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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
.............................................................................
FORM 8-K
.............................................................................
Current Report
Pursuant to Section 13 or 15 (d) of the Securities Act
of 1934 Date of Report (Date of earliest event
reported): May 23, 1996
Commission File Number: 0-18051
FLAGSTAR CORPORATION
(Exact Name of Registrant as Specified in Charter)
Delaware 13-3027522
(State of Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
203 East Main Street 29319-9966
Spartanburg, South Carolina (Zip Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code:
(864) 597-8000
N/A
(Former name or former address, if changed since last report)
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Item 2. Acquisition or Disposition of Assets
On May 23, 1996, as described more fully in the press release included
herein as Exhibit 99.1, the Registrant, through a newly formed subsidiary,
consummated the acquisition of the Coco's and Carrows restaurant chain from
Family Restaurants, Inc. ("FRI"). The acquisition price of $306.5 million (which
was paid in exchange for all of the outstanding stock of FRI-M Corporation, the
subsidiary of FRI which owned the Coco's and Carrows chains) was financed with
$125.0 million in cash ($75 million of which was provided pursuant to an equity
investment by the Registrant and the remaining $50 million pursuant to bank term
loans from Bankers Trust Company, Chemical Bank, and Citicorp USA, Inc.), the
issuance of $150.0 million in senior notes to the seller and the assumption of
certain capital lease obligations of approximately $31.5 million. The total
consideration for the acquired assets was determined by arm's length
negotiations.
Item 7. Financial Statements and Exhibits
(a.) Financial Statements of Businesses Acquired.
It is impracticable to provide the financial statements of FRI-M at the
time of filing of this report or Form 8-K. The registrant expects to
file the financial statements of FRI-M no later than 60 days after the
report on which a Form 8-K for this acquisition must be filed.
(b.) Pro Forma Financial Information.
It is impracticable to provide the pro forma financial information
relating to the acquisition of FRI-M at the time of filing of this
report or Form 8-K. The registrant expects to file the pro forma
financial information for this acquisition not later than 60 days after
the report on which a Form 8-K for this acquisition must be filed.
(c.) Exhibits.
Exhibit 2.1 - Stock Purchase Agreement by and among Family Restaurants,
Inc., Flagstar Companies, Inc., Flagstar Corporation and FRD
Acquisition Co., dated as of March 1, 1996.
Exhibit 99.1 - Press Release of the Registrant dated May 23, 1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Flagstar Corporation
Date: June 7, 1996 /S/ C. Robert Campbell
C. Robert Campbell
Executive Vice President and
Chief Financial Officer
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Exhibit 2.1
STOCK PURCHASE AGREEMENT
by
and
among
FAMILY RESTAURANTS, INC.,
FLAGSTAR COMPANIES, INC.,
FLAGSTAR CORPORATION
and
FRD ACQUISITION CO.
Dated as of March 1, 1996
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TABLE OF CONTENTS
ARTICLE I PURCHASE AND SALE OF STOCK
SECTION 1.1 Purchase and Sale 1
SECTION 1.2 Purchase Price 1
SECTION 1.3 Post-Closing Purchase Price Adjustment 2
ARTICLE II THE CLOSING
SECTION 2.1 Closing Date 4
SECTION 2.2 Transactions To Be Effected at the Closing 4
SECTION 2.3 Transactions to be Effected Concurrently with Closing 4
ARTICLE III REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of the Seller 5
SECTION 3.2 Representations and Warranties of the Acquiring
Companies 14
ARTICLE IV COVENANTS
SECTION 4.1 Conduct of Business 15
SECTION 4.2 Further Actions; Cooperation 16
SECTION 4.3 Access to Information; Reports 16
SECTION 4.4 Consents 17
SECTION 4.5 Employee Benefit Plans 17
SECTION 4.6 WARN Act 19
SECTION 4.7 Cooperation With Respect to Tax Matters 19
SECTION 4.8 Tax Indemnity 21
SECTION 4.9 Financial Information 22
SECTION 4.10 Expenses 22
SECTION 4.11 Insurance 22
SECTION 4.12 Publicity 22
SECTION 4.13 Certain Understandings 23
SECTION 4.14 Transfer of Properties 23
SECTION 4.15 Transfer of Employees 24
SECTION 4.16 Termination of Agreements 24
SECTION 4.17 Environmental Investigation and Indemnification 24
ARTICLE V CONDITIONS PRECEDENT
SECTION 5.1 Conditions Precedent to Obligations of the Purchaser 27
SECTION 5.2 Conditions Precedent to the Obligations of the Seller 28
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ARTICLE VI INDEMNIFICATION
SECTION 6.1 Indemnification by the Seller 29
SECTION 6.2 Indemnification by Parent, Flagstar and the Purchaser 30
