UNITED STATES
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
(X) Annual Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 For the Fiscal Year Ended December 31, 1998
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
Commission File Number: 1-7697
I.C.H. Corporation
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(Exact Name of Registrant as Specified in its Charter)
Delaware 43-6069928
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(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
9255 Towne Centre Drive, Suite 600, San Diego, CA 92121
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (619) 587-8533
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period than the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes (X) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
The aggregate market value of the voting stock held by non-affiliates of the
Registrant on March 26, 1999 was $17,167,615, based on the closing price of the
Common Stock as provided by the American Stock Exchange on March 26, 1999.
As of March 26, 1999, there were outstanding 2,821,582 shares of the
Registrant's Common Stock, par value $0.01 per share.
<PAGE>
ITEM 1. BUSINESS
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GENERAL
I.C.H. Corporation ("ICH", and together with its operating subsidiaries, the
"Company"), a Delaware corporation, owns and operates quick-service restaurants
under the Arby's name as well as full-service family dining restaurants under
the Lyon's name through its wholly-owned subsidiaries. The Company operates its
Arby's restaurant units as a franchisee of, and pursuant to license agreements
with Arby's, Inc., the franchisor of the Arby's brand. The Company owns the
Lyon's brand and all related trademarks and goodwill.
The Company's principal executive offices are located at 9255 Towne Centre
Drive, San Diego, California 92121, and its telephone number is (619) 587-8533.
On April 30, 1997, the Company acquired all of the outstanding capital stock of
Sybra, Inc. ("Sybra"), the second largest franchisee of Arby's restaurants. The
aggregate purchase price was approximately $39.8 million which included the
repayment of $23.7 million of Sybra indebtedness and an additional $2 million of
acquisition indebtedness due to the seller within two years. Concurrently with
the Company's acquisition of Sybra, Sybra entered into a sale/leaseback
transaction on 61 of its restaurant sites with U.S. Restaurant Properties, Inc.
("USRP"). As of December 31, 1998, Sybra owned and operated 181 Arby's
restaurants located primarily in Michigan, Texas, Pennsylvania, New Jersey,
Florida and California.
On July 31, 1998, the Company sold its Perry Park golf course and real estate
development, located in Owentown, Kentucky, for $3.1 million in cash.
On December 14, 1998, the Company acquired substantially all of the assets of
the Lyon's restaurant chain, through a newly-formed wholly-owned subsidiary,
Lyon's of California, Inc. ("Lyon's"). The aggregate purchase price was
approximately $22.6 million, of which $16.5 million was financed by USRP
(Finance) LLC. Lyon's owns and operates a chain of 73 full-service family dining
restaurants located in northern California and Oregon.
The Company is the post-reorganization successor to ICH Corporation ("Old ICH")
which emerged from Chapter 11 effective February 19, 1997. See Note 1 to the
Consolidated Financial Statements for additional information concerning the
Chapter 11 case and related plan of reorganization of Old ICH.
BUSINESS STRATEGY
The Company's overall business strategy is to increase profitability through
acquisitions and investments that, in the judgment of the Company's management,
create value for shareholders.
Currently, the Company's primary focus is to expand its operations through the
acquisition and construction of additional Arby's restaurants, as well as
improving the profitability, quality of operations and competitive position of
its existing Arby's and Lyon's restaurants. In addition, the Company will
consider the acquisition of operating restaurants and/or restaurant chains other
than Arby's and Lyon's which, in the judgment of the Company's management, can
ultimately increase the Company's profitability and create value for its
shareholders.
The Company believes that certain of the markets in which it currently operates
Arby's restaurants are underserved, and will thus provide opportunities for
acquisition or construction of new restaurants to further penetrate those
existing markets, as well as markets in which the Company has been granted
exclusive development rights by the franchisor. In addition, the Company
believes that the size of the nationwide Arby's restaurant system will continue
to present opportunities for selective growth through acquisitions.
2
<PAGE>
Consistent with the Company's strategy of expanding its operations through the
acquisition of existing Arby's restaurants, Sybra acquired a total of 25
operating Arby's restaurants during 1998.
To implement the Company's strategy of expanding through the construction and
development of new Arby's restaurants, Sybra has entered into a development
agreement with Arbys, Inc., the franchisor of Arby's restuarants, which requires
Sybra to construct a total of 210 new Arby's restaurants over ten years (the
"Development Agreement"). This agreement supersedes a prior agreement which
required the development of 150 new restaurants during the same time period. The
Development Agreement grants Sybra the exclusive right to build Arby's
restaurants in certain areas, primarily in certain northeast markets in
Pennsylvania, Washington D.C., Maryland and New Jersey, as well as the exclusive
right to build Arby's restaurants in and around the Detroit and Dallas/Fort
Worth markets.
Sybra opened a total of eight new Arby's restaurants during 1998 (not including
the 25 restaurants which were acquired in 1998), exceeding the 1998 annual
minimum opening requirement of six restaurants set out in the Development
Agreement. During the first quarter of 1999, Sybra opened one new Arby's
restaurant. The number of Arby's restaurants opened in the future may vary
depending upon general economic conditions, variability in the time required to
obtain necessary permits, the availability of financing and the Company's
ability to locate additional suitable restaurant sites. However management
currently believes that Sybra will, at a minimum, meet its annual requirement
under the Development Agreement (12 restaurants) for 1999.
As part of the Company's overall strategy of improving the quality of operations
of its existing Arby's and Lyon's restaurants, the Company closely monitors
factors affecting the overall profitability of its restaurant operations as well
as the profitability of individual restaurants. During 1998, the Company
believes it has made improvements in several factors bearing on the overall
profitability of its restaurant operations, including reductions in labor and
general and administrative costs as a percentage of sales, and increased
efficiencies in marketing and advertising. During 1998, the Company also closed
two restaurants due to unprofitability.
RESTAURANT OPERATIONS
The Company conducts its restaurant operations principally through two
wholly-owned subsidiaries, Sybra, Inc. and Lyon's of California, Inc.
Sybra, Inc.
- -----------
As of December 31, 1998, Sybra operated 181 Arby's restaurants as a franchisee
of Arby's, Inc. 156 of those restaurants are free-standing units, with the
remaining 25 restaurants located in shopping malls or as part of food courts
within malls.
Menu
Each of Sybra's Arby's restaurants offers a diverse menu containing a variety of
food items including roast beef, chicken, turkey and ham sandwiches. Arby's
restaurants are generally known for their roast beef sandwiches, which are made
from thinly-sliced beef which is freshly-roasted at each restaurant. The Arby's
menu also typically includes potato products, salads and soft drinks. In
addition, the restaurants sell a variety of promotional products, normally on a
limited-time basis. A number of Sybra's Arby's restaurants also serve breakfast,
including eggs and breakfast meat selections.
3
<PAGE>
Site Selection
Site selection for new restaurants is made by Sybra's real estate and
development department, subject to acceptance by the franchisor, Arby's, Inc. A
typical market area will have a population base of at least 30,000 people within
a three-mile radius. Within the potential market area, Sybra evaluates major
retail and office concentrations and major traffic arteries to determine focal
points. Site specific factors which Sybra considers include visibility,
convenience of access, proximity to direct competition, access to utilities,
local zoning regulations and various other factors. Sybra's current business
strategy is to locate new restaurants, whenever possible, on the grounds of or
nearby to shopping centers.
Restaurant Layout and Operations
Sybra's Arby's restaurants (excluding mall and food court locations) typically
range from 2,100 to 3,200 square feet, with a seating capacity of between 60 and
90 people and are typically open from 10 a.m. to 11 p.m., with some restaurants
open for extended evening hours. Approximately 80% of Sybra's restaurants
feature drive-thru windows.
Raw Materials
As an Arby's franchisee, Sybra complies with recipe and ingredient
specifications provided by the franchisor, and purchases all food and beverage
inventories and restaurant supplies from independent vendors. Arby's, Inc. does
not sell food or supplies to its franchisees. Sybra and all other Arby's
franchisees are members of ARCOP, Inc. ("ARCOP"), a non-profit cooperative
purchasing organization. ARCOP facilitates negotiation of national contracts for
food and distribution, taking advantage of the large purchasing requirements of
the member franchisees. Since Arby's franchisees are not required to purchase
any food products or supplies from Arby's, Inc., ARCOP facilitates control over
food supply costs and avoids franchisor conflicts of interest.
Sybra purchases soft drink products from the Coca-Cola Company and its
affiliates. In the Southwestern region, Dr. Pepper products are also purchased.
Most other food items and supplies purchased by Sybra are warehoused and
distributed by AmeriServe, an independent distributor.
Sybra has not experienced any significant shortages of food, beverages,
equipment, fixtures or other products which are necessary to restaurant
operations. The Company anticipates no such shortages and believes that
alternate suppliers are available in the event such shortages occur.
4
<PAGE>
Lyon's of California, Inc.
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As of December 31, 1998, the Company owned and operated 73 full-service family
dining restaurants operating under the "Lyon's" name and located in California
and Oregon, through its wholly-owned subsidiary, Lyon's of California, Inc. The
Lyon's restaurant chain was established in northern California more than 30
years ago, and enjoys nearly 100% brand name recognition in that area. Through
its decades of continuous operation, the Lyon's chain has developed and retained
a loyal customer base by offering its customers traditional American classic
foods, sold at value price points and served in a friendly and relaxed
environment. Because many of the Company's Lyon's restaurants have occupied
their current locations for decades, they have become integral parts of the
communities they serve and enjoy prime locations.
Menu
Each Lyon's restaurant offers a wide variety of traditional American classic
foods served three full meals a day, together with desserts, fountain treats and
alcoholic and non-alcoholic beverages. The Lyon's menu features such signature
dishes as prime rib (three cut selections), fresh fish, steaks and "San
Francisco" stir-fry. To accompany their entrees, Lyon's customers are offered
their choice of any two homestyle side dishes from a selection that includes
fresh mashed potatoes, creamed spinach, fresh vegetables, cole slaw, pasta
salad, cornbread stuffing and others, and a variety of salads and appetizers.
The dessert and fountain selections include pies and pastries as well as ice
cream, espresso-based beverages and shakes. All Lyon's restaurants offer a full
complement of beer, wine and other alcoholic beverages with meals. Some Lyon's
restaurants also feature separate bar/lounge areas. This full selection of
alcoholic beverages is unique to the segment in which the Lyon's restaurants
operate and provides a significant brand differentiation and competitive
advantage.
While committed to offering the freshest foods available, Lyon's also provides
its customers with a significant dining value. Average checks for breakfast,
lunch and dinner at Lyon's approximate $6.00, $7.60 and $8.70, respectively,
with an overall average of $7.50.
Restaurant Layout and Operations
The Lyon's restaurants range in size from 3,600 to 8,200 square feet and 103 to
258 seats, and average approximately 5,100 square feet and 150 seats. The
Company leases all of the Lyon's restaurants locations, and owns 16 of its
restaurant buildings. Many of the Lyon's restaurants occupy high-visibility and
high-traffic locations, near major thoroughfares, important intersections and
shopping centers. The Company believes that these prime locations, many of which
have operated under the Lyon's banner for decades, cannot be easily replicated
by competing restaurant companies, and thus provide an important competitive
advantage for Lyon's. 24 of the Lyon's restaurants operate 24 hours a day, while
the remaining 49 restaurants are typically open from 6:00 a.m. to 12:00 p.m.
Raw Materials
Lyon's utilizes a centralized purchasing system to purchase its food, beverages
and other supplies from a variety of vendors, and has well developed, long-term
relationships with its key suppliers. Individual restaurant managers are able to
place orders for required items directly with the appropriate suppliers, and
orders are typically drop-shipped to each restaurant by the vendor. As a result,
Lyon's is able to buy many of its products at costs that are among the lowest in
the industry and is able to operate without a central warehouse. Lyon's has not
experienced any significant shortages of food, beverages, equipment, fixtures or
other products, which are necessary to restaurant operations. The Company
anticipates no such shortages and believes that alternate suppliers are
available in the event any such shortages occur.
5
<PAGE>
FRANCHISE AND DEVELOPMENT AGREEMENTS
General
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Sybra operates all of its Arby's restaurants as a franchisee of Arby's, Inc. The
Company owns the "Lyon's" brand and all related trademarks, service marks and
goodwill.
Sybra's relationship with Arby's, Inc. is governed by (1) the Development
Agreement, which grants the Company exclusive franchise territories and (2) unit
franchise agreements (collectively, "Franchise Agreements"), one of which is
executed in connection with the opening of each new Arby's restaurant. These
agreements provide Arby's, Inc. with significant rights regarding Sybra's
business operations.
Any acquisition by Sybra of an existing Arby's restaurant, or the development by
Sybra of a new Arby's restaurant, requires the prior consent of Arby's, Inc.
Sybra is prohibited from operating, managing or having a controlling interest or
a fifteen percent (15%) or greater interest in any competing business offering
roast beef sandwiches for sale to consumers and located within the Protected
Area (as defined in the appropriate Franchise Agreement) for each individual
Arby's restaurant it operates.
Sybra's agreements with Arby's, Inc. also restrict the sale, assignment or
transfer of any substantial portion of the assets of Sybra without the prior
written consent of Arby's, Inc. However those agreements do not require approval
of the assignment, transfer or pledge of all or any part of the assets of Sybra,
excluding the license agreements, or all or any part of the stock of Sybra to
banks or other lending institutions as collateral security for loans made
directly to or for the benefit of Sybra.
Should Sybra fail to comply with the Development Agreement, Arby's, Inc. could
terminate the exclusive nature of Sybra's franchises in such covered territory.
In addition, certain events of default under a Franchise Agreement give Arby's,
Inc. the right to terminate the franchise rights of the Sybra restaurant
governed by such Franchise Agreement. A loss of development rights or, depending
upon the aggregate number of restaurants affected, a loss of franchise rights,
could have a material adverse effect on the Company.
Sybra is also required to operate each of its Arby's restaurants in accordance
with certain standards contained in the Arby's, Inc. Operations Manual (the
"Operations Manual"). Arby's, Inc. periodically monitors the operations of
Sybra's restaurants and notifies Sybra of any failure to comply with any of the
Franchise Agreements, the Development Agreement or the Operations Manual.
6
<PAGE>
Development Agreement
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Effective as of November 1, 1997, and as amended May 12, 1998, Sybra and Arby's,
Inc. entered into a Development Agreement covering nine counties in the
Harrisburg-Lancaster-Lebanon-York Dominant Marketing Area ("DMA"), two counties
in the Detroit DMA, 12 counties in the Philadelphia DMA, three counties in the
Dallas-Fort Worth DMA, seven counties in the Washington, D.C.-Hagerstown, MD
DMA, and nine counties in the New York DMA as well as portions of Baltimore
County, MD and Burlington County, NJ. Under the terms of the Development
Agreement, Sybra has been granted exclusive rights to develop and operate Arby's
restaurants within the covered territories, and is required to develop and
commence construction of new Arby's restaurants in accordance with schedules set
out in the Development Agreement. Pursuant to the Development Agreement, Sybra
is required to submit to Arby's, Inc. for its acceptance each proposed
restaurant site and the plans for each new restaurant. Under the Development
Agreement, Sybra is currently obligated to open or commence construction of a
minimum of 12 restaurants in 1999, 16 restaurants in 2000, 26 restaurants in
2001, and 30 restaurants in each year beginning in 2002 through and including
2006. Although no assurances can be given, Sybra currently anticipates meeting
or exceeding all of the development requirements under the Development
Agreement.
Unit Franchise Agreements
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Sybra operates each of its Arby's restaurants under a Franchise Agreement with
Arby's, Inc. Each Franchise Agreement provides the Company the right to operate
an Arby's restaurant for a period of 20 years. The Franchise Agreements are
renewable by the Company, subject to certain conditions, generally for 20 years
(the financial terms of any renewal period may differ from those in effect
during the initial term). Each Franchise Agreement gives Sybra the exclusive
right to operate an Arby's restaurant in a particular geographic area, defined
by either a radius restriction or specific boundaries. The Franchise Agreements
also require Sybra to make royalty payments to Arby's, Inc. equal to a fixed or
variable percentage of each restaurant's revenue. For restaurants opened
pursuant to the Development Agreement, those royalty payments are set at four
percent of sales.
Pursuant to the Franchise Agreements, Arby's, Inc. prescribes the designs, color
schemes, signs and equipment to be utilized in each restaurant, and determines
the menu items as well as the formulas and ingredients for the preparation of
food and beverage products. Each new restaurant opened within an area covered by
the Development Agreement will be governed by a Franchise Agreement, with an
initial licensing fee of $25,000. Of that license fee, $10,000 will be deducted
from monies already placed on deposit with Arby's, Inc. in accordance with the
Development Agreement.
GOVERNMENT REGULATIONS
The restaurant business is subject to extensive federal, state and local
government regulations relating to the development and operation of restaurants,
including regulations relating to building, ingress and egress, zoning,
employment issues, the preparation and sale of food and the sale of alcoholic
beverages. The Company is subject to federal and state environmental
regulations, although such regulations have not historically had a material
effect on the Company's operations. The Company is also subject to laws
governing relationships with employees, such as minimum wage requirements,
health insurance coverage requirements and laws regulating overtime working
conditions and employee citizenship. On September 1, 1997, the balance of
Congress's 1996 minimum wage increase to $5.15 per hour was put into effect.
Further increases in the minimum wage or mandatory health care coverage could
have a material adverse effect on the Company.
SEASONAL AND QUARTERLY RESULTS
Restaurant sales are moderately seasonal and historically January, February and
March generate the lowest sales volumes for the Company's restaurants. As a
result, operating margins for the first quarter tend to be slightly lower than
those for the remaining quarters due to lower sales providing a smaller
spread to cover fixed costs.
7
<PAGE>
TRADEMARKS AND SERVICE MARKS
The Franchise Agreements grant the Company the right to use certain registered
trademarks and service marks of Arby's, Inc. The names "Arby's," "Arby's
Restaurants" and "Arby's Roast Beef Restaurants" were adopted to identify and
promote Arby's. The Company believes that these marks are of material importance
to the operation of its Arby's restaurants.
The Company owns the trademark and service marks used in connection with the
operation of its Lyon's restaurants. The Company believes that these marks are
of material importance to the operation of its Lyon's restaurants.
COMPETITION
The restaurant business is highly competitive and is affected by changes in the
public's eating habits and preferences, population trends and traffic patterns,
as well as by local and national economic conditions affecting consumer spending
habits, many of which are beyond the Company's control. Key competitive factors
in the industry are the quality and value of the food products offered, quality
and speed of service, attractiveness of facilities, advertising, name brand
awareness and image and restaurant location. A number of the Company's
significant competitors are larger or more diversified and have substantially
greater resources than the Company.
