicable
governmental authorities, regulatory agencies, Seller's lessors, lenders and
contract parties, required in connection with the transfer of Assets or Seller's
contracts, permits, leases, licenses and franchises, to avoid a breach, default,
termination, accelerations or modification of any agreement, contract,
instruments, mortgage, lien, lease, permit, authorization, order, writ,
judgment, injunction, decree, determination or arbitration award binding on
Seller or otherwise applicable to the Restaurant as a result of, or in
connection with, the execution and performance of this Agreement or as a result
of any action taken by any party holding a mortgage, lien or other encumbrance
on the Location. Seller shall diligently and in good faith undertake to obtain
the approvals, licenses and other matters referred to in subsection (c) of this
Section 9.1. Buyer shall reasonably cooperate with the Seller in the performance
by the Seller of its obligations hereunder.
Section IX.2 Conditions to Obligations of Buyer. Unless waived by Buyer
in writing, the obligations of Buyer to purchase the Assets are subject to the
satisfaction on or prior to the Closing Date of each of the following
conditions:
(a) Seller shall have delivered to Buyer the documents and items
identified in Section 6.2 hereof.
(b) Seller shall have complied in all material respects with the
covenants, agreements and conditions of Seller contained herein to be performed
at or prior to the closing.
(c) The representations and warranties of Seller contained herein shall
be true and correct in all material respects on and as of the Closing Date with
the same effect as though made on and as of the Closing Date and all actions,
proceedings, instruments and documents required to carry out this Agreement and
the transactions contemplated hereby and all related legal matters contemplated
by this Agreement shall have been approved by counsel for Buyer, and such
counsel shall have received on behalf of Buyer such other certificates, and
documents in form satisfactory to counsel for Buyer, as Buyer may reasonably
require from Seller to evidence compliance with the terms and conditions hereof
as of the closing and the correctness as of the closing of the representations
and warranties of Seller.
(d) Except as provided in Section 9.3 below, Buyer shall have received
(i) all health, restaurant, food, liquor and other governmental licenses,
permits and approvals necessary or appropriate, in the reasonable judgment of
the Buyer, to the continued operation and management of the Restaurant, and (ii)
all required authorizations, waivers, consents and permits to permit the
continuation of the business of the Restaurant and the transactions contemplated
by this Agreement, in form and substance reasonably satisfactory to Buyer, from
all third parties, including, without limitations, applicable governmental
authorities, regulatory agencies, Seller's lessors, lenders, the holders of any
mortgages or other liens on the Location and contract parties, required in
connection with the transfer of Assets or Seller's contracts, permits, leases,
licenses and franchises, to avoid a breach, default, termination, accelerations
or modification of any agreement, contract, instruments, mortgage, lien, lease,
permit, authorization, order, writ, judgment, injunction, decree, determination
or arbitration award binding on Seller or otherwise applicable to the Restaurant
as a result of, or in connection with, the execution and performance of this
Agreement or as a result of any action taken by any party holding a mortgage,
lien or other encumbrance on the Location. Buyer shall use its best efforts to
obtain the approvals, licenses and other matters referred to in subsection (e)
of this Section 9.2. Seller shall reasonably cooperate with the Buyer in the
performance by the Buyer of its obligations hereunder.
Section IX.3 Liquor License.
(a) This transaction shall be submitted to the appropriate licensing
authorities of Minnetonka, Minnesota (and any other governmental authority
responsible for the issuance of first-class on-sale food and liquor licenses,
collectively the "City") and Buyer and Seller shall each use their best efforts
and utmost good faith and use all diligence to secure such licenses. Pending
issuance of the food and liquor license referred to in this Section 9.3, the
Buyer shall operate the Restaurant under authority of Seller's existing licenses
under the terms of an interim management agreement (the "Interim Management
Agreement") in substantially the form of Exhibit D attached hereto.
Notwithstanding anything to the contrary contained in the Interim Management
Agreement, Seller shall not be obligated to provide Buyer with overhead,
corporate, accounting, legal and other similar services following the Effective
Time.
(b) In the event that (i) either party is notified that the City will
not permit the parties to continue operation of the Restaurant on the terms of
the Interim Management Agreement, (ii) Seller's existing food and beverage
license for the Restaurant (the "Existing Licence") shall become subject to any
proceeding for the revocation of such license, (iii) the Existing License should
not be renewed or (iv) a new food and beverage license for the Restaurant in
Buyer's name is not issued by the City on or before the first anniversary of the
Date of Closing such that the Interim Management Agreement can be terminated,
then, in any such event:
(i) The instruments of transfer referred to in Section 6.2
shall be returned by Buyer to Seller and Buyer shall execute and deliver to
Seller (or cause to be executed and delivered) all documents and instruments
necessary to revest Seller with good and marketable title to the Assets (subject
to the Permitted Encumbrances and such other liens and encumbrances incurred by
or on behalf of Seller).
(ii) Seller shall return to Buyer all payments made by Buyer
hereunder, together with interest on such amount from the date of payment by
Buyer to Seller, until repaid by Seller, at an annual rate of six (6) percent,
less the actual net profit recovered by Buyer for the operation of the
Restaurant and payable to Buyer under the Interim Management Agreement for the
period beginning on the Effective Time and ending on the date of retransfer
contemplated under this Section 9.3. (c) In the event of a dispute or
controversy with regard to the payments to be made or received in accordance
with Section 9.3(b) above, then, in any such event, such a dispute or
controversy shall be submitted to a final, binding and conclusive arbitration
pursuant to Minn. Stat. 572.08 et. seq. to be conducted in accordance with the
rules and procedures of the American Arbitration Association ("AAA"). Three
independent arbitrators, one to be approved each of the parties and third by the
two so chosen shall be selected, either based on mutual agreement or from the
panel submitted by the AAA. The panel shall have authority, within its
discretion to award, as part of its decision such additional amounts for actual
damages, expenses, costs and attorney fees if it finds bad faith as to one of
the parties. Additional, the panel may award interest at the annual rate of six
percent (6%) from the date determined by the panel until such payments are paid.
The decision of the arbitrators shall be final and binding, and for the purpose
of entering any award, the decision may be reduced to a judgment of any court of
appropriate jurisdiction.
(d) Notwithstanding the foregoing, Buyer or Seller or both shall be
entitled to seek injunctive action against the City to enjoin the non-renewal or
termination of the Existing License as a result of the transaction contemplated
herein. If such injunction is granted, Section 9.3(a) shall not be implemented
until final adjudication is exhausted.
(e) Notwithstanding anything to the contrary contained herein, or in
any instrument of transfer delivered hereunder, the Buyer shall not acquire a
pecuniary interest in the Restaurant prior to the issuance of the new food and
liquor licenses referred to in Section 9.3(a) in violation of any applicable
state or local law or ordinance.
ARTICLE X
TERMINATION OF AGREEMENT
Section X.1 Termination. This Agreement and the transactions
contemplated hereby may be terminated at any time prior to the Closing Date:
(a) By mutual written consent of Seller and Buyer.
(b) By either Buyer or by Seller if the closing shall not have occurred
prior to the close of business on February 15, 1998, provided, however, that the
party seeking to terminate this Agreement pursuant to this Section 10.1(b) may
do so only if the failure to close shall not have resulted from the failure of
such party to comply with any of the terms of this Agreement or from the
inaccuracy of any representation or warranty of such party.
ARTICLE XI
SELLER REPRESENTATIONS
As an integral part of this Agreement, and in order to induce Buyer to
enter into this Agreement and purchase the Assets, Seller hereby covenants,
represents and warrants to Buyer:
Section XI.1 Execution and Delivery; Effect of Agreement. Seller is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Minnesota with full corporate power and authority to own or
lease its properties and to conduct its business in the manner and in the places
where such properties are owned or leased or such business is currently
conducted or proposed to be conducted.
Section XI.2 Authority of Seller.
(a) Seller has full right, authority and power to enter into this
Agreement and each agreement, document and instrument to be executed and
delivered by Seller pursuant to this Agreement and to carry out the transactions
contemplated hereby. The execution, delivery and performance by Seller of this
Agreement and each such other agreement, documents and instrument have been duly
authorized by all necessary action of Seller and no other action on the part of
Seller is required in connection therewith.
(b) This Agreement and each agreement, document and instrument executed
and delivered by Seller pursuant to this Agreement constitutes, or when executed
and delivered will constitute, valid and binding obligations of Seller
enforceable in accordance with their terms. The execution, delivery and
performance by Seller of this Agreement and each such agreement, document and
instrument:
(i) Does not and will not violate any provision of the
Articles of Incorporation or by-laws of Seller.
(ii) Does not and will not violate any laws of the United
States, or any state or other jurisdiction applicable to Seller or require
Seller to obtain any approval, consent or waiver of, or make any filing with,
any person or entity (governmental or otherwise) that has not been obtained or
made (except that certain governmental consents and authorizations are required
in connection with the operation of a bar and restaurant business at the
Location). (c) Seller owns the Assets free and clear of all liabilities,
obligations, security interests, and encumbrances, except for Permitted
Encumbrances.
Section XI.3 Conduct of Business. To the knowledge of Seller, except as
disclosed on Schedule III:
(a) Seller is currently in possession of the Location pursuant to the
Lease; Seller has not defaulted in the payment of performance of any obligation
of Seller under the Lease.
(b) There are no collective bargaining agreements in effect with any of
Seller's employees.
(c) There is no claim, action, suit, proceeding, arbitration,
investigation or inquiry pending before any Federal, probate, municipal, or
other court, or any governmental administrative or self-regulatory body or
agency, or self or any private arbitration tribunal, or to the Seller's
knowledge threatened against, or relating to affecting Seller by reason of the
Restaurant or the transactions contemplated by this Agreement.
Section XI.4 No Brokers. Neither Seller nor any of its affiliates has
employed any broker, finder or agent in connection with the transactions
contemplated by this Agreement, and neither Seller nor any of its affiliates has
otherwise become obligated for any broker's, finder's, agent's or similar fee
with respect to the transactions contemplated by this Agreement
ARTICLE XII
REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Seller
that:
Section XII.1 Authority of Buyer.
(a) Buyer has full right, authority and power to enter into this
Agreement and each agreement, document and instrument to be executed and
delivered by Buyer pursuant to this Agreement and to carry out the transactions
contemplated hereby. The execution, delivery and performance by Buyer of this
Agreement and each such other agreement, document and instrument have been duly
authorized by all necessary action of Buyer and no other action on the part of
Buyer is required in connection therewith.
(b) This Agreement and each agreement, document and instrument executed
and delivered by Buyer pursuant to this Agreement constitutes, or when executed
and delivered will constitute, valid and binding obligations of Buyer
enforceable in accordance with their terms. The execution, delivery and
performance by Buyer of this Agreement and each such agreement, document and
instrument:
(i) Does not and will not violate any laws of the United States, or any
state or other jurisdiction applicable to Buyer or require Buyer to obtain any
approval, consent or waiver of, or make any filing with, any person or entity
(governmental or otherwise) that has not been obtained or made (except that
certain governmental consents and authorizations are required in connection with
the operation of a bar and restaurant business at the Location).
Section XII.2 Consents. No consent, approval or authorization of, or
exemption by, or filing with, any governmental or regulatory authority or any
other third party is required to be obtained by Buyer in connection with the
execution, delivery or performance by Buyer of this Agreement or the taking by
Buyer of any other action contemplated hereby.
Section XII.3 Availability of Funds. Buyer will have available at the
closing sufficient funds to enable it to consummate the transactions
contemplated by this Agreement.
Section XII.4 Solvency. The present fair saleable value of the assets
of the Buyer will, immediately following the Effective Time, exceed the amount
that will be required to be paid on or in respect of its debts and other
liabilities (including contingent liabilities) as they mature. The assets of the
Buyer do not, and immediately following the Effective Time will not, constitute
unreasonably small capital to carry out its business as conducted or as proposed
to be conducted. The Buyer does not intend to, or believe that it will, 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 the Buyer and the amounts to be
payable on or in respect of its obligations).
Section XII.5 Litigation. There is no litigation pending or, to Buyer's
knowledge, threatened by or against or affecting Buyer, which seeks to enjoin,
challenge the validity of this Agreement or obtain damages or other relief in
respect of the consummation of the transaction contemplated hereby.
Section XII.6 Representation by Counsel. Buyer has been represented by
legal counsel in connection with the transaction contemplated in this Agreement
and has relied upon such independent counsel with respect to all legal and tax
consequence of the transaction contemplated herein.
Section XII.7 Sophisticated Investor. Buyer is a knowledgeable and
sophisticated investor in assets of the type to be conveyed under this
Agreement.
Section XII.8 No Brokers. Neither Buyer nor any of its affiliates has
employed any broker, finder or agent in connection with the transactions
contemplated by this Agreement, and neither Buyer nor any of its affiliates has
otherwise become obligated for any broker's, finder's, agent's or similar fee
with respect to the transactions contemplated by this Agreement.
ARTICLE XIII
SURVIVAL AND INDEMNIFICATION
Section XIII.1 Survival of Warranties. All representations, warranties,
agreements, covenants and obligations herein or in any schedule, exhibit,
certificate or financial statement delivered by any party to the other party
incident to the transactions contemplated hereby are material, shall be deemed
to have been relied upon by the other party and shall survive the closing
regardless of any investigation and shall not merge in the performance of any
obligation by either party hereto; provided, however, that such representations,
warranties, agreements, covenants and obligations shall expire on the same dates
as and to the extent that the rights to indemnification with respect thereto
under this Article XIII shall expire.
Section XIII.2 Indemnification by Seller. Seller shall indemnify and
hold Buyer and its respective subsidiaries and affiliates and persons servings
as shareholders, officers, directors, partners or employees thereof
(individually a "Buyer Indemnified Party" and collectively the "Buyer
Indemnified Parties") harmless from and against any damages, liabilities,
losses, taxes, fines, penalties, costs, and expenses (including, without
limitation, reasonable fees of counsel) of any kind or nature whatsoever
(whether or not arising out of third-party claims and including all amounts paid
in investigation, defense or settlement of the foregoing pursuant to this
Article XIII) (hereafter, "Losses") which may be sustained or suffered by any of
them arising out or based upon any of the following matters:
(a) Fraud, intentional misrepresentation or a deliberate or wilful
breach by Seller of any of their representations, warranties or covenants under
this Agreement or in any certificate, schedule or exhibit delivered pursuant
hereto.
(b) Any other breach of any representations, warranty or covenant of
Seller under this Agreement or in any certificate, schedule or exhibit delivered
pursuant hereto, or by reason of any claim, action or proceeding asserted or
instituted growing out of any matter or thing constituting a breach of such
representations, warranties or covenants.
(c) Any liability of Seller for Taxes owed by it payable for any period
prior to the Effective Time.
(d) All Retained Obligations.
(e) The claim of any broker, finder or other agent employed by or on
behalf of Seller.
Section XIII.3 Limitations on Indemnification by Seller.
Notwithstanding the foregoing, the right of Buyer Indemnified Parties to
indemnification under Section 13.1 shall be subject to the following provisions:
(a) No indemnification shall be payable pursuant to Section 13.2(b)
above to any Buyer Indemnified Party, until Losses for which the Buyer may be
indemnified hereunder exceed $20,000, whereupon the full amount of such Losses
in excess of $20, 000 shall be recovered in accordance with the terms hereof;
provided, however, that under no circumstances shall the aggregate amount
recovered or payable pursuant to Section 13.2 (b) to any and all of the Buyer
Indemnified Parties exceed the sum payable under Section 3.1 hereof.
(b) No indemnification shall be payable to a Buyer Indemnified Party
with respect to claims asserted pursuant to Section 13.2(b) (exclusive of claims
for indemnification for Taxes or tax related matters) after expiration of
eighteen (18) months from the Date of Closing, plus such further period
necessary to resolve any claim for indemnification made prior to such date (the
"Indemnification Cut-Off Date").
Section XIII.4 Indemnification by Buyer. Buyer agrees to indemnify and
hold Seller harmless from and against any damages, liabilities, losses and
expenses (including, without limitation, reasonable fees of counsel) of any kind
or nature whatsoever (whether or not arising out of third-party claims and
including all amounts paid in investigation, defense or settlement of the
foregoing pursuant to this Article XIII) (hereafter, "Losses") which may be
sustained or suffered by any of them arising out of or based upon any of the
following matters:
(a) A breach of any representations or warranties made by Buyer in this
Agreement or in any certificate delivered by Buyer hereunder, or by reason of
any claims, action or proceeding asserted or instituted growing out of any
matter or thing constituting such a breach.
(b) Any and all failures of the Buyer to pay or to perform and
discharge any of the Assumed Obligations or to perform any covenants made by
Buyer in this Agreement.
(c) Any and all employment practices, decisions, actions or proceedings
undertaken by Buyer following the Effective Time in connection with the
operation of the Restaurant.
Section XIII.5 Limitation on Indemnification by Buyer. Notwithstanding
the foregoing, the right of Seller to Indemnification under Section 13.4 shall
be subject to the following provisions:
(a) No indemnification shall be payable pursuant to Section 13.4(a)
above to Seller, until Losses for which the Seller may be indemnified hereunder
exceed $20,000, whereupon the full amount of such Losses in excess of $20,000
shall be recovered in accordance with the terms hereof; provided, however, that
under no circumstances shall the aggregate amount recovered or payable pursuant
to Section 13.3(a) to Seller exceed the sum payable under Section 3.1 hereof.
(b) No indemnification shall be payable to Seller with respect to
claims asserted pursuant to Section 13.4 above after the Indemnification Cut-Off
Date, plus such further period necessary to resolve any claim for
indemnification made prior to such date.
Section XIII.6 Notice; Defense of Claims. Promptly after receipt by an
indemnified party of notice of any claim, liability or expense to which the
indemnification obligations hereunder would apply, the indemnified party shall
give notice thereof in writing to the indemnifying party, but the omission to so
notify the indemnifying party promptly will not relieve the indemnifying party
from any liability except to the extent that the indemnifying party shall have
been prejudiced as a result of the failure or delay in giving such notice. Such
notice shall state the information then available regarding the amount and
nature of such claim, liability or expense and shall specify the provision or
provisions of this Agreement under which the liability or obligation is
asserted. If within 20 days after receiving such notice the indemnifying party
gives written notice to the indemnified party stating that it disputes and
intends to defend against such claim, liability or expense at its own cost and
expense, then counsel for the defense shall be selected by the indemnifying
party (subject to the consent of the indemnified party which consent shall not
be unreasonably withheld) and the indemnified party shall make no payment on
such claim, liability or expense as long as the indemnifying party in conducting
a good faith and diligent defense. Notwithstanding anything herein stated, the
indemnified party shall at all times have the right to fully participate in such
defense at its own expense directly or through counsel; provided, however, if
the named parties to the action or proceeding include both the indemnifying
party and the indemnified party and representations of both parties by the same
counsel would be inappropriate under applicable standard of professional
conduct, the expense of separate counsel for the indemnified party shall be paid
by the indemnifying party. If no such notice of intent to dispute and defend is
given by the indemnifying party, or if such diligent good faith defense is not
being or ceases to be conducted, the indemnified party shall, at the expense of
the indemnifying party, undertake the defense of such claim, liability or
expense (with counsel selected by the indemnified party), and shall have the
right to compromise or settle the same (exercising reasonable business
judgment). If such claim, liability or expense is one that by its nature cannot
be defended solely by the indemnify party, then the indemnified party shall make
available all information and assistance that the indemnify party may reasonably
request and shall cooperate with the indemnify party in such defense.
Section XIII.7 Calculation of Losses. In calculating the amount of any
Losses under this Agreement, the parties shall take into account, and reduce the
Losses by an amount equal to the amount of any claim or recovery available under
any insurance policies or against any third parties. Subject to the provisions
of Sections 13.3 and 13.5, Losses for which a person is required to indemnify
another person hereunder shall be calculated on a dollar for dollar basis.
ARTICLE XIV
MISCELLANEOUS
Section XIV.1 Entire Agreement. This Agreement (including the Exhibits
and Schedules attached hereto) constitutes the entire understanding of the
parties with respect to the matters provided for herein and supersedes any
previous agreements and understanding between the parties with respect to the
subject matter hereof. Matters disclosed by Seller to Buyer pursuant to any
Section of this Agreement shall be deemed to be disclosed with respect to all
sections of this Agreement. No amendment, modification or alteration of the
terms or provisions of this Agreement shall be binding unless the same shall be
in writing and duly executed by the parties hereto. If and to the extent that
the provisions hereof or of any agreement or instrument contemplated hereby
conflict with or may be construed to constitute a breach of that certain
Agreement and Plan of Merger among CEI, DAKA International, Inc. and CEI
Acquisition Corp. dated as of October 10, 1995 or any agreement or instrument
contemplated thereby or executed in connection therewith, the provisions of this
Agreement or the applicable agreement or instrument contemplated hereby shall
prevail so as to eliminate such potential conflict or breach.
Section XIV.2 Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and permitted assigns of the parties hereto. This Agreement may not
be assigned, in whole or in part, by any party without the prior written consent
of the other party hereto. Notwithstanding the foregoing, no assignment of this
Agreement or any of the rights or obligations hereof shall release the assignor
of his or its obligations under this Agreement and, upon any such assignment,
the representations, warranties, covenants and agreements contained in this
Agreement, plus any other representations, warranties, covenants and agreements
reasonably required as a result of such assignment, shall be deemed to have been
made by the assignee as well as by the assignor.
Section XIV.3 Risk of Loss.
(a) Until this transaction is consummated the entire risk of loss with
respect to the Assets and business of Seller shall be borne by Seller which
shall, in all events, keep the Assets fully insured against loss, damage or
destruction. From and after the closing of this transaction, risk of loss shall
be borne by Buyer.
(b) In the event that prior to the Effective Time the Assets, or any
portion thereof, are materially destroyed or damaged by fire or other casualty
or loss, or the premises or buildings in which the Restaurant are located are so
damaged or destroyed, Seller shall promptly notify Buyer in writing, and Buyer
shall have ten (10) days after receipt of such notice to elect to (i) cancel and
terminate this Agreement, or (ii) consummate the purchase contemplated hereby.
(c) In the event of such damage or destruction as described in Section
14.3(b) above, and Buyer elects to consummate the transaction contemplated
hereby, Seller shall assign to Buyer all of Seller's rights under, and interest
in, all of Seller's insurance policies, insurance proceeds and contracts and all
other rights of Seller to seek indemnification for such loss or damage, all
amounts recovered thereunder or thereby by Buyer to remain the sole property of
Buyer.
(d) In the event of the damage or destruction referred to in Section
14.3(b) of this Agreement, and Buyer shall not elect to consummate the
transactions contemplated by this Agreement, then upon termination and
cancellation of this Agreement, Seller shall refund to Buyer, together with
interest thereon, the earnest money, if any, paid by Buyer to Seller under this
Agreement.
Section XIV.4 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original and all of which shall constitute the same instrument.
Section XIV.5 No Construction Against Author. This Agreement shall not
be construed more strictly against one party than against the other by virtue of
the fact that it may have been drafted or prepared by counsel for one of the
parties, it being recognized that Buyer and Seller have each contributed
substantially and materially to the preparation of this Agreement.
Section XIV.6 Headings. The headings of the Articles and Sections of
this Agreement are included for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction hereof.
Section XIV.7 Modifications and Waivers. Any of the terms or conditions
of this Agreement may be waived in writing at any time by the party which is
entitled to the benefits thereof. No waiver of any of the provisions of this
Agreement shall be deemed to or shall constitute a waiver of any other
provisions hereof (whether or not similar).
Section XIV.8 Fees and Expenses.
(a) Each of the parties will bear its own expenses in connection with
the negotiation and the consummation of the transactions contemplated by this
Agreement, and, except as expressly provided herein, no expenses of Seller
relating in any way to the purchase and sale of the Assets hereunder and the
transactions contemplated hereby, including, without limitation legal,
accounting or other professional expenses of Seller, shall be charged or paid by
Buyer or included in any of the Assumed Obligations.
(b) Buyer will pay all costs incurred, whether at or subsequent to the
Effective Time, in connection with any sales, use, excise, real property and
transfer taxes and charges applicable to such transfer, all recording charges
and title company fees and premiums applicable to the recordation of deeds and
mortgages and other instruments of transfer and the issuance of the title
insurance contemplated hereunder, and all costs of obtaining or transferring
permits, registrations, applications and other tangible and intangible
properties. Buyer will pay all premiums, charges and costs of obtaining and
providing surveys, appraisals, UCC and title searches for the benefit of Buyer
with respect to the Assets.
(c) Notwithstanding anything to the contrary contained herein, the
prevailing party in any litigation commenced hereunder shall be entitled to such
parties fees and expenses, including reasonable attorneys fees and
disbursements.
Section XIV.9 Publicity and Disclosures. No press releases or public
disclosure, either written or oral, of the transactions contemplated by this
Agreement, shall be made by a party to this Agreement without the prior written
consent of Buyer and Seller.
Section XIV.10 Notices. Any notice, request, instruction or other
document to be given hereunder by any party hereto to any other party shall be
in writing and delivered personally or sent by registered or certified mail,
postage prepaid, addressed as follows:
If to Seller: c/o Champps Entertainment, Inc.
1 Corporate Place
55 Ferncroft Road
Danvers, Massachusetts 01923-4001
Attention: Charles W. Redepenning
With copy to:
Goodwin, Proctor & Hoar, LLP
Exchange Place
Boston, Massachusetts 02109
Attention: Ettore A. Santucci, P.C.
If to Buyer: Dean P. Vlahos
80 Gideons Point Road
Tonka Bay, MN 55331
With copy to:
Kaplan, Strangis and Kaplan, P.A.
5500 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Attention: David Karan, Esquire
or at such other address for a party as shall be specified by like notice. Any
notice which is delivered personally in the manner provided herein shall be
deemed to have been duly given to the party to whom it is directed upon actual
receipt by such party (or its agent for notices hereunder). Any notice which is
addressed and mailed in the manner herein provided shall be conclusively
presumed to have been duly given to the party to which it is addressed at the
close of business, local time of the recipient, on the third day after the day
it is so placed in the mail.
Section XIV.11 Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Minnesota applicable to
agreements made and to be performed in such jurisdiction and without giving
effect to the principles of conflicts of law of such jurisdiction.
Section XIV.12 Further Assurances. At any time or from time to time
after the Effective Time, either party shall, at the request of the other party,
and at such other party's expense, execute and deliver any further instruments
or documents and take all such further action as such party reasonably may
request in order to consummate and make effective the transactions contemplated
by this Agreement.
Section XIV.13 Severability. If any provision hereof shall be held by
any court of competent jurisdiction to be illegal, void or unenforceable, such
provision shall be of no force and effect, but the illegality, voiding or
unenforceability of any such provision shall have no effect upon and shall not
impair the enforceability of any other provision of this Agreement.
Section XIV.14 Survival. Except as set forth in Article XIII above, the
representations, warranties, covenants and agreements set forth in this
Agreement or in any writing delivered by Buyer or Seller hereunder shall survive
the closing contemplated hereunder.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered on the day and year first above written.
SELLER:
CHAMPPS ENTERTAINMENT, INC., a Minnesota corporation
By:
Its
BUYER:
Dean P. Vlahos
---------------------------------
<PAGE>
EXHIBIT A
FRANCHISE AGREEMENT
<PAGE>
EXHIBIT B
BILL OF SALE, ASSUMPTION OF LIABILITES AND ASSIGNMENT AGREEMENT
<PAGE>
EXHIBIT C
ASSIGNMENT OF LEASE AND UNCONDITIONAL RELEASE
<PAGE>
EXHIBIT D
INTERIM MANAGEMENT AGREEMENT
Exhibit 10.17
CHAMPPS RESTAURANT DEVELOPMENT AGREEMENT
February 2, 1998
<PAGE>
TABLE OF CONTENTS
1. GRANT OF DEVELOPMENT RIGHTS
2. DEVELOPMENT SCHEDULE
3. DEVELOPMENT PROCEDURES
4. TRANSFERABILITY OF INTEREST
5. DEFAULT AND TERMINATION
6. OBLIGATIONS UPON TERMINATION
7. COVENANTS
8. RELATIONSHIP OF THE PARTIES
9. INDEMNIFICATION
10. APPROVALS AND WAIVERS
11. NOTICES
12. ENTIRE AGREEMENT
13. SEVERABILITY AND CONSTRUCTION
14. GOVERNING LAW, FORUM AND LIMITATIONS
15. REPRESENTATIONS
<PAGE>
THIS AGREEMENT is made as of February 2, 1998, by and between Champps
Entertainment, Inc., ("Champps"), a Minnesota corporation with its business
headquarters at One Corporate Place, 55 Ferncroft Road, Danvers, Massachusetts
01923, and Dean P. Vlahos ("Developer"), an individual with his principal
address at 80 Gideons Point Road, Tonka Bay, Minnesota 55331.
RECITALS
As a result of the expenditure of time, skill, effort and money,
Champps has developed and owns a unique and distinctive system ("Champps System"
or the "System") relating to the development, establishment and operation of
sports theme restaurants that provide the public with high-quality food and
beverages ("Champps Restaurants").
The distinguishing characteristics of the Champps System include a
distinctive and identifying combination of foods and beverages; services;
exterior and interior building designs; color scheme and decor; signage;
furnishings and materials; special recipes and formulae; menus; preparation,
service and delivery procedures and techniques; operating procedures for
sanitation and maintenance, and methods and techniques for inventory and cost
controls, record keeping and reporting, personnel management, purchasing, sales
promotion and advertising.
Champps identifies the Champps System by means of certain names,
trademarks, logos, service marks, insignias, slogans, emblems, symbols and
designs (collectively "Proprietary Marks") which Champps has designated or may
in the future designate for use with the Champps System.
Champps, by reason of its maintenance of high standards of quality for
the food and beverages sold by Champps Restaurants operated by it or under its
supervision and by reason of its maintenance of high standards of service
rendered by these restaurants over a period of years, has created a substantial
goodwill and demand for restaurants operated under the Champps System and the
foods served at those restaurants.
Developer acknowledges that the Champps System provides a firm
foundation for a franchise operation featuring the highest standards of
management, training, supervision, merchandising, service procedures and quality
food products.
Developer desires, upon the terms and conditions in this Agreement, to
obtain a non-exclusive license to develop Champps Restaurants ("Franchised
Restaurants") in the limited geographic area described in Appendix A
("Development Territory') under the supervision of, and in accordance with, the
standards and specifications adopted and promulgated by Champps.
Champps is ready to grant a license to Developer to develop Franchised
Restaurants in the Development Territory upon the terms and conditions set forth
below.
In consideration of the mutual agreements set forth below and in the
Separation Agreement and other good and valuable consideration, acknowledged by
each of the parties to be satisfactory and adequate, Champps and Developer agree
as follows:
1. GRANT OF DEVELOPMENT RIGHTS
1.1 Champps hereby grants to Developer the non-exclusive right to
develop Franchised Restaurants in the Development Territory during the
Development Term, upon the terms and conditions contained in this Agreement. The
Development Term begins on the date this Agreement is signed by Champps and
expires on the earlier of: (A) the date Developer opens the last Franchised
Restaurant it is permitted to develop pursuant to this Agreement; or (B) the
date that the last Franchised Restaurant is required to be opened pursuant to
the attached Appendix B. There is no renewal term for this Agreement. Each
Franchised Restaurant shall be located in the Development Territory at a
specific location approved by Champps.
<PAGE>
1.2 This Agreement is not a license or a franchise agreement. It does
not give Developer the right to operate Champps Restaurants or use the System,
nor does this Agreement give Developer any right to license others to operate
Champps Restaurants or use the System. This Agreement only gives Developer an
option to enter into Franchise Agreements for the operation of Franchised
Restaurants at locations in the Development Territory approved by Champps. Each
Franchised Restaurant developed pursuant to this Agreement shall be established
and operated only in strict accordance with a separate Franchise Agreement.
1.3 This Agreement does not give Developer any exclusive rights to use
the Champps System or the Proprietary Marks in the Development Territory.
Nothing in this Agreement shall prohibit Champps from: (A) operating or
licensing others to operate Champps Restaurants at any location in the
Development Territory other than the location of a Franchised Restaurant; (B)
operating or licensing others to operate, after this Agreement terminates or
expires, Champps Restaurants, any other restaurants or any other business at any
location, including the location of a Franchised Restaurant, subject to the
terms of applicable franchise agreements; (C) merchandising and distributing
goods and services identified by the Proprietary Marks at any location through
any method or channel of distribution other than restaurants; and (D) selling or
distributing goods identified by the Proprietary Marks to restaurants other than
Champps Restaurants. Champps reserves to itself all rights to use and license
the Champps System and the Proprietary Marks other than those expressly granted
under this Agreement.
2. DEVELOPMENT
During the Development Term, Developer shall have the right to develop
in the Development Territory the number of Franchised Restaurants specified in
the attached Appendix B, subject to the terms set forth in such Appendix B.
3. DEVELOPMENT PROCEDURES
3.1 Developer assumes all cost, liability and expense for locating,
obtaining and developing sites for Franchised Restaurants and constructing and
equipping Franchised Restaurants at approved sites. Developer shall be
responsible for, all loss or damage originating in, or incurred in connection
with, the development or operation of each Franchised Restaurant and for all
claims or demands for damages to property or for injury, illness or death of
persons directly or indirectly resulting from the development or operation of
each Franchised Restaurant.
3.2 Champps will provide Developer, as Champps may deem advisable, site
selection assistance as part of its evaluation of Developer's request for site
approval.
3.3 For each proposed site for a Franchised Restaurant, Developer shall
submit to Champps a complete real estate package (containing that information as
Champps may reasonably require) for a proposed site which Developer reasonably
believes to conform to site selection criteria Champps establishes from time to
time for demographic characteristics, traffic patterns, parking, character of
the neighborhood, competition from other businesses in the area, the proximity
to other businesses (including other Champps Restaurants), the nature of other
businesses in proximity to the site and other commercial characteristics
(including the purchase price, rental obligations and other lease terms for the
proposed site) and the size, appearance, other physical characteristics, and a
site plan of the premises. Developer shall submit such real estate package to
Champps within five (5) days of Developer entering into a letter of intent
(whether binding or not) or purchase and sale agreement with respect to the
lease or purchase any site on which Developer proposes to develop a Champps
Restaurant.
Developer acknowledges that, in order to preserve and enhance the
reputation and goodwill of all Champps Restaurants and the goodwill of the
Proprietary Marks, all Champps Restaurants must be properly developed and
operated. Accordingly, Developer agrees that Champps may refuse to approve a
site for a proposed Franchised Restaurant unless Developer demonstrates
sufficient financial capabilities, in Champps' sole judgment, applying standards
consistent with the then-existing criteria Champps uses to establish Champps
Restaurants in other comparable market areas, to properly develop and operate
the proposed Franchised Restaurant. To this end, Developer shall furnish Champps
with such financial statements and other information regarding and the
development and operation of the proposed Franchised Restaurant, including,
without limitation, investment and financing plans for the proposed Franchised
Restaurant, as Champps reasonably may require.
<PAGE>
3.4 Within 60 days after Champps' receipt of the real estate package
discussed above, Champps shall advise Developer in writing whether it has
approved a particular site. If Champps does not respond to a completed real
estate package within 60 days, Champps shall be deemed to have denied approval
of the site. Champps' approval or denial of approval of a site shall be
determined by Champps in its reasonable discretion and shall be based on
Champps' then-existing requirements for franchisees. (A site which Champps has
approved shall be referred to as an "Authorized Site.")
Champps' approval of one or more sites is not a representation or a
promise by Champps that a Franchised Restaurant at an Authorized Site will
achieve a certain sales volume or a certain level of profitability. Similarly,
Champps' approval of one or more sites and its refusal to approve other sites is
not a representation or a promise that an Authorized Site will have a higher
sales volume or be more profitable than a site which Champps did not approve.
Champps assumes no liability or responsibility for: (A) evaluation of an
Authorized Site's soil for hazardous substances; (B) inspection of any structure
on the Authorized Site for asbestos or other toxic or hazardous materials; or
(C) compliance with the Americans With Disabilities Act ("ADA"). It is
Developer's sole responsibility to obtain satisfactory evidence and/or
assurances that the Authorized Site (and any structures thereon) is free from
environmental contamination and in compliance with the requirements of the ADA.
3.5 Developer may not commence construction of a Franchised Restaurant
at an Authorized Site until Developer and Champps have fully executed the
then-current form of Champps Restaurant Franchise Agreement for the Authorized
Site, modified, however, to provide that: (i) Developer shall pay no franchise
fee with respect to such Franchised Restaurant, (ii) Developer shall pay a
royalty with respect to such restaurant equal to 1.25% (subject to increase to
1.75% as provided in Section 8 of that certain Separation Agreement by and
between Unique Casual Restaurants, Inc., Champps and the Developer dated as of
the date hereof in the event of a sale or change of control of the applicable
Franchised Restaurant , (ii) Developer shall promptly reimburse Champps for all
costs and expenses incurred by Champps in connection with providing pre-opening
support to Developer with respect to any Champps Restaurant developed by
Developer pursuant to this Agreement, and (iii) subject to clause (ii) above,
Champps agrees to provide pre-opening support to Developer with respect to the
first three Champps Restaurants developed by Developer pursuant to this
Agreement. The following conditions must be met before Champps will forward to
Developer the then-current Champps Restaurant Franchise Agreement for execution:
3.5.1 Developer must not be in default under this Agreement or any
other agreement between Developer and Champps and, for the
previous 6 months, Developer has not been in default beyond the
applicable cure period under any agreement with Champps.
3.5.2 Developer must be current on all obligations due Champps.
3.5.3 Developer must be in compliance with terms of Appendix B.
3.5.4 Champps has determined, in its sole discretion, that Developer
is operating each of its Franchised Restaurants, and is capable
of operating the proposed Franchised Restaurant, in accordance
with all Franchise Agreements and with the Champps System.
3.5.5 Developer has provided financial information as Champps
reasonably may request regarding Developer and Developer
continues to meet Champps' minimum financial criteria for
opening a Franchised Restaurant.
Provided Developer has met all of the preceding conditions, Champps
will prepare and forward to Developer duplicate originals of the then-current
form of Champps Restaurant Franchise Agreement (modified as described in Section
3.5 above) which Developer must execute and return to Champps within 20 days.
Champps promptly will execute the Champps Restaurant Franchise Agreement and
return one fully-executed Agreement to Developer. Upon receipt of a
fully-executed Agreement Developer will be authorized to commence construction
of a Franchised Restaurant at an Authorized Site.
3.6 Developer agrees that Developer shall commence construction of a
Champps Restaurant on a proposed site within six (6) months after the date on
which Champps notifies Developer that such proposed site is acceptable to
Champps. In the event that Developer does not commence construction of a Champps
Restaurant on such site within such six (6) month period, Developer shall have
no further rights to develop a Champps Restaurant on such site.
<PAGE>
4. TRANSFERABILITY OF INTEREST
4.1 Transfer by Champps. Champps shall have the right to transfer or
assign all or any part of its rights or obligations under this Agreement to any
person or legal entity. Such conveyance or assignment shall be drafted as to
recognize the pre-existing rights of Developer under this Agreement.
4.2 Transfer by Developer. Developer understands and acknowledges that
the rights and duties set forth in this Agreement are personal to Developer and
that Champps has entered into this Agreement in reliance upon Developer's
business skills, financial capacity and personal character. Accordingly,
Developer shall not without the prior written consent of Champps, sell, assign,
transfer, convey, donate, pledge, mortgage, or otherwise encumber this
Agreement, any interest in this Agreement or any interest which, alone or
together with other previous, simultaneous or contemplated transfers, would, or
could by operation of law, result in a loss of control of Developer. These
transactions shall be collectively referred to as "Transfers" in this Agreement.
Any purported Transfer, by operation of law or otherwise, not having the prior
written consent of Champps shall be null and void and shall constitute a
material default by Developer, permitting Champps to terminate this Agreement,
pursuant to Section 5. Champps acknowledges that Developer may incorporate one
or more corporations to operate Champps Restaurants developed pursuant to this
Agreement and that Developer contemplates transferring to one or more third
parties up to an aggregate of 50% of the equity interests in each such operating
company and Champps hereby consents to such transfers provided that Developer
(i) continues to be the beneficial and actual owner of at least 50% of the
equity interests in such operating company and (ii) retains at all times control
of and operating responsibility with respect to each such restaurant.
5. DEFAULT AND TERMINATION
5.1 Developer shall be deemed to be in default and Champps may, at its
option, terminate this Agreement and all of the rights granted by this
Agreement, upon written notice to Developer without affording Developer any
opportunity to cure the default, upon the occurrence of any of the following
events:
5.1.1 Developer begins construction of a Franchised Restaurant at a
site before Developer has received from Champps for execution a
Champps Restaurant Franchise Agreement.
5.1.2 Developer is convicted of, or pleads no contest to, a felony
charge; provided, however, that if the felon owns less than a
controlling ownership interest in Developer, this Agreement
shall not be terminable by Champps by reason of the felony if,
within 30 days of conviction or plea of no contest, the felon
has entirely terminated his interest in Developer by transfer to
his co-owners.
5.1.3 Developer intentionally misuses or makes any material
unauthorized use of the Proprietary Marks or any other
identifying characteristic of the Champps System in a manner
that reflects materially and unfavorably upon a Franchised
Restaurant or the Champps System, or otherwise intentionally and
materially impairs the goodwill associated therewith or Champps'
rights therein, or there is a breach of any other obligation in
Section 7.
5.1.4 Champps discovers that Developer made a material
misrepresentation or omitted a material fact in the information
that was furnished to Champps in connection with its decision to
enter into this Agreement.
5.1.5 Developer knowingly falsifies any report required to be
furnished Champps or makes any material misrepresentation in its
dealings with Champps or fails to disclose any material facts to
Champps.