SECTION 6.3 Claims for Indemnity 30
SECTION 6.4 Third Person Claims 31
SECTION 6.5 Exclusive Remedy 31
SECTION 6.6 Restricted Notes 32
ARTICLE VII TERMINATION AND AMENDMENT
SECTION 7.1 Termination 32
SECTION 7.2 Effect of Termination 33
SECTION 7.3 Amendment 33
ARTICLE VIII MISCELLANEOUS
SECTION 8.1 Notices 34
SECTION 8.2 Interpretation 34
SECTION 8.3 Supplements to Disclosure Schedules 35
SECTION 8.4 Severability 35
SECTION 8.5 Counterparts 35
SECTION 8.6 Entire Agreement 35
SECTION 8.7 Governing Law 35
SECTION 8.8 Assignment 35
SECTION 8.9 No Third-Party Beneficiaries 35
SCHEDULES
Schedule 1.2(a) Terms of Seller Note
Schedule 1.2(b) Intercompany Accounts
Schedule 1.3(a) Tangible Net Asset Value at 12/31/95
Schedule 1.3(b) Adjustments to Closing Tangible NAV
Schedule 2.3(a) Excluded Asset Purchase Price
Schedule 2.3(a)(iii)Corporate Real Property
Schedule 2.3(a)(iv) Corporate Personal Property
Schedule 2.3(a)(A) Commissary Assets
Schedule 3.1(b) Subsidiaries
Schedule 3.1(d) Capital Stock
Schedule 3.1(e) No Conflict
Schedule 3.1(f) Financial Statements
Schedule 3.1(g) Liabilities Schedule 3.1(h) Certain Changes or Events
Schedule 3.1(i) Compliance with Applicable Laws
Schedule 3.1(j) Litigation; Decrees
Schedule 3.1(k) Properties
Schedule 3.1(1) Applicable Contracts; Leases
Schedule 3.1(m) Taxes
Schedule 3.1(n) Employee Benefit Plans
Schedule 3.1(o) Labor Matters
Schedule 3.1(p) Intellectual Property
Schedule 3.1(r) Environmental Matters
Schedule 3.2(h) Capitalization
Schedule 4.1 Conduct of Business
Schedule 4.3(a) Reports
Schedule 4.14(a)Dinnerhouse Properties
Schedule 4.14(b)Closed Properties
Schedule 4.16(a)Surviving Obligations
Schedule 4.16(b)Distribution, Supply and Purchasing Agreements
EXHIBITS
Exhibit A Form of Legal Opinion of Skadden, Arps, Slate,
Meagher & Flom
Exhibit B Form of Legal Opinion of Latham & Watkins
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TABLE OF DEFINITIONS
Defined Term Initial Section Reference
Acquired Entities 3.1(b)
Acquiring Companies First Paragraph
Acquisition 1.1
Adjustment Date 1.2(d)
Affected Persons 3.1(n)
Additional Investigations 4.17(c)
Adjusted Closing Tangible NAV 1.3(b)
Applicable Contracts 3.1(e)
Assumed Liabilities 1.2(b)
Audit 4.7(f)
Balance Sheet Date 3.1(f)
Business 3.1(h)
Closed Properties 4.14(b)
Closed Restaurant Agreement 4.14(b)
Closing 2.1
Closing Balance Sheet 1.3(d)
Closing Date 2.1
Code 3.1(m)
Commissary Assets 2.3(a)
Company Second Paragraph
Consultant 4.17(c)
Contracts 3.1(e)
Corporate Personal Property 2.3(a)
Corporate Real Property 2.3(a)
Cost Analysis 4.17(c)
Credit Agreement 5.1(h)
Deferred Compensation Plan 4.5(c)
Dinnerhouse Properties 4.14(a)
DLJ 3.1(t)
Eligible Person 4.5(e)
Employee Benefit Plans 3.1(n)
Employee Pension Benefit Plan 3.1(n)
Employees 3.1(o)
Environmental Laws 3.1(r)
Existing Conditions 4.17(c)
Excluded Assets 2.3(a)
ERISA 3.1(n)
Financial Statements 3.1(f)
Flagstar First Paragraph
FRI First Paragraph
FRI-Admin 2.3(a)
FRI-M Second Paragraph
FRI-MRD 2.3(a)
FTC 5.1(a)
GAAP 1.3(a)
Grace 4.8(c)
Grace Tax Procedures Agreement 4.8(c)
Holdback Amount 1.2(d)
HSR Act 3.1(e)
Indemnitee 6.3
Indemnitor 6.3
Indenture 1.2(a)
Independent Accounting Firm 1.3(e)
Intellectual Property 3.1(p)
IRS 3.1(n)
Liens 3.1(b)
Losses 6.1
Material Adverse Effect 3.1(a)
Notes 1.2(a)
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Operating Business 3.1(f)
Other Documents 3.1(h)
Parent First Paragraph
Participant 4.5(e)
Permitted Liens 3.1(h)
Phase I's 4.17(a)
Post-Closing Period 4.7(a)
Pre-Closing Period 4.7(a)
Properties 4.17(a)
Purchase Price 1.2(a)
Purchaser First Paragraph
Purchaser Group 6.1
Purchaser's Benefit Plans 4.5(d)
Registration Rights Agreement 2.3(d)
Restaurant Services Agreement 4.14(a)
Restricted Notes 6.6(a)
Savings Plan 4.5(b)
Securities Act 3.1(w)
Seller First Paragraph
Seller Contracts 3.1(e)
Selling Group 6.2
Social Security Taxes 4.7(f)
Stock Second Paragraph
Straddle Tax Returns 4.7(a)
Subsidiaries 3.1(b)
Tangible Net Asset Value 1.3(a)
Tax Benefit Amount 4.8(c)
Taxes 4.7(f)
Tax Returns 4.7(f)
TRAC 4.8(a)
Transferred Business Employees 4.15
Transferred Non-Business Employees 4.15
Transition Services Agreement 2.3(d)
Trustee 2.3(e)
WARN Act 4.6
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STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of March 1, 1996, among Family
Restaurants, Inc., a Delaware corporation ("FRI" or the "Seller"), Flagstar
Companies, Inc., a Delaware corporation ("Parent"), Flagstar Corporation, a
Delaware corporation and direct wholly owned subsidiary of Parent ("Flagstar"),
and FRD Acquisition Co., a newly formed Delaware corporation and direct wholly
owned subsidiary of Flagstar (the "Purchaser" and, together with Parent and
Flagstar, the "Acquiring Companies").
