SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXHANGE ACT OF 1934
For the quarter ended June 30, 1998 Commission file number 1-7697
I.C.H. Corporation
------------------
Exact name of Registrant as specified in its charter
Delaware 43-6069928
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
9255 Towne Centre Drive, Suite 600, San Diego, California 92121
---------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (619) 587-8533
--------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes _X_ No ___
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes _X_ No___
Number of shares of common stock outstanding on June 30, 1998: 2,910,884*.
-----------
*Assumes full conversion of all remaining outstanding shares of common stock and
preferred stock of pre-reorganized I.C.H. Corporation. See Note 5 of Notes to
consolidated financial statements.
<PAGE>
I.C.H. CORPORATION and SUBSIDIARIES
Index
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - December 31, 1997
and June 30, 1998 2
Consolidated Statements of Operations for the
Three Months ended June 30, 1997
and for the Three Months ended June 30, 1998 3
Consolidated Statements of Operations for the
Six Months ended June 30, 1997 and for the
Six Months ended June 30, 1998 4
Consolidated Statements of Cash Flows for the
Six Months ended June 30, 1997 and for the
Six Months ended June 30, 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Part II. Other Information 18
Signatures 20
Exhibit Index 21
</TABLE>
<PAGE>
I.C.H. CORPORATION and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share amounts)
<TABLE>
<CAPTION>
December 31, 1997 June 30, 1998
(Unaudited)
----------------- -------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 4,418 $ 4,070
Accounts receivable 530 79
Inventories 1,372 1,538
Deferred income taxes 1,257 1,137
Other current assets 1,565 2,395
-------- --------
Total current assets 9,142 9,219
Property and equipment, net 24,696 27,112
Intangible assets, net 39,470 44,087
Other assets 1,956 1,441
-------- --------
Total assets $ 75,264 $ 81,859
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,741 $ 3,618
Accrued liabilities 8,745 10,284
Current portion of long-term debt 1,714 3,714
Current portion of capital lease obligation 948 948
-------- --------
Total current liabilities 14,148 18,564
Non-current liabilities:
Long-term debt 44,718 46,150
Long-term capital lease obligations 2,699 2,149
Deferred income taxes 1,908 1,935
Other liabilities 606 1,026
-------- --------
Total liabilities 64,079 69,824
Stockholders' Equity:
Preferred stock, $0.01 par value; 1,000,000
authorized; none issued and outstanding
Common stock, $0.01 par value; 9,000,000
authorized; 2,573,084 outstanding 24 26
Paid-in-capital 12,025 12,049
Retained earnings (deficit) (864) (40)
-------- --------
Total liabilities and stockholders' equity $ 75,264 $ 81,859
======== ========
</TABLE>
The accompanying Notes are an integral part of the
Consolidated Financial Statements.
2
<PAGE>
I.C.H. CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATION
(In thousands except share amounts)
<TABLE>
<CAPTION>
Predecessor Company Combined Company
---------------------------------------------------- -----------------
For the one For the two For the three For the three
month ended months ended months ended Months ended
April 30, 1997 June 30, 1997 June 30, 1997 June 30, 1998
---------------------------------------------------- -----------------
<S> <C> <C> <C> <C>
Revenues and other income:
Restaurant sales $10,041 $18,533 $28,574 $30,850
Real estate operations & other 12 401 413 394
------- ------- ------- -------
Total revenues 10,053 18,934 28,987 31,244
Costs and expenses:
Restaurant costs and expenses 8,567 15,374 23,941 25,402
General and administrative 558 984 1,542 1,899
Depreciation and amortization 560 1,197 1,757 1,327
Real estate operations & other -- 328 328 299
Non-recurring/restructuring -- 1,256 1,256 --
------- ------- ------- -------
Operating income (loss) 368 (205) 163 2,317
Interest 170 1,051 1,221 1,439
------- ------- ------- -------
Income (loss) before taxes 198 (1,256) (1,058) 878
Provision(benefit)for taxes 101 (461) (360) 347
------- ------- ------- -------
Net income (loss) $ 97 $ (795) $ (698) $ 531
======= ======= ======= =======
Net income (loss) per share:
Basic $ (0.28) $ 0.18
Diluted $ (0.28) $ 0.17
Weighted-average common shares
outstanding (see note)
Basic
Diluted 2,793,550 2,910,884
2,793,550 3,195,000
</TABLE>
The accompanying Notes are an integral part of the
Consolidated Financial Statements.
3
<PAGE>
I.C.H. CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except share amounts)
<TABLE>
<CAPTION>
Predecessor Company Combined Company
---------------------------------------------------- -----------------
For the four For the two For the six For the six
months ended months ended months ended Months ended
April 30, 1997 June 30, 1997 June 30, 1997 June 30, 1998
---------------------------------------------------- -----------------
<S> <C> <C> <C> <C>
Revenues and other income:
Restaurant sales $37,868 $18,533 $ 56,401 $59,186
Real estate operations & other 48 401 449 752
------- ------- -------- -------
Total revenues 37,916 18,934 56,850 59,938
Costs and expenses:
Restaurant costs and expenses 32,006 15,374 47,380 48,759
General and administrative 2,212 984 3,196 3,856
Depreciation and amortization 2,006 1,197 3,203 2,598
Real estate operations & other -- 328 328 546
Non-recurring/restructuring -- 1,256 1,256 --
------- ------- -------- -------
Operating income (loss) 1,692 (205) 1,487 4,179
Interest 638 1,051 1,689 2,805
------- ------- -------- -------
Income (loss) before taxes 1,054 (1,256) (202) 1,374
Provision (benefit) for taxes 434 (461) (27) 550
------- ------- -------- -------
Net income (loss) $ 620 $ (795) $ (175) $ 824
======= ======= ======== =======
Net income (loss) per share:
Basic $ (0.28) $ 0.29
Diluted $ (0.28) $ 0.27
Weighted-average common shares
outstanding (see note)
Basic
Diluted 2,793,550 2,852,200
2,793,550 3,037,000
</TABLE>
The accompanying Notes are an integral part of the
Consolidated Financial Statements.
4
<PAGE>
I.C.H. CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands except share amounts)
<TABLE>
<CAPTION>
Predecessor Company
-------------------- ---------------------
For the Period For the six
Feb 19, 1997 thru months ended
June 30, 1997 June 30, 1998
-------------------- ---------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (897) $ 824
Adjustments to reconcile net income (loss) to cash
from operating activities:
Depreciation and amortization 1,210 2,598
Deferred income taxes 660 147
Changes in current assets and liabilities:
Accounts receivable 1,011 451
Inventories 132 (166)
Accounts payable and accrued expenses 1,625 2,416
Other, net (619) (830)
-------- -------
Net cash provided by oeprating activities 3,122 5,440
-------- -------
Cash flows from investing activities:
Capital expenditures (401) (4,962)
Proceeds from disposition of property and equipment 5,000 718
Acquisition of restaurant properties (13,614) (5,387)
Other, net -- 935
-------- -------
Net cash provided (used) by investing activities (9,015) (8,696)
-------- -------
Cash flows from financing activities:
Repayment on credit agreement (23,772) --
Proceeds from issuance of long-term debt, net of expenses 33,934 4,325
Repayment of long-term debt and capital lease obligations (503) (1,443)
Other, net (427) 26
-------- -------
Net cash provided (used) by financing activities 9,232 2,908
-------- -------
Net change in cash and cash equivalents 3,339 (348)
Cash and cash equivalents at beginning of period 500 4,418
-------- -------
Cash and cash equivalents at end of period $ 3,839 $ 4,070
======== =======
</TABLE>
The accompanying Notes are an integral part of the
Consolidated Financial Statements.
5
<PAGE>
I.C.H. CORPORATION and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share amounts)
NOTE 1. BUSINESS
Organization, Business and Summary of Significant Accounting Policies:
Preparation of Iterim Financial Statements
The Consolidated Financial Statements of I.C.H. Corporation (the "Company") and
Subsidiaries have been prepared in accordance with the rules and regulations of
the Securities and Exchange Commission ("SEC"). Certain amounts have been
reclassified from previous presentation. These Consolidated Financial Statements
include estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities and the amounts of
revenues and expenses. Actual results could differ from those estimates. In the
opinion of the Company, these statements include all adjustments necessary for a
fair presentation of the results of all interim periods reported herein. All
adjustments are of a normal recurring nature unless otherwise disclosed. Certain
information and footnote disclosures prepared in accordance with generally
accepted accounting principles have been either condensed or omitted pursuant to
SEC rules and regulations. The Company believes, however, that the disclosures
made are adequate for a fair presentation of results of operations, financial
position and cash flows. These Consolidated Financial Statements should be read
in conjunction with the Consolidated Financial Statements and accompanying notes
included in the Company's latest annual report on Form 10-K.
Organization
I.C.H. Corporation is the post-reorganization successor to ICH Corporation ("Old
ICH"). Old ICH, together with its subsidiaries, filed voluntary petitions for
relief under Chapter 11 on October 10, 1995. The Company's plan of
reorganization (the "Reorganization Plan") was confirmed February 7, 1997 and
became effective on February 19, 1997 (the "Effective Date"). Until its
acquisition of Sybra, Inc. (see Note 2), the Company had no significant business
operations. As a result, revenues, operating loss and cash flows for the Company
for the period from February 19, 1997 to April 30, 1997 have been reflected in
the six-month period ended June 30, 1997.
On the Effective Date, all of the outstanding equity securities ("Old ICH Common
Stock" and "Old ICH Preferred Stock", collectively the "Old ICH Stock") of Old
ICH were canceled. The Company's Restated Certificate of Incorporation
authorized the issuance of 9,000,000 shares of common stock and 1,000,000 shares
of preferred stock. Holders of Old ICH Stock have two years from the Effective
Date in which to exchange their canceled shares for the Company's common stock.
Generally, holders of the canceled Old ICH shares are entitled to receive 0.0269
shares of the Company's common stock for each share of Old ICH Common Stock and
0.2 shares of the Company's common stock for each share of Old ICH Preferred
Stock and, for a period of 40 days from the Effective Date, certain holders
could elect to exchange canceled shares for a single de minimis cash payment.
Business and Presentation
The accompanying Consolidated Financial Statements labeled "Company" include the
accounts of the Company and its wholly-owned subsidiaries, principally Sybra,
Inc. ("Sybra"). All significant intercompany accounts and transactions have been
eliminated. Sybra currently operates a chain of 177 fast food restaurants as a
franchisee of Arby's, Inc. ("Arby's") clustered in five regions, primarily in
Texas, Michigan, Pennsylvania, Florida and California. As of June 30, 1998,
another subsidiary operated a golf course and real estate development in
Kentucky.
6
<PAGE>
I.C.H. CORPORATION and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share amounts)
Sybra is considered to be a Predecessor of the Company and, accordingly, the
historical financial statements of Sybra, prior to its acquisition by the
Company on April 30, 1997, are presented with the accompanying financial
statements of the Company. The acquisition of Sybra resulted in changes in the
cost basis of Sybra's assets and liabilities, use of estimated lives for certain
of the intangibles that are different from those used by the Predecessor and a
different capital structure. These factors significantly affect the
comparability of the Predecessor's financial information.
Significant Accounting Policies
Fiscal Year. The Company operates on a calendar year basis. Sybra, however, uses
a 52/53 week fiscal year ending on the last Saturday of the year. Accordingly,
the accompanying financial statements include Sybra's results for the periods
ended June 28, 1997 and June 27, 1998.
Cash and Cash Equivalents. The Company considers all highly liquid investments
with an original maturity of three months or less when purchased to be cash
equivalents.
Food and Supplies Inventories. Food and supplies inventories are stated at the
lower of cost or market. Cost is determined using the first-in, first-out (FIFO)
method.
Property and Equipment. Property and equipment is stated at cost less
accumulated depreciation and amortization. Normal repairs and maintenance costs
are expensed as incurred. Depreciation is being recorded on a straight-line
basis over the following estimated useful lives:
<TABLE>
<S> <C>
Buildings 40 years
Restaurant equipment 5-10 years
</TABLE>
Buildings under capitalized leases and leasehold improvements are amortized on a
straight-line basis over the lesser of the lease term or the estimated useful
lives of the assets.
Intangibles. Franchise agreements with Arby's require the Company to pay a
franchise fee for each new restaurant developed and de minimis renewal fees for
franchises that have expired. Each franchise agreement provides the Company the
right to operate an Arby's restaurant for a period of 20 years and is renewable
by the Company, subject to certain conditions, for varying terms of up to 20
years. Franchise fees are capitalized and amortized using the straight-line
method over 40 years.
Acquired royalty rights, representing the fair value of royalty rates of
acquired franchises, are capitalized and amortized on a straight-line basis over
20 years or the remaining life of the franchise agreement, whichever is less.
Equity in operating leases, representing the estimated fair value of base rental
rates, less the actual rental obligation, is amortized on a straight-line basis
over 20 years or the remaining life of the lease including option periods,
whichever is less.
Goodwill is amortized using the straight-line method over 40 years. At each
balance sheet date, the Company evaluates the realizability of goodwill based
upon expectations of operating income for the restaurants as a group. The
Company believes that no material impairment of goodwill exists at June 30,
1998.
7
<PAGE>
I.C.H. CORPORATION and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share amounts)
Income Taxes. Deferred income taxes are computed using the liability method,
which provides that deferred tax assets and liabilities are recorded based on
the differences between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes.
Advertising Expenses. All advertising costs are expensed as incurred.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses in the financial statements and in the disclosure of
contingent assets and liabilities. While actual results could differ from those
estimates, management believes that actual results will not be materially
different from amounts provided in the accompanying consolidated financial
statements.
Earnings Per Share. In 1997, the Company adopted SFAS No. 128, "Earnings Per
Share," which requires presentation of both basic and diluted earnings per
share. Basic net income per share is computed based on the weighted-average
number of common shares outstanding during the year (see Note 5). Net earnings
per common share for the Predecessor is not presented as the per share results
are not meaningful due to the changes resulting from the acquisition of Sybra
(see Note 2).