The Company's operations, as with the restaurant industry generally, can be
significantly affected by factors such as changes in local, regional or national
economic conditions, changes in consumer tastes, severe weather and consumer
concerns about nutritional quality of the various food products offered at the
Company's restaurants. In addition, factors such as changes in food, labor and
energy costs, the availability and cost of suitable restaurant sites and the
availability of an adequate number of hourly-paid employees can also affect the
restaurant industry.
EMPLOYEES
As of December 31, 1998, the Company had approximately 7,200 employees, none of
whom are subject to collective bargaining agreements with the Company or any of
its subsidiaries. Employees at five of the Company's Lyon's restaurants are
represented by Hotel Employees and Restaurant Employees Local Union 340, and
were previously subject to collective bargaining agreements with the former
owner of the Lyon's chain. The Company is currently in negotiations with
representatives of such local union regarding collective bargaining agreements
for those five restaurants. Many of the Company's restaurant employees work
part-time, and many are paid at or slightly above minimum wage levels. The
Company considers its employee relations to be generally good.
ITEM 2. PROPERTIES
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As of December 31, 1998, the Company operated 254 restaurants in the areas
listed below. The Company's land and building leases generally are for terms of
20 years with one or more five-year renewal options. Certain leases require the
payment of additional rent equal to a percentage of annual sales in excess of
specified amounts.
The Company leases office space in San Diego, California and New York, New York
for its corporate and executive offices and in Foster City, California; Flint,
Michigan; Sinking Spring, Pennsylvania; Plano, Texas and Tampa, Florida for its
regional operations centers.
8
<PAGE>
The following table sets forth the locations of the restaurants
operated by the Company (by state) as of December 31, 1998:
Sybra Lyon's
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California 9 68
Florida 21 -
Maryland 2 -
Michigan 49 -
New Jersey 5 -
Oregon - 5
Pennsylvania 26 -
Texas 66 -
Virginia 3 -
--- ---
Total: 181 73
=== ===
ITEM 3. LEGAL PROCEEDINGS
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The Company is not a party to any pending legal proceedings which, in
management's belief, are likely to have a material adverse effect on the
Company, nor to any other pending legal proceedings other than ordinary, routine
litigation incidental to its business. The Company also maintains customary
commercial, general liability, workers' compensation and directors and officers'
insurance policies.
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 of Old ICH, these claims were retained
as assets of the Company. Under the terms of the settlement, the Company
received $340,000 in cash as well as $271,000 in cash proceeds from the sale of
67,652 shares of its own common stock which were surrendered by the settling
parties. In addition, under the settlement agreement one of the settling parties
agreed to provide the Company with discounted financial advisory services worth
up to $150,000.
9
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
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None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
- -------------------------------------------------------------------------
MATTERS
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MARKET INFORMATION
The Company's common stock commenced trading on the American Stock Exchange on
July 23, 1997 under the symbol "IH." The following table sets forth, for the
periods indicated, the applicable range of the high and low sales prices for the
Company's common stock on the American Stock Exchange.
1997 1998
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High Low High Low
------ ----- ------ -----
First Quarter N/A N/A 4-1/16 3-1/8
Second Quarter N/A N/A 5-1/2 3-15/16
Third Quarter (with respect to 1997, 4-7/8 3-7/8 5-1/4 3-3/4
for the period July 23, 1997 to
September 30, 1997)
Fourth Quarter 4-7/16 3 4-1/2 3-1/4
NUMBER OF STOCKHOLDERS
The information available indicates that as of March 26, 1999 there were
approximately 3,402 holders of record of the Company's common stock.
DIVIDENDS
The Company has not paid any cash dividends on its common stock and does not
intend to pay cash dividends on its common stock for the foreseeable future. The
Company intends to retain future earnings to finance future development.
ITEM 6. SELECTED FINANCIAL INFORMATION
- --------------------------------------
Selected Historical Financial Data
Set forth below are selected historical financial data of the Company, which is
the post-reorganization successor to Old ICH. Until the Company's acquisition of
Sybra, Inc. (see Note 2 to Notes To Consolidated Financial Statements), the
Company had no significant business operations. Old ICH financial data is not
presented as its assets, liabilities and operations were dissolved or sold as
part of Old ICH's reorganization plan (see Note 1 to Notes To Consolidated
Financial Statements). For purposes of presentation, Sybra is considered to be a
Predecessor of the Company.
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<PAGE>
Accordingly, the selected historical financial data as of and for the year ended
December 28, 1996, and the four months ended April 30, 1997, were derived from
the financial statements of the Predecessor. Due to required purchase accounting
adjustments relating to the acquisition and certain corporate administrative
expenses that are necessary to operate on a stand-alone basis, the consolidated
financial and other data for the period subsequent to the acquisition (the
"Successor Period") is not comparable to such data for the periods prior to the
acquisition (the "Predecessor Period"). Pro forma net income (loss) was derived
by retroactively adjusting all prior years as if the acquisition had occurred on
January 1, 1994. As such, the effects of purchase accounting, including the
impact of the different capital structure of the Predecessor, has been reflected
in arriving at pro forma net income (loss) for the prior periods.
In addition, adjustments reflecting the costs of operating a stand-alone company
have been retroactively included in arriving at pro forma net income (loss) for
the prior periods. Such costs include, but are not limited to, administrative
services, tax compliance, treasury service, human resource administration and
legal services. The information contained in this table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's financial statements and
accompanying notes thereto included herein.
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<TABLE>
<CAPTION>
Predecessor Successor Combined Successor
--------------------------------------------- --------- -------- ---------
Four Eight
Year Year Months Months Year Year
Statement of Earnings Data Year ended ended ended Ended Ended ended ended
(000's except per share amounts) Dec. 31, Dec. 30, Dec. 28, Apr. 30 Dec. 31 Dec. 31, Dec. 31,
(unaudited) 1994 1995 1996 1997 1997(a) 1997 1998
---- ---- ---- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $115,651 $115,531 $116,124 $37,916 $ 75,006 $112,922 $ 140,032
Cost & Expenses
Restaurant costs/expenses 92,821 94,414 93,867 32,006 61,503 93,509 113,845
General & administrative 6,586 6,643 6,179 2,212 5,087 7,299 9,479
Depreciation & amortization 5,935 6,041 5,972 2,006 3,398 5,404 4,923
Non-recurring/restructuring
Charges - - - - 1,497 1,497 -
Other 1,400 900 1,200 - 977 977 691
Earnings from operations 8,909 7,533 8,906 1,692 2,544 4,236 11,094
Interest expense 1,909 2,605 2,346 638 3,661 4,299 6,035
Income (loss) from continuing
operations and before taxes 7,000 4,928 6,560 1,054 (1,117) (63) 5,059
Provision (benefit) for income taxes 2,650 1,913 2,398 434 (253) 181 2,143
Income (loss) from continuing operations 4,350 3,015 4,162 620 (864) (244) 2,916
Gain from sale of discontinued operations - - - - - - 388
Net Income (loss) $ 4,350 $ 3,015 $ 4,162 $ 620 $ (864) $ (244) $ 3,304
Income (loss) from continuing operations
per share:
Basic - - - - $ (.34) - $ 1.11
Diluted - - - - $ (.34) - $ 1.01
Gain from discontinued operation:
Basic - - - - - - $ .15
Diluted - - - - - - $ .13
Net income (loss) per share:
Basic - - - - $ (.34) - $ 1.26
Diluted - - - - $ (.34) - $ 1.14
Pro-forma net income (loss) (b) $ 1,496 $ 206 $ 857 $ (791) $ 690 $ (101) $ 2,916
Other data:
EBITDA (d) $ 14,844 $ 13,574 $ 14,878 $ 3,698 $ 5,942 $ 9,640 $ 16,017
EBITDA - Pro forma (d) $ 13,082 $ 10,932 $ 12,016 $ 2,212 $ 8,209 $ 10,421 $ 16,017
Balance Sheet Data (c)
Working capital deficit $ (9,460) $ (7,112) $ (8,455) n/a $ (5,006) n/a $ (7,459)
Total assets $ 68,789 $ 74,373 $ 75,601 n/a $ 75,264 n/a $ 113,466
Total long-term debt $ 27,321 $ 31,152 $ 25,625 n/a $ 50,079 n/a $ 71,105
Shareholders' equity $ 27,965 $ 30,980 $ 35,142 n/a $ 11,185 n/a $ 15,026
</TABLE>
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NOTES: (a) Included in the results of operations for the eight months
ending December 31, 1997 are sales and operating loss of $164
and $(188), respectively, of the Company for the period from
February 19, 1997 to April 30, 1997.
(b) Pro forma net income (loss) reflects (1) the effects of
purchase accounting for Sybra as if the purchase was effective
on January 1, 1994; (2) increased interest expense for the
Predecessor Period as a result of a difference in capital
structure; and (3) increased general and administrative
expenses reflecting the costs of operating as a stand-alone
public company; and has been tax effected using a combined
federal and state income tax rate of 40%.
(c) Balance sheet data are presented as of December 31, 1994, December
30, 1995, December 28, 1996, December 31, 1997 and
December 31, 1998.
(d) EBITDA on a pro forma basis gives effect to the adjustments
discussed in Note (b) above. For the combined period, pro forma
EBITDA would have been $10,421. For 1998, EBITDA is actual.
Management believes that EBITDA is generally accepted as
providing useful information regarding a company's ability to
service and/or incur debt. EBITDA should not be considered in
isolation or as a substitute for net income, cash flows, or
other consolidated income or cash flow data prepared in
accordance with generally accepted accounting principles or as a
measure of a company's profitability or liquidity.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATIONS
- -------------
The following discussion should be read in conjunction with the "Selected
Historical Financial Data" and the financial statements of the Company and the
accompanying notes thereto included elsewhere herein. 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.
13
<PAGE>
GENERAL
The Company's revenues consist almost entirely of restaurant sales from its
principal operating subsidiaries, Sybra and Lyon's.
Restaurant costs and expenses include all direct operating costs, including
direct labor, occupancy costs, advertising expenses, royalty payments,
expenditures for repairs and maintenance, and workers' compensation and casualty
and general liability insurance costs. Advertising fees paid by the Company's
Sybra subsidiary to the AFA to develop and prepare advertising materials and to
undertake marketing research are equal to 0.7% of restaurant sales. In addition,
Sybra operates its restaurants pursuant to licenses which require Sybra to pay
Arby's, Inc. a royalty based upon percentages of its restaurant sales (presently
an aggregate of approximately 3.0% of Sybra's restaurant sales). The royalty
rate for new Arby's restaurants (currently 4.0%) will result in an increase in
the aggregate royalty rate for Sybra 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 results of operations for the year
ended December 31, 1997 represent the mathematical addition of the historical
amounts for the Predecessor Period (December 29, 1996 to April 30, 1997) and the
Successor Period (May 1, 1997 to December 31, 1997) and are not necessarily
indicative of the results that would actually have been obtained if the
acquisition had occurred on December 31, 1996. The Predecessor Period does not
give effect to, among other items, corporate expenses necessary to operate on a
stand-alone basis. Such expenses include, but are not limited to, certain
administrative services, tax compliance, treasury service, human resource
administration and legal services.
<TABLE>
<CAPTION>
Predecessor Company
-------------- ------------- Combined Company
Four Months Eight Months -------- -------------
Ended ended Year ended Year ended
April 30, 1997 Dec. 31, 1997 Dec. 31, 1997 Dec. 31, 1998
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0 % 100.0% 100.0%
Expenses:
Restaurant costs & expenses 84.4% 82.0 % 82.8% 81.3%
General & administrative 5.8% 6.8 % 6.5% 6.8%
Depreciation & amortization 5.3% 4.5 % 4.8% 3.5%
Non-recurring/restructuring charges - 2.0 % 1.3% -
Other - 1.3 % .9% .5%
----- ----- ----- -----
Operating income (loss) 4.5% 3.4 % 3.7% 7.9%
Interest expense 1.7% 4.9 % 3.8% 4.3%
----- ----- ----- -----
Income (loss) from continuing
operations and before taxes 2.8% (1.5)% (.1)% 3.6%
Income taxes (benefit) 1.1% (.3)% .1 % 1.5%
----- ----- ----- -----
Income (loss) from continuing
operations and before taxes 1.7% (1.2)% (.2)% 2.1%
Gain from sale of discontinued
operations - - - .3%
----- ----- ----- -----
Net income (loss) 1.7% (1.2)% (.2)% 2.4%
===== ===== ===== =====
</TABLE>
14
<PAGE>
Comparison of the Years Ended December 31, 1998 and December 31, 1997
- ----------------------------------------------------------------------
Revenues - Revenues were $140.0 million for 1998 as compared to $112.9 million
for 1997, an increase of $27.1 million or 24.0%. Sybra's sales for the year
ended December 31, 1998 were $131.3 million, an increase of $19.7 million or
17.6% over the prior year combined comparable period, as a result of a same
store sales increase of 4.8% for the period, and sales from new store openings
and store acquisitions. Sales from the Company's Lyon's restaurants from the
date of acquisition (December 14, 1998) to December 31, 1998, were $7.0 million.
Restaurant Costs & Expenses - Restaurant costs and expenses were $113.8 million,
or 81.3% of sales, for 1998 as compared to $93.5 million, or 82.8% of sales, for
1997, an increase of $20.3 million due to the sales increase explained above. As
a percent of sales, costs decreased as a result of lower labor costs due to
improved efficiency, net of increases in rent expense associated with the
Company's sale/leaseback of 61 properties previously classified as owned.
General and Administrative - General and administrative costs and expenses were
$9.5 million, or 6.8% of sales, for 1998 as compared to $7.3 million, or 6.5% of
sales, for 1997, an increase as a percent of sales as a result of 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 $4.9
million, or 3.5% of sales, in 1998 as compared to $5.4 million, or 4.8% of
sales, in 1997, a decrease as a percent of sales as a result of the impact of
the sale/leasebacks explained above, net of goodwill amortization as a result of
purchase accounting related to the Sybra acquisition.
Interest Expense - Interest expense was $6.0 million, or 4.3% of sales, in 1998
as compared to $4.3 million, or 3.8% of sales, in 1997, an increase of $1.7
million as a result of debt incurred in connection with the Company's
acquisition of Sybra, new store openings and acquisitions.
Comparison of the Years Ended December 31, 1997 and December 28, 1996
- ----------------------------------------------------------------------
Revenues - Revenues were $112.9 million for 1997 as compared to $116.1 million
for 1996, a decrease of $3.2 million primarily as a result of a 3% decline in
same store sales for the year due to a change in marketing strategy emphasizing
brand quality and fewer price promotions which began in the third quarter of
1997.
Restaurant Costs & Expenses - Restaurant costs and expenses were $93.5 million,
or 82.8% of sales, for 1997 as compared to $93.9 million, or 80.8% of sales for
1996, a decrease of $358 due to the sales decline explained above. As a percent
of sales, costs increased as a result of increases in rent expense associated
with the Company's sale/leaseback of 61 properties previously classified as
owned.
General and Administrative - General and administrative costs and expenses were
$7.3 million, or 6.5% of sales, for 1997 as compared to $6.2 million, or 5.3% of
sales for 1996, an increase as a percent of sales as a result of lower sales and
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.
15
<PAGE>
Depreciation and Amortization - Depreciation and amortization expense was $5.4
million, or 4.8% of sales in 1997 as compared to $6.0 million, or 5.1% of sales
in 1996, a decrease as a percent of sales as a result of the impact of the
sale/leaseback as explained above net of goodwill amortization as a result of
purchase accounting related to the Sybra acquisition.
Non-recurring and Restructuring Charges - Non-recurring and restructuring
charges were $1.5 million in 1997 as a result of the restructuring of Sybra's
operations, buy-out of an employment contract and non-recurring expenses related
to obtaining financing and maintaining Sybra's status as an Arby's franchisee.
Other - Other expenses were $1.0 million in 1997, as compared to $1.2 million in
1996. Other expenses in 1997 relate primarily to the cost of operations of Perry
Park, and for 1996 relate primarily to store closings.
Interest Expense - Interest expense was $4.3 million in 1997 as compared to $2.3
million in 1996, an increase of $2.0 million as a result of debt incurred in
connection with the Company's acquisition of Sybra.
IMPACT OF THE YEAR 2000 ISSUES
The Company has completed its assessment of internal systems and has concluded
that its hardware and software are Year 2000 compliant. The Company has
concluded that it will not be necessary to replace its retail point of sale
hardware and that, based on information available at this time, the remaining
costs to implement the Year 2000 readiness program will not be material.
Communication with respect to Year 2000 issues with the Company's suppliers is
ongoing. While not expected, the Company may experience delays in receipt of
product, which could adversely affect sales and earnings. The Company cannot
currently estimate to what extent future operating results might be adversely
affected by the possible failure of these third parties to successfully address
their Year 2000 issues. However, the Company's program includes actions designed
to identify and minimize, where possible, any third party exposure.
Costs to implement the Year 2000 readiness program are based on management's
estimates, which were derived utilizing numerous assumptions related to future
events. There can be no assurance that additional costs will not be incurred, or
that the objective of the program will be achieved. However, the Company
continues to monitor activities related to the program designed to ensure Year
2000 readiness.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary liquidity needs arise from debt service on indebtedness
incurred in connection with the Sybra acquisition, the Lyon's acquisition,
operating lease requirement and the funding of capital expenditures primarily
for new store openings. As of December 31, 1998, the Company had outstanding
indebtedness for borrowed money of $33.2 million under a term facility with
Atherton Capital Incorporated (the "Atherton Loan") and $16.5 million under a
term facility with USRP (Finance) LLC (The "USRP Loan"). The Atheron Loan
has a weighted-average maturity of 12.5 years (of which approximately 10.5 years
remain), bears interest at 10.63%, requires monthly payments of principal and
interest, is collatoralized by substantially all of the assets owned by Sybra at
the time it was acquired by the Company and imposes certain financial
restrictions and covenants. The USRP Loan has a weighted average maturity of 12
years, a weighted average interest rate of 12.75%, requires monthly payments of
principal and interest, is collateralized by substantially all of the assets
owned by Lyon's and imposes certain financial restrictions and covenants.
The Company's primary source of liquidity during the year was the operation of
the restaurants owned by its principal operating subsidiaries, Sybra and Lyon's
and debt and lease financing.
In the future, the Company's liquidity and capital resources will primarily
depend on the operations of Sybra and Lyon's which, under the provisions of the
Company's loan agreements, would permit, under certain conditions, distributions
and dividends to the Company. Sybra and Lyon's, like most restaurant businesses,
are able to operate with nominal or deficit working capital because all sales
are for cash and inventory turnover is rapid. Renovation and/or remodeling
16
<PAGE>
of existing restaurants is either funded directly from available cash or, in
some instances, is financed through outside lenders. Construction or acquisition
of new restaurants 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 restaurants 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.