WHEREAS, FRI owns all of the outstanding shares of capital stock (the
"Stock") of FRI-M Corporation, a Delaware corporation ("FRI-M" or the
"Company");
WHEREAS, the Seller desires to sell to the Purchaser, and the Purchaser
desires to purchase from the Seller, all of the Stock, upon the terms and
subject to the conditions set forth herein; and
WHEREAS the Seller desires that FRI-M not own the Excluded Assets (as
defined below) when the Purchaser purchases the Stock.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF STOCK
SECTION 1.1 Purchase and Sale. Upon the terms and subject to the
conditions set forth herein, the Seller agrees to sell, assign, transfer, convey
and deliver to the Purchaser, and the Purchaser agrees to purchase and accept
from the Seller, on the Closing Date (as defined below), all of the Seller's
rights, title and interest in and to the Stock (the "Acquisition").
SECTION 1.2 Purchase Price
(a) In consideration for the purchase by the Purchaser of the
Stock, the Purchaser shall (and Parent and Flagstar shall cause the Purchaser
to) pay to the Seller on the Closing Date an aggregate purchase price (the
"Purchase Price") paid as follows:
(b) $125 million, in cash, payable by wire transfer of
immediately available funds to such account or accounts as the Seller shall have
designated at least two business days prior to the Closing Date; and
(ii) $150 million aggregate principal amount of Senior Notes
due 2004 (the "Notes"). The Notes shall be issued pursuant to an indenture
containing the terms set forth on Schedule 1.2(a) and other customary terms and
conditions (the "Indenture").
(b) As additional consideration, the Purchaser shall assume at
Closing, pursuant to an assumption agreement in form and substance reasonably
satisfactory to the parties hereto, (i) the intercompany accounts identified on
Schedule 1.2(b) and (ii) its allocated portion of liabilities of the Seller and
its consolidated subsidiaries as set forth on the Closing Balance Sheet (as
defined below) (the liabilities described in clauses (i) and (ii), the "Assumed
Liabilities").
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(c) In the event of a reduction in the Purchase Price pursuant
to Section 1.3, the amount of such reduction shall be paid by the Seller by
delivery to the Purchaser of that principal amount of Notes (and cancellation of
the interest related thereto) equal to the amount of such reduction (rounded to
the nearest $1,000), within five business days following the determination in
accordance with Section 1.3 of the amount of such reduction. In the event of an
increase in the Purchase Price pursuant to Section 1.3, the amount of such
increase shall be paid by the Purchaser by the issuance to the Seller of
additional Notes with an aggregate principal amount equal to such increase
(rounded to the nearest $1,000), which Notes shall bear interest from the
Closing Date, within five business days following the determination in
accordance with Section 1.3 of the amount of such increase; provided, that to
the extent the reason for the increase in the Purchase Price is a Delayed Sale
(as defined in Schedule 1.3(b)) the amount of such increase shall be paid by the
Purchaser, in cash, by wire transfer of immediately available funds, on or prior
to the later of (i) the business day following the date such Delayed Sale is
consummated and (ii) five days following the determination in accordance with
Section 1.3 of the amount of such increase (unless the Delayed Sale is
terminated, in which case the Adjusted Closing Tangible NAV shall be
recalculated to add back the net book value of the property subject to such
terminated Delayed Sale and such increase shall be paid in additional Notes, as
provided above, on or prior to the later of (A) the business day following the
date such Delayed Sale is terminated and (B) five days following the
determination in accordance with Section 1.3 of the amount of such increase).
The Purchaser shall not terminate a Delayed Sale without the Seller's prior
consent.
(d) Prior to the Adjustment Date (as defined below), the
Seller shall maintain ownership of a principal amount of Notes not less than the
Holdback Amount. "Holdback Amount" shall mean (i) $10 million until the earliest
to occur of (A) the date on which the Purchaser makes the deliveries required by
Section 1.3(d) and (B) the 60th day following the Closing Date and (ii)
thereafter, the lesser of (A) $10 million, and (B) the excess, if any, of
$55,326,000 over the Adjusted Closing Tangible NAV determined by the Purchaser
and delivered to the Seller pursuant to Section 1.3(d) (provided, that (x) if
such Adjusted Closing Tangible NAV is equal to or greater than $55,326,000, or
(y) the Purchaser has not made the deliveries required by Sections 1.3(d) and
(e) on or prior to the 60th day following the Closing Date, the Holdback Amount
shall be $0). "Adjustment Date" shall mean the date on which any adjustment to
the Purchase Price is finally determined pursuant to Section 1.3.
SECTION 1.3 Post-Closing Purchase Price Adjustment.