New Accounting Standards. In June 1997, the FASB issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information,"
superseding SFAS No. 14, "Financial Reporting of Segments of a Business
Enterprise." SFAS No. 131 establishes new standards for reporting operating
segment information in annual and interim financial statements. The Company does
not believe this Statement will have any impact on the financial statements.
NOTE 2. ACQUISITION OF SYBRA
On April 30, 1997, the Company acquired all of the common stock of Sybra for
$15,614 including related expenses and net of cash acquired of $886. The Company
incurred $2,000 in acquisition indebtedness to the seller and paid the remainder
in cash. The acquisition was recorded under the purchase method of accounting
and, accordingly, the results of operations of Sybra commencing May 1, 1997 are
included in the accompanying financial statements of the Company. The purchase
price was allocated to identifiable tangible and intangible assets and
liabilities based on their estimated fair values, with the excess of the
purchase price over the fair value of such net assets acquired reflected as
goodwill, as follows:
<TABLE>
<S> <C>
Current Assets $ 3,428
Franchise rights 3,865
Other intangibles, excluding goodwill 8,299
Goodwill 28,159
Tangible assets 20,342
Liabilities assumed (48,479)
----------
Purchase price $ 15,614
==========
</TABLE>
8
<PAGE>
I.C.H. CORPORATION and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share amounts)
NOTE 3. OLD ICH TRANSACTIONS
On April 25, 1997, the Company exercised its option pursuant to the
Reorganization Plan, to sell all of the outstanding capital stock of Bankers
Multiple Line Insurance Company ("BML"), a property and casualty insurer
licensed in all fifty states, for its carrying value of $5,000. In March 1997,
the Company received $2,790 in satisfaction of a receivable related to the
Reorganization Plan.
NOTE 4. LONG-TERM DEBT
Long-term debt consists of the following as of:
<TABLE>
<CAPTION>
December 31, 1997 June 30, 1998
------------------------ ---------------------
<S> <C> <C>
Term loan, 10.63%, payable monthly
through 2012 $ 33,984 $ 33,135
Loan, 14.40% 9,000 9,000
Acquisition indebtedness due in 1999 2,000 2,000
Other 1,448 5,729
------------------------ ---------------------
46,432 49,864
Less: current portion 1,714 3,714
------------------------ ---------------------
Total $ 44,718 $ 46,150
======================== =====================
</TABLE>
Concurrently with the acquisition of Sybra, the Company entered into a loan
agreement that provides, on an aggregate basis, a $35,000 fixed-rate term loan
bearing interest at 10.63% with a weighted-average maturity of 12.5 years. The
term loan is collateralized by substantially all of the restaurant equipment
owned by Sybra. The proceeds of the term loan were used to fund the acquisition
of Sybra and retire debt payable to Sybra's former parent assumed in the
acquisition.
The loan agreement contains covenants which require, among other things, the
maintenance of a minimum fixed charge coverage ratio, restrictions that limit
the payment of dividends, and other provisions and restrictive covenants. As of
June 30, 1998, the Company was in compliance with all such covenants. As a
result of sale/leaseback transactions completed immediately before its
acquisition by the Company, Sybra received $9,000 as a loan. The loan element of
the transaction carries an interest rate of approximately 14.40% and may be
repaid at any time without penalty. If not repaid in full earlier, the loan
amortizes over 20 years. The Company currently intends on refinancing this loan
prior to fiscal 2000.
The Company maintains, with a bank, a $150 letter of credit that automatically
renews in November of each year.
9
<PAGE>
I.C.H. CORPORATION and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share amounts)
On August 1, 1997, Sybra executed a loan commitment letter with Franchise
Finance Corporation of America ("FFCA") to finance the construction of up to 12
new Arby's restaurants during the next two years. Under the terms of the
commitment letter, FFCA has agreed to finance mortgage and equipment loans for
up to 12 new Arby's restaurants to be built by Sybra, to a maximum of $1 million
per location.
At June 30, 1998, long-term debt had a fair value that approximates the
carrying value.
On February 1, 1998, the Company incurred $325 in financing indebtedness related
to its' acquisition of eight stores in California. The debt carries an interest
rate of 10%, amortizes over ten years and conatins covenants and restrictions
customary for transactions of this type.
NOTE 5. EQUITY AND EARNINGS PER COMMON SHARE
Given the stock conversion provisions of the Reorganization Plan, the Company
has not determined and cannot currently determine the ultimate number of shares
of common stock that will be issued upon completion of the stock conversion.
However, based on the number of outstanding shares of Old ICH Stock on the
Effective Date, and after considering nominal shareholders of record and shares
which were exchanged for cash under the provisions of the Reorganization Plan,
the Company estimates that a maximum of approximately 2,910,884 shares of the
Company's common stock could be issued, although the amount could be lower if
all shares are not exchanged prior to the end of the two-year period.
Although conservative, the Company has used the maximum 2,910,884 shares in
computing earnings per share. As of June 30, 1998, 2,573,084 shares of common
stock were outstanding.
Basic earnings per share is computed by dividing net income available to common
shareholders by the weighted-average number of common shares outstanding during
each period. Diluted computations include dilutive common share equivalents.
<TABLE>
<CAPTION>
Three months Six months
ended ended
June 30, 1998 June 30, 1998
-------------- --------------
<S> <C> <C>
Income for computation of basic earnings
per share and diluted earnings per share $ 531 $ 824
==== =====
Weighted-average shares for computation
of basic earnings per share
2,911 2,852
Incremental shares on assumed issuance
and repurchase of stock options 284 185
----- -----
Weighted-average shares for computation of
diluted earnings per share 3,195 3,037
===== =====
Basic earnings per share $0.18 $0.29
===== =====
Diluted earnings per share $0.17 $0.27
===== =====
</TABLE>
10
<PAGE>
I.C.H. CORPORATION and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share amounts)
NOTE 6. PROFORMA CONDENSED STATEMENTS OF OPERATIONS DATA
Unaudited proforma statements of operations data for the six months ended June
30, 1997 reflect the Company's acquisition of Sybra using the purchase method of
accounting as if the Sybra acquisition, which occurred on April 30, 1997, had
occurred on January 1, 1997. As a result of the acquisition, the Company
incurred acquisition debt of approximately $35 million and entered into
sale/leaseback transactions on 61 of Sybra's restaurants which had been
previously classified as owned, resulting in higher interest and rent expense.
<TABLE>
<CAPTION>
Three months Six Months
ended ended
June 30, 1997 June 30, 1997
------------- -------------
<S> <C> <C>
Revenues $28,987 $56,850
Costs and expenses:
Restaurant costs and expenses 24,957 49,310
General and administrative 1,544 3,196
Depreciation and amortization 1,274 2,548
------- -------
Operating income 1,212 1,796
Interest expense 1,373 2,746
------- -------
Loss before taxes (161) (950)
Income tax benefit (96) (380)
------- -------
Net Loss $ (65) $ (570)
======= =======
</TABLE>
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain information discussed below may constitute forward-looking statements
within the meaning of the federal securities laws. Although the Company believes
that the expectations reflected in such forward-looking statements are based
upon reasonable assumptions, it can give no assurance that its expectations will
be achieved. Forward-looking information is subject to certain risks, trends and
uncertainties that could cause actual results to differ materially from
projected results. Among those risks, trends and uncertainties are the general
economic climate, costs of food and labor, consumer demand, interest rate
levels, the availability of financing and other risks associated with the
acquisition, development and operation of new and existing restaurants.
Unless otherwise indicated all amounts are in thousands, except share amounts.
GENERAL
The Company's revenues consist almost entirely of restaurant sales and revenues
from its wholly-owned subsidiary, Sybra, Inc., which it acquired on April 30,
1997.
Restaurant costs and expenses include all direct costs, including direct labor,
occupancy costs, advertising expenses, royalty payments, expenditures for
repairs and maintenance, and workers' compensation, casualty and general
liability insurance costs. Advertising fees paid to AFA Service Corporation, a
non-profit association of Arby's restaurant operators, to develop and prepare
advertising materials and to undertake marketing research, are equal to 0.7% of
restaurant sales. In addition, the Company operates its restaurants pursuant to
licenses which require the Company to pay Arby's, Inc. a royalty based upon
percentages of its restaurant sales (presently an aggregate of approximately
2.9% of the Company's restaurant sales). The royalty rate for new restaurants
(currently 4%) will result in an increase in the Company's aggregate royalty
rate as new Arby's restaurants are opened.
General and administrative expenses consist of corporate and regional office
expenses, including executive and administrative compensation, office expenses,
travel and professional fees.
RESULTS OF OPERATIONS
The following table sets forth, with respect to the Company and for the periods
indicated, the percentage of total revenues represented by certain expense and
income items.
For purposes of the discussion below, the historical results of operations for
the combined three month period and the combined six month period ended June 30,
1997, are not indicative of the results that would actually have been obtained
if the Company's acquisition of Sybra had occurred on January 1, 1997. The
Predecessor historical period does not give effect to, among other items,
corporate expenses necessary to operate on a stand-alone basis. Such expenses
include higher interest and rent expense, certain administrative services, tax
compliance, treasury service, human resource administration and legal services.
12
<PAGE>
The Predecessor unaudited proforma statement of operations data for the combined
three month period and the combined six month period ended June 30, 1997 reflect
the Company's acquisition of Sybra using the purchase method of accounting as if
the acquisition, which occurred on April 30, 1997, had occurred on January 1,
1997. As a result of the acquisition, the Company incurred acquisition debt of
approximately $35 million and entered into sale/leaseback transactions on 61 of
Sybra's restaurants which had been previously classified as owned, resulting in
higher interest and rent expense.
<TABLE>
<CAPTION>
Combined Company
----------- ---------
Three Months Ended Three Months Ended
June 30, 1997 June 30, 1998
-------------------------- --------------
(Proforma) (Historical)
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Expenses
Restaurant costs & expenses 82.6 86.1 81.3
General & administrative 5.3 5.3 6.1
Depreciation & amortization 6.0 4.4 4.2
Other 5.5 - 1.0
------ ------ ------
Operating income .6 4.2 7.4
Interest expense 4.2 4.7 4.6
------ ------ ------
Income (loss) before taxes (3.6) (.5) 2.8
Income tax (benefit) expense (1.2) (.3) 1.1
------ ------ ------
Net income (loss) (2.4) (.2) 1.7
====== ====== ======
</TABLE>
Comparison of the Quarter Ended June 30, 1998 and the Quarter Ended June 30,
1997 on a Historical Basis
Revenues - Revenues were $31.2 million for the second quarter of FY 1998 as
compared to $29.0 million for the same period of FY 1997, an increase of $2.3
million primarily as a result of two new store openings and eleven store
acquisitions. Same store sales were flat for the period.
Restaurant Costs & Expenses - Restaurant costs and expenses were $25.4 million,
or 81.3% of sales, for the second quarter of FY 1998 as compared to $23.9
million, or 82.6% of sales for the same period of FY 1997, an increase of $1.5
million. As a percent of sales, costs decreased as a result of improved food
margins and decreased labor costs.
General and Administrative - General and administrative costs and expenses were
$1.9 million, or 6.1% of sales, for the second quarter of FY 1998 as compared to
$1.5 million, or 5.3% of sales for the same period of FY 1997, an increase of
$357 as a result of costs and expenses associated with operating the Company as
a stand alone public company, as explained above, and increased expenses
associated with business development and real estate operations necessary to
achieve new store development requirements.
Depreciation and Amortization - Depreciation and amortization expense was $1.3
million, or 4.2% of sales in the second quarter of FY 1998 as compared to $1.8
million, or 6.0% of sales in the same period of FY 1997, a decrease of $437
as a result of the impact of the sale/leaseback of 61 properties related to the
Sybra acquisition which were classified as owned in prior years.
13
<PAGE>
Interest Expense - Interest expense was $1.4 million in the second quarter of FY
1998 as compared to $1.2 million in the same period of FY 1997, an increase of
$218 as a result of debt incurred in connection with the Sybra acquisition.
Comparison of the Quarter Ended June 30, 1998 and the Quarter Ended June 30,
1997 on a Pro forma Basis
Revenues - Revenues were $31.2 million for the second quarter of FY 1998 as
compared to $29.0 million for the same period of FY 1997, an increase of $2.3
million primarily as a result of two new store openings and eleven store
acquisitions. Same store sales were flat for the period.
Restaurant Costs & Expenses - Restaurant costs and expenses were $25.4 million,
or 81.3% of sales, for the second quarter of FY 1998 as compared to $25.0
million, or 86.1% of sales on a proforma basis for the same period of FY 1997, a
decrease of $400. As a percent of sales, costs decreased as a result of
improved food margins and decreased labor costs.
General and Administrative - General and administrative costs and expenses were
$1.9 million, or 6.1% of sales, for the second quarter of FY 1998 as compared to
$1.5 million, or 5.3% of sales on a proforma basis for the same period of FY
1997, an increase of $400 as a result of costs and expenses associated with
operating the Company as a stand alone public company, as explained above, and
increased expenses associated with business development and real estate
operations necessary to achieve new store development requirements.
Depreciation and Amortization - Depreciation and amortization expense was $1.3
million, or 4.2% of sales in the second quarter of FY 1998 as compared to $1.3
million, or 4.4% of sales on a proforma basis in the same period of FY 1997.
Interest Expense - Interest expense was $1.4 million in the second quarter of FY
1998 as compared to $1.4 million on a proforma basis in the same period of FY
1997.