Recent Developments
- -------------------
On December 14, 1998, the Company acquired substantially all the assets of
Lyon's Restaurants, Inc. The assets acquired include a chain of 73 family-dining
restaurants, located primarily in northern California and operating under the
"Lyon's" name. The Company funded the acquisition through the use of
approximately $5.5 million of its available cash resources, and a $16.5 million
fixed-rate term loan from USRP (Finance), LLC. The loan matures in approximately
12 years, bears interest at a rate of 12.75% per annum and is guaranteed by the
Company. The balance of the purchase price was paid with a $600 note from the
Company to the seller. In addition, the Company issued to USRP (Finance), LLC
125,000 warrants to purchase shares of its common stock at an exercise price of
$.01 per share.
Subsequent Events
- -----------------
On January 5, 1999, Sybra entered into a sale/leaseback transaction with CNL
Fund Advisors, Inc. ("CNL") for approximately $6.5 million, resulting in a gain,
net of closing costs, of approximately $700. The sale/leaseback transaction
relates to ten Arby's restaurants located in Florida. The new leases with CNL
have a base term of 20 years.
On February 17, 1998, Sybra executed a new loan commitment letter with FFCA
Acquisition Corporation ("FFCA") to finance the construction of up to 15 new
Arby's restaurants during the next 18 months. Under the terms of the commitment
letter, FFCA has agreed to finance mortgage and equipment loans for up to 15 new
Arby's restaurants (of which up to seven sites may involve land leased by Sybra
pursuant to a long term ground lease) to be built by Sybra, to a maximum of
$1.1 million per location.
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 existence and realizability.
The gain from the sale of a discontinued operations of $388 was related to the
sale of Perry Park in July 1998 for approximately $3.1 million in cash. The gain
from discontinued operations included a gain from recognizing a tax deferred
asset of $719 (the result of the tax loss exceeding the book loss), which the
Company believes will be fully utilized to offset other taxable income and
capital gains in future periods.
CAPITAL EXPENDITURES
The Company's total capital expenditures were $6.1 million, $5.1 million and
$12.5 million in 1996, 1997 and 1998, respectively, which include new store
development, as well as store maintenance, store remodel and store renovation
capital expenditures. The Company anticipates that store maintenance, store
remodel and store renovation capital expenditures for 1999 will approximate
$12.0 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, the availability of appropriate financing as
well as the capital structure of any such transactions.
17
<PAGE>
INFLATION
Certain of the Company's operating costs are subject to inflationary pressures,
of which the most significant are food and labor costs. As of December 31, 1998,
a significant percentage of the Company's employees were paid wages equal to or
based on the federal minimum hourly wage rate. Economic growth that would reduce
unemployment or make more jobs available in higher paying industries would
directly affect the Company's labor costs.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ---------------------------------------------------
The response to this item is submitted as a separate section of this Form 10-K.
See Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -----------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
None
18
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -----------------------------------------------------------
The information required by Item 10 is incorporated by reference from the
Company's definitive proxy statement for its annual meeting of stockholders to
be held May 28, 1999.
ITEM 11. EXECUTIVE COMPENSATION
- -------------------------------
The information required by Item 11 is incorporated by reference from the
Company's definitive proxy statement for its annual meeting of stockholders to
be held May 28, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -----------------------------------------------------------------------
The information required by Item 12 is incorporated by reference from the
Company's definitive proxy statement for its annual meeting of stockholders to
be held May 28, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------
The information required by Item 13 is incorporated by reference from the
Company's definitive proxy statement for its annual meeting of stockholders to
be held May 28, 1999.
19
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- ------------------------------------------------------------------------
(a) 1. Financial Statements
The financial statements filed as part of this report are listed in the
Index to Consolidated Financial Statements on page F-1.
Page
----
Independent Accountant's Report F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
2. Financial Statement Schedules
Schedules have been omitted either because the required information is
shown in the consolidated financial statements or notes thereto or they
are not applicable.
3. Exhibits
The exhibits to this Report are listed on the accompanying Index to
Exhibits and are incorporated herein by reference or are filed as part
of this Annual Report on Form 10-K.
(b) Reports on Form 8-K
A Report on Form 8-K, dated December 22, 1998, was filed by the Company
during the quarter ended December 31, 1998. Items 2 and 7 were reported
thereon.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
I.C.H. Corporation
(Registrant)
Dated: March 29, 1999 /s/James R. Arabia
--------------------------
James R. Arabia
Chairman of the Board, President and
Chief Executive Officer
Dated: March 29, 1999 /s/David A. Brainard
--------------------------
David A. Brainard
Senior Vice President and
Chief Financial Officer
Dated: March 29, 1999 /s/Glen V. Freter
--------------------------
Glen V. Freter
Vice President, Controller
and Chief Accounting Officer
Dated: March 29, 1999 /s/John A. Bicks
--------------------------
John A. Bicks
Senior Vice President, General
Counsel, Secretary and Director
Dated: March 29, 1999 /s/Timothy Scott
--------------------------
Timothy Scott
Director
Dated: March 29, 1999 /s/David A. Gotz
--------------------------
David A. Gotz
Director
Dated: March 29, 1999 /s/Carl D. Robinson
--------------------------
Carl D. Robinson
Director
Dated: March 29, 1999 /s/Raymond L. Steele
--------------------------
Raymond L. Steele
Director
Dated: March 29, 1999 /s/Robert H. Drechsler
--------------------------
Robert H. Drechsler
Director
21
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
I.C.H. CORPORATION AND SUBSIDIARIES:
Independent Accountant's Report F-2
Consolidated Balance Sheets - Company as of December 31, 1998
and December 31, 1997 F-3
Consolidated Statements of Operations - Company for the year
ended December 31, 1998 and the eight-month period ended
December 31, 1997 and Predecessor for the four-month period
ended April 30, 1997 and the year ended December 28, 1996 F-4
Consolidated Statements of Stockholders' Equity - Company for
the year ended December 31, 1998 and the period from February 19,
1997 to December 31, 1997 and Predecessor for the four-month
period ended April 30, 1997 and the year ended December 28, 1996 F-5
Consolidated Statements of Cash Flows - Company for the
year ended December 31, 1998 and the eight-month period
ended December 31, 1997 and Predecessor for the four-month
period ended April 30, 1997 and the year ended December 28, 1996 F-6
Notes to Consolidated Financial Statements F-7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
I.C.H. Corporation
In our opinion, the accompanying consolidated balance sheets of I.C.H.
Corporation and Subsidiaries ("Company") as of December 31, 1997 and 1998, and
the related consolidated statements of operations, stockholders' equity and cash
flows - Sybra, Inc. ("Predecessor") for the year ended December 28, 1996 and for
the four month period ended April 30, 1997 and - Company for the eight month
period ended December 31, 1997 and year ended December 31, 1998 present fairly,
in all material respects, the consolidated financial position of I.C.H.
Corporation and Subsidiaries as of December 31, 1997 and 1998, and the
consolidated results of their operations and their cash flows - Predecessor for
the year ended December 28, 1996 and for the four month period ended April 30,
1997 and - Company for the eight month period ended December 31, 1997 and year
ended December 31, 1998 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Atlanta, Georgia
March 19, 1999
F-2
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share amounts)
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
------------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,418 $ 9,235
Accounts receivable 530 1,293
Inventories 1,372 2,828
Deferred income taxes 1,257 1,137
Other current assets 1,565 4,473
-------- --------
Total current assets 9,142 18,966
Property and equipment, net 24,696 40,141
Intangible assets, net 39,470 47,462
Other assets 1,956 4,326
Deferred income taxes-net -- 2,571
-------- --------
Total assets $ 75,264 $113,466
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,741 $ 8,254
Accrued liabilities 8,745 12,743
Current portion of long-term debt 1,714 4,839
Current portion of capital
lease obligations 948 589
-------- --------
Total current liabilities 14,148 26,425
Noncurrent liabilities:
Long-term debt 44,718 63,193
Long-term capital lease obligations 2,699 2,484
Deferred income taxes 1,908 --
Other liabilities 606 6,338
-------- --------
Total liabilities 64,079 98,440
-------- --------
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; 2,666,615 outstanding
(see note 10) 24 28
Paid-in-capital 12,025 12,558
Retained earnings (deficit) (864) 2,440
-------- --------
Total stockholders' equity 11,185 15,026
-------- --------
Total liabilities and stockholders' equity $ 75,264 $113,466
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-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 For the For the For the
For the year four months eight months year year
ended ended ended ended ended
December 31, April 30, December 31, December 31, December 31,
1996 1997 1997 1997 1998
------------ ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Revenue and other income:
Restaurant sales $ 115,973 $ 37,868 $ 73,787 $ 111,655 $138,315
Other 151 48 1,219 1,267 1,717
----------- ----------- -------- --------- --------
Total revenues 116,124 37,916 75,006 112,922 140,032
Costs and expenses:
Restaurant costs and expenses 93,867 32,006 61,503 93,509 113,845
General and administrative 6,179 2,212 5,087 7,299 9,479
Depreciation and amortization 5,972 2,006 3,398 5,404 4,923
Other 1,200 -- 977 977 691
Non-recurring/restructuring
charges -- -- 1,497 1,497 --
----------- ----------- -------- --------- --------
Operating income 8,906 1,692 2,544 4,236 11,094
Interest expense 2,346 638 3,661 4,299 6,035
----------- ----------- -------- --------- --------
Income (loss) from continuing
operations before income taxes 6,560 1,054 (1,117) (63) 5,059
Provision (benefit) for income taxes 2,398 434 (253) 181 2,143
----------- ----------- -------- --------- --------
Income (loss) from continuing operations 4,162 620 (864) (244) 2,916
Gain from sale of discontinued operation -- -- -- -- 388
----------- ----------- -------- --------- --------
Net income (loss) $ 4,162 $ 620 $ (864) $ (244) $ 3,304
=========== =========== ======== ========= ========
Income (loss) from continuing operations per share:
Basic $ (.34) $ 1.11
Diluted $ (.34) $ 1.01
Gain from discontinued operations per share:
Basic -- $ .15
Diluted -- $ .13
Net income (loss) per share:
Basic $ (.34) $ 1.26
Diluted $ (.34) $ 1.14
Weighted-average common shares
outstanding (see note):
Basic 2,549,000 2,620,000
Diluted 2,549,000 2,903,000
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands except share amounts)
<TABLE>
<CAPTION>
Total
Common Stock Paid-In Retained Stockholders'
Shares Amount Capital Earnings Equity
------ ------ ------- -------- ------
<S> <C> <C> <C> <C> <C>
Predecessor
Balance at December 28, 1996 55,199 $ 28 $ 21,398 $ 13,716 $ 35,142
Net income for period 620 620
Distributions:
Land parcel (845) (845)
Cash -- -- -- (46,079) (46,079)
---------- ----- -------- -------- --------
Balance at April 30, 1997 55,199 $ 28 $ 21,398 $(32,588) $(11,162)
========== ===== ======== ======== ========
Company
Balance at February 19, 1997 -- $ -- $ 12,190 $ -- $ 12,190
Issuance of common stock 2,549,281 24 (24) -- --
Cash paid for shares redeemed -- -- (141) -- (141)
Net loss (see Note 1) -- -- -- (864) (864)
---------- ----- -------- -------- --------
Balance at December 31, 1997 2,549,281 24 12,025 (864) 11,185
Issuance of common stock 117,334 4 533 -- 537
Net income -- -- -- 3,304 3,304
---------- ----- -------- -------- --------
Balance at December 31, 1998 2,666,615 $ 28 $ 12,558 $ 2,440 $ 15,026
========== ===== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands except share amounts)
<TABLE>
<CAPTION>
Predecessor Company
---------------------------- ---------------------------
For the For the
For the year four months eight months For the year
ended ended ended ended
December 31, April 30, December 31, December 31,
1996 1997 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 4,162 $ 620 $ (864) $ 3,304
Adjustments to reconcile net income (loss)
to cash from Operating activities:
Depreciation and amortization 5,972 2,006 3,398 4,764
Deferred income taxes (benefit) (645) 480 (68) 147
Accrued rent -- -- 332
Provision for store closings and other
Non-recurring/restructuring charges 1,200 -- 462 --
Gain from sale of discontinued operations -- -- -- (388)
Changes in current assets and liabilities:
Accounts receivable -- -- (231) (831)
Inventories (16) 38 89 (604)
Payable to (due from) former parent 64 (741) (370) --
Accounts payable and accrued expenses 2,761 (3,173) 880 9,849
Other, net (596) 168 (1,334) (1,441)
-------- -------- ------ -------
Net cash provided (used) by operating activities 12,902 (602) 2,294 14,800
-------- -------- ------ -------
Cash flows from investing activities:
Capital expenditures (6,095) (1,763) (3,336) (12,876)
Proceeds from disposition of property and
equipment -- 35,655 232 758
Acquisition of Sybra, Inc., net of $886 cash
acquired -- -- (13,614) --
Acquisition of Lyon's Restaurants Inc. -- -- -- (23,233)
Acquisition of restaurant properties -- -- -- (5,642)
Sale of subsidiary -- -- 5,000 2,955
Proceeds from Old ICH liquidating trust
(see Note 3) -- -- 2,790 --
Other, net (94) -- (65) 397
-------- -------- ------ -------
Net cash provided (used) by investing
activities (6,189) 33,892 (8,993) (37,641)
-------- -------- ------ -------
Cash flows from financing activities:
Borrowings on credit agreement 28,758 9,299 -- --
Repayment on credit agreement (45,285) (10,384) -- --
Proceeds from issuance of long-term debt,
net of expenses -- -- 36,448 25,182
Proceeds from debt to former parent 11,000 3,772 -- --
Repayment of debt to former owner of Sybra -- -- (23,772) --
Repayment of long-term debt and capital
lease obligation -- (306) (1,603) (2,930)
Distribution to former owner of Sybra -- (46,079) --
Loan element of sale/leaseback financing -- 9,000 --
Other, net -- -- (456) 5,406
-------- -------- ------ -------
Net cash provided (used) by financing
activities (5,527) (34,698) 10,617 27,658
-------- -------- ------ -------
Net change in cash and cash equivalents 1,186 (1,408) 3,918 4,817
Cash and cash equivalent at beginning period 1,108 2,294 500 4,418
======== ======== ======== ========
Cash and cash equivalent at end of period $ 2,294 $ 886 $ 4,418 $ 9,235
======== ======== ======== ========
Supplemental non-cash disclosures:
Cash paid for
Income taxes 3,335 1,029 1,085 1,841
Interest 2,368 606 3,622 6,035
Note issued in acquisition of Sybra, Inc. -- -- 2,000 --
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in 000's except share amounts)
1. Organization, Business and Summary of Significant Accounting Policies:
Organization
I.C.H. Corporation (the "Company") 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 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.
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
had 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 received 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.
2,549,281 shares of the Company's common stock were issued in exchange
for Old ICH stock during the two year conversion period ending on
February 19, 1999.
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") and Lyon's of California, Inc.
("Lyon's"). . All significant intercompany accounts and transactions
have been eliminated. Included in the results of operations for the
eight months ended December 31, 1997 are revenues and operating loss of
$164 and $(188), respectively, for the period from February 19, 1997 to
April 30, 1997 (the period prior to the acquisition of Sybra). In
addition, cash flows for the period prior to the acquisition of Sybra
consisting principally of cash from the sale of a subsidiary and from
the Lone Star Liquidating Trust, are included in cash flows for the
eight months ended December 31, 1997 (see Note 3).
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.
F-7
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in 000's except share amounts)
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 and Lyon's uses a 52/53 week fiscal year ending on the last
Sunday of the year. Accordingly, the accompanying financial statements
include Sybra's results for the periods ended December 28, 1996,
April 30, 1997, December 27, 1997 and January 2, 1999 and Lyon's
results for the period from the date of acquisition (December 14,
1998) through January 3, 1999.
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. Interest income on cash equivalents
was $1, $1, $99 and $50 for the periods ended December 28, 1996, April
30, 1997 (four months), December 31, 1997 (eight months) and December
31, 1998, respectively.
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:
Buildings 40 years
Restaurant equipment 5-10 years
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 Sybra to pay a
franchise fee for each new restaurant developed and de minimis renewal
fees for franchises that have expired. Each franchise agreement provides
Sybra the right to operate an Arby's restaurant for a period of 20 years
and is renewable by Sybra, 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.
F-8
<PAGE>
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 December 31, 1998.
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
(see Note 11).
Advertising Expenses. All advertising costs are expensed as incurred.
Advertising expenses were approximately $9,400, $3,400, $5,000 and
$10,600 for the periods ended December 28, 1996, April 30, 1997 (four
months), December 31, 1997 (eight months) and December 31, 1998,
respectively.
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 10). Because the results for the eight months ended December
31, 1997 reflect a net loss from continuing operations, basic and
diluted loss per share are calculated based on the same weighted average
number of shares outstanding.
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).
Segment Reporting. The Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 131 Disclosures about Segments of an Enterprise
and Related Information during the year ended December 31, 1998. This
Statement supercedes substantially all the reporting requirements
previously required under SFAS No. 14 Financial Reporting for Business
Segments of an Enterprise and establishes standards for reporting
information about operating segments and requires certain disclosures
about products and services, geographic areas and major customers.
Under SFAS No. 131, the determination of segments to be reported in the
financial statements is to be consistent with the manner in which
management organizes and evaluates the internal organization to make
operating decisions and assess performance. This statement also allows a
Company to aggregate similar segments for reporting purposes. Management
has determined that its operating units can be aggregated into one
segment. Additionally, as the Company operates restaurants within the
U.S. and no customer accounts for more than 10% of sales, no segment
disclosures have been included in the accompanying notes to the
consolidated financial statements.
F-9
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in 000's except share amounts)
2. Acquisitions
Sybra, Inc.
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. Concurrently with the Company's
acquisition of Sybra, Sybra entered into a sale/leaseback transaction
with respect to 61 of its restaurant properties for approximately
$44,200. 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:
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
=======
Lyon's Restaurants, Inc.
On December 14, 1998, the Company acquired substantially all of the
assets of Lyon's restaurants for $22,600. The Company incurred $16,500
in acquisition indebtedness and paid the remainder of the purchase price
with cash and a $600 note payable to the seller. The Company also issued
125,000 warrants to purchase shares of the Company's common stock at
$.01 per share to USRP (Finance), LLC as part of the financing of the
Lyon's acquisition. The acquisition was recorded under the purchase
method of accounting.
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:
Current assets and liabilities, net $ 1,409
Other intangibles, excluding goodwill 2,057
Goodwill 7,734
Tangible assets 11,400
-------
Purchase price $22,600
=======
F-10
<PAGE>
3. Old ICH Transactions
On April 25, 1997, the Company exercised its option, pursuant to the
reorganization plan of Old ICH, 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 February 1997, the Company received $2,790 in satisfaction of a
receivable related to the Old ICH reorganization plan.