(a) "Tangible Net Asset Value" means, as of any date, the
amount, if any, by which the (i) aggregate book value of the tangible assets of
the Acquired Entities (as defined below), excluding assets not intended to
constitute a part of the Business, exceeds (ii) the aggregate book value of
liabilities of the Acquired Entities, excluding liabilities not intended to
constitute a part of the Business; in each case determined on a consolidated
basis in accordance with generally accepted accounting principles ("GAAP")
applied in a manner consistent with the determination of the Tangible Net Asset
Value as of December 31, 1995 set forth in Schedule 1.3(a).
(b) "Adjusted Closing Tangible NAV" means the Tangible Net
Asset Value on the Closing Date, as reflected on the Closing Balance Sheet
(determined in a manner consistent with the determination of Tangible Net Asset
Value as of December 31, 1995, as reflected in Schedule 1.3(a)), after giving
effect to the adjustments identified on Schedule 1.3(b).
(c) The Purchase Price shall be (i) increased by the amount,
if any, by which the Adjusted Closing Tangible NAV exceeds $55,326,000, or (ii)
reduced by the amount, if any, by which $55,326,000 exceeds the Adjusted Closing
Tangible NAV.
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(d) As soon as practicable following the Closing (but in any
case within 60 days), the Purchaser, at its expense, shall prepare and deliver
to the Seller the consolidated balance sheet of the Acquired Entities, as of the
close of business on the Closing Date (the "Closing Balance Sheet"), together
with a calculation of the Adjusted Closing Tangible NAV as of the Closing Date,
and all relevant work papers and support for the Purchaser's calculation. The
Closing Balance Sheet shall be prepared in accordance with GAAP on a basis
consistent with the Financial Statements (as defined below). Without limiting
the foregoing, all accounting estimates made in connection with the preparation
of the Closing Balance Sheet shall be made on a basis consistent with those made
in connection with the preparation of the Financial Statements.
(e) Such balance sheet and Adjusted Closing Tangible NAV
calculation shall be audited within such 60-day period by KPMG Peat Marwick LLP
and shall be accompanied by a report confirming the calculation of the Adjusted
Closing Tangible NAV and all relevant work papers. The Seller shall be provided
with access, during normal business hours, to the relevant accounting books and
records and accounting personnel of the Purchaser during such 60-day period and
thereafter until the Adjusted Closing Tangible NAV has been finally determined
in accordance with the provisions of this Section.
If, within 30 days following the Seller's receipt of the
Closing Balance Sheet from the Purchaser, the Seller determines in good faith
that it disagrees with the Adjusted Closing Tangible NAV calculation, it shall
notify the Purchaser of its objection setting forth its determination of
Adjusted Closing Tangible NAV and the basis for its disagreement, including any
relevant work papers and support for the Seller's calculation. A failure by the
Seller to notify the Purchaser of its disagreement within such 30-day period
will constitute acceptance by the Seller of the calculation of Adjusted Closing
Tangible NAV. The Seller and the Purchaser will negotiate in good faith to
resolve any disagreement during the 15-day period following the Seller's
notification of a disagreement. If such disagreement is not resolved within such
15 day period, the disputed matters shall promptly be submitted to whichever of
Andersen Worldwide, Coopers & Lybrand or Price Waterhouse is mutually selected
by the parties (such selection being the "Independent Accounting Firm") for a
final resolution within 30 days after the expiration of the 15 day negotiation
period. The Independent Accounting Firm will be requested to review only such
disputed matters, and shall resolve such dispute solely by choosing between the
Adjusted Closing Tangible NAV specified by the Seller or the Purchaser in
accordance with the provisions of this Section. In its determination, the
Independent Accounting Firm shall be entitled to rely on the work papers and
similar items generated by the Purchaser, the Seller and their respective
accountants. The decision of the Independent Accounting Firm shall be conclusive
between, and final and binding on, the parties hereto.
If the determination of the Independent Accounting Firm is
that the Adjusted Closing Tangible NAV is the Adjusted Closing Tangible NAV
calculated by the Seller, the fees and expenses of the Independent Accounting
Firm will be paid by the Purchaser. If the determination of the Independent
Accounting Firm is that the Adjusted Closing Tangible NAV is the Adjusted
Closing Tangible NAV calculated by the Purchaser, the fees and expenses of the
Independent Accounting Firm will be paid by the Seller.
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ARTICLE II
THE CLOSING
SECTION 2.1 Closing Date. The consummation of the Acquisition (the
"Closing") shall take place at the offices of Skadden, Arps, Slate, Meagher &
Flom, 300 South Grand Avenue, Los Angeles, California 90071, or such other place
as the parties shall mutually agree, at 10:00 a.m. (local time) on the fifth
business day after the date on which the conditions set forth in Article V
(other than those conditions to be satisfied or waived on the Closing Date)
shall be satisfied or waived, or such other date as the parties shall mutually
agree upon (the date of the Closing being herein referred to as the "Closing
Date").
SECTION 2.2 Transactions To Be Effected at the Closing
(a) the Seller shall deliver to the Purchaser (i) certificates
representing the Stock, duly endorsed in blank, or accompanied by stock powers
duly executed in blank, by the Seller, (ii) the stock books, stock ledgers,
minute books and corporate seals of the Company, and (iii) such other documents
as provided in Article V hereof; and
(b) the Purchaser shall deliver to the Seller (i) payment of
the cash portion of the Purchase Price as provided in Section 1.2(a), (ii) the
Notes, in such names and denominations as the Purchaser shall have designated at
least two business days prior to Closing, and (iii) such other documents as
provided in Article V hereof.