<TABLE>
<CAPTION>
Combined Company
---------- -------
Six Months Ended Six Months Ended
June 30, 1997 June 30, 1998
-------------------------- ----------------
(Historical) (Proforma)
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Expenses
Restaurant costs & expenses 83.4 86.7 81.4
General & administrative 5.6 5.6 6.4
Depreciation & amortization 5.6 4.5 4.3
Other 2.8 - .9
------ ------ -----
Operating income 2.6 3.2 7.0
Interest expense 3.0 4.9 4.7
------ ------ -----
Income (loss) before taxes (.4) (1.7) 2.3
Income tax (benefit) expense (.1) (.7) .9
------ ------ -----
Net income (loss) (.3) (1.0) 1.4
====== ====== =====
</TABLE>
14
<PAGE>
Comparison of the Six Months Ended June 30, 1998 and the Six Months Ended June
30, 1997 on a Historical Basis
Revenues - Revenues were $59.9 million for FY 1998 as compared to $56.9 million
for the same period of FY 1997, an increase of $3.1 million primarily as a
result of two new store openings and twenty-five store acquisitions net of same
store sales being down 1.0% for the period. The decline in same store sales is
attributable to a change in marketing strategy emphasizing brand quality and
fewer discount price promotions which began in the third quarter of 1997.
Restaurant Costs & Expenses - Restaurant costs and expenses were $48.8 million,
or 81.4% of sales, for FY 1998 as compared to $47.4 million, or 83.4% of sales
for the same period of FY 1997, an increase of $1.4 million. As a percent of
sales, costs decreased as a result of improved food margins and decreased labor
costs.
General and Administrative - General and administrative costs and expenses were
$3.9 million, or 6.4% of sales, for FY 1998 as compared to $3.2 million, or 5.6%
of sales for the same period of FY 1997, an increase of $660 as a result of
costs and expenses associated with operating the Company as a stand alone public
company, as explained above, and increased expenses associated with business
development and real estate operations necessary to achieve new store
development requirements.
Depreciation and Amortization - Depreciation and amortization expense was $2.6
million, or 4.3% of sales in FY 1998 as compared to $3.2 million, or 5.6% of
sales in the same period of FY 1997, a decrease of $605 as a result of the
impact of the sale/leaseback of 61 properties related to the Sybra acquisition
which were classified as owned in prior years.
Interest Expense - Interest expense was $2.8 million in FY 1998 as compared to
$1.7 million in the same period of FY 1997, an increase of $1.1 million as a
result of debt incurred in connection with the Sybra acquisition.
Comparison of the Six Months Ended June 30, 1998 and the Six Months Ended June
30, 1997 on a Pro forma Basis
Revenues - Revenues were $59.9 million for FY 1998 as compared to $56.9 million
for the same period of FY 1997, an increase of $3.1 million primarily as a
result of two new store openings and twenty-five store acquisitions net of same
store sales being down 1.0% for the period. The decline in same store sales is
attributable to a change in marketing strategy emphasizing brand quality and
fewer discount price prommotions which began in the third quarter of 1997.
Restaurant Costs & Expenses - Restaurant costs and expenses were $48.8 million,
or 81.4% of sales, for FY 1998 as compared to $49.3 million, or 86.7% of sales
on a proforma basis for the same period of FY 1997, a decrease of $551. As a
percent of sales, costs decreased as a result of improved food margins and
decreased labor costs.
15
<PAGE>
General and Administrative - General and administrative costs and expenses were
$3.9 million, or 6.4% of sales, for FY 1998 as compared to $3.2 million, or 5.6%
of sales on a proforma basis for the same period of FY 1997, an increase of $700
as a result of costs and expenses associated with operating the Company as a
stand alone public company, as explained above, and increased expenses
associated with business development and real estate operations necessary to
achieve new store development requirements.
Depreciation and Amortization - Depreciation and amortization expense was $2.6
million, or 4.3% of sales in FY 1998 as compared to $2.5 million, or 4.5% of
sales on a proforma basis in the same period of FY 1997.
Interest Expense - Interest expense was $2.8 million in FY 1998 as compared to
$2.7 million on a proforma basis in the same period of FY 1997.
PERRY PARK RESORTS, INC.
See Item 5 - Other Information.
IMPACT OF THE YEAR 2000 ISSUES
Based on a recent assessment, the Company has determined that it will not have
to modify or replace any of its software and that its computer systems will
properly utilize dates beyond December 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary liquidity needs arise from debt service on indebtedness
incurred in connection with the Sybra acquisition and the funding of capital
expenditures. As of June 30, 1998, the Company had outstanding indebtedness for
borrowed money of $33.1 million under a term facility with Atherton Capital
Incorporated. The term facility has a weighted-average maturity of 12.5 years
and bears interest at 10.63%. The term facility requires monthly payments of
principal and interest, is collatoralized by substantially all of the restaurant
equipment owned by Sybra, and imposes certain financial restrictions and
covenants.
The Company's primary source of liquidity during the quarter ended June 30, 1998
was the operation of the restaurants owned by its operating subsidiaries,
including Sybra.
16
<PAGE>
In the future, the Company's liquidity and capital resources will primarily
depend on the operations of Sybra which, under the provisions of its loan
agreement, would permit, under certain conditions, distributions and dividends
to the Company. Sybra, like most restaurant businesses, is able to operate with
nominal or deficit working capital because all sales are for cash and inventory
turnover is rapid. Renovation and/or remodeling of existing stores is either
funded directly by Sybra from available cash or, in some instances, is financed
through outside lenders. Construction or acquisition of new stores is generally,
although not always, financed by outside lenders. The Company believes that it
will continue to be able to secure adequate financing on acceptable terms for
new store construction and acquisitions and that cash generated from operations
will be adequate to meet its needs for the foreseeable future, although no
assurances can be given.
On August 7, 1997, Sybra executed a loan commitment letter with Franchise
Finance Corporation of America ("FFCA") to finance the construction of up to 12
new Arby's restaurants during the next two years. Under the terms of the
commitment letter, FFCA has agreed to finance mortgage and equipment loans for
up to 12 new Arby's restaurants to be built by Sybra, to a maximum of $1 million
per location.
The Company maintains, with a bank, a $150 letter of credit that automatically
renews in November of each year.
On April 15, 1998, Sybra, Inc. acquired one operating Arby's restaurant, as
well as sites for the development of two additional Arby's restaurants, all
located in Southern New Jersey, contiguous to Sybra's Eastern region. The
total purchase price of the acquisition, which includes two leased properties
and fee ownership of one property, was approximately $1.35 million, of which
approximately $650 was financed through a sale/leaseback transaction.
On May 1, 1998, Sybra, Inc. acquired four operating Arby's restaurants located
in Michigan, within Sybra's Northern region. The total purchase price of the
acquisition, which includes two leased properties and fee ownership of two
properties, was approximately $4.8 million, of which approximately $3.9 million
was financed through sale/leaseback transactions and leasehold mortgage and
equipment financing.
CAPITAL LOSS CARRY FORWARD
On April 25, 1997, the Company sold its interest in the stock of Bankers
Multiple Line Insurance Company which generated a significant tax loss (see Note
3 of Notes to Consolidated Financial Statements). Due to limitations pursuant to
the Internal Revenue Code and Treasury regulations thereunder, no deferred tax
asset has been recorded for the capital loss carry forward due to the
uncertainty of its existance and realizability.
CAPITAL EXPENDITURES
The Company's capital expenditures were $5.0 million for the six months ended
June 30, 1998 which includes new store development as well as store maintenance,
store remodel and store renovation capital expenditures. The Company anticipates
that Sybra's store maintenance, store remodel and store renovation capital
expenditures in 1998 (which excludes new store development capital expenditures)
will approximate $2.5 million. The level of capital expenditures for new store
development and acquisitions will be dependent upon several factors, including
the number of stores constructed and/or acquired as well as the capital
structure of any such transactions.
17
<PAGE>
ITEM 5. OTHER INFORMATION
On June 30, 1998, the Company acquired eleven operating Arby's restaurants, as
well as one site for the development of an additional Arby's restaurant, all
located within Sybra's Southwestern region. The total purchase price of the
acquisition was approximately $4.1 million, of which approximately $3.9 million
was financed through sale/leaseback transactions, equipment financing and the
assumption of existing indebtedness.
On July 8, 1998, the United States Bankruptcy Court for the Northern District of
Texas, Dallas Division, entered an order approving the settlement of the
Company's claims against certain former officers, directors and advisors of Old
ICH. Pursuant to the Reorganization Plan, these claims were retained as assets
of the Company. Under the terms of the settlement agreement, the Company
received $340,000 in cash as well as 67,652 shares of its own common stock from
the settling parties. In addition, under the settlement agreement, one of the
settling parties has agreed to provide the Company with discounted financial
advisory services worth up to $150,000.
On July 31, 1998 the Company completed the sale of the Perry Park golf course
and real estate development located in Owen County, in Kentucky to Par-Tee LLC,
a Kentucky limited liability company, for $3.1 million in cash.
A recent change in the proxy rules of the Securities and Exchange Commission
limits the circumstances under which the proxy voting card distributed by
registered companies to their shareholders may permit those companies to cast
the votes represented by the proxy voting cards in their sole discretion. As
applied to the Company, the most important limitation is as follows: For
proposals made by a shareholder at the 1999 annual meeting that were not
properly submitted by the shareholder for inclusion in the Company's own proxy
materials, the Company may vote proxies in its discretion about those proposals
only if it has not received notice from the shareholder by March 10, 1999 at the
latest that the shareholder intends to make those proposals at the meeting.
18
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
Exhibit No. Exhibit Title
- ----------- -------------
<S> <C>
10.23 Asset Purchase Agreement, dated as of
March 11, 1998, among Sybra, Inc.,
Richard T. Morath, Toni F. Morath
and certain affiliated Subchapter S
Corporations.
10.24 I.C.H. Corporation Amended and
Restated 1997 Employee Stock
Option Plan.
27.1 Financial Data Schedule
</TABLE>
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, I.C.H.
Corporation has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: August 13, 1998
I.C.H. Corporation
By:/s/ James R. Arabia
-------------------
James R. Arabia
Chairman and Chief
Executive Officer
By:/s/ David A. Brainard
---------------------
David A. Brainard
Chief Financial Officer
20
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
- --------------------------------------------------------------------
<S> <C>
10.23 Asset Purchase Agreement, dated as of
March 11, 1998, among Sybra, Inc.,
Richard T. Morath, Toni F. Morath
and certain affiliated Subchapter S
Corporations.
10.24 I.C.H. Corporation Amended and
Restated 1997 Employee Stock Option
Plan
27 Financial Data Schedule
</TABLE>
21
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("Agreement") is made and entered into as
of March 11, 1998 by and among SYBRA, INC., a Michigan corporation ("Buyer"),
and RICHARD T. MORATH, TONI F. MORATH AND CERTAIN AFFILIATED SUBCHAPTER S
CORPORATIONS LISTED ON THE ATTACHED SIGNATURE PAGES (collectively, the
"Sellers").
WITNESSETH:
WHEREAS, the Sellers currently own those certain Arby's restaurants
specified as units 5420, 5628, 5745, 5854, 6119, 6145, 6208, 6284, 6318, 6355
and 6505 and two tri-facility restaurants each doing business as Chicken
Express, Dogs n' Suds and BLT restaurants located in Palmer, Texas and Ross,
Texas (collectively, the "Restaurants"); and
WHEREAS, Buyer desires to purchase from the Sellers, and the Sellers
desire to sell to Buyer substantially all of the assets used by the Sellers in
connection with the operation of the Restaurants, and the parties hereto desire
to enter into certain other agreements, all upon the terms and conditions set
forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and mutual
representations, warranties. covenants and agreements hereinafter contained, the
parties hereto agree as follows:
ARTICLE 1
PURCHASE AND SALE
1.1 Purchase and Sale of Assets. Subject to the terms and conditions of
this Agreement, at the closing provided for in Section 1.10 hereof (the
"Closing"), Sellers shall sell, transfer, convey, assign and deliver to Buyer,
and Buyer shall purchase, acquire and accept from each of them, all of Sellers'
rights, title and interest in and to the assets (of every type and description,
whether tangible or intangible) and properties, goodwill and business which are
owned or leased and used by each of the Sellers in the operations of their
respective Restaurants (collectively, the "Assets"), excluding, however, all of
the Excluded Assets (defined below). The Assets shall consist of, among other
things, the following:
(a) All of the machinery, furniture, fixtures, equipment, signs,
cash registers, uniforms and other personal property (collectively, the "FF&E")
owned and used by each of the Sellers in the operations of their respective
Restaurants and located on the premises thereof;
(b) All inventories of food, beverages, paper supplies and other
consumables (collectively, the "Inventory") located on the premises thereof;
<PAGE>
(c) All of Sellers' rights, title and interest in and to the
franchise agreements with Arby's, Inc. ("Arby's License Agreements") pertaining
to the Restaurants which are set forth on Schedule 1.1 (c) attached hereto and
all rights for the use of the trademarks, tradenames, and service marks arising
from such agreements (subject to Arby's, Inc.'s ownership of all identifying
marks and logos);
(d) All of each Seller's respective right, title and interest in
and to all of the contracts, agreements, real property leases, personal property
leases, commitments and undertakings (the "Contracts") as identified in Schedule
1.1(d);
(e) All records, technical information, price lists, marketing
information, sales information and employee records which are or have been
maintained by each of the Sellers in connection with the operation of their
respective the Restaurants; and
(f) To the extent assignable, all of each Sellers' right, title
and interest in and to all permits, licenses, authorizations and approvals
relating to the operation of the Restaurants.
1.2 Excluded Assets. There shall be excluded from the Assets being sold
and transferred hereunder the following (the "Excluded Assets"):
(a) Sellers' cash on hand and bank deposits at the time of
Closing;
(b) All accounts receivable, refundable income taxes, prepaid
interest, loans and exchanges and loans receivable;
1.3 Assumption of Liabilities. Except as expressly provided in this
Section 1.3, Buyer shall not assume or be responsible for any liabilities,
obligations or debts of any of the Sellers under or by reason of this Agreement.