5.1.6 Any Transfer, that requires Champps' prior written approval,
occurs without Developer having obtained Champps' prior written
approval.
5.1.7 Developer is insolvent or is unable to pay its creditors; files
a petition in bankruptcy, an arrangement for the benefit of
creditors or a petition for reorganization; there is filed
against Developer a petition in bankruptcy, an arrangement for
the benefit of creditors or petition for reorganization, which
is not dismissed within 60 days of the filing; Developer makes
an assignment for the benefit of creditors; or a receiver or
trustee is appointed for Developer and not dismissed within 60
days of the appointment.
5.1.8 Execution is levied against Developer's business or property;
suit to foreclose any lien or mortgage against the premises or
equipment of any Franchised Restaurant developed hereunder is
instituted against Developer and is not dismissed within 60
days; or the real or personal property of any Franchised
Restaurant developed hereunder shall be sold after levy
thereupon by any sheriff, marshal or constable.
<PAGE>
5.1.9 Developer remains in default beyond the applicable cure period
under the Separation Agreement or any other agreement with
Champps or its affiliates, or Developer remains in default
beyond the applicable cure period under any real estate lease,
equipment lease, or financing instrument relating to a
Franchised Restaurant, or Developer remains in default beyond
the applicable cure period with any vendor or supplier to a
Franchised Restaurant, or Developer fails to pay when due any
taxes or assessments relating to a Franchised Restaurant or its
employees, unless Developer is actively prosecuting or defending
the claim or suit in a court of competent jurisdiction or by
appropriate government administrative procedure or by
arbitration or mediation conducted by a recognized alternative
dispute resolution organization.
5.2 Except for those items listed in preceding Section 5.1, Developer
shall have 30 days after written notice of default from Champps within which to
remedy the default and provide evidence of that remedy to Champps. If any such
default is not cured within that time, this Agreement shall terminate without
further notice to Developer effective immediately upon expiration of that time,
unless Champps notifies Developer otherwise in writing. Notwithstanding the
foregoing, if the default cannot be corrected within 30 days, Developer shall
have such additional time to correct the default as reasonably required (not to
exceed 90 days) provided that Developer begins taking the actions necessary to
correct the default during the 30 day cure period and diligently and in good
faith pursues those actions to completion. Developer shall be in default under
this Agreement for its failure substantially to comply with any of the
requirements imposed by this Agreement or any other agreement between Champps
and Developer, as the foregoing may from time to time be supplemented, or its
failure to carry out the terms of this Agreement in good faith.
5.3 Notwithstanding the provisions of preceding Section 5.2, if
Developer defaults in the payment of any monies owed to Champps when such monies
become due and payable and Developer fails to pay such monies within 10 days
after receiving written notice of default, then this Agreement will terminate
effective immediately upon expiration of that time, unless Champps notifies
Developer otherwise in writing.
5.4 If Developer has received one or more notices of default under
Sections 5.2 or 5.3 within the previous 12 months, Champps shall be entitled to
send Developer a notice of termination upon Developer's next default within that
12 month period under Section 5.2 or 5.3 without providing Developer an
opportunity to remedy the default.
5.5 If any valid, applicable law or regulation of a competent,
governmental authority with jurisdiction over this Agreement requires a notice
or cure period prior to termination longer than set forth in this Section, this
Agreement will be deemed amended to conform to the minimum notice or cure period
required by the applicable law or regulation.
6. OBLIGATIONS UPON TERMINATION
6.1 Upon termination or expiration of this Agreement all rights granted
by this Agreement to Developer immediately shall terminate and:
6.1.1 Developer shall have no further right to develop or open
Franchised Restaurants in the Development Territory, except that
Developer shall be entitled to complete and open a Franchised
Restaurant for which a Franchise Agreement has been fully
executed. Termination or expiration of this Agreement shall not
affect Developer's right to continue to operate Franchised
Restaurants that were open and operating as of the date this
Agreement terminated or expired.
6.1.2 Developer promptly shall return to Champps all materials and
information furnished by Champps, except materials and
information furnished with respect to a Franchised Restaurant
for which there is an effective Franchise Agreement.
6.1.3 Developer and all persons subject to the covenants contained in
Section 7 shall continue to abide by those covenants and shall
not, directly or indirectly, take any action that violates those
covenants.
6.1.4 Developer promptly shall pay all sums owed to Champps and its
affiliates. In the event of termination for any default of
Developer, those sums shall Include, without limitation, all
damages, costs and expenses, including reasonable attorneys'
fees, incurred by Champps as a result of the default. Developer
also shall pay to Champps all damages, costs and expenses,
including reasonable attorneys' fees, incurred by Champps
subsequent to the termination or expiration of this Agreement in
obtaining injunctive or other relief to enforce any provisions
of this Section 6.
<PAGE>
6.1.5 Developer shall furnish Champps, within 30 days after the
effective date of termination or expiration, evidence reasonably
satisfactory to Champps of Developer's compliance with this
Section 6.
6.1.6 Developer shall not, except with respect to a franchised Champps
Restaurant which is then open and operating pursuant to an
effective Franchise Agreement: (A) operate or do business under
any name or in any manner that might tend to give the public the
impression that Developer is connected in any way with Champps
or has any right to use the Champps System or the Proprietary
Marks; or (B) make use or avail itself of any of the materials
or information furnished or disclosed by Champps under this
Agreement or disclose or reveal any such materials or
information or any portion thereof to anyone else; or (C) assist
anyone not licensed by Champps to construct or equip a food
service outlet substantially similar to a Champps Restaurant.
7. COVENANTS
7.1 During the term of this Agreement, Developer shall devote its best
efforts to the development, management and operation of the Franchised
Restaurants in the Development Territory.
7.2 Developer acknowledges that Champps owns all right, title and
interest in and to the Champps System. Developer further acknowledges that: the
Champps System consists of trade secrets and confidential and proprietary
information and know-how that gives Champps a competitive advantage; Champps has
taken measures to protect the trade secrets and the confidentiality of the
proprietary information and know-how comprising the Champps System; all material
or other information now or hereafter provided or disclosed to Developer
regarding the Champps System is disclosed in confidence; Developer has no right
to disclose any part of the Champps System to anyone who is not an employee,
agent, consultant or counsel of Developer; Developer will disclose to its
employees, agents, consultants or counsel only those parts of the Champps System
that an employee, agent, consultant or counsel needs to know; and if requested
by Champps, Developer shall obtain from those of its employees, agents,
consultants or counsel designated by Champps an executed Confidential Disclosure
Agreement in the form reasonably prescribed by Champps. Developer further
acknowledges that it will not, other than as a Champps franchisee, acquire any
interest in the Champps System and that the use or duplication of the Champps
System or any part of the Champps System in any other business would constitute
an unfair method of competition. Provided however, that none of the preceding or
foregoing provisions shall apply to any information documents or know-how which
is then generally known to the public or is disclosed in accordance with an
order of a court of competent jurisdiction or in a manner otherwise required by
law.
Developer shall not, during the Development Tem or at any time
thereafter, communicate or disclose any trade secrets or confidential or
proprietary information or know-how of the Champps System to any unauthorized
person, or do or perform, directly or indirectly, any other acts injurious or
prejudicial to the Proprietary Marks or the Champps System. Any and all
information, knowledge, know-how and techniques, including all drawings,
materials, equipment, specifications, recipes, techniques and other data that
Champps designates as confidential shall be deemed confidential for purposes of
this Agreement.
If Developer develops any new concepts, processes or Improvements
relating to the Champps Restaurants developed pursuant to this Agreement and to
the Champps System, Developer promptly shall notify Champps and provide Champps
with all information regarding the new concept, process or improvement, all of
which shall become the property of Champps and which may be incorporated into
the Champps System without any payment to Developer.
7.3 Developer acknowledges that: pursuant to this Agreement, Developer
will have access to valuable trade secrets, specialized training and
confidential information from Champps regarding the development, operation,
purchasing, sales and marketing methods and techniques of Champps and the
Champps System; the Champps System and the opportunities, associations and
experience established and acquired by Developer under this Agreement are of
substantial and material value; in developing the Champps System, Champps has
made and continues to make substantial investments of time, technical and
commercial research and money; Champps would be unable adequately to protect the
Champps System and its trade secrets and confidential and proprietary
information against unauthorized use or disclosure and would be unable
adequately to encourage a free exchange of ideas and information among Champps
Restaurants if franchisees or developers were permitted to hold interests in
competitive businesses; and restrictions on Developer's right to hold interests
in, or perform services for, competitive businesses will not hinder its
activities.
<PAGE>
Accordingly, Developer covenants and agrees that during the Development
Term, and for a period of 2 years following its expiration or earlier
termination, Developer shall not, either directly or indirectly, for itself, or
through, on behalf of, or in conjunction with, any person, firm, partnership,
corporation, or other entity:
(A) divert or attempt to divert any business or customer, or
potential business or customer, of any Champps Restaurant to any
competitor, by direct or indirect inducement or otherwise;
(B) knowingly employ or seek to employ any person then employed by
Champps or any franchisee of Champps as a manager, or otherwise
directly or indirectly induce such person to leave his or her
employment without Champps' prior written consent; or
(C) own, maintain, operate, engage in, advise, help, make loans to,
or have any interest in, either directly or indirectly, any
restaurant business: (i) that is the same as, or substantially
similar to, a Champps Restaurant or a Fuddruckers restaurant; or
(ii) whose method of operation or trade dress is similar to that
employed in the Champps System or in the operation of
Fuddruckers restaurants. Champps trade dress includes, without
limitation, the use of several of the following elements in the
design and operation of the restaurant: extensive use of
televisions, patio with fireplace, open kitchen, dining on
multiple levels, disc jockey at restaurant. While it is
understood that the use of some of these items are used in
"casual dining" restaurants (i.e. Houston's Bandera, P.F.
Chang's, TGI Friday's, Houlihan's, Landry's Seafood, Applebee's,
Capitol Grille, Macaroni Grill, Cheesecake Factory, Z-Tejas,
Palomino, Rock Bottom, J. Alexander's, etc.), the way in which
several of these items are used in combination by Champps
constitutes its distinctive trade dress. This covenant is not
intended to cover all "casual dining" or sports-themed concepts.
During the Development Term, there is no geographical limitation
on this restriction. Following the expiration or earlier
termination of the Development Term, this restriction shall
apply within 15 miles of any then-existing Champps Restaurant or
Fuddruckers restaurant, except as otherwise approved in writing
by Champps. This restriction shall not apply to Developer's
existing restaurant or foodservice operations, if any, which are
identified in Appendix B.
Champps acknowledges and agrees that, notwithstanding anything to the
contrary herein, Vlahos may be engaged in and is hereby permitted to engage in
the ownership operation, and management of new restaurant businesses including
but not limited to "casual dining", formal dining, sports-themed and fast food
restaurants, some of which may have elements of the trade dress of the Champps
system (other than the extensive use of televisions), provided that those
restaurants are not substantially similar to Champps or Fuddruckers restaurants.
If any part of these restrictions is found to be unreasonable in time
or distance, each month of time or mile of distance may be deemed a separate
unit so that the time or distance may be reduced by appropriate order of the
court to that deemed reasonable. If Champps files suit to enforce the
post-termination portion of these restrictions, the 2-year period shall begin
running upon the entry of a final, non-appealable judgment.
7.4 Champps shall have the right, in its sole discretion, to reduce the
scope of any covenant in this Section 7 effective immediately upon Developer's
receipt of written notice, and Developer agrees that it shall comply forthwith
with any covenant as so modified, which shall be fully enforceable
notwithstanding the provisions of Section 12, so long as any such reduction does
not add additional burden, limitation or restriction on Developer.
7.5 The restrictions contained in this Section 7 shall not apply to
ownership of less than a 5% legal or beneficial ownership in outstanding equity
securities of any publicly held corporation by Developer. The existence of any
claim Developer may have against Champps, whether or not arising from this
Agreement, shall not constitute a defense to the enforcement by Champps of the
covenants in this Section 7.
7.6 Developer acknowledges that any failure to comply with the
requirements of this Section 7 will cause Champps irreparable injury, and
Developer hereby accordingly consents to the entry of an order by any court of
competent jurisdiction for specific performance of, or for an injunction against
violation of, the requirements of this Section 7. Champps may further avail
itself of any other legal or equitable rights and remedies that in may have
under this Agreement or otherwise.
<PAGE>
8. RELATIONSHIP OF THE PARTIES
This Agreement does not create a fiduciary or other special
relationship between the parties. Developer is an independent contractor with
entire control and direction of the development and operation of each Franchised
Restaurant, subject only to the conditions and covenants established by this
Agreement. No agency, employment, or partnership is created or implied by the
terms of this Agreement, and Developer is not and shall not hold itself out as
agent, legal representative, partner, subsidiary, joint venturer or employee of
Champps. Developer shall have no right or power to, and shall not, bind or
obligate Champps in any way or manner, nor represent that Developer has any
right to do so.
The sole relationship between Developer and Champps is a commercial,
arms' length business relationship and, except as provided in Section 9, there
are no third party beneficiaries to this Agreement. Developer's business is, and
shall be kept, totally separate and apart from any that may be operated by
Champps. In all public records, in relationships with other persons, and on
letterheads and business forms, Developer shall indicate its independent
ownership of the Franchised Restaurants and that Developer is solely a
franchisee of Champps.
9. INDEMNIFICATION
Developer and all guarantors of Developer's obligations under this
Agreement shall, at all times, indemnify, defend (with counsel selected by
Champps), and hold harmless (to the fullest extent permitted by law) Champps and
its affiliates, and their respective successors, assigns, past and present
directors, officers, employees, agents and representatives (collectively,
"Indemnitees") from and against all liability, damages, costs and expenses
(including reasonable attorneys' fees) incurred in connection with any action,
suit, proceeding, claim, demand, investigation, inquiry (formal or informal),
judgment or appeal thereof by or against Indemnitees or any settlement thereof
(whether or not a formal proceeding or action had been instituted), arising out
of or resulting from or connected with Developer's activities under this
Agreement. Developer promptly shall give Champps notice of any such action,
suit, proceeding, claim, demand, inquiry or investigation filed or instituted
against Developer and, upon request, shall furnish Champps with copies of any
documents from such matters as Champps may request.
At Developer's expense and risk, Champps may elect to assume (but under
no circumstances will Champps be obligated to undertake), the defense and/or
settlement of any action, suit, proceeding, claim, demand, investigation,
inquiry, judgment or appeal thereof subject to this indemnification. Such an
undertaking shall, in no manner or form, diminish Developer's obligation to
indemnify and hold harmless Champps. Champps shall not be obligated to seek
recoveries from third parties or otherwise mitigate losses.
10. APPROVALS AND WAIVERS
10.1 Whenever this Agreement requires the prior approval or consent of
Champps, Developer shall make a timely written request to Champps therefor, and
such approval or consent shall be obtained in writing. Failure to seek and
obtain such prior approval or consent shall constitute an event of default under
Section 5.2.
10.2 Champps makes no warranties or guarantees upon which Developer may
rely, and assumes no liability or obligation to Developer, by providing any
waiver, approval, consent or suggestion to Developer in connection with this
Agreement or by reason of any neglect, delay or denial of any request therefore.
10.3 No failure of Champps to exercise any power reserved to it by this
Agreement or to insist upon strict compliance by Developer with any obligation
or condition hereunder and no custom or practice of the parties at variance with
the terms of this Agreement shall constitute a waiver of Champps' right to
demand exact compliance with any of the terms of this Agreement. Waiver by
Champps of any particular default by Developer shall not affect or impair
Champps' right to exercise any or all of its rights and powers herein, nor shall
that constitute a waiver by Champps of any right hereunder, or of its right upon
any subsequent breach or default, to terminate this Agreement prior to the
expiration of its term
10.4 Champps shall not, by virtue of any approvals, advice or services
provided to Developer, assume responsibility or liability to Developer or to any
third parties to which Champps would not otherwise be subject.
<PAGE>
11. NOTICES
No notice, demand, request or other communication to the parties shall
be binding upon the parties unless die notice is in writing, refers specifically
to this Agreement and is addressed to: (A) if to Developer, addressed to
Developer at the notice address set forth in Appendix B; and (B) if to Champps,
addressed to Champps at its principal offices, current address: One Corporate
Place, 55 Femcroft Road, Danvers, MA 01923 (marked Attn:
General Counsel) (Facsimile: 508-774-1374).
Any party may designate a new address for notices by giving written
notice of die new address pursuant to this Section. Notices shall be effective
upon receipt and may be: (1) delivered personally; (2) transmitted by facsimile
or electronic mail to the number(s) set forth above (or in Appendix B) with
electronic confirmation of receipt; (3) mailed in the United States mail,
postage prepaid, certified mail, return receipt requested; or (4) mailed via
overnight courier.
12. ENTIRE AGREEMENT
This Agreement, the documents referred to herein, and the attachments
hereto, constitute the entire, full and complete agreement between the parties
concerning Developer's rights, and supersede any and all prior or
contemporaneous negotiations, discussions, understandings or agreements. There
are no other representations, inducements, promises, agreements, arrangements,
or undertakings, oral or written, between the parties relating to the matters
covered by this Agreement other than those set forth in this Agreement and in
the attachments. No obligations or duties that contradict or are inconsistent
with the express terms of this Agreement may be implied into this Agreement.
Except as expressly set forth herein, no amendment, change or variance from this
Agreement shall be binding on either party unless mutually agreed to by the
parties and executed in writing.
13. SEVERABILITY AND CONSTRUCTION
13.1 The parties agree that each covenant and provision of this
Agreement shall be construed as independent of any other covenant or provision
of this Agreement. The provisions of this Agreement shall be deemed severable.
13.2 If all or any portion of a covenant or provision of this Agreement
is held unreasonable or unenforceable by a court or agency having valid
jurisdiction in a decision to which Champps is a party, Developer expressly
agrees to be bound by any lesser covenant or provision subsumed within the terms
of the invalidated covenant or provision, that imposes the maximum duty
permitted by law, as if the resulting covenant or provision were separately
stated in and made a part of this Agreement.
13.3 Except as otherwise provided in Section 9, nothing in this
Agreement is intended or shall be deemed to confer upon any person or legal
entity, other than Champps and those of their respective successors and assigns,
any rights or remedies under, or by reason of, this Agreement.
13.4 All captions in this Agreement are intended solely for the
convenience of the parties and none shall be deemed to affect the meaning or
construction of any provisions of this Agreement.
13.5 All references in this Agreement to the masculine, neuter or
singular shall be construed to include the masculine, feminine, neuter or
plural, where applicable.
13.6 This Agreement may be executed in two or more counterparts, and
each copy so executed shall be deemed an original.
13.7 Developer's obligations to Champps contained in this Agreement
shall not be affected by termination, cancellation or expiration of this
Agreement.
13.8 No provision of this Agreement shall be interpreted in favor of,
or against, any party because of the party that drafted this Agreement.
<PAGE>
14. GOVERNING LAW, FORUM AND LIMITATIONS
14.1 This Agreement and any claim or controversy arising out of, or
relating to, rights and obligations of the parties under this Agreement and any
other claim or controversy between the parties shall be governed by and
construed in accordance with the laws of the State of Minnesota without regard
to conflicts of laws principles. Nothing in this Section is intended, or shall
be deemed, to make any Minnesota law regulating the offer or sale of franchises
or the franchise relationship applicable to this Agreement if such law would not
otherwise be applicable.
14.2 The parties agree that, to the extent any disputes cannot be
resolved directly between them, Developer shall file any suit against Champps
only in the federal or state court, having jurisdiction where Champps' principal
office is located at the time suit is filed. Champps may file suit in the
federal or state court located in the jurisdiction where its principal office is
located at the time suit is filed or in the jurisdiction where Developer resides
or does business or where the Development Territory or any Franchised Restaurant
is or was located or where the claim arose.
14.3 Except for payments owed by one party to the other, any and all
claims and actions arising out of, or relating to, this Agreement (including,
without limitation, the offer and sale of a franchise to Developer), the
relationship of Developer and Champps and Developer's operation of a Franchised
Restaurant brought by any party against another party shall be commenced within
24 months from the occurrence of the facts giving rise to that claim or action
or that claim or action shall be banned.
14.4 Developer and Champps waive to the fullest extent permitted by law
any right or claim of any consequential, punitive or exemplary damages against
the other and agree that, in the event of a dispute between them, each shall be
limited to the recovery of actual damages sustained by it. Developer and Champps
waive, to the fullest extent permitted by law, the right to bring, or be a class
member in, any class action suits and the right to trial by jury.
14.5 No right or remedy conferred upon or reserved to Champps or
Developer by this Agreement is intended to be or shall be deemed exclusive of
any other right or remedy herein set forth or available in law or equity, but
each shall be cumulative of every other right or remedy.
14.6 If Champps is required to enforce this Agreement in a judicial
proceeding, the party prevailing in that proceeding shall be entitled to
reimbursement of costs and expenses, including, but not limited to, reasonable
accountants', attorneys', attorneys' assistants' and expert witness fees, the
cost of investigation and proof of facts, court costs, other litigation
expenses, and travel and living expenses, whether incurred prior to, in
preparation for, or in contemplation of the filing of, any proceeding. The
prevailing party shall be the party that prevails on its claims regardless of
whether judgment is entered in its favor. If there are multiple claims, the
costs and expenses shall be reimbursed accordingly. If Champps is required to
engage legal counsel in connection with any failure by Developer to comply with
this Agreement, Developer shall reimburse Champps for any of the above-listed
costs and expenses incurred by Champps. In any judicial proceeding, the amount
of these costs and expenses will be determined by the court and not by a jury.
15. REPRESENTATIONS
Developer represents, acknowledges and warrants to Champps (and
Developer agrees that these representations, acknowledgments and warranties
shall survive termination of this Agreement) that:
15.1 This Agreement involves significant legal and business rights and
risks. Champps does not guarantee Developer's success. Developer has read this
Agreement in its entirety, conducted an independent investigation of the
business contemplated by this Agreement, has been thoroughly advised with regard
to the terms and conditions of this Agreement by legal counsel or other advisors
of Developer's choosing, recognizes that the nature of the business conducted by
Champps Restaurants may change over time, has had ample opportunity to
investigate all representations made by or on behalf of Champps, and has had
ample opportunity to consult with current and former Champps franchisees. The
prospect for success of the business undertaken by Developer is speculative and
depends to a material extent upon Developer's personal commitment, capability
and direct involvement in the day-to-day management of the business.
<PAGE>
15.2 Champps' approval of one or more sites and its refusal to approve
other sites is not a representation that the Authorized Sites will achieve a
certain sales volume or a certain level of profitability, or that an Authorized
Site will have a higher sales volume or be more profitable that an site which
Champps did not approve. Champps' approval merely means that the minimum
criteria which Champps has established for identifying suitable sites for
proposed Champps Restaurant have been met. Because real estate development is an
art and not a precise science, Developer agrees that Champps' approval, or
refusal to approve a proposed site, whether a site report is completed and/or
submitted to Champps or not, shall not impose any liability or obligation on
Champps. The decision to accept to reject a particular site is Developer's,
subject to Champps' approval. Preliminary approval of a proposed site by any
representative of Champps is not conclusive or binding, because his or her
recommendations may be rejected by Champps.
15.3 Champps makes no express or implied warranties or representations
that Developer will achieve any degree of success in the development or
operation of the Franchised Restaurants and that success in the development and
operation of the Franchised Restaurants depends ultimately on Developer's
efforts and abilities and on other factors, including, but not limited to,
market and other economic conditions, Developer's financial condition and
competition.
15.4 All information Developer provided to Champps in connection with
Developer's franchise application and Champps' consent to the development of
Champps' Restaurants is truthful and accurate.
15.5 Developer's rights under this Agreement are non-exclusive and
nothing prohibits Champps from operating or licensing others to operate Champps
Restaurants at any location other than the location of a Franchised Restaurant
and nothing in this Agreement prohibits Champps from operating restaurants,
other than Champps Restaurants, at any location.
15.6 The person signing this Agreement on behalf of Developer have full
authority to enter into this Agreement and the other agreements contemplated by
the parties. Execution of this Agreement or such other agreements by Developer
does not and will not conflict with or interfere with, directly or indirectly,
intentionally or otherwise, with the terms of any other agreement with any other
third party to which Developer or any person with an ownership interest in
Developer is a party.
15.7 Developer acknowledges receipt of Champps' Franchise Offering
Circular at least 10 business days prior to execution of this Agreement or
payment of any monies to Champps and that Developer received this Agreement in
the form actually executed at least 5 business days prior to the date of its
execution by Developer.
15.8 Developer has not received from Champps any representation of
Developer's potential sales, expenses, income, profit or loss and has not
received either from Champps, or anyone acting on its behalf, any representation
other than those contained in Champps' Franchise Offering Circular as
inducements to enter this Agreement.
15.9 Even though this Agreement contains provisions requiring Developer
to develop the Franchised Restaurants in compliance with the Champps Systems:
(A) Champps does not have actual or apparent authority to control the day-to-day
conduct and operation of Developer's business or employment decisions; and (B)
Developer and Champps do not intend for Champps to incur any liability in
connection with or arising from any aspect of the Champps System or Developer's
use of the Champps System.
15.10 In the event of a dispute between Champps and Developer, the
parties have waived their right to a jury trial.
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed, sealed and
delivered this Agreement as of the day and year first above written.
CHAMPPS:
ATTEST: CHAMPPS ENTERTAINMENT, INC.
By: By:
Title: Title:
Date:
ATTEST/WITNESS: DEVELOPER:
Dean P. Vlahos
Date:
<PAGE>
APPENDIX A
DEVELOPMENT TERRITORY
The Development Territory shall be:
Any location within the United States of American that is not
within a twenty (20) mile radius of (i) an existing Champps Restaurant; (ii) any
Champps restaurant site under development by Champps or under negotiation for
development by Champps with a signed letter of intent, (iii) any Champps
restaurant site under development by a current or potential Champps franchisee
or licensee or under negotiation for development by a current or potential
Champps franchisee or licensee with a signed letter of intent; or (iv) any
exclusive territory granted by Champps to a third party franchisee or licensee.
Developer's rights in the Development Territory are non-exclusive, as described
in Section 2. Any political boundaries contained in the description of the
Development Territory shall be considered fixed as of the date of this Agreement
and shall not change notwithstanding a political reorganization or a change in
those boundaries. Unless otherwise specified, all street boundaries shall be
deemed to end at the center street line.
<PAGE>
APPENDIX B
DEVELOPMENT INFORMATION
Development Schedule (Section 2). Subject to the restrictions set forth in
Appendix A, Developer shall have the right to develop and operate five (5)
Champps Restaurants anywhere in the United States, provided that such
restaurants must be Developed within eight (8) years of the date hereof. If on
the eighth anniversary of the date hereof Developer has Developed fewer than
five (5) Champps Restaurants (excluding the Minnetonka Champps and the Eden
Prairie Champps) pursuant to this paragraph 2, Developer shall have no further
rights to develop or operate any additional Champps Restaurants under this
Agreement.
Developer's Notice Address (Section 11).
80 Gideons Point Road, Tonka Bay, Minnesota 55331.
Exhibit 10.18
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
* * * * * * * * * * * * * * * * * * * * * * * * *
*
RITA VENTURINO, COSMOS PHILLIPS *
and MATTHEW MINOGUE on behalf of *
themselves and all others similarly situated, *
*
Plaintiffs, *
*
v. * CIVIL ACTION
* NO. 96-12109-GAO
DAKA INTERNATIONAL, INC. and *
WILLIAM H. BAUMHAUER, *
*
Defendants. *
*
* * * * * * * * * * * * * * * * * * * * * * * * *
STIPULATION AND AGREEMENT OF SETTLEMENT
This stipulation and agreement of settlement dated as of December __,
1997 (the "Stipulation") is submitted pursuant to Rule 23 of the Federal Rules
of Civil Procedure. Subject to the approval of the Court, this Stipulation is
entered into among Plaintiffs Rita Venturino, Cosmos Phillips and Matthew
Minogue, and the Class (as hereinafter defined), and defendants DAKA
International, Inc. ("DAKA" or the "Company"), and William H. Baumhauer
("Baumhauer") (DAKA and Baumhauer are collectively referred to hereinafter as
the "Defendants"), by and through their respective counsel.
WHEREAS:
A. The above-captioned action was initially filed in this Court (the
"Court") on or about October 18, 1996, and is hereinafter referred to as the
"Action".
<PAGE>
B. The Complaint filed in the Action generally alleges, among other
things, that this is a securities fraud class action seeking to pursue remedies
under the Securities Exchange Act of 1934 (the "Exchange Act") and related state
law. This Complaint alleges a fraudulent scheme and deceptive course of business
that allegedly injured purchasers of DAKA common stock throughout the Class
Period (as defined below).
C. The Complaint alleged that prior to and throughout the Class Period,
DAKA portrayed itself as a rapidly expanding company which was experiencing
rising sales and profitability, while at the same time significantly expanding
its restaurant and foodservice operations. The Complaint alleged that the
Defendants disseminated materially false and misleading statements and omissions
regarding sales results at the Company's Fuddruckers, Inc. ("Fuddruckers")
subsidiary, which sales were necessary to maintain their aggressive growth
plans.
D. It was further alleged that at all relevant times, the Company had
caused or encouraged positive earnings estimates by financial analysts which
were false, misleading and lacking in reasonable basis due to the-undisclosed
impact of the adverse factors identified in this Complaint. Allegedly,
Defendants' scheme artificially inflated DAKA's share price to a Class Period
high of $33 per share on May 13, 1996 and that when the allegedly true facts
came to light, the price of DAKA common stock fell to as low as $8 5/8 per
share.
E. The Complaint alleged that by virtue of the allegedly fraudulent
scheme the price of DAKA common stock was artificially inflated at all relevant
times, through and including a series of partial public disclosures of the
actual adverse facts impacting Fuddruckers, sales results following the close of
the Company's fiscal 1996 year and attendant share price decline. The Complaint
also alleges that before any such disclosures were made, however, defendants
successfully completed three acquisitions, paying for the acquired companies
with more than 2.5 million shares of DAKA common stock. The full truth allegedly
did not emerge until the end of the Class Period when defendants, for the first
time, allegedly revealed that the problems with their Fuddruckers operations
were more serious and difficult to remedy than had been previously been
revealed, and were projected to continue and adversely impact DAKA's results
throughout fiscal 1997.
F. The Defendants deny all of the allegations in the Complaint, as set
forth above, and deny any wrongdoing whatsoever and this Stipulation shall in no
event be construed or deemed to be evidence of or an admission or concession on
the part of any Defendant with respect to any allegation in the Complaint or any
claim or of any fault or liability or wrongdoing or damage whatsoever, or any
infirmity in the defenses that Defendants have asserted. Defendants recognize,
however, that the case is being settled to avoid the costs, expense and risks of
litigation. This Stipulation shall not be construed or deemed to be a concession
by any plaintiff of any infirmity in the claims asserted in the Action.
G. Plaintiffs, by their counsel, have conducted discussions and
arms'-length negotiations with counsel for Defendants with respect to a
compromise and settlement of the Action with a view to settling the issues in
dispute and achieving the best relief possible consistent with the interests of
the Class;
H. Based upon their investigation and pretrial discovery, counsel for
Plaintiffs and the Class have concluded that the terms and conditions of this
Stipulation are fair, reasonable and adequate to Plaintiffs and the Class, and
in their best interests, and have agreed to settle the claims raised in the
Action pursuant to the terms and provisions of this Stipulation, after
considering (a) the substantial benefits that Plaintiffs and the members of the
Class will receive from settlement of the Action, (b) the attendant costs and
risks of litigation, and (c) the desirability of permitting the Settlement to be
consummated as provided by the terms of this Stipulation.
NOW THEREFORE, without any admission or concession on the part of
Plaintiffs of any lack of merit of the Action whatsoever, and without any
admission or concession of any liability or wrongdoing or lack of merit in the
defenses whatsoever by Defendants, it is hereby STIPULATED AND AGREED, by and
among the parties to this Stipulation, through their respective attorneys,
subject to approval of the Court pursuant to Rule 23(e) of the Federal Rules of
Civil Procedure, in consideration of the benefits flowing to the parties hereto
from the Settlement, that all Settled Claims (as defined below) as against the
Released Parties (as defined below) shall be compromised, settled, released and
dismissed with prejudice, upon and subject to the following terms and
conditions:
CERTAIN DEFINITIONS
1. As used in this Stipulation, the following terms shall have the
following meanings:
a. "Class" and "Class Members" means, for the purposes of this
Stipulation only, all persons and entities who purchased or otherwise acquired
DAKA common stock during the time period from October 30, 1995 through September
9, 1996, inclusive (the "Class Period"). Excluded from the Class are the
Defendants in this Action, members of the immediate families of each of the
Defendants, any person, firm, trust, corp oration, officer, director or other
individual or entity in which any Defendant has a controlling interest or which
is related to or affiliated with any of the Defendants, and the legal
representatives, heirs, successors in interest or assigns of any such excluded
party. Also excluded from the Class are any putative Class Members who exclude
themselves by filing a request for exclusion in accordance with the requirements
set forth in the Notice.
b. "Authorized Claimant" means a Class Member who submits a
timely and valid Proof of Claim form to the Claims Administrator.
c. "Class Period" means, for the purposes of this Stipulation
only, the period of time from October 30, 1995 through September 9, 1996,
inclusive.
d. "Defendants' Counsel" means the law firm of GOODWIN,
PROCTER & HOAR LLP.
e. "Effective Date of Settlement" or "Effective Date" means
the date upon which the Settlement contemplated by this Stipulation shall become
effective, as set forth in paragraph 23 below.
f. "Notice" means the Notice of Pendency of Class Action,
Hearing On Proposed Settlement and Attorneys' Fee Petition, and Notice of Right
to Share in Settlement Fund, which is to be sent to members of the Class in the
form attached hereto as Exhibit 1 to Exhibit A.
g. "Order and Final Judgment" means the proposed order in the
form attached hereto as Exhibit B.
h. "Order for Notice and Hearing" means the proposed order in
the form attached hereto as Exhibit A.
i. "Plaintiffs' Co-Lead Counsel" means the law firms of
MILBERG WEISS BERSHAD HYNES & LERACH LLP and SCHIFFRIN & CRAIG, LTD.
j. "Plaintiffs' Counsel" means the law firms of MILBERG WEISS
BERSHAD HYNES & LERACH LLP; SCHIFFRIN & CRAIG, LTD; SHAPIRO HABER & URMY LLP;
and LAW OFFICES OF ALFRED G. YATES JR.
k. "Publication Notice" means the summary notice of proposed
Settlement and hearing for publication in the form attached as Exhibit 3 to
Exhibit A.
l. "Released Parties" means each of the Defendants, and DAKA's
past or present subsidiaries, parents, successors and predecessors, officers,
directors, shareholders, agents, employees, attorneys, advisors, and investment
advisors, auditors, accountants and any person, firm, trust, corporation,
officer, director or other individual or entity in which DAKA has a controlling
interest or which is related to or affiliated with DAKA, and Baumhauer's legal
representatives, heirs, successors in interest or assigns.
m. "Settled Claims" means any and all claims, rights or causes
of action or liabilities whatsoever, whether based on federal, state, local,
statutory or common law or any other law, rule or regulation, including both
known and unknown claims, that have been or could have been asserted in any
forum by the Class Members or any of them or the successors and assigns of any
of them, whether directly, indirectly, representatively or in any other
capacity, against any of the Released Parties which arise out of or relate in
any way to the allegations, transactions, facts, matters or occurrences,,
representations or omissions involved, set forth, referred to or that could have
been asserted in the Complaint relating to the purchase or other acquisition of
shares of the common stock of DAKA during the Class Period.
n. "Settled Defendants' Claims" means (a) all claims asserted
in the Action, and (b) all claims, rights or causes of action or liabilities
whatsoever, whether based on federal, state, local, statutory or common law or
any other law, rule or regulation, including both known and unknown claims, that
have been or could have been asserted in any forum by the Defendants or any of
them or the successors and assigns of any of them, whether directly, indirectly,
representatively or in any other capacity, against any of the Plaintiffs, Class
Members or their attorneys, which arise out of or relate in any way to the
allegations, transactions, facts, matters or occurrences, representations or
omissions involved, set forth or asserted in the Complaint or relating in any
way to the purchase or other acquisition of shares of DAKA common stock during
the Class Period, including but not limited to the institution and prosecution
of the Action.
o. "Settlement" means the settlement contemplated by this
Stipulation.
p. "Claims Administrator" means the firm of Gilardi & Co.
which shall administer the Settlement.
Scope and Effect of Settlement
2. The obligations incurred pursuant to this Stipulation shall be in
full and final disposition of the Action with prejudice and any and all Settled
Claims as against all Released Parties and any and all Settled Defendants,
claims.
3. a. Upon the Effective Date of this Settlement, Plaintiffs and
members of the Class on behalf of themselves, their heirs, executors,
administrators, successors and assigns, and any persons they represent, shall,
with respect to each and every Settled Claim release and forever discharge, and
shall forever be enjoined from prosecuting the Released Parties.
b. Upon the Effective Date of this Settlement, each Defendant,
on behalf of themselves and the Released Parties, shall release and forever
discharge each and every of the Settled Defendants' Claim, and shall forever be
enjoined from prosecuting the Settled Defendants' Claims. The Settlement
Consideration
4. Defendants shall pay within five (5) days from the date hereof into
escrow on behalf of Plaintiffs and the Class $3,500,000.00 (the "Cash Settlement
Amount"). The Cash Settlement Amount and any interest earned thereon shall be
the Gross Settlement Fund.
5. The Gross Settlement Fund, net of any taxes on the income thereof,
shall be used to pay (i) the Notice and Administration Costs referred to in P. 7
hereof, (ii) the attorneys, fee and expense award referred to in P. 8 hereof,
(iii) the remaining administration expenses referred to in P. 9 hereof. The
balance of the Gross Settlement Fund after the above payments shall be the Net
Settlement Fund which shall be distributed to the Authorized Claimants as
provided in P. P. 10-12 hereof. Any sums required to be held in escrow hereunder
prior to the effective date shall be held by Milberg Weiss Bershad Hynes &
Lerach LLP ("Milberg Weiss") as Escrow Agents for the Settlement Fund. All funds
held by the Escrow Agents shall be deemed to be in custodia legis of the Court
and shall remain subject to the jurisdiction of the Court until such time as the
funds shall be distributed or returned to Defendants pursuant to this
Stipulation and/or further order of the Court. The Escrow Agent shall invest any
funds in excess of $100,000 in United States Government obligations with a
maturity of 180 days or less, and shall collect and reinvest all interest
accrued thereon. Any funds held in escrow in an amount of less than $100,000 may
be held in an interest bearing bank account insured by the FDIC. The parties
hereto agree that the Settlement Fund is intended to be a Qualified Settlement
Fund within the meaning of Treasury Regulation 1.468B-1 and that the Escrow
Agent (Milberg Weiss), as administrator of the Settlement Fund within the
meaning of Treasury Regulation ss.1.468B-2(k)(3), shall be responsible for
filing tax returns for the Settlement Fund and paying from the Settlement Fund
any taxes owed with respect to the Settlement Fund. Counsel for Defendants agree
to provide promptly to the Escrow Agent the statement described in Treasury
Regulation ss. 1.468B-3 (e) . (i) Administration
6. The Claims Administrator shall administer the Settlement under
Plaintiffs' Co-Lead Counsel's supervision and subject to the jurisdiction of the
Court. Except as stated in P. 14 hereof, Defendants shall have no responsibility
for the administration of the Settlement and shall have no liability to the
Class in connection with such administration. Defendants' Counsel shall
cooperate in the administration of the Settlement to the extent reasonably
necessary to effectuate its terms, including providing all information from
their transfer records concerning the identity of class members and their
transactions.
7. Prior to the Effective Date, Plaintiffs, Co-Lead Counsel may expend
from the Settlement Amount, without further approval from the Defendants or the
Court, up to the sum of $100,000.00 to pay the reasonable costs and expenses
associated with the administration of the Settlement, including without
limitation, the costs of identifying members of the Class and effecting mail
Notice and Publication Notice. Such amounts shall include, without limitation,
the actual costs of publication, printing and mailing the Notice, reimbursements
to nominee owners for forwarding notice to their beneficial owners, and the
reasonable administrative expenses incurred and fees charged by the Claims
Administrator in connection with providing notice and processing the claims
filed.
8. Plaintiffs' Counsel will apply to the Court for an award from the
Gross Settlement Fund of attorneys' fees not to exceed thirty (30%) percent of
the Gross Settlement Fund and reimbursement of expenses. Nothing in this
Stipulation shall be construed as an agreement with or approval of the amount of
attorneys, fees sought by Plaintiffs, Counsel. Such attorneys' fee and expenses
as are awarded by the Court shall be paid from the Gross Settlement Fund to
Plaintiffs' Counsel immediately upon award, notwithstanding the existence of any
timely filed objections thereto, or potential for appeal therefrom, or
collateral attack on the settlement or any part thereof, subject to Plaintiffs'
Counsel's obligation to make appropriate refunds or repayments to the settlement
fund plus accrued interest, if and when, as a result of any appeal and/or
further proceedings on remand, or successful collateral attack, the fee or cost
award is reduced or reversed. (iii) Administration Expenses
9. Plaintiffs' Counsel will apply to the Court, on notice to
Defendants' Counsel, for an order (the "Class Distribution Order") approving the
Claims Administrator's administrative determinations concerning the acceptance
and rejection of the claims filed herein and approving the fees and expenses of
the Claims Administrator, and, if the Effective Date has occurred, directing
payment of the Net Settlement Fund to Authorized Claimants.
(iv) Distribution To Authorized Claimants
10. The Claims Administrator shall determine each Authorized Claimant's
pro rata share of the "Net Settlement Fund" (the Gross Settlement Amount
including interest net of taxes and less all approved costs fees and expenses)
based upon each Authorized Claimant's Recognized Claim (as defined in below).