4. Other Current Assets
Other current assets consist of the following as of:
December 31, December 31,
1997 1998
-------------- ------------
Due from Sybra's former parent $ 558 $ 558
Prepaid rent 971 1,040
Other prepaid expenses 36 2,875
------------- ------------
Other current assets $1,565 $4,473
============= ============
5. Intangibles
Intangible assets, net, consist of the following as of:
December 31, December 31,
1997 1998
-------------- ------------
Franchise rights $ 4,164 $ 4,921
Other intangibles, excluding goodwill 8,024 7,803
Goodwill 28,159 36,944
-------------- ------------
Total 40,347 49,668
Less accumulated amortization 877 2,206
-------------- ------------
Intangible assets, net $39,470 $47,462
============== ============
6. Property and Equipment
Property and equipment, net, consist of the following as of:
December 31, December 31,
1997 1998
--------------- ------------
Land $ 4,363 $ 1,263
Buildings 1,890 10,335
Leasehold improvements 11,752 13,062
Restaurant equipment 11,539 19,089
Construction in progress 726 1,408
------- -------
Total 30,270 45,157
Less accumulated depreciation and
amortization 5,574 5,016
------- -------
Property and equipment, net $24,696 $40,141
======= =======
F-11
<PAGE>
7. Leases
The Company leases substantially all of the land and buildings used in
its restaurant operations under noncancelable leases with remaining
lease terms of one to twenty years. In many cases, the leases provide
for one or more renewal options. The leases generally require the
Company to pay property taxes, insurance, maintenance and other
operating costs of the properties. Some also require contingent rent
payments based on a percentage of restaurant sales.
Base rent expense for operating leases for the periods ended
December 28, 1996, April 30, 1997 (four months), December 31, 1997
(eight months) and December 31, 1998 was approximately $4,149, $1,373
$5,520 and $9,525, respectively. Additional (contingent) payments were
approximately $437, $130, $240 and $463 for the same periods,
respectively.
Immediately prior to its acquisition by the Company on April 30, 1997,
Sybra entered into a sale/leaseback transaction in which Sybra sold land
and buildings related to 61 restaurants for their fair value of $36,000
and leased them back under twenty-year base term leases (classified as
operating) with options that could, at Sybra's option, extend the leases
an additional 20 years. As part of the sale/leaseback transaction, Sybra
received an additional $9,000 in the form of a loan. Total proceeds of
the transaction were $44,200, net of related expenses. The proceeds were
distributed to Sybra's former parent. The lease payments escalate,
requiring the Company to straight-line the rent expense over the term of
the leases.
The Company's future minimum rental commitments as of December 31, 1998
for all noncancelable capital and operating leases are as follows:
Operating
Fiscal Year Capital Leases Leases
------------------------------------- --------------- -------------
1999 $ 939 $ 16,447
2000 553 15,252
2001 533 14,573
2002 533 13,774
2003 533 12,609
Thereafter 1,685 106,948
--------------- -------------
Total $4,776 $179,603
=============
Less amount representing interest 1,703
---------------
Present value of future minimum
lease payments 3,073
===============
F-12
<PAGE>
8. Accrued Liabilities
Accrued liabilities consist of the following as of:
December 31, December 31,
1997 1998
----------------- ----------------
Employee related $2,203 $ 3,243
Property and other taxes 1,122 4,436
Insurance related 2,303 1,690
Other 3,117 3,374
----------------- ----------------
Total $8,745 $12,743
================= ================
9. Long-Term Debt
Long-term debt consists of the following as of:
December 31, December 31,
1997 1998
------------- -----------
Term loan, 10.63%, payable monthly
through 2012 $33,984 $32,319
Loan, 14.50% 9,000 9,000
Acquisition indebtedness due in 1999 2,000 2,000
Term loan, 12.75% payable monthly through
February 1, 2011 - 16,500
Other 1,448 8,213
------------- -----------
46,432 68,032
Less: current portion 1,714 4,839
------------- -----------
Total $44,718 $63,193
============= ===========
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 mentioned in Note 7, as an element of the sale/leaseback transaction
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 14.50% and may be repaid at any time
without penalty. If not repaid prior to December 31, 1999, the loan will
be repaid pursuant to a 20-year amortization schedule.
F-13
<PAGE>
On December 14, 1998, the Company entered into a term loan agreement
for the acquisition of Lyon's Restaurants with USRP (Finance), LLC.
The 12.75% term loan matures in 12 years and is collateralized by
substantially all of the assets of Lyon's. The agreement contains
covenants which require, among other things, the maintenance of a
minimum fixed charge coverage ratio and other provisions and
restrictive covenants.
The Company also has 16 separate notes for the financing of equipment
used in restaurants with a remaining principal balance ranging from $150
to $785, interest rates ranging from 8.52% to 10.11% and an average
remaining maturity of six years. These loans are collateralized by the
underlying equipment.
At December 31, 1998, long-term debt had a fair value that approximates
the carrying value.
The aggregate maturities of long-term debt at December 31, 1998 are as
follows:
Fiscal year
----------------------------------------------
1999 $ 4,839
2000 3,140
2001 3,490
2002 3,830
2003 4,098
Thereafter 48,635
---------
$68,032
=========
10. Equity and Earnings Per Common Share
As of February 19, 1997, the Company declared a dividend of one right
(collectively, the "Rights") for each share of the Company's common
stock. Each Right represents the right to purchase one one-thousandth of
a share of Series A Junior Participating Preferred Stock (the "Junior
Preferred Stock"). The Rights, as amended, have an exercise price of
$20.00 per right and are exercisable until February 19, 2007. Ten
thousand shares of the Company's authorized preferred stock have been
designated as the Junior Preferred Stock and have been reserved for
issuance upon the exercise of the Rights. The Rights are not exercisable
until the occurrence of those "triggering events" detailed in the Rights
Agreement by and between the Company and the Mid-America Bank of
Louisville and Trust Company. Upon the occurrence of any of such
triggering events, all holders of Rights (other than the holder that
caused the triggering event to occur) will thereafter have the right to
receive upon exercise that number of shares of the Company's common
stock having a market value of two times the exercise price of the
Right. The Junior Preferred Stock has voting rights equal to 1,000 votes
per share and is entitled to receive dividends, on a cumulative basis,
payable in cash, equal to 1,000 times the aggregate per share amount of
all cash dividends or all non-cash dividends or other distributions
declared on the Company's common stock. Upon liquidation, the Junior
Preferred Stock is entitled to receive an aggregate amount per share
equal to 1,000 times the aggregate amount to be distributed per share to
the holders of shares of common stock plus any accrued and unpaid
dividends.
F-14
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in 000's except share amounts)
11. Income Taxes
The provision (benefit) for income taxes consists of:
<TABLE>
<CAPTION>
Predecessor Company
------------------------------ ---------------------------
For the For the
For the year four months eight months For the year
ended ended ended ended
December 28, April 30, December 31, December 31,
1996 1997 1997 1998
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Current $3,043 $(46) $(185) $1,841
Deferred (645) 480 (68) 302
------------- ------------- -------------- ------------
$2,398 $434 $(253) $2,143
============= ============= ============== ============
</TABLE>
Significant components of the Company's deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
--------------- --------------
<S> <C> <C>
Property and equipment $2,963 $2,106
Accrued liabilities and other 1,906 6,531
--------------- --------------
Deferred tax assets 4,869 8,637
Deferred tax liability - intangible assets (4,060) (4,188)
Valuation allowance (1,460) (741)
--------------- --------------
Net deferred tax assets (liabilities) $ (651) $3,708
=============== ==============
Current deferred tax assets $1,257 $1,137
Non-current deferred tax assets (liabilities) (1,908) 2,571
--------------- --------------
Net deferred tax assets (liability) $ (651) $3,708
=============== ==============
</TABLE>
The Company's tax basis in real estate exceeds its book basis, resulting
in a deferred tax asset of $1,460 using a 34% federal rate. The Company
recorded a full valuation allowance against this deferred tax asset due
to the uncertainty surrounding its realizability as of February 19,
1997.
F-15
<PAGE>
On April 25, 1997, the Company sold its interest in the stock of BML
which generated a significant tax loss (see Note 3). 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 existence and realizability.
A reconciliation of the Federal statutory income tax rate to the
Company's effective tax rate follows:
<TABLE>
<CAPTION>
Predecessor Company
------------------------- -------------------------
For the four For the
For the months eight months For the
year ended ended ended year ended
December April 30, December 31, December
28, 1996 1997 1997 1998
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Expected tax expense, at
the federal statutory
rate of 35% $2,296 $369 $(391) $1,720
State income taxes, net 39 53 (31) 256
Other, net 63 12 169 167
----------- ---------- ---------- ------------
$2,398 $434 $(253) $2,143
=========== ========== ========== ============
</TABLE>
12. Stock Option Plans
The Company has two fixed option plans, the I.C.H. Corporation 1997
Employee Stock Option Plan, as amended (the "ESP"), and the I.C.H.
Corporation 1997 Director Stock Option Plan (the "DSP"). Under the ESP,
the Company may grant incentive stock options with specific vesting
periods and non-qualifying options to eligible officers and employees
for the purchase of up to an aggregate of 1,500,000 shares of common
stock. Under the DSP, the Company may grant non-qualifying options to
eligible directors for the purchase of up to an aggregate of 400,000
shares of common stock. Under both plans, the exercise price of each
option is equal to the estimated fair value of the Company's stock on
the date of grant. Stock options granted under the ESP have 10-year
terms and generally vest ratably over four years. Options granted under
the DSP also have 10-year terms.
A summary of the Company's stock option plans as of December 31, 1998
and the changes during the two years ended December 31, 1998 are
presented as follows:
<TABLE>
<CAPTION>
Options Weighted-average
exercise price
--------- ----------------
<S> <C> <C>
Outstanding at January 1, 1997 - -
Granted 882,000 $ 3.19
Exercised - -
Canceled - -
-------- -------
Outstanding at December 31, 1997 882,000 $ 3.19
Granted 169,000 $ 4.38
Exercised (117,000) $(2.17)
Canceled - -
-------- -------
Outstanding at December 31, 1998 934,000 $ 3.36
======== =======
Exercisable at December 31, 1998 140,000 $ 3.03
======== =======
</TABLE>
F-16
<PAGE>
The following table summarizes information about stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
-----------------------------------------------------------
Options Outstanding Options Exercisable
----------------------------------- --------------------
Weighted-
Average Weighted-
Range of Remaining Average
Exercise Prices Contractual Exercise Weighted-
Shares Life Price Shares Average
- ------------------ --------- ------------ ---------- ------- --------
<S> <C> <C> <C> <C> <C>
$2.17 to $3.09 376,500 8.31 2.65 94,500 2.65
$3.19 to $4.00 466,500 9.31 3.65 42,750 3.78
$4.38 to $4.50 91,500 9.36 4.83 2,750 4.38
- ------------------ --------- ------------ ---------- -------- ---------
$2.17 to $4.50 934,500 8.99 3.36 140,000 3.03
================== ========= ============ ========== ======== =========
</TABLE>
The Company applies APB Opinion 25 and related interpretations in
accounting for its stock option plans. Accordingly, no compensation cost
has been recognized for grants of stock options. Had compensation cost
been determined in accordance with the provisions of SFAS No. 123,
"Accounting for Stock Based Compensation," the net loss per share would
have been changed to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
For the year ended
December 31, 1998
-------------------
<S> <C>
Net income-as reported $ 2,916
Net income-pro forma $ 2,779
Basic per share - as reported $ 1.14
- pro forma $ 1.06
Diluted per share - as reported $ 1.01
- pro forma $ .96
</TABLE>
The fair value of each option grant is estimated on the grant date using
the Black-Scholes option-pricing model with the following assumptions: a
risk-free interest rate range of 5.69%-6.35%; volatility factor of the
expected market price of the Company's common stock of 46.6%; expected
lives of 2-5 years; and a dividend yield of 0%. The fair value of each
option as of December 31, 1998 was $5.19 per option.
13. Benefit Plans
The Company maintains a defined contribution 401(k) plan known as the
Sybra, Inc. Retirement Income Plan (the "Retirement Plan"). The
Retirement Plan permits eligible employees to defer a portion of their
compensation (1% to 15%, up to certain maximum limitations established
by law) through payroll deductions. The Company may, at its discretion,
contribute to the Retirement Plan on behalf of participating employees
based on a matching formula or other method. No matching contributions
were made to the Retirement Plan for 1997 and 1998. The Predecessor made
contributions of $236 to the Retirement Plan for the period ended
December 28, 1996.
F-17
<PAGE>
14. Commitments and Contingencies
Franchise agreements with Arby's
The Development Agreement contains certain requirements regarding
the number of units to be opened in the future. Should the Company fail
to comply with the required development schedule or with the
requirements for restaurants within areas covered by the Development
Agreement, Arby's could terminate the exclusive nature of the Company's
franchise and the Company would forfeit prepaid fees. However, the
Company would no longer be obligated for any future unpaid fees required
by the Development Agreement. The Development Agreement also provides
Arby's with certain rights regarding the Company's business operations
and any transfer of significant portions of assets owned by Sybra.
Commitments under the Development Agreement require payments aggregating
$1,190 over the next five (5) years.
Legal proceedings
Various legal proceedings are pending against the Company, all of which
involve routine litigation incidental to the Company's businesses.
The consequences of these matters are not presently determinable but, in
the opinion of the management of the Company after consulting with legal
counsel, the ultimate liability is not expected to have a material
effect on the results of operations, financial position, liquidity or
capital resources of the Company.
15. Non-recurring and Restructuring Charges
During 1997, the Company recorded provisions totaling $1,497 related to
(1) restructuring Sybra's operations in the Texas region, (2) buy-out of
an employment contract with the former president of Sybra and (3)
non-recurring expenses related to obtaining financing and maintaining
Sybra's status as an Arby's franchisee.
16. Retiree Liability
During 1998, the Company assumed the liabilities associated with a
post-retirement healthcare and life insurance plan from The Lone Star
Liquidating Trust in return for a lump sum cash payment of
approximately $4.9 million. Health benefits under such plan include
major medical insurance with deductible and co-insurance providers
and are supplemental to Medicare benefits. The plan provides that
current participants do not earn any future benefits and provides
that certain of the participants pay for a portion of their
coverage. The remainder of the costs, including premiums, are paid
for on a current basis by the Company.
The net present value of the healthcare and life insurance benefits
liability at December 31, 1998 was approximately $4.9 million. The
liability was calculated assuming a 7% discount rate applied to the
estimated future cash flows. It also assumed that medical costs would
initially increase at a rate of 10% per annum, declining over a period
of 10 years to 5.75%.
Active employees are not eligible for post retirement healthcare or life
insurance benefits upon retirement.
F-18
<PAGE>
17. Discontinued Operations
On June 30, 1998, the Company sold its Perry Park golf course and real
estate development located in Owen County, Kentucky for $3.1 million in
cash resulting in a gain of $388. The gain from discontinued operations
of $388 included a gain from the recording of a deferred tax asset of
$719. Sales and operating income for Perry Park are included in
continuing operations due to their immateriality.
18. Quarterly Data (unaudited)
The results for each quarter include all adjustments which are, in the
opinion of management, necessary for a fair presentation of the results
of operations for the interim periods. Selected consolidated data for
each quarter within 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1997(a):
- --------------------------------
Sales $27,863 $28,987 $26,688 $29,343
Operating income 1,324 163 865 2,040
Net income (loss) $ 523 $ (698) $ (492) $ 959
Basic income (loss) per share(b) N/A N/A $ (.19) $ .38
Year Ended December 31, 1998:
- -----------------------------
Sales $28,694 $ 31,244 $33,174 $46,920
Operating income 1,862 2,317 2,235 4,680
Income (loss) from
continuing operations 293 531 $ 476 $ 1,616
Net income (loss) $ 293 $ 531 $ 864 $ 1,616
Income (loss) from
continuing operations
per share(b):
Basic $ .11 $ .20 $ .18 $ .61
Diluted $ .11 $ .18 $ .16 $ .56
</TABLE>
Note: (a) The 1997 quarterly information presented here differs from the
accompanying 1997 Combined Statements of Operations as a result of
immaterial operations from Predecessor activities during 1997.
(b) The quarterly per share data has been restated to give effect to the
actual number of Old ICH Shares that were converted to shares of Company
common stock during the two year conversion period ended on February 19,
1999.
F-19
<PAGE>
INDEX TO EXHIBITS
Exhibit Page
Number Description Number
2.1 First Amended Joint Plan of Reorganization Under Chapter 11
(incorporated by reference to Exhibit B to Exhibit 99.1 to the
Company's Form 8-K dated November 22, 1996)
2.2 First Nonmaterial Modification to the First Amended Joint Plan of
Reorganization Under Chapter 11 (incorporated by reference to
Exhibit 2.2 to the Company's Form 8-K dated February 18, 1997)
2.3 Letter to Robert T. Shaw, Henry W. Simon, Jr. and Russell L. Munsch
agreeing to nonmaterial modification to the First Amended Joint Plan
of Reorganization Under Chapter 11, as filed with the Bankruptcy
Court (incorporated by reference to Exhibit 2.3 to the Company's
Form 8-K dated February 18, 1997)
2.4 Order confirming the First Amended Joint Plan of Reorganization
under Chapter 11, as entered by the United States Bankruptcy Court
for the Northern District of Texas, Dallas Division, on February 7,
1997 (incorporated by reference to Exhibit 99.1 to the Company's
Form 8-K dated February 18, 1997)
2.5 Findings of Fact and Conclusions of Law in support of Order
Confirming First Amended Joint Plan of Reorganization Under Chapter
11 (incorporated by reference to Exhibit 99.2 to the Company's Form
8-K dated February 18, 1997)
3.1 Amended and Restated Certificate of Incorporation of I.C.H.
Corporation (incorporated by reference to Exhibit 99.5 to the
Company's Form 8-K dated February 19, 1997)
3.2 Amendment No. 1 to Amended and Restated Certificate of Incorporation
of I.C.H. Corporation (incorporated by reference to Exhibit 3.1 to
the Company's Form 8-K dated January 15, 1998)
3.3 Amended and Restated By-Laws of I.C.H. Corporation (incorporated by
reference to Exhibit 99.6 to the Company's Form 8-K dated
February 19, 1997)
3.4 Amendment No. 1 to Amended and Restated By-Laws of I.C.H.
Corporation (incorporated by reference to Exhibit 3.1 to the
Company's Form 8-K dated February 10, 1998)
<PAGE>
10.1 Form of Rights Agreement between I.C.H. Corporation and The
Mid-America Bank of Louisville and Trust Company, which includes as
Exhibit B thereto the Form of Rights Certificate (incorporated by
reference to Exhibit 1 to the Company's Registration Statement on
Form 8-A dated February 19, 1997)
10.2 Amendment No. 1 to Rights Agreement between I.C.H. Corporation and
The Mid-America Bank of Louisville and Trust Company (incorporated
by reference to Exhibit 10.1 to the Company's Form 8-K dated
February 10, 1998)
10.3 Stock Purchase Agreement, dated as of February 7, 1997, by and
between I.C.H. Corporation and Valcor, Inc. (incorporated by
reference to Exhibit 10.02 to the Company's Quarterly Report on Form
10-Q dated March 31, 1997)
10.4 First Amendment to Stock Purchase Agreement, dated as of April 18,
1997, by and between I.C.H. Corporation and Valcor, Inc.