SECTION 2.3 Transactions to be Effected Concurrently with
Closing. Concurrently with the Closing:
(a) The Seller shall purchase from FRI-M (i) all of the
outstanding capital stock of FRI-MRD Corporation ("FRI-MRD"), (ii) all of the
outstanding capital stock of FRI-Admin Corporation ("FRI-Admin"), (iii) the
assets identified on Schedule 2.3(a)(iii) (the "Corporate Real Property") and
(iv) the assets identified on Schedule 2.3(a)(iv) (the "Corporate Personal
Property"), in each case, for consideration with a value as set forth on
Schedule 2.3(a). Such consideration will be paid by the conveyance, transfer and
delivery of (A) the net assets identified on Schedule 2.3(a)(A) (the "Commissary
Assets") and (B) cash and/or an adjustment in the intercompany account between
the Seller and FRI-M with respect to the balance due.
As used herein, the term "Excluded Assets" means FRI-MRD,
FRI-Admin, the Corporate Real Property, the Corporate Personal Property, the
Dinnerhouse Properties (as defined below) and the Closed Properties (as defined
below).
(b) FRI-M shall repay all indebtedness then outstanding under
the Credit Agreement from cash on hand, the proceeds referred to in Section
2.3(a)(B) or otherwise.
(c) The Acquiring Companies or the Acquired Entities shall
replace (i) all letters of credit relating to the Business (as defined below)
that are outstanding under the Credit Agreement or otherwise and (ii) the
deposit with San Diego Gas & Electric. If following the Closing any of the
Acquiring Companies or Acquired Entities continue to maintain an account with
Bank of America ("BOA") and in connection therewith BOA requires a minimum
deposit, the Acquiring Companies or the Acquired Entities shall fund such
deposit.
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(d) The Seller and the Purchaser shall enter into a Transition
Services Agreement in a form to be mutually agreed upon (the "Transition
Services Agreement"), a Registration Rights Agreement relating to the Notes in a
form to be mutually agreed upon (the "Registration Rights Agreement"), the
Closed Restaurant Agreement (as defined below) and the Restaurant Services
Agreement (as defined below). The parties shall use their best efforts to
negotiate the form of each such agreement within 28 days from the date hereof.
(e) The Purchaser and a bank or trust company with capital
surplus of not less than $100,000,000, and otherwise reasonably satisfactory to
the Seller, as trustee (the "Trustee"), shall enter into the Indenture. The
parties shall use their best efforts to negotiate the form of such agreement
within 28 days from the date hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of the Seller. The Seller
represents and warrants to the Purchaser as follows:
(a) Organization, Standing and Power. Each of FRI and the
Acquired Entities (i) is a corporation duly organized, validly existing and in
good standing under the laws of its state of incorporation, (ii) has all
requisite power and authority to own, lease or operate the assets it now owns,
leases or operates and (iii) is duly qualified or licensed to do business in
each jurisdiction in which the ownership or use of its assets or conduct of its
business requires it to be so qualified, in each case except for such failures
that would not have an adverse effect on the financial condition or annual
results of operations of the Acquired Entities, taken as a whole, of either (A)
$500,000 or more for any single item, event or condition, or (B) $1.5 million or
more combining all such items, events and conditions described in a particular
representation (a "Material Adverse Effect").
(b) Subsidiaries. As of the Closing, the only direct or
indirect subsidiaries of the Company will be those set forth on Schedule 3.1(b)
(collectively, the "Subsidiaries" and, together with the Company, the "Acquired
Entities") and ownership of the Subsidiaries shall be as set forth on Schedule
3.1(b). Except as set forth on Schedule 3.1(b), as of the Closing Date, no
Acquired Entity will own, directly or indirectly, any of the capital stock or
other equity securities of any other person other than holdings of shares of
common stock of publicly traded restaurant companies. All of the issued and
outstanding shares of capital stock of the Subsidiaries are duly authorized,
have been validly issued, were issued without violation of pre-emptive rights,
are free of pre-emptive rights, are fully paid and nonassessable, and as of the
Closing will be owned by the Company or other Subsidiaries, as shown on Schedule
3.1(b), free and clear of all liens, pledges and encumbrances (collectively,
"Liens"), and not subject to any options, warrants or subscription rights, other
than (i) Liens that will be released in connection with the Closing and (ii)
Liens, options, warrants or subscription rights arising by action of the
Purchaser.
(c) Authority. The execution and delivery of this Agreement,
and the performance by the Seller of its obligations hereunder, have been duly
authorized by all necessary action on the part of the Seller. This Agreement has
been duly executed and delivered by the Seller and, assuming the due execution
and delivery hereof by the Acquiring Companies, this Agreement constitutes a
valid and binding obligation of the Seller, enforceable against the Seller in
accordance with its terms, except as such enforcement may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium (whether general or specific)
or similar laws now or hereafter in effect relating to creditors' rights
generally and (ii) general principles of equity (regardless of whether such
enforcement is sought in a proceeding in equity or at law).
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(d) Capital Stock. The entire authorized capital stock of the
Company is set forth on Schedule 3.1(d). The shares of Stock are duly
authorized, have been validly issued, and are fully paid and nonassessable. The
shares of Stock have not been issued in violation of, and are not subject to,
any preemptive rights. Upon consummation of the Acquisition, the Purchaser will
acquire title to the Stock, free and clear of all Liens and not subject to any
options, warrants or subscription rights, in each such case other than those
arising from the actions of the Purchaser.