11. An Authorized Claimant's "Recognized Claim" shall mean the
difference, if any, between the amount paid for DAKA common stock during the
Class Period (including brokerage commissions and transaction charges), and the
sum for which said shares were sold at a loss on or before September 9, 1996. As
to those shares which an Authorized Claimant continued to hold as of the close
of business on September 9, 1996, Recognized Claim shall mean the difference, if
any, between the amount paid for each such share purchased during the Class
Period and $8-5/8 per share. Transactions resulting in a gain shall be deducted
from any losses. In the event a Class Member has more than one purchase or sale,
all purchases and sales shall be matched on a First In First Out ("FIFO") basis.
12. a.Each Authorized Claimant shall be allocated a pro rata share
of the Net Settlement Fund based on his or her Recognized Claim compared to the
total Recognized Claims of all accepted claimants. The Claims Administrator
shall pay each Authorized Claimant its distribution amount.
b. This is not a claims-made settlement. Defendants will have
no ability to get back any of the settlement monies once the Settlement becomes
final. Defendants will have no involvement in reviewing or challenging claims.
Administration of the Settlement
13. Any member of the Class who does not file a valid Proof of Claim
will not be entitled to receive any of the proceeds from the Net Settlement
Amount but will otherwise be bound by all of the terms of this Stipulation and
the Settlement, including the terms of the Judgment to be entered in the Action
and the releases provided for herein, and will be barred from bringing any
action against the Released Parties concerning the Settled Claims.
14. Plaintiffs' Co-Lead Counsel shall be responsible for supervising
the administration of the Settlement and disbursement of the Net Settlement Fund
by the Claims Administrator. Except for their obligation to pay the Settlement
Amount, and to cooperate in the production of information with respect to the
identification of class members from the company's shareholder transfer records,
as provided herein, Defendants shall have no liability, obligation or
responsibility for the administration of the Settlement or disbursement of the
Net Settlement Fund. Plaintiffs, Co-Lead Counsel shall have the right, but not
the obligation, to waive what they deem to be formal or technical defects in any
Proofs of Claim filed in the interests of achieving substantial justice.
15. For purposes of determining the extent, if any, to which a Class
Member shall be entitled to be treated as an "Authorized Claimant", the
following conditions shall apply:
a. Each Class Member shall be required to submit a Proof of
Claim (see attached Exhibit 3 to Exhibit A), supported by such documents as are
designated therein, including proof of the Claimant's loss, or such other
documents or proof as Plaintiffs' Co-Lead Counsel, in their discretion, may deem
acceptable;
b. All Proofs of Claim must be submitted by the date specified
in the Notice unless such period is extended by order of the Court. Any Class
Member who fails to file a Proof of Claim by such date shall be forever barred
from receiving any payment pursuant to this Stipulation (unless, by Order of the
Court, a later filed Proof of Claim by such Class Member is approved), but shall
in all other respects be bound by all of the terms of this Stipulation and the
Settlement including the terms of the Judgment to be entered in the Action and
the releases provided for herein, and will be barred from bringing any action
against the Released Parties concerning the Settled Claims. A Proof of Claim
shall be deemed to have been submitted when posted, if received with a postmark
indicated on the envelope and if mailed first-class postage prepaid and
addressed in accordance with the instructions thereon. In all other cases, the
Proof of Claim shall be deemed to have been submitted when actually received by
Plaintiffs, Counsel or its designee;
c. Each Proof of Claim shall be submitted to and reviewed by
the Claims Administrator, under the supervision of Plaintiffs' Co-Lead Counsel,
who shall determine in accordance with this Stipulation the extent, if any, to
which each claim shall be allowed, subject to review by the Court pursuant to
subparagraph e. below;
d. Proofs of Claim that do not meet the filing requirements
may be rejected. Prior to rejection of a Proof of Claim, the Claims
Administrator shall communicate with the Claimant in order to remedy the curable
deficiencies in the Proof of Claims submitted. The Claims Administrator, under
supervision of Plaintiffs, Co-Lead Counsel,.shall notify, in a timely fashion
and in writing, all Claimants whose Proofs of Claim they propose to reject in
whole or in part, setting forth the reasons therefor, and shall indicate in such
notice that the Claimant whose claim is to be rejected has the right to a review
by the Court if the Claimant so desires and complies with the requirements of
subparagraph (e) below; and
e. If any Claimant whose claim has been rejected in whole or
in part desires to contest such rejection, the Claimant must, within twenty (20)
days after the date of mailing of the notice required in subparagraph (d) above,
serve upon the Claims Administrator a notice and statement of reasons indicating
the Claimant's grounds for contesting the rejection along with any supporting
documentation, and requesting a review thereof by the Court. If a dispute
concerning a claim cannot be otherwise resolved, Plaintiffs, Co-Lead Counsel
shall thereafter present the request for review to the Court.
f. The administrative determinations of the Claims
Administrator accepting and rejecting claims shall be presented to the Court, on
notice to Defendants' Counsel, for approval by the Court in the Class
Distribution Order.
16. Each Claimant shall be deemed to have submitted to the jurisdiction
of the Court with respect to the Claimant's claim, and the claim will be subject
to investigation and discovery under the Federal Rules of Civil Procedure,
provided that such investigation and discovery shall be limited to that
Claimant's status as a Class Member and the validity and amount of the
Claimant's claim. No discovery shall be allowed on the merits of the Action or
Settlement in connection with processing of the Proofs of Claim.
17. Payment pursuant to this Stipulation shall be deemed final and
conclusive against all Class Members. All Class Members whose claims are not
approved by the Court shall be barred from participating in distributions from
the Net Settlement Amount, but otherwise shall be bound by all of the terms of
this Stipulation and the Settlement, including the terms of the Judgment to be
entered in the Action and the releases provided for herein, and will be barred
from bringing any action against the Released Parties concerning the Settled
Claims.
18. All proceedings with respect to the administration, processing and
determination of claims described by P. 15 of this Stipulation and the
determination of all controversies relating thereto, including disputed
questions of law and fact with respect to the validity of claims, shall be
subject to the jurisdiction of the Court.
19. The Net Settlement Amount shall be distributed to Authorized
Claimants by the Claims Administrator only after the Effective Date and after:
(i) all Claims have been processed, and all Claimants whose Claims have been
rejected or disallowed, in whole or in part, have been notified and provided the
opportunity to be heard concerning such rejection or disallowance; (ii) all
objections with respect to all rejected or disallowed claims have been resolved
by the Court, and all appeals therefrom have been resolved or the time therefor
has expired; and (iii) all matters with respect to attorneys' fees, costs, and
disbursements have been resolved by the Court, all appeals therefrom have been
resolved or the time therefor has expired, and (iv) all costs of administration
have been paid. Terms of Order for Notice and Hearing
20. Concurrently with their application for preliminary Court approval
of the Settlement contemplated by this Stipulation, Plaintiffs' Counsel and
Defendants' Counsel jointly shall apply to the Court for entry of an Order for
Notice and Hearing, substantially in the form annexed hereto as Exhibit A. Terms
of order and Final Judgment
21. If the Settlement contemplated by this Stipulation is approved by
the Court, counsel for the parties shall request that the Court enter an Order
and Final Judgment substantially in the form annexed hereto as Exhibit B.
Supplemental Agreement
22. Simultaneously herewith, Plaintiffs, Co-Lead Counsel and
Defendants' Counsel are executing a "Supplemental Agreement" setting forth
certain conditions under which this Stipulation may be withdrawn or terminated
by Defendants if potential Class Members who purchased in excess of a certain
number shares of DAKA common stock traded during the Class Period exclude
themselves from the Class. The Supplemental Agreement shall be filed under seal
if permitted by the Court and the Bankruptcy Court, and, if not so permitted,
shall not be filed, but its substantive content shall be brought to the
attention of the Court, in camera if so requested by the attorneys for any of
the undersigned parties and permitted by the Court. In the event of a withdrawal
from this Stipulation pursuant to the Supplemental Agreement, this Stipulation
shall become null and void and of no further force and effect and the provisions
of paragraph 25 shall apply. Notwithstanding the foregoing, the Stipulation
shall not become null and void as a result of the election by the Defendants to
exercise their option to withdraw from the Stipulation pursuant to the
Supplemental Agreement until the conditions set forth in the Supplemental
Agreement have been satisfied. Effective Date of Settlement, Waiver or
Termination
23. The Effective Date of Settlement shall be the date when all the
following shall have occurred:
(a) entry of the Order for Notice and Hearing in all material
respects in the form annexed hereto as Exhibit A;
(b) approval by the Court of the Settlement, following notice
to the Class and a hearing, as prescribed by Rule 23 of the Federal Rules of
Civil Procedure; and
(c) entry by the Court of an Order and Final Judgment, in all
material respects in the form set forth in Exhibit B annexed hereto, and the
expiration of any time for appeal or review of such Order and Final Judgment,
or, if any appeal is filed and not dismissed, after such Order and Final
Judgment is upheld on appeal in all material respects and is no longer subject
to review upon appeal or review by writ of certiorari, or, in the event that the
Court enters an order and final judgment in form other than that provided above
("Alternative Judgment") and none of the parties hereto elect to terminate this
Settlement, the date that such Alternative Judgment becomes final and no longer
subject to appeal or review.
24. Defendants' Counsel or Plaintiffs, Co-Lead Counsel shall have the
right to terminate the Settlement and this Stipulation by providing written
notice of their election to do so ("Termination Notice") to all other parties
hereto within thirty days of (a) the Court's declining to enter the Order for
Notice and Hearing in any material respect; (b) the Court's refusal to approve
this Stipulation or any material part of it; (c) the Court's declining to enter
the Order and Final Judgment in any material respect; (d) the date upon which
the Order and Final Judgment is modified or reversed in any material respect by
the Court of Appeals or the Supreme Court; or (e) the date upon which an
Alternative Judgment is modified or reversed in any material respect by the
Court of Appeals or the Supreme Court.
25. Except as otherwise provided herein, in the event the Settlement is
terminated or modified in any material respect or fails to become effective for
any reason, then the parties to this Stipulation shall be deemed to have
reverted to their respective status in the Action as of the date and time
immediately prior to the execution of this Stipulation and, except as otherwise
expressly provided, the parties shall proceed in all respects as if this
Stipulation and any related orders had not been entered, and any portion of the
Cash Settlement Amount previously paid by Defendants, together with any interest
earned thereon, less any taxes due with respect to such income, and less
reasonable costs of administration and notice actually incurred and paid or
payable from the Settlement Amount, shall be returned to Defendants.
No Admission of Wrongdoing
26. This Stipulation, whether or not consummated, and any proceedings
taken pursuant to it:
(a) shall not be offered or received against the Defendants as
evidence of or construed as or deemed to be evidence of any presumption,
concession, or admission by any of the Defendants of the truth of any fact
alleged by Plaintiffs or the validity of any claim that had been or could have
been asserted in the Action or in any litigation, or the deficiency of any
defense that has been or could have been asserted in the Action or in any
litigation, or of any liability, negligence, fault, or wrongdoing of Defendants;
(b) shall not be offered or received against the Defendants as
evidence of a presumption, concession or admission of any fact, fault,
misrepresentation or omission with respect to any statement or written document
approved or made by any Defendant, or against the Plaintiffs and the Class as
evidence of any infirmity in the claims of Plaintiffs and the Class;
(c) shall not be offered or received against the Defendants as
evidence of a presumption, concession or admission of any liability, negligence,
fault or wrongdoing, or in any way referred to for any other reason as against
any of the parties to this Stipulation, in any other civil, criminal or
administrative action or proceeding, or any arbitration or mediation, other than
such proceedings as may be necessary to effectuate the provisions of this
Stipulation; provided, however, that if this Stipulation is approved by the
Court, Defendants may refer to it to effectuate the releases and liability
protection granted them hereunder; and
(d) shall not be construed against the Defendants or the
Plaintiffs and the Class as an admission or concession that the consideration to
be given hereunder represents the amount which could be or would have been
recovered after trial. Miscellaneous Provisions
27. All of the exhibits attached hereto are hereby incorporated by
reference as though fully set forth herein.
28. Each Defendant warrants as to himself, herself or itself that, as
to the payments made by or on behalf of him, her or it, at the time of such
payment that the Defendant made or caused to be made pursuant to paragraph 4
above, he, she or it was not insolvent nor did nor will the payment required to
be made by or on behalf of him, her or it render such Defendant insolvent within
the meaning of and/or for the purposes of the United States Bankruptcy Code,
including ss.ss. 101 and 547 thereof. This warranty is made by each such
Defendant and not by such Defendant's counsel.
29. If a case is commenced in respect of any Defendant under Title 11
of the United States Code (Bankruptcy), or a trustee, receiver or conservator is
appointed under any similar law, and in the event of the entry of a final order
of a court of competent jurisdiction determining the transfer of money to the
Escrow Account or any portion thereof by or on behalf of such Defendant to be a
preference, voidable transfer, fraudulent transfer or similar transaction and
any portion thereof is required to be returned, and such amount is not promptly
deposited to the Gross Settlement Fund by other Settling Defendants, then, at
the election of Plaintiffs, Co-Lead Counsel, the parties shall jointly move the
Court to vacate and set aside the releases given and Judgment entered in favor
of the Settling Defendants pursuant to this Settlement Agreement, which releases
and Judgment shall be null and void, and the Parties shall be restored to their
respective positions in the litigation as of the date a day prior to the date of
this Settlement Agreement and any cash amounts in the Escrow shall be returned
as provided in paragraphs 8 and 25 above.
30. The Parties to this Stipulation and Agreement Of Settlement intend
the Settlement to be a final and complete resolution of all disputes asserted or
which could be asserted by the Class Members against the Released Parties with
respect to the Settled Claims. Accordingly, the Settling Defendants agree not to
assert any claim under Rule 11 of the Federal Rules of Civil Procedure or any
similar law, rule or regulation, that the Action was brought in bad faith or
without a reasonable basis. The Parties agree that the amount paid and the other
terms of the Settlement were negotiated at arm's length in good faith by the
Parties, and reflect a settlement that was reached voluntarily after
consultation with experienced legal counsel.
31. This Stipulation may not be modified or amended, nor may any of its
provisions be waived except by a writing signed by all parties hereto or their
successors-in-interest.
32. The headings herein are used for the purpose of convenience only
and are not meant to have legal effect.
33. The administration and consummation of the Settlement as embodied
in this Stipulation shall be under the authority of the Court and the Court
shall retain jurisdiction for the purpose of entering orders providing for
awards of attorneys fees and expenses to Plaintiffs, Counsel and enforcing the
terms of this Stipulation.
34. The Waiver by one party of any breach of this Stipulation by any
other party shall not be deemed a waiver of any other prior or subsequent breach
of this Stipulation.
35. This Stipulation and its exhibits and the Supplemental Agreement
constitute the entire agreement among the parties hereto concerning the
Settlement of the Action, and no representations, warranties, or inducements
have been made by any party hereto concerning this Stipulation and its exhibits
and the Supplemental Agreement other than those contained and memorialized in
such documents.
36. This Stipulation may be executed in one or more counterparts. All
executed counterparts and each of them shall be deemed to be one and the same
instrument provided that counsel for the parties to this Stipulation shall
exchange among themselves original signed counterparts.
37. This Stipulation shall be binding upon, and inure to the benefit
of, the successors and assigns of the parties hereto.
38. The construction, interpretation, operation, effect and validity of
this Stipulation, and all documents necessary to effectuate it, shall be
governed by the internal laws of the State of Massachusetts without regard to
conflicts of laws, except to the extent that federal law requires that federal
law governs.
39. This Stipulation shall not be construed more strictly against one
party than another merely by virtue of the fact that it, or any part of it, may
have been prepared by counsel for one of the parties, it being recognized that
it is the result of arm's-length negotiations between the parties and all
parties have contributed substantially and materially to the preparation of this
Stipulation.
40. All counsel and any other person executing this Stipulation and any
of the exhibits hereto, or any related settlement documents, warrant and
represent that they have the full authority to do so and that they have the
authority to take appropriate action required or permitted to be taken pursuant
to the Stipulation to effectuate its terms.
41. Plaintiffs' Co-Lead Counsel and Defendants' Counsel agree to
cooperate fully with one another in seeking Court approval of the Order for
Notice and Hearing, the Stipulation and the Settlement, and to promptly agree
upon and execute all such other documentation as may be reasonably required to
obtain final approval by the District Court and as necessary, the Bankruptcy
Court, of the Settlement.
<PAGE>
Dated: December 19, 1997
SHAPIRO HABER & URMY LLP
By:
Edward F. Haber
75 State Street
Suite 1520
Boston, MA 02109
(617) 439-3939
MILBERG WEISS BERSHAD
HYNES & LERACH LLP
By:
David J. Bershad
Jerome M. Congress
Salvador J. Graziano
One Pennsylvania Plaza
New York, NY 10119
(212) 594 -5300
SCHIFFRIN & CRAIG, LTD.
By:
Richard S. Schiffrin
Andrew L. Barroway
Three Bala Plaza East
Suite 400
Bala Cynwyd, PA 19004
(610) 667-7706
<PAGE>
LAW OFFICES OF ALFRED G.
YATES JR
By:
Alfred G. Yate's
Gerald L. Rutledge
519 Allegheny Building
429 Forbes Avenue
Pittsburgh, PA 15219
(412) 391-5164
Counsel for Plaintiffs
<PAGE>
GOODWIN, PROCTER & HOAR LLP
By:
Stephen D. Poss, P.C.
Exchange Place
Boston, MA 02109
(617) 570-1000
Counsel for Defendants
William H. Baumhauer and
DAKA International, Inc.
DAKA International, Inc.
2400 Yorkmont Road
Charlotte, N.C. 28217.
By:
Name:
Title:
<PAGE>
GOODWIN, PROCTER & HOAR LLP
By:
Stephen D. Poss, P.C.
Exchange Place
Boston, MA 02109
(617) 570-1000
Counsel for Defendants
William H. Baumhauer and DAKA
International, Inc.
DAKA International, Inc.
2400 Yorkmont Road
Charlotte, N.C. 28217
By:
Michael J. Bailey
Chief Executive Officer
Exhibit 10.19
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of July 31,
1998, is made by and between KING CANNON, INC. (the "Purchaser"), a Delaware
corporation with its principal place of business at 575 Lexington Avenue, Suite
410, New York, NY 10022 and UNIQUE CASUAL RESTAURANTS, INC. (the "Seller"), a
Delaware corporation with its principal place of business at 55 Ferncroft Road,
Danvers, MA 01923, and joined in to the extent set forth in the Joinder below by
CHAMPPS ENTERTAINMENT, INC. ("Champps"), a Minnesota corporation with its
principal place of business at 55 Ferncroft Road, Danvers, MA 01923.
W I T N E S S E T H:
WHEREAS, the Seller is the owner of all of the issued and outstanding
shares (the "Shares") of the capital stock of Fuddruckers, Inc. (the "Company"),
a Texas corporation;
WHEREAS, the Company (a) owns all of the issued and outstanding shares
of the capital stock of each of R. Wes, Inc. ("RWes"), a Texas corporation,
Fuddruckers Europe, Inc. ("Fudds Europe"), a Texas corporation, and 8725 Metcalf
II, Inc. ("Metcalf"), a Kansas corporation, (b) controls all operations and
assets of Fuddrucker Club, Inc. ("Fudds Club"), a Texas not for profit
membership organization, (c) owns 244,000 common shares of the issued and
outstanding capital stock of Fuddruckers - EMA, E.C. ("EMA"), a Bahrainian
corporation which is not controlled by or otherwise affiliated with the Seller
or the Company, and (d) owns of record 4,999,998 common shares, and owns
beneficially in the aggregate 5,000,000 common shares, of the issued and
outstanding capital stock of Atlantic Restaurant Ventures, Inc. ("ARVI"), a
Virginia corporation, which owns all of the issued and outstanding shares of the
capital stock of A.R.I.V. -Rockville, Inc. ("Rockville"), a Maryland
corporation, and owns of records 80 common shares, and owns beneficially in the
aggregate all, of the issued and outstanding shares of the capital stock of ARVI
of Pikesville, Inc. ("Pikesville"), a Maryland corporation (RWes, Fudds Europe,
Metcalf, Fudds Club, ARVI, Rockville and Pikesville are hereinafter referred to
collectively as the "Subsidiaries" and individually as a "Subsidiary", and
together with the Company, collectively as the "Acquired Companies" and
individually as an "Acquired Company");
WHEREAS, the Company and the Subsidiaries are engaged in the operation
and franchise of a chain of restaurants operating under the trade name
"Fuddruckers" in the United States and Canada and EMA, pursuant to exclusive
rights granted to EMA by the Company under the EMA Agreements (as hereinafter
defined), is engaged in the operation and franchise of a chain of restaurants
operating under the name "Fuddruckers" in Europe, the Middle East and Africa
(the foregoing operations and activities are referred to collectively as the
"Business"), it being agreed and acknowledged by the Purchaser that with respect
to all geographies where EMA has exclusive rights to currently operate and
franchise "Fuddruckers" restaurants, the Company has no rights to currently
operate or franchise any such restaurants but holds such residual, contingent or
other reversionary rights as set forth in the EMA Agreements and under
applicable Law;
WHEREAS, the Seller desires to sell to the Purchaser, and the Purchaser
desires to purchase from the Seller, all of the Shares for the consideration and
on the terms set forth in this Agreement;
WHEREAS, the proceeds of the transactions contemplated by this
Agreement will directly benefit the business, operations and prospects of
Champps; and
WHEREAS, Champps desires to induce the Purchaser to enter into this
Agreement, and Champps has agreed to become jointly and severally liable, as a
primary obligor and along with the Seller, for certain covenants and obligations
under this Agreement, as hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
Purchase and Sale; Defined Terms
Section 1.1 Sale of Shares. Subject to the terms and conditions of this
Agreement, at the Closing, the Seller will sell, transfer, convey, assign and
set over ("Transfer") to the Purchaser, and the Purchaser will purchase and
acquire from the Seller, all of the Seller's right, title and interest in and to
the Shares.
Section 1.2 Transferred Seller Assets. Prior to the Closing, the Seller
will Transfer, to one or more of the Acquired Companies, all of the Seller
Assets except that (a) in the case of Seller Assets which are furniture,
fixtures and equipment used in the overhead operations of the Business, only
those of such Seller Assets listed on Schedule 1.2(A) will be so Transferred,
and (b) with respect to rights under Seller Assets which are Commitments with
third parties, only those of such Commitments listed on Schedule 1.2(B) will be
so Transferred.
Section 1.3 Certain Definitions and Interpretive Matters.
A. Certain Definitions. As used in this Agreement, (i) unless the
context otherwise requires, each accounting term not otherwise defined in this
Agreement has the meaning assigned to it in accordance with United States
generally accepted accounting principles as consistently applied by the Seller
in accordance with its procedures and practices used in the preparation of the
June 1997 Audited Financials (as hereinafter defined) ("GAAP"), (ii) "or" is
disjunctive but not necessarily exclusive, (iii) "including" means "including
without limitation", (iv) the term "Affiliate" has the meaning given to that
term in Rule 12b-2 of Regulation 12B under the Securities Exchange Act of 1934,
as amended, (v) the term "Person" means any individual, corporation, trust,
partnership, limited liability company, unincorporated association, joint
venture, Governmental Entity or other entity of any kind, (vi) all references to
"$" or dollar amounts mean lawful currency of the United States of America, and
(vii) the term "Laws" shall mean any foreign or domestic, federal, state, county
or local statute, law, ordinance, rule, regulation, order, judgment or ruling.
B. Interpretive Matters. No provision of this Agreement will be
interpreted in favor of, or against, any of the parties hereto by reason of the
extent to which any such party or its counsel participated in the drafting
thereof or by reason of the extent to which any such provision is inconsistent
with any prior draft hereof or thereof.
C. Specific Defined Terms. The following defined terms are defined in
the respective Sections of this Agreement as set forth below:
Defined Term Section Defined In
------------ ------------------
"AAA" 2.3(A)
"Acquired Company(ies)" Preamble
"Affiliate" 1.3(A)
"Agreement" Intro. Paragraph
"Andover Restaurant" 4.1(D)(iii)
"Applicable Affiliate" 4.1(P)
"Arbitrator" 13.15
"Arrangements" 4.1(M)(ii)
"ARVI" Preamble
"Assets" 4.2
"Audited Balance Sheet" 4.1(D)(i)
"Benefit Arrangements" 4.1(M)(ii)
"Benefit Plans" 4.1(M)(ii)
"Boston Restaurant" 4.1(D)(iii)
"Business" Preamble
"Business Commitments" 4.1(G)(i)
"Business Licenses" 4.1(G)(iii)
"Cash Payment Adjustment" 6.17
"Champps" Intro. Paragraph
"Closed Required Restaurant" 6.18(A)
"Closed Store Adjustment" 6.18(A)
"Closing" 3.1
"Closing Date" 3.1
"Closing Date Receivable Adjustment" 2.2(C)
"Closing Statement" 2.2(A)(i)
"Code" 3.2(A)(14)
"Commitments" 4.2
"Company" Preamble
"Company Employees" 4.1(M)(i)
"Compass PLC" Schedule 6.6(A)(iii)
"Competing Transaction" 6.7(A)
"Current Assets" 2.2(D)
"Current Liabilities" 2.2(D)
"Current Locations" 4.1(H)(i)
"Current Receivables" 4.2
"DAKA" Schedule 6.6(A)(iii)
"Declining Seller Employee" 13.16(B)
"disclosure documents" 4.1(V)(iv)
"Disclosure Schedule" 4.2
"EBITDA" 4.2
"EBITDA Adjustment" 2.2(D)
"EMA Agreements" 4.1(X)
"Environment" 4.1(L)(iv)
"Environmental Condition" 4.1(L)(iv)
"Environmental Cost Estimate" 8.6(C)
"Environmental Laws" 4.1(L)(iv)
"Environmental Matters" 13.14(A)
"Equity Securities" 4.1(C)(i)
"ERISA" 4.1(M)(i)
"ESA" 8.6(A)
"Escrow Agent" 2.2(B)
"Escrow Agreement" 3.2(A)(8)
"Escrow Amount" 2.2(B)
"Estimated Purchase Price" 2.2(B)
"Estimated Working Capital" 2.2(A)(i)
"Excluded Items" 4.2
"Existing PSI Reports" 8.6(A)
"FAS 121" 4.2
"Final Purchase Price" 2.3(C)
"Final Working Capital" 2.3(A)
"Financial Statements" 4.1(D)(ii)
"Former Employees" 4.1(M)(ii)
"Franchise Agreements" 4.1(G)(i)
"Franchise Laws" 4.1(V)(i)
"Fuddruckers System" 11.5(A)
"Fudds Club" Preamble
"Fudds Europe" Preamble
"GAAP" 1.3(A)(i)
"General Escrow Amount" 2.2(B)
"Governmental Entity" 4.1(L)(iv)
"Hazardous Materials" 4.1(L)(iv)
"Hazardous Materials Activities" 13.14
"Head Office" 4.1(I)
"Holdings" Schedule 6.6(A)(iii)
"HSR Act" 4.1(B)
"Indemnification Agreement" Schedule 6.6(A)(iii)
"Indemnitee" 13.14(E)
"Indemnitor" 13.14(E)
"Independent Accountants" 2.3(A)
"Insurance" 4.1(O)
"Intellectual Property" 4.1(J)
"International" Schedule 6.6(A)(iii)
"Inventory" 4.2
"IRS" 4.1(M)(i)
"June Financials" 6.12(A)
"June 1997 Audited Financials" 4.1(D)(i)
"June 1997 Balance Sheet" 6.12(A)
"KCOB Parties" Schedule 6.6(A)(iii)
"Knowledge" 13.11
"La Salsa Agreement" 4.1(Q)
"Laws" 1.3(A)
"Lease Consent Escrow" 6.18(E)
"Lease Termination Amount" 6.18(A)
"Leased Real Properties" 4.1(H)(i)
"Leases" 4.1(H)(i)
"Legal Proceeding" 4.1(G)(iii)
"Long-Term Receivables" 4.2
"Liabilities" 4.1(D)(vi)
"Liability Escrow" 6.6(A)
"Licenses" 4.1(G)(iii)
"Lien(s)" 4.1(B)
"Litigation Escrow" 6.6(D)
"Maintenance Expenditure Adjustment" 6.13
"March Balance Sheet" 4.1(D)(ii)
"Material Adverse Change" 4.2
"Material Adverse Effect" 4.2
"Metcalf" Preamble
"NARLP" 4.1(Y)
"Non-Current Liabilities" 6.6(A)
"Notice of Qualified Competing 6.7(B)
Transaction"
"Objection Notice" 2.3(A)
"Order" 4.1(B)
"Other Locations" 4.1(L)(iii)
"Outside Date" 10.1(e)
"Owned Real Properties" 4.1(H)(i)
"P/C Escrow" Schedule 6.6(A)(iii)
"P/C Parties" Schedule 6.6(A)(iii)
"P/C Termination Date" Schedule 6.6(A)(iii)
"Person" 1.3(A)
"Pikesville" Preamble
"Post-Closing Asset Transfer 2.3(B)
Adjustment"
"PSI" 8.6(A)
"Purchaser" Intro. Paragraph
"Purchaser's Losses" 13.14(A)
"Put/Call Agreement" 4.1(Y)
"Put/Call L/C" Schedule 6.6(A)(iii)
"Qualified Competing Transaction" 6.7(A)
"Receivables" 4.2
"Rehired Seller Employee" 13.16(B)
"Release" 4.1(L)(iv)
"Rent Adjustment Amount" 6.18(D)
"Required Consent" 6.18(A)
"Required Estoppel" 6.18(A)
"Required Lease" 6.18(A)
"Required Restaurant" 6.18(A)
"Retained Liabilities" 4.2
"Rockville" Preamble
"RWes" Preamble
"S/A Agreements" 6.12(D)
"S/A Escrow Agreement" 6.12(D)
"S/A Escrow Funds" 6.12(D)
"Saugus Restaurant" 4.1(D)(iii)
"SEC Reports" 4.1(L)(ii)
"Section 338(h)(10) Elections" 12.2(A)
"Section 6.7(B) Notice" 6.7(B)
"Secured Parties" Schedule 6.6(A)(iii)
"Seller" Intro. Paragraph
"Seller Assets" 4.2
"Seller Employees" 13.16(B)
"Seller's Accountants" 4.1(D)(i)
"Seller's Losses" 13.14(B)
"Shared Employees" 13.16(C)
"Shared Employee Services" 13.16(C)
"Shares" Preamble
"Special Meeting" 6.8
"Specialty" Intro. Paragraph
"Store No. 114" 8.6(B)
"Subsidiary(ies)" Preamble
"Tax(es)" 12.4
"Tax Allocation Agreement" Schedule 6.6(A)(iii)
"Tax Return(s)" 12.4
"Threat of Release" 4.1(L)(iv)
"Threshold Commitments" 4.1(G)(i)
"Threshold Licenses" 4.2
"Transfer" 1.1
"Transferred Liabilities" 4.2
"Transferred Seller Assets" 4.2
"Transitional Services Agreement" 6.11
"Unadjusted Purchase Price" 2.1
"Updates" 8.6(A)
"Working Capital" 2.2(D)
"1998 EBITDA" 6.12(B)
"1998 Store EBITDA" 6.18(A)
ARTICLE II
Purchase Price
Section 2.1 Unadjusted Purchase Price. In consideration of the purchase
and sale of the Shares and the covenants herein contained, the purchase price
shall be $43,000,000 (the "Unadjusted Purchase Price"), subject to adjustment at
Closing as provided in Section 2.2 and further adjustment post-Closing as
provided in Section 2.3.
Section 2.2 Estimated Purchase Price.
A. Closing Statement. (i) At the Closing, the Seller will deliver to
the Purchaser its good faith statement (the "Closing Statement") of estimated
Working Capital (as hereinafter defined) as of the Closing Date (the "Estimated
Working Capital"). The Closing Statement shall be prepared by the Seller on a
basis consistent with the March Balance Sheet (as hereinafter defined) including
where applicable the definitions set forth in Section 2.2(C), and in any case
utilizing a physical Inventory count and actual cash reconciliations. Subject to
Section 2.2(C), the Closing Statement shall separately reflect all items
comprising Current Assets (as hereinafter defined) and Current Liabilities (as
hereinafter defined) of the Acquired Companies on a consolidated, stand-alone
basis as of the Closing Date, and in any case the Closing Statement shall not
reflect any intercompany payable or receivable. For the purposes of the Seller's
preparation of the Closing Statement (subject to the Purchaser's right to review
the same as provided in Section 2.3) Current Assets and Current Liabilities will
be shown by the Seller thereon at book value. The Purchaser and its independent
accountants and other representatives shall have the opportunity to review, from
time to time prior to the Closing, the work papers, trial balances and similar
materials used in the preparation of the Closing Statement and to observe all
procedures utilized in the preparation of the Closing Statement and the
calculation of the Estimated Working Capital, including any physical Inventory
count or similar procedure.
B. Estimated Purchase Price. The Unadjusted Purchase Price shall be (a)
decreased by the amount of the EBITDA Adjustment (as hereinafter defined), (b)
increased by the amount that the Estimated Working Capital is more than $0 and
decreased by the amount that the Estimated Working Capital is less than $0, as
the case may be, (c) decreased by the amount of the Maintenance Expenditure
Adjustment (as hereinafter defined), (d) decreased by the amount of the Cash
Payment Adjustment (as hereinafter defined), and (e) decreased by the amount of
the Closed Store Adjustment (as hereinafter defined) (as so adjusted, the
"Estimated Purchase Price"). On the Closing Date, the Purchaser will pay, by
wire transfer of immediately available funds, to such account as the Seller
shall have designated, an amount equal to the Estimated Purchase Price less the
aggregate of (i) $1,000,000 representing the "General Escrow Amount", (ii)
$1,000,000 representing the "Lease Consent Escrow", if any, (iii) the amount of
the Litigation Escrow (as hereinafter defined), if any, and (iv) the amount of
the Liability Escrow (as hereinafter defined), if any (the General Escrow
Amount, the Lease Consent Escrow, the Litigation Escrow and the Liability Escrow
collectively the "Escrow Amount"). The Escrow Amount shall be paid by the
Purchaser to the escrow agent (the "Escrow Agent") under the Escrow Agreement
(as hereinafter defined) to be held by the Escrow Agent in accordance therewith.
C. Excluded Items. The Purchaser may in its sole discretion, require
the Seller to have Transferred to itself, at Closing, any Current Asset (other
than Inventory, cash and assumable prepaid expenses as of the Closing which are
reflected as Current Assets on the Closing Statement), and any Current or
Long-Term Receivable (as hereinafter defined) and any such Current Asset or
Current Receivable so Transferred shall not be reflected on the Closing
Statement and the calculation of Estimated Working Capital or Final Working
Capital. The Seller shall be deemed to have Transferred to itself as of the
Closing those certain Receivables and associated claims and rights arising from
any former or current agreement, arrangement or business relationship between
the Company or ARVI, on the one hand, and KCOB I, Inc., KCOB II, Inc., or Joseph
O'Brien, on the other hand, including the judgment rendered in the Legal
Proceeding (Fuddruckers, Inc. v. KCOB I, Inc. and Joseph O'Brien) pending before
the Federal District Court for Kansas set forth on Schedule 4.1(K); provided,
however, that (i) the Purchaser shall retain all rights as a secured party under
security agreements, pledges and other collateral arrangements with respect to
the "Fuddruckers" restaurants formerly owned by KCOB I, Inc. and KCOB II, Inc.,
including all rights to act as receiver under court order during the pendency of
litigation and all remedies as a secured creditor with respect to ownership and
operation of such restaurants.
D. Defined Terms. The term "Working Capital" shall mean the amount of
the difference between the "Current Assets" and "Current Liabilities" of the
Acquired Companies on a consolidated, stand-alone basis as of the Closing Date.
As used herein the terms: (1) "Current Assets" shall mean those types of items
classified as such and marked with an asterisk (*) on the March Balance Sheet
(to be attached hereto as Schedule 4.1(D)(ii)); and (2) "Current Liabilities"
shall mean those types of items classified as such and marked with a double
asterisk (**) on the March Balance Sheet (to be attached hereto as Schedule
4.1(D)(ii)). The term "EBITDA Adjustment" shall mean, provided that the
conditions described in Section 8.7 and in Section 9.5 are met or have been
waived by both the Purchaser and the Seller, if the 1998 EBITDA (as hereinafter
defined) is less than $8,500,000, an amount equal to the product of 5 times the
amount by which $8,500,000 exceeds the 1998 EBITDA. There shall not be any
EBITDA Adjustment in the event that the 1998 EBITDA is more than $8,500,000.
Section 2.3 Final Purchase Price.
A. Final Working Capital. During the one hundred and twenty (120) day
period following the Closing Date, the Purchaser shall have the right to review
the Closing Statement. During such 120-day period, the Purchaser and its
authorized representatives will be entitled to review, during normal business
hours, the Seller's books, records and workpapers (to the extent related to the
Business (excluding the books, records and workpapers of EMA, unless otherwise
consented to by EMA) and not otherwise Transferred to the Purchaser at Closing),
and the Seller shall otherwise cooperate with the Purchaser and with the
Purchaser's independent accountants and other authorized representatives in
connection with such review. By no later than the last day of the Purchaser's
120-day review period, the Purchaser shall notify the Seller whether the
Purchaser accepts or rejects the accuracy of the Seller's Closing Statement and
Estimated Working Capital, and if it rejects, the Purchaser shall furnish to the
Seller as part of such notice an adjusted Closing Statement reflecting such
changes as its believes appropriate to make the Closing Statement accurate as of
the Closing Date. The failure by the Seller to deliver to the Purchaser a notice
of its objection (the "Objection Notice") to the Purchaser's adjusted Closing
Statement prior to the expiration of the ten business day period following the
delivery of the same to the Seller shall constitute the Seller's acceptance of
the Purchaser's adjusted Closing Statement and the Working Capital calculated
therefrom. If the Purchaser and the Seller are unable to resolve any
disagreement between them regarding the Closing Statement and the Working
Capital Adjustment within ten business days after the Seller's delivery, to the
Purchaser, of an Objection Notice, any items still in dispute will be referred
for determination to Arthur Andersen LLP (or, if Arthur Andersen LLP refuses to
act on behalf of the parties pursuant to this Section 2.3(A), such other
nationally recognized accounting firm as shall be appointed by the President of
the Boston office of the American Arbitration Association (the "AAA")) (the
"Independent Accountants") within ten business days following the expiration of
the foregoing ten business day period. The Independent Accountants'
determination will be (a) in writing, (b) furnished to each of the parties
hereto as promptly as practicable, and (c) conclusive and binding upon the
parties hereto. The fees and expenses of the Independent Accountants will be
borne by the non-prevailing party. The Working Capital, as agreed to by the
Purchaser and the Seller, deemed accepted by the Seller, or finally determined
by the Independent Accountants, as the case may be, shall hereinafter be called
the "Final Working Capital".
B. Post-Closing Asset Transfer Adjustment. By no later than 120 days
after the Closing Date, the Purchaser may in its sole discretion require that
the Seller purchase from the Purchaser any Current Asset (other than Inventory,
cash and assumable prepaid expenses as of the Closing which are reflected as
Current Assets on the Closing Statement) which had been reflected on the
Seller's Closing Statement, at an amount equal to (i) in the case of any Current
Receivable, the amount thereof set forth in the Seller's Closing Statement minus
100% of all amounts collected on account of such Current Receivable since the
Closing by the Purchaser or any Acquired Company, and (ii) in the case of any
other Current Asset, the book value thereof as of the date on which the purchase
thereof by the Seller takes place; provided, however, that the Seller shall only
be obligated to purchase any Current Asset or Current Receivable from the
Purchaser if the Purchaser has not compromised or settled in any manner the
applicable Acquired Company's claims associated therewith and has not released,
waived, compromised or otherwise impaired any rights of the applicable Acquired
Company against the debtor or any guarantor or collateral relating thereto under
any promissory notes, guarantees, pledges, security agreements or other
instruments executed for the benefit of the applicable Acquired Company, all of
which claims, rights, notes, guarantees, pledges, security agreements and other
instruments shall be assigned and transferred to the Seller together with the
applicable Current Asset at no additional cost to the Seller (above the amount
to be paid by the Seller on account of the Current Asset or Current Receivable
itself as specified above). The aggregate amount owing by the Seller to the
Purchaser on account of the foregoing Transfers shall hereinafter be called the
"Post-Closing Asset Transfer Adjustment". By no later than 120 days after the
Closing Date, the Purchaser may in its sole discretion assign and Transfer to
the Seller (at no cost to the Seller) any Long-Term Receivable together with all
related claims, rights, notes, guarantees, pledges, security agreements and
other instruments, it being understood that no portion of any such Long-Term
Receivable will be included in the Post-Closing Asset Transfer Adjustment. The
Seller shall have unrestricted authority and right in its sole discretion to
pursue any action and exercise any remedy with respect to the collection of any
Current or Long-Term Receivables assigned or transferred to the Seller pursuant
to this Section 2.2(B), including without limitation instituting any action or
other litigation before any court, agency, arbitrator or tribunal and
foreclosing upon any collateral, including franchised "Fuddruckers" restaurants
and the related Franchise Agreement, furniture, fixtures and equipment without
incurring any Liability to the Purchaser hereunder.
C. Final Purchase Price. The Estimated Purchase Price shall be (a) if
necessary, increased or decreased, as the case may be, by the amount by which
the Estimated Working Capital exceeds or is exceeded by the Final Working
Capital, and (b) decreased by the amount of the Post-Closing Asset Transfer
Adjustment (as so adjusted by (a) and (b) above, the "Final Purchase Price").