Subject to the terms and conditions set forth in this Agreement, Buyer shall
assume, become fully and solely responsible for and shall timely pay, perform
and discharge in full all of the following liabilities, obligations and debts of
each of the Sellers (collectively, the "Assumed Liabilities"):
(a) All of each the Sellers' liabilities, obligations and debts
under the Contracts which come due or relate to time periods from and after the
Closing Date in accordance with the respective terms thereof;
(b) All of each the Sellers' liabilities, obligations and debts
in respect of unpaid rent, charges or other payments for which a Purchase Price
adjustment is made pursuant to Section 1.6 hereof;
(c) Any utility and telephone bills and other similar
liabilities, obligations and debts arising in the ordinary course from the
operations of the Restaurants which relate to time periods from and after the
Closing Date; and
2
<PAGE>
(d) Any other liabilities, expenses or obligations relating to,
based on or arising out of the operations of the Restaurants by Buyer from and
after the Closing Date (it being understood that the Sellers shall remain fully
and solely responsible for, shall indemnify and hold Buyer harmless with respect
to, and shall timely pay, perform and discharge in full any and all liabilities,
expenses or obligations relating to, based upon or arising out of the operations
of the Restaurants on or prior to the Closing Date).
1.4 Purchase Price. Subject only to the adjustments specified in this
Agreement and upon and subject to all other terms and conditions set forth in
this Agreement, in consideration of the sale, assignment, transfer, conveyance
and delivery of the Assets by Sellers pursuant to this Agreement, Buyer shall
pay to the Sellers the sum of Eight Hundred Ninety-Two Thousand Dollars
($892,000), plus an amount equal to the value (at each Seller's cost) of the
Inventory (collectively, the "Purchase Price") payable pursuant to the terms of
Section 1.5 below:
1.5 Payment of Purchase Price. At the Closing, Buyer shall deliver or
cause to be delivered to the Sellers the Purchase Price by wire transfer of
immediately available funds to such bank account or bank accounts as shall be
designated by Sellers in writing prior to the Closing Date.
1.6 Purchase Price Adjustments. The Purchase Price shall be increased or
decreased, as the case may be, by the amount of rent, taxes, assessments and
other expenses prepaid or unpaid by the Sellers as of the Closing Date.
1.7 Allocation of Purchase Price. The Purchase Price shall be allocated
among the Assets in accordance with Schedule 1.7 attached hereto. The foregoing
allocation shall be made in a manner consistent with Section 1060 of the
Internal Revenue Code of 1986, as amended (the "Code"). Each party hereby agrees
that it will not make any return, filing, report or other submission or take any
position with or before any federal, state or local tax agency or other
authority which would conflict or be inconsistent with the allocation provided
in this Section 1.7.
1.8 Taxes. All sales and use taxes arising out of the purchase and sale
of the Assets shall be paid at the Closing by Buyer.
1.9 License Transfer Fees. All license transfer and service or training
fees due and owing to Arby's, Inc. arising out of the purchase and sale of the
Assets shall be paid at the Closing by, and be the exclusive obligation of,
Buyer.
1.10 Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Lawyers Title
Insurance Corporation located in Dallas, Texas on or before June 30, 1998 (the
parties hereto making a good faith effort to close on or before May 1, 1998),
following the satisfaction of all of the conditions to Closing set forth herein,
or on such other date and at such other time or place as the parties may agree.
The date of the Closing is sometimes referred to herein as the "Closing Date".
3
<PAGE>
1.11 Deliveries by Sellers. At the Closing, the Sellers shall deliver or
cause to be delivered to Buyer (unless previously delivered) the following:
(a) this duly executed Agreement;
(b) a duly executed Bill of Sale substantially in the form of
Exhibit A attached hereto;
(c) a duly executed Assignment and Assumption Agreement
substantially in the form of Exhibit B attached hereto (the "Assignment and
Assumption Agreement");
(d) a duly executed Lease Assignment and Assumption Agreement
substantially in the form of Exhibit C attached hereto (the "Lease Assignment
and Assumption Agreement");
(e) an opinion of counsel to the Sellers substantially in the
form of Exhibit D attached hereto;
(f) the books and records of Sellers as provided in Section 2.3
hereof;
(g) copies of all necessary consents, approvals, authorizations
and waivers of all third parties referred to in Section 5.4 hereof;
(h) copies of resolutions of Sellers' Board of Directors or
general partners, as the case may be, authorizing this Agreement and the other
agreements, documents and instruments to be executed and delivered by Sellers
pursuant hereto and the transactions contemplated hereby and thereby; and
(i) all other previously undelivered documents, instruments and
writings required to be delivered by Sellers on or prior to the Closing pursuant
to this Agreement or otherwise required in connection herewith.
1.12 Deliveries by Buyer. At the Closing, the Buyer shall deliver or
cause to be delivered to Sellers (unless previously delivered) the following:
(a) the funds referred to in Section 1.4 hereof;
(b) this duly executed Agreement;
(c) a duly executed Bill of Sale substantially in the form of
Exhibit A attached hereto;
(d) a duly executed Assignment and Assumption Agreement
substantially in the form of Exhibit B attached hereto;
4
<PAGE>
(e) a duly executed Lease Assignment and Assumption Agreement
substantially in the form of Exhibit C attached hereto;
(f) copies of resolutions of Buyer's Board of Directors
authorizing this Agreement and the other agreements, documents and instruments
to be executed and delivered by Buyer pursuant hereto and the transactions
contemplated hereby and thereby; and
(g) all other previously undelivered documents, instruments and
writings required to be delivered by Buyer on or prior to the Closing pursuant
to this Agreement or otherwise required in connection herewith.
1.13 Transfer of Employees. Each of the Sellers shall, effective as of
the Closing Date, terminate the employment of all of the employees who are then
employed by each of the Sellers at the premises of the Restaurants to be
transferred as of the Closing Date (collectively, the "Employees"). Buyer, at
its discretion, may hire any or all of the terminated Employees on or after the
Closing Date (it being understood that any such hired employees will be offered
substantially similar severance arrangements as such employees currently have
with the Sellers). Buyer shall notify Sellers within five (5) business days in
advance of the Closing Date of such anticipated hires, if any.
ARTICLE 2
RELATED MATTERS
2.1 Real Property Contract of Sale. Concurrently herewith, Buyer and the
Sellers shall enter into a contract of sale (the "Real Property Contract of
Sale"), which shall be substantially in the form of Exhibit E attached hereto,
pursuant to which Buyer shall purchase from the Sellers fee title to the real
property underlying units 5420, 5628, 5745, 5854, 6119, 6208 and 6505 (the "Fee
Units").
2.2 Other Agreements. At the Closing, Buyer and the Sellers shall enter
into a Leasehold Assignment and Assumption Agreement substantially in the form
of Exhibit G attached hereto (the "Leasehold Assignment and Assumption
Agreement"), pursuant to which Sellers shall assign and Buyer shall assume
Sellers' lease with respect to a development site located in Woodlands, Texas.
2.3 Books and Records of Sellers. Each Seller agrees to deliver to Buyer
on or as soon as practicable after the Closing Date, as requested by Buyer, all
books and records of such Seller (including, but not limited to, correspondence,
memoranda, books of account, personnel and payroll records and the like)
relating to the ownership and/or operation of any of the Restaurants. All books
and records of each Seller which are not delivered to Buyer hereunder will be
preserved by each Seller for a period of seven (7) years following the Closing
and made available to Buyer and its authorized representatives upon reasonable
notice during normal business hours for purposes of review and/or for purposes
of making copies or extracts therefrom (at Buyer's expense) if so desired by
Buyer. Buyer agrees to make available to each Seller and its
5
<PAGE>
respective authorized representatives during such period as reasonably required
by each Seller the respective books and records previously delivered by each
Seller to Buyer for purposes of review and/or for purposes of making copies or
extracts therefrom if so desired by such Seller.
2.4 Confidentiality; Non-Competition.
(a) The Sellers acknowledge that Buyer would be irreparably
damaged if confidential information about Sellers' businesses with respect to
the Restaurants were disclosed to or utilized on behalf of any person, firm,
corporation or other business organization which is in competition in any
respect with the operation of the Restaurants. The Sellers each covenant and
agree that they will not at any time, and will use their respective best efforts
to cause their respective employees, agents, affiliates and associates (as the
terms "affiliate" and "associate" are defined by the Rules and Regulations
promulgated under the Securities Act of 1933, as amended) not to at any time,
without the prior written consent of Buyer, disclose or use any such
confidential information, except to employees and authorized representatives of
Buyer. In connection therewith, Sellers acknowledge that they will, prior to
Closing, deliver all such confidential information about the Restaurants and the
Assets to Buyer.
(b) In furtherance of this Section 2.4 and to secure the
interests of Buyer hereunder, each Seller agrees that for a period of five (5)
years following the Closing Date (the "Non-Competition Period"), it will not,
directly or indirectly (whether as sole proprietor, partner or venturer,
stockholder, director, officer, employee or consultant or in any other capacity
or employee acting as nominee or agent):
(i) conduct or engage in or be interested in or associated
with any person, firm, association, partnership, corporation or other entity
which conducts or engages, directly or indirectly, in the ownership or operation
of any Arby's restaurant (the "Business") which would generate competition with
any of the Restaurants or any other restaurants in Texas owned by Buyer or any
of its affiliates on the Closing Date, or the ownership or operation of any
other fast food concept within a four (4) mile radius (i.e., unit trade area) of
any of the Restaurants (the "Geographic Area");
(ii) take any action, directly or indirectly, to finance,
guarantee or provide any other material assistance to any person, firm,
association, partnership, corporation or other entity which conducts or engages,
directly or indirectly, in the Business and which would generate competition
with any of the Restaurants or any other restaurants in Texas owned by Buyer or
any of its affiliates on the Closing Date;
(iii) influence or attempt to influence any person, firm,
association, partnership, corporation or other entity who is a contracting party
with Buyer at any time during the Non-Competition Period to terminate any
written or oral agreement with Buyer;
6
<PAGE>
(iv) except for Sam Grant, Pam Buckner, Chris Morath or
Teri Bryant, hire or attempt to hire for employment any person who is employed
by Buyer or attempt to influence any such person to terminate employment with
Buyer; or
(v) call on, solicit or take away as a supplier or
customer or attempt to call on, solicit or take away as a supplier or customer
any person, firm, association, partnership, corporation or other entity that is
a supplier or customer of Buyer, other than activities in the ordinary course of
business relating to fast food concepts located outside the Geographic Area.
(c) It is agreed and understood by and among the parties to this
Agreement that the restrictive covenants set forth above are each individually
essential elements of this Agreement and that, but for the agreement of Sellers
to comply with such covenants, Buyer would not have agreed to enter into this
Agreement. Further, each Seller expressly acknowledges that the restrictions
contained in paragraph (b) of this Section 2.4 are reasonable and necessary to
accomplish the mutual objectives of the parties and to protect Buyer's
legitimate interests in its business and business relationships. Each Seller
further acknowledges that enforcement of the restrictions contained herein will
not deprive it, or any of its agents, servants or employees, or any of them, of
the ability to earn reasonable livings and that any violation of the
restrictions contained in this Agreement will cause irreparable injury to Buyer.
Such covenants of Sellers shall be construed as agreements independent of any
other provision of this Agreement and of each other.
(d) The parties hereto agree that damages at law, including, but
not limited to, monetary damages, will be an insufficient remedy to Buyer in the
event that the restrictive covenants of paragraph (b) of this Section 2.4 are
violated and that, in addition to any remedies or rights that may be available
to Buyer, all of which other remedies or rights shall be deemed to be
cumulative, retained by Buyer and not waived by the enforcement of any remedy
available hereunder, including, but not limited to, the right to sue for
monetary damages, Buyer shall also be entitled, upon application to a court of
competent jurisdiction, to obtain injunctive relief, including, but not limited
to, a temporary, preliminary or permanent injunction, to enforce the provisions
of this Section 2.4 as well as an equitable accounting of all profits or
benefits arising out of any such violation, all of which shall constitute rights
and remedies to which Buyer may be entitled.
(e) If any court determines that the covenant not to compete
contained in this Section 2.4, or any part hereof, is unenforceable because of
the duration or geographic scope of such provision, such court shall have the
power to reduce the duration or scope of such provision, as the case may be,
and, in its reduced form, such provision shall then be enforceable.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
As a material inducement to Buyer to enter into this Agreement and to
perform its obligations hereunder, each of the Sellers hereby represents and
warrants to Buyer with respect to themselves and the Assets which they purport
to own as follows:
3.1 Organization of the Sellers. Each of the Subchapter S corporations
listed on the attached signature pages is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas. Each of the
Sellers has all necessary power and authority to own or lease, operate and sell
its properties and to carry on its business as it is now being conducted.
3.2 Authorization and Approvals. Each of the Sellers has all necessary
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement has been duly and validly authorized by
all necessary action on the part of each of the Sellers. This Agreement
constitutes the legal, valid and binding obligation of each of the Sellers,
enforceable in accordance with its terms, subject to judicial discretion
regarding specific performance or other equitable remedies, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium or other laws
relating to or affecting the enforcement of creditors' rights and remedies
generally. No approvals or consents by any third party, other then Arby's, Inc.
and certain lessors, or any governmental or administrative body or agency or any
court is required in connection with the Sellers' execution and delivery of this
Agreement or the performance of their respective obligations hereunder.
3.3 No Violation. Neither the Sellers' execution and delivery of this
Agreement or the other agreements, documents and instruments to be executed and
delivered by Sellers in connection herewith nor the performance of their
respective obligations hereunder will (a) result in a default under any of the
terms, conditions or provisions of any of the Contracts or any of the Sellers'
respective organizational documents or (b) violate any existing order, writ,
injunction, decree, law, statute, rule or regulation of any court or
governmental authority applicable to either of the Sellers or the Assets.
3.4 Title to Properties. Each of the Sellers has good, valid and
marketable title to all of the Assets. On the Closing Date, the Assets owned by
each of the Sellers are free and clear of any title defects or objections,
liens, mechanic's liens, claims, charges, security interests or other
encumbrances of any kind or nature whatsoever, except for (a) minor
imperfections of title, none of which materially detract from the value or
impair the use of the Assets, (b) liens for current real or property taxes not
yet due and payable, and (c) the liens and encumbrances approved in writing by
Buyer.