(e) No Conflict. The consummation of the transactions
hereunder and under the Other Documents will not require (A) the consent of any
party to any contract, lease, agreement, mortgage or indenture ("Contracts")
listed on Schedule 3.1(l) (the "Applicable Contracts"), or any material contract
to which the Seller is a party, to which no Acquired Entity is a party or bound
(the "Seller Contracts"), or (B) the consent, approval, order or authorization
of, or the registration, declaration or filing with, any governmental authority,
except (in either case (A) or (B)) for those (i) required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (ii) set forth on Schedule 3.1(e), (iii) that become applicable solely as
a result of the specific regulatory status of the Acquiring Companies and their
affiliates, or (iv) the failure of which to make or obtain would not have a
Material Adverse Effect. Except as set forth on Schedule 3.1(e), assuming the
consents, approvals, orders, authorizations, registrations, declarations and
filings contemplated by the immediately preceding sentence are obtained or made,
as applicable, the execution, delivery and performance by the Seller of this
Agreement and under the Other Documents will not (x) violate any law applicable
to the Seller, the Company or any Subsidiary, (y) result in a breach or
violation of any provision of, or constitute a default under, any Applicable
Contract or Seller Contract, or (z) conflict with any provision of the
certificate of incorporation or by-laws of the Seller, the Company or any
Subsidiary, in each case except for any such violation, breach, default or
conflict that would not have a Material Adverse Effect.
(f) Financial Statements. Attached hereto as Schedule 3.1(f)
are copies of the audited balance sheet of the Company and its consolidated
subsidiaries (other than FRI-MRD, FRI-Admin and their respective subsidiaries
and including the Commissary Assets) as of December 31, 1995 (the "Balance Sheet
Date"), and the related audited statement of operations for the twelve months
then ended (the "Financial Statements"). The Financial Statements present
fairly, in all material respects, the financial position of the Company and such
consolidated subsidiaries as of December 31, 1995 and the results of operations
of the Company and such consolidated subsidiaries for the twelve months then
ended, in each case in accordance with GAAP applied on a basis consistent with
the Seller's historical financial statements (except as otherwise indicated
therein or in the notes thereto). Except as otherwise indicated therein or in
the notes thereto, the Financial Statements do not reflect the accounts of any
entities other than the Acquired Entities. The portion of the combining
Financial Statements captioned "Operating Business" does not reflect the results
of operations, asset or liabilities of any business other than the Business (as
defined below). On the Closing Date the Acquired Entities will have, on a
consolidated basis, at least $715,000 in unit safe funds and the change fund
bank account.
(g) No Undisclosed Liabilities. As of the date hereof, the
Company and the Subsidiaries, on a consolidated basis, have no liabilities of a
nature required by GAAP to be reflected on a balance sheet or in notes thereto,
except (i) as set forth or reflected on the Financial Statements (or described
in the notes thereto), (ii) as disclosed in Schedule 3.1(g) or (iii) for
liabilities incurred in the ordinary course of business since the Balance Sheet
Date.
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(h) Absence of Certain Changes or Events. Except as set forth
in Schedule 3.1(h) or as otherwise contemplated hereby or by the Other Documents
(as defined below), since the Balance Sheet Date through the date hereof, there
has not been:
(i) any material adverse change in the financial condition or
results of operations of the Acquired Entities, taken as a whole, other than
changes caused by changes in the economy or the restaurant industry, generally;
(ii) any damage or destruction, loss or other casualty to real
property, leasehold improvements or equipment of the Acquired Entities, however
arising, not covered by insurance, that will result in a Material Adverse
Effect;
(iii) any indebtedness incurred by any Acquired Entity for
borrowed money other than indebtedness that will be repaid on or prior to the
Closing;
(iv) any material change in the accounting methods or
practices of any Acquired Entity, or any material change in depreciation or
amortization policies or rates theretofore adopted, in each case for both
financial reporting and tax reporting purposes, unless otherwise required by
law;
(v) any material amendment or termination by any Acquired
Entity of any material Contract, in either case that would have an adverse
effect on such Acquired Entity, it being understood that extensions of
purchasing or distribution agreements that do not expire by their terms from the
Balance Sheet Date through the date hereof, or modification of any termination
rights thereunder, shall be deemed material and adverse;
(vi) any amendment of the certificate of incorporation
or by-laws of any Acquired Entity;
(vii) any mortgage, pledge or other encumbering of any
material property or assets of any Acquired Entity (except for the incurrence of
Permitted Liens (as defined below));
(viii) any material liability incurred by any Acquired Entity
(except liabilities incurred in the ordinary course of business) or any
cancellation or compromise by any Acquired Entity of any material debt or claim
owed to or held by it;
(ix) any sale, transfer, lease, abandonment or other disposal
of any material portion of the properties or assets of any Acquired Entity
(real, personal or mixed, tangible or intangible), except in the ordinary course
of business (which course of business includes, without limitation, the sale of
owned properties no longer operated as restaurants);
(x) any transfer, disposal or grant of any material rights
under any patent, trademark, trade name, copyright, service mark, invention or
license owned by any Acquired Entity, or any disclosure to any person (other
than representatives of the Purchaser and other potential buyers subject to
confidentiality agreements) of any material trade secret, formula, process or
know-how owned by any Acquired Entity not theretofore a matter of public
knowledge; in each case except in the ordinary course of business;
(xi) any grant by any Acquired Entity of any general increase
in the compensation of its officers, employees or directors, any grant by any
Acquired Entity of any material increase in compensation payable to or to become
payable to any officer, employee or director, or any material agreement by any
Acquired Entity entered into with any officer, employee or director; except, in
each case, in the ordinary course of business, consistent with past practice
(which course of business includes, without limitation, bonuses under
established plans and increases due to changes in position);
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(xii) any single capital expenditure made, or any commitment
to make any capital expenditure, by any Acquired Entity in excess of $100,000
for any tangible or intangible capital assets, additions or improvements, except
in the ordinary course of business;
(xiii) except in the ordinary course of business and
consistent with past practice (A) any grant or extension by any Acquired Entity
of any power-of-attorney or guaranty in respect of the obligation of any person
other than an Acquired Entity or (B) any waiver by any Acquired Entity of any
right of substantial value to the Business in exchange for consideration in
excess of $100,000; or
(xiv) any entry by any Acquired Entity into any binding
agreement, whether in writing or otherwise, to take any action described in this
Section 3.1(h).