(incorporated by reference to Exhibit 10.03 to the Company's
Quarterly Report on Form 10-Q dated March 31, 1997)
10.5 Form of Loan Agreement by and between Sybra, Inc. and Atherton
Capital Incorporated (incorporated by reference to Exhibit 10.04 to
the Company's Quarterly Report on Form 10-Q dated March 31, 1997)
10.6 Form of Promissory Note executed by Sybra, Inc. in favor of Atherton
Capital Incorporated (incorporated by reference to Exhibit 10.05 to
the Company's Quarterly Report on Form 10-Q dated March 31, 1997)
10.7 Form of Leasehold/Deed of Trust Mortgage executed by Sybra, Inc. in
favor of Atherton Capital Incorporated (incorporated by reference to
Exhibit 10.06 to the Company's Quarterly Report on Form 10-Q dated
March 31, 1997)
10.8 Form of Security Agreement executed by Sybra, Inc. in favor of
Atherton Capital Incorporated (incorporated by reference to Exhibit
10.07 to the Company's Quarterly Report on Form 10-Q dated March 31,
1997)
10.9 Form of Master Lease by and between Sybra, Inc. and U.S. Restaurant
Properties Operating L.P. (incorporated by reference to Exhibit
10.08 to the Company's Quarterly Report on Form 10-Q dated March 31,
1997)
10.10 Employment Agreement, dated as of April 30, 1997, by and between
I.C.H. Corporation and Charles N. Hyslop (incorporated by reference
to Exhibit 10.09 to the Company's Quarterly Report on Form 10-Q
dated March 31, 1997)
10.11 Employment Agreement, dated as of April 30, 1978, by and between
I.C.H. Cooperation and Donald P. Zima (incorporated by reference to
Exhibit 10.10 to the Company's Quarterly Report on Form 10-Q dated
March 31, 1997)
<PAGE>
10.12 Second Amended and Restated Employment Agreement, effective as of
September 1, 1998, by and between James R. Arabia and I.C.H.
Corporation
10.13 I.C.H. Corporation Amended and Restated 1997 Employee Stock Option
Plan (incorporated by reference to Exhibit 10.24 to the Company's
Quarterly Report on Form 10-Q date June 30, 1998)
10.14 I.C.H. Corporation 1997 Director Stock Option Plan (incorporated by
reference to Exhibit 10.14 to the Company's Annual Report on Form
10-K dated December 31, 1997)
10.15 Commitment Letter, dated July 25, 1997, between FFCA Acquisition
Corporation and Sybra, Inc. (incorporated by reference to Exhibit
10.15 to the Company's Annual Report on Form 10-K dated December 31,
1997)
10.16 Form of Loan Agreement between FFCA Acquisition Corporation and
Sybra, Inc. (incorporated by reference to Exhibit 10.16 to the
Company's Annual Report on Form 10-K dated December 31, 1997)
10.17 Form of Promissory Note from Sybra, Inc. to FFCA Acquisition
Corporation (incorporated by reference to Exhibit 10.17 to the
Company's Annual Report on Form 10-K dated December 31, 1997)
10.18 Form of Mortgage between Sybra, Inc. and FFCA Acquisition
Corporation (incorporated by reference to Exhibit 10.18 to the
Company's Annual Report on Form 10-K dated December 31, 1997)
10.19 Asset Purchase Agreement, dated as of November 26, 1997, among Sybra
of California, Inc., I.C.H. Corporation, William Brusslan, 294,
Inc., American Food Concepts, Inc. and WEB Acquisition Company
L.L.C. (incorporated by reference to Exhibit 10.19 to the Company's
Annual Report on Form 10-K dated December 31, 1997)
10.20 Development Agreement, dated as of October 30, 1997, between Arby's,
Inc. and Sybra, Inc. (incorporated by reference to Exhibit 10.20 to
the Company's Annual Report on Form 10-K dated December 31, 1997)
10.21 Asset Purchase Agreement, dated as of February 18, 1998, between
Sybra, Inc. and RGS Enterprises of New Jersey, Inc. (incorporated by
reference to Exhibit 10.21 to the Company's Annual Report on Form
10-K dated March 31, 1998)
10.22 Asset Purchase Agreement, dated as of February 19, 1998, between
Sybra, Inc., Wolverine Food Systems, Inc. and Wolverine Properties,
G.P. (incorporated by reference to Exhibit 10.22 to the Company's
Annual Report on Form 10-K dated March 31, 1998)
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 (incorporated by reference to Exhibit
10.23 to the Company's Quarterly Report on Form 10-Q dated June 30,
1998)
<PAGE>
10.24 Asset Purchase Agreement, dated as of August 14, 1998, among Lyon's
of California, Inc., ICH Corporation and Lyon's Restaurants,
Inc.(incorporated by reference to Exhibit 10.25 to the Company's
Quarterly Report on Form 10-Q dated September 30, 1998)
10.25 Amendment to Asset Purchase Agreement, dated as of October 6, 1998,
among Lyon's of California, Inc., ICH Corporation and Lyon's
Restaurants, Inc.(incorporated by reference to Exhibit 10.26 to the
Company's Quarterly Report on Form 10-Q dated September 30, 1998)
10.26 Commitment Letter dated February 17, 1999, between FFCA Acquisition
Corporation and Sybra, Inc.
27.1 Financial Data Schedule
February 17, 1999
VIA TELECOPY AND
AIRBORNE EXPRESS
Mr. Jim Arabia
President
Sybra, Inc.
9255 Towne Centre Drive
San Diego, CA 92121
Dear Jim:
Sybra, Inc. ("Sybra") has advised FFCA Acquisition Corporation ("FFCA")
that Sybra desires to obtain financing for up to fifteen (15) new Arby's
restaurants (individually, a "Property" and collectively, the "Properties")
during the next eighteen (18) months. For certain Properties, Sybra desires to
enter into a build-to-suit sale-leaseback transaction with regard to the land,
fixtures and improvements (individually, a "Sale-Leaseback Transaction" and
collectively, the "Sale-Leaseback Transactions"). For up to seven (7) of the
Properties, Sybra desires to enter into a mortgage loan transaction
(individually, a "Mortgage Transaction" and collectively, the "Mortgage
Transactions") which may involve land (the "Land") leased by Sybra pursuant to a
long term ground lease (individually, a "Ground Lease Site" and collectively,
the "Ground Lease Sites") and which are secured by a first lien mortgage or deed
of trust, as determined by FFCA, on the building and other improvements
(collectively, the "Improvements") (individually, a "Mortgage Loan" and
collectively the "Mortgage Loans") and Sybra's leasehold interest in the Land.
Additionally, at the time of the final construction draw (the "Final
Disbursement") of each Sale-Leaseback Transaction or Mortgage Transaction, Sybra
also desires to obtain an equipment loan (individually an "Equipment Loan" and
collectively, the "Equipment Loans") secured by a first lien security interest
in the furniture, equipment and other trade fixtures at each Property
(collectively, the "Equipment") or at Sybra's discretion, it may choose to
obtain equipment financing from another lending source.
Upon Sybra's acceptance of this commitment letter (this "Commitment"),
FFCA commits to make to Sybra (i) up to a total of fifteen (15) Mortgage Loans
and Sale-Leaseback Transactions, and (ii) up to fifteen (15) Equipment Loans,
all on the terms set forth in this Commitment (individually, a "Transaction" and
collectively, the "Transactions").
1
<PAGE>
A. Basic Commitment Terms.
Background: This Commitment outlines certain basic terms and
conditions of the Transactions; however, it is not meant
to define all of the terms and conditions of the
Transactions, which will be set forth more fully in a
separate term sheet (the "Term Sheet") and the final
documentation for each Transaction. The Transactions are
subject to, among other things, the approval by FFCA's
in-house site review and valuation department of the
Properties and the Loan Amount or Purchase Price (as
defined below), as applicable, Sybra's compliance with
all of the requirements set forth in this Commitment and
the receipt by FFCA of all documents and other
information requested by FFCA and its counsel.
Acceptance: Sybra may accept this Commitment by signing and
returning a copy of this Commitment, together with a
check for the Fee (as defined below), to FFCA within 10
days of the date hereof.
Fee: Sybra shall pay FFCA a $45,000.00 fee for this Commitment.
Refundability Although the Fee shall be nonrefundable and fully earned
of Fee: when received by FFCA, all or part of the Fee may be
applied to the Property Commitment Fees as described in
the Property Commitment Fee Sections below.
Transaction
Processing: Sybra will notify FFCA as soon as Sybra has identified a
Property. Such notice shall include a copy of the
proposed purchase agreement, a description of the
Property, including the proposed improvements, a budget
for the proposed improvements, a description and cost
estimate for the Equipment, notice to FFCA of whether
the proposed Transaction will be a Mortgage Loan or
Sale-Leaseback Transaction and any other documents and
information available regarding the Property (the
"Property Notice"). Upon receipt of the Property Notice,
FFCA's in-house site review and inspection department
will inspect the Property identified by Sybra. If the
identified Property is
<PAGE>
approved by FFCA, FFCA will prepare a Term Sheet in the
form attached hereto as Exhibit A outlining the specific
terms and conditions upon which FFCA --------- would be
willing to enter into the Transaction. FFCA will not
order a title insurance commitment or instruct its
counsel to begin preparing any of the documentation,
until Sybra has accepted the Term Sheet and returned it
to FFCA.
Commitment Term: The term of this Commitment shall commence on the
date this Commitment is accepted and automatically
expire and be of no further force or effect eighteen
(18) months after its effective date. Any Property
Notice received by FFCA after such date shall be
ineffective.
Transaction Amount
Cap: Notwithstanding anything herein to the contrary, in no
event shall FFCA be obligated to fund a Transaction
where the sum of (i) the Purchase Price and the
Equipment Loan Amount for a Property (including financed
soft costs and closing costs) exceeds $1,100,000.00 or
(ii) the Mortgage Loan Amount and the Equipment Loan
Amount for a Ground Lease Site exceeds $1,100,000.00,
less the ground lease base rent for the first year of
the term of the ground lease divided by 10.0%.
B. Basic Sale-Leaseback Transaction.
(a) Basic Sale Terms.
Property Commitment
Fee: For each Sale-Leaseback Transaction, Sybra shall pay
FFCA an underwriting and processing fee equal to the sum
of one percent (1%) of the sum of the Purchase Price,
the Development Price and the Equipment Loan Amount.
Sybra shall be entitled to a $3,000.00 credit towards
the Property Commitment Fee owing under each Term Sheet.
One-half of the balance of the Property Commitment Fee
shall be due upon Sybra's acceptance of a Term Sheet;
the balance of the Property Commitment Fee shall be due
at the Closing.
<PAGE>
Documentation: FFCA's counsel will submit to Sybra FFCA's proposed form
of build-to-suit sale-leaseback agreement.
Title to Properties: Title to each Property shall be conveyed to FFCA by a
general warranty deed, free and clear of all liens and
encumbrances, except those approved by FFCA.
Purchase Price: The Purchase Price of the Land shall be the sum of (i)
the fair market value of the Land, as such amount is
determined by FFCA's in-house site review and valuation
department, (ii) the Property Commitment Fee, and (iii)
such other transaction costs as FFCA may approve in its
reasonable discretion.
Closing Costs: Sybra shall pay FFCA's reasonable in-house site review
and valuation expenses, FFCA's reasonable attorneys'
fees, Sybra's attorneys' fees, the cost of the phase I
environmental reports or environmental insurance, soils
reports, and all other reasonable closing costs,
including, without limitation, all title insurance
premiums, transfer taxes, stamp taxes, transfer, escrow
and recording fees, real estate taxes and assessments,
and survey fees.
Sale Contingency: The closing of the purchase and lease transactions
comprising each Sale-Leaseback Transaction are not
severable and the closing of the purchase transaction
shall be conditioned upon the close of the lease
transaction.
(b) Basic Lease Terms.
Documentation: For each Transaction involving a Sale-Leaseback
Transaction, FFCA's counsel will prepare and submit to
Sybra FFCA's proposed form of disbursement agreement
("Disbursement Agreement"), lease ("Lease"), Memorandum
of Lease and UCC-1 Financing Statements. Each Lease
shall (i) contain such representations, warranties,
covenants and agreements as are usual and customary in
transactions of this type, and (ii) provide that (a)
Sybra shall be responsible for all maintenance,
utilities, insurance, taxes, assessments and other
expenses associated with the Property, (b) Sybra shall
not assign, mortgage or
<PAGE>
pledge its interest in the Lease without FFCA's consent,
which shall not be unreasonably withheld, delayed or
conditioned, (c) the Property shall be operated as an
Arby's restaurant, and (d) Sybra shall indemnify FFCA
against all claims, suits and costs whatsoever relating
to the Property.
Development Price: After FFCA purchases the land, FFCA will fund the sum of
(i) the actual and reasonable hard costs incurred to
construct the improvements as determined by FFCA's
in-house site inspection department, and (ii) Sybra's
actual and reasonable out-of-pocket soft costs relating
to the construction of the improvements as may be
approved as to category and amount by FFCA, in its
reasonable discretion.
Basic Construction
Funding Terms: The Disbursement Agreement shall provide that FFCA will
agree to fund the Development Price in progress payments
through the title company, and Sybra will agree to
complete the improvements as provided therein.
Lease Term: Approximately nineteen (19) years and six (6) months
with two (2) successive five-year extension options.
Base Annual Rental: Prior to the date of the Final Disbursement (the "Final
Disbursement Date"), the sum of (i) the greater of (a)
10.0% or (b) the 30-day London Interbank Offered Rate
then in effect plus 3.50%, of the Purchase Price
multiplied by a fraction, the numerator of which will be
the actual number of days between the Closing Date and
the Final Disbursement Date, and the denominator of
which will be 365, and the sum of (ii) the greater of
(a) 10.0% or (b) the 30-day London Interbank Offered
Rate then in effect plus 3.50%, of each portion of the
Development Price (as defined above) outstanding between
the Closing Date and the Final Disbursement Date
multiplied by a fraction, the numerator of which will be
the actual number of days between the date that each
portion of the Development Price was advanced by FFCA
and the Final Disbursement Date and the denominator of
which will be 365 (collectively, the "Interim Rental"),
which amount shall not be paid by Sybra prior to the
First Disbursement Date but shall
<PAGE>
accrue from and after the date the Arby's restaurant
opens for business and be capitalized in the Lease on
the Final Disbursement Date pursuant to the Lease
Amendment. After the date the Arby's restaurant opens
for business, an amount equal to the greater of (a)
10.0% of the sum of the Purchase Price and the
Development Price or (b) the 10-year U.S. Treasury Note
Rate in effect 10 days prior to the date that FFCA
initially anticipates the Final Disbursement Date to
occur (which date shall be established by a letter from
FFCA to Sybra) plus 4.50%, times the sum of the Purchase
Price and the Development Price, which amount shall be
payable in equal monthly installments on the first day
of each month following the month in which the Final
Disbursement is made.
Base Annual Rental
Increases: Commencing with the second anniversary of the completion
of the construction of the improvements, and continuing
every two years thereafter during the Lease Term, the
Base Annual Rental shall increase by the lesser of (i)
4.04% or (ii) the average increase in the U.S. Consumer
Price Index during the previous two years times 3 (which
increases shall be compounded).
Purchase Option: Sybra shall have the option during the ninety (90) days
immediately preceding the 10th and 20th anniversaries of
the Lease and, if applicable, during the ninety-day
periods immediately preceding the end of the first and
second extension terms, to purchase the Property for the
greater of (i) its fair market value, or (ii) the sum of
FFCA's total investment in the Property.
C. Basic Mortgage Loan Terms.
Property Commitment
Fee: For each Transaction involving a Mortgage Loan, Sybra
shall pay FFCA an underwriting and processing fee equal
to one percent (1%) of the sum of the Loan Amount and
the Equipment Loan Amount. Sybra shall be entitled to a
$3,000.00 credit towards the Property Commitment Fee
owing under each Term Sheet. One-half of the balance of
the Property Commitment Fee shall be due upon Sybra's
acceptance of a Term
<PAGE>
Sheet; the balance of the Property Commitment Fee shall
be due at the Closing.
Documentation: Prior to Closing, FFCA shall provide Sybra with FFCA's
proposed form of promissory note ("Note"), loan
agreement ("Loan Agreement"), mortgage or deed of trust,
as determined by FFCA, and security agreement ("Deed of
Trust"), assignment of leases and rents, environmental
indemnity, UCC-1 financing statements, disbursement
agreement (the "Disbursement Agreement") and such other
documents as may be reasonably required by FFCA or the
title company (collectively, the "Loan Documents"). Each
Deed of Trust shall (a) grant FFCA a first priority lien
against the Property, (b) contain such representations,
warranties, covenants and agreements as are customary in
loan transactions of this type, (c) provide that Sybra
will indemnify FFCA against all claims, suits and costs
whatsoever relating to the Property, (d) provide that
Sybra shall be responsible for all maintenance,
utilities, insurance, taxes, assessments and other
expenses associated with the Property, (e) provide that
the Property be operated as an Arby's restaurant, and
(f) provide that the Property shall not be sold, leased,
or further encumbered without the prior written consent
of FFCA. At the Closing, with respect to each Property,
Sybra shall (i) provide FFCA with proof of insurance
relating to the Property, (ii) provide FFCA with a
satisfactory title insurance commitment, ALTA as-built
survey, phase I environmental report and/or
environmental insurance, opinion of counsel, non-foreign
certificate, and (iii) execute the Loan Documents.
Loan Amount: Subject to the Transaction Amount Cap set forth above,
the sum of (i) the fair market value of the Land as
determined by FFCA's in-house site inspection and review
department, (ii) the actual and reasonable cost to
construct the improvements, as determined by FFCA's
in-house site inspection and review department, (iii)
the Property Commitment Fee, and (iv) such soft costs
and closing costs as FFCA may approve in its reasonable
discretion.
<PAGE>
Development Price: After Sybra purchases the Land, FFCA will fund the sum
of (i) the actual and reasonable hard costs incurred to
construct the improvements as determined by FFCA's
in-house site inspection department, and (ii) Sybra's
actual and reasonable out-of-pocket soft costs relating
to the construction of the improvements as may be
approved as to category and amount by FFCA, in its
reasonable discretion.