3.5 Financial Statements. Sellers have delivered to Buyer financial
statements of the Restaurants as prepared by Sellers' respective accountants.
The financial statements have been
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prepared in accordance with generally accepted accounting principles, practices
and procedures consistently applied through the periods reported upon. Since the
date of such financial statements, there has not been any material adverse
change in the financial condition or results of operations of any of the
Restaurants from those reflected in the latest financial statements, or any
damage, destruction or loss to any assets of the Restaurants, whether covered by
insurance or not, having a material adverse effect on the assets or businesses
of the Restaurants or any other event or condition of any character relating to
and materially affecting the assets or businesses of the Restaurants.
3.6 Condition of FF&E. The FF&E are, and as of the Closing Date will be,
in working condition and repair, normal wear and tear excepted, and none of the
FF&E are in need of repairs, except for ordinary, routine maintenance and
repairs which are not in the aggregate material in cost.
3.7 Inventory. The Inventory is of a quality usable and saleable in the
ordinary course of business of each of the Sellers in the operations of the
Restaurants, and there are no obsolete item or items of below standard quality
under the standards set forth in the Arby's License Agreements. At Closing, the
inventory levels at each Restaurant shall be sufficient for the ordinary course
of operation of such Restaurant, consistent with past practices.
3.8 Contracts. Each of the Sellers has delivered to Buyer complete,
current and correct copies of the Contracts, and no changes have been made
thereto since the date of delivery. Each of the Contracts is in full force and
effect and is valid, binding and enforceable in accordance with its terms with
respect to the parties thereto. There are no existing defaults by any of the
Sellers thereunder.
3.9 Compliance with Laws. To the knowledge of Sellers, the operations by
the Sellers of their respective Restaurants have been conducted in all material
respects in compliance with all applicable laws, statutes ordinances, rules,
regulations, orders, decrees or ruling of all governmental authorities or
agencies having jurisdiction over each of the Sellers. All licenses, permits and
authorizations issued or granted by a federal, state or local governmental
authority or agency which are necessary for the conduct of the business at each
Restaurant are validly held by the Sellers.
3.10 Labor Issues. To the knowledge of Sellers, no strike, picketing or
similar action is pending or threatened against Sellers by their employees or
any labor union. In addition, Sellers are not engaged in any unfair labor
practices in connection with the operation of the Restaurants.
3.11 Litigation. There is no pending or threatened suit, action,
arbitration, proceeding, investigation or inquiry before any court or
governmental or administrative body or agency against the Sellers or any of the
Restaurants. The Sellers are not in violation of or in default under or subject
to any order, judgment, writ, injunction or decree of any court or governmental
or administrative body or agency.
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3.12 Leases. Each of the Restaurants' real property leases or license
agreements, as the case may be (collectively, the "Leases" and each a "Lease"),
and all amendments. modifications and/or extensions thereto or thereof are
listed on Schedule 3.12 hereto. Schedule 3.12 hereto also lists, with respect to
each Lease, the name of the tenant(s) and landlord(s). With respect to the
Leases, (i) the Leases are in full force and effect, are unmodified (other than
listed on Schedule 3.12 hereto), and are binding and enforceable in accordance
with their terms; (ii) all rental and other charges payable pursuant to the
terms and conditions of the Leases have been paid as of the Closing Date; (iii)
the Sellers have not defaulted on any agreement, covenant or condition on the
part of or to be performed by or observed by Sellers pursuant to the terms of
the Leases, and no condition exists which, with the serving of notice, passage
of time, or both, will constitute such a default; (iv) there are no actions or
proceedings pending or threatened by any lessor under any of the Leases; (v) no
lessor holds any deposits for any Seller's account on any Lease; (vi) there are
no defaults by any of the respective lessors of any agreement, covenant or
condition on the part of or to be performed by or observed by such lessors
pursuant to the terms of the Leases; (vii) all reciprocal servitude or similar
agreements benefiting any or by which any real property leased by any Seller
("Leased Property") is bound are in full force and effect and there is no
default by any party thereunder of its obligations; and (viii) each Lease is a
direct lease with the fee owner of the real property. The current expiration
dates and remaining options to extend the Leases are as set forth on Schedule
3.12 hereto, as are the minimum monthly rent and additional rent under the
Leases.
3.13 Zoning and Land Use Matters. To the knowledge of Sellers (a) all
required licenses, permits, certificates and approvals, including building and
use permits, were obtained and remain valid for the construction, use and
occupancy and operation of the Leased Property and the Restaurants located
thereon; (b) the Leased Property and all improvements located thereon are zoned
or have a variance or conditional use permit for the intended use by the zoning
jurisdictions in which it is located; and (c) the Leased Property is in full
compliance with all conditions and requirements of any building permit, use
permits, conditional use permits or zoning classifications, subdivision
approvals, zoning restrictions, building codes, environmental zoning and
land-use laws, and other applicable local, state and federal laws and
regulations and comply with the requirements of all conditions, covenants and
restrictions applicable to the Leased Property.
3.14 Normal Use. None of the Sellers knows of any facts nor have any of
the Sellers failed to disclose any fact which would prevent any of the Leased
Property from being used and operated after the Closing as Arby's Restaurants in
accordance in all material respects with the operational terms of the Arby's
License Agreements.
3.15 Condemnation. None of the Sellers has received any written notice
of any pending or threatened exercise of eminent domain, condemnation,
environmental, zoning, other land-use regulations proceedings or any other
similar action with respect to any of the Leased Property, and none of the
Sellers has received any written notice of any federal, state, county,
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municipal or other governmental plans to restrict or change access from any
highway or road bounding any of the Leased Property.
3.16 Copies. All Leases, nondisturbance agreements, landlord estoppel
certificates, certificates of occupancy, sale/leaseback agreements, leasehold
mortgages and other leases in which one or more of the Sellers is a lessor or
sublessor and which have been delivered or made available to Buyer pursuant to
this Agreement or otherwise in connection with the execution hereof or in
connection with Buyer's due diligence review, are true, complete and correct
copies of the originals of the same documents in the Sellers possession, and the
same have not been modified or amended, except pursuant to documents, copies of
which have been delivered to Buyer.
3.17 Parking, Easements and Related Agreements. Except as set forth in
the Leases, there are no written or oral parking leases, easements, agreements,
grants, licenses, options or any other agreement pursuant to which either Seller
is granted, for use in connection with the Restaurants, parking privileges or
rights, current or perspective, and/or rights of access of any kind or nature in
and to the Leased Property.
3.18 Water, Sewer, Gas, Etc. To the knowledge of Sellers, all water,
sewer, gas, electric, telephone and drainage facilities, and all other utilities
required by applicable law or necessary for the normal use and operation of the
Leased Property and the Restaurants located thereon or by Arby's, Inc.'s
standards are available and are adequate to service the Leased Property and the
Restaurants located thereon.
3.19 Violations. All notes or notices of violations of law or municipal
ordinances, orders or requirements noted in or issued by the Department of
Housing and Building, Fire, Labor, Health or other state or municipal department
having jurisdiction over the Leased Property, against or affecting the Leased
Property on and prior to the Closing Date, shall be complied with by the
Sellers, and the Leased Property shall be free of the same.
3.20 Environmental Protection.
(a) For purposes of this Section 3.20, the following definitions
shall apply:
(i) "Environmental Laws" shall mean all federal, state,
local and foreign laws imposing liability or establishing standards of conduct
for the protection of the environment and human health;
(ii) "Environmental Claim" shall mean any complaint,
summons, citation, notice, directive, order, claim, litigation, investigation,
judicial or administrative proceeding, judgment, letter or other communication
from any governmental agency, department, bureau, office or other authority
having jurisdiction or any third party, involving violations of Environmental
Laws or Releases of Hazardous Materials;
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(iii) "Environmental Liabilities" shall mean any monetary
obligations, losses, damages, costs and expenses (including all reasonable
out-of-pocket fees, disbursements and expenses of counsel, out-of-pocket expert
and consulting fees and out-of-pocket costs for environmental site assessments,
remedial investigations and feasibility studies), fines, penalties, sanctions
and interest incurred as a result of any Environmental Claim filed by any
governmental authority or any third party which relate to any violations of
Environmental Laws or Release of Hazardous Materials generated by any of the
Restaurants;
(iv) "Hazardous Materials" shall mean (A) any element,
compound or chemical that is defined, listed or otherwise classified as a
contaminant, pollutant, toxic pollutant, toxic or hazardous substance, extremely
hazardous substance or chemical. Hazardous waste, medical waste, biohazardous
waste or infectious waste, special waste, or solid waste under Environmental
Laws; (B) petroleum and its refined products; (C) polychlorinated biphenyls; (D)
any substance exhibiting a hazardous waste characteristic (as defined under
Environmental Laws), including, but not limited to, corrosivity, ignitability, .
toxicity or reactivity as well as any radioactive or explosive materials; and
(E) asbestos-containing materials;
(v) "Release" shall mean any spilling, leaking, pumping,
emitting, emptying, discharging, injecting, escaping, leaching, dumping or
disposing of Hazardous Materials (including the abandonment or discarding of
barrels, containers or other closed receptacles containing Hazardous Materials)
into the environment.
(b) To the knowledge of the Sellers, Sellers have obtained all
permits, licenses or authorizations required by Environmental Laws, except where
the failure to obtain any such permit, license or authorization would not have a
material adverse effect upon the Assets or the operations of any of the
Restaurants (a "Material Adverse Effect"), and all such permits. licenses or
authorizations are in full force and effect, except for such permits, licenses
and authorizations which, if not in full force and effect, would not constitute
a Material Adverse Effect.
(c) To the knowledge of the Sellers, the operations of the
Restaurants are in full compliance with all Environmental Laws, except where
such noncompliance would not have a Material Adverse Effect.
(d) To the knowledge of the Sellers, there has been no Release at
any of the Leased Properties or at any disposal or treatment facility which has
received Hazardous Materials generated by any of the Restaurants which will
result in Environmental Liabilities that have a Material Adverse Effect.
(e) To the knowledge of the Sellers, there are no outstanding
Environmental Claims that have a Material Adverse Effect.
3.21 License Agreements. The Sellers have previously delivered or made
available to Buyer true, complete and correct copies of all Arby's License
Agreements and other agreements
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between Arby's, Inc. and any of the Sellers. Set forth on Schedule 3.21 hereto
is a list of all of the Arby's License Agreements, including the license
agreement number, location and date of termination of each Arby's License
Agreement. The Sellers have received no notice of a violation with respect to
any of the Arby's License Agreements and do not know of any event which would
give rise to a violation or default under any of the Arby's License Agreements.
All renewal notices, to the extent required by the Arby's License Agreements,
have been delivered by the Sellers to Arby's, Inc. on a timely basis.
3.22 Contracts for Improvements. At the time of Closing, there will be
no outstanding contracts made by either Seller for any improvements to any of
the Restaurants which have not been fully paid for, and the Sellers shall cause
to be discharged all mechanic's liens or materialman's liens, if any, arising
from any labor or materials furnished to the Restaurants prior to the time of
Closing.
3.23 Improvements and Structural Defects. To the knowledge of Sellers,
the structural portions of the Restaurants and the plumbing, heating, air
conditioning, electrical, mechanical, life safety and other systems therein are
in sufficient operating condition and repair to allow them to operate as
"turn-key" restaurants.
3.24 Brokers and Finders. Neither the Sellers nor any of their
directors, officers. employees or other representatives, as the case may be, has
engaged or employed any broker, finder or agent or has incurred any liability or
obligation to pay any brokerage fees, commissions or finder's fees in connection
with the transactions contemplated by this Agreement.
3.25 Accuracy of Representations and Warranties. Subject to the
qualifications stated herein, no representation or warranty made by any of the
Sellers in this Agreement contains any untrue statement of material fact or
omits to state a material fact necessary in order to make the statements, in
light of the circumstances under which they were made, not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
As a material inducement to the Sellers to enter into this Agreement and
to perform their obligations hereunder, Buyer hereby represents and warrants to
the Sellers as follows:
4.1 Authorization and Approvals. Buyer has all necessary power and
authority to deliver this Agreement and to perform its obligations hereunder.
This Agreement constitutes the legal. valid and binding obligation of Buyer
enforceable in accordance with its terms, subject to judicial discretion
regarding specific performance or other equitable remedies, and except as may be
limited by bankruptcy, reorganization, insolvency, moratorium or other laws
relating to or affecting the enforcement of creditors rights and remedies
generally. No approvals or consents by any third party or any governmental or
administrative body or agency or any court is required in
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connection with Buyer's execution and delivery of this Agreement or Buyer's
performance of its obligations hereunder.
4.2 No Violation. Neither the execution and delivery of this Agreement
or the other agreements, documents and instruments to be executed and delivered
by Sellers in connection herewith nor the performance of the obligations
hereunder will (a) result in a default under any of the terms, conditions or
provisions of any contract, agreement, instrument, commitment or undertaking to
which Buyer is a party or is subject or any of the organizational documents of
Buyer or (b) violate any existing order, writ, injunction, decree, law, statute,
rule or regulation of any court or governmental authority applicable to Buyer.
4.3 Brokers and Finders. Neither Buyer nor any of its employees or
representatives has engaged or employed any broker, finder or agent or has
incurred any liability or obligation to pay any brokerage fees, commissions or
finder's fees in connection with the transactions contemplated by this
Agreement.
4.4 Accuracy of Representations and Warranties. Subject to the
qualifications stated herein, no representation or warranty made by Buyer in
this Agreement contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements, in light of the
circumstances under which they were made, not misleading.
4.5 Brokers and Finders. Neither the Buyer nor any of its directors,
officers, employees or other representatives, as the case may be, has engaged or
employed any broker, finder or agent or has incurred any liability or obligation
to pay any brokerage fees, commissions or finder's fees in connection with the
transactions contemplated by this Agreement.