D. Payment of Adjustment Amount. Any adjustment to the Estimated
Purchase Price to be made pursuant to this Section 2.3 shall be paid by the
Seller to the Purchaser or by Purchaser to the Seller, as the case may be,
within ten (10) days after the final determination or acceptance, as the case
may be, of the Final Working Capital, together with interest on the amount by
which the Estimated Working Capital exceeds or is exceeded by the Final Working
Capital, from the Closing Date to the date of payment (at a rate equal to Fleet
Bank's prime rate, as publicly announced and in effect from time to time during
such period, plus 2.0%, calculated on the basis of the actual number of days
elapsed over 365), by wire transfer of immediately available funds to such
account as the Purchaser or the Seller, as the case may be, shall have
designated. Any Transfer of Current Assets, or Current or Long-Term Receivables,
shall take place on the date on which the aforementioned adjustment is paid.
ARTICLE III
Closing
Section 3.1 Closing Date. The purchase and sale (the "Closing")
provided for in this Agreement will take place at the offices of Goulston &
Storrs, P.C., 400 Atlantic Avenue, Boston, MA 02110 at 10:00 a.m. (local time)
on November 2, 1998 or, subject to Section 10.1(e), at such other time and place
as the parties may agree (such date being hereinafter called the "Closing
Date"). Subject to the provisions of Article X, failure to consummate the
purchase and sale provided for in this Agreement on the date and time and at the
place determined pursuant to this Section 3.1 will not result in the termination
of this Agreement and will not relieve any party of any obligation under this
Agreement. All matters at the Closing shall be considered to take place
simultaneously, and no delivery of any document or instrument shall be deemed
complete until all transactions contemplated by this Agreement, and deliveries
of all documents and instruments contemplated by this Agreement to be delivered
at the Closing, are completed.
Section 3.2 Closing Documents.
A. Deliveries of the Seller. At the Closing, the Seller shall deliver
the following to the Purchaser:
1. original certificates representing the Shares, duly
endorsed (or accompanied by duly executed stock powers) for Transfer to the
Purchaser;
2. original certificates representing all Equity Securities in
each Subsidiary other than ARVI, or other evidence satisfactory to the Purchaser
that such original certificates are under the power and control of the Seller
and that such power and control has been assigned to the Purchaser, and as to
the Equity Securities in Pikesville that are owned by ARVI beneficially and not
of record, an executed stock power from each record owner assigning record
ownership in such Equity Securities to ARVI;
3. original certificates representing all Equity Securities in
EMA and in ARVI that are owned by the Company as listed on Schedule 4.1(C), or
other evidence satisfactory to the Purchaser that such original certificates are
under the power and control of the Seller and that such power and control has
been assigned to the Purchaser, and as to the Equity Securities in ARVI that are
owned beneficially by the Company and not of record, an executed stock power
from each record owner assigning record ownership in such Equity Securities to
the Company;
4. possession of the minute books and stock record books of
each of the Acquired Companies, all other books and records referenced in
Section 4.1(F), and to the extent that the following are in the possession of
the Seller, originals of all Leases, title policies and deeds relating to the
Owned Real Properties, Business Licenses, and other Business Commitments, and
all other files of the Acquired Companies and the Business (excluding EMA's
books and records);
5. Required Consents and Required Estoppels (each Required
Estoppel to be in the form of Exhibit A with such changes requested by the
relevant lessor as may be consented to by the Purchaser which consent shall not
be unreasonably withheld, or in such other form as may be prescribed by the
Required Lease) for such Required Restaurants as represent an aggregate of at
least 85% of the cumulative 1998 Store EBITDA for all Required Restaurants which
are open and operating at the time of the Closing, duly executed, and such
further duly executed Required Consents, Required Estoppels, consents,
authorizations, permits, approvals and the like as the Seller has actually
obtained from any Governmental Entity or other Person in connection with the
consummation of the transactions contemplated hereby;
6. Intentionally Deleted;
7. resignations and releases executed by each of the directors
and executive officers listed on Schedule 4.1(A) (other than Joseph R. O'Brien
in his capacity as a director of ARVI and a director of Rockville, and those
other directors and officers as shall be specified by the Purchaser to the
Seller prior to the Closing Date) of each Acquired Company, in the form of
Exhibit B;
8. the escrow agreement in the form of Exhibit C (the "Escrow
Agreement") executed by the Seller, Champps and the Escrow Agent and dated the
Closing Date;
9. certificates executed by the President or the Chief
Financial Officer of the Seller, of each Acquired Company and of Champps in the
form of Exhibit D;
10. certificates executed by the Secretary of the Seller, of
each Acquired Company and of Champps in the form of Exhibit E;
11. corporate good standing certificates concerning the
Seller, each Acquired Company and Champps from the Secretary of State or other
Governmental Entity of each of their respective jurisdictions of incorporation,
dated as of a date not more than ten business days prior to the Closing Date;
12. articles or certificate of incorporation of the Seller,
each Acquired Company and Champps certified by the Secretary of State or other
Governmental Entity of each of their respective jurisdictions of incorporation,
dated as of a date not more than ten business days prior to the Closing Date;
13. an opinion of Goodwin, Procter & Hoar LLP, in the form of
Exhibit F;
14. a certification of non-foreign status signed by the
President or the Chief Financial Officer of the Seller affirming that the Seller
is not a foreign person within the meaning of Section 1445(b)(2) of the Internal
Revenue Code of 1986, as amended (the "Code"), which certification shall be in
the form of Exhibit G;
15. Intentionally Deleted;
16. Intentionally Deleted;
17. the evidence, releases and other documents described in
Section 6.6 (including without limitation executed original mortgage discharges,
in recordable form, sufficient to discharge of record all mortgages, deeds to
secure debt or deeds of trust on the Owned Real Properties), Section 6.11,
Section 6.12, Section 6.13, Section 6.14 and Section 6.15, and the June
Financials;
18. foreign qualification certificates concerning each
Acquired Company from the Secretary of State or other Governmental Entity of
each jurisdiction in which they are, respectively, authorized to do business,
dated as of a date not more than ten business days prior to the Closing Date;
19. an opinion of Wiley, Rein & Fielding, to the effect set
forth on Exhibit H;
20. an opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.,
to the effect set forth on Exhibit I;
21. commitments for the issuance of an owner's title insurance
policy in the name of the Company, substantially conforming to those existing
commitments for the relevant Owned Real Property which were previously delivered
to the Purchaser, issued by Lawyer's Title Insurance Company or another
acceptable title insurance company, for each of the Owned Real Properties listed
on Exhibit 3.2(A)(21);
22. the Transitional Services Agreement (as hereinafter
defined) executed by the Seller and dated the Closing Date.
23. evidence of the payment of all Taxes referred to in
Section 12.1.
B. Deliveries of the Purchaser. At the Closing, the Purchaser shall
deliver the following to the Seller:
1. the Estimated Purchase Price as set forth in Section
2.2(A)(iv);
2. a certificate executed by an officer of the Purchaser in
the form of Exhibit J;
3. a certificate executed by the Secretary of the Purchaser in
the form of Exhibit K;
4. a corporate good standing certificate concerning the
Purchaser from the Secretary of State of Delaware, dated as of a date not more
than five business days prior to the Closing Date;
5. the certificate of incorporation of the Purchaser certified
by the Secretary of State of Delaware, dated as of a date not more than five
business days prior to the Closing Date;
6. the Escrow Agreement executed by the Purchaser;
7. an opinion of Goulston & Storrs, P.C., in the form of
Exhibit L; and
8. the Transitional Services Agreement executed by the
Purchaser or the Company (at the Purchaser's election).
ARTICLE IV
Representations and Warranties by the Seller
Section 4.1 Representations and Warranties. The Seller (and Champps
jointly and severally for the purposes of Section 4.1(R) and Section 4.1(W))
hereby represents and warrants to the Purchaser that, as of the date hereof and
on the Closing Date:
A. Corporate Existence and Qualification; Due Execution, Etc. Schedule
4.1(A) contains a complete and accurate list, for each Acquired Company and for
EMA, of its name, and its jurisdiction of incorporation, and for each Acquired
Company of all of its current executive officers and directors, and each other
jurisdiction in which it is authorized to do business and every other
jurisdiction in which it is doing business, and for EMA all of its current
officers and directors who are employees of the Seller or any Acquired Company.
Except as set forth on Schedule 4.1(A), the Seller is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Delaware, with full corporate power and authority to own, lease or otherwise
hold its assets (including without limitation the Transferred Seller Assets and
the Shares) and to carry on its business (including without limitation the
Business (except for jurisdictions where EMA operates or franchises
restaurants)) as conducted by it now and immediately prior to the Closing.
Except as set forth on Schedule 4.1(A), each Acquired Company is a corporation
duly organized, validly existing, and in good standing under the Laws of its
jurisdiction of incorporation shown on Schedule 4.1(A), and has full corporate
power and authority to own, lease or otherwise hold its assets (including
without limitation the Assets owned, leased or otherwise held by it) and to
carry on its business (including without limitation the Business (except for
jurisdictions where EMA operates or franchises restaurants)) as conducted by it
now and immediately prior to the Closing. Each of the Seller and the Acquired
Companies is duly qualified to conduct business, and is in good standing, under
the Laws of each state or other jurisdiction in which its ownership, lease, or
use of property or the conduct of its business (including without limitation the
Business (except for jurisdictions where EMA operates or franchises
restaurants)) require such qualification, except where the failure to be so
qualified and to be in good standing could not reasonably be anticipated to
result in, following the Closing, a Material Adverse Effect on the Business.
Subject to the approval of this Agreement and the transactions contemplated
hereby at a Special Meeting (as hereinafter defined), the Seller has all
requisite corporate power and authority to execute, deliver and perform this
Agreement and to consummate the transactions contemplated by this Agreement. The
execution and delivery of this Agreement and the consummation by the Seller of
the transactions contemplated by the terms and provisions of this Agreement to
be consummated by it have been duly authorized by all requisite corporate action
(subject to the approval of this Agreement and the transactions contemplated
hereby at a Special Meeting), and, assuming the due execution of this Agreement
by the Purchaser, this Agreement and its terms constitutes the valid and binding
obligation of the Seller enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium or
other similar Laws relating to creditors' rights generally and to general
principles of equity.
B. No Violation. Except as set forth on Schedule 4.1(B), and assuming
that the Seller has taken all actions required to be taken by it pursuant to
Articles II, III and VI of this Agreement, neither the execution and delivery by
the Seller of this Agreement nor the consummation of the transactions
contemplated hereby: (i) violates or will violate any Law applicable to the
Seller or any Acquired Company, including without limitation the Securities Act
of 1933 and the Securities Exchange Act of 1934; (ii) violates or will violate
any order, ruling, writ, judgment, injunction or decree of any Governmental
Entity (an "Order") applicable to the Seller or any Acquired Company; (iii)
results or will result in a breach of or default under the certificate or
articles of incorporation or bylaws of the Seller or any Acquired Company; (iv)
conflicts or will conflict with or results or will result in any breach of any
Commitment applicable to the Seller or any Acquired Company except for any such
conflict or breach as could not reasonably be anticipated to result in a
Material Adverse Effect on the Business or as could not reasonably be
anticipated to impair the ability of the Seller to consummate the transactions
contemplated hereby; (v) requires the approval of the stockholders of any
Acquired Company (except insofar as such Acquired Company is wholly owned by the
Seller or another Acquired Company); (vi) results or will result in the
imposition of any title defect, mortgage, lien, charge, pledge, security
interest or other encumbrance (collectively, "Liens", and individually a "Lien")
on any of the Shares, the Assets or the Transferred Seller Assets or (vii)
results or will result in or give rise to any claim or judgment against any
Acquired Company, the Purchaser, the Shares, the Assets, or the Transferred
Seller Assets except for any such claim or judgment against the foregoing other
than the Shares as could not reasonably be anticipated to result in a Material
Adverse Effect on the Business. Except for the notification required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), and
assuming that the Seller has taken all actions required to be taken by it
pursuant to Articles II, III and VI of this Agreement, and except as set forth
on Schedule 4.1(B), no consent, authorization, license, permit, or approval
from, or registration or filing with, any Governmental Entity or other Person is
required to be obtained or made by or with respect to the Seller, any Acquired
Company or, to the Seller's knowledge, EMA, in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby or for the Purchaser and the Acquired Companies taken as a whole to
succeed to the rights of the Seller and the Acquired Companies as a whole in the
Assets and the Transferred Seller Assets except for any such consent,
authorization, approval, registration or filing (a) which the failure to obtain
or make could not reasonably be anticipated to result in a Material Adverse
Effect on the Business or (b) which the Purchaser is required to obtain or make
after the Closing as a result of the consummation of the transactions
contemplated by this Agreement and becoming the owner of the Shares and the
controlling person with respect to the Acquired Companies and the Business.
C. Capitalization and Equity Securities. (i) Schedule 4.1(C) sets forth
the capitalization of each Acquired Company and of EMA, including as to each
Acquired Company and EMA the number of shares of common and other classes of
stock, the par value thereof, all outstanding instruments convertible into
shares, the number of issued and outstanding convertible securities and shares
of each class of stock, and also including as to each Acquired Company the
identity of each shareholder and holder of convertible securities (all issued
and outstanding (a) shares in any class of capital stock, (b) instruments
convertible into shares, and (c) similar interests in any unincorporated entity,
are hereinafter collectively called "Equity Securities"), and also including as
to EMA the number and type of issued and outstanding Equity Securities as are
held by any Acquired Company or the Seller. The Seller is the record and
beneficial owner and holder of the Shares, which constitute all of the Equity
Securities in the Company, free and clear of all Liens except as set forth on
Schedule 4.1(C). All of the Equity Securities in each Subsidiary other than EMA,
Rockville, Pikesville and ARVI are owned of record and beneficially by the
Company, free and clear of all Liens except as set forth on Schedule 4.1(C). All
of the Equity Securities in each of Rockville and Pikesville are owned of record
and/or beneficially by ARVI, free and clear of all Liens except as set forth on
Schedule 4.1(C). The Equity Securities in each of EMA and of ARVI that are
listed on Schedule 4.1(C) as being owned by the Company of record are owned of
record by the Company, free and clear of all Liens except as set forth on
Schedule 4.1(C). The Equity Securities in ARVI that are listed on Schedule
4.1(C) as being owned by Donna L. Depoian and by Craig Nelson are owned
beneficially by the Company, free and clear of all Liens, except as set forth on
Schedule 4.1(C). Schedule 4.1(C) accurately sets forth all of the record and
beneficial owners of Equity Securities in ARVI. Except as set forth on Schedule
4.1(C), no legend or other reference to any purported Lien appears or is
required to appear upon any certificate representing Equity Securities in any
Acquired Company or in EMA (including without limitation the Shares) which are
owned by the Seller or any Acquired Company. Except as set forth on Schedule
4.1(C), all of the Equity Securities (including without limitation the Shares)
of each Acquired Company have been duly authorized and validly issued and are
fully paid and nonassessable, and there are no preemptive rights in respect
thereof. Except as set forth on Schedule 4.1(C), there are no Commitments
relating to the issuance, sale, or transfer of, voting or preemptive rights, or
other similar rights or obligations relating to, any Equity Securities
(including without limitation the Shares) in any Acquired Company or any Equity
Securities in EMA which are owned by any Acquired Company or the Seller. The
Equity Securities in each Acquired Company were issued in compliance with the
Securities Act of 1933 and all other Laws.
(ii) Except as set forth on Schedule 4.1(C), no Acquired
Company owns, or has any Commitment to acquire, any Equity Securities in any
other Person.
(iii) Each of RWes, Metcalf and Fudds Club holds no assets and
has no Liabilities, except as set forth on Schedule 4.1(C). Fudds Europe holds
no assets, has no Liabilities, does not operate any business, and is inactive.
D. Financial Information. (i) Attached hereto as Schedule 4.1(D)(i) is
the consolidated balance sheet of the Seller together with its subsidiaries
(which include the Acquired Companies) as of June 29, 1997 (the "Audited Balance
Sheet") and the related statements of operations, stockholders' equity and cash
flows for the fiscal year then ended (including any footnotes thereto)
(collectively the "June 1997 Audited Financials"), all of which (a) have been
audited by Deloitte & Touche LLP (the "Seller's Accountants"), whose unqualified
reports thereon are included within Schedule 4.1(D)(i), (b) have been prepared
in accordance with GAAP, consistently applied throughout the period involved and
for prior periods, and (c) present fairly, in all material respects, the
financial position of the Seller, on a consolidated basis with its subsidiaries
(which include the Acquired Companies), at the dates indicated in such financial
statements and the results of the Seller's operations, on a consolidated basis
with its subsidiaries (which include the Acquired Companies), for the periods
stated therein. Also attached hereto as Schedule 4.1(D)(i) is the consolidated
and consolidating balance sheet and statement of operations of each of ARVI, the
Company and the former Canadian "Fuddruckers" operations as of June 29, 1997 and
for the fiscal year then ended, which (a) have been prepared in accordance with
GAAP, consistently applied throughout the period involved and for prior periods,
and (b) are true and complete in all material respects, present all of the
financial information (including without limitation Liabilities) required to be
listed on a balance sheet and statement of operations for each of ARVI, the
Company and the former Canadian "Fuddruckers" operations in accordance with
GAAP, and fairly reflect profits and losses, except that no allocation for
general corporate overhead provided by the Seller to the Acquired Companies is
reflected thereon.
(ii) Attached hereto as Schedule 4.1(D)(ii) is the unaudited
consolidated balance sheet of the Seller together with its subsidiaries (which
include the Acquired Companies) as of March 29, 1998 (the "March Balance Sheet",
and together with the Audited Balance Sheet, collectively the "Financial
Statements"), and the related statements of operations, stockholders' equity and
cash flows for the nine months then ended, all of which (a) have been prepared
in accordance with GAAP, consistently applied throughout the periods involved
and for prior periods, and include all adjustments, consisting of normal
recurring adjustments necessary for the fair presentation of financial position
and results of operations (none of which are material) in accordance with the
requirements of the Securities and Exchange Commission's rules applicable to
quarterly reporting, and (b) present fairly, in all material respects, the
financial position of the Seller, on a consolidated basis with its subsidiaries
(which include the Acquired Companies), at March 29, 1998, and the results of
the Seller's operations, on a consolidated basis with its subsidiaries (which
include the Acquired Companies) for the nine-month period then ended. Also
attached hereto as Schedule 4.1(D)(ii) is the consolidated and consolidating
schedule of balance sheet and statement of operations of each of ARVI, the
Company and the former Canadian "Fuddruckers" operations as of March 29, 1998
and for the nine months then ended, which (a) have been prepared in accordance
with GAAP, consistently applied throughout the periods involved and for prior
periods, and include all adjustments, consisting of normal recurring adjustments
necessary for the fair presentation of financial position and results of
operations (none of which are material) in accordance with the requirements of
the Securities and Exchange Commission's rules applicable to quarterly
reporting, and (b) are true and complete in all material respects, present all
of the financial information (including without limitation Liabilities) required
to be listed on a balance sheet and statement of operations for each of ARVI,
the Company and the former Canadian "Fuddruckers" operations in accordance with
GAAP, and fairly reflect profits and losses, except that no allocation for
general corporate overhead provided by the Seller to the Acquired Companies is
reflected thereon.
(iii) When delivered in accordance with Section 6.12, the June
Financials shall be attached hereto as Schedule 4.1(D)(iii) and will be
comprised of (as provided in Section 6.12) a complete set of financial
statements for the Acquired Companies as of June 28, 1998 on a stand-alone
basis, which financial statements shall include the June 1997 Balance Sheet and
a balance sheet as of June 28, 1998 (prepared on a consistent basis using the
same accounting principles, assumptions and methodologies applied in the
preparation of the June 1997 Audited Financials), a statement of operations for
the fiscal year ended June 28, 1998, and the related statements of stockholders'
equity and cash flows for the fiscal year then ended (including any footnotes
thereto), all of which will (a) have been audited by the Seller's Accountants,
whose unqualified reports thereon will be included within Schedule 4.1(D)(iii),
(b) have been prepared in accordance with GAAP, consistently applied throughout
the period involved and for prior periods, (c) present fairly, in all material
respects, the financial position of the Acquired Companies, on a consolidated
basis, at the dates indicated in such financial statements, and the results of
the Acquired Companies' operations, on a consolidated basis, for the periods
stated therein. The statement of operations included in the June Financials will
have separately identified: (i) an allocation of the corporate overhead for the
Acquired Companies on a stand-alone basis, (ii) an allocation of district
overhead for the Acquired Companies, (iii) the 1998 Store EBITDA, if less than
zero, and any write-offs or write-downs attributable (without double counting)
to (A) any "Fuddruckers" locations which were closed during the fiscal year
ended June 28, 1998; (B) the Saugus, MA "Fuddruckers" location (the "Saugus
Restaurant"); (C) the North Andover, MA "Fuddruckers" location (the "Andover
Restaurant"); and (D) the Boston, MA (City Place) "Fuddruckers" location (the
"Boston Restaurant"), (iv) adjustments for FAS 121 for the fiscal year then
ended, (v) any write-downs, write-offs or accruals related to the termination of
the La Salsa Agreement (as hereinafter defined), (vi) amounts paid in settlement
or satisfaction of pending Legal Proceedings pursuant to the terms of this
Agreement and (vii) costs or expenses related to environmental testing or
remediation pursuant to the terms of this Agreement.
(iv) The Inventory shown on the Financial Statements and that
will be shown on the June Financials and on the Closing Statement consists and
will consist only of, items usable or salable in the ordinary course of business
of the Acquired Companies and is or will be shown at the lower of historical
cost or net realizable value in accordance with GAAP consistently applied. The
Seller has no knowledge of any condition, event or occurrence which may
adversely affect, after the Closing, the continuity of the supply of Inventory
to the Acquired Companies by the suppliers used by the Seller or the Acquired
Companies in the Business (assuming that the Purchaser chooses to continue to
use such suppliers) except in each case for any such condition, event or
occurrence which applies to the economy in general or to the restaurant industry
as a whole.
(v) The Current Receivables that are shown or reflected on the
Financial Statements and that will be shown or reflected either on the June
Financials or on the Closing Statement arise and will have arisen, in each case,
from transactions in the ordinary course of business of the Acquired Companies
and each such Receivable constitutes an identifiable indebtedness of the
applicable account debtor, not subject to any offset, defense, counterclaim or
Lien, collectible in the ordinary course of the conduct of the Business.
(vi) Except as set forth on Schedule 4.1(D)(vi), each Acquired
Company (1) currently has no liabilities, obligations, expenses or claims
against it or liability for damages whether known or unknown and whether
absolute, accrued, contingent, named, unnamed, disputed, undisputed, legal,
equitable, determined, undetermined, or otherwise of any kind (any and all of
the foregoing, "Liabilities"), except for Liabilities reflected or reserved
against in the March Balance Sheet and (2) will have at the Closing no
Liabilities assuming all payments required to be made by the Seller under
Article VI have been made except for (y) Current Liabilities reflected or
reserved against in the March Balance Sheet or (z) Current Liabilities incurred
in the ordinary course of the Business consistent with this Agreement since the
date of the March Balance Sheet.
E. Absence of Certain Transactions. Except as set forth on Schedule
4.1(E), since the date of the March Balance Sheet, the Business (except for the
operations of EMA, which the Seller does not control) has been and as of the
Closing Date will have been conducted only in the ordinary course of business,
consistent with past practice and there has not and will not have been any:
(i) Material Adverse Change;
(ii) change in any Acquired Company's authorized or issued
Equity Securities; grant of any option, right to purchase or similar right
regarding Equity Securities of any Acquired Company; voluntary change in any
Acquired Company's or the Seller's percentage interest in EMA (on a fully
diluted basis); grant of any registration rights by any Acquired Company;
purchase, redemption, retirement, or other acquisition by any Acquired Company
of any such Equity Securities; or declaration or payment of any dividend or
other distribution or payment in respect of Equity Securities of any Acquired
Company, except that all cash balances of every subsidiary of the Seller are
concentrated daily in the Seller's accounts, no material cash balances are held
by any of the Acquired Companies and no intercompany payable or receivable will
be shown on the Closing Statement;
(iii) amendment to the certificate or articles of
incorporation or bylaws of any Acquired Company, or any action with respect to
the certificate of incorporation or bylaws of the Seller which would impair the
Seller's ability to consummate the transactions contemplated hereby or to
perform its obligations hereunder;
(iv) payment of any bonuses, or increase in salaries or other
compensation, by any Acquired Company to any of its stockholders, directors,
officers (other than Donald C. Moore), or Company Employees, or by the Seller to
any Seller Employee, except for annual bonus awards and increases in salaries
consistent with past practice; or entry into any employment, severance, or
similar Commitment with any stockholder, director, officer (other than Donald C.
Moore), Company Employee or Seller Employee except for any severance Commitment
under and in accordance with the Seller's Severance Plan listed on Schedule
4.1(M);
(v) adoption of, or increase in the schedule of payments or
benefits under, any Employee Benefit Plan, Arrangement or Benefit Plan for or
with any Company Employee or Seller Employee except for discretionary payments
to Seller Employees under the Unique Casual Restaurants Savings and Retirement
Plan listed on Schedule 4.1(M) consistent with past practice;
(vi) damage to or destruction or loss of any Asset or
Transferred Seller Asset, whether or not covered by Insurance, which has had a
Material Adverse Effect on the Business;
(vii) entry into, termination of, or receipt of notice of
termination of any License, distributorship, dealership, joint venture, credit,
franchise or other Threshold Commitment, in each case by any Acquired Company or
by the Seller relating to the Business, other than financing arrangements
entered into by the Seller, provided, however, that notwithstanding the
foregoing, the Company may enter into franchise agreements with franchisees
pursuant to those Business Commitments listed on Schedule 4.1(E) and on Schedule
4.1(G);
(viii) sale, purchase, lease, license or other Transfer of any
Asset (except (a) for sales of assets located at or held in connection with the
operation of "Fuddruckers" restaurants at the Midlothian, Virginia location, the
Colonial Heights, Virginia location, and the Boston Restaurant and (b) the sale
of excess or obsolete furniture, fixtures and equipment in the ordinary course
of business, and in any case for not more than $100,000 individually and
$200,000 in the aggregate), any Transferred Seller Asset, or the Shares or
mortgage, pledge, or imposition of any Lien on any Asset, any Transferred Seller
Asset, or the Shares, including any sale, purchase, lease, license or other
Transfer of any Intellectual Property;
(ix) incurrence of indebtedness or guarantee of debt or other
Liability of any other Person by any Acquired Company;
(x) except as disclosed on Schedule 4.1(E), cancellation or
waiver of any claims or rights of an Acquired Company against third Persons with
an individual value in excess of $25,000;
(xi) material change in the accounting methods or principles
used by the Seller or any Acquired Company except for (A) write-downs or
write-offs in the value of assets as required by GAAP or (B) such adjustments as
required by GAAP as a result of the transactions contemplated by this Agreement;
or
(xii) agreement, whether oral or written, by the applicable
party bound by clauses (i) through (xi), as the case may be, to do any of the
foregoing.
F. Books and Records. The minute books and stock record books of each
of the Acquired Companies, all of which have been made available to the
Purchaser, are complete and correct in all material respects and have been
maintained in accordance with customary business practices for consolidated
subsidiaries of a holding company. Except as set forth on Schedule 4.1(F), the
minute books of the Acquired Companies contain accurate and complete records of
all meetings held of, and corporate action taken by, the stockholders, the
Boards of Directors, and committees of the Boards of Directors of the Acquired
Companies, except for any failure to contain such records as would not have a
Material Adverse Effect on any Acquired Company. At the Closing, all of the
books of account, minute books, stock record books, and other records (including
without limitation books, records and data relating to the purchase of
materials, supplies and services, financial results, sale of products, records
of the Company Employees and the Seller Employees, commercial data, research
done by or for the Business, catalogues, brochures, training and other manuals,
sales literature, advertising and other sales and promotional materials,
maintenance records and drawings, all Business Commitments, files related to
Legal Proceedings and filings with any Governmental Entity) of the Acquired
Companies and the Business will be in the possession of the Seller, the Acquired
Companies or their respective agents or representatives, and possession of the
foregoing will be given to the Purchaser as provided in Section 3.2(A)(4).
G. Commitments. (i) Schedule 4.1(G) accurately lists, as of the date
hereof, all Business Commitments (as hereinafter defined), in each case, which
cannot be terminated without penalty by the Seller or the Acquired Company party
thereto on 90 days' or less prior notice or which requires (or could be
reasonably anticipated to require, if dependent on future events) aggregate
payments or expenditures, by or to any party thereto in any twelve (12) month
period, in excess of: (a) in the case of any Business Commitments relating to
more than one restaurant, $100,000 per Commitment; and (b) in the case of
Business Commitments relating to a single restaurant, $10,000 per Commitment
(collectively, the "Threshold Commitments"); in each case whether written or
oral, and including all amendments thereto, and in each case (other than in the
case of Leases and Franchise Agreements copies of which have been previously
delivered or made available to the Purchaser) specifying the parties to such
Commitments. The Seller has made available to the Purchaser true and correct
copies of all Threshold Commitments which are in written form and any amendments
thereto. Each Commitment which relates to the Business or the Assets or is
otherwise in effect with respect to any Acquired Company (collectively, the
"Business Commitments"), including each Lease, and each franchise agreement to
which any Acquired Company is party and which shall be listed on Schedule 4.1(G)
under the sub-heading "Franchise Agreements" (collectively, the "Franchise
Agreements"), is in full force and effect and represents the valid and binding
obligation, in accordance with its terms, of the Seller and any Acquired Company
that is a party thereto, and to the knowledge of the Seller, the other party or
parties thereto, except where the failure to be in such full force and effect
and to be the valid and binding obligation could not reasonably be anticipated
to result in a Material Adverse Effect on the Business.
(ii) With respect to each Business Commitment (including
without limitation each Lease and each Franchise Agreement), each of the Seller
and any Acquired Company and, to the knowledge of the Seller, the other party or
parties thereto, has performed all obligations required to be performed by it
thereunder through the date hereof and is not (with or without the lapse of time
or the giving of notice, or both) in default under any such Commitment, except
in each case for any failure to perform or default as could not reasonably be
anticipated to result in a Material Adverse Effect on the Business and none of
the Seller or any Acquired Company has received any written notice or other
notice given in accordance with the notice provisions of the relevant Commitment
of any such existing default (whether monetary or nonmonetary) or termination of
any such Commitment from any other party thereto which has not been withdrawn,
cured or received within the past twelve (12) months.
(iii) Except as set forth on Schedule 4.1(G)(iii), each of the
Acquired Companies have duly obtained and legally and validly holds all
certificates of need, permits, titles, fuel permits, licenses (including without
limitation liquor licenses, restaurant licenses, franchises and certificates),
approvals, consents and authorizations issued by any Governmental Entity
(collectively, "Licenses") necessary under applicable Laws for the operation of
the Business (except any operations of EMA) as presently conducted (the
"Business Licenses") except where the failure to have obtained or to hold any
such Business License could not reasonably be anticipated to have a Material
Adverse Effect on the Business. Listed or to be listed under the sub-heading
"Licenses" on Schedule 4.1(G) (which sub-heading will be delivered to the
Purchaser as provided in Section 6.14) are and will be all of the Threshold
Licenses (as hereinafter defined). All of the Business Licenses are valid, in
good standing and in full force and effect except where the failure to be valid,
in good standing and in full force and effect could not reasonably be
anticipated to have a Material Adverse Effect on the Business. No claim, action,
suit, proceeding or investigation in or before (or which would be brought
before) or being conducted by (or which would be conducted by) any Governmental
Entity (a "Legal Proceeding") against the Seller or any Acquired Company has
been commenced, or to the knowledge of the Seller, threatened, which would, if
successful on the merits, lead to a revocation, suspension, or material
limitation of the rights of any Acquired Company under any of the Business
Licenses, and the Seller and each Acquired Company is in compliance with each of
such Licenses except for any failure to comply as could not reasonably be
anticipated to result in a Material Adverse Effect on the Business.
(iv) Without limiting the generality of the foregoing,
Schedule 4.1(G) lists each Business Commitment of the type described below:
(a) Any employment, severance or consulting
Commitment with any Company Employee or Seller Employee;
(b) Any Commitment or series of related Commitments
for capital expenditures or the acquisition or construction of fixed assets
which requires or require per Commitment future payments or expenditures in
excess of $25,000 (other than any such Commitment which will be fully performed
prior to the Closing Date);
(c) Any Commitment granting to any Person a
first-refusal, first-offer or other right to purchase or acquire any of the
Assets, the Transferred Seller Assets, the Shares, or Equity Securities in any
Acquired Company or in EMA;
(d) Any Commitment relating to or evidencing any
license or royalty agreement with respect to any Intellectual Property;
(e) Any Threshold Commitment with any manufacturer's
representative or other sales agent or relating to distribution or commission
arrangements;
(f) Any Commitment under which any Acquired Company
or the Seller for the Business is: (1) a lessee of, or holds or uses, any
machinery, equipment, vehicle or other tangible personal property owned by any
other Person, (2) a lessor of real property, or (3) a lessor of, or makes
available for use by any other Person, any tangible personal property, and in
the case of items (1) and (3) above requires aggregate annual payments in excess
of $25,000;
(g) Any Commitment with respect to a joint venture or
partnership arrangement, under which any Acquired Company is to become a joint
venturer or partner;
(h) Any Commitment granting a power of attorney;
(i) Any Commitment of any Acquired Company with
respect to letters of credit, surety arrangements or other performance bonds or
pursuant to which any Assets are, or are to be, subjected to a Lien, other than
Liens, if any, on Inventory securing ordinary course trade payables owing to the
respective vendors of such Inventory other than surety bonds issued in the
ordinary course of business with respect to insurance programs;
(j) Any confidentiality Commitment or Commitment
limiting or restricting the ability of any Acquired Company (or the Purchaser
following the Closing) to enter into or engage in any market or line of
business;
(k) Any Commitment relating to (i) any borrowing by
any Acquired Company or (ii) any full or partial guarantee or similar Liability
by any Acquired Company in respect of any Liability of any Person other than any
other Acquired Company; or
(l) Any Commitment relating to services with respect
to the Owned Real Properties which requires aggregate annual payments in excess
of $5,000.
H. Real Properties. (i) Schedule 4.1(H) lists all of the locations and
parcels of real estate which are owned by any Acquired Company (such real
estate, the "Owned Real Properties"). Listed (under the heading "Leases") on
Schedule 4.1(G) and on Schedule 4.1(H) are all of the leasehold interests of any
Acquired Company (or the Seller to the extent related to the Business) under
leases of real property (such leases, the "Leases", and the real estate subject
to such leases, the "Leased Real Properties"). The locations and parcels of real
estate which together comprise the Leased Real Properties and the Owned Real
Properties (collectively, the "Current Locations") comprise all of the real
estate owned or leased by the Seller for use in the Business as presently
conducted or by any Acquired Company. Each Acquired Company listed on Schedule
4.1(H) or Schedule 4.1(G) as the owner of any Owned Real Property or as the
holder of any leasehold interest in any Leased Real Property has good and
marketable title to such Owned Real Property and to such leasehold interest,
free and clear of all Liens except as set forth on Schedule 4.1(H). Except as
set forth on Schedule 4.1(H), there are no subtenants under any of the Leases,
and the Seller has delivered to the Purchaser true and complete copies of each
Lease and of all extensions, renewals, guaranties, waivers and amendments
thereto.
(ii) Except as set forth on Schedule 4.1(H), on each of the
Current Locations (other than the Head Office), a "Fuddruckers" restaurant is
presently open and operating in the ordinary course.
(iii) Except as set forth on Schedule 4.1(H), no condemnation,
zoning, environmental or other land use regulation proceedings are pending, or
to the knowledge of the Seller, threatened, with respect to any of the Current
Locations, nor has any such property been condemned except for any such
condemnation which does not and will not impair the ability of any Current
Location to be operated in accordance with applicable zoning or other land use
Laws as a restaurant substantially in the manner operated immediately prior to
such condemnation. All past and ongoing improvements at the Current Locations
were performed, and are being performed, in accordance with applicable Laws.
(iv) Except as set forth on Schedule 4.1(H) and except for any
such failure to have access as could not reasonably be anticipated to result in
a Material Adverse Effect on the Business, the Acquired Companies have access to
public roads or valid easements over private streets or private property for
such ingress to and egress from each of the Current Locations as is necessary
for the conduct of the Business as conducted as of the date hereof, and to the
knowledge of the Seller, no change therein has been proposed by any Person or
Governmental Entity. The consummation of the transactions contemplated by this
Agreement will not adversely affect any such access or easements.
(v) Except as set forth on Schedule 4.1(H), there are no
special assessments filed, pending or, to the Seller's knowledge, proposed,
against the Owned Real Properties or any portion thereof, including, without
limitation, any street improvement or special district assessments.
(vi) Except as set forth on Schedule 4.1(H), there are no
so-called "linkage" payments, "impact fees," "voluntary contributions," or
"voluntary payments" due and/or payable with respect to the Owned Real
Properties.
(vii) Except as set forth on Schedule 4.1(H), the Owned Real
Properties are each legal and separate lot(s) under applicable subdivision
statutes and ordinances and for tax assessment purposes, and are each an
independent unit which does not rely on any facility or property (other than
facilities of public utility and water companies) located on any property not
included in such Owned Real Property (a) to fulfill any zoning or building code
or any other municipal or governmental requirement or structural support, or (b)
except for common areas or shared services reflected in any Business Commitment
listed on Schedule 4.1(G), for furnishing essential building systems of
utilities, including, without limitation, electrical, plumbing, drainage,
mechanical, heating, ventilating and air conditioning systems; and no building
or other improvements not included in any such Owned Real Property relies on any
part of the Owned Real Property to fulfill any zoning, building code or any
other governmental or municipal requirement, or structural support, or the
furnishing to such building or improvement of any essential building system or
utilities. The Seller has not received, nor, to the Seller's knowledge, is there
any violation or any notice or record of any violation, of any restriction,
condition, covenant or agreement concerning the Owned Real Property or the use
thereof contained in any instrument of record or in any federal, state,
municipal or governmental permit, rule or regulation applicable to the Owned
Real Property except for any such violation which could not reasonably be
anticipated to have a Material Adverse Effect on the Business.
(viii) To the Seller's knowledge, there are no restrictive
covenants or agreements affecting any of the Owned Real Properties except as
reflected on Schedule 4.1(H).
(ix) Except as expressly set forth in the Leases and except as
set forth on Schedule 4.1(H), none of the Seller with respect to the Business or
any Acquired Company is subject to any obligation to pay any broker's or other
fee or commission upon the renewal of any Lease or the purchase or lease of any
Current Locations or additional "Fuddruckers" locations.
I. Other Assets. Except as set forth on Schedule 4.1(I), (a) the
Company owns all of the Assets located at each of the Current Locations
occupied, owned or leased by it as specified on Schedule 4.1(H) and on Schedule
4.1(G) and at its principal place of business located at 55 Ferncroft Road,
Danvers, MA 01923 (the "Head Office"), and (b) ARVI owns all of the Assets
located at each of the Current Locations occupied or leased by it as specified
on Schedule 4.1(G). Except as set forth on Schedule 4.1(I), the Company, ARVI
and the Seller have (and as to the Transferred Seller Assets, at the Closing the
Company will have) good and marketable title to all Assets and Transferred
Seller Assets free and clear of all Liens other than Liens for Taxes which are
not due and payable or which may thereafter be paid without penalty and which
are reflected in the March Balance Sheet and which will be reflected in the June
Financials and in the Closing Statement (to the extent that they constitute
Current Liabilities). All of the Assets and the Transferred Seller Assets
necessary to operate the Business as currently conducted are maintained in
current operating condition, normal wear and tear excepted. Except as set forth
on Schedule 4.1(I), the Assets, together with the Owned Real Property, the
Leases and the Transferred Seller Assets, taken as a whole, comprise all assets
necessary to operate the Business as presently conducted, provided, however,
that the Seller makes no representation as to the sufficiency or adequacy of the
Transferred Seller Assets to perform corporate overhead functions currently
being performed for the Business and the Acquired Companies by the Seller,
including without limitation functions relating to payroll, preparation of
financial statements and management reports, purchasing, insurance and risk
management, non-store level technology and management information systems,
employee benefits, and mail room and related functions.
J. Intellectual Property. Set forth on Schedule 4.1(J) is a list of all
licenses, patents, copyrights, designs and drawings, trademarks, service marks,
trade names, computer software, and other intellectual property rights, and all
applications therefor and registrations thereof (collectively, together with all
engineering and manufacturing documents, technical manuals, patterns, processes,
formulae, know how, trade secrets, and Proprietary Information, the
"Intellectual Property") to the extent such are currently used or were designed
for use (whether or not currently used) in the operation of the Business as
presently conducted, indicating in each case whether such Intellectual Property
is owned or licensed and if any Person other than the Company owns or licenses
the same, the name of such other Person. Except as set forth on Schedule 4.1(J),
the use of the Intellectual Property listed on Schedule 4.1(J) as currently used
does not infringe upon any intellectual property rights of others and none of
the Seller or any Acquired Company has received any written notice of a conflict
with the asserted rights of others in connection with the use of any such
Intellectual Property that has not been satisfied or withdrawn. Except as set
forth on Schedule 4.1(J), the Seller has no knowledge of any infringing use of
any Intellectual Property listed on Schedule 4.1(J) by others, and to the
Seller's knowledge, no franchisees of the Seller or of any Acquired Company
claims or has ever claimed any rights in any such Intellectual Property other
than in accordance with their rights as franchisees under the Franchise
Agreements.