Basic Construction
Funding Terms: The Disbursement Agreement shall provide that FFCA will
agree to fund the Development Price in progress payments
through the title company, and Sybra will agree to
complete the improvements as provided therein.
Note Terms: During the construction period, interest shall accrue at
a variable rate equal to the 30-day London Interbank
Offered Rate then in effect plus 3.50%; thereafter,
interest shall accrue at an annual rate equal to the
greater of (i) 9.25% or (ii) the 10-year U.S. Treasury
Note Rate in effect 10 days prior to the date that FFCA
initially anticipates the Final Disbursement to occur
(which date shall be established by a letter from FFCA
to Sybra) plus 4.25%. Principal and interest shall be
paid in equal monthly installments due on the first day
of each month based upon a twenty (20) year term and
amortization schedule or such shorter term as may be
required by FFCA to ensure that the term of the Ground
Lease (including all renewals) exceeds the term of the
Mortgage Loan by at least five (5) years.
Prepayment: Subject to the terms of the Fixed Charge Coverage
paragraph below, the Note may not be prepaid in whole or
in part during the first five years of the term of the
Note. Thereafter, Sybra may prepay the Note, in whole
but not in part, on any regularly scheduled payment
date; provided, however, any prepayment during the sixth
year of the term of the Mortgage Loan shall include a
prepayment premium equal to 5% of the then outstanding
amount of the loan; any prepayment during the seventh
year of the term of the Mortgage Loan shall
<PAGE>
include a prepayment premium equal to 4% of the then
outstanding amount of the loan; any prepayment during
the eighth year of the term of the Mortgage Loan shall
include a prepayment premium equal to 3% of the then
outstanding amount of the loan; any prepayment during
the ninth year of the term of the Mortgage Loan shall
include a prepayment premium equal to 2% of the then
outstanding amount of the loan; and any prepayment
during the tenth year of the term of the Mortgage Loan
shall include a prepayment premium equal to 1% of the
then outstanding amount of the loan.
Fixed Charge Coverage
Ratio: Prior to a Securitization (as defined below) of any of
the Mortgage Loans, Sybra will maintain an annual fixed
charge ratio, tested on a consolidated basis as to all
of the Properties subject to the Mortgage Loans that are
being securitized equal to or greater than 1.3:1 (the
"SFCCR"). FFCA will notify Sybra as to the actual date
for the calculation of the SFCCR (the "SFCCR Calculation
Date") at least 60 days prior to the SFCCR Calculation
Date. The SFCCR Calculation Date shall be no more than
30 days prior to the anticipated date of the
Securitization. In calculating the SFCCR, FFCA will use
actual performance data for any Properties that have
been operated for more than 4 months as of the SFCCR
Calculation Date. For any Properties that have been
operated for less than 4 months as of the SFCCR
Calculation Date, FFCA shall use pro forma data to
calculate the SFCCR. FFCA will not exclude from any
Securitization any of the fully funded Mortgage Loans in
FFCA's inventory if the exclusion of the Mortgage Loan
causes the SFCCR on the remaining Mortgage Loans to be
lower than 1.30:1. Furthermore, the FCCR Calculation
Date for any Property shall be no more than one year
after the date that the Mortgage Loan for such Property
was fully funded. The Loan Documents shall further
provide that after the Mortgage Loan has been
securitized, Sybra shall maintain an annual fixed charge
coverage ratio, tested on a consolidated basis as to all
of Sybra's Arby's restaurants, equal to or greater than
1.3:1, with such ratio to be calculated as of each
fiscal year end of Sybra ("FCCR"). Both the SFCCR and
the FCCR shall be calculated in accordance with the
following formula:
<PAGE>
The ratio of the sum of:
1. Net income according to GAAP (after income tax);
plus
2. Income tax; plus
3. Interest expense, plus
4. All non-cash charges including depreciation and
amortization; plus
5. All corporate and regional overhead (defined as
non-store level general and administrative
expense consistent with the method of accounting
used for Sybra's 1997 audited report, including,
but not limited to, expenses related to
automobiles, administrative fees, legal,
accounting and other professional services,
office supplies, travel and entertainment; plus
6. 7. Non-recurring expenses; minus
7. A standardized management fee representing 2.0%
of gross sales for any 12 month period; plus
8. Rent expense (defined as building and ground
operating lease expense, plus percent rent, plus
capitalized building lease expense (net of
principal and interest), minus rent on regional
and corporate offices and inactive units);
To the sum of:
1. All corporate debt service for the period being
measured (interest and required principal
payments during such period); plus
2. Rent expense as defined above in number 8 above;
plus
<PAGE>
3. Interest and required principal payments on all
Capital Lease obligations during such period.
If Sybra does not achieve either the required SFCCR or
the FCCR within 30 days following notice from FFCA,
Sybra shall be required to cure such failure through one
of the following remedies: (i) pay off the Mortgage
Loan(s) on the poorest performing Property or
Properties, (ii) prepay the Mortgage Loan(s) on the
poorest performing Property or Properties by an amount
sufficient to raise the ratio to the required level and
the corresponding Note or Notes shall be amended to
reamortize the remaining payments due thereunder, (iii)
substitute the poorest performing Properties with
similar Properties upon terms that are mutually
acceptable to the parties, or (iv) pay off the Notes on
the poorest performing Properties and enter into a
sale-leaseback transaction with FFCA on terms and
conditions that are mutually satisfactory to the
parties.
Closing Costs: Sybra shall pay its attorneys' fees, FFCA's reasonable
in-house site inspection expenses, FFCA's reasonable
attorneys' fees, the cost of the phase I environmental
report and/or environmental insurance, and all other
reasonable Mortgage Loan closing costs, including,
without limitation, all mortgage and stamp taxes,
construction consultant fees, soil report expenses,
disbursement agent costs, survey expenses, title
insurance premiums, and escrow, filing and recording
fees.
D. Basic Equipment Loan Terms.
Documentation: FFCA's counsel will prepare and submit to Sybra the form
of equipment note (the "Equipment Note"), equipment loan
agreement (the "Equipment Loan Agreement"), security
agreement (the "Security Agreement") and UCC-1 Financing
Statements proposed by FFCA. The Security Agreement
shall grant FFCA a first priority security interest in
the Equipment, and the Equipment Loan Agreement shall
(i) contain such representations, warranties, covenants
<PAGE>
and agreements as are customary in loan transactions of
this type, and (ii) provide that Sybra will indemnify
FFCA against all claims, suits and costs whatsoever
relating to any breach of Sybra's representations and
warranties. At the Equipment Loan closing, Sybra shall
(i) provide FFCA with proof of insurance and copies of
all bills of sale, invoices and purchase agreements
relating to the Equipment, and (ii) execute the
Equipment Note, the Equipment Loan Agreement, the
Security Agreement, the UCC-1 financing statements and
such other documents as may be reasonably required by
FFCA or the title company (collectively, the "Equipment
Loan Documents").
Equipment
Loan Amount: The actual and reasonable cost of the Equipment at each
Property, but in no event shall such cost exceed the sum
of $150,000.00 per Property.
Note Terms: Interest shall accrue at the rate per annum equal to the
greater of (i) 9.25% or (ii) the 10-year U.S. Treasury
Note Rate in effect 10 days prior to the date that FFCA
initially anticipates the Final Disbursement to occur
(which date shall be established by a letter from FFCA
to Sybra) plus 4.25%. Principal and interest shall be
paid in equal monthly installments due on the first day
of each month based on a seven (7) year amortization
schedule.
Prepayment: Sybra may not prepay any Note in whole or in part during
the first four (4) years thereof; thereafter, Sybra may
prepay the Note in whole only on any regularly scheduled
payment date; provided, however, any prepayment during the
fifth year of the term of the Equipment Loan shall
include a prepayment premium equal to 3% of the then
outstanding amount of the Equipment Loan; any prepayment
during the sixth year of the term of the Equipment Loan
shall include a prepayment premium equal to 2% of the
then outstanding amount of the Equipment Loan; and any
prepayment during the seventh year of the term of the
Equipment Loan shall include a prepayment premium equal
to 1% of the then outstanding amount of the Equipment
Loan.
<PAGE>
Equipment Loan
Closing Date: The Final Disbursement Date.
E. Other Material Transaction Terms.
Ground Lease Prior to the closing of any Transaction involving a Ground
Approval: Lease Site, FFCA's Legal Department shall have received
and approved the related ground lease.
Financial Statements: Within forty-five days following the end of each quarter
during the Commitment Term, Sybra shall provide FFCA
with Sybra's financial statements for the preceding
quarter.
Non-Disclosure: Neither Sybra nor FFCA shall make any public disclosure
of this Commitment or the transactions proposed by this
Commitment without the prior written consent of the
other party hereto, except as required by law or
judicial action.
Securitization: The loan documents shall provide that FFCA may, at any
time, sell, transfer or assign any Note, Deed of Trust
and any of the other Loan Documents and Equipment Loan
Documents, and any or all servicing rights with respect
thereto (each, a "Transfer"), or grant participations
therein (each, a "Participation"), or complete an asset
securitization vehicle selected by FFCA, in accordance
with all requirements which may be imposed by the
investors or the rating agencies involved in such
securitized financing transaction, as selected by FFCA,
or which may be imposed by applicable securities, tax or
other laws or regulations, including, without
limitation, laws relating to FFCA's status as a real
estate investment trust (each, a "Securitization").
Sybra agrees to cooperate in good faith with FFCA in
connection with any Transfer, Participation and/or
Securitization, including, without limitation, (i)
providing such documents, financial and other data, and
other information and materials (the "Disclosures")
which would typically be required with respect to Sybra
by a purchaser, transferee, assignee, servicer,
participant, investor or rating agency involved with
respect to such Transfer, Participation and/or the
Securitization, as applicable; provided, however, Sybra
shall not be required to make Disclosures of any
confidential information or any information which has
not previously been made public unless required by
<PAGE>
applicable federal or state securities laws; and (ii)
amending the terms of the transactions evidenced by the
Loan Documents to the extent necessary so as to satisfy
the requirements of purchasers, transferees, assignees,
servicers, participants, investors or selected rating
agencies involved in any such Transfers, Participations
or Securitization, so long as such amendments would not
have a material adverse effect upon Sybra or the
transactions contemplated by this Commitment or make any
of the mortgage and equipment loan repayment or
covenants more burdensome on Sybra. Sybra consents to
FFCA providing the Disclosures, as well as any other
information which FFCA may now have or hereafter acquire
with respect to the Property or the financial condition
of Sybra, to each purchaser, transferee, assignee,
servicer, participant, investor or rating agency
involved with respect to each Transfer, Participation
and/or Securitization, as applicable. FFCA and Sybra
shall each pay their own attorneys fees and other
out-of-pocket expenses incurred in connection with the
performance of their respective obligations under this
Paragraph.
Cross-Default and
Cross-
Collateralization: The Mortgage Loan Documents and Equipment Loan Documents
between FFCA and Sybra with respect to the Mortgage
Loans and the sale-leaseback documents with respect to
each Sale-Leaseback Transaction shall be cross-defaulted
and, in the case of each loan, cross-collateralized,
with all other loan agreements, notes, mortgages, deeds
of trust, leases and other agreements now or hereafter
entered into between (or, in the case of notes and
guaranties, in favor of) (i) FFCA, Franchise Finance
Corporation of America or any of its other subsidiaries
and affiliates, on the one hand, and (ii) Sybra or any
of its subsidiaries or affiliates, on the other hand.
F. Other Matters.
THE FOREGOING SUMMARY OF BASIC TERMS AND CONDITIONS IS NOT MEANT TO BE
NOR SHOULD IT BE CONSTRUED AS AN ATTEMPT TO DEFINE ALL OF THE TERMS AND
CONDITIONS REGARDING THE TRANSACTIONS. INSTEAD, IT IS INTENDED ONLY TO OUTLINE
CERTAIN BASIC POINTS OF THE BUSINESS UNDERSTANDING AROUND WHICH
<PAGE>
LEGAL DOCUMENTATION WILL BE STRUCTURED. THE OUTLINED TERMS AND CONDITIONS ARE
SUBJECT TO FINAL DOCUMENTATION SATISFACTORY TO ALL PARTIES AND COMPLETE LEGAL
REVIEW AND APPROVAL OF ALL PERTINENT MATTERS.
This Commitment and the Transaction contemplated hereby, and the
obligation of FFCA to consummate the Transaction described in this Commitment
shall be subject to, in FFCA's reasonable judgment, there being no adverse
material change in (i) the financial condition of Sybra, or (ii) the capital
markets utilized by FFCA. Furthermore, this Commitment shall not be assignable
by Sybra or relied upon by any third party without the prior written consent of
FFCA, and shall be governed by the internal laws of the State of Arizona,
without giving effect to conflict of law principles. This Commitment may be
assigned by FFCA without the consent of Sybra. This Commitment (i) supersedes
any previous discussions, agreements and/or proposal/commitment letters relating
to the Transaction, including the commitment letter dated February 1, 1999, and
(ii) may only be amended by a written agreement executed by FFCA and Sybra. FFCA
reserves the right to cancel this Commitment in the event (i) Sybra has made any
misrepresentations or has withheld any information with regard to the
Transaction, or (ii) Sybra, or its subsidiaries or affiliates default on any of
their contractual obligations to FFCA or its affiliates.
ANY ACTION ARISING OUT OF THIS COMMITMENT SHALL BE PROSECUTED ONLY IN
THE STATE OR FEDERAL COURTS LOCATED IN THE STATE OF ARIZONA. FFCA AND SYBRA
WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY ACTION
ARISING OUT OF THIS COMMITMENT. SYBRA WAIVES ANY RIGHT SYBRA HAS OR MAY HAVE TO
SEEK OR RECOVER FROM FFCA OR ANY OF ITS AFFILIATES, OFFICERS, DIRECTORS AND
EMPLOYEES ANY AWARD OF SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES IN
CONNECTION WITH ANY DEFAULT BY FFCA UNDER THIS COMMITMENT.
<PAGE>
Please indicate your acceptance of this Commitment by having a copy of
this Commitment signed and returned to FFCA to the attention of Margaret J.
Craft, FFCA Acquisition Corporation, 17207 North Perimeter Drive, Scottsdale,
Arizona 85255, together with a check in the sum of $45,000.00 payable to "FFCA
Acquisition Corporation", within ten (10) days from the date hereof or this
Commitment will automatically expire.
FFCA Acquisition Corporation,
a Delaware corporation
/s/ Robert Roach
Rob Roach
Senior Vice President
Corporate Finance
ACCEPTED AND AGREED TO on this 22nd day of February, 1999.
Sybra, Inc.,
a Michigan corporation
By /s/ James R. Arabia
-----------------------------
Printed Name James R. Arabia
-------------------
Title President & CEO
--------------------------
<PAGE>
EXHIBIT A
TERM SHEET
This Term Sheet is subject to the terms and conditions of that certain
commitment letter dated February 17, 1999, between FFCA Acquisition Corporation
("FFCA") and Sybra, Inc. ("Sybra") (the "Commitment Letter"). In the event of
any conflict between the provisions of the Commitment Letter and the terms of
this Term Sheet, the terms of the Commitment Letter shall prevail. Any
capitalized terms used herein without definition shall have the same meaning
given in the Commitment Letter.
Date: _____________________
Lender/Buyer: FFCA
Seller/ Borrower: _____________________
Property Location: _____________________
FFCA Store Number: _____________________
Type of Transaction (indicate one): Sale-Leaseback _____ Mortgage Loan _____
Purchase Price: $_____________________
Loan Amount: $_____________________
Development Price: $_____________________
Property Commitment Fee: $ (including $3,000.00
_____________________ Credit)
Base Annual Rental:
Prior to the Final Disbursement Date, the
sum of (i) the greater of (a) 10.0% or (b)
the 30-day London Interbank Offered Rate
then in effect plus 3.50%, of the Purchase
Price multiplied by a fraction, the
numerator of which will be the actual
number of days between the Closing Date
and the Final Disbursement
Date, and the denominator of which will be
365, and the sum of (ii) the greater of (a)
10.0% or (b) the 30-day London Interbank
Offered Rate then in effect plus 3.50%,
of each portion of the Development Price
(as defined above) outstanding between the
Closing Date and the Final Disbursement
Date multiplied by a fraction, the
numerator of which will be the actual
number of days between the date that each
portion of the Development Price was
advanced by FFCA and the Final Disbursement
Date and the denominator of which will be
365 (collectively, the "Interim Rental"),
which amount shall not be paid by Sybra
prior to
<PAGE>
the First Disbursement Date but shall
accrue from and after the date the
Arby's restaurant opens for business and be
capitalized in the Lease on the Final
Disbursement Date pursuant to the Lease
Amendment. After the date the Arby's
restaurant opens for business, an amount
equal to the greater of (a) 10.00% of the
sum of the Purchase Price and the
Development Price or (b) the 10-year U.S.
Treasury Note Rate in effect 10 days prior
to the date that FFCA initially anticipates
the Final Disbursement to occur (which date
shall be established by a letter from FFCA
to Sybra) plus 4.50% times the sum of the
Purchase Price and the Development Price,
which amount shall be payable in equal
monthly installments on the first day of
each month following the month in which the
Final Disbursement is made.
Interest Rate: During the construction period, interest
shall accrue at a variable rate equal to
the 30-day London Interbank Offered Rate
("LIBOR") then in effect plus 3.50%.
Thereafter, interest shall accrue at the
rate per annum equal to the greater of (i)
9.25% or (ii) the 10-year U.S. Treasury
Note Rate in effect 10 days prior to the
date that FFCA initially anticipates the
Closing to occur (which date shall be
established by a letter from FFCA to
Sybra) plus 4.25%.
Equipment Loan Amount: $_______________________
Interest Rate: Interest shall accrue at the rate per
annum equal to the greater of (i) 9.25% or
(ii) the 10-year U.S. Treasury Note Rate in
effect 10 days prior to the date that FFCA
initially anticipates the Final
Disbursement to occur (which date shall be
established by a letter from FFCA to Sybra)
plus 4.25%.
Outside Closing Date: ________________________
<PAGE>
It is expressly acknowledged that the Transaction is subject to
Seller/Borrower satisfying all of the conditions and requirements contained in
the Commitment Letter.
ACCEPTED AND AGREED TO this _____ day of _________________ , 1999.
FFCA ACQUISITION CORPORATION, SYBRA, INC.,
a Delaware corporation a Michigan corporation
By __________________________ By _____________________________
Printed Name: Rob Roach Printed Name:___________________
Title Senior Vice President Title:__________________________
ICH CORPORATION
SECOND AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
JAMES R. ARABIA
THIS SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT ("Agreement") is
effective as of the 1st day of September, 1998, by and between I.C.H.