ARTICLE 5
COVENANTS OF THE SELLERS AND BUYER
Pending the consummation of the transactions contemplated hereunder, the
Sellers and Buyer covenant and agree as follows:
5.1 Conduct of Business. From the date hereof until the Closing Date or
the termination of this Agreement pursuant to Article 9 hereof, each of the
Sellers shall conduct the operations of their respective Restaurants in the
ordinary course of business consistent with prior practices and pursuant to the
terms and provisions of the Arby's License Agreements, as applicable, except as
may be consented to in writing by Buyer. Each of the Sellers shall maintain the
FF&E in good working condition and repair, normal wear and tear excepted. Each
of the Sellers shall continue to meet the contractual obligations incurred by it
in the ordinary course of business and to pay all of each of its obligations as
they mature in the ordinary course of the operations of the Restaurants. Each of
the Sellers shall also use its good faith best efforts to keep available the
services of the Employees, to maintain the Contracts in full force and effect
and to
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preserve its good relations with its suppliers, customers and others with whom
it has business dealings.
5.2 Access to Buyer. Prior to the Closing Date and upon the written
request of Buyer, each of the Sellers shall give Buyer and its counsel,
accountants and other representatives reasonable access, during normal business
hours, to the Restaurant premises, employees, customer books, contracts, records
and all other information pertaining to the Assets and the operations of the
Restaurants as Buyer may reasonably request.
5.3 Compliance with Laws; Preservation of Accuracy of Representations
and Warranties, Etc. Each of the Sellers shall duly comply with all of the laws
applicable to it, and each of the Sellers shall conduct the operations of its
Restaurants and use the Assets in such manner that on the Closing Date the
representations and warranties contained in this Agreement shall be true as
though such representations and warranties were made on and as of such date.
5.4 Consents and Approvals. Each of the Sellers and Buyer shall use
their respective best efforts to acquire all necessary consents, approvals,
authorizations and waivers of all third parties (including, without limitation,
the consent of Arby's, Inc. to the sale of the Restaurants as set forth herein
from Sellers to Buyer and the lessors under the various leases) or governmental
agencies or authorities required to be obtained by them in connection with the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereunder.
5.5 Closing Inventory. On or prior to the Closing Date, representatives
of each of the Sellers and Buyer shall jointly conduct an inventory of all the
Inventory on hand at each of the Restaurants, together with all Inventory on
order as of the Closing Date. The results of this inventory shall be reasonably
satisfactory to the parties and shall be attached hereto as Schedule 5.5 as soon
as practicable after the Closing Date. As of the Closing Date, the Sellers shall
cause all of the Inventory at the Restaurants to remain at the Restaurants for
operational purposes.
5.6 Estoppel Certificates. Within two (2) business days following the
date hereof, the Sellers shall send out for execution estoppel certificates in
the form of Exhibit F attached hereto (the "Estoppel Certificates") to each of
their respective lessors. Each of the Sellers agrees to use its best efforts to
obtain the maximum number of executed Estoppel Certificates prior to the Closing
Date. Each Seller agrees to promptly deliver to Buyer copies of executed
Estoppel Certificates as they are received by Sellers prior to the Closing Date.
5.7 Non-Disturbance Agreements. Each Seller shall use its best efforts
to obtain from any holder of a superior mortgage on any of the Leased Property,
for the benefit of Buyer, an agreement (the "Non-Disturbance Agreements") which
shall provide in substance that so long as the Lease is in effect and Buyer is
not in breach or default beyond applicable grace periods thereunder: (i) Buyer
shall not be joined as a party defendant in any foreclosure action or proceeding
which may be instituted or taken by the holder of such superior mortgage and
(ii)
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Buyer shall not be evicted from the Leased Property nor shall Buyer's leasehold
estate under the Lease be terminated or disturbed, nor shall any of Buyer's
rights under the Lease be affected by reason of any default under such superior
mortgage, any disaffirmance of such superior mortgage or other termination of
such superior mortgage.
5.8 Other Transactions. Until the termination of this Agreement or the
consummation of the transactions contemplated hereby, the Sellers shall not, and
each of the Sellers shall cause its respective directors, officers, employees,
agents, affiliates and advisors not to, directly or indirectly, solicit or
initiate the submission of proposals of offers from, or solicit, encourage,
entertain or enter into any agreement, arrangement or understanding with, or
engage in any discussions with, or furnish any information to, any person or
entity, other than Buyer or a representative thereof, with respect to the
acquisition of all or any part of any of the Sellers or any of their respective
Restaurants, Assets or either Seller's outstanding equity interest in any of the
Subchapter S. Should any Seller or any of their respective affiliates or
representatives, during such period, receive any offer or inquiry relating to
such a transaction, or obtain information that such an offer is likely to be
made, such Seller shall provide Buyer with immediate notice thereof, which
notice shall include the identity of the prospective offeror and the price and
terms of any offer.
5.9 Supplemental Disclosure. Each of the Sellers agrees that, with
respect to the representations and warranties made by it in this Agreement, from
the date hereof until the Closing Date, it shall have the continuing obligation
to promptly supplement or amend the schedules to this Agreement with respect to
any matter hereafter arising or discovered which, if existing or known at the
date hereof, would have been required to be set forth or described in the
schedules to this Agreement; provided, however, that for purposes of the rights
and obligations of the parties hereunder, any such supplemental or amended
schedules and any matters discovered by Buyer in the course of its due diligence
review shall not be deemed to cure any breach of any representation or warranty
made in this Agreement or to have been disclosed as of the date of this
Agreement.
5.10 Other Action. Each of the parties hereto shall use its reasonable
best efforts to cause the fulfillment at the earliest practicable date of all of
the conditions to their respective obligations to consummate the purchase and
sale of the Restaurants and the Assets pursuant to this Agreement.
ARTICLE 6
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
The obligations of Buyer to consummate the transactions contemplated by
this Agreement are subject to the satisfaction by Sellers (or waiver by Buyer)
on or prior to Closing Date of the following conditions:
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6.1 Representations and Warranties. The representations and warranties
made by each of the Sellers herein shall be true and correct in all material
respects on and as of the date hereof and as of the Closing Date with the same
force and effect as though all such representations and warranties had been made
on and as of the Closing Date.
6.2 Covenants and Agreements. All of the covenants and agreements herein
to be complied with and performed by each of the Sellers on or prior to the
Closing Date will have been complied with and performed in all material
respects.
6.3 Consents. Each of the Sellers will have obtained the consent of
Arby's, Inc. to convey, transfer or assign the Arby's License Agreements to
Buyer, and each of the Sellers shall have obtained all other necessary consents,
approvals, authorizations and waivers of all third parties (including, without
limitation, the consents, to the extent required, of the lessors under the
various Leases) or governmental agencies or authorities required to be obtained
by it in connection with the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereunder. Any
item required by this paragraph may be waived in writing by the Buyer.
6.4 Litigation and Claims. No action, suit, proceeding or investigation
by or before any court, administrative agency or other governmental authority
will have been instituted or threatened, and no inquiry will have been received
that in the reasonable opinion of Buyer is likely to lead to any action, suit,
proceeding or investigation to restrain, prohibit or invalidate any of the
transactions contemplated by this Agreement.
6.5 Absence of Changes. There shall not have occurred prior to the
Closing Date (a) any material adverse change in the Assets or the financial
condition or results of operations of any of the Restaurants or (b) the legal
inability of either of the Sellers to convey, assign and transfer the Assets to
Buyer.
6.6 Financing. Buyer shall have obtained firm commitments for the amount
of financing necessary to enable it to pay the Purchase Price to the Sellers;
provided, however, that this condition to Closing shall expire on March 31,
1998.
6.7 Estoppel Certificates. The Sellers shall have used their reasonable
best efforts to obtain and deliver to Buyer executed copies of the Estoppel
Certificates referred to in Section 5.6 hereof from each of their respective
lessors.
6.8 Non-Disturbance Agreements. The Sellers shall have used their
reasonable best efforts to obtain and deliver to Buyer executed copies of the
Non-Disturbance Agreements referred to in Section 5.7 hereof from each holder of
a superior mortgage on any of the Lease Property.
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6.9 Real Property Contract of Sale; Other Agreements. All conditions to
the closing of the Real Property Contract of Sale referred to in Section 2.1
hereof shall have been satisfied or waived. The Sellers each shall have duly
executed the Leasehold Assignment and Assumption Agreement and the Option
Assignment Agreement referred to in Section 2.2 hereof.
ARTICLE 7
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLERS
The obligation of each of the Sellers to consummate the transactions
contemplated by this Agreement is subject to the satisfaction by Buyer (or
waiver by each of the Sellers) on or prior to the Closing Date of the following
conditions:
7.1 Representations and Warranties. The representations and warranties
of Buyer herein shall be true and correct in all material respects on and as of
the date hereof and as of the Closing Date with the same force and effect as
though all such representations and warranties had been made on and as of the
Closing Date.
7.2 Covenants and Agreements. All of the covenants and agreements herein
to be complied with and performed by Buyer on or prior to the Closing Date will
have been complied with and performed in all material respects.
7.3 Consents. Each of the Sellers shall have obtained the consent from
Arby's, Inc. to convey, transfer or assign the Arby's License Agreements to
Buyer.
7.4 Litigation. No action, suit. proceeding, or investigation by or
before any court, administrative agency or other governmental authority shall
have been instituted or threatened, and no inquiry will have been received that
in the reasonable opinion of the Sellers is likely to lead to an action, suit,
proceeding or investigation to restrain, prohibit or invalidate any of the
transactions contemplated by this Agreement.
7.5 Real Property Contract of Sale; Other Agreements. All conditions to
the closing of the Real Property Contract of Sale referred to in Section 2.1
hereof shall have been satisfied or waived. The Buyer shall have duly executed
the Leasehold Assignment and Assumption Agreement and the Option Assignment
Agreement referred to in Section 2.2 hereof or otherwise complied with the
provisions set forth in Section 2.2 hereof.
ARTICLE 8
INDEMNIFICATION
8.1 Survival of Representations. All representations and warranties made
by any party in this Agreement or pursuant hereto shall survive the Closing and
any investigation at any time made by or on behalf of any party for a period of
one (1) year from the Closing Date.
18
<PAGE>
8.2 Agreement of Sellers to Indemnify. Each of the Sellers, jointly and
severally, shall indemnify and defend Buyer and its officers, directors,
employees, representatives, agents, shareholders, partners and affiliates (and
their respective officers, directors, employees. representatives, agents,
shareholders, partners and affiliates) and hold each of them harmless from and
against any loss, claim, liability, cost, damage or expense (including, but not
limited to, all expenses reasonably incurred in investigating, preparing and
defending any litigation or proceeding, commenced or threatened, or any claim or
action whatsoever) (collectively, "Losses") suffered or incurred by any such
indemnified party to the extent arising from (i) any breach of any
representation or warranty of Sellers contained in this Agreement or in any
schedule, certificate, instrument or other document delivered pursuant hereto,
(ii) any breach of any covenant or agreement of Sellers contained in this
Agreement, (iii) any liabilities, obligations, contracts (written or otherwise),
debts, expenses or costs of Sellers of any kind or nature other than the Assumed
Liabilities or (iv) any federal, state, local, foreign or other taxes of Sellers
or with respect to any of the Assets that are due and payable whether on or
before the Closing Date or with respect to any period or portion thereof ending
on or before the Closing Date. Subject to the provisions of the preceding
sentence, payments in respect of the indemnification provided in this Section
8.2 shall be made promptly as Losses shall be incurred.
8.3 Agreement of Buyer to Indemnify. Buyer shall indemnify each of the
Sellers and each of their officers, directors, employees, representatives,
agents, shareholders, partners and affiliates (and their respective officers,
directors, employees. representatives, agents, shareholders, partners and
affiliates) and hold each of them harmless from and against any Losses suffered
or incurred by any such indemnified party to the extent arising from (i) any
breach of any representation or warranty of Buyer contained in this Agreement or
in any schedule, certificate, instrument or other document delivered pursuant
hereto, (ii) any breach of any covenant or agreement of Buyer contained in this
Agreement, (iii) any liabilities, obligations, contracts (written or otherwise),
debts, expenses or costs of Buyer of any kind or nature under the Assumed
Liabilities or (iv) any federal, state, local, foreign or other taxes of Buyer
or with respect to any of the Assets that are due and payable following the
Closing Date or with respect to any period or portion thereof ending after the
Closing Date. Subject to the provisions of the preceding sentence, payments in
respect of the indemnification provided in this Section 8.3 shall be made
promptly as Losses shall be incurred. In addition, if Buyer fails to perform its
obligations under a real property lease assumed by Buyer hereunder thereby
causing Sellers to make payment or have other obligations under such lease, and
if Buyer fails to indemnify Sellers therefor pursuant to this Section 8.3, then
Buyer shall, at the written request of Sellers, assign all of its rights in and
to such leased property to Sellers. Buyer also shall assign to Sellers, subject
to the consent of Arby's, Inc., all rights under the Arby's License Agreement
for such Restaurant. In the event that the Sellers are not made whole by the
assignments contemplated by this paragraph, Buyer shall remain liable to under
this Section 8.3 until such time as Seller is fully compensated.
8.4 Remedies Cumulative. Except as otherwise provided herein, the
remedies provided herein shall be cumulative and shall not preclude the
assertion by any party hereto of any other rights or the seeking of any other
remedies against the other party hereto.
19
<PAGE>
ARTICLE 9
TERMINATION
9.1 Termination. The respective obligations of Sellers and Buyer to
consummate the transactions contemplated by this Agreement may be terminated as
follows:
(a) by mutual written agreement of Buyer and Sellers;
(b) by Buyer, if the condition to Closing set forth in
Section 6.6 hereof has not been satisfied on or prior to March 31, 1998; or
(c) by Buyer or Sellers if the Closing shall not have
occurred on or before June 30, 1998; provided, however, that the party
exercising the termination right provided in this paragraph (c) shall not have
negligently, intentionally or willfully caused the failure of any conditions to
Closing set forth in Articles 5 or 6 hereof to be satisfied prior to such date.