The provisions of this Section 3.1(h) shall not apply to any of the
foregoing actions or events to the extent they apply to the Excluded Assets.
"Permitted Liens" means (i) Liens set forth on Schedule
3.1(h); (ii) Liens for Taxes (as defined below) that are not yet due or
delinquent or that are being contested in good faith by appropriate proceedings
if a reserve or other appropriate provision, if any, as shall be required by
GAAP shall have been made therefor; (iii) statutory Liens or landlords',
carriers', warehousemen's, mechanics', suppliers', materialmen's, repairmen's or
other like Liens arising in the ordinary course of business with respect to
amounts not yet overdue for a period of 45 days or amounts being contested in
good faith by appropriate proceedings if a reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made therefor;
(iv) Liens incurred or deposits made in connection with workers' compensation,
unemployment insurance and other types of social security benefits; (v) Liens
incurred or deposits made to secure the performance of tenders, bids, leases,
statutory obligations, surety and appeal bonds, government contracts,
performance and return-of-money bonds and other obligations of like nature; (vi)
easements, rights-of-way, restrictions and other similar charges or encumbrances
not materially interfering with the ordinary conduct of the Business (as defined
below); (vii) leases or subleases granted to others not materially interfering
with the ordinary conduct of the Business; (viii) purchase money Liens incurred
to secure the purchase price of property (and Liens on property existing at the
time of the acquisition thereof), which Lien shall not cover any property other
than that being acquired, purchased, improved or constructed, and shall not
cover property purchased, acquired, constructed or improved more than 18 months
before the creation of such Lien; (ix) title defects or irregularities that do
not in the aggregate materially impair the use of the property; (x) capitalized
lease obligations; (xi) Liens in favor of any Acquired Entity; (xii) any other
Liens imposed by operation of law that do not materially affect the Business;
(xiii) extensions, renewals or refundings of any Liens referred to in clauses
(i) through (xii) above, provided that the renewal, extension or refunding is
limited to all or part of the property securing the original Lien; (xiv) Liens
that will be released in connection with the Closing; and (xv) Liens in addition
to the foregoing, provided that the amount of the obligations secured by such
Liens does not exceed in the aggregate $250,000.
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"Business" means the Coco's, Carrows and jojos operating
restaurant businesses (including, without limitation, franchising) conducted by
the Seller and its subsidiaries, including the Acquired Entities; the operation
of the commissary related to these restaurant businesses; the foreign licensing
of the Coco's restaurant concept conducted by CFC Franchising Company or Coco's
Restaurants, Inc.; and the operation of three Jeremiah's, two Bob's Big Boy
Restaurants and one H.I. Ribster's.
"Other Documents" means the Indenture, the Registration Rights
Agreement, the Notes, the Transition Services Agreement, the Closed Restaurant
Agreement, and the Restaurant Services Agreement.
(i) Compliance with Applicable Laws. Except as set forth on
Schedule 3.1(i) and 3.1(r), (i) the conduct of the Acquired Entities complies
with all statutes, laws, regulations and ordinances applicable thereto, except
where the failure to so comply, if any, would not have a Material Adverse Effect
and (ii) the Seller or an Acquired Entity has all material licenses and material
permits required for the operation of the Business and has not received written
notice either of any material violation of the terms under which it holds any
such license or permit or of any enforcement action that would result in the
suspension or termination of any such license or permit.
(j)Litigation; Decrees. Except as set forth on Schedule
3.1(j), as of the date hereof, (i) there is no suit, action or proceeding
pending against any Acquired Entity in any Federal, state or local court or
agency that specifically seeks (A) more than $500,000 in damages, or (B) any
material injunctive relief, and the Seller has not received written notice that
any such suit, action or proceeding is threatened and (ii) no Acquired Entity is
in default under any judgment, order or decree of any governmental authority
applicable to its business.