K. Litigation. Except as set forth on Schedule 4.1(K), there are no
Legal Proceedings pending or, to the knowledge of the Seller, threatened: (i)
against or involving any Acquired Company, the Seller to the extent related to
the Business, the Shares, any of the Assets or any of the Transferred Seller
Assets, or that may, with the passage of time or otherwise, result in the
imposition of a mechanic's, serviceman's, materialman's or any other Lien with
respect to any of the Current Locations, or (ii) against or involving any
Acquired Company or the Seller, by any Company Employee (as hereinafter
defined), Seller Employee (as hereinafter defined), or Former Employee (as
hereinafter defined) arising out of employment by any Acquired Company, or the
Seller relating to the Business, including without limitation any Legal
Proceeding for unlawful employment practices or discrimination in employment or
(iii) against or involving any predecessors or Affiliates of any Acquired
Company or the Seller to the extent related to the Business, the Shares, any of
the Assets or any of the Transferred Seller Assets or (iv) that seek to enjoin
or obtain damages in respect of the consummation of the transactions
contemplated by this Agreement. None of the Seller or any Acquired Company is in
default with respect to any Order.
L. Compliance With Laws. (i) The Business is operated and has been
operated in compliance (and the Current Locations and the Seller's and any
Acquired Company's use of the same comply) with all applicable Laws, including
without limitation the Americans with Disabilities Act and all Laws relating to
wage and hour restrictions, payment of minimum wages, minimum age of employees,
liquor, food and beverage quality standards or disclosures (including without
limitation any so-called "Consumer Protection" Laws), entertainment and
restaurant licensing, zoning and property use, or noise and nuisance, except for
any failure to so comply as could not reasonably be anticipated to result in a
Material Adverse Effect on the Business.
(ii) Without limiting the generality of clause (i) above, the
Seller has made all filings required to be filed by it under the Securities
Exchange Act of 1934, including each Current Report on Form 8-K, Proxy or
Information Statement, Annual Report on Form 10-K and Quarterly Report on Form
10-Q (collectively, the "SEC Reports"). The SEC Reports, as of their respective
filing dates, complied as to form in all material respects with the applicable
requirements of the Securities Exchange Act of 1934, and did not, as of their
respective filing dates, contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
(iii) (a) Without limiting the generality of clause (i) above,
none of the Seller or any Acquired Company has Liability under any, and each
Acquired Company is presently in compliance with, all Environmental Laws (as
hereinafter defined), except for any failure to so comply as could not
reasonably be anticipated to result in a Material Adverse Effect on the
Business, applicable to (1) the Current Locations, and any facilities and
operations thereon, (2) any other location which the Seller or any of its
Affiliates has at any time leased or owned for use in, or at which the Seller or
any of its Affiliates has at any time conducted, the Business, or (3) any other
location which any Acquired Company, or any Affiliate of any one of them has at
any time leased or owned, or at which any Acquired Company or any Affiliate of
any one of them has at any time conducted any activities or operations,
including without limitation the Business (all such other locations referred to
in paragraph (2) and (3) above, the "Other Locations"); (b) the Acquired
Companies have all Licenses necessary under all applicable Environmental Laws
for the conduct of the Business and their activities and operations at the
Current Locations, which Licenses are or will be listed on Schedule 4.1(G); (c)
except as set forth on Schedule 4.1(L), to the knowledge of the Seller, there
exists no Environmental Condition (as hereinafter defined) with respect to any
of the Current Locations or any facilities or operations thereon or any of the
Other Locations or any facilities or operations thereon; (d) none of the Seller
or any Acquired Company has generated, manufactured, refined, transported,
treated, stored, handled, disposed of, transferred, produced or processed any
Hazardous Materials (as hereinafter defined) in violation of any applicable
Environmental Laws, except for any violation of such Environmental Laws as could
not reasonably be anticipated to result in a Material Adverse Effect on the
Business; (e) except as set forth on Schedule 4.1(L), to the knowledge of the
Seller, there has been no Release or Threat of Release (as such terms are
hereinafter defined) of any Hazardous Materials at the Current Locations or any
of the Other Locations; (f) none of the Seller with respect to any Current
Location or Other Location or any Acquired Company has entered into any
Commitments relating to cleanup, abatement or other actions in connection with
any Environmental Condition; (g) none of the Seller or any Acquired Company has
received a request for information, notice, demand letter, or notice of a Legal
Proceeding with respect to any Environmental Condition relating to any of the
Current Locations or any facilities or operations thereon, any of the Other
Locations or any facilities or operations thereon or the generation, storage,
handling, treatment, transportation or disposal of Hazardous Materials at or
from any such Location; (h) none of the Seller or any Acquired Company is in
violation of any Environmental Laws relating to asbestos or asbestos containing
materials; (i) except as set forth on Schedule 4.1(L), to the knowledge of the
Seller, no polychlorinated biphenyls are used or stored at any of the Current
Locations; (j) except as set forth on Schedule 4.1(L), to the knowledge of the
Seller, none of the Seller or any Acquired Company currently uses any private
water or sewer system at any of the Current Locations, but rather uses public
water and sewer systems at all of the Current Locations; and (k) except as set
forth on Schedule 4.1(L), to the knowledge of the Seller, no underground storage
tanks exist at or on any of the Current Locations.
(iv) For purposes of this Agreement, the following terms shall
have the following meanings:
(a) "Environment" shall mean soil, surface waters,
groundwater, land, stream and other sediments, surface or subsurface strata,
ambient air and any other environmental medium.
(b) "Environmental Condition" shall mean any
condition with respect to the Environment, whether or not yet discovered, which
results, could reasonably be expected to result, or has resulted in any material
damage, loss, cost, expense, claim, demand, Order or Liability to or against the
Seller or any Acquired Company by any Person (including without limitation any
Governmental Entity) under any Environmental Law.
(c) "Environmental Laws" shall mean any and all
applicable federal, state, county or local laws, ordinances or regulations
relating to (1) the generation, discharge, release, containment, storage,
transportation or cleanup of Hazardous Materials or other contaminants or
similar materials and (2) the protection of human health, safety or the
environment, including, without limitation, the Comprehensive Environmental
Response, Compensation Liability Act of 1980, 42 U.S.C. ss.9601 et seq., the
Solid Waste Disposal Act, 42 U.S.C. ss.6901 et seq., and any other federal,
state, county, or local statutes or implementing regulations (or any other
statutes or implementing regulations of any other Governmental Entity) relating
to, regulating, or having jurisdiction over any Hazardous Materials,
Environmental Condition, Release, or Threat of Release (all as amended).
(d) "Hazardous Materials" shall mean any pollutants,
toxic substances, hazardous wastes, hazardous materials, hazardous substances or
oil or other petroleum products, including, without limitation, polychlorinated
biphenyls, asbestos and asbestos containing materials, as any of the foregoing
may be defined in any Environmental Law.
(e) "Release" shall mean any releasing, spilling,
leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, disposing or dumping into the Environment.
(f) "Threat of Release" shall mean a substantial
likelihood of a Release which requires action to prevent or mitigate damage to
the Environment which may result from such Release.
(g) "Governmental Entity" shall mean any federal,
state or local, domestic or foreign, court, government, governmental agency,
authority, entity or instrumentality.
M. Employee Matters. (i) Schedule 4.1(M) accurately lists all of the
current employees of the Acquired Companies (the "Company Employees"), all of
the Seller Employees (as hereinafter defined), and all Employee Benefit Plans
and Benefit Arrangements currently applicable to Company Employees, Seller
Employees or Former Employees (as hereinafter defined). Except as set forth on
Schedule 4.1(M), each Employee Benefit Plan complies in all respects and has
been operated and administered in all respects in accordance with the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), to the extent that
ERISA is applicable, and all other applicable Laws, except for any failure to so
comply or to be so operated and administered as could not reasonably be
anticipated to result in a Material Adverse Effect on the Business; no
"reportable event" (for which the notice requirement is not waived by the
applicable regulations under ERISA), "prohibited transaction" (as such terms are
defined in ERISA and the Code, as applicable) or termination has occurred with
respect to any Employee Benefit Plan; and each Employee Benefit Plan that is an
"employee pension benefit plan" as defined in Section 3(2) of ERISA has been
determined by the Internal Revenue Service (the "IRS") to be qualified under
Section 401(a) of the Code, and to the Seller's knowledge, no event or omission
has occurred which would cause any such Employee Benefit Plan to lose such
qualification. Except as set forth on Schedule 4.1(M), no Company Employee,
Seller Employee or Former Employee nor any beneficiary or dependent of any of
them is or may become entitled to post employment health care or any other
non-pension benefits (other than as required by Law) by reason of their
employment by the Seller or any Acquired Company or termination of such
employment and no Company Employee, Seller Employee or Former Employee will have
rights to any severance payment or any other benefits by reason of the execution
or delivery of this Agreement or the consummation of the transactions
contemplated hereby or, subject to Section 13.16 in the event of their
termination prior to or following the Closing by the Seller or any Acquired
Company. The Seller has made available to the Purchaser all material plan
documents and other material documents relating to the Employee Benefit Plans
and Benefit Arrangements.
(ii) For purposes of this Agreement:
(a) the term "Arrangements" means all employment
policies, practices or other arrangements to provide employee or executive
compensation or benefits with respect to employees and/or their spouses or
beneficiaries, including without limitation any such policies or practices
relating to life and health insurance, hospitalization, savings, bonus, deferred
compensation, incentive compensation, holiday, vacation, severance pay, sick
pay, sick leave, disability, tuition refunds, service awards, company cars,
scholarships, relocation, patent awards, fringe benefits, contracts, collective
bargaining agreements, individual employment, consultancy or severance
contracts; but excluding in all events Benefit Plans;
(b) the term "Benefit Arrangements" means all
Arrangements that the Seller or any Acquired Company is providing or is
obligated to provide, or under which the Seller or any Acquired Company has any
obligation to make any contributions or other payments, with respect to Company
Employees, Seller Employees, Former Employees and/or any of their spouses or
beneficiaries;
(c) the term "Benefit Plans" shall mean each and all
"employee benefit plans" as defined in Section 3(3) of ERISA;
(d) the term "Employee Benefit Plans" means each and
all Benefit Plans required to be maintained or contributed to by the Seller or
any Acquired Company or in which the Seller or any Acquired Company participates
or under which the Seller or any Acquired Company has any obligation to make any
contributions or other payments or provides any benefits with respect to Company
Employees, Seller Employees, Former Employees and/or any of their spouses or
beneficiaries, including (1) any such plan that is an "employee welfare benefit
plan" as defined in Section 3(l) of ERISA, including retiree medical and life
insurance plans and (2) any such plan that is an "employee pension benefit plan"
as defined in Section 3(2) of ERISA; and
(e) the term "Former Employees" means all employees
employed by any Acquired Company, or the Seller for the Business, at any time
prior to the Closing but not employed by any Acquired Company or the Seller on
the date hereof, including any person on long-term leave of absence or long-term
disability on the date hereof.
N. Labor Relations. No Company Employee or Seller Employee is a party
to or subject to any collective bargaining agreements. Except as set forth on
Schedule 4.1(M): (i) none of the Seller or any Acquired Company has any
personnel policy applicable to, any Company Employee, Seller Employee or Former
Employee; and (ii) there are, and have been within the last four years, no
strikes or work slowdowns pending or, to the knowledge of the Seller,
threatened, against or affecting any Acquired Company or the Business. To the
knowledge of Seller, no union organizational campaign is currently, or has been
within the last four years, pending with respect to employees involved in the
Business.
O. Insurance Policies. Schedule 4.1(O) accurately lists all workers,
compensation, general liability, casualty, property damage, products liability,
auto liability, excess general liability or any other insurance policy or
program (collectively, "Insurance"), which the Seller currently maintains in
force and covering the Business, the Assets, the Transferred Seller Assets or
the Current Locations or any facilities or operations thereon, including (i) the
broker for each such policy of Insurance and (ii) the periods covered by each
such policy of Insurance. Except as set forth on Schedule 4.1(O), (i) all such
Insurance is in full force and effect, (ii) all premiums, including any current
or future retrospective premiums or other like arrangement with respect to such
policies of Insurance which are currently maintained have been paid when due or
have been accrued on the March Balance Sheet (or will be accrued on the June
Financials and on the Closing Statement), (iii) no recommendation has been made
by any insurer to the Seller or any Acquired Company under any such currently
maintained policy of Insurance which is required for or relates to the
maintenance or renewal of any such policy, (iv) no notice of cancellation or
termination has been received with respect to any such policy of Insurance, (v)
except as set forth in Schedule 4.1(O), no claim is currently reserved or, to
the knowledge of the Seller, should be reserved under any policy of Insurance
involving an amount in excess of $5,000, and (vi) all such Insurance is
so-called "occurrence-based" Insurance. Except as set forth on Schedule 4.1(O),
none of the Seller or any Acquired Company has and in the past has had any
Insurance which is or was maintained as self-insurance.
P. Taxes. (i) Except as set forth on Schedule 4.1(P) or as could not
reasonably be anticipated to result in a Material Adverse Effect on the Seller
or the Business, (A) all Tax Returns (as hereinafter defined) required to be
filed by the Seller, any Acquired Company or any Applicable Affiliate have been
filed on a timely basis under the Laws of each jurisdiction in which any Tax
Return is so required to be or to have been filed, (B) all such Tax Returns were
complete and accurate as filed, and (C) all Taxes shown as owing on such Tax
Returns and all other Taxes owed by the Seller, any Acquired Company or any
Applicable Affiliate have been paid, whether or not such Taxes are disputed or
shown on any Tax Return. For purposes of this Agreement, the term "Applicable
Affiliate" means any Person that, on or before the Closing Date, is or was a
member of any "affiliated group" within the meaning of Code section 1504(a) (or
similar group defined under a similar provision of state, local or foreign Law)
that filed a consolidated federal income Tax Return that includes or included
any of the Acquired Companies or for any Taxes of which any Acquired Company is
or could be liable (jointly and severally or otherwise). All Taxes relating to
the Acquired Companies, the Business (excluding EMA), the Assets or the Seller
Assets not yet due but accruable in accordance with GAAP on or before the date
hereof or allocable to a period ending on or before the date hereof or to a
portion of a period beginning before and ending after the date hereof have been
adequately reserved for on the Financial Statements and will be adequately
reserved for on the June Financials and on the Closing Statement. Except as set
forth on Schedule 4.1(P) or as could not reasonably be anticipated to result in
a Material Adverse Effect on the Seller or the Business, none of the Seller, any
Acquired Company or any Applicable Affiliate has executed or filed with the IRS
or any other taxing authority any agreement extending the period for filing any
Tax Return relating to or otherwise affecting the Seller, the Acquired
Companies, the Business (excluding EMA), the Assets or the Seller Assets.
(ii) Except as set forth on Schedule 4.1(P) or as could not
reasonably be anticipated to result in a Material Adverse Effect on the Seller
or the Business, no claim for assessment or collection of Taxes relating to or
otherwise affecting the Seller, the Acquired Companies, the Business (excluding
EMA), the Assets or the Seller Assets has been asserted and is currently pending
against the Seller, any Acquired Company, any Applicable Affiliate, any of the
Assets or any of the Seller Assets. None of the Seller, any Acquired Company or
any Applicable Affiliate is a party to any pending Legal Proceeding by any
Governmental Entity for the assessment or collection of Taxes relating to or
otherwise affecting the Seller, any Acquired Company, the Business (excluding
EMA), the Assets or the Seller Assets.
(iii) Except as set forth on Schedule 4.1(P) or as could not
reasonably be anticipated to result in a Material Adverse Effect on the Seller
or the Business, no waivers of statutes of limitation in respect of any Taxes or
Tax Returns relating to or otherwise affecting the Seller, any Acquired Company,
the Business (excluding EMA), the Assets or the Seller Assets have been given or
requested by the Seller, any Acquired Company, or any Applicable Affiliate nor
has the Seller, any Acquired Company, or any Applicable Affiliate agreed to any
extension of time with respect to a Tax assessment or deficiency relating to or
otherwise affecting the Seller, any Acquired Company, the Business (excluding
EMA), the Assets or the Seller Assets. The federal income Tax Returns of, or
which include, the Seller, any Acquired Company, and any Applicable Affiliate
for all periods to and including any period ended prior to July 1, 1996, have
either been examined by the IRS or the period of limitations for the assessment
or collection of any deficiency with respect to such period has expired. Except
as noted on Schedule 4.1(P), to the Seller's knowledge no claim has been made at
any time by a Governmental Entity in a jurisdiction where the Seller, any
Acquired Company, or any Applicable Affiliate does not currently file Tax
Returns that any of such Persons is or may be subject to taxation by such
jurisdiction nor is the Seller aware that any such assertion of jurisdiction is
threatened. No security interests have been imposed upon or asserted against any
of the Assets or Seller Assets or the Shares as a result of or in connection
with any failure, or alleged failure, to pay any Tax. No ruling with respect to
Taxes (other than a request for determination of the status of a qualified
pension plan) has been requested by or on behalf of the Seller, any Acquired
Company, or any Applicable Affiliate with respect to the Seller, any Acquired
Company, the Business (excluding EMA), any Assets or any Seller Assets.
(iv) Except as disclosed on Schedule 4.1(P) or as could not
reasonably be anticipated to result in a Material Adverse Effect on the Seller
or the Business: (A) none of the Seller or any Acquired Company has filed a
consent under Section 341(f) of the Code, (B) none of the Seller or any Acquired
Company is obligated to make any payments that may constitute "excess parachute
payments," as defined in Section 280G of the Code, (C) none of the Seller or any
Acquired Company has been a United States real property holding corporation
within the meaning of Section 897(c)(2) of the Code during the applicable period
specified in Section 897(c)(1)(A)(ii) of the Code, (D) none of the Seller or any
Acquired Company is a party to any agreement that is or may be characterized as
a lease under the safe-harbor leasing provisions of Section 168(f)(8) (now
repealed) of the Internal Revenue Code of 1954 that would result in any Asset or
Seller Asset being treated as owned by another Person, and (E) none of the
Assets or Seller Assets is tax-exempt use property within the meaning of Section
168(h) of the Code or tax-exempt bond financed property within the meaning of
Section 168(g)(5) of the Code.
(v) The Seller has delivered to the Purchaser true and correct
copies of the federal income Tax Returns filed with respect to the Seller or any
Acquired Company for tax years ending in 1993, 1994, 1995, 1996, and 1997.
Except as disclosed on Schedule 4.1(P), no such Tax Returns have been audited or
are currently the subject of audit. The Seller has delivered to the Purchaser
correct and complete copies of all examination reports and statements of
deficiencies accrued against or agreed to by the Seller, any Acquired Company or
any Applicable Affiliate since June 25, 1992.
(vi) None of the Seller or any Acquired Company has entered
into any tax-sharing agreement or other agreement, whether or not written,
providing for the payment of Taxes or entitlement to refunds and related matters
with any other party, other than the Tax Allocation Agreement (as hereinafter
defined).
(vii) Except as set forth on Schedule 4.1(P) or as could not
reasonably be anticipated to result in a Material Adverse Effect on the Seller
or the Business, each of the Seller, the Acquired Companies and each Applicable
Affiliate has withheld and paid all Taxes required to be withheld or paid in
connection with any amounts paid or owing to any employee, creditor, independent
contractor, stockholder or other third party.
(viii) Except as set forth on Schedule 4.1(P) or as could not
reasonably be anticipated to result in a Material Adverse Effect on the Seller
or the Business, none of the Assets or Seller Assets is held in an arrangement
for which Tax Returns as a partnership have been, are required to, or may be
filed.
Q. La Salsa. As of the Closing, no Acquired Company has or will have
any Liability or further obligations in respect of the La Salsa License
Agreement (the "La Salsa Agreement") made and executed as of February 14, 1996
by and among La Salsa Franchise, Inc., La Salsa Holdings, Inc., the Company and
International, except for any Liabilities under Sections 3.7, 3.8(c), 3.8(d), 6,
7.3 with respect to fees incurred prior to the termination which shall in any
case be Retained Liabilities hereunder, 8.1, 9, 10, 15.2 and 16 of the La Salsa
Agreement.
R. Solvency; No Successor Liability. Both as of the date of this
Agreement and taking into account the transactions contemplated hereby and the
intended or otherwise anticipated disposition of the proceeds thereof, (i) the
aggregate fair market value of each of the Seller's and Champps' respective
assets is now and will then be greater than their respective Liabilities; (ii)
each of the Seller and Champps is now and will then be able to pay its
then-existing debts as they become due in the ordinary course, and (iii) the
fair salable value of each of the Seller's and Champps' respective assets is now
and will then be greater than the amount that will be required to pay their
respective probable liability on each of their then-existing debts as they
become due.
S. Brokers' Fees. None of the Seller or any Acquired Company, or any
Affiliate of any one of them has made any agreement or taken any other action
which will cause the Purchaser to become obligated for any broker's or other fee
or commission as a result of any of the transactions contemplated by this
Agreement.
T. Certain Payments. None of the Seller, any Acquired Company, or any
Affiliate, director, officer, or agent of any one of them, or any Company
Employee, Seller Employee, or Former Employee, or to the Seller's knowledge, any
other Person associated with or acting for or on behalf of any Acquired Company
or the Business (except for EMA), has directly or indirectly given or agreed to
give any gift or similar benefit to any customer, supplier, employee of any
Governmental Entity, or other Person who is or may be in a position to help or
hinder the Business (except for EMA) (i) which subjected or could reasonably be
anticipated to subject the Seller or any Acquired Company to any suit, damage or
penalty in any civil or criminal Legal Proceeding, or (ii) which, in the case of
a payment made directly or indirectly to an official or employee of any
Governmental Entity, constitutes an illegal bribe or kickback (or, if made to an
official or employee of a foreign Governmental Entity, 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
Governmental Entity, constitutes an illegal kickback or other illegal payment
under any Law which subjects the payor to a criminal penalty or, except where
such loss could not reasonably be anticipated to result in a Material Adverse
Effect on the Business, the loss of a License or privilege to engage in a trade
or business or the termination of a Commitment.
U. Relationships with Related Persons. Except as set forth on Schedule
4.1(U), none of the Seller or any current Affiliate thereof (other than those
Affiliates that are institutional stockholders of the Seller) owns, of record or
beneficially, any Equity Securities or any other financial or profit interest
in, a Person other than an Acquired Company or EMA that has (i) had material
business dealings or a material financial interest in any transaction with any
other Acquired Company, or (ii) engaged in competition with any such other
Acquired Company in any market presently served by such other Acquired Company,
except in each case for the ownership of up to 2% of the outstanding Equity
Securities of any publicly traded corporation.
V. Franchise. (i) From the time the Seller and each Acquired Company
commenced franchising, the Seller and each Acquired Company have complied with
all domestic and, where applicable, international laws pertaining to the offer
and/or sale of a franchise or regulating the franchise relationship
(collectively, "Franchise Laws"), except for any failure to comply as could not
reasonably be anticipated to result in a Material Adverse Effect on the
Business. As used in this Section 4.1(V), "Seller" and "Acquired Company" shall
include each of their respective predecessors and agents, if any, involved in
"Fuddruckers" franchising activity; and "laws" and "Franchise Laws" shall
include but not be limited to statutes, regulations, rules, policies,
interpretations, judicial and administrative opinions, and guidelines and,
further, shall include business opportunity laws to the extent any such law may
be deemed applicable by any regulatory authority or court to the "Fuddruckers"
franchising activities of the Seller and each Acquired Company.
(ii) None of the Seller or any Acquired Company has made any
statement or omission in any registration application, notice, offering
circular, franchise agreement or related document that either has been filed
with any Governmental Entity or provided to any franchisee or prospective
franchisee, which it knew or should have known was materially incomplete,
inaccurate, deceptive, false or misleading. None of the Seller or any Acquired
Company has made any representations, written or oral, or omissions to any
Governmental Entity, franchisee or prospective franchisee, which it knew or
should have known was materially inconsistent or contradictory to the
disclosures contained in any registration application, or offering circular, or
that were otherwise materially deceptive, false or misleading. The Seller and
each Acquired Company have not made any "earnings claims", as that term is
defined by or understood in connection with the Uniform Franchise Offering
Circular Guidelines promulgated by the North American Securities Administrators'
Association, to franchisees or prospective franchisees except in compliance with
all Franchise Laws.
(iii) Schedule 4.1(V) lists each state or other jurisdiction
in which the Seller or any Acquired Company has undertaken franchising
activities. The Franchise Agreements constitute all of the franchise agreements
(and all oral or written amendments thereto) to which the Seller (in relation to
the Business) or any Acquired Company is a party. Each Franchise Agreement is in
full force and effect and represents the valid, binding and enforceable
obligation of the Seller or any Acquired Company, and to the Seller's knowledge,
each of the other parties thereto. The Seller and each Acquired Company have not
attempted to enforce any terms or provisions in any "Fuddruckers" franchise
agreement (including, without limitation, any Franchise Agreement) in a way that
would result in its violation of or noncompliance with any applicable Franchise
Laws except for any such violation or noncompliance as could not reasonably be
anticipated to result in a Material Adverse Effect on the Business.
(iv) Prior to each offer and/or sale of a franchise, each
prospective franchisee received all offering circulars and other disclosure
documents (collectively, "disclosure documents") required to be provided by all
then applicable Franchise Laws and, further, all such disclosure documents were
provided within timelines prescribed by all such applicable Franchise Laws.
(v) Each offer and/or sale of a "Fuddruckers" franchise by the
Seller or any Acquired Company occurred at a time when all material information
contained in the offering circular and other required documents disclosed in
each such transaction was current as of that time except for any such failure to
be current as could not reasonably be anticipated to result in a Material Averse
Effect on the Business.
(vi) Whenever the Seller or any Acquired Company has offered,
attempted to sell or sold a "Fuddruckers" franchise in any state that had at the
relevant time a franchise registration statute, rule or regulation, the
"Fuddrucker's" franchise offering has been effectively and lawfully registered
with each such state except for any failure to be so registered as could not
reasonably be anticipated to result in a Material Adverse Effect on the
Business.
(vii) All offering circulars (with attachments and exhibits
thereto including the standard "Fuddruckers" franchise agreements then in use)
registered with each state or Governmental Entity, or provided by the Seller or
any Acquired Company to any prospective franchisee in connection with any offer
and/or sale of a "Fuddruckers" franchise, have substantially complied with the
format and content requirements of that state's or Governmental Entity's
applicable Franchise Laws. With respect to offers and/or sales involving any
registration state, prospective franchisees received disclosure documents that
were identical in form and content as the then effectively registered disclosure
documents.
(viii) There are no existing or impending defaults by the
Seller or any Acquired Company under any of the Franchise Agreements and no
event has occurred which (with notice, or lapse of time, or both) would
constitute a default by Seller or any Acquired Company thereunder.
(ix) The Seller has made available to the Purchaser complete
and accurate copies of the following past, present and pending documents or
information:
(a) Any documents received by the Seller or any
Acquired Company and the outside franchise counsel of the same, during the last
five years, from the Federal Trade Commission or any other Governmental Entity
relating to any "Fuddruckers" franchising activity, including activity in
connection with any registration or attempted registration of a "Fuddruckers"
franchise offering.
(b) All current offering circulars (with attachments,
accompanying submissions and exhibits) in the form filed or registered in any
state or other jurisdiction.
(c) All franchise agreements (with related contracts,
amendments, attachments and exhibits thereto, whether oral or written) for
currently open franchises and franchises closed since 1993, including without
limitation the Franchise Agreements and any documents (including notices and
correspondence) related to the performance (or alleged failure of performance or
default) of the Seller or any Acquired Company and each franchisee under the
applicable franchise agreements.
(d) All documents relating to the transfer or sale of
a franchise by a franchisee and the Seller's and each Acquired Company's
assistance, if any, with the same and all franchises (y) terminated by any
Acquired Company or the Seller before the expiration of their term or (z) not
renewed at the end of the franchise agreement's terms.
(e) All versions of any current operating manual for
franchisees.
W. Champps. Champps is a corporation duly organized, validly existing
and in good standing under the Laws of the State of Minnesota. Champps has all
requisite corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder. The execution and delivery of this
Agreement and the consummation by Champps of the transactions contemplated by
the terms and provisions of this Agreement to be performed by it has been duly
authorized by all requisite corporate action. This Agreement has been duly
executed by Champps and, assuming the due execution of this Agreement by the
Purchaser, this Agreement constitutes a valid and binding obligation of Champps
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other similar Laws
relating to creditors' rights generally and to general principles of equity.
Neither the execution and delivery by Champps of this Agreement nor the
consummation by Champps of the transactions contemplated hereby: (i) violates or
will violate any Law applicable to Champps; (ii) violates or will violate any
Order applicable to Champps; (iii) results or will result in a breach of or
default under the certificate or articles of incorporation or bylaws of Champps,
or conflicts or will conflict or results or will result in any breach of any
Commitment applicable to Champps; (iv) results or will result in the imposition
of any Lien on any of Champps' assets; or (v) results or will result and/or give
rise to any claim or judgment against Champps, except for any of the foregoing
as could not reasonably be anticipated to result in a Material Adverse Effect on
Champps.
X. EMA. Schedule 4.1(X) lists: (a) all of the Commitments (the "EMA
Agreements") to which the Company is a party relating to EMA, and (b) all
Liabilities of the Company towards EMA or its stockholders (other than the
Company) which are not contained in the EMA Agreements. The Company is in
compliance with all of its obligations under the EMA Agreements and the other
Liabilities the existence of which are listed on Schedule 4.1(X), except where
the failure to so comply could not reasonably be anticipated to result in a
Material Adverse Effect on the Business. The Seller has delivered true and
complete copies of all of the EMA Agreements to the Purchaser.
Y. ARVI. The Company has no contractual obligations or other
Liabilities towards ARVI or the other stockholders thereof except for those
obligations as are found in the Commitments listed on Schedule 4.1(Y) and
obligations imposed under the corporate Laws of the State of Virginia. The
Company has the right to purchase all of NARLP's Equity Securities in ARVI on
January 31, 2000 for $5,400,000 under the terms of the Put/Call Agreement dated
as of October 22, 1993 as amended November 24, 1993 (the "Put/Call Agreement")
between the Company and New American Restaurants Limited Partnership ("NARLP").
The "Investor Value Added", as defined in the Put/Call Agreement, is zero.
Section 4.2 Certain Defined Terms. As used in the foregoing Section 4.1
and elsewhere in this Agreement, the terms set forth below shall have the
following meanings:
"Assets". As used herein, the term "Assets" shall mean all of
the properties (including without limitation the Owned Real Properties), rights,
claims, judgments, cash (to the extent included in the Working Capital and the
Final Working Capital), Commitments, Licenses, Intellectual Property, Equity
Securities, machinery, equipment, leasehold improvements, vehicles, parts,
furniture, furnishings, plant and office equipment and other assets, whether
fixed or personal, tangible or intangible, real or personal, choate or inchoate,
wherever located, owned, leased or otherwise held, by any Acquired Company.
"Commitments". As used herein, the term "Commitments" shall
mean all contracts, agreements, guaranties, loans, other rights or obligations
of a contractual nature, Licenses, Leases, franchises, rights or arrangements,
and all warranties or other transferable benefits.
"Current Receivables". As used herein, the term "Current
Receivables" shall mean each of the Receivables that are Current Assets.
"Disclosure Schedule". As used herein, the term "Disclosure
Schedule" shall mean the Schedules attached hereto, which Schedules are
incorporated herein and made a part hereof, fully as if the same were set forth
in the body of this Agreement in their entirety. The information disclosed on
any Schedule shall be deemed to have been disclosed on each other Schedule
regardless of the presence or absence of internal cross-references, except that
(a) the financial statements (but not the footnotes) attached as Schedule
4.1(D)(i), Schedule 4.1(D)(ii) and Schedule 4.1(D)(iii) and the information
disclosed and reflected in such financial statements shall not be deemed to have
been disclosed on any other Schedule, and (b) none of the information disclosed
on any Schedule other than Schedule 4.1(B) (except for Section 4.1(B)(iv) and
the last sentence of Section 4.1(B)), Schedule 4.1(C), Schedule 4.1(D)(i),
Schedule 4.1(D)(ii) and Schedule 4.1(D)(iii) shall be deemed to have been
disclosed on Schedule 4.1(B), Schedule 4.1(C), Schedule 4.1(D)(i), Schedule
4.1(D)(ii), or Schedule 4.1(D)(iii) unless a specific cross-reference to another
Schedule is noted on such Schedules.
"EBITDA". As used herein, the term "EBITDA" shall mean for any
period, an amount equal to the consolidated net income of a Person determined in
accordance with GAAP consistently applied, plus the following to the extent
deducted in computing such net income for such period: (i) all interest and all
amortization of debt discount and expense on any indebtedness for such period,
(ii) Taxes on income for such period, (iii) depreciation for such period, (iv)
amortization for such period, and (v) other non-cash charges resulting from the
application of Statement of Financial Accounting Standards No. 121 ("FAS 121")
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of".
"Excluded Items". As used herein, the term "Excluded Items"
shall mean any and all of the Current Assets (including Current Receivables) and
Long-Term Receivables that the Purchaser has required the Seller, in accordance
with Section 2.2(A)(ii) and Section 2.3(C), to have Transferred to itself at or
prior to the Closing or to purchase from the Purchaser post-Closing.
"Inventory". As used herein, the term "Inventory" shall mean
all inventories, including raw materials, food and beverage inventories, liquor,
wine, beer, soft drinks, linens, tableware, glasses, smallwares, dishes,
ingredients and work in process, finished product and administrative, cleaning
and other supplies and materials including, without limitation, any of the
foregoing which are in the possession of any subcontractor or other bailee.
"Long-Term Receivables". As used herein, the term "Long-Term
Receivables" shall mean each of the Receivables other than the Current
Receivables, including those franchise and lease receivables listed on Schedule
4.2 attached hereto.
"Material Adverse Change". As used herein, the term "Material
Adverse Change" shall mean any change or changes in the business, financial
condition or results of operations of any Acquired Company or the Business which
changes taken as a whole result, or could reasonably be anticipated to result,
in an aggregate decrease in the annualized EBITDA of the Acquired Companies by
more than $600,000 following such change or changes.
"Material Adverse Effect". As used herein, the term "Material
Adverse Effect on the Business" shall mean a material adverse effect on the
assets, business, condition (financial or otherwise), or results of operations
of the Business taken as a whole or of the Acquired Companies taken as a whole
whether prior to or following the Closing and shall be deemed to include in any
case any event or series of events resulting in either (a) the incurrence by,
imposition upon, or attachment against, any Acquired Company or its assets, of
aggregate Liabilities with respect to the representations or warranties to which
the concept of Material Adverse Effect is being applied in excess of $100,000,
or (b) the material impairment of the ability to operate the Business (including
without limitation, the ability to operate any one or more "Fuddruckers"
restaurant). As used herein, the term "Material Adverse Effect" when used with
specific reference to any Person shall mean a material adverse effect on the
assets, business, condition (financial or otherwise), or results of operations
of such Person.
"Receivable(s)". As used herein, the term "Receivable(s)"
shall mean each of the trade, miscellaneous, accounts and notes receivable
arising out of the sale or lease of goods or the rendering of services and any
amount payable and all security for any of the foregoing.
"Retained Liabilities". As used herein, the term "Retained
Liabilities" shall mean all Liabilities of the Seller and the Acquired Companies
other than the Transferred Liabilities, including without limitation, regardless
of any disclosure made in the Disclosure Schedule, (i) any Liabilities under any
current or pending Legal Proceedings, (ii) any Liability for Taxes for which the
Seller is responsible under this Agreement, (iii) any Liability of the Company
in connection with the sublease of the Saugus Restaurant or the Andover
Restaurant and any other Liability in connection with the Saugus Restaurant or
the Andover Restaurant, (iv) any Liability under any Business Commitments which
are required to be disclosed on any Schedule to this Agreement and have not been
so disclosed (unless the Acquired Companies elect to continue to receive the
performance of the other party(ies) to such Commitments), (v) any Liability
which would constitute a breach of any of the Seller's representations and
warranties under this Agreement, (vi) any Commitment listed on Schedule 4.2(A),
and (vii) any other Liability (other than the Transferred Liabilities) arising
out of or relating to the operation of the Business prior to the Closing
regardless of whether the Purchaser would be deemed to have otherwise assumed
any such Liabilities as a matter of law incident to the purchase of the Shares.
"Seller Assets". As used herein, the term "Seller Assets"
shall mean all of the properties, rights, claims, judgments, cash, Commitments,
Licenses, Intellectual Property, machinery, equipment, leasehold improvements,
vehicles, parts, furniture, furnishings, plant and office equipment and other
assets, whether fixed or personal, tangible or intangible, real or personal,
choate or inchoate, wherever located, owned, leased or otherwise held as of the
date hereof and as of the Closing Date by the Seller for use in the Business as
currently or then conducted.
"Threshold Licenses". As used herein, the term "Threshold
Licenses" shall mean any Licenses, the absence of which would: (a) cause an
interruption in the ordinary course operation of the Business (except for EMA),
or (b) cost more than $1,000 per License, or $25,000 in the aggregate, to renew,
file, or otherwise reinstate, obtain or replace.
"Transferred Liabilities". As used herein, the term
"Transferred Liabilities" shall mean all Current Liabilities reflected in the
Final Working Capital, all obligations under Business Commitments and Business
Licenses to which any of the Acquired Companies is a party arising following the
Closing (except that Transferred Liabilities shall not include in any case any
Liability under any Business Commitments which are required to be disclosed on
any Schedule to this Agreement and have not been so disclosed unless the
Acquired Companies elect to continue to receive the performance of the other
party(ies) to such Commitments) and any Liability arising out of or relating to
the operation of the Business after the Closing including all severance and
similar payments due upon termination of Company Employees and, except as set
forth in Section 13.16, Seller Employees, after the Closing.
"Transferred Seller Assets". As used herein, the term
"Transferred Seller Assets" shall mean all of the Seller Assets to be
Transferred to the Company pursuant to Section 1.2.
ARTICLE V
Representations and Warranties by the Purchaser
Section 5.1 Representations and Warranties. The Purchaser represents and
warrants to the Seller that:
A. Corporate Existence and Qualification; Due Execution, Etc. The
Purchaser is a corporation duly organized, validly existing and in good standing
under the Laws of the State of Delaware and has all requisite corporate power
and authority to execute, deliver and perform this Agreement and to consummate
the transactions contemplated by this Agreement. The execution and performance
by the Purchaser of the terms and provisions of this Agreement have been duly
authorized by all requisite corporate action and, assuming the due execution of
this Agreement by the Seller, Champps, and Specialty, this Agreement constitutes
a valid and binding obligation of the Purchaser enforceable against it in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar Laws relating to creditors' rights
generally and to general principles of equity (regardless of whether such
enforcement is considered in a proceeding at law or in equity).
B. No Violation. Neither the execution and delivery by the Purchaser of
this Agreement nor the consummation of the transactions contemplated hereby: (i)
violates or will violate any provision of Law applicable to the Purchaser; (ii)
violates or will violate any Order applicable to the Purchaser; or (iii) results
or will result in a breach of or default under the certificate of incorporation
or bylaws of the Purchaser.
C. Capitalization. Michael Cannon owns not less than 85% of the Equity
Securities in the Purchaser.
D. Litigation. There are no Legal Proceedings pending before any
Governmental Entity or, to the Purchaser's knowledge, threatened against the
Purchaser.
E. Brokers' Fees. The Purchaser has not made any agreement or taken any
other action which will cause the Seller to become obligated for any broker's or
other fee or commission as a result of any of the transactions contemplated by
this Agreement.
F. Net Worth. The Purchaser has, and shall have as of the Closing, net
worth in cash or freely tradeable securities not issued by Affiliates of the
Purchaser equal to at least $20,000,000 and will maintain such net worth through
to the Closing.
G. Compliance With Law. (i) The Purchaser's business is operated and
has been operated in material compliance with all applicable Laws.
H. No Prior Activities. Since its incorporation on July 28, 1998, the
Purchaser has owned no assets (other than the cash and securities referred to in
Section 5.1(F)), and has not conducted any business or operations except the
negotiations of the terms of this Agreement. Except as set forth on Schedule
5.1(H), the Purchaser has no Liabilities, Commitments or obligations with
respect to indebtedness or guarantees.
ARTICLE VI
Covenants of the Seller Prior to and Post-Closing
Section 6.1 Access and Investigation. Prior to the Closing, upon
reasonable notice from the Purchaser to the Seller given in accordance with this
Agreement, the Seller will afford to the officers, attorneys, accountants or
other authorized representatives of the Purchaser reasonable access during
normal business hours to the facilities, assets, books and records of the Seller
and the Acquired Companies so as to afford the Purchaser a reasonable
opportunity to make, at its sole cost and expense, such additional review,
examination and investigation of the Business, the Assets and the Transferred
Seller Assets as the Purchaser may reasonably desire to make, including without
limitation examination of the title of the Owned Real Properties, asset
appraisals and so-called "Phase I" (i.e., documentary review and walk-through
site inspection) preliminary environmental evaluations; provided, however, that
no borings or other so-called "Phase II" environmental examinations will be
performed without the Seller's prior written consent, which consent shall not be
unreasonably withheld. Notwithstanding the foregoing, the Seller hereby consents
to such borings or other so-called "Phase II" environmental examinations as may
be recommended in any Update (as hereinafter defined) prepared for Store No. 114
(as hereinafter defined) in accordance with Section 8.6, provided that the
Seller is given at least two days' prior notice of any such borings or other
examinations. The Purchaser will be permitted to make extracts from or to make
copies of such books and records as it may reasonably request. Prior to the
Closing, the Seller will furnish or cause to be furnished to the Purchaser such
existing financial and operating data and other information pertaining to the
Acquired Companies and the Business as the Purchaser may reasonably request so
long as such information is available to the Seller or any Acquired Company and
does not require additional services of outside auditors or advisors to prepare.