9.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 9.1 hereof, this Agreement shall forthwith
become void and there shall be no liability on the part of any party hereto (or
any of their respective officers or directors), except (i) based upon
obligations set forth in Section 10.2 hereof and (ii) to the extent that failure
to satisfy the conditions of Articles 6 and 7 hereof results from the grossly
negligent, intentional or willful breach, violation or non-compliance by any
party hereto of any covenant, agreement, obligation, representation or warranty
contained in this Agreement or any other agreement referred to herein.
ARTICLE 10
MISCELLANEOUS
10.1 Notices. All notices. requests. demands and other communications
hereunder shall be in writing and shall be delivered personally, sent by
certified mail, postage prepaid, return receipt requested, overnight courier, or
sent by telecopier or other electronic facsimile transmission, as elected by the
party giving such notice:
(a) if to Buyer:
Sybra, Inc.
8300 Dunwoody Place
Suite 300
Atlanta, Georgia 30350
Attn: James R. Arabia
20
<PAGE>
with a copy to:
Pryor, Cashman, Sherman and Flynn
410 Park Avenue
10th Floor
New York, New York 10022
Attn.: Robert H. Drechsler, Esq.
(b) if to Sellers:
c\o Richard T. Morath
Toni F. Morath
3002 Jeremes Landing
Garland, Texas 75043
with a copy to:
Sparks & Rugeley
16 North Caddo
P.O. Box 626
Cleburne, Texas 76033
Attn.: Lane Rugeley, Esq.
Any such notice or other communication will be deemed to have been received upon
actual receipt if personally delivered, one (1) business day following
transmission if sent by facsimile and appropriate confirmation is received or if
sent by overnight courier, or three (3) business days following mailing. Any
party hereto may change its address or facsimile number specified above by
giving written notice to the other party hereto in the same manner as specified
in this Section 10.1.
10.2 Expenses. Except as otherwise expressly provided herein, Buyer
shall pay all of the expenses relating to the negotiation and execution of the
documentation relating to this Agreement and the consummation of the
transactions contemplated hereby; provided, however, that Sellers shall pay all
attorneys' fees, accountants' fees and professional consultants' fees, with the
exclusion of any surveyors' fees, incurred by them in connection herewith and
with the consummation of the transactions contemplated hereby. In addition,
Buyer shall reimburse Sellers at Closing for up to $64,000 of prepayment
expenses relating the Sellers' repayment of its outstanding loan to Ameresco.
10.3 Entire Agreement. This Agreement, including the schedules and
annexes attached hereto, contains the entire understanding of the parties hereto
in respect of its subject matter. There are no other restrictions, promises,
warranties, covenants or understandings other than those expressly set forth
herein. This Agreement supersedes all prior agreements and understandings
between the parties hereto.
21
<PAGE>
10.4 Amendments; Waiver. This Agreement may not be amended,
supplemented, canceled or discharged except by a written instrument executed by
the parties hereto. No failure to exercise and no delay in exercising any right,
power or privilege hereunder shall operate as a waiver hereto, nor shall any
single or partial exercise of any right power or privilege hereunder preclude
the exercise of any other right power or privilege (hereunder or otherwise). No
waiver of any breach of any agreement hereunder or any other agreement shall be
deemed to be a waiver of any preceding or succeeding breach of the same or any
other agreement. No extension of time of performance of any obligations or other
acts hereunder or under any other agreement shall be deemed to be an extension
of the time for performance of any other obligations or any other acts. The
rights and remedies of the parties under this Agreement are in addition to all
other rights and remedies, at law or in equity, that either party may have
against the other.
10.5 Further Assurances. From time to time, at the request of any party
hereto and without further consideration, the other party or parties shall
execute and deliver to such requesting party such documents and take such other
action (but without incurring any material financial obligation) as such
requesting party may reasonably request in order to consummate more effectively
the transactions contemplated hereby, including, without limitation, vesting in
Buyer good, valid and marketable title to the Restaurants and Assets being
transferred hereunder.
10.6 Severability. Any provision of this Agreement or any of the
agreements contemplated hereby that shall be prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or enforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any other jurisdiction.
10.7 Headings. The descriptive headings of the Articles and Sections of
this Agreement are inserted for convenience and identification only and do not
constitute a part of this Agreement for purposes of interpretation.
10.8 Assignment. No party may assign its rights or delegate its duties
under this Agreement without the prior written consent of the other party
hereto. Whenever this Agreement refers to the Buyer or the Sellers, such
reference will be deemed to include the permitted successors and assigns of such
party. The terms and conditions of this Agreement, the obligations imposed and
the rights conferred hereby will be binding upon and inure to the benefit of the
respective permitted successors and assigns of the parties hereto.
10.9 Attorneys' Fees. In the event of any action at law or in equity
with respect to this Agreement or any schedule, annex or other instrument or
agreement required hereunder, the prevailing party in such action or suit shall
be entitled to receive its reasonable attorneys' fees and all other costs and
expenses of such action or suit.
22
<PAGE>
10.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which taken
together shall constitute one and the same Agreement.
10.11 Governing Law. This Agreement will be construed and interpreted
according to the laws of the State of Texas, without regard to conflict of laws
provisions thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
SYBRA, INC.
By: /s/ James R. Arabia
--------------------
Name: James R. Arabia
Title: President
/s/ Richard T. Morath
----------------------
Name: Richard T. Morath
/s/ Toni F. Morath
-----------------------
Name: Toni F. Morath
CLEBURNE RESTAURANTS, INC.
By: /s/ Richard T. Morath
----------------------
Name: Richard T. Morath
Title: President
WEATHERFORD EATERY COMPANY, INC.
By: /s/ Richard T. Morath
-------------------------
Name: Richard T. Morath
Title: President
23
<PAGE>
HENDERSON RESTAURANTS, INC.
By: /s/ Richard T. Morath
----------------------
Name: Richard T. Morath
Title: President
STEPHENVILLE RESTAURANTS, INC.
By: /s/ Richard T. Morath
-------------------------
Name: Richard T. Morath
Title: President
PALMER RESTAURANTS, INC.
By: /s/ Richard T. Morath
-------------------------
Name: Richard T. Morath
Title: President
PARIS RESTAURANTS, INC.
By: /s/ Richard T. Morath
-------------------------
Name: Richard T. Morath
Title: President
SAN ANGELO EATERY CO., INC.
By: /s/ Richard T. Morath
-------------------------
Name: Richard T. Morath
Title: President
24
<PAGE>
GREENVILLE RESTAURANTS, INC.
By: /s/ Richard T. Morath
-------------------------
Name: Richard T. Morath
Title: President
SAN ANTONIO EATERY CO., INC.
By: /s/ Richard T. Morath
-------------------------
Name: Richard T. Morath
Title: President
BROWNWOOD RESTAURANTS, INC.
By: /s/ Richard T. Morath
-------------------------
Name: Richard T. Morath
Title: President
BUFF-PAL RESTAURANTS, INC.
By: /s/ Richard T. Morath
-------------------------
Name: Richard T. Morath
Title: President
25
I.C.H. CORPORATION
AMENDED AND RESTATED
1997 EMPLOYEE STOCK OPTION PLAN
ARTICLE I
Purpose
The I.C.H. Corporation Amended and Restated 1997 Employee Stock Option Plan is
intended to advance the best interests of the Company and its stockholders by
providing executives and other key employees possessing substantial
responsibility for the management and development of the Company and its
subsidiaries with additional incentives to contribute to its growth and
prosperity by allowing such executives and key employees to acquire an ownership
interest in the Company. It is believed that the availability and granting of
stock option awards increases the Company's ability to attract and retain key
personnel with exceptional skills and outstanding experience.
ARTICLE II
Definitions
The following capitalized terms used in the Plan shall have the respective
meanings set forth in this Article:
2.1 Board: The Board of Directors of I.C.H. Corporation.
2.2 Code: The Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder.
2.3 Committee: The Compensation Committee of the Board; provided, however, the
Compensation Committee shall not take any action under this Plan unless it
is at all times composed solely of not less than three "Non-Employee
Directors" within the meaning of Rule 16b-3, as promulgated under the
Securities Exchange Act of 1934, as amended. In the event the Compensation
Committee is unable to act, the Board shall take any and all actions
required or permitted to be taken by the Committee under this Plan.
2.4 Common Stock: The common stock, par value $0.01, of I.C.H. Corporation.
2.5 Company: I.C.H. Corporation and any of its Subsidiaries.
<PAGE>
2.6 Disability: Disability within the meaning of Section 22(e)(3) of the Code,
as determined by the Committee or as defined in the Optionee's Employment
Agreement, if any.
2.7 Effective Date: February 7, 1997.
2.8 Employer: The corporation that employs the employee or Optionee.
2.9 Fair Market Value: Fair Market Value shall mean with respect to a share of
Common Stock the value determined on any relevant date in accordance with
the following provisions:
(i) if the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question, as such price is reported
by the National Association of Securities Dealers on the Nasdaq National
Market or any successor system. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for whI.C.H. such
quotation exists, or
(ii) if the Common Stock is at the time listed on any national Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the national Stock
Exchange determined by the Committee to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for whI.C.H. such
quotation exists, or
(iii) if shares of the Common Stock are not then traded on a
national market (e.g., the over the counter dealers market) or are not
then publicly traded, Fair Market Value shall be determined by the
Committee after taking into account such factors as the Committee shall
deem appropriate.
2.10 ISO: An "incentive stock option" within the meaning of Section 422 of
the Code.
2.11 Non-Employee Director: A director who: (i) is not currently an officer or
employee of I.C.H. Corporation or of any Subsidiary; (ii) (A) does not
receive compensation, either directly or indirectly, for any non-director
service in an amount that would be required to be disclosed under Item
404(a) of Regulation S-K or (B) possess an interest in any other
transaction requiring disclosure
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<PAGE>
under such Item; and (iii) is not engaged in a business relationship
disclosable under Item 404(b) of Regulation S-K.
2.12 Non-ISO: A stock option that is not an ISO.
2.13 Option: A stock option granted under the Plan.
2.14 Option Price: The purchase price of a share of Common Stock under an
Option.
2.15 Optionee: An employee of the Company who has been granted one or more
Options under this Plan.
2.16 Retirement: Retirement on or after age sixty-five, or, with the advance
consent of the Company, at an earlier age.
2.17 Subsidiary: A subsidiary corporation, as defined in Section 424(f) of
the Code.
2.18 Termination Date: A date fixed by the Committee but not later, with
respect to an ISO, than the day preceding the tenth anniversary of the
date on whI.C.H. the Option is granted or, with respect to a Non-ISO, than
the day following the tenth anniversary of the date on whI.C.H.
the Option is granted.
ARTICLE III
Administration
3.1 Except as otherwise provided in the Plan, the Committee shall administer
the Plan and shall have full power to grant Options, construe and
interpret the Plan, establish and amend rules and regulations for its
administration, and perform all other acts relating to the Plan, including
the delegation of administrative responsibilities, whI.C.H. it believes
reasonable and proper.
3.2 The Committee shall consist of not less than three members of the Board,
all of whom shall be Non-Employee Directors, and appointed by the Board.
The members of the Committee shall serve at the pleasure of the Board,
whI.C.H. shall have the power, at any time and from time to time, to
remove members from the Committee or to add members thereto. Vacancies on
the Committee, however caused, shall be filled by the Board. The Board
shall take all steps necessary to assure that the Committee is composed of
Non-Employee Directors within the meaning of Rule 16b-3 as promulgated
under the Securities Exchange
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<PAGE>
Act of 1934, as amended, and that Options granted under this Plan comply
in all respects with the requirements of Rule 16b-3. Options granted
hereunder shall be approved by the Committee. However, if the Committee,
for whatever reason, is unable to act, then Options granted under this
Plan shall be approved by the Board.
3.3 Subject to the provisions of the Plan, the Committee shall establish the
policies and criteria pursuant to whI.C.H. it shall grant Options and
administer the Plan. Subject to the provisions of the Plan, the Committee
shall, in its discretion, determine whI.C.H. employees of the Company
shall be granted Options, the number of shares subject to any such
Options, the dates after whI.C.H. Options may be exercised, in whole or in
part, and the terms and conditions of the Options. This shall include
Options granted with terms and conditions that will permit their
designation as ISOs or Non-ISOs.
3.4 The Committee may at any time, with the consent of the Optionee, in its
sole discretion, cancel any Option and issue to the Optionee a new Option
for an equivalent or lesser number of Common Stock shares, and at a lesser
Option Price.
3.5 Any decision made, or action taken, by the Committee or the Board arising
out of or in connection with the interpretation and administration of the
Plan shall be final and conclusive.
ARTICLE IV
Shares Subject to the Plan
4.1 The total number of shares of Common Stock available for grants of Options
under the Plan shall be 1,500,000, subject to adjustment in accordance
with Article VIII of the Plan. These shares may be either authorized but
unissued shares or treasury shares. If an Option or portion thereof shall
expire, terminate or be cancelled for any reason without having been
exercised in full, the unpurchased shares covered by such Option shall be
available for future grants of Options.
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<PAGE>
ARTICLE V
Eligibility
5.1 Options may be granted to employees of the Company or, with respect to
Non-ISO's, to persons who have been engaged to become employees of the
Company, provided however, that in the latter case, the effective date of
the grant shall be the commencement date of employment. Members of the
Board who are not employees of the Company shall not be eligible for
Option grants hereunder.
ARTICLE VI
Terms of Options
6.1 Option Agreements. All Options shall be evidenced by written agreements
executed by the Company and the Optionee. Such Options shall be subject to
the applicable provisions of the Plan, and shall contain such provisions
as are required by the Plan and any other provisions the Committee may
prescribe. All agreements evidencing Options shall specify the total
number of shares subject to each grant, the Option Price and the
Termination Date. Those Options that comply with the requirements for an
ISO set forth in Section 422 of the Code at the discretion of the
Committee shall be designated ISOs, and all other Options shall be
designated Non-ISOs.