Corporation ("ICH"), a Delaware corporation with offices at 9255 Towne Centre
Drive, Suite 600, San Diego, CA 92121, and its subsidiaries, Sybra, Inc., a
Michigan corporation, Sybra of California, Inc., a California corporation,
(collectively with Sybra, Inc., "Sybra"), Lyon's of California, Inc. a
California corporation, and Care Financial Corp., a Delaware corporation, each
with offices at c/o I.C.H. Corporation, 9255 Towne Centre Drive, Suite 600, San
Diego, California 92121 (collectively with ICH and Sybra, the "Companies") and
James R. Arabia, an individual residing at 4230 Arguello Street, San Diego, CA
92103 (the "Executive").
WHEREAS, Executive has served as Chairman, President and Chief Executive
Officer of ICH and as Chairman, President and Chief Executive Officer of Sybra,
pursuant to his prior employment agreement with ICH dated as of January 1, 1998
(the "Prior Agreement") and prior thereto and has recently taken on and will be
taking on certain additional responsibilities, including, without limitation,
additional responsibilities related to impending acquisitions, and through such
service, has acquired special and unique knowledge, abilities and expertise; and
WHEREAS, in recognition of Executive's past performance and
responsibilities and the additional responsibilities Executive has undertaken
and will be undertaking, ICH desires to continue to employ Executive as its
President and Chief Executive Officer and to have Executive continue to serve as
Chairman of the Board of Directors of ICH (the "ICH Board") and the other
Companies desire to employ Executive in similar capacities and the Companies
desire to employ Executive in such capacities with any future subsidiaries of
the Companies and wish to be assured of his continued services on the terms and
conditions hereinafter set forth; and
WHEREAS, Executive desires to continue to be employed by ICH as its
President and Chief Executive Officer and to serve as Chairman of the ICH Board,
and by the other Companies and any future subsidiaries of the Companies in
similar capacities and to perform and to serve the Companies on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and of the mutual
promises, agreements and covenants set forth herein, the parties hereto agree as
follows:
<PAGE>
1. Employment.
The Prior Agreement is hereby amended and restated in its entirety as of
the date of this Agreement.
(a) Duties. The Companies hereby agree to continue to employ
Executive, and Executive hereby accepts such continued employment, as the
President and Chief Executive Officer of ICH and agrees to serve as Chairman of
the ICH Board and as President and Chief Executive Officer and Chairman of the
Board of Directors of each of the other Companies. In his role as President and
Chief Executive Officer of ICH and the other Companies, Executive shall be
responsible for such duties and functions of a supervisory or managerial nature
as may be directed from time to time by the ICH Board and each other respective
Board of Directors provided that such duties are reasonable and customary for a
President and Chief Executive Officer. Executive agrees that he shall, during
the term of this Agreement, except during reasonable vacation periods, periods
of illness and the like, devote substantially all his business time, attention
and ability to his duties and responsibilities hereunder; provided, however,
that nothing contained herein shall be construed to prohibit or restrict
Executive from (i) serving as a director of any corporation, with or without
compensation therefor; (ii) serving in various capacities in community, civic,
religious or charitable organizations or trade associations or leagues; or (iii)
attending to personal business; provided, however, that no such service or
activity permitted in this Section 1(a) shall materially interfere with the
performance by Executive of his duties hereunder. Executive shall report
directly to the ICH Board and each other respective Board of Directors.
(b) Term.
(i) Except as otherwise provided in this Agreement to the
contrary, the terms and conditions of this Agreement shall be and remain in
effect during the period of employment (the "Employment Period") established
under this Section 1(b). The initial Employment Period shall be for a term
commencing on the date of this Agreement and ending on the third anniversary of
the date of this Agreement provided, however, that commencing on the first day
after the date of this Agreement and on each day thereafter, the Employment
Period shall be extended for one additional day so that a constant three (3)
year Employment Period shall be in effect, unless (A) ICH (on its behalf and on
behalf of the other Companies) or Executive elects not to extend the term of
this Agreement by giving written notice to the other party in accordance with
Sections 5(b) and 12 hereof, in which case, the term of this Agreement shall
become fixed and shall end on the third anniversary of the date of such written
notice ("Notice of Non-Renewal"), or (B) Executive's employment terminates
hereunder.
(ii) Notwithstanding anything contained herein to the
contrary, (A) Executive's employment with the Companies may be terminated by
ICH (on its behalf and on behalf of the other Companies) or Executive during the
Employment
-2-
<PAGE>
Period, subject to the terms and conditions of this Agreement; and (B) nothing
in this Agreement shall mandate or prohibit a continuation of Executive's
employment following the expiration of the Employment Period upon such terms and
conditions as the ICH Board and Executive may mutually agree.
(iii) If Executive's employment with the Companies is
terminated, for purposes of this Agreement, the term "Unexpired Employment
Period" shall mean the period commencing on the date of such termination and
ending on the last day of the Employment Period.
(c) Location/Travel. Executive shall work at ICH's
headquarters in San Diego County, California. Executive shall not be required to
relocate from the San Diego area during the Employment Period.
2. Compensation. Subject to the provisions of Section 8 hereof, the
Companies shall each be responsible and have joint and several liability for all
compensation and benefits owed to Executive under this Agreement. A reference to
an ICH plan, program, obligation or commitment shall also be considered an
obligation or commitment of each of the other Companies but shall not result in
duplicate benefits being paid or provided to Executive.
(a) Salary. Executive shall receive an annual base salary of
Four Hundred Seventy-Five Thousand Dollars ($475,000) which shall be payable to
Executive on a bi-weekly basis. The annual base salary payable to Executive
pursuant to this Section 2(a), which may be increased but not decreased by the
ICH Board or the Compensation Committee of the ICH Board (the "ICH Compensation
Committee"), as the case may be, shall be hereinafter referred to as the "Annual
Base Salary."
(b) Annual Bonus.
(i) Executive shall be entitled to receive an annual cash
bonus, hereinafter referred to as the "Annual Bonus," based upon a formula and
subject to certain performance goals having been achieved (the "Formula"),
determined by the ICH Board, in its sole discretion, by the end of the first
quarter of each year. The target bonus payable to Executive for each fiscal year
based upon the Formula established by the ICH Board shall be an amount equal to
at least forty percent (40%) of Executive's Annual Base Salary for such year.
(ii) Executive's Annual Bonus shall be paid to Executive
no later than forty five (45) days following the end of the period for which the
bonus is being paid.
(c) Reimbursement of Business Expenses. ICH shall reimburse
Executive for all reasonable out-of-pocket expenses incurred by him during the
Employment Period. ICH shall also promptly reimburse Executive for reasonable
out-of-pocket expenses incurred by him pursuant to his employment hereunder,
including
-3-
<PAGE>
but not limited to all reasonable travel and entertainment expenses. Executive
may only obtain reimbursement under this Section 2(c) upon submission of such
receipts and records as may be initially required by the ICH Board and,
thereafter, as may be required under the reimbursement policies established by
ICH.
(d) Additional Benefits; General Rights. During the Employment
Period, Executive shall be entitled to:
(i) participate in all employee stock option, pension,
savings, and other similar benefit plans of ICH and/or such other plans or
programs of the other Companies as ICH may designate from time to time;
(ii) participate in all welfare plans established by ICH
such as life insurance, medical, dental, disability, and business travel
accident plans and programs and/or such other plan or programs of the other
Companies as ICH may designate from time to time. In addition, ICH shall
reimburse Executive for (i) any premium costs Executive may incur with respect
to the health insurance plan currently maintained by ICH (and which may be
maintained by ICH from time to time) in which Executive (and his spouse and
children) participates and (ii) for all other medical and dental expenses not
covered by any medical or dental plan in which Executive (and his spouse and
children) participates, including, without limitation, deductibles and out of
pocket expenses;
(iii) reimbursement from ICH for any premium costs
associated with the term life insurance in the amount of one and one-half
million dollars ($1,500,000.00) issued by Security Connecticut and currently
owned by Executive;
(iv) a minimum eight hundred dollars ($800) per month
local travel allowance;
(v) four (4) weeks paid vacation per year; and
(vi) any other benefits provided by ICH to its executive
officers.
(e) Withholding. ICH and/or the other Companies, as the case
may be, shall deduct from all compensation paid to Executive under this
Agreement, any Federal, State or city withholding taxes, social security
contributions and any other amounts which may be required to be deducted or
withheld by the Companies pursuant to Federal, State or city laws, rules or
regulations.
3. Option Grant.
(a) (i) Upon execution of Executive's first employment
agreement with ICH dated February 11, 1997 (the "First Agreement"), Executive
received options issued pursuant to ICH's 1997 Employee Stock Option Plan, as
amended (the "Stock Option Plan"), to purchase up to 176,000 shares of common
stock of ICH, $0.01 par
-4-
<PAGE>
value (the "Common Stock"), at an exercise price per share equal to $ 2.17 (the
"1997 Options"). Subject to Sections 3(e) and 6 below, such 1997 Options shall
have vested or vest, as applicable, and are exercisable as follows: 58,667 1997
Options, effective upon execution of the First Agreement; 58,667 1997 Options,
effective February 11th, 1998; and the balance 58,666 1997 Options, effective
February 11th, 1999. The terms and conditions of the 1997 Options granted to
Executive are memorialized in the written option grant agreement between ICH and
Executive dated February 11, 1997 and attached to the First Agreement as Exhibit
A (the "1997 Option Grant Agreement"). Such 1997 Options shall expire on
February 11, 2007.
(ii) On the effective date of this Agreement, Executive
shall be granted additional options issued pursuant to the Stock Option Plan to
purchase up to 74,000 shares of Common Stock at an exercise price per share
equal to $4.00 (the "1998 Options"). Subject to Sections 3(e) and 6 below, such
1998 Options shall vest and be exercisable as follows: 18,500 1998 Options, on
the effective date of this Agreement; 18,500 1998 Options, effective on the
first anniversary of this Agreement; 18,500 1998 Options, effective on the
second anniversary of this Agreement and the balance 18,500 1998 Options,
effective on the third anniversary of this Agreement. The terms and conditions
of the 1998 Options granted to Executive are memorialized in the written option
grant agreement between ICH and Executive dated the date hereof and attached
hereto as Exhibits A and B (the "1998 Option Grant Agreements"). Such 1998
Options shall expire on September 1, 2008.
(iii) The 1997 Options, the 1998 Options plus any
additional options granted to Executive in the future (collectively referred to
herein as the "Options") were and are intended to qualify as incentive stock
options within the meaning of Section 422(b) of the Internal Revenue Code of
1986, as amended (the "Code"); provided, however, that to the extent that any of
such Options do not satisfy the requirements of Section 422(b) of the Code
either at the time of grant or before or after exercise, including, without
limitation, upon disposition of the underlying stock acquired by the exercise of
Options prior to the requisite holding period, they shall be treated as
non-qualified stock options.
(b) In the event that Executive incurs taxable income as a
result of any or all of his Options being treated as non-qualified options (i.e.
Options have been exercised and the requirements of Section 422(b) of the Code
have not been or are no longer met) (the "Taxable Event") as soon as practicable
after a determination by ICH and Executive that the Options are non-qualified
and a Taxable Event has occurred, ICH shall make an additional single sum cash
payment to Executive in an amount equal to thirty percent (30%) of Executive's
taxable income resulting from the Taxable Event. Such payment shall only be made
in the event Executive's employment with ICH has not terminated for Cause within
the meaning of Section 5(a)(i) of this Agreement.
(c) Upon termination of his employment for any reason,
Executive shall have the right to exercise his 1998 Options at any time through
September 1, 2008 and any additional options granted after the date hereof at
any time through the
-5-
<PAGE>
date they would otherwise expire if Executive had not terminated employment.
Executive understands that the effect of exercising any incentive stock options
on a day that is more than ninety (90) days after the date of termination of
employment (or, in the case of a termination of employment on account of death
or disability, on a day that is more than one (1) year after the date of such
termination) shall be to cause such incentive stock options to be treated as
non-qualified stock options.
(d) In the event ICH issues additional shares of Common Stock
and/or any class of stock convertible into Common Stock and/or any other
security convertible into Common Stock (including, without limitation, options
and warrants which may be granted to individuals or entities other than
employees and directors) at any time during the Employment Period and prior to
Executive's termination of employment and in connection with a public or private
equity offering or in connection with an acquisition, Executive shall be granted
additional stock options and/or provided with a loan, as determined by the ICH
Board, to purchase a sufficient amount of Common Stock so that the aggregate of
Executive's stock ownership (i.e. Common Stock owned plus options to purchase
Common Stock whether or not vested) in ICH shall equal ten percent (10.0%) of
the then Outstanding Stock less any shares sold or otherwise disposed of by
Executive on or after the date hereof.
Outstanding Stock shall mean all outstanding shares of
Common Stock, any class of stock convertible into Common Stock and any other
security convertible into Common Stock less shares of Common Stock outstanding
as a result of employee or director option exercises with the amount of such
reduction limited to one million nine hundred thousand (1,900,000) shares (i.e.,
the aggregate number of shares of Common Stock currently authorized under the
Stock Option Plan and the ICH 1997 Director Stock Option Plan) and adjustments
for stock repurchases and recapitalizations first being applied to reduce the
number of shares of Common Stock outstanding as a result of director and
employee option exercises.
(e) To the extent any Options are not vested upon a "Change in
Control" of ICH, such unvested Options shall become fully vested and immediately
exercisable upon a "Change in Control" of ICH (whether or not such Change in
Control is approved of by the Continuing Directors of ICH (as defined in the
Rights Agreement between ICH and Mid-America Bank of Louisville and Trust
Company dated as of February 19, 1997 and amended as of February 10, 1998)). A
"Change in Control" of ICH shall be deemed to have occurred upon the happening
of any of the following events:
(i) approval by the ICH Board or stockholders of ICH of a
transaction that would result in the reorganization,
merger, or consolidation of ICH with one or more other
"Persons" within the meaning of Sections 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934 ("Exchange
Act"), other than a transaction following which:
-6-
<PAGE>
(A) at least seventy-one percent (71%) of the
equity ownership interests of the entity resulting
from such transaction are beneficially owned
(within the meaning of Rule 13d-3 promulgated under
the Exchange Act) in substantially the same
relative proportions by Persons who, immediately
prior to such transaction, beneficially owned
(within the meaning of Rule 13d-3 promulgated under
the Exchange Act) at least seventy-one percent
(71%) of the outstanding equity ownership interests
in ICH; and
(B) at least seventy-one percent (71%) of the
securities entitled to vote generally in the
election of directors of the entity resulting from
such transaction are beneficially owned (within the
meaning of Rule 13d-3 promulgated under the
Exchange Act) in substantially the same relative
proportions by Persons who, immediately prior to
such transaction, beneficially owned (within the
meaning of Rule 13d-3 promulgated under the
Exchange Act) at least seventy-one percent (71%) of
the securities entitled to vote generally in the
election of directors of ICH;
(ii) the acquisition of all or substantially all of the
assets of ICH;
(iii) a complete liquidation or dissolution of ICH, or
approval by the stockholders of ICH of a plan for such
liquidation or dissolution;
(iv) the occurrence of any event in the nature of an event
described in this Section 3(e) if, immediately following
such event, at least seventy-five percent (75%) of the
members of the ICH Board do not belong to any of the
following groups:
(A) individuals who were members of the ICH Board
on the date of this Agreement; or
(B) individuals who first became members of the ICH
Board after the date of this Agreement either:
(I) upon election to serve as a member of
the ICH Board by affirmative vote of
three-quarters of the members of such ICH
Board, or of a nominating committee thereof,
in office at the time of such first
election; or
(II) upon election by the stockholders of
ICH to serve as a member of the ICH Board,
but only if nominated for election by
affirmative vote of three-quarters of the
-7-
<PAGE>
members of the ICH Board, or of a nominating
committee thereof, in office at the time of
such first nomination; provided, however,
that such individual's election or
nomination did not result from an actual or
threatened election contest (within the
meaning of Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies
or consents (within the meaning of Rule
14a-11 of Regulation 14A promulgated under
the Exchange Act) other than by or on behalf
of the ICH Board.
(v) one or more other Persons, other than an employee
benefit plan sponsored by ICH, becomes the "beneficial
owner," as such term is used in Section 13 of the Exchange
Act, of thirty percent (30%) or more of the Common Stock
of ICH issued and outstanding prior to such acquisition.
4. Loans to Executive.
(a) Residence Loan.
(i) ICH hereby agrees to make a loan to Executive at such
time as Executive elects during the Employment Period in a principal amount of
$350,000 for the purchase of a principal residence (the "Residence Loan"). The
Residence Loan shall accrue interest at an annual rate equal to the published
applicable federal rate (AFR) for loans of similar maturity at the time the
Residence Loan is granted. Principal plus interest shall be repayable on a
self-amortizing basis in years eight (8) through ten (10). Executive shall be
required to execute such evidences of indebtedness and other documents as are
reasonably necessary to effectuate the Residence Loan.
(ii) In the event Executive's employment is terminated by
ICH in connection with a Change in Control which is not approved by the
Continuing Directors of ICH, ICH shall on the consummation of such Change in
Control, forgive all principal and accrued interest then outstanding on the
Residence Loan. Additionally, on the consummation of such Change in Control, ICH
shall pay Executive, in one lump sum, a cash amount sufficient to gross up
Executive for the full tax consequences of such forgiveness so that on a net
after tax basis Executive shall be in the same position as if no taxable event
had occurred upon such forgiveness. The forgiveness of the Residence Loan and
the related gross up payment shall hereinafter be referred to as the "Residence
Loan Forgiveness".
(b) 1997 Option Loans.
(i) ICH has loaned Executive Two Hundred Fifty-Four
Thousand Six Hundred Fourteen Dollars and Seventy-Eight Cents ( $254,614.78) and
-8-
<PAGE>
shall to loan Executive One Hundred Twenty-Seven Thousand Three Hundred Five
Dollars and Twenty-Two Cents ( $127,305.22) on February 11, 1999 in order to
enable Executive to exercise all his 1997 Options (collectively, the "1997
Option Loans").
(ii) In the event (A) Executive remains in the continuous
employ of ICH during the period beginning on January 1, 1999 and ending on
December 31, 2001, (B) Executive's employment is terminated by ICH in connection
with a Change in Control not approved by the Continuing Directors of ICH or
without Cause or by Executive for Good Reason or (C) Executive's employment is
terminated due to his death or disability, ICH shall, on December 31, 2001, or
in the case of such Change in Control, on the consummation of such Change in
Control, or in the case of such termination of Executive's employment, on the
date of termination, forgive all principal and accrued interest then outstanding
on such 1997 Option Loans. Additionally, on January 15, 2002 , or in the case of
a Change in Control not approved of by the Continuing Directors of ICH, on the
consummation of such Change in Control, or in the case of such termination of
employment, on the date of termination, ICH shall pay Executive in one lump sum,
a cash amount sufficient to gross up Executive for the full tax consequences of
such forgiveness so that on a net after tax basis Executive shall be in the same
position as if no taxable event had occurred upon such forgiveness. The
forgiveness of the 1997 Option Loans and the related gross up payment shall
hereinafter be referred to as the "1997 Option Loan Forgiveness".