Section 6.2 Operation of the Business. Between the date of this
Agreement and the Closing, the Seller will, and will cause each Acquired Company
to:
(i) conduct the Business (excluding EMA) only in the ordinary
course consistent with past practice, and use its commercially reasonable
efforts to maintain the Assets and the Transferred Seller Assets in their
current condition subject to additions, deletions and normal wear and tear in
the ordinary course;
(ii) use its commercially reasonable efforts to preserve
intact the current business organization of each Acquired Company and of the
Seller to the extent related to the Business, to keep available the services of
the current officers and agents of each Acquired Company, the Company Employees
and the Seller Employees, and to maintain the relations and good will with
suppliers, customers, landlords, creditors, franchisees, Company Employees,
Seller Employees, agents, and others having material business relationships with
any Acquired Company or with the Seller to the extent related to the Business;
(iii) confer with the Purchaser concerning operational matters
of the Business which are of a material nature, it being understood that
notwithstanding anything to the contrary herein until the Closing the Seller and
the Acquired Companies shall have sole authority to operate the Business; and
(iv) keep, or cause to be kept, proper books of record and
account such that such books and accounts shall be true and complete as of the
date on which the quarterly reports of the Seller and the Acquired Companies are
prepared or can be prepared in the ordinary course, and supply to the Purchaser
monthly and quarterly unaudited balance sheets and statements of income of the
Acquired Companies as a consolidated group, and monthly updates to the March
Balance Sheet and the June Financials, as soon as practicable after the end of
each month, prepared in accordance with past practice (it being understood that
the monthly balance sheets and updates are internally prepared management
reports which are not necessarily prepared in accordance with GAAP and are not
subject to the same procedures and review as quarterly balance sheets, updates
and financial statements).
Section 6.3 Negative Covenant. Except as otherwise expressly permitted
by this Agreement, between the date of this Agreement and the Closing, none of
the changes or events listed in Section 4.1(E) shall have occurred without the
prior written consent of the Purchaser.
Section 6.4 Approvals. As promptly as practicable after the date of
this Agreement, the Seller will, and will cause each Acquired Company to, make
all filings required by Law to be made by them in order to consummate the
transactions contemplated by this Agreement (including all filings under the HSR
Act). Between the date of this Agreement and the Closing, the Seller will, and
will cause each Acquired Company to cooperate with the Purchaser with respect to
all filings that the Purchaser reasonably elects or is required by Law to make
in connection with the transactions contemplated by this Agreement (including
taking all actions requested by the Purchaser to cause early termination of any
applicable waiting period under the HSR Act).
Section 6.5 Notification. Between the date of this Agreement and the
Closing, the Seller will promptly notify the Purchaser in writing if the Seller
or any Acquired Company becomes aware of any fact or condition that causes or
constitutes a breach of any of the Seller's representations and warranties as of
the date of this Agreement, or if the Seller or any Acquired Company becomes
aware of the occurrence after the date of this Agreement of any fact or
condition that would (except as expressly required by this Agreement) cause or
constitute a breach of any such representation or warranty had such
representation or warranty been made as of the time of occurrence or discovery
of such fact or condition. Should any such fact or condition require any change
in the Disclosure Schedule hereto if such Disclosure Schedule were dated the
date of the occurrence or discovery of any such fact or condition, the Seller
will promptly deliver to the Purchaser a supplement to the Disclosure Schedule
hereto specifying such change. No supplement to the Disclosure Schedule
delivered pursuant to this Section 6.5 shall be deemed to cure any breach of any
representation or warranty made in this Agreement for the purposes of a
determination by the Purchaser that the conditions of Article VIII shall have
been met or otherwise, but if the Closing occurs the Disclosure Schedule as so
supplemented shall be the Disclosure Schedule for all purposes under this
Agreement, including Section 13.14. During the same period, the Seller will
promptly notify the Purchaser of the occurrence of any breach of any covenant of
the Seller in this Article VI or of the occurrence of any event that may make
the satisfaction of the conditions in Article VIII impossible or unlikely.
Section 6.6 Liabilities, etc.
A. Non-Current Liabilities. The Seller hereby agrees and covenants that
it shall, prior to or simultaneously with the Closing, perform, pay or
discharge, or cause the Acquired Companies to perform, pay or discharge, all to
the extent not theretofore performed, paid or discharged, and in each case in
accordance with its terms, (1) those Liabilities of the Seller listed in
Schedule 6.6(A)(i), and (2) any and all known Liabilities as of the Closing Date
of any Acquired Company ((1) and (2) collectively, the "Non-Current
Liabilities") other than in the case of (2), (i) those Liabilities set forth on
Schedule 6.6(A)(ii), (ii) contingent Liabilities or Liabilities for workers'
compensation or similar payments not due and payable as of the Closing Date
unless otherwise expressly required by this Section 6.6, (iii) Current
Liabilities, (iv) all deferred income items (in each case measured as of the
Closing Date) of the type indicated on the March Balance Sheet with a triple
asterisk (***) including straight line rent adjustment and buy-down royalty
accrued income, and (v) Liabilities arising under any Business Commitment
applicable to the Acquired Companies following the Closing. Without limiting the
generality of the foregoing, the Seller hereby agrees and covenants that it
shall, prior to or simultaneously with the Closing, (a) obtain the releases
described on Schedule 6.6(A)(iii); and (b) cause all indebtedness owed by the
Seller and or any of its Affiliates to an Acquired Company and by an Acquired
Company to the Seller, any other Acquired Company or any of their respective
Affiliates (whether or not such indebtedness constitutes a Non-Current
Liability) to be canceled or forgiven. The Seller shall provide evidence
reasonably satisfactory to the Purchaser of the foregoing at the Closing,
failing which, the Seller shall disclose to the Purchaser the continued
existence of any such Liabilities. The aggregate amount of any Liabilities
required to be paid, canceled or forgiven under this Section 6.6(A) at or prior
to the Closing and not so paid, canceled or forgiven shall be delivered by the
Purchaser to the Escrow Agent as an additional escrow amount (the "Liability
Escrow") to be used at the direction of the Seller by the Escrow Agent to pay
all such Liabilities and any portion of the Liability Escrow remaining after
such payment shall be returned to the Seller as soon as all such Liabilities
have been so paid or canceled (and if not so paid or canceled by the termination
of the Escrow Agreement the Purchaser may pay such amounts on behalf of the
Seller from the Liability Escrow), all as more fully set forth in the Escrow
Agreement.
B. Intentionally Deleted.
C. Closed Locations. The Seller shall Transfer to itself at or prior to
the Closing, or otherwise assume responsibility for in a manner and on terms
reasonably satisfactory to the Purchaser, all Assets and Liabilities (whether
Non-Current Liabilities or otherwise, and without the Purchaser being required
to make a separate election in respect of the same under Section 2.2(A)(ii) or
Section 2.3(C)) relating to any "Fuddruckers" location that is no longer
operating as a "Fuddruckers" restaurant at Closing (including without limitation
the locations listed on Schedule 6.6(C)), and shall deliver to the Purchaser, at
the Closing, evidence reasonably satisfactory to the Purchaser of the same.
D. Concluded Litigation. The Seller hereby covenants and agrees that,
by no later than the Closing, it shall have paid and discharged all Liabilities
in regard to any concluded Legal Proceeding that has been reduced to Judgment
against the Seller to the extent relating to the Business or against any
Acquired Company, is the subject of an executed settlement agreement or
otherwise concluded as of the Closing Date (except for any such Legal Proceeding
as to which the Seller is pursuing an appeal), including without limitation
those Legal Proceedings listed on Schedule 6.6(D). In addition, to the extent
that the Legal Proceeding indicated with an asterisk (*) on Schedule 6.6(D) has
not been paid and discharged by the Closing, the Seller hereby agrees that the
full amount of the damages and costs awarded in the Judgment Entered After
Finding dated March 23, 1998 totaling $41,752.83 shall be delivered by the
Purchaser to the Escrow Agent from the Estimated Purchase Price, at the Closing,
as an additional escrow amount (the "Litigation Escrow") to be so held by the
Escrow Agent for use at the Seller's request to pay and discharge the final
judgment in such case and any balance after the judgment has been so paid and
discharged shall be delivered to the Seller, all as more fully set forth in the
Escrow Agreement.
E. Liens. The Seller hereby agrees and covenants that it shall, prior
to or simultaneously with the Closing, file, or cause to be filed, UCC-3
termination statements and obtain, or cause to be obtained, any other releases,
consents or similar documents necessary to release any Liens on the Assets, the
Transferred Seller Assets or the Shares including without limitation those
relating to the Liabilities to be performed, paid or discharged as provided in
this Section 6.6, those in favor of those Persons listed on Schedule 6.6(E), and
the mortgages on the Owned Real Properties in favor of those Persons listed on
Schedule 6.6(E), all as set forth on Schedule 6.6(E), except for those Liens
curing, to the extent and only to the extent they may secure, furniture,
fixtures and equipment which are leased pursuant to Business Commitments listed
on a Schedule to this Agreement and applicable to the Acquired Companies after
the Closing, or which are loaned or consigned pursuant to ordinary course vendor
arrangements, or purchase money security interests pursuant to any Business
Commitment listed on Schedule 4.1(I) and applicable to the Acquired Companies
after the Closing.
F. Liabilities Not Assumed. The Seller agrees and acknowledges that
notwithstanding the Transfer of the Shares, the Purchaser does not and will not
at Closing or otherwise assume any Liabilities of the Seller or the Acquired
Companies other than the Transferred Liabilities. The Seller shall be deemed to
have assumed and Transferred to itself at Closing, or shall otherwise retain,
and shall from and after the Closing pay, discharge and perform in accordance
with their respective terms, all of the Retained Liabilities.
Section 6.7 No Solicitation or Negotiation.
A. No Solicitation. Until such time, if any, as this Agreement is
terminated pursuant to Article X, the Seller will not, nor will it authorize or
permit any Acquired Company or any officer, director or employee of, or any
investment banker, attorney or other advisor or representative of, the Seller or
any Acquired Company to, directly or indirectly, solicit, initiate, or encourage
any inquiries or proposals from any Person (other than the Purchaser) relating
to any transaction involving the sale of all or any part of the Shares, the
Business, the Assets or the Transferred Seller Assets (other than in the
ordinary course of business), or any Equity Securities of any Subsidiary or of
EMA, or any merger, consolidation, business combination, or similar transaction
involving any Acquired Company (any such transaction, a "Competing Transaction")
or participate in any discussions or negotiations regarding, or furnish to any
person any information with respect to, any Competing Transaction (it being
expressly acknowledged by the Purchaser that any transaction involving the sale,
merger, consolidation of, share exchange, tender or exchange offer for, business
combination with, or similar transaction involving, the Seller or any of its
subsidiaries other than the Acquired Companies and which is not inconsistent
with this Agreement and the consummation of the transactions contemplated hereby
in accordance with its terms shall not fall within the definition of "Competing
Transaction", so long as the Seller's obligations under this Agreement shall
survive as the obligations of the resulting or surviving Person); provided,
however, that prior to the approval of this Agreement and the transactions
contemplated hereby at a Special Meeting, the Seller may, to the extent required
by the fiduciary obligations of the Board of Directors of the Seller as
determined in good faith by such Board of Directors with the advice of outside
legal counsel (i) in response to an unsolicited request therefor, furnish
information with respect to the Acquired Companies to any Person who has
indicated to the Seller that it is interested in pursuing a Competing
Transaction and discuss such information with such Person and (ii) following the
delivery to the Purchaser of the notice required pursuant to Section 6.7(C),
participate in discussions or negotiations with any Person that makes, or
expresses a bona fide intention to make, a proposal with respect to a Competing
Transaction. Without limiting the foregoing, it is understood that any violation
of the restrictions set forth in the preceding sentence by any officer, director
or employee of, or any investment banker, attorney, broker, agent or other
advisor or representative with implied or express authority, of the Seller or
any Acquired Company, shall be deemed to be a breach of this Section 6.7 by the
Seller. For purposes of this Agreement, "Qualified Competing Transaction" means
a Competing Transaction having terms which the Board of Directors of the Seller
believes (based on, among other things, the advice of a financial advisor of
nationally recognized reputation) in its good faith reasonable judgment to be
more favorable to the Seller than the terms contemplated hereby.
B. Seller's Board of Directors. Except as provided otherwise in this
paragraph, neither the Board of Directors of the Seller nor any committee
thereof shall (x) withdraw or modify, or propose to withdraw or modify, in a
manner adverse to the Purchaser, the approval or recommendation by such Board of
Directors or any such committee of this Agreement and the consummation of the
transactions contemplated hereby, (y) approve or recommend, or propose to
approve or recommend, any Competing Transaction or (z) enter into any agreement
with respect to any Competing Transaction. Notwithstanding the foregoing, in the
event that the Seller receives a bona fide offer of a Qualified Competing
Transaction, the Board of Directors of the Seller or any committee thereof may
(subject to the limitations contained in this Section 6.7) withdraw or modify
its approval or recommendation of this Agreement and the consummation of the
transactions contemplated hereby following the Purchaser's receipt of written
notice (a "Notice of Qualified Competing Transaction") advising the Purchaser
that the Seller has received a bona fide offer of a Qualified Competing
Transaction, specifying the material terms and conditions of such Qualified
Competing Transaction and identifying the Person making such Qualified Competing
Transaction. The Seller may take any of the foregoing actions pursuant to the
preceding provisions of this Section 6.7(B) only until this Agreement and the
consummation of the transactions contemplated hereby have been approved at the
Special Meeting. Once the Board of Directors of the Seller or any committee
thereof has withdrawn or modified its approval or recommendation of this
Agreement and the consummation of the transactions contemplated hereby in
accordance with this Section 6.7(B), or the stockholders of the Seller shall
otherwise fail to approve this Agreement and the transactions contemplated
hereby at a Special Meeting, if required as specified in Section 6.8, the Seller
shall give notice of the occurrence of the same to the Purchaser (the "Section
6.7(B) Notice") within 48 hours following such occurrence.
C. Notice to Purchaser. In addition to the obligations of the Seller
set forth in Section 6.7(B), the Seller shall promptly advise the Purchaser
orally and in writing of any request for information or of any proposal for a
Competing Transaction, the material terms and conditions of such request,
Competing Transaction, or proposal, and the identity of the Person making any
such request or Competing Transaction proposal. The Seller shall keep the
Purchaser fully informed of the status and details of any such request,
Competing Transaction, or proposal.
Section 6.8 Special Meeting. Subject to Section 6.7, if required by Law
or the rules of any applicable self-regulatory organization the Seller shall
call (or shall cause the calling of) a special meeting of its stockholders (the
"Special Meeting") to be held as soon as shall be practicable after the date
hereof in order for such stockholders to consider and vote upon all matters
necessary for the consummation of the transactions contemplated by this
Agreement and shall recommend to its stockholders a vote "FOR" the approval of
this Agreement and the consummation of such transactions.
Section 6.9 Press Releases. Prior to the filing of proxy or related
disclosure materials with respect to the Special Meeting, the Seller will, and
will cause each Acquired Company to, maintain this Agreement confidential and
will not, and will cause each Acquired Company not to, issue or cause the
publication of any press release or other public announcement with respect to
this Agreement or the transactions contemplated hereby without the prior written
consent of the Purchaser which consent shall not be unreasonably withheld;
provided, however, that nothing herein will prohibit the Seller from issuing or
causing publication of any such press release or public announcement to the
extent that the Seller reasonably determines, after consultation with outside
legal counsel, such action to be required by Law or the rules of any applicable
self-regulatory organization, in which event the Seller will use its
commercially reasonable efforts to allow the Purchaser reasonable time to
comment on such release or announcement in advance of its issuance. The parties
acknowledge that a press release in the form of Schedule 6.9 shall be made
immediately following the execution of this Agreement.
Section 6.10 Intentionally Deleted.
Section 6.11 Transferred Seller Assets. Prior to the Closing, the
Seller shall take any and all reasonable actions (including the obtaining of any
required consents) to effect the Transfer of the Transferred Seller Assets to
the Company so that all such Transferred Seller Assets are owned, free and clear
of any Liens, by the Company immediately prior to and immediately following the
Closing, and shall deliver to the Purchaser evidence reasonably satisfactory to
the Purchaser of the same. A transitional services agreement (the "Transitional
Services Agreement") in form and substance reasonably acceptable to the
Purchaser and the Seller shall be entered into at Closing and shall provide for
those matters listed on Schedule 6.11.
Section 6.12
A. June Financials. As soon as practicable following the date hereof
and in any event no later than 30 days prior to the Closing Date, the Seller
shall deliver to the Purchaser a complete set of financial statements for the
Acquired Companies as of June 28, 1998 (the "June Financials") on a stand-alone
basis, which financial statements shall include a balance sheet as of June 29,
1997 (the "June 1997 Balance Sheet") and a balance sheet as of June 28, 1998
(prepared on a consistent basis using the same accounting principles,
assumptions and methodologies applied in the preparation of the June 1997
Audited Financials), a statement of operations for the fiscal year ended June
28, 1998, and the related statements of stockholders' equity and cash flows for
the fiscal year then ended (including any footnotes thereto), all of which shall
(a) have been audited by the Seller's Accountants, whose unqualified reports
thereon will be simultaneously delivered to the Purchaser, (b) have been
prepared in accordance with GAAP, consistently applied throughout the period
involved and for prior periods, (c) present fairly, in all material respects,
the financial position of the Acquired Companies, on a consolidated basis, at
the dates indicated in such financial statements, and the results of the
Acquired Companies' operations, on a consolidated basis, for the periods stated
therein. The statement of operations included in the June Financials shall
separately identify: (i) an allocation of the corporate overhead for the
Acquired Companies on a stand-alone basis, (ii) an allocation of district
overhead for the Acquired Companies, (iii) the 1998 Store EBITDA, if less than
zero, and any write-offs or write-downs attributable (without double counting)
to (A) any "Fuddruckers" locations which were closed during the fiscal year
ended June 28, 1998; (B) the Saugus Restaurant; (C) the Andover Restaurant; and
(D) the Boston Restaurant, (iv) adjustments for FAS 121 for the fiscal year then
ended, (v) any write-downs, write-offs or accruals related to the termination of
the La Salsa Agreement, (vi) amounts paid in settlement or satisfaction of
pending Legal Proceedings pursuant to the terms of this Agreement, and (vii)
costs or expenses related to environmental testing or remediation pursuant to
the terms of this Agreement.
B. 1998 EBITDA. As used in this Agreement, the "1998 EBITDA" shall
equal the EBITDA of the Acquired Companies computed consistently with the
illustration attached as Schedule 4.2(B) and based on the June Financials with
(a) add-backs for the items described in Section 6.12(A)(i), Section
6.12(A)(iv), Section 6.12(A)(v), Section 6.12(A)(vi) and Section 6.12(A)(vii)
and subject to Section 6.12(D), Section 6.12(A)(iii), and (b) for clarification,
any expense relating to the AT&T Credit Corp. Master Equipment Lease Agreement
(as amended) and Assumption Agreement will be included as an expense in the
computation of such 1998 EBITDA. Attached hereto as Schedule 4.2(B) is a
calculation of EBITDA for the nine month period ended March 29, 1998 which shall
be used as an illustration of the application of the 1998 EBITDA.
C. Boston Restaurant. If the Boston Restaurant has not been closed by
the Closing, the Seller hereby agrees to operate the Boston Restaurant as a
franchisee of the Company and to assume full liability in connection with such
operation until the expiration of the term of the Lease applicable to the Boston
Restaurant (without any extension of such term) all as set forth on Schedule
6.11 and to be more fully set forth in the Transitional Services Agreement.
D. Saugus/Andover. In the event that prior to the Closing the escrow
funds (the "S/A Escrow Funds") deposited with the escrow agent under that
certain Escrow Agreement (the "S/A Escrow Agreement") dated as of June 28, 1998
among The Boland Group I, LLC, The Boland Group II, LLC, the Company and
Shapiro, Israel & Weiner, P.C. have been delivered to the Company and the
conditions for the release of such escrow have been met or waived in accordance
with the terms of such Agreement, the Seller shall deliver to the Purchaser
evidence reasonably satisfactory to the Purchaser that the Asset Purchase
Agreements (the "S/A Agreements") made and entered into as of June 28, 1998
between the Company and, respectively, The Boland Group I, LLC and The Boland
Group II, LLC (and the other transaction documents under each such Agreements)
are no longer terminable. In the event that such evidence is not delivered to
the Purchaser at the Closing, the items described in Section 6.12(A)(iii)(B) and
Section 6.12(A)(iii)(C) shall not be add-backs for the purposes of calculating
1998 EBITDA. In the event that at any time prior to or at the Closing either (a)
The Boland Group I, LLC or The Boland Group II, LLC has exercised its rights
pursuant to the S/A Agreements to terminate such Agreement, or (b) the S/A
Escrow Funds have been delivered to The Boland Group I, LLC or The Boland Group
II, LLC under the S/A Escrow Agreement, the Seller shall promptly notify the
Purchaser of the same, and any and all Liabilities relating to the operation of
the Saugus Restaurant and the Andover Restaurant shall be Retained Liabilities
(including without limitation any Liabilities under the Leases applicable to
such locations).
Section 6.13 Maintenance. The Seller hereby covenants and agrees that
it has, and shall, from July 1, 1998 until the Closing Date, spend not less than
$250,000 per month (or pro rated for any partial month) on capital expenditures
of the type reflected on the schedule relating to the same and previously
delivered to the Purchaser. The Seller shall provide evidence reasonably
satisfactory to the Purchaser, at the Closing, that the foregoing covenant has
been met, failing which any amount required to have been spent and which was not
so spent by the Seller in accordance with this Section 6.13 (to the extent not
included in Current Liabilities for purposes of Working Capital or Final Working
Capital) shall be deducted from the Estimated Purchase Price at Closing as a
reduction thereto (the "Maintenance Expenditure Adjustment"). The Maintenance
Expenditure Adjustment shall be the Purchaser's sole remedy for a breach of the
covenant contained in this Section 6.13 and, provided that the Maintenance
Expenditure Adjustment is made, any such breach shall not constitute a breach of
a closing condition in Article VIII.
Section 6.14 Licenses. By no later than thirty (30) days prior to the
Closing, the Seller shall deliver to the Purchaser that portion of Schedule
4.1(G) containing the sub-heading "Licenses" and listing all Threshold Licenses
thereon (it being understood that Schedule 4.1(G)(iii) shall have been delivered
to the Purchaser on the date hereof).
Section 6.15 Taxes. The Seller hereby covenants and agrees that by no
later than the Closing, it shall have filed or caused to be filed all Tax
Returns which it is required to file and all amended Tax Returns which it is
required to file (including without limitation the stub year Tax Return and the
amended 1997 Tax Return and all those Tax Returns listed on Schedule 4.1(P)) in
all jurisdictions in which such Tax Returns are required to be filed, and shall
pay or cause to be paid all Taxes relating to the same. The Seller shall provide
evidence reasonably satisfactory to the Purchaser of the foregoing at the
Closing.
Section 6.16 Pending Litigation. The Seller hereby covenants and agrees
that, by no later than the Closing, it shall use its commercially reasonable
efforts to settle, and cause the dismissal with prejudice of the Legal
Proceeding listed on Schedule 6.16.
Section 6.17 Cash Payment Adjustment. Cash payments received after the
date hereof and prior to the Closing on account of non-refundable rebates of
vendors, buy-downs of franchise fees, one-time license fees for territorial
rights, and other similar rights shall be apportioned between the Purchaser and
the Seller such that to the extent that such cash payments are attributable to
periods prior to the Closing they shall be for the Seller's benefit and to the
extent such cash payments are attributable to periods post-Closing they shall be
for the Purchaser's benefit and the Unadjusted Purchase Price shall be reduced
(without double-counting in the Working Capital or Final Working Capital) by
such amount which is for the Purchaser's benefit (the "Cash Payment
Adjustment").
Section 6.18 Leases.
A. Definitions. The following terms, when used in this Section 6.18,
shall be defined as hereinafter set forth:
(i) Required Lease -- Those Leases listed on Schedule 6.18, which
require the consent of the lessor in connection with the
consummation of the transactions contemplated by this
Agreement.
(ii) Required Estoppel -- Those Estoppel Certificates listed on
Schedule 6.18, which are required by Purchaser for Closing.
(iii) Required Consent -- Each consent necessary pursuant to the
terms of each Required Lease in connection with the
consummation of the transactions contemplated by this
Agreement, as provided in Schedule 6.18.
(iv) Required Restaurant -- Each restaurant as to which a Required
Consent or Required Estoppel, or both, is required.
(v) 1998 Store EBITDA -- With respect to each Required Restaurant,
the EBITDA for the fiscal year ended June 28, 1998.
(vi) Closed Required Restaurant -- Any Required Restaurant that
shall have ceased to operate or is in the process of ceasing
to operate between the date hereof and the Closing.
(vii) Closed Store Adjustment -- For and with respect to each Closed
Required Restaurant, the sum of (x) five times the 1998 Store
EBITDA for such Closed Required Restaurant, plus (y) $50,000.
(viii) Rent Adjustment Amount -- The net present value on the Closing
Date of the aggregate increase in the lessee's monetary
obligations to the lessor under any amendment to a Required
Lease, as contemplated by Section 6.18(D) (including, without
limitation, any so-called "up front payment" and any rent
increase during the balance of the term of the Required Lease)
calculated using a discount rate of ten percent (10%) from the
time when such amount is payable.
(ix) Lease Termination Amount -- For and with respect to each
Required Lease which is terminated, the sum of: (i) the
product of (x) the 1998 Store EBITDA for such Required
Restaurant (but in no event less than $0), times (x) in the
event the termination occurs during the (A) first two years
following the Closing, five, (B) the third year following the
Closing, three, (C) the fourth year after the Closing, two,
and (D) the fifth year following the Closing, one; plus (ii)
$50,000, plus (iii) the actual cost incurred by the Purchaser
after the Closing with respect to the leasehold improvements
to the premises demised under the applicable Required Lease.
B. Requirements for Consents and Estoppels. Schedule 6.18 lists all
Required Leases. As soon as practicable after delivery of the June Financials,
the Purchaser and the Seller shall supplement Schedule 6.18 to include the 1998
Store EBITDA for each Required Restaurant. Following the execution and delivery
of this Agreement, the Seller shall, at its sole expense, use all commercially
reasonable efforts to obtain all Required Consents and Required Estoppels. The
Purchaser shall cooperate with the Seller in such efforts as reasonably
requested by the Seller, but at no cost or expense to the Purchaser. Incident to
such cooperation, the Purchaser agrees that, as necessary, the Purchaser will:
(i) furnish evidence to the lessor of the Purchaser's net worth
and other financial information related to the Purchaser's
ability to perform the lessee's obligations under the relevant
Required Lease from and after the Closing as reasonably
requested by such lessor;
(ii) execute instruments reasonably satisfactory to the Purchaser
evidencing the Purchaser's obligations (from and after the
Closing), as successor to the Seller (if and only to the
extent Seller had been so obligated), to pay and perform the
lessee's obligations under the relevant Required Lease
incurred or arising from and after the Closing Date, as the
lessor may reasonably request; and
(iii) participate in meetings with lessors at mutually acceptable
times and locations.
C. Payment of Closed Store Adjustment. For and with respect to each
Closed Required Restaurant, the Estimated Purchase Price shall be reduced by the
Closed Store Adjustment.
D. Post-Closing Efforts. If any Required Consent or Required Estoppel
shall not have been obtained by the Seller on or prior to the Closing Date and
the Closing shall have occurred, the Seller shall cooperate, at the Purchaser's
request after the Closing, to seek any such Required Consent and any such
Required Estoppel on behalf of the Purchaser, but at the sole cost and expense
of the Seller. Purchaser may at its election participate in any such efforts or
initiate such efforts on its own and shall be authorized to commit the Seller to
pay to lessors of Required Restaurants up to $250,000 as Rent Adjustment Amounts
to obtain one or more Required Consents or Required Estoppels.
Any time and at the election of either Purchaser or Seller, in the
event that within three (3) months following the Closing Date any Required
Consent or Required Estoppel shall not have been obtained, the Seller and the
Purchaser shall cooperate to institute and prosecute Legal Proceedings, to
compel the lessor under the terms of a Required Lease or applicable Law to
execute a Required Consent or Required Estoppel. The costs and expenses of
prosecuting any such proceedings shall be paid entirely by the Seller.
If, at any time after the Closing Date, a lessor shall exercise or
attempt to exercise its remedies under the terms of a Required Lease or shall
refuse to perform any of such lessor's obligations thereunder on account of any
breach arising as a result of the transactions contemplated by this Agreement
having been consummated without a Required Consent or on account of or allegedly
on account of any default or alleged default under a Required Lease which
occurred or is alleged to have occurred prior to the Closing Date, the Purchaser
shall so notify the Seller.
Thereafter, subject to the provisions of this Section 6.18, the Seller
shall have the right to act on behalf of the lessee in response to any such
exercise of remedies or refusal to perform by lessor, and regardless of whether
the Seller elects to act on lessee's behalf as aforesaid, the Purchaser retains
the right to act on its own or any such lessee's behalf in the event Seller
fails to take timely actions in response to any such exercise of remedies by any
such lessor. All costs and expenses of prosecuting any such Legal Proceeding
against a lessor by Seller or Purchaser shall be paid by the Seller and shall
not be undertaken by Seller unless and until Purchaser shall have been notified
of any intended action by the Seller and shall have had an opportunity for input
to the Seller. Furthermore, provided that there shall have been, and shall be,
no interference with the Purchaser's or any lessee's use and enjoyment of a
Required Restaurant, the Seller (or Purchaser if Seller has not undertaken to
act on behalf of the lessee) may negotiate the terms of a settlement or
amendment to the Required Lease in order to induce the lessor to grant a
Required Consent or Required Estoppel. No such amendment or settlement shall
impose any additional non-monetary obligation under such Required Lease, or
affect the term or the availability of any right or option to extend the term of
any such Required Lease, or, except as hereinafter explicitly set forth,
increase any monetary obligation under such Required Lease. If a monetary
obligation under such Required Lease is to be increased by actions of either
Seller or Purchaser hereunder, the Purchaser shall receive from Seller, at the
time of execution of any such amendment, payment in cash of the Rent Adjustment
Amount with respect to such Required Lease.
If, notwithstanding such efforts by the Seller or Purchaser, a Required
Lease is terminated or the lessee under a Required Lease is otherwise unable to
continue to operate the applicable Required Restaurant, the Seller shall pay to
the Purchaser, in cash, an amount equal to the Lease Termination Amount for and
with respect to each such Required Restaurant.
E. Lease Consent Escrow. The Seller shall cause an amount equal to
$1,000,000 in cash to be deposited with the Escrow Agent (the "Lease Consent
Escrow"), to be held by the Escrow Agent as security for the benefit of the
Purchaser with respect to any amounts due to the Purchaser from the Seller as a
Lease Termination Amount or Rent Adjustment Amount as provided in this Section
6.18(D) and for no other purposes under the terms of the Escrow Agreement. The
Purchaser's rights to obtain amounts pursuant to the Lease Consent Escrow shall
be non-exclusive and the Purchaser's recourse against the Seller shall not be
limited to amounts in the Lease Consent Escrow.
F. Termination. Anything to the contrary in this Agreement
notwithstanding, the Seller's obligations under this Section 6.18 (including any
liability under Section 6.18(D)) shall be terminated with respect to the
applicable Required Lease if the reason for the exercise by a lessor of its
remedies under a Required Lease is not the consummation of the transactions
contemplated by this Agreement, but, rather, is because the Purchaser after the
Closing (i) fails to satisfy any of the requirements under the terms of such
Required Lease, including any minimum net worth requirements, continued
financial covenants, or continued operation of a minimum number of restaurants,
(ii) the Purchaser and/or the Company and/or the lessee under the applicable
Required Lease breaches in any material respect such Required Lease or fails to
discharge when due any financial obligation of the lessee under such Required
Lease resulting in the termination of the Required Lease by the lessor or (iii)
fails to make any filing with a Governmental Entity required with respect to the
change in control of the Acquired Companies to the Purchaser as a result of the
consummation of the transactions contemplated by this Agreement.
G. Purchaser's Covenants. The Purchaser agrees that from and after the
Closing, it shall pay and perform, and cause the applicable lessee to pay and
perform, any and all obligations with respect to all Leases (other than Leases
for Current Locations referred to in Section 6.6(C)) as they become due. As to
Required Leases for which the Required Consents and/or Required Estoppels have
been delivered to the Purchaser, the Purchaser shall reimburse the Seller for
any payments made by the Seller to the appropriate lessor after the Closing Date
under or pursuant to guaranty agreements, if any, whereby the Seller secures any
Required Lease, and the Purchaser shall indemnify the Seller from any liability
or obligation under such Required Leases arising from any failure of the
Purchaser or the lessee to pay or perform any of its obligations under such
Required Leases arising after the Closing Date.
H. Alternative Arrangements. To the extent permitted by any Required
Lease, the Seller and the Purchaser (or the Company, at the Purchaser's
election) may enter into arrangements reasonably acceptable to the Purchaser and
the Seller in order to provide the Purchaser the benefits of any such Required
Lease for which the Required Consent or Required Estoppel has not been delivered
at the Closing, including, without limitation, management agreements, subleases,
franchise agreements, or the like.
ARTICLE VII
Covenants of the Purchaser Prior to the Closing
Section 7.1 Approvals. As promptly as practicable after the date of
this Agreement, the Purchaser will make all filings required by Law to be made
by it to consummate the transactions contemplated by this Agreement (including
all filings under the HSR Act). Between the date of this Agreement and the
Closing, the Purchaser will cooperate with the Seller with respect to all
filings that the Seller is required by Law to make in connection with the
transactions contemplated by this Agreement; provided, however, that this
Agreement will not require the Purchaser to dispose of or make any change in any
portion of its business or to incur any other burden or expense in order to
comply with the foregoing covenant.
Section 7.2 Press Releases. Prior to the filing of proxy or related
disclosure materials with respect to the Special Meeting, the Purchaser will
maintain this Agreement confidential and will not issue or cause the publication
of any press release or other public announcement with respect to this Agreement
or the transactions contemplated hereby without the prior written consent of the
Seller which consent shall not be unreasonably withheld. The parties acknowledge
that a press release in the form of Schedule 6.9 shall be made immediately
following the execution of this Agreement.
ARTICLE VIII
Conditions Precedent to the Purchaser's Obligation to Close
The Purchaser's obligation to purchase the Shares and to take the other
actions required to be taken by the Purchaser at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by the Purchaser, in whole or in part):
Section 8.1 Accuracy of Representations. Each of the Seller's
representations and warranties in this Agreement must have been accurate in all
respects as of the date of this Agreement, and must be accurate in all respects
as of the Closing Date as if made on the Closing Date, without giving effect to
any supplement to the Disclosure Schedule (it being understood that the portion
of Schedule 4.1(G) to be delivered by the Seller pursuant to Section 6.14 shall
not be considered to be a supplement to the Disclosure Schedule), except for
such breaches as could not reasonably be anticipated to result in, in the
aggregate, a Material Adverse Effect on the Business and which the Seller
undertakes to cure within 30 days following the Closing with such cure
obligation to survive the Closing as a covenant of the Seller.
Section 8.2 Seller's Performance. Each of the covenants and obligations
that the Seller is required to perform or to comply with pursuant to this
Agreement at or prior to the Closing must have been duly performed and complied
with and the Seller must have delivered each of the documents required to be
delivered by it pursuant to Section 3.2(A).
Section 8.3 No Proceedings. At the time of Closing, there shall be no
effective injunction, writ or preliminary restraining order or any Order of any
nature issued by a court or Governmental Entity of competent jurisdiction
directing that any of the transactions contemplated in this Agreement not be
consummated as herein provided, and no Legal Proceeding shall have been
commenced or threatened in writing by any Person against the Purchaser or any
Acquired Company seeking to enjoin or obtain damages in respect of the
consummation of any transaction contemplated by this Agreement.
Section 8.4 No Claim. There must not have been made or threatened in
writing by any Person any claim asserting that such Person is the holder or the
beneficial owner of, or has the right to acquire or to obtain beneficial
ownership of, any of the Shares, or any Equity Securities in ARVI (other than
the Equity Securities owned by NARLP as listed on Schedule 4.1(C)).
Section 8.5 Owned Real Property Appraisals. The Purchaser shall have
obtained current appraisals, from an "MAI" appraiser selected by the Seller and
acceptable to the financial institution providing financing to the Purchaser in
connection with the transactions contemplated by this Agreement, of the value of
each of the Owned Real Properties which value shall not be, in the aggregate for
all of the Owned Real Properties, less than $12,500,000.00.
Section 8.6 Updated Environmental Site Assessment Reports.
A. The Purchaser shall have obtained, at the Purchaser's sole cost and
expense, updated Environmental Site Assessment ("ESA") reports for each of the
Owned Real Properties (the "Updates") from Professional Service Industries, Inc.
("PSI"), the environmental consulting firm which performed ESAs on all of the
Owned Real Properties in 1997 (the "Existing PSI Reports"), or another qualified
environmental consulting firm selected by the Purchaser. Except as set forth
below in this Section 8.6, such Updates shall either (i) confirm that the
conclusions and/or recommendations set forth in the Existing PSI Reports,
including, without limitation, PSI's "Supplemental File Review" letter report
regarding Store No. 90, 300 Town Center, Matteson, Illinois (dated September 10,
1997), remain unchanged or (ii) set out modified conclusions and/or
recommendations which are determined to be acceptable to the Purchaser, in the
Purchaser's sole discretion.
B. The Purchaser and the Seller acknowledge that the Existing PSI
Report for Store No. 114, 4625 Virginia Beach Blvd., Virginia Beach, VA ("Store
No. 114"), contains a recommendation regarding the performance of certain Phase
II ESA activities, including the installation of soil borings and monitoring
wells. In the event that the Update for Store No. 114 concludes that Phase II
ESA activities are not warranted or recommended at this time, the Seller shall
be deemed to have satisfied the condition precedent regarding an Update for
Store No. 114 and Store No. 114 shall be included in the transactions
contemplated by this Agreement.
C. Any Phase II ESA activities recommended in the Update for Store No.
114 shall be conducted as soon as is practicable and the Seller shall be kept
informed, in a timely manner, as to the nature and timing of all such Phase II
ESA activities. In the event that Hazardous Materials are discovered in
connection with such Phase II ESA activities, the selected consultant shall
prepare cost estimates (the "Environmental Cost Estimate") for all investigatory
activities, remedial activities, monitoring and regulatory compliance work
required in accordance with applicable Environmental Laws.
D. In the event that the Environmental Cost Estimate is less than
$300,000, Store No. 114 shall be included within the transactions contemplated
by this Agreement and the Seller shall be responsible for addressing, or causing
to be addressed, all Hazardous Materials on, at or under Store No. 114 after the
Closing (except for Releases of Hazardous Materials which occur after the
Closing and are not related to the acts, practices or omissions of the Seller).
All such post-Closing environmental work shall be conducted (i) in a manner and
at times that will not unreasonably interfere with the operation of Store No.
114, (ii) in accordance with all applicable Environmental Laws, and (iii) at the
Seller's sole cost and expense.
E. In the event that the Environmental Cost Estimate is or exceeds
$300,000, at the Seller's option the Seller may nevertheless address all
Hazardous Materials as specified in Section 8.6(D) or Store No. 114 shall be
Transferred to the Seller prior to or at the Closing and agreements shall be
entered into between the Seller and the Purchaser (or the Company at the
Purchaser's election) whereby the Seller shall have rights as a franchisee to
operate Store No. 114 and the Seller shall be responsible for all costs and
expenses associated with the operation of Store No. 114; provided that the
Company will manage Store No. 114 in consideration of a management fee equal to
100% of the economics (EBITDA) of Store No. 114.
Section 8.7 Estimated Purchase Price. The Estimated Purchase Price
shall not be less than $40,000,000.
ARTICLE IX
Conditions Precedent to the Seller's Obligation to Close
The Seller's obligation to sell the Shares and to take the other
actions required to be taken by the Seller at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by the Seller, in whole or in part):
Section 9.1 Accuracy of Representations. Each of the Purchaser's
representations and warranties in this Agreement must have been accurate in all
respects as of the date of this Agreement and must be accurate in all respects
as of the Closing Date as if made on the Closing Date, except for such breaches
as would not, in the aggregate, have a Material Adverse Effect on the Purchaser
and which the Purchaser undertakes to cure within 30 days following the Closing
with such obligation to survive the Closing as a covenant of the Purchaser.
Section 9.2 Purchaser's Performance. Each of the covenants and
obligations that the Purchaser is required to perform or to comply with pursuant
to this Agreement at or prior to the Closing must have been duly performed and
complied with and the Purchaser must have delivered each of the documents
required to be delivered by it, and must have made the payments required to be
made by it, pursuant to Section 3.2(B).
Section 9.3 No Proceedings. At the time of Closing, there shall be no
effective injunction, writ or preliminary restraining order or any Order of any
nature issued by a court or Governmental Entity of competent jurisdiction
directing that the transactions contemplated in this Agreement or any of them
not be consummated as herein provided, and no Legal Proceeding shall have been
commenced or threatened in writing by any Person against the Seller seeking to
enjoin or obtain damages in respect of the consummation of any transaction
contemplated by this Agreement.
Section 9.4 Seller Stockholder Approval. To the extent required as
provided in Section 6.8, the sale of the Shares by the Seller to the Purchaser
shall have been approved and adopted by the requisite vote of the stockholders
of the Seller.
Section 9.5 Estimated Purchase Price. The Estimated Purchase Price
shall not be less than $40,000,000.