6.2 Option Price. The Option Price, regardless of whether the Option is
intended to be an ISO or Non-ISO shall not be less than the Fair Market
Value of a share of Common Stock on the date the Option is granted.
6.3 Vesting. Unless otherwise determined by the Committee (whI.C.H.
determination shall be evidenced by specification in a written grant
agreement), all Options granted pursuant to this Plan shall vest over a
period of four (4) years, with twenty five (25) percent of the Option
vesting on each of the first, second, third and fourth anniversaries of
the date the Option is granted, subject to accelerated vesting upon
certain events as may be determined by the Committee.
6.4 Period of Exercise. The Committee shall determine the dates after whI.C.H.
Options may be exercised in whole or in part for any reason whatsoever. If
Options are exercisable in installments, installments or portions thereof
that are exercisable and not exercised shall accumulate and remain
exercisable. The
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<PAGE>
Committee may also amend an Option to accelerate the dates after whI.C.H.
Options may be exercised in whole or in part. However, no Option or
portion thereof shall be exercisable after the Termination Date; in
addition, unless the Committee determines otherwise (whI.C.H.
determination shall be evidenced by specification in a written grant
agreement), no Option or portion thereof granted to any Optionee subject
to the restrictions of Section 16(b) of the Securities Exchange Act of
1934, as amended, shall be made exercisable during the six month period
beginning on the date such Option was granted.
6.5 Special Rules Regarding ISOs Granted to Certain Employees. Notwithstanding
any contrary provisions of Section 6.2 and 6.4 of the Plan, no ISO shall
be granted to any employee who, at the time the Option is granted, owns
(directly, or within the meaning of Section 424(d) of the Code) more than
ten percent of the total combined voting power of all classes of stock of
the Employer or of any Subsidiary or Parent Corporation thereof, unless
(a) the Option Price under such Option is at least one hundred and ten
percent (110%) of the Fair Market Value of a share of Common Stock on the
date the Option is granted and (b) the Termination Date of such Option is
a date not later than the day preceding the fifth anniversary of the date
on whI.C.H. the Option is granted.
6.6 Manner of Exercise and Payment. An Option, or portion thereof, shall be
exercised by delivery of a written notice of exercise to the Company and
payment of the full price of the shares being purchased pursuant to the
Option. An Optionee may exercise an Option with respect to less than the
full number of shares for whI.C.H. the Option may then be exercised, but
an Optionee must exercise the Option in full shares of Common Stock. The
price of Common Stock purchased pursuant to an Option, or portion thereof,
may be paid in United States dollars in cash or by check, bank draft or
money order payable to the order of the Company, or, if specifically
permitted under the terms of the Option, through the delivery of shares of
Common Stock with an aggregate Fair Market Value on the date of exercise
equal to the Option Price, or by any combination of the above methods of
payment. The Committee shall determine acceptable methods for tendering
Common Stock as payment upon exercise of an Option and may impose such
limitations and prohibitions on the use of Common Stock to exercise an
Option as it deems appropriate, including, without limitation, any
limitation or prohibition designed to avoid certain accounting
consequences whI.C.H. may result from the use of Common Stock as payment
upon exercise of an option. The Committee may in its discretion allow an
Optionee to exercise his Options through a special sale and remittance
procedure. To the extent the option is exercised for vested shares,
through a special sale and remittance procedure pursuant to whI.C.H. the
Optionee shall concurrently provide irrevocable written instructions to
(a) a Company designated brokerage firm to
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<PAGE>
effect the immediate sale of the purchased shares and remit to the
Company, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate exercise price payable for the
purchase shares plus all applicable Federal, state and local income and
employment taxes required to be withheld by the Company by reason of such
exercise and (b) the Company to deliver the certificates for the purchased
shares directly to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
exercise date.
6.7 Withholding Taxes. The Company may, in its discretion, require an Optionee
to pay to the Company the amount, or make such other arrangements, at the
time of exercise or thereafter, that the Company deems necessary to
satisfy its obligation to withhold Federal, state or local income or other
taxes incurred by reason of the exercise.
6.8 Nontransferability of Options. Each Option shall, during the Optionee's
lifetime, be exercisable only by the Optionee, and neither it nor any
right hereunder shall be transferable otherwise than by will, the laws of
descent and distribution, or, solely with respect to Non-ISO's, a
qualified domestic relations order (as defined in the Code or Title I of
the Employee Retirement Income Security Act, or the rules thereunder) nor
will any Option granted hereunder be subject to attachment, execution or
other similar process. In the event of any attempt by the Optionee to
alienate, assign, pledge, hypothecate or otherwise dispose of an Option or
of any right hereunder, except as provided for herein, or in the event of
any levy or any attachment, execution or similar process upon the rights
of interests hereby conferred, the Company may terminate the Option by
notice to the Optionee and the Option shall thereupon become null and
void.
6.9 Cessation of Employment of Optionee.
Unless otherwise determined by the Committee (whI.C.H. determination shall
be evidenced by specification in a written grant agreement), the following
provisions shall apply upon cessation of employment of the Optionee.
(a) Cessation of Employment other than by Reason of Retirement,
Disability, or Death. If an Optionee shall cease to be employed
by the Company otherwise than by reason of Retirement,
Disability, or death, unless otherwise determined by the
Committee (whI.C.H. determination shall be evidenced by
specification in a written grant agreement) each Option held by
the Optionee, together with all rights hereunder, shall be
exercisable only to the extent exercisable on the date of the
cessation of
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<PAGE>
employment, and shall terminate on the earlier of the Termination
Date or ninety (90) days following the date of cessation of
employment, to the extent not previously exercised; provided,
however, that in the event the Optionee's employment with the
Company is terminated due to his gross misconduct, the Options
granted to such Optionee hereunder shall be null and void after such
termination occurs or such determination is made by the Committee.
In the event any Options are exercised more than ninety (90) days
after an Optionee's Termination Date, and those Options had
previously been designated as ISO's, such Options shall
automatically convert to non-ISO's.
(b) Cessation of Employment by Reason of Retirement or Disability. If an
Optionee shall cease to be employed by the Company by reason of
Retirement or Disability, each Option held by the Optionee shall
remain exercisable, to the extent it was exercisable at the time of
cessation of employment, until the earliest of:
i. the Termination Date;
ii. the death of the Optionee, or such later date not more than
one year after the death of the Optionee as the Committee, in
its discretion, may provide pursuant to section 6.9(c) of the
Plan; or
iii. ninety (90) days following the date of the cessation of the
Optionee's employment by reason of Retirement; or
iv one year after the date of cessation of the
Optionee's employment by reason of Disability;
and thereafter all such Options shall terminate together with all
rights hereunder, to the extent not previously exercised.
(c) Cessation of Employment by Reason of Death. In the event of the
death of the Optionee, while employed by the Company, an Option
may be exercised at any time or from time to time prior to the
earlier of the Termination Date or the first anniversary of the
date of the Optionee's death, by the person or persons to whom
the Optionee's rights under each Option shall pass by will or by
the applicable laws of descent and distribution, to the extent
that the Optionee was entitled to exercise it on the Optionee's
date of death. In the event of the death of the Optionee while
entitled to exercise an option pursuant to Section 6.9(b), the
Committee, in its discretion, may permit such Option to be
exercised at
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<PAGE>
any time or from time to time prior to the Termination Date during a
period of up to one year from the death of the Optionee, as
determined by the Committee, by the person or persons to whom the
Optionee's rights under each Option shall pass by will or by the
applicable laws of descent and distribution; provided, that, such
Option shall be exercisable only to the extent that the Option was
exercisable under Section 6.9(b) above and that the Optionee's
rights under an Option have passed by will or by the applicable laws
of descent and distribution; and further provided that the Option
and any exercise thereof by any person shall be subject to all terms
and conditions of the Plan and the Option applicable to the
Optionee.
6.10 Notification of Sales of Common Stock. Any Optionee who disposes of shares
of Common Stock acquired upon the exercise of an ISO: (a) within two years
after date of the grant of the ISO under whI.C.H. the shares were
acquired; (b) within one year after the transfer of such shares to the
Optionee; or (c) more than ninety (90) days after his termination of
employment with the Company, shall notify the Company of such disposition
and of the amount realized upon such disposition. In the event an Optionee
terminates employment with the Company due to Disability, the words
"ninety (90) days" in this Section 6.10 shall be replaced with the words
"one year."
ARTICLES VII
Limitation on Grants of ISOs
7.1 The aggregate Fair Market Value (determined as of the date the Option is
granted) of the Common Stock whI.C.H. any employee may exercise for the
first time in any calendar year under this or any other stock option plan
maintained by the Employer or by any Subsidiary as an ISO shall be limited
to $100,000 or such higher amount as may be permitted from time to time
under the Code.
ARTICLE VIII
Adjustments
8.1 If (a) the Company shall at any time be involved in a transaction to
whI.C.H. Section 424(a) of the Code is applicable; (b) the Company shall
declare a dividend payable in, or shall subdivide or combine, its Common
Stock; or (c) any other event shall occur whI.C.H. in the judgment of the
Committee necessitates action by way of adjusting the terms of the
outstanding Options, the Committee
-9-
<PAGE>
shall take any such action, including price adjustment, as in its judgment
shall be necessary to preserve the Optionee's rights substantially
proportionate to the rights existing prior to such event, and to the
extent that such action shall include an increase or decrease in the
number of shares of Common Stock subject to outstanding Options, the
number of shares available under Article IV above shall be increased or
decreased, as the case may be, proportionately. The judgment of the
Committee with respect to any matter referred to in this Article shall be
conclusive and binding upon each Optionee.
ARTICLE IX
Amendment and Termination of Plan
9.1 The Board may at any time, or from time to time, suspend or terminate the
Plan in whole or in part or amend it in such respects as the Board may
deem appropriate.
9.2 No amendment, suspension or termination of this Plan shall, without the
Optionee's consent, alter or impair any of the rights or obligations under
any Option theretofore granted to an Optionee under the Plan.
9.3 The Board may amend this Plan, subject to the limitations cited above, in
such matter as it deems necessary to permit the granting of Options
meeting the requirements of future amendments or issued regulations, if
any, to the Code and Rule 16b-3.
ARTICLE X
Government and Other Regulations
10.1 The obligation of the Company to issue, or transfer and deliver shares for
Options exercised under the Plan shall be subject to all applicable laws,
regulations, rules, orders and approvals whI.C.H. shall then be in effect
and required by governmental entities and any stock exchanges on whI.C.H.
Common Stock is traded.
10.2 In addition to, and without limiting the Company's rights and obligations
under the preceding paragraph, the Committee may postpone any exercise of
an Option for such time as the Committee in its discretion may deem
necessary in order to permit the Company with reasonable diligence (i) to
effect or maintain
-10-
<PAGE>
the listing of the Common Stock in the New York Stock Exchange or to
effect or maintain registration under the Securities Act of 1933, as
amended, of the Plan or the shares issuable upon the exercise of the
Option; (ii) to determine that such shares and Plan are exempt from
registration; or (iii) to comply with any applicable laws, regulations,
rules, orders, or approval requirements then in effect and required by
governmental entities or any stock exchange on whI.C.H. the Common Stock
is traded. Any such postponement shall not extend the term of an Option,
and neither the Company nor its directors or officers shall have any
obligation or liability to any Optionee or Optionee's successor with
respect to any shares subject to an Option that lapses unexercised because
of such postponement.
ARTICLE XI
Miscellaneous Provisions
11.1 Plan Does Not Confer Employment or Stockholder Rights. The right of
the Company to terminate (whether by dismissal or otherwise) the
Optionee's employment with it at any time at will, or as otherwise
provided by any agreement between the Company and the Optionee, is
specifically reserved. Neither the Optionee nor any person entitled to
exercise the Optionee's rights in the event of the Optionee's death
shall have any rights of a stockholder with respect to the shares
subject to each Option, except to the extent that, and until, such
shares shall have been issued upon the exercise of each Option.
11.2 Plan Expenses. Any expenses of administering this Plan shall be borne
by the Company.
11.3 Use of Exercise Proceeds. Payments received from Optionees upon the
exercise of Options shall be used for the general corporate purposes of
the Company, except that any Common Stock received in payment may be
retired, or retained in the Company's treasury and reissued.
ARTICLE XII
Effective Date and Shareholder Approval
12.1 The Effective Date of the Plan is February 7, 1997. The Plan has been
approved by Shareholders pursuant to the First Amended Joint Plan of
Reorganization under Chapter 11 (Dated: November 15, 1996), filed in the
-11-
<PAGE>
United States Bankruptcy Court for the Northern District of Texas, Dallas
Division and the applicable disclosure statement filed in such Court with
respect thereto. The Bankruptcy Court authorized and approved the adoption
of the Plan. Certain amendments to the Plan were approved by shareholders
at the Annual Meeting of Shareholders held on May 29, 1998.
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTERLY PERIOD
ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000049588
<NAME> I.C.H. Corporation Financial Data Schedule
<CURRENCY> $US
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 4,070
<SECURITIES> 0
<RECEIVABLES> 79
<ALLOWANCES> 0
<INVENTORY> 1,538
<CURRENT-ASSETS> 9,219
<PP&E> 66,278
<DEPRECIATION> 39,166
<TOTAL-ASSETS> 81,859
<CURRENT-LIABILITIES> 18,564
<BONDS> 0
0
0
<COMMON> 26
<OTHER-SE> 12,009
<TOTAL-LIABILITY-AND-EQUITY> 81,859
<SALES> 30,850
<TOTAL-REVENUES> 31,244
<CGS> 7,976
<TOTAL-COSTS> 28,927
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,439
<INCOME-PRETAX> 878
<INCOME-TAX> 347
<INCOME-CONTINUING> 531
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 531
<EPS-PRIMARY> .18
<EPS-DILUTED> .17
</TABLE>