(iii) ICH has and will require Executive to pledge a
sufficient amount of shares of Common Stock acquired upon exercise of his 1997
Options (the "Option Shares") to secure each of the 1997 Option Loans. ICH
shall, as soon as practicable after the date hereof, determine with respect to
the first 1997 Option Loan and such loan shall be secured only by, the lesser of
the full amount of the Option Shares acquired at the time such loan was made or
the number of Option Shares having a fair market value of one hundred and twenty
percent (120%) of the outstanding principal amount of the first 1997 Option
Loan, together with interest projected to accrue thereon through December 31,
2001 ("Maximum Amount Due"). ICH shall reasonably determine the aggregate fair
market value of the collateral (the "Market Value") being held and shall release
to Executive such portion of the collateral the aggregate fair market value of
which equals the Market Value less one hundred and twenty percent (120%) of the
Maximum Amount Due, free and clear of any and all encumbrances under the related
stock pledge agreements. With respect to the second 1997 Option Loan to be made
to Executive on February 11, 1999, such loan shall initially be secured by the
full amount of Option Shares acquired at the time such loan was made. On each
March 1 and each September 1, through the date the 1997 Option Loans are either
repaid or forgiven (each such date a "Determination Date"), ICH shall reasonably
determine the Market Value of the collateral being held. If on such
Determination Date the Market Value exceeds the Maximum Amount Due, ICH shall,
unless otherwise requested by Executive, automatically release to Executive such
portion of the collateral the aggregate fair market value of which equals the
Market Value less one hundred and twenty percent (120%) of the Maximum Amount
Due, free and clear of any and all encumbrances under the related stock pledge
agreements.
-9-
<PAGE>
5. Termination of Employment; Events of Termination.
(a) Executive's employment hereunder may be terminated during
the Employment Period under the following circumstances:
(i) Cause. Executive's employment hereunder shall
terminate for "Cause" ten days after the date ICH shall
have given Executive notice of the termination of his
employment for "Cause". For purposes of this Agreement,
"Cause" shall mean (A) the commission by Executive of
fraud, embezzlement or an act of serious, criminal moral
turpitude; (B) the commission of an act by Executive
constituting material financial dishonesty against any of
the Companies; or (C) Executive's gross neglect in
carrying out his material duties and responsibilities
under this Agreement which has a material adverse effect
on any of the Companies and which is not cured within
thirty (30) days subsequent to written notice from ICH to
Executive of such breach.
(ii) Death. Executive's employment hereunder shall
terminate upon his death.
(iii) Disability. Executive's employment hereunder shall
terminate ten days after the date on which ICH shall have
given Executive notice of the termination of his
employment by reason of his physical or mental incapacity
or disability on a permanent basis. For purposes of this
Agreement, Executive shall be deemed to be physically or
mentally incapacitated or disabled on a permanent basis if
the ICH Board determines he is unable to perform his
duties hereunder for a period exceeding six (6) months in
any twelve (12) month period.
(iv) Good Reason. Executive shall have the right to
terminate his employment for "Good Reason." This Agreement
shall terminate effective immediately on the date
Executive shall have given the ICH Board notice of the
termination of his employment with ICH for "Good Reason."
For purposes of this Agreement, "Good Reason" shall mean
(A) any material and substantial breach of this Agreement
by any of the Companies, (B) a diminution of Executive's
responsibilities, loss of title or position in which
Executive currently serves, failure to reelect Executive
to the ICH Board or the Board of Directors of any of the
other Companies, reappoint Executive Chairman of the ICH
Board or Chairman of the Board of Directors of any of the
other Companies, or maintain the composition of the
Nomination Committee of the ICH Board as it exists on the
date hereof (i.e. with Executive being its sole member),
but not including the loss of responsibilities and title
-10-
<PAGE>
associated with any of the Companies other than ICH upon
the sale of the stock or substantially all of the assets
of such other Company, (C) a Change in Control occurs and
Executive voluntarily quits at any time within the six (6)
month period on or immediately following the Change in
Control, (D) ICH issues a Notice of Non-Renewal to
Executive, (E) a reduction in Executive's Annual Base
Salary or a material reduction in other benefits (except
for bonuses or similar discretionary payments) as in
effect at the time in question, or any other failure by
the Companies to comply with Sections 2 and 3, hereof, (F)
the relocation of Executive's office outside the San Diego
area, or (G) this Agreement is not assumed by a successor
to ICH.
(v) Without Cause. ICH shall have the right to terminate
Executive's employment hereunder without Cause subject to
the terms and conditions of this Agreement. In such event,
this Agreement shall terminate, effective immediately upon
the date on which ICH shall have given Executive notice of
the termination of his employment for reasons other than
for Cause or due to Executive's Disability.
(vi) Without Good Reason. Executive shall have the right
to terminate his employment hereunder without Good Reason
subject to the terms and conditions of this Agreement.
This Agreement shall terminate, effective immediately upon
the date as of which Executive shall have given the ICH
Board notice of the termination of his employment without
Good Reason.
(b) Notice of Termination. Any termination of Executive's
employment by ICH or any such termination by Executive (other than on account of
death) shall be communicated by written Notice of Termination to the other party
hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment under the
provision so indicated. In the event of the termination of Executive's
employment on account of death, written Notice of Termination shall be deemed to
have been provided on the date of death.
6. Payments Upon Termination.
(a) Without Cause, for Good Reason or Disability. If Executive's
employment is terminated by ICH without Cause (pursuant to Section 5(a)(v)), by
Executive for Good Reason (pursuant to Section 5(a)(iv)), or by ICH due to
Executive's Disability (pursuant to Section 5(a)(iii)), Executive, or in the
case of Executive's Disability, Executive's legal representative, shall be
entitled to receive from ICH (i) a lump sum payment in an aggregate amount equal
to four (4) times the sum of (A) then
-11-
<PAGE>
current Annual Base Salary and (B) the average of Executive's Annual Bonus paid
during the two (2) immediately preceding full fiscal years of employment ending
prior to the date of termination (the "Severance Payment"); (ii) any bonuses
which have been earned but not been paid prior to such termination ("Prior Bonus
Payment") and (iii) reimbursement of expenses incurred prior to date of
termination (the "Expense Reimbursement"). The aforesaid amounts shall be
payable in cash without discount for early payment, at the option of Executive,
either in full immediately upon such termination or monthly over the Unexpired
Employment Period (the "Payment Election"). In addition, (x) Executive's fringe
benefits specified in Section 2 shall continue through the end of the Unexpired
Employment Period, provided, however, that such benefits which may not continue
pursuant to law, such as participation in a qualified pension plan, shall
terminate on the date of termination and further provided, that Executive shall
be entitled to COBRA continuation coverage and to continue the applicable life
insurance policies thereafter, at his cost ("Fringe Benefit Continuation); (y)
all outstanding Options which are not vested as of the date of termination, if
any, shall upon such date of termination vest and become immediately exercisable
in accordance with the terms of the Option grant agreements ("Vested Options")
and (z) Executive shall be entitled to the 1997 Option Loan Forgiveness as set
forth in Section 4(b)(ii) hereof.
Any outstanding balance (principal and interest) of the Residence
Loan and any other loans made to Executive (except for the 1997 Options Loans
which shall be forgiven as set forth in the paragraph above) by ICH or any of
the other Companies shall become due on the date of such termination and shall
be payable in a single sum payment. Any amounts owed by Executive to ICH or the
other Companies hereunder shall be set off against any amounts payable from ICH
or the other Companies to the Executive.
In the event Executive terminates his employment within the six
month period on or immediately following a Change in Control which constitutes a
termination for Good Reason under this Agreement pursuant to Section
5(a)(iv)(C), Executive shall be entitled to receive from ICH an additional lump
sum cash payment in an amount sufficient to pay any excise taxes which may be
imposed on Executive pursuant to Section 4999 of the Code (or any successor
provisions) plus any excise or income tax liability on the gross up payment
itself so that on a net after tax basis Executive shall be in the same position
as if the excise tax under Section 4999 of the Code (or any successor
provisions) had not been imposed.
In the event Executive is terminated by ICH without Cause or due
to Executive's Disability, or Executive terminates his employment with ICH for
Good Reason, Executive shall have no duty to mitigate the amount of the payment
received pursuant to this Section 6(a), it being understood that Executive's
acceptance of other employment shall not reduce ICH's or the other Companies'
obligations hereunder.
(b) Death. If Executive's employment is terminated due to death
of Executive (pursuant to Section 5(a)(ii)), Executive's estate or
beneficiary(ies), as the
-12-
<PAGE>
case may be, shall be entitled to the proceeds of the key man life insurance
policy currently held by ICH (the "Death Benefit"). In the event that the Death
Benefit exceeds the sum of (i) sixty percent (60%) of the value of the Severance
Payment and (ii) the outstanding balance (principal and interest) of the
Residence Loan and any other loans made to Executive (except the 1997 Option
Loans) by ICH or any of the other Companies ((i) and (ii) being collectively
referred to as, the "Target Death Benefit"), such excess amount shall be due and
payable by the Executive's estate or beneficiary(ies) to ICH or the other
Companies, as the case may be, on the date of such termination in a single sum
payment; provided, however, that the amount of such payment by the Executive's
estate or beneficiary(ies) shall not exceed the outstanding balance (principal
and interest) of the Residence Loan and any other loans made to Executive
(except the 1997 Option Loans) by ICH or any of the other Companies. In the
event that the Death Benefit is less than the Target Death Benefit, ICH shall
pay the amount of such difference to the Executive's estate or beneficiary(ies)
on the date of such termination in a single sum payment.
In addition, Executive's estate or beneficiary(ies), as the case
may be, shall be entitled to receive Executive's Prior Bonus Payment, Vested
Options, Expense Reimbursement, and the 1997 Option Loan Forgiveness as set
forth in Section 4(b)(ii) hereof and Executive's spouse and covered children
shall be entitled to receive Fringe Benefit Continuation to the extent
applicable.
Any amounts owed by Executive's estate or beneficiary(ies) to ICH
or any of the other Companies hereunder shall be set off against any amounts
payable from the Companies to the Executive's estate or beneficiary(ies), as the
case may be.
(c) Termination With Cause or Voluntary Quit. If ICH
terminates Executive's employment for Cause (pursuant to Section 5(a)(i)) or in
the event Executive voluntarily terminates his employment without Good Reason
(pursuant to Section 5(a)(vi)) ("Voluntary Quit"), Executive shall be entitled
to his Annual Base Salary through the date of the termination of such employment
and Executive shall be entitled to any bonuses which have been earned but not
paid prior to such termination. Executive shall not be entitled to any other
bonuses. Executive's additional benefits specified in Section 2 shall terminate
at the time of such termination and the entire outstanding balance (principal
and interest) of the Residence Loan, the 1997 Option Loans and any other loans
from ICH or any of the other Companies to Executive shall be due and owing on
date of such termination. Any amounts owed by Executive to ICH or the other
Companies hereunder shall be set off against any amounts payable from the
Companies to the Executive. Additionally, Executive shall be entitled to all
Options that have vested as of the date of such termination. All outstanding
Options, which have not vested, if any, as of date of such termination shall be
forfeited, and if the termination is for Cause, no further payments pursuant to
Section 3(b) shall be made to Executive.
(d) Termination by ICH Upon Change in Control. If ICH
terminates Executive's employment for any reason in connection with a Change in
Control which is
-13-
<PAGE>
not approved by the Continuing Directors of ICH, Executive shall receive from
ICH in one lump sum, payable on the consummation of the Change in Control an
amount equal to the Severance Payment, the Prior Bonus Payment and the Expense
Reimbursement. The aforesaid amount shall be payable in cash without discount
for early payment on the consummation of such Change in Control. In addition,
any outstanding balances (principal and interest) of the Residence Loan, the
1997 Option Loans and any other loans made by ICH and any of the other Companies
to Executive shall be forgiven on the consummation of such Change in Control.
Executive shall be entitled to his Vested Options and Executive (and his spouse
and children) shall be entitled to Fringe Benefit Continuation. In addition to
the aforesaid cash payment, ICH shall pay Executive, on the consummation of the
Change in Control, in one lump sum, a cash payment (i) in an amount sufficient
to cover the full tax consequences of the forgiveness of any loans so that on a
net after tax basis Executive shall be the same as if no taxable events had
occurred upon such forgiveness (ii) in an amount sufficient to pay any excise
taxes which may be imposed on Executive pursuant to Section 4999 of the Code (or
any successor provisions) plus any excise or income tax liability on the gross
up payment itself so that on a net after tax basis Executive shall be the same
as if the excise tax under Section 4999 of the Code (or any successor
provisions) had not been imposed.
In the event Executive is terminated by ICH in connection with a
Change in Control which is not approved by the Continuing Directors of ICH,
Executive shall have no duty to mitigate the amount of the payment received
pursuant to this Section 6(d), it being understood that Executive's acceptance
of other employment shall not reduce the Companies obligations hereunder.
(e) Vesting Trust. At Executive's option, the Companies shall
establish a vesting trust into which the Companies shall, to the extent
economically feasible, contribute and/or pledge assets to secure their severance
obligations to Executive under this Agreement.
7. Successors and Assigns.
(a) This Agreement shall be binding upon and inure to the
benefit of ICH, its successors and assigns. ICH shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all its assets to expressly assume and agree to perform
this Agreement in the same manner and to the same extent ICH would be required
to perform if no such succession had taken place.
(b) Executive agrees that this Agreement is personal to him
and may not be assigned by him other than by the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
Executive's legal representative.
8. Joint and Several Liability.
-14-
<PAGE>
(a) No Duplication of Payments. The Companies shall be jointly
and severally liable for any amounts payable to Executive under this Agreement.
Any amounts payable to Executive shall be paid in the first instance by ICH, and
to the extent not paid by ICH shall be paid by the other Companies. In no event
shall any amount payable pursuant to this Agreement be paid by ICH and any other
Company, or any two or more Companies and Executive shall not be entitled to
receive duplicate benefits or payments under any of the provisions of this
Agreement.
(b) New Subsidiaries. Any subsidiary of the Companies that is
formed or acquired on or after the date hereof shall be required to become a
signatory to this Agreement and shall become jointly and severally liable with
the Companies for the obligations hereunder.
(c) Sale of Subsidiaries. Upon the sale of the stock or
substantially all of the assets of any subsidiary of the Companies, which is
approved by the ICH Board, such subsidiary shall be automatically released from
its obligations hereunder and shall not be considered as having any continuing
liability for the obligations hereunder, and Executive shall be released from
his obligations to such subsidiary hereunder.
9. Governing Law. This Agreement shall be construed in accordance
with, and its validity, interpretation, performance and enforcement and shall be
governed by, the laws of the State of California without regard to conflicts of
law principles thereof.
10. Entire Agreement.
(a) This instrument contains the entire understanding and
agreement among the parties relating to the subject matter hereof, except as
otherwise referred to herein, and supersedes all other prior agreements and
undertakings, both written and oral, among the parties with respect to the
subject matter hereof. The parties recognize that the Prior Agreement has been
amended and restated in its entirety by this Agreement and the terms of the
Prior Agreement are of no further force and effect.
(b) Neither this Agreement nor any provisions hereof may be
waived or modified, except by an agreement in writing signed by the party(ies)
against whom enforcement of any waiver or modification is sought.
11. Provisions Severable. In case any one or more of the provisions
of this Agreement shall be invalid, illegal or unenforceable in any respect, or
to any extent, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby.
12. Notices. Any notice required or permitted to be given under the
provisions of this Agreement shall be in writing and delivered by courier or
personal delivery, facsimile transmission (to be followed promptly by written
confirmation mailed
-15-
<PAGE>
by certified mail as provided below) or mailed by certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to ICH or any of the other Companies:
ICH Corporation
9255 Towne Centre Drive
Suite 600
San Diego, California 92121
Attention: Corporate Secretary
Facsimile Number: (619) 535-1634
With a copy to:
John A. Bicks, Esq.
c/o Pryor Cashman Sherman & Flynn LLP
410 Park Avenue
New York, NY 10022
Facsimile Number: (212) 326-0806
If to Executive:
Mr. James Arabia
4230 Arguello Street
San Diego, California 92103
Facsimile Number: (619) 298-3212
If delivered personally, by courier or facsimile transmission (confirmed as
aforesaid and provided written confirmation and receipt is obtained by the
sender), the date on which a notice is delivered or transmitted shall be the
date on which such delivery is made. Notices given by mail as aforesaid shall be
effective and deemed received upon the date of actual receipt or upon the third
business day subsequent to deposit in the U.S. mail, whichever is earlier.
Either party hereto may change its or his address specified for notices herein
by designating a new address by notice in accordance with this Section 12.
13. Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and both of which taken
together shall constitute one and the same agreement.
-16-
<PAGE>
IN WITNESS WHEREOF, the Companies and Executive have executed this
Agreement as of the date first above written.
EXECUTIVE ICH CORPORATION
/s/ James R. Arabia /s/ John A. Bicks
- -------------------- ----------------------------
James R. Arabia Name: John A. Bicks
Title: Senior Vice President and
General Counsel
SYBRA, INC.
/s/ John A. Bicks
----------------------------
Name: John A. Bicks
Title: Senior Vice President and
General Counsel
SYBRA OF CALIFORNIA, INC.
/s/ John A. Bicks
----------------------------
Name: John A. Bicks
Title: Senior Vice President and
General Counsel
LYON'S OF CALIFORNIA, INC.
/s/ John A. Bicks
----------------------------
Name: John A. Bicks
Title: Senior Vice President and
General Counsel
CARE FINANCIAL CORP.
/s/ John A. Bicks
----------------------------
Name: John A. Bicks
Title: Senior Vice President and
General Counsel
-17-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED
DECEMBER 31, 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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 9,235
<SECURITIES> 0
<RECEIVABLES> 1,293
<ALLOWANCES> 0
<INVENTORY> 2,828
<CURRENT-ASSETS> 18,966
<PP&E> 40,141
<DEPRECIATION> 4,923
<TOTAL-ASSETS> 113,466
<CURRENT-LIABILITIES> 26,425
<BONDS> 0
0
0
<COMMON> 28
<OTHER-SE> 15,026
<TOTAL-LIABILITY-AND-EQUITY> 113,466
<SALES> 138,315
<TOTAL-REVENUES> 140,032
<CGS> 8,592
<TOTAL-COSTS> 128,938
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,035
<INCOME-PRETAX> 5,059
<INCOME-TAX> 2,143
<INCOME-CONTINUING> 2,916
<DISCONTINUED> 388
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,304
<EPS-PRIMARY> 1.26
<EPS-DILUTED> 1.14
</TABLE>