ARTICLE X
Termination Events
Section 10.1 Termination Events. This Agreement may, by notice given
prior to or at the Closing, be terminated:
(a) by mutual consent of the Purchaser and the Seller;
(b) by either the Purchaser or the Seller if a material breach
of any provision of this Agreement has been committed by the other party and
such breach has not been waived by the terminating party;
(c) (i) by the Purchaser, if any of the conditions in Article
VIII has not been satisfied as of the Closing or if satisfaction of any such
condition is or becomes impossible (other than through the failure of the
Purchaser to comply with its obligations under this Agreement) and the Purchaser
has not waived such condition at or before the Closing; or (ii) by the Seller,
if any of the conditions in Article IX has not been satisfied as of the Closing
or if satisfaction of any such condition is or becomes impossible (other than
through the failure of the Seller to comply with its obligations under this
Agreement) and the Seller has not waived such condition at or before the
Closing;
(d) by the Seller, if (i) the Board of Directors of the Seller
pursuant to Section 6.7(B) withdraws or modifies its approval or recommendation
of, or otherwise fails to approve or recommend, this Agreement and the
consummation of the transactions contemplated hereby to the stockholders of the
Seller, and (ii) the Seller pays to the Purchaser an alternative transaction fee
equal to $1,720,000, promptly upon such withdrawal, modification or failure, by
wire transfer of immediately available funds to such account as shall have been
designated by the Purchaser; or
(e) by either the Purchaser or the Seller if the Closing has
not occurred (other than through the failure of any party seeking to terminate
this Agreement to comply fully with its obligations under this Agreement) on or
before November 2, 1998, (the "Outside Date") or such later date as the parties
may agree upon; provided, however, that notwithstanding anything to the contrary
in this Agreement (i) if on November 2, 1998 the applicable waiting periods
under the HSR Act have not expired or terminated then each of the Purchaser and
the Seller shall have the independent right, exercisable in its sole discretion
by delivery of written notice thereof to the other on or before November 2,
1998, to extend the Outside Date to the earlier of five (5) business days after
such regulatory approvals have been obtained or December 15, 1998 and (ii) if on
November 2, 1998 the Seller has not obtained the consents required to be
delivered pursuant to Section 3.2(A)(5) then the Seller shall have the right
exercisable in its sole discretion by delivery of written notice thereof to the
Purchaser on or before November 2, 1998, to extend the Outside Date to December
15, 1998.
Section 10.2 Effect of Termination. Each party's right of termination
under Section 10.1 is in addition to any other rights it may have under this
Agreement or otherwise, and the exercise of a right of termination will not be
an election of remedies. If this Agreement is terminated pursuant to Section
10.1, all further obligations of the parties under this Agreement will
terminate, except that the obligations in Sections 6.9, 7.2, 10.1(d), 11.6, 13.7
and 13.14 will survive.
Section 10.3 Failure to Close. In the event that the Closing does not
occur on or prior to the Outside Date (as the same may be extended pursuant to
Section 10.1(e)) due to: (i) the Purchaser's breach of its obligations under
this Agreement and the resulting termination of this Agreement (other than a
termination pursuant to Section 10.1(a), Section 10.1(b) due to the Seller's
breach, Section 10.1(c)(i), Section 10.1(d), or Section 10.1(e)),
notwithstanding any other provision of this Agreement (including Section 10.2
and Section 13.14) the Seller's sole and exclusive remedy against the Purchaser
under this Agreement and with respect to the transactions contemplated hereby
shall be to exercise its rights to terminate this Agreement and to receive the
payment from the Purchaser of cash in an amount equal to $5,000,000 as
liquidated damages (and not as a penalty) for which within 30 days after the
date hereof the Purchaser shall furnish a letter of credit for the benefit of
the Seller; or (ii) the non-satisfaction of the condition contained in Section
8.7 or Section 9.5 or the failure of the stockholders of the Seller to approve
this Agreement and the consummation of the transactions contemplated hereby at
the Special Meeting (if required) where the Board of Directors of the Seller has
approved or recommended the same to the stockholders (without modification or
withdrawal of such approval or recommendation), the Seller shall pay to the
Purchaser an amount equal to $1,000,000 as liquidated damages (and not as a
penalty) in consideration of the time, the fees and expenses spent or incurred
by the Purchaser, or on its behalf, in connection with this Agreement and the
transactions contemplated hereby.
ARTICLE XI
Other Covenants
Section 11.1 Personnel; Taxes. From and after the Closing, the Seller
and the Purchaser will each make available to the other, upon written request
and with the requesting party bearing responsibility for all of its
out-of-pocket expenses therefor, its and its Affiliates personnel and books and
records to the extent that the assistance or participation of such personnel or
access to such books and records is reasonably requested in anticipation of, or
preparation for, existing or future Legal Proceedings, Tax Return preparation,
audits or other matters in which the requesting party or any of its Affiliates
(including any Acquired Company) is involved and that is related to the
Business. Each of the Seller and the Purchaser will cooperate with one another
in the conduct of any Tax audit, claim for refund of Taxes or similar
proceedings involving or otherwise relating to the Shares, any of the Assets,
any of the Transferred Seller Assets, the Business or any Acquired Company (or
the income therefrom or assets thereof).
Section 11.2 Corporate Name. Without in any way limiting the right,
title or interest of the Acquired Companies in and to Intellectual Property,
following the Closing the Seller shall change all signage and stationery and
otherwise discontinue the use of the name "Fuddruckers" and shall have no
further right to use any of the Intellectual Property; provided, however, that
the Seller may, for a period of 90 days following the Closing Date, consume
stationary and similar supplies on hand as of the Closing which contains the
name "Fuddruckers" and related logos.
Section 11.3 Certain Insurance Matters. After the Closing, the Seller
will not take any action to cancel before its normal expiration any Insurance
policy of the Seller if such Insurance policy relates to the Business, the
Assets or the Transferred Seller Assets and by the Closing and continuing
thereafter the Acquired Companies shall be named as additional insureds thereon.
With respect to any loss, Liability or damage suffered after the Closing
relating to, resulting from or arising out of the conduct of the Business at or
prior to the Closing for which the Seller or any of its Affiliates would be
entitled to assert, or cause any other Person to assert, a claim for recovery
under any policy of Insurance maintained by or for the benefit of the Seller, in
respect of the Business, at the request of the Purchaser or any Acquired Company
the Seller will assert one or more claims under such Insurance policy if the
Purchaser or any Acquired Company is not itself entitled to assert any such
claim but the Seller or any of its Affiliates is so entitled. To the extent
required under the terms of such Insurance policy to give effect to the
foregoing, the Seller will be deemed, solely for the purpose of asserting claims
for Insurance pursuant to the immediately preceding sentence, to have assumed or
retained Liability for such loss, Liability or damage to the extent of the
policy limits for the applicable policy of Insurance.
Section 11.4 Cooperation by the Seller. Without limiting the provisions
of Section 13.14, after the Closing, the Seller shall, reasonably promptly after
acquiring knowledge thereof, notify the Purchaser of any threatened or pending
Legal Proceeding in which the Seller may be involved, whether as an actual or
potential party or witness or otherwise, or with respect to which it may receive
requests for information, arising out of or relating to the Business with
respect to a matter for which indemnification is to be provided by the Seller
under Section 13.14. The Seller shall cooperate fully with the Purchaser and any
insurer or other indemnitor of the Purchaser in connection with any such Legal
Proceeding, at no expense to the Purchaser. After the Closing, the Seller shall
(a) cooperate fully with and shall assist the Purchaser in the enforcement of
the Acquired Companies' rights under the Business Commitments, and (b) perform
any other action reasonably requested by the Purchaser in order to fully vest
the Purchaser in the ownership of the Shares, the Company in the ownership of
the Transferred Seller Assets, and the Acquired Companies in the ownership of
any of the Equity Securities in any other Acquired Company free and clear of all
Liens, and to effect the Transfer of any Business License required due to the
transactions contemplated by this Agreement.
Section 11.5 Non-Competition.
As part of the consideration to be paid by the Purchaser to the Seller
pursuant to this Agreement, each of the Seller and Champps agrees to be bound
by, and agrees to cause each of its subsidiaries (other than EMA) to operate in
a manner consistent with, the following covenants on and after the Closing:
A. The Fuddruckers System. Each of the Seller and Champps acknowledges
that (i) the Company owns all right, title and interest in and to any and all
information, knowledge, recipes, trade secrets, plans, drawings, information
concerning sources of supply, confidential and proprietary information, know-how
and techniques that give the Company a competitive advantage (collectively, the
"Fuddruckers System"), and the Company has taken measures to protect the
Fuddruckers System and (ii) each of the Seller and Champps shall not communicate
or disclose any information regarding the Fuddruckers System to any Person,
unless such Person receives the Purchaser's prior written consent or such
information regarding the Fuddruckers System is then generally known to the
public or is disclosed in accordance with an order of a court of competent
jurisdiction or in a manner otherwise required by applicable Law.
B. Covenant Not to Compete. Absent the prior written consent of the
Purchaser, for a period of ten years following the Closing, none of the Seller
or Champps, shall: (1) directly or indirectly, own, manage, operate, finance,
join, or control, or participate in the ownership, management, operation,
financing or control of, or be associated as a partner or representative in
connection with, any restaurant business that is in the gourmet hamburger
business or whose method of operation or trade dress is similar to that employed
in the operation of the "Fuddruckers" restaurants; or (2) directly or indirectly
solicit, induce or attempt to induce any Person then employed by any Acquired
Company or the Purchaser (including without limitation any Company Employee or
Seller Employee who has entered the employ of the Purchaser or the Company at or
after the Closing) to enter the employ of the Seller or Champps, or any of their
respective Affiliates or any other Person. To the extent that any subsidiary of
the Seller or Champps has not, or does not, join in this Agreement, each of the
Seller or Champps shall cause each such subsidiary (other than the Acquired
Companies) to comply with the provisions of this Section 11.5. None of the
Seller or Champps, or any of their respective subsidiaries (other than the
Acquired Companies), shall dispose of any of its assets or of any Equity
Securities it may own in any other such subsidiary unless the purchaser or
transferee thereof agrees, in a document reasonably acceptable to the Purchaser,
to uphold the provisions of this Section 11.5.
The Fuddruckers trade dress is comprised of the "total image" of the
"Fuddruckers" restaurant including products, colors, sizes, shapes, color
combination, graphics, layout and floor plan and specifically such features (or
any of them in different combinations) as follows: An exposed glassed in butcher
shop for meal preparation and for cutting and processing beef; a beef showcase;
an exposed on-premises bakery for the preparation of bread and dessert products;
a bakery showcase for the bakery products; a fresh vegetable condiment island
with stacked vegetables; and interior green bands of neon lights and neon beer
signs. While it is understood that the use of some of these elements are used in
"casual dining" restaurants in general, the way in which several of these
elements are used in combination by the Company constitutes its distinctive
trade dress. This covenant is not intended to cover all "casual dining"
concepts.
The Purchaser acknowledges and agrees that, notwithstanding anything to
the contrary herein, the Seller is presently engaged in the operation of
"Champps Americana" restaurants and is hereby permitted to engage in the
operation thereof as currently conducted.
C. Limitations. (i) The Purchaser shall have the right, in its sole
discretion, to reduce the scope of any covenant in this Section 11.5 effective
immediately upon the Seller's receipt of written notice to such effect from the
Purchaser, and each of the Seller and Champps agrees that it shall comply
forthwith with any covenant as so modified, which shall be fully enforceable so
long as any such reduction does not add additional burden, limitation or
restriction on the Seller or Champps.
(ii) The restrictions contained in this Section 11.5 shall not
apply to the ownership, by the Seller or Champps, of less than a 5% legal or
beneficial ownership in outstanding Equity Securities of any publicly traded
corporation. The existence of any claim that the Seller or Champps may have
against the Purchaser or any Acquired Company, whether or not arising from this
Agreement, shall not constitute a defense by the Seller or Champps to the
enforcement by the Purchaser and any Acquired Company of the covenants in this
Section 11.5
D. Equitable Relief. The Seller and Champps, and the Purchaser, each
acknowledge that any breach of the covenants contained in Section 11.5(A) would
cause an irreparable injury to the Purchaser and that damages and remedies at
law for any breach of any such covenant would be inadequate, and the Seller and
Champps hereby accordingly consent to the entry of an order by any court of
competent jurisdiction for specific performance or for injunctive relief and
other equitable relief to prevent an actual, intended or probable breach of any
such covenant. Each of the Acquired Companies and the Purchaser may further
avail itself of any other legal or equitable rights and remedies that it may
have under this Agreement or otherwise.
E. Judicial Determinations. It is the desire and intent of the parties
to this Agreement that the provisions of this Section 11.5 be enforced to the
fullest extent permissible under the Laws and public policies applied in each
jurisdiction in which enforcement is sought. If any particular provision or
portion of this Section 11.5 shall be adjudicated to be invalid, ineffective or
unenforceable, this Section 11.5 shall be deemed automatically amended to delete
therefrom such provision or portion adjudicated to be invalid, ineffective or
unenforceable, such amendment to apply only with respect to the operation of
such provision in the particular jurisdiction with respect to which adjudication
is made.
Section 11.6 Confidentiality. Whether or not the Closing occurs, the
Purchaser and the Seller will each, and will each cause its Affiliates and
authorized representatives to, treat in confidence all documents, materials and
other information disclosed by or on behalf of the other party or any of their
respective Affiliates, whether before, during or after the course of the
negotiations leading to the execution of this Agreement or thereafter, and in
the preparation of agreements, schedules and other documents relating to the
consummation of the transactions contemplated hereby.
Section 11.7 Champps Successors. Champps and the Seller hereby jointly
and severally agree that not less than fifteen (15) days prior written notice of
(i) any proposed sale of the stock of Champps, (ii) any proposed sale of any
significant portion of the assets of Champps outside of the ordinary course, or
(iii) any merger, consolidation or similar transaction involving Champps, shall
be given by Champps or the Seller to the Purchaser. The Seller and Champps
jointly and severally covenant and agree that, as a condition to (A) any such
sale of assets or (B) any such sale of stock or merger, consolidation or similar
transaction after giving effect to which the purchaser of the stock or the
surviving or resulting Person would not become as a matter of law legally and
validly bound by this Agreement, including Section 13.14 and this Section 11.7,
the Seller or Champps, as applicable, shall cause the purchaser of such assets
or stock or the surviving or resulting Person in any such merger or other
transaction to (a) expressly assume, jointly and severally, for the benefit of
the Purchaser in a writing delivered to the Purchaser, all obligations of
Champps under this Agreement, and (b) undertake for the direct benefit of the
Purchaser to require any subsequent purchaser of such stock or assets or
subsequent surviving or resulting Person in any merger or other transaction
described in clause (A) or clause (B) above to in turn agree to the matters
contained in this Section 11.7 including with respect to any subsequent
transferee. It is further acknowledged that any breach of the covenants and
agreements contained in this Section 11.7 would cause an irreparable injury to
the Purchaser and that damages and remedies at law for any breach of any such
covenant would be inadequate, and the parties each hereby accordingly consent to
the entry of an order by any court of competent jurisdiction for specific
performance or for injunctive relief and other equitable relief to prevent an
actual, intended or probable breach of any such covenant or agreement. The
Purchaser may further avail itself of any other legal or equitable rights and
remedies that it may have under this Agreement or otherwise.
ARTICLE XII
Certain Tax Matters
Section 12.1 Obligation for Certain Taxes. All sales, use, transfer,
documentary, stamp, registration, conveyance, value added or other similar
Taxes, duties, fees, excises or governmental charges (including any penalties
and interest) imposed by any taxing jurisdiction, domestic or foreign, and all
recording or filing fees (other than the HSR Act filing fee which is governed by
Section 13.7), notarial fees and other similar costs of Closing with respect to
the Transfer of the Shares, the Assets and the Transferred Seller Assets (and
any Excluded Items, or Assets and Liabilities to be Transferred as provided in
Section 6.6(C)) will be borne by the Seller, and the Seller will, at its own
expense, file all necessary Tax Returns and other documentation with respect to
all of the foregoing.
Section 12.2 Section 338(h)(10) Elections; Allocation of Purchase
Price.
A. Section 338(h)(10) Elections. The Seller will join with the
Purchaser in making elections under section 338(h)(10) of the Code (and any
corresponding elections under state, local or foreign Law) (collectively, the
"Section 338(h)(10) Elections") with respect to the purchase and sale (including
any deemed purchase and sale) of the stock of each of the Acquired Companies.
The Seller will pay any Tax attributable to the making of the Section 338(h)(10)
Elections and will indemnify the Purchaser and the Acquired Companies from and
against any costs, expenses or other Liabilities (including any Taxes resulting
from this indemnification) arising out of any failure to pay such Tax. The
Seller will also pay any state, local or foreign Tax (and indemnify the
Purchaser and the Acquired Companies from and against any costs, expenses or
other Liabilities, including any Taxes resulting from this indemnification,
arising out of any failure to pay such Tax) attributable to any election under
state, local or foreign Law similar to the election available under section
338(g) of the Code (or which results from the making of an election under
section 338(g) of the Code) with respect to the purchase and sale (including any
deemed purchase and sale) of the stock of the Acquired Companies.
Indemnification under this Section 12.2(A) shall include only such Taxes
(together with related costs, expenses or other Liabilities) as result directly
from such elections as of the date on which the deemed asset purchase occurs,
and shall not include Taxes, if any, resulting from the secondary effects of
such elections, such as differences in depreciation deductions, loss of net
operating loss carry forwards and like matters.
B. Allocation of Purchase Price. The Seller and the Purchaser agree to
use their best good faith efforts to allocate, as soon as practicable following
the Closing, the Final Purchase Price and the Transferred Liabilities (plus
other relevant items) to the assets of the Acquired Companies for all Tax
purposes. The Seller, the Purchaser and the Acquired Companies will file all Tax
Returns (including amended returns and claims for refund) and information
reports in a manner consistent with such allocation.
Section 12.3 Tax Returns; Cooperation.
A. Tax Periods Ending on or Before the Closing Date. The Seller shall
prepare and file or cause to be prepared and filed all Tax Returns for the
Acquired Companies for all periods ending on or prior to the Closing Date which
are filed after the Closing Date including income Tax Returns with respect to
periods for which a consolidated, unitary or combined income Tax Return of the
Seller will include the operations of the Acquired Companies. The Seller shall
permit the Purchaser to review and comment on each such Tax Return described in
the preceding sentence prior to filing. The Seller shall pay all Taxes of the
Acquired Companies with respect to such periods.
B. Tax Periods Beginning Before and Ending After the Closing Date. The
Purchaser shall prepare and file or cause to be prepared and filed any Tax
Returns of the Acquired Companies for Tax periods which begin before the Closing
Date and end after the Closing Date. The Purchaser shall permit the Seller to
review and comment on each such Tax Return described in the preceding sentence
prior to filing. The Seller shall reimburse the Purchaser, within fifteen (15)
days after the date on which such costs are paid with respect to such periods,
for one half of the costs associated with the preparation and filing of such Tax
Returns. The Seller shall deliver to the Purchaser, at least three (3) business
days prior to the date on which such Taxes are required to be paid, that portion
of the Taxes which relate to the portion of such taxable period ending on the
Closing Date. For purposes of this Section 12.3(B), in the case of any Taxes
that are imposed on a periodic basis and are payable for a taxable period that
includes (but does not end on) the Closing Date, the portion of such Tax which
relates to the portion of such taxable period ending on the Closing Date shall
(i) in the case of any Taxes other than Taxes based upon or related to income or
receipts, be deemed to be the amount of such Tax for the entire taxable period
multiplied by a fraction the numerator of which is the number of days in the
taxable period ending on the Closing Date and the denominator of which is the
number of days in the entire taxable period, and (ii) in the case of any Tax
based upon or related to income or receipts be deemed equal to the amount which
would be payable if the relevant taxable period ended on the Closing Date. Any
credits relating to a taxable period that begins before and ends after the
Closing Date shall be taken into account as though the relevant taxable period
ended on the Closing Date. All determinations necessary to give effect to the
foregoing allocations shall be made in a manner consistent with prior practice
of the Acquired Companies.
C. Legal Proceedings. With respect to any Tax Returns for any Tax
periods, the party hereto responsible for the preparation and filing of such Tax
Return shall control the defense of any audits thereof or other Legal
Proceedings relating thereto, provided that the costs of any such defense shall
be shared by the parties hereto, pro rata based on their responsibility for
Taxes due under any such Tax Return, and provided further that no such audits or
other Legal Proceedings shall be settled in a manner which would adversely
affect the other party hereto without the prior written consent of such other
party, which consent shall not be unreasonably withheld.
D. Cooperation on Tax Matters. (i) The Purchaser, the Acquired
Companies and the Seller shall cooperate fully, as and to the extent reasonably
requested by the other party, in connection with the filing of Tax Returns
pursuant to this Section 12.3 and any audit, litigation or other proceeding with
respect to Taxes. Such cooperation shall include the retention and (upon the
other party's request) the provision of records and information which are
reasonably relevant to any such audit, litigation or other proceeding and making
employees available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder as provided in
Section 11.1.
(ii) The Purchaser and the Seller further agree, upon request,
to use their best efforts to obtain any certificate or other document from any
Governmental Entity or any other Person as may be necessary to mitigate, reduce
or eliminate any Tax that could be imposed (including, but not limited to, with
respect to the transactions contemplated hereby).
(iii) The Purchaser and the Seller further agree, upon
request, to provide the other party with all information that either party may
be required to report pursuant to Section 6043 of the Code and all Treasury
Regulations promulgated thereunder.
(iv) The Purchaser and the Seller further agree that Tax
Returns prepared pursuant to paragraphs A and B above shall not unreasonably, or
in a manner inconsistent with past practice of the Acquired Companies,
accelerate or defer any Tax items.
E. Tax Sharing Agreements. All tax sharing agreements or similar
agreements with respect to or involving any Acquired Company shall be terminated
as to the Acquired Companies as of the Closing Date. After the Closing Date, no
Acquired Company shall be bound by or have any Liability under any such tax
sharing agreement or similar agreement, including without limitation the Tax
Allocation Agreement.
F. Indemnification Against Taxes of Other Persons. The Seller agrees to
indemnify the Purchaser and the Acquired Companies from and against any costs,
expenses or other Liabilities (including any Taxes resulting from this
indemnification) that the Purchaser or the Acquired Companies may suffer
resulting from, arising out of, relating to, in the nature of, or caused by any
Liability of any of the Acquired Companies for Taxes of any Person other than
the Acquired Companies (i) under Treasury Regulations section 1.1502-6 (or any
similar provision of state, local or foreign Law), (ii) as a transferee or
successor, (iii) by contract, or (iv) otherwise. Such indemnification shall not
include Liability for Taxes of any Person who is an "affiliate" (within the
meaning of Section 1504(a) of the Code) of the Purchaser or who becomes an
"affiliate" (within the meaning of Section 1504(a) of the Code) of any of the
Acquired Companies on or after the Closing. Furthermore, such indemnification
shall not include any Liability for Taxes arising from or relating to any
transaction occurring after the Closing Date.
Section 12.4 Certain Definitions. For purposes of this Agreement, (i)
"Tax" or "Taxes" includes all federal, state, local, foreign and other taxes,
assessments, or governmental charges of any kind whatsoever including, without
limitation, income, franchise, capital stock, excise, property, sales, use,
service, service use, leasing, leasing use, gross receipts, value added, single
business, alternative or add-on minimum, occupation, real and personal property,
stamp, workers' compensation, severance, windfall, profits, customs, duties,
disability, registration, estimated, environmental (including Taxes under Code
Section 59A), transfer, payroll, withholding, employment, unemployment and
social security taxes, or other taxes of the same or similar nature, together
with any interest, penalties or additions thereon and estimated payments
thereof, whether disputed or not, (ii) "Tax Return" or "Tax Returns" includes
all returns, reports, information returns, forms, declarations, claims for
refund, statements and other documents (including any amendments thereto and
including any schedule or attachment thereto) in connection with Taxes that are
required to be filed with a Governmental Entity or other tax authority, or sent
or provided to another party under applicable Law, and (iii) all citations of
the Code or to the Treasury Regulations promulgated thereunder will include any
amendments or successor provisions thereto.
ARTICLE XIII
Miscellaneous
Section 13.1 Entire Agreement; Amendment. Each of the representations,
warranties, covenants and agreements of any party hereto contained in this
Agreement or the Disclosure Schedule or any certificate delivered by any party
hereto pursuant to this Agreement will be deemed incorporated and contained in
this Agreement and will constitute representations and warranties of such party.
This Agreement (including the Disclosure Schedule) supersedes any other
agreement, whether written or oral, that may have been made or entered into by
any party or any of their respective Affiliates (or by any director, officer or
representative thereof) with respect to the subject matter hereof, including
without limitation that certain letter from the Purchaser to the Seller dated
May 15, 1998 and agreed to by the Seller on June 3, 1998 and, as of the Closing
only, that certain confidentiality letter dated March 2, 1998. This Agreement
(including the Disclosure Schedule) constitutes the entire agreement of the
parties hereto with respect to the matters provided for herein and there are no
agreements or commitments by or among such parties or their Affiliates with
respect to the subject matter hereof except as expressly set forth in this
Agreement. No investigation or receipt of information (other than the
information contained in the Disclosure Schedule) by or on behalf of the
Purchaser will diminish any of the representations, warranties, covenants or
agreements of the Seller under this Agreement or the conditions to obligations
of the Purchaser under this Agreement. No investigation or receipt of
information by or on behalf of the Seller will diminish or obviate any of the
representations, warranties, covenants or agreements of the Purchaser under this
Agreement or the conditions to obligations of the Seller under this Agreement.
Section 13.2 Amendments. No amendment, modification or alteration of
the terms or provisions of this Agreement shall be binding unless the same shall
be in writing and duly executed by the Purchaser and the Seller.
Section 13.3 Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the parties hereto, and their respective
successors and permitted assigns. This Agreement may not be assigned by the
Seller, or by Champps without the Purchaser's prior written consent (subject to
Section 11.7). This Agreement is freely assignable by the Purchaser, and without
limiting the foregoing, the Purchaser may designate a nominee(s) or designee(s)
to acquire the Shares at the Closing, provided that the assignee, nominee or
designee of the Purchaser executes a document acknowledging that it accepts the
terms and provisions of this Agreement with the same force and effect as if it
had originally been the "Purchaser" hereunder provided that the Seller is
reasonably satisfied that such assignee, nominee or designee meets the net worth
and other requirements applicable to the Purchaser hereunder.
Section 13.4 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original for all
purposes and all of which together shall constitute one and the same instrument.
Section 13.5 Headings and Section References. The headings of the
sections and paragraphs of this Agreement are included for convenience only and
are not intended to be a part of, or to affect the meaning or interpretation of,
this Agreement. All section references herein, unless otherwise clearly
indicated, are to sections within this Agreement.
Section 13.6 Waiver. No failure or delay by either the Purchaser or the
Seller in exercising any right, power or privilege hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided are cumulative and not
exclusive of any rights or remedies otherwise provided by Law.
Section 13.7 Expenses. Except as otherwise specifically provided for in
this Agreement, the Seller and the Purchaser shall each pay all costs and
expenses incurred by it, or on its behalf, in connection with this Agreement and
the transactions contemplated hereby, including, without limitation, fees and
expenses of its own financial consultants, accountants and counsel. The
Purchaser and the Seller shall each pay one half of the HSR Act filing fee. The
Purchaser shall pay all fees and expenses related to filings with Governmental
Entities relating to Business Licenses which filings are required to be made
following the Closing due to a change in control of any Acquired Company due to
the Purchaser's acquisition of the Shares.
Section 13.8 Notices. Any notice, request, instruction or other
document to be given under this Agreement by any party hereto to any other party
shall be in writing and delivered personally, dispatched by facsimile
transmission, or sent by a nationally recognized overnight courier service or by
registered or certified mail, postage prepaid:
If to the Seller, to:
Unique Casual Restaurants, Inc.
55 Ferncroft Road
Danvers, MA 01923
Attn.: Donald C. Moore and
Donna L. Depoian, Esq.
Fax No.: (978) 774-1334
with a copy to:
Goodwin, Procter & Hoar
Exchange Place
Boston, MA 02109
Attn.: Ettore A. Santucci, Esq.
Fax No.: (617) 570-8150
If to the Purchaser, to:
King Cannon, Inc.
575 Lexington Avenue, Suite 410
New York, NY 10022
Attn: Michael R. Cannon
Fax No.: (212) 572-8369
with a copy to:
Goulston & Storrs, P.C.
400 Atlantic Avenue
Boston, MA 02110-3333
Attn.: Kitt Sawitsky, Esq.
Fax No.: (617) 574-4112
or at such other address as shall be specified by like notice. Any notice that
is delivered personally in the manner provided herein shall be deemed to have
been duly given to the Person to which it is directed upon actual receipt by
such Person (or its agent for notices hereunder). Any notice that is dispatched
by facsimile transmission shall be deemed to have been duly given to the Person
to which it is addressed upon transmission and confirmation of receipt. Any
notice that is addressed as provided herein and mailed by registered or
certified mail shall be conclusively presumed to have been duly given to the
Person to which it is addressed at the close of business, local time of such
party, on the fifth calendar day after the day it is so placed in the mail. Any
notice that is addressed as provided herein and sent by a nationally recognized
overnight courier service shall be conclusively presumed to have been duly given
to the Person to which it is addressed at the close of business, local time of
such Person, on the next business day following its deposit with such courier
service for next day delivery.
Section 13.9 Governing Law. This Agreement and the legal relations
among the parties hereto shall be governed and construed in accordance with the
substantive Laws of the Commonwealth of Massachusetts, without giving effect to
the principles of conflict of laws thereof.
Section 13.10 Severability. If any provisions hereof shall be held by
any court of competent jurisdiction to be illegal, void, or unenforceable, such
provisions shall be of no force and effect, but the illegality or
unenforceability shall have no effect upon, and shall not impair the
enforceability of, any other provision of this Agreement.
Section 13.11 "Knowledge". Whenever "to its knowledge," "known",
"aware" or a similar phrase is used to qualify a representation of the Seller,
the "knowledge" so referred to shall be deemed to be the actual knowledge of the
individual named on Schedule 13.11.
Section 13.12 Rights of Third Parties. Nothing expressed or implied in
this Agreement is intended or will be construed to confer upon or give any
Person other than the parties hereto and their respective successors and
permitted assigns any rights or remedies under or by reason of this Agreement or
any transaction contemplated hereby.
Section 13.13 Consent to Jurisdiction. Each of the Purchaser and the
Seller hereby irrevocably consents that any legal action or proceeding against
it under, arising out of, or in any manner relating to this Agreement or any
other agreement, document or instrument arising out of or executed in connection
with this Agreement may be brought in any state or federal court in the
Commonwealth of Massachusetts of competent jurisdiction. Each party, by the
execution and delivery of this Agreement, expressly and irrevocably consents and
submits to the personal jurisdiction of any of such courts in any such action or
proceeding. Each party hereby further irrevocably consents to the service of any
complaint, summons, notice or other process relating to any such action or
proceeding by delivery thereof to it by hand, by mail or by overnight express
delivery service in the manner provided for in Section 13.8 or by serving a copy
thereof on any registered agent for such party in such jurisdiction. Each party
hereby expressly and irrevocably waives any claim or defense in any action or
proceeding based on any alleged lack of personal jurisdiction, improper venue,
forum non conveniens, or any similar basis. Nothing in this Section 13.13 shall
affect or impair in any manner or to any extent the right of any party to
commence legal proceedings or otherwise proceed against any other party in any
jurisdiction or to serve process in any manner permitted by Law. The parties
further agree that the consents and waivers provided for in this Section 13.13
are personal and solely for the benefit of the parties to this Agreement and
their respective heirs and successors and are not intended for the benefit of,
and may not be invoked by, any other Person.
Section 13.14 Indemnification: Survival of Representations and
Warranties.
A. Indemnification by the Seller and Champps. The Seller and Champps
each hereby jointly and severally agrees to indemnify, defend and hold harmless
the Purchaser, each of the Acquired Companies, each of the Affiliates of the
Purchaser or any Acquired Company, and each of the employees, officers,
directors, stockholders, members, managers, partners and representatives of any
one of them, from and against any losses, assessments, Liabilities, claims,
obligations, damages, costs or expenses (including without limitation reasonable
attorneys' fees and disbursements) which arise out of or relate to:
(1) any misrepresentation in, breach of or failure to comply
with, any of the representations, warranties, undertakings, covenants or
agreements of the Seller or any Acquired Company or any Affiliate of any of them
contained in this Agreement, including without limitation in the Disclosure
Schedule, or in any certificate or other instrument or document executed and
delivered by the Seller or any Acquired Company or any Affiliate of any of them
pursuant to this Agreement; or
(2) any Environmental Matters (as hereinafter defined); or
(3) any Retained Liabilities; or
(4) obligations of the Seller under Section 2.4 with
respect to Lease Termination Amounts and Rent
Adjustment Amounts;
and all such losses, assessments, Liabilities, claims, obligations, damages,
costs or expenses so arising out of or relating to any of the foregoing clauses
(1) through (4), inclusive, of this Section 13.14(A), or the matters described
therein, are referred to hereinafter as the "Purchaser's Losses"; provided,
however, that the Seller shall not have any obligation so to indemnify the
Purchaser on account of any breach of any representation or warranty as
described in clause (1) above of this Section 13.14(A) unless and until the
Purchaser's Losses paid or incurred by the Purchaser on account of all such
breaches of representations and warranties exceed $100,000 in the aggregate, in
which event the Purchaser will be entitled to such indemnification in respect of
all such Purchaser's Losses, including without limitation such initial $100,000
of Purchaser's Losses.
As used above, the term "Environmental Matters" shall mean and include
each and all of the following:
(i) any Environmental Condition on, at, under, migrating from
or to, or relating to the Current Locations or the Other Locations or any
facilities or operations thereon, or otherwise relating in any way to the
Business, to the proportionate extent any such Environmental Condition was
caused or is alleged to have been caused by the acts, omissions, operations or
activities of the Seller and/or any of the Acquired Companies;
(ii) the generation, manufacture, refinement, transportation,
treatment, storage, handling, disposal, transfer, production, Release, Threat of
Release, or processing of any Hazardous Materials (collectively, "Hazardous
Materials Activities") on, at, under or relating to the Current Locations or the
Other Locations or any facilities or operations thereon, or otherwise relating
in any way to the Business, to the proportionate extent any such Hazardous
Materials Activities occurred or are alleged to have occurred during the period
of the Seller's ownership or operation of the Business and/or any of the
Acquired Companies, including, without limitation, off-site waste transportation
and disposal practices prior to the Closing; and
(iii) any Environmental Condition on, at, under, migrating
from or to, or relating to any Current Location or Other Location or any
facilities or operations thereon, or otherwise relating in any way to the
Business, and identified or referenced in the ESA for said Location listed on
Schedule 13.14 attached hereto or otherwise disclosed to the Purchaser by the
Seller.
The Seller acknowledges and agrees that the definition of
"Environmental Matters" above shall include each and all of the foregoing
clauses (i) through (iii), inclusive, regardless of whether any of the matters
described in such clauses (i) through (iii), inclusive, or any facts or
circumstances relating thereto, have been disclosed to the Purchaser in this
Agreement or in the Disclosure Schedule or otherwise, and that the
indemnification obligations with respect to Environmental Matters pursuant to
this Section 13.14 shall exist in full force and effect notwithstanding any such
disclosure. The Purchaser acknowledges that (i) the Seller's indemnification
obligations with respect to Environmental Matters shall not abrogate or
otherwise affect the Seller's ability to pursue third parties for damages and/or
contribution, and (ii) the Seller shall be entitled to bring third party claims
regarding Environmental Matters by or through the Purchaser (at the Seller's
sole cost and expense) provided that the Seller first obtains the Purchaser's
written consent (which consent shall be granted or denied at the sole but
reasonable discretion of the Purchaser).
B. Indemnification by the Purchaser. The Purchaser shall indemnify,
defend and hold harmless the Seller and its employees, officers, directors,
partners and representatives (other than any of the foregoing as may become
employees of any Acquired Company or the Purchaser at or after the Closing) from
and against any losses, assessments, Liabilities, claims, obligations, damages,
costs or expenses (including without limitation reasonable attorneys' fees and
disbursements) which arise out of or relate to: (i) any misrepresentation in,
breach of or failure to comply with, any of the representations, warranties,
covenants or agreements of the Purchaser contained in this Agreement, or in any
certificate or other instrument executed and delivered by the Purchaser pursuant
to this Agreement; or (ii) any Transferred Liabilities (and all such losses,
assessments, Liabilities, claims, obligations, damages, costs or expenses are
referred to hereinafter as the "Seller's Losses"); provided, however, that the
Purchaser shall not have any obligation so to indemnify the Seller on account of
any breach of any representation or warranty as described herein unless and
until the Seller's Losses paid, incurred, suffered or accrued by the Seller on
account of all breaches of representations and warranties exceed $100,000 in the
aggregate, in which event the Seller will be entitled to such indemnification in
respect of all such Seller's Losses, including without limitation such initial
$100,000 of Seller's Losses. The Purchaser's representations and warranties
under this Agreement, and its indemnification obligations arising from such
representations and warranties, shall survive the Closing and shall expire and
terminate on December 31, 2000. Any covenants or agreements of the Purchaser
hereunder, and any and all indemnification obligations relating thereto shall
survive the Closing indefinitely, unless earlier expiring in accordance with
their respective terms. Notwithstanding anything herein to the contrary, the
maximum aggregate liability of the Purchaser on account of any breach of any
representation or warranty described in this Section 13.14(B)(i) shall be
limited to $5,000,000; provided, however, that such limitation on the liability
of the Purchaser shall not apply to, and there shall be no cap or limit on the
liability of the Purchaser to the Seller under or in connection with any such
liability on account of any breach by the Purchaser of any of its covenants or
agreements hereunder or on account of its indemnification obligations pursuant
to this Section 13.14 (except for those indemnification obligations specifically
referenced in the first clause of this sentence).
C. Survival. The Seller's representations and warranties under this
Agreement, and its indemnification obligations arising from such representations
and warranties, shall survive the Closing and shall expire and terminate on
December 31, 2000, except for those representations and warranties contained in
(a) Section 4.1(L)(iii) which shall survive the Closing and shall expire and
terminate on December 31, 2003, (b) Section 4.1(M) and Section 4.1(P) which
shall survive the Closing and shall expire and terminate on the expiration of
the applicable statute of limitations with respect to any applicable Purchaser's
Losses, and (c) Section 4.1(A) with respect to the due organization, valid
existence and good standing of the Seller and any Acquired Company as well as
with respect to the matters referred to in the last two sentences thereof,
Section 4.1(B) (except for clause (iv) and the last sentence thereof), and
Section 4.1(C) which shall survive the Closing indefinitely. Any covenants or
agreements of the Seller hereunder, and any and all indemnification obligations
relating thereto shall survive the Closing indefinitely, unless earlier expiring
in accordance with their respective terms. The Seller's indemnification
obligations with respect to covenants and the items described in Section
13.14(A)(2), Section 13.14(A)(3), and Section 13.14(A)(4) shall survive
indefinitely.
D. Indemnification Liability. Notwithstanding anything herein to the
contrary, the maximum aggregate liability of the Seller on account of any breach
of any representation or warranty described in Section 13.14(A)(1) shall be
limited to the amount of the Final Purchase Price. Such limitation on the
liability of the Seller shall not apply to, and there shall be no cap or limit
on the liability of the Seller to the Purchaser under or in connection with any
liability on account of any breach by the Seller of any of its covenants or
agreements hereunder or on account of indemnification obligations pursuant to
this Section 13.14 (except for those indemnification obligations specifically
referenced in the first clause of this Section 13.14(D)), provided that it shall
be a condition to the Purchaser recovering any amount of Purchaser's Losses in
excess of the Final Purchase Price that the Purchaser transfers to the Seller
full ownership and control of the Shares, the Assets and the Transferred Seller
Assets (to the extent then owned by the Purchaser and the Acquired Companies),
the Acquired Companies and the Business in such a manner as to rescind the
transactions contemplated hereby and the Seller pays to the Purchaser in
connection with such transfer an amount equal to (i) the Final Purchase Price
plus (ii) all additional investments made in the Acquired Companies following
the Closing plus (iii) an amount equal to an internal rate of return equal to
25% on the sum of items (i) and (ii), unless the Seller in its discretion
declines to have such transfer-back and rescission effected and elects to pay to
the Purchaser all such Purchaser's Losses regardless of this proviso.
E. Procedures. (i) Any of the Purchaser's Losses may first be
satisfied, at the Purchaser's election, from the General Escrow Amount, and any
interest earned thereon, to the extent sufficient. In the event that any Legal
Proceeding shall be threatened or instituted in respect to which indemnification
may be sought by one party hereto from another party under the provisions of
this Section 13.14, the party seeking indemnification ("Indemnitee") shall,
reasonably promptly after acquiring actual knowledge of such threatened or
instituted Legal Proceeding, cause written notice in reasonable detail of such
threatened or instituted Legal Proceeding and which is covered by this
indemnification, to be forwarded to the other party from which indemnification
is being sought ("Indemnitor"), provided, however, that the failure to provide
such notice as of any particular date as aforesaid will not affect any rights to
indemnification hereunder.
(ii) In the event of the initiation of any Legal Proceeding
against an Indemnitee by a third party, the Indemnitor shall have the absolute
right after the receipt of the notice described in Section 13.14(E)(i), at its
option and at its own expense, to be represented by counsel of its choice, and
(subject to Section 13.14(E)(iii)) to defend against, negotiate, settle or
otherwise deal with any Legal Proceeding or demand that relates to any
Purchaser's Losses or Seller's Losses, as the case may be, indemnified against
hereunder, and, in such event, the Indemnitee will reasonably cooperate with the
Indemnitor and its representatives in connection with such defense, negotiation,
settlement or dealings (and the Indemnitee's costs and expenses arising
therefrom or relating thereto shall constitute Purchaser's Losses, if the
Indemnitee is the Purchaser, or Seller's Losses, if the Indemnitee is the
Seller); provided, however, that the Indemnitee may directly participate in any
such Legal Proceeding so defended with counsel of its choice at its own expense,
except that, if the Indemnitor fails to take reasonable steps necessary to
defend diligently such third party claim within 15 business days after receiving
written notice from the Indemnitee that the Indemnitee reasonably believes the
Indemnitor has failed to take such steps, the Indemnitee may assume its own
defense, and, in such event (a) the Indemnitor will be liable for all
Purchaser's or Seller's Losses, as the case may be, reasonably paid or incurred
in connection therewith, and (b) the Indemnitor shall, in any case, reasonably
cooperate, at its own expense, with the Indemnitee and its representatives in
connection with such defense.
(iii) Without the prior written consent of the Indemnitee,
which shall not be unreasonably withheld, the Indemnitor will not enter into any
settlement of any third party claim which would lead to Liability or create any
financial or other obligation on the part of the Indemnitee for which the
Indemnitee is not provided indemnification hereunder or which would otherwise
adversely affect the Assets, the Transferred Seller Assets, the Business, any
Acquired Company or the Purchaser. If a firm offer is made to settle a third
party claim without leading to Liability or the creation of a financial or other
obligation on the part of the Indemnitee for which the Indemnitee is not
provided indemnification hereunder and the Indemnitor desires to accept and
agree to such offer, the Indemnitor will give written notice to the Indemnitee
to that effect. If the Indemnitee notifies the Indemnitor that it does not
consent to such firm offer within 10 calendar days after its receipt of such
notice from the Indemnitor, the Indemnitee may continue to contest or defend
such third party claim and, in such event, the maximum Liability of the
Indemnitor as to such third party claim will not exceed the amount of such
settlement offer, plus the Purchaser's Losses or Seller's Losses, as the case
may be, reasonably paid or incurred by the Indemnitee through the end of such
10-calendar day period.
(iv) After any final judgment or award shall have been
rendered by a Governmental Entity of competent jurisdiction and the time in
which to appeal therefrom has expired, or a settlement shall have been
consummated, or the Indemnitee and the Indemnitor shall have arrived at a
mutually binding agreement with respect to each separate matter alleged to be
indemnified by the Indemnitor hereunder, the Indemnitee shall forward to the
Indemnitor notice of any sums due and owing by it with respect to such matter,
and the Indemnitor shall pay all of the sums so owing to the Indemnitee by wire
transfer or certified or bank cashier's check within 30 days after the date of
such notice. Any and all Purchaser's Losses or Seller's Losses that are costs
and expenses incurred in connection with a third party claim other than those
described in the preceding sentence (including Purchaser's Losses or Seller's
Losses incurred in the absence of any threatened or pending Legal Proceeding, or
Purchaser's Losses or Seller's Losses incurred after any such Legal Proceeding
has been threatened or instituted but prior to the rendering of any final
judgment or award in connection therewith), shall be paid by the Indemnitor on a
current basis, and, without limiting the generality of the foregoing, the
Indemnitee shall have the right to invoice the Indemnitor for such Purchaser's
Losses or Seller's Losses, as the case may be, as frequently as it deems
appropriate, and the amount of any such Purchaser's Losses or Seller's Losses,
as the case may be, which are described or listed in any such invoice shall be
paid to the Indemnitee, by wire transfer or certified or bank cashier's check,
within 30 days after the date of such invoice.
F. Certain Limitations. (i) The amount of any Purchaser's Losses or
Seller's Losses 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 Purchaser's Losses or Seller's
Losses as the case may be. Any Indemnitor hereunder shall be subrogated to the
rights of the Indemnitee upon payment in full of the amount of the relevant
Purchaser's Losses or Seller's Losses as the case may be. 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 any Purchaser's
Losses or Seller's Losses as the case may be after the full amount of such
Purchaser's Losses or Seller's Losses has been paid by an Indemnitor or after an
Indemnitor has made a partial payment of such Purchaser's Losses or Seller's
Losses and the amount received from the third party exceeds the remaining unpaid
balance of such Purchaser's Losses or Seller's Losses, then the Indemnitee shall
promptly remit to the Indemnitor the excess (if any) of (a) the sum of the
amount theretofore paid by the Indemnitor in respect of such Purchaser's Losses
or Seller's Losses plus the amount received from the third party in respect
thereof, less (b) the full amount of such Purchaser's Losses or Seller's Losses.
(ii) The amount of any Purchaser's Losses or Seller's Losses or any
other amounts payable or reimbursable by one party to the other under this
Agreement shall be increased or decreased to take account of any net Tax cost
incurred or any net Tax benefit realized by the Indemnitee.
(iii) Notwithstanding any other provisions of this Agreement (a) the
Purchaser shall not have any right to make claims for indemnification pursuant
to this Section 13.14 with respect to any matter which is the basis of any
economic adjustment pursuant to Section 2.2(B) or Section 2.3(C), it being
understood that such adjustments constitute the Purchaser's sole recourse and
remedy with respect to such matters to the exclusion of this Section 13.14, and
(b) neither the Purchaser nor the Seller shall have any right to make claims for
indemnification pursuant to this Section 13.14 on account of breaches of
representations and warranties in this Agreement after the period for which such
representations or warranties survive pursuant to Section 13.14(B) and Section
13.14(C). If the Closing occurs, the indemnification rights of the parties
provided in this Section 13.14 and in the Escrow Agreement constitute the
exclusive remedy of the parties with respect to all matters described in this
Agreement (except for the matters described in Article II, Section 6.7, Section
6.9, Section 6.18, Article XI and Article XII for which the parties shall be
entitled to specific performance and all other remedies available at law or
equity for the breach of the matters described in such Sections and Articles).
Section 13.15 Arbitration. Any and all disputes between the parties
that arise out of or relate to Article II or Section 13.14 (other than a claim
based on a breach of a representation or warranty except for a claim for such
breach under the Escrow Agreement to which arbitration shall apply) of this
Agreement, or that arise out of or relate to the Escrow Agreement, and which
cannot be amicably settled, shall be determined solely and exclusively by
arbitration by a single arbitrator (the "Arbitrator") who has either been
appointed jointly by (a) the Purchaser and the Seller, or (b) an arbitrator
appointed by the Purchaser and an arbitrator appointed by the Seller. If the
Arbitrator has not been appointed within ten business days of the date of notice
of any such dispute having been given by a party hereto the other party, the
Arbitrator shall be appointed by the President of the AAA. The Arbitrator shall
be an individual with experience in the field which is the subject matter which
he or she is being asked to determine. Any arbitration pursuant to this Section
13.15 shall be administered by the 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 Proceeding hereunder for which arbitration is
applicable under this Section 13.15. Judgment on the award rendered by the
Arbitrator may be entered in any court having jurisdiction thereof. All fees and
expenses of the Arbitrator shall be paid by the non-prevailing party.
Section 13.16 Certain Employment Matters.
A. Company Employees. As of and immediately following the Closing all
Company Employees shall remain employees of the applicable Acquired Company on
the same terms and conditions on which they are employed by such Acquired
Company immediately prior to the Closing. The Acquired Companies shall not
assume the Employee Benefit Plans of Seller, but Purchaser shall use reasonable
commercial efforts, to the extent consistent with the operating plans for the
Business after the Closing, to establish comparable benefit arrangements for the
Acquired Companies (other than any stock purchase or other incentive or
retirement plan except for a so-called "401K" plan) to be in force immediately
following the Closing; provided, however, that after the Closing, the Acquired
Companies shall be liable for all severance and all accrued vacation of the
Company Employees as of the Closing Date, and the Seller shall have no
reimbursement or other liability to the Purchaser, the Acquired Companies or the
Company Employees after the Closing on account thereof. The obligations of the
Acquired Companies under the second sentence of this Section 13.16(A) to
establish comparable benefit arrangements shall only survive for six months
following the Closing. The employee benefit plans, programs and policies
established by Purchaser and/or the Acquired Companies after the Closing shall
credit the Company Employees covered thereby with all service with Seller or the
Acquired Companies (or any predecessor or affiliated employers) to the extent
such service would be recognized by Seller prior to the Closing for all purposes
under its Employee Benefit Plans, to the same extent as if such service were
service with Purchaser and/or the Acquired Companies, and in the case of any
group medical or dental insurance or other health care plan, the Company
Employees shall be covered under such plan without regard to any pre-existing
condition restrictions, but only to the extent such condition did not also apply
under Seller's health care plan, and to the extent feasible, with credit for
payments made during the current plan year as to annual maximum out-of-pocket
co-payments and deductibles. Nothing contained in this Agreement shall confer
upon any Company Employee any right with respect to continuance of employment by
the applicable Acquired Company, nor shall anything herein interfere with the
right of the Seller, the Purchaser and the Acquired Companies to terminate the
employment of any of the Company Employees at any time, with or without cause,
or restrict the Purchaser or the Acquired Companies in the exercise of their
independent business judgment in modifying any of the terms and conditions of
the employment of the Company Employees. No provision of this Agreement shall
create any third party beneficiary rights in any Company Employee, or any
beneficiary or dependents thereof, with respect to compensation, terms and
conditions of employment and benefits. Seller will provide Purchaser, in a
timely manner, any information with respect to any Company Employee's employment
with and compensation from Seller or the Acquired Companies or rights or
benefits under any employee benefit plan of Seller which Purchaser may
reasonably request.
B. Seller Employees. Schedule 13.16 sets forth the names of all current
employees of Seller (including employees on sick leave and vacation, but
excluding the Chief Executive Officer of Seller) who spend any of their working
time performing services relating to the Business (the "Seller Employees").
Unless Purchaser otherwise elects with Seller's consent (not to be unreasonably
withheld) prior to the Closing, all Seller Employees shall be offered employment
by the Company as of the Closing, which offers shall be for wages or salaries
which are reasonably similar to such employees' wages or salaries immediately
prior to the Closing. Seller agrees to fully cooperate with Purchaser in
connection with such offer of employment by Purchaser and will not take any
action, directly or indirectly, to prevent any Seller Employee to whom the
Purchaser offers employment from becoming employed by the Company from and after
the Closing. After the Closing, all Seller Employees who shall have accepted the
Company's offer of employment pursuant to the foregoing sentence shall be
treated for all purposes as if they were "Company Employees", including without
limitation all provisions of Section 13.16(A) hereof, except as otherwise
expressly set forth in Section 13.16(C). Effective as of the Closing, Seller
shall (i) terminate the employment of each Seller Employee who has been offered
employment by the Company as of the Closing in accordance with this Section
13.16(B) and has accepted such employment (a "Rehired Seller Employee"); and
(ii) in its sole discretion, either retain any Seller Employee who has been
offered employment by the Company as of the Closing in accordance with this
Section 13.16(B) and has not accepted such employment (a "Declining Seller
Employee") or terminate such Declining Seller Employee's employment, whereby
Seller shall be liable for all severance and accrued vacation of such Declining
Seller Employee as of the Closing Date, and the Purchaser and the Acquired
Companies shall have no reimbursement or other liability to the Seller or such
Declining Seller Employee as of and after the Closing on account thereof.
C. Shared Employees. An asterisk in Schedule 13.16 next to their names
indicates those Seller Employees who, if they become Rehired Seller Employees,
Purchaser will cause to be made available to Seller by the Company to provide
services after the Closing for the benefit of Seller and its remaining
subsidiaries and business in accordance with this Section 13.16(C) and the
Transitional Services Agreement (the "Shared Employees"). Notwithstanding their
status as "Shared Employees", except as otherwise, expressly set forth in this
Section 13.16(C) such employees shall be for all purposes "Rehired Seller
Employees". Seller shall have the right to receive from the Shared Employees,
and Purchaser and the Company shall take all commercially reasonable actions to
cause the Shared Employees so long as they are employed by any Acquired Company
to provide to Seller, services in the categories and for the maximum terms
specifically set forth in the Transitional Services Agreement, (the "Shared
Employee Services"). Approximately 50% of each Shared Employee's normal business
hours will be devoted to duties on behalf of Seller. Each such Shared Employee's
duties hereunder will consist of substantially the same duties as were performed
by such Shared Employee during the six-month period prior to the Closing subject
to (i) such minor modifications as shall be necessary to reflect the
consummation of the transactions contemplated by this Agreement or as to which
Seller shall reasonably request, and (ii) the reasonable needs of the Company as
determined in its reasonable discretion. It is understood and agreed that
Seller, and not Purchaser, shall be responsible for directing and supervising
the Shared Employees with respect to the performance of Shared Employee
Services. Purchaser and the Company may not terminate any of the Shared Employee
Services prior to the earlier of (i) the maximum terms set forth in the
Transitional Services Agreement or (ii) the date on which Seller elects to
terminate the applicable Shared Employee Services as provided in the
Transitional Services Agreement, unless such termination is "for cause" or
unless in each case Purchaser gives Seller five business day's prior written
notice of any such termination by an Acquired Company without cause and an
opportunity to offer employment to the terminated Shared Employee
notwithstanding the restrictions set forth in Section 11.5 hereof. Seller agrees
to compensate the Company for Shared Employees Services at the rate of 50% of
the sum of (i) annual salary (initially as of the Closing and as may be revised
during the Company's standard employee merit review process) and (ii)
attributable benefits and direct costs related to such Shared Employee. Seller
shall have no employer-employee relationship with any Rehired Seller Employees.
If a Shared Employee is terminated by Purchaser or the Company within the 12
months immediately following the Closing, Seller and Purchaser agree to share
equally in any severance obligation which becomes payable to such terminated
Shared Employee.
[Signatures on Next Page]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first written above.
KING CANNON, INC.
By:
Title:
UNIQUE CASUAL RESTAURANTS, INC.
By:
Title:
Champps Entertainment, Inc. hereby joins in this Agreement for the
purposes of the representations, warranties, covenants and obligations contained
in Section 4.1(R), Section 4.1(W), Section 11.5, Section 11.7, and Section
13.14, and hereby agrees to be bound by each and all of the provisions thereof
as a direct obligor thereunder:
CHAMPPS ENTERTAINMENT, INC.
By:
Title:
<PAGE>
Exhibit 3.2(A)(21)
TITLE COMMITMENTS
StoreNo. Location
1 San Antonio, Texas
8 Clearlake, Texas
9 Normandy, Texas
13 Kirkwood, Texas
24 Woodland, Texas
26 Kirkland, Texas
90 Mattison, Illinois
<PAGE>
Schedule 6.11
Matters to be Addressed in Transitional Services Agreement
1. Data Processing: The Seller shall cause Restaurant Consulting Services,
Inc. ("RCS") to provide to the --------------- Purchaser, until June 30,
1999, such data processing and consulting services as RCS is currently
obligated to provide to the Seller in connection with the Seller's conduct
of the Business under and pursuant to that certain Professional Services
Contract (the "RCS Contract") dated July 1, 1997 between the Seller and
RCS. In consideration of the foregoing, the Purchaser, or at the election
of the Purchaser the Company, shall pay to the Seller an amount equal to
$40,000 per month during this term (prorated for a portion of any month).
The Seller has no liability or responsibility for RCS' performance of the
foregoing services and all services not covered by the RCS Contract may be
contracted for directly between the Purchaser or the Company and RCS at the
Purchaser's sole cost and expense.
2. Head Office: The Seller shall provide to the Purchaser 10,000 square feet
of space in the Head Office until the termination of the term of the Lease
applicable to the Head Office. In consideration of the foregoing, the
Purchaser, or at the Purchaser's election the Company, shall pay to the
Seller rent equal to $20 per square foot (which amount shall constitute the
Purchaser's sole monetary responsibility thereunder for rent, additional
rent or otherwise) on the 10,000 square feet provided (whether or not
actually used by the Purchaser). The Purchaser may terminate the foregoing
arrangement at any time on 120 days' prior notice to the Seller.
3. Personnel: Details to implement Section 13.16.
4. Office Furniture and Equipment: The Transferred Seller Assets shall include
office furniture and equipment for 29 employees. The Seller shall Transfer
to the Purchaser, or at the election of the Purchaser the Company, any
office furniture and equipment used by any shared personnel (in excess of
29) who are eventually hired by the Purchaser or the Company.
5. Boston Restaurant: The Seller shall manage and operate the Boston
Restaurant, shall be fully responsible for all Liability relating to
Company Employees at the Boston Restaurant, and shall assume the Employment
Agreement dated as of June 28, 1998 between the Company and James L.
Boland, all on terms and conditions to be mutually acceptable to the
Purchaser and the Seller.
Exhibit 10.20
EMPLOYMENT CONTRACT
This EMPLOYMENT CONTRACT (the "Contract") is made and entered into as
of the __ day of August, 1998, by and between UNIQUE CASUAL RESTAURANTS, INC., a
Delaware corporation, having its principal place of business at One Corporate
Place, 55 Ferncroft Road, Danvers, Massachusetts 01923 (hereinafter referred to
as "Employer" or the "Company"), and DONALD C. MOORE whose business address is
at One Corporate Place, 55 Ferncroft Road, Danvers, Massachusetts 01923
(hereinafter referred to as "Employee").
WHEREAS, Employer is the parent of two principal wholly owned
subsidiaries (the "Principal Subsidiaries"), Fuddruckers, Inc., a Texas
corporation ("Fuddruckers"), and Champps Entertainment, Inc., a Minnesota
corporation ("Champps") (the term "Employer" to include, as the context
requires, one, some, all or none of the Principal Subsidiaries, as well as any,
all or none of the direct and indirect subsidiaries of the Principal
Subsidiaries (the Principal Subsidiaries and such other subsidiaries
collectively the "Subsidiaries")); and
WHEREAS, Employee is currently employed by Employer in the capacity of
its Acting Chief Executive Officer and Chief Financial Officer; and
WHEREAS, Employee possesses an intimate knowledge of the business and
affairs of Employer, its policies, methods, personnel and problems; and
<PAGE>
WHEREAS, the Board of Directors of Employer recognizes that Employee's
contribution to the growth and success of Employer and the Subsidiaries has been
substantial and desires to assure Employer and the Subsidiaries of Employee's
continued employment in an executive capacity and to compensate him therefor;
and
WHEREAS, Employer has entered into a certain definitive agreement
pursuant to which it has agreed to sell Fuddruckers, and Employer recognizes
that Employee's supervision of this project is instrumental to its successful
completion; and
WHEREAS, Employer acknowledges that Employee's previous
responsibilities as Chief Financial Officer will be significantly diminished
after the completion of the sale of Fuddruckers; and
WHEREAS, Employee is desirous of committing himself to serve Employer
and the Subsidiaries on the terms herein provided.
NOW, THEREFORE, for and in consideration of the mutual covenants herein
contained and the mutual benefits to be gained by the performance thereof, the
parties hereto hereby agree as follows:
1. EMPLOYMENT. Employer hereby employs Employee and Employee hereby
accepts employment with Employer on the terms and conditions hereinafter set
forth.
2. TERM OF EMPLOYMENT. The commencement date ("Commencement Date") of
this Contract shall be August __, 1998. Subject to the provisions for
termination hereinafter provided, the term (the "Initial Term") of this Contract
shall be for a period of one (1) year from the Commencement Date; provided,
however, that the term hereof shall automatically extend (the "Extended Term")
for periods of one (1) year commencing on the first anniversary of the
Commencement Date and on each subsequent anniversary date thereafter, unless
this Contract is terminated in accordance with the terms hereof. The Initial
Term and Extended Term are hereinafter referred to as the "Employment Period".
<PAGE>
3. DUTIES OF EMPLOYEE. Employee is hereby employed by Employer as a
full-time employee in the capacity of Acting Chief Executive Officer and Chief
Financial Officer of Employer, and his duties as such shall include, but not be
limited to, those normally performed by a senior executive officer of equal rank
in the restaurant industry. Employee shall comply with all of the policies,
standards, and regulations of Employer now or hereafter promulgated. Employer
shall have the right to assign Employee other managerial duties in addition to
the duties originally assigned and specified above; provided, however, in no
event shall Employee be assigned, without Employee's consent, duties other than
those reasonably required of an Acting Chief Executive Officer and Chief
Financial Officer of a restaurant company. In the event Employee assumes and
performs duties beyond those contemplated hereby to be within the scope of his
employment, and those that he is required to perform hereunder, it is
anticipated his compensation will be equitably adjusted (but in no event
adjusted downward). Employee is employed by Employer on a full-time basis and
Employee shall be required to devote his best efforts and business judgment,
productive time, ability and attention to the business of Employer and the
Subsidiaries during the Employment Period. During the Employment Period,
Employee shall not be engaged in any other business activity whether or not such
business activity is pursued for gain, profit or other pecuniary advantage that
will significantly interfere with his duties as Acting Chief Executive Officer
and Chief Financial Officer of Employer. With prior approval of the Board of
Directors of Employer, Employee may serve on the boards of directors of other
companies.
<PAGE>
4. COMPENSATION. For all services rendered by Employee to Employer and
the Subsidiaries under this Contract, Employee shall receive the following
compensation:
(a) As compensation for services rendered under this Contract
for the term commencing as of the date hereof, Employee shall receive an initial
annual base salary of Two Hundred Fifty Thousand Dollars ($250,000) (the "Base
Salary"), payable in periodic installments in accordance with Employer's usual
practice for its senior executives. During the Employment Period, the Base
Salary will be subject to annual review by the Board of Directors of Employer
and if warranted, adjusted upward to reflect external conditions, Employee's
performance, and changing size and nature of Employer's operations.
(b) Annually and from time to time, as additional incentive
compensation from Employer to Employee, Employer, within its sole discretion,
may pay to Employee a bonus or additional compensation in an amount determined
by the Board of Directors of Employer.
5. VACATIONS, FRINGE BENEFITS, REIMBURSEMENT OF BUSINESS EXPENSES.
Employee shall be entitled to a paid vacation of three weeks per year in
accordance with the vacation policy established by Employer. The times for such
vacations shall be mutually agreed upon by Employee and Employer but such
vacation shall not be cumulative from year to year during the Employment Period.
No payment shall be made for unused vacation time, unless otherwise required by
law.
As a full-time employee of Employer, Employee shall be entitled to
participate in such other fringe benefits that are formally adopted by Employer
from time to time for and on behalf of all of its full-time employees. Employee
shall be reimbursed for reasonable travel and other expenses incurred by
Employee in promoting the business of Employer and the Subsidiaries and
performing his obligations hereunder in accordance with the policy adopted by
the Employer.
<PAGE>
6. TRADE SECRETS. During the Employment Period, Employee will have
access to and become familiar with Employer's trade secrets, recipes, business
concepts, marketing and related records and specifications, which are owned by
Employer and which are regularly used in the operation of the business of
Employer and the Subsidiaries (collectively, "Confidential Information").
Employee hereby agrees he shall not disclose any Confidential Information,
directly or indirectly, nor use it in any way, either during the Employment
Period or at any time thereafter, except as required in the course of his
employment with Employer and the Subsidiaries. All files, records, documents,
drawings, specifications, equipment and other similar items relating to the
business of Employer and the Subsidiaries shall remain the sole and exclusive
property of Employer and the Subsidiaries and shall not be removed from the
premises of Employer under any circumstances whatsoever without the prior
written consent of Employer and shall not be reproduced or copied.
7. TERMINATION OF CONTRACT BY EMPLOYER.
(a) Termination for Cause. This Contract may be terminated by
Employer at any time for Cause, as hereinafter defined. For the purposes hereof,
the term "Cause" shall include: (1) Employee's theft from or fraud upon
Employer; (2) Employee's conviction of a felony; (3) Employee's willful
violation of terms and conditions hereof; (4) Employee's willful disregard or
neglect in the duties he is required to perform under the terms hereof; or (5)
Employee's willful and demonstrated unwillingness to prosecute and perform such
duties to the extent deemed reasonably necessary and advisable, which duties
encompass the duties reasonably required of a Acting Chief Executive Officer and
Chief Financial Officer of a restaurant company. For purposes of clauses (3),
(4) and (5) above, no act, or failure to act, on the Employee's part shall be
deemed "willful" unless done, or omitted to be done, by Employee without
reasonable belief that his act, or failure to act, was in the best interest of
Employer. Notwithstanding anything in this Agreement to the contrary, Employee
shall not be deemed to have been terminated for Cause unless and until there
shall have been delivered to him a copy of a resolution duly adopted by the
Board of Directors at a meeting of the Board of Directors called and held for
such purpose (after reasonable notice to Employee and an opportunity for him,
together with his counsel, to be heard before the Board of Directors), finding
that, in the good faith opinion of the Board of Directors, Employee was guilty
of the conduct enumerated in any of clauses (1) through (5) above under the
definition of Cause and specifying the particulars thereof in detail. Upon such
Cause, Employer may, at its option, terminate this Contract by giving written
notice (a "Notice of Termination") to Employee, which termination is without
prejudice to any other remedy to which Employer may be entitled, and such
termination shall be effective as of the date said written notice is received by
Employee.
<PAGE>
(b) Termination Without Cause. In the event Employer shall
terminate this Contract without Cause, as hereinabove defined, by Notice of
Termination to Employee, all obligations of Employee hereunder shall terminate
upon receipt of such Notice of Termination. Nothing in this Contract shall be
construed as giving Employee the right to be retained as an employee of Employer
or as impairing the rights of Employer to terminate Employee's services.
8. TERMINATION OF CONTRACT BY EMPLOYEE. Employee may terminate his
employment hereunder (1) for Good Reason, or (2) at any time by giving Notice of
Termination to Employer at least forty-five (45) days prior to the effectiveness
of such termination. For purposes of this Contract, "Good Reason" shall mean (a)
any assignment to Employee of any duties other than those contemplated by, or
any limitation of the powers of Employee in any respect not contemplated by,
this Contract, (b) any removal of Employee from or any failure to elect or
re-elect Employee to the position of Acting Chief Executive Officer or Chief
Executive Officer of Employer, except in connection with termination of
Employee's employment for Cause, or (c) a reduction in Employee's rate of
compensation or a reduction in Employee's fringe benefits; provided, however,
that Employer shall have at least thirty (30) days to remedy the existence of
any Good Reason for termination by Employee of which it is made aware, whether
in a Notice of Termination or otherwise; and provided, further, that in the
event of a Change of Control described in clause (3)(A) or (3)(B) of the
definition thereof below relating to Champps, "Good Reason" shall not be deemed
to have arisen upon and solely by reason of such Change of Control if both (i)
the surviving or resulting entity in the merger or consolidation or the
purchaser ("Acquiror") assumes in full this Contract with the same effect as if
Acquiror were the Employer hereunder and (ii) Employee chooses to accept
employment with Acquiror and such employment is on terms and conditions
(including duties and responsibilities, position, compensation and fringe
benefits) equivalent in all material respects to those provided hereunder (it
being understood and agreed that after such Change of Control any of the actions
described in clauses (a), (b) or (c) above by Acquiror shall give rise to "Good
Reason").
<PAGE>
9. COMPENSATION UPON TERMINATION.
(a) Termination by Employer for Cause or By Employee without
Good Reason. If Employee's employment shall be terminated by Employer for Cause
or termination by Employee without Good Reason, Employer shall pay Employee that
portion of his Base Salary which accrued through the date of termination at the
rate in effect at the time Notice of Termination is given and Employer shall
have no further obligations to Employee under this Contract.
(b) Termination by Employer Without Cause or by Employee with
Good Reason. If Employer shall terminate Employee's employment without Cause or
Employee shall terminate his employment for Good Reason, then: (i) Employer
shall pay Employee that portion of his Base Salary which accrued through the
date of termination at the rate in effect at the time Notice of Termination is
given; (ii) in lieu of any further salary payments to Employee for periods
subsequent to the date of termination, Employer shall pay as liquidated damages
to Employee an amount equal to two (2) times the annual Base Salary in effect at
the time Notice of Termination is given, to be paid in the normal pay periods of
the Company over the two-year period following the date of termination;
provided, however, that if termination occurs within twelve months after a
Change in Control (as defined below), Employer shall pay as liquidated damages
to Employee an amount equal to two (2) times the "base amount" (as such term is
defined in Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended
(the "Code")) applicable to Employee, less One Dollar ($1.00), to be paid a lump
sum within ten days of such termination; and provided, further, that if
termination occurs within twelve months after a Change of Control described in
clause (3)(A) or (3)(B) of the definition thereof below relating to Champps in
connection with which Employee is offered and chooses to accept employment with
an Acquiror, the liquidated damages payable to Employee shall be reduced by the
amount of any "sign-on" bonus or similar one-time payment made by Acquiror to
Employee in connection with the acceptance of such employment; and (iii)
Employer shall make the following changes with respect to all outstanding
unexercised stock options held by Employee: (x) the date of vesting and
exercisability of all unexercised and unexpired stock options or other stock
based incentive awards shall be accelerated to the date of termination, (y) the
period during which all unexercised and unexpired options which are not
incentive stock options as defined in Section 422 of the Code ("NQSO") may be
exercised by Employee shall be extended until the expiration date of such
options and (z) if Employee so elects in writing within 90 days after the date
of termination, all unexercised and unexpired options which are incentive stock
options ("ISO") as defined in Section 422 of the Code shall be converted into
NQSO and shall thereby become eligible for the benefit described in clause (y)
above as if they had been NQSO as of the date of termination.
<PAGE>
A "Change in Control" shall be deemed to have occurred in any one of
the following events: (1) any "person," as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934 (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 Employer),
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 either (A) 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") or
(B) the then outstanding shares of capital stock of the Company ("Stock") (in
either such case other than as a result of an acquisition of securities directly
from the Company or by the Company); or (2) persons who, as of the date hereof,
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 date hereof whose election or nomination for election was
approved by a vote of at least a majority of the Incumbent Directors shall, for
purposes of this Agreement, be considered an Incumbent Director; or (3) the
stockholder(s) of either the Company or Champps shall approve (A) any
consolidation or merger of either the Company or Champps where the
shareholder(s) of the Company or Champps, 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 either the Company or Champps or (C) any plan or proposal
for the liquidation or dissolution of either the Company or Champps.
It is the intention of Employee and Employer that no payments by
Employer to or for the benefit of Employee under this Agreement shall be
non-deductible to Employer by reason of the operation of Section 280G of the
Code relating to parachute payments. Accordingly, and notwithstanding any other
provision of this Agreement, if by reason of the operation of said Section 280G,
any such payments exceed the amount which can be deducted by Employer, such
payments shall be reduced to the maximum amount which can be deducted by
Employer. To the extent that there is more than one method of reducing the
payments (including by way of elimination or reduction of the changes to
Employee's options described in clause (iii) above) to bring them within the
limitations of said Section 280G, Employee shall determine which method shall be
followed, provided that if Employee fails to make such determination within
forty-five (45) days after Employer has sent Employee written notice of the need
for such reduction, Employer may determine the method of such reduction in its
sole discretion.
<PAGE>
10. NO MITIGATION. Employer agrees that, if Employee's employment by
Employer is terminated during the term of this Agreement, Employee is not
required to seek other employment or to attempt in any way to reduce any amounts
payable to Employee by Employer pursuant to Section 9 hereof. Further, the
amount of any payment provided for in this Agreement shall not be reduced by any
compensation earned by Employee as the result of employment by another employer,
by retirement benefits, by offset against any amount claimed to be owed by
Employee to Employer or otherwise.
11. SETTLEMENT AND ARBITRATION OF DISPUTES. Any controversy or claim
arising out of or relating to this Agreement or the breach thereof shall be
settled exclusively by arbitration in accordance with the laws of The
Commonwealth of Massachusetts by three arbitrators, one of whom shall be
appointed by Employer, one by Employee and the third by the first two
arbitrators. If the first two arbitrators cannot agree on the appointment of a
third arbitrator, then the third arbitrator shall be appointed by the American
Arbitration Association in the City of Boston. Such arbitration shall be
conducted in the City of Boston in accordance with the rules of the American
Arbitration Association for commercial arbitrations, except with respect to the
selection of arbitrators which shall be as provided in this Section 13. Judgment
upon the award rendered by the arbitrators may be entered in any court having
jurisdiction thereof.
12. NON-COMPETITION AGREEMENT. During the Employment Period, and unless
Employee's employment is terminated by Employee for Good Reason or by Employer
without Cause, for a period of one (1) year after the termination of his service
to Employer and the Subsidiaries, Employee covenants and agrees not to directly
or indirectly (a) engage or be interested in any business as owner, officer,
director, employee, consultant or otherwise which during the Employment Period
is in competition with the business of Employer or any of the Subsidiaries or
which following the Employment Period is in competition with such business as
conducted on the last day of the Employment Period, or (b) solicit or endeavor
to entice away, offer employment to or employ, or offer or conclude any contract
for personal services with, any person who during the preceding six months was
an employee of Employer. However, the restrictions in clause (a) shall not
prevent Employee from owning or dealing in securities of any corporation or
other entity which are traded on any national securities exchange or in the
over-the-counter market, and the restrictions in clause (b) prohibiting the
employment of any person who during the preceding six months was an employee of
Employer shall not apply with respect to Employee who, without otherwise
breaching clause (b) (by soliciting or enticing away a former employee), hires a
former employee who has voluntarily left the employ of Employer or who has been
terminated involuntarily by Employer.
<PAGE>
13. INJUNCTIVE RELIEF. Employee irrevocably acknowledges that any
violation of this Contract will cause Employer immediate and irreparable harm
and that the damage that Employer will suffer may be difficult or impossible to
measure. Therefore, upon any actual or impending violation of this Contract,
Employer shall be entitled to the issuance of a restraining order, preliminary
or permanent injunction, without bond, restraining or enjoining such violation
by Employee or any entity or person acting in concert with Employee. Such remedy
shall be additional to and not in limitation of any other remedy which may
otherwise be available to Employer.
14. RELATIONSHIP OF THE PARTIES. The parties acknowledge, agree and
recognize that the Board of Directors of Employer shall manage the business
affairs of Employer and that the relationship of Employer and Employee is that
of employer and employee and any other relationship is hereby expressly
disclaimed.
15. ASSIGNMENT; OBLIGATIONS OF SUCCESSOR. Neither Employer nor Employee
may make any assignment of this Agreement or any interest herein, by operation
of law or otherwise, without the prior written consent of the other party, and
without such consent any attempted transfer shall be null and void and of no
effect. This Agreement shall inure to the benefit of and be binding upon
Employer and Employee, their respective successors, executors, administrators,
heirs and permitted assigns. In the event of Employee's death after termination
of employment but prior to the completion by Employer of all payments due
Employee hereunder, Employer shall continue such payments to Employee's
beneficiary designated in writing to Employer prior to his death (or to his
estate, if Employee fails to make such designation). In addition to any
obligations imposed by law upon any successor to Employer, Employer will use its
best efforts to require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
or assets of Employer to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that Employer would be required to
perform if no such succession had taken place.
16. NOTICES. Any notice to be given hereunder by either party to the
other must be in writing and may be effective either by personal delivery or by
certified mail, postage prepaid with return receipt requested. Mailed notices
shall be addressed to the parties at the addresses appearing in the introductory
paragraph. Notices delivered personally shall be deemed communicated as of the
actual receipt thereof; mailed notices shall be deemed communicated and received
three (3) days after the mailing of same.
17. INVALID PROVISIONS. The invalidity or unenforceability of a
particular provision of this Contract shall not affect the enforceability of any
other provisions hereof and this Contract shall be construed in all respects as
if such invalid or unenforceable provisions were omitted.
<PAGE>
18. AMENDMENTS TO THE CONTRACT. This Contract may only be amended in
writing by an agreement executed by both parties hereto.
19. LAW GOVERNING CONTRACT. This Contract is made and performable in
The Commonwealth of Massachusetts, and shall be construed under the laws of The
Commonwealth of Massachusetts.
20. INDEMNITY. Employer shall indemnify Employee and hold him harmless
for any acts or decisions made by him in good faith while performing services
for Employer as a director, employee and/or agent of Employer and, in addition
thereto, shall use its best efforts to obtain insurance coverage for him under
any insurance policy now in force or hereinafter obtained during the Employment
Period covering the officers and directors of Employer against lawsuits as
director, employee and/or agent of Employer. Employer will pay all expenses,
including attorney's fees, actually and necessarily incurred by Employer in
connection with the defense of any action, suit or proceeding, and in connection
with any appeal thereon, including the costs of an out-of-court settlement
previously approved by Employer, with respect to any acts or decisions which
Employee shall have performed or made in good faith in performing services for
Employer; provided, however, that Employer's obligations under the terms of this
paragraph are subject to any limitations imposed by Employer's Certificate of
Incorporation and By-Laws and applicable state law.
21. CONSTRUCTION. Waiver by any party hereto of a breach of any
provision of this Contract shall not operate or be construed as a waiver of any
subsequent breach of any party. This Contract shall not be assignable except as
provided in Paragraph 15 above. Subject to the prohibition against assignment of
this Contract, the terms and conditions herein shall inure to the benefit of and
be binding upon the Parties hereto, their successor, heirs and legal
representatives.
22. LITIGATION AND REGULATORY COOPERATION. During and after Employee's
employment, Employee shall reasonably cooperate with Employer in the defense or
prosecution of any claims or actions now in existence or which may be brought in
the future against or on behalf of Employer which relate to events or
occurrences that transpired while Employee is or was employed by Employer.
Employee's reasonable cooperation in connection with such claims or actions
shall include, but not be limited to, being available to meet with counsel to
prepare for discovery or trial and to act as a witness on behalf of Employer at
mutually convenient times. During and after Employee's employment, Employee also
shall reasonably cooperate with Employer in connection with any investigation or
review of any federal, state or local regulatory authority as any such
investigation or review relates to events or occurrences that transpired while
Employee was employed by Employer. The Company shall, at the request of
Employee, pay in advance any out-of-pocket expenses that Employee would
otherwise be required to incur in connection with Employee's performance of its
obligations pursuant to this clause, and shall reimburse Employee for any
reasonable out-of-pocket expenses incurred by Employee that were not so paid in
advance by Employer.
23. ENTIRE AGREEMENT. This Contract will be effective as of August __,
1998, and upon such effectiveness will contain the entire agreement of the
parties hereto and supersede any and all prior agreements, oral or written, and
negotiations between said parties regarding the subject matter herein contained.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Contract this day
and year first above written.
EMPLOYER EMPLOYEE
UNIQUE CASUAL RESTAURANTS, INC.
By:
------------------------ ------------------------
Donna L. Depoian Donald C. Moore
Vice President and General Counsel
Exhibit 21
Unique Casual Restaurants, Inc.
Subsidiaries of the Registrant
Company State of Incorporation
- ------- ----------------------
Champps Entertainment, Inc. Minnesota
Champps Americana, Inc. Minnesota
Champps Entertainment of Edison, Inc. New Jersey
Champps Entertainment of Texas, Inc. Texas
Americana Dining Corp. Delaware
Fuddruckers, Inc. Texas
Fuddruckers Europe, Inc. Texas
Atlantic Restaurant Ventures, Inc. Virginia
ARIV-Rockville Inc. Maryland
ARIV-Pikesville Inc. Maryland
Specialty Concepts, Inc. Delaware
The Great Bagel and Coffee Company Delaware
French Quarter Coffee Company Delaware
Casual Dining Ventures, Inc. Delaware
Restaurant Consulting Services, Inc. Massachusetts
Pulseback, Inc. Vermont
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
333-32501 and No. 333-32503 of Unique Casual Restaurants, Inc. on Form S-8 of
our report dated October 2, 1998 appearing in this Annual Report on Form 10-K of
Unique Casual Restaurants, Inc. for the year ended June 28, 1998.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
October 13, 1998
Exhibit 24.1
SPECIAL POWER OF ATTORNEY
The undersigned hereby constitutes and appoints, Donald C. Moore and Donna L.
Depoian and each of them, jointly and severally, his true and lawful
attorneys-in-fact and agents with full power of substitution, for him and in his
name, place and stead, in any and all capacities, to sign the Annual Report on
Form 10-K of Unique Casual Restaurants, Inc. for the fiscal year ended June 28,
1998, and any an all amendments thereto, and to file the same with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/Erline Belton
------------------
Erline Belton
Dated: October 1, 1997
<PAGE>
SPECIAL POWER OF ATTORNEY
The undersigned hereby constitutes and appoints, Donald C. Moore and Donna L.
Depoian and each of them, jointly and severally, his true and lawful
attorneys-in-fact and agents with full power of substitution, for him and in his
name, place and stead, in any and all capacities, to sign the Annual Report on
Form 10-K of Unique Casual Restaurants, Inc. for the fiscal year ended June 28,
1998, and any an all amendments thereto, and to file the same with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/Alan D. Schwartz
-------------------
Alan D. Schwartz
Dated: October 1, 1998
<PAGE>
SPECIAL POWER OF ATTORNEY
The undersigned hereby constitutes and appoints, Donald C. Moore and Donna L.
Depoian and each of them, jointly and severally, his true and lawful
attorneys-in-fact and agents with full power of substitution, for him and in his
name, place and stead, in any and all capacities, to sign the Annual Report on
Form 10-K of Unique Casual Restaurants, Inc. for the fiscal year ended June 28,
1998, and any an all amendments thereto, and to file the same with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/E.L. Cox
-----------
E. L. Cox
Dated: October 1, 1998
<PAGE>
SPECIAL POWER OF ATTORNEY
The undersigned hereby constitutes and appoints, Donald C. Moore and Donna L.
Depoian and each of them, jointly and severally, his true and lawful
attorneys-in-fact and agents with full power of substitution, for him and in his
name, place and stead, in any and all capacities, to sign the Annual Report on
Form 10-K of Unique Casual Restaurants, Inc. for the fiscal year ended June 28,
1998, and any an all amendments thereto, and to file the same with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/Joseph W. O'Donnell
----------------------
Joseph W. O'Donnell
Dated: October 1, 1998
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