(k) Title to Properties. Except (A) as set forth on Schedule
3.1(k) or as otherwise contemplated hereby or by the Other Documents and (B) for
items sold, transferred or otherwise disposed of in the ordinary course of
business, on the Closing Date the Company or a Subsidiary (i) will have good
title to all the real properties and other assets (tangible, intangible or
mixed) used in the operation of the Business and reflected in the Financial
Statements as owned, free and clear of all Liens other than Permitted Liens and
(ii) will have a valid leasehold interest under all leases of real property to
which it is a party as lessee. All of the material leases to which any Acquired
Entity is a party are legal, valid and binding obligations of such Acquired
Entity, except as such obligation may be limited by (x) bankruptcy, insolvency,
reorganization, moratorium (whether general or specific) or similar laws now or
hereafter in effect relating to creditors' rights generally and (y) general
principles of equity (regardless of whether such enforcement is sought in a
proceeding in equity or at law). No property or asset, the value of which is
reflected in the balance sheet included in the Financial Statements, is held
under any lease (other than a capitalized lease) or under any conditional sale
or other title retention agreement. Except for such assets, plants and
facilities as are immaterial in the aggregate to the Business, all tangible
assets, plants and facilities of each of the Acquired Entities are adequate in
all material respects for the uses to which they are being put or would be put
in the ordinary course of business.
(l) Contracts. Except for the Contracts listed in
Schedule 3.1(l), as of the date hereof, no Acquired
Entity is a party to:
(i) any Contract relating to the borrowing or
lending of $500,000 or more by any Acquired Entity;
(ii) any agreement pursuant to which any Acquired
Entity is bound to employ any person other than those terminable without
payment or penalty upon no more than 30 days' notice;
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(iii) any Contract not made in the ordinary course of
business involving an estimated total future payment or payments in excess of
$500,000 other than those terminable with payment or penalty of less than
$50,000 upon no more than 30 days' notice;
(iv) any Contract for the sale of any of the assets
of any Acquired Entity (other than inventory sales in the ordinary course of
business or sales of tangible personal property having a value under $500,000),
or the grant of any preferential rights to purchase any of the assets of any
Acquired Entity; or
(v) any Contract that is otherwise material to the
Business and is terminable by the other party thereto upon the occurrence
of the transactions contemplated hereby that, if terminated, would have a
material adverse effect on the business, financial condition or results of
operations of the Acquired Entities, taken as a whole.
Except as disclosed in Schedule 3.1(l), none of the Acquired
Entities nor, to the knowledge of the Seller, any third party is in breach or
default in any respect under any Applicable Contract described in clauses (ii)
through (v) above, except for such breaches and defaults as to which requisite
waivers or consents have been or will be obtained prior to the Closing Date or
that would not have a Material Adverse Effect. Complete and correct copies of
all Applicable Contracts, together with all modifications and amendments
thereto, have been delivered or made available to the Purchaser; provided, that
to the extent any of such Contracts are items susceptible to duplication and are
either (i) used in connection with any of the Seller's businesses other than
those relating to the Business or (ii) are required by law to be retained by the
Seller, the Seller may deliver photostatic copies or other reproductions
certified to be complete and correct by the Seller from which the Seller may
delete information concerning the Seller's businesses other than those relating
to the Business. For purposes of this subsection 3.1(l), the term "Contract"
shall not include Employee Benefit Plans referred to in Section 3.1(n).
(m) Taxes. Except as set forth in Schedule 3.1(m), (i) all
material income Tax Returns (as defined below) required to be filed by or on
behalf of the Company or any Subsidiary have been filed and all such returns are
true, complete, and correct in all material respects; (ii) all material Taxes
(as defined below) that are due or claimed to be due from the Company or any
Subsidiary have been paid other than those (a) currently payable without penalty
or interest or (b) being contested in good faith and by appropriate proceedings
and for which adequate reserves have been established in accordance with GAAP;
(iii) since January 1, 1987, neither the Seller nor any of the Subsidiaries has
been a member of an affiliated group as defined in section 1504 of the Internal
Revenue Code of 1986, as amended (the "Code"), filing a consolidated federal
income tax return, other than an affiliated group as defined in the Code the
common parent of which has been FRI; and (iv) neither the Seller nor any of the
Subsidiaries has or will have as a consequence of the transactions contemplated
by this Agreement any liability for the payment of a nondeductible parachute
payment as defined in section 280G of the Code. Schedule 3.1(m) is a complete
listing of any (i) material Tax Return the filing date of which has been
extended and (ii) waivers of the statutory period of limitation in respect to
any material Tax Return. Neither the Seller, the Company, nor any Subsidiary is
undergoing any Audit (as defined below) of its liability for Social Security
Taxes related to tip income.
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(n) Employee Benefit Plans.
(i) Set forth on Schedule 3.1(n) is a list of each
bonus, deferred compensation, pension, profit-sharing, retirement,
stock purchase or stock option, hospitalization or other medical, life or other
insurance plan relating to the Business, including any policy, plan, program or
agreement that provides for the payment of severance benefits, salary
continuation, benefits to executives, salary in lieu of notice or similar
benefits (collectively, the "Employee Benefit Plans"), maintained, sponsored or
contributed to by the Seller or any Acquired Entity or under which any Acquired
Entity has any present or future obligations or liability on behalf of the
Company's employees or former employees or their dependents or beneficiaries of
the Company (collectively, the "Affected Persons"). No Employee Benefit Plan is
subject to Title IV of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"). The Employee Benefit Plans are in compliance in all material
respects with the plan documents and applicable law, including without
limitation ERISA and the Code.
All contributions made or required to be made under any
Employee Benefit Plan meet the requirements for deductibility under the Code in
all material respects, and all contributions that are required but have not been
made have been properly recorded on the books of the Company, the Subsidiaries
or the Seller to the extent required under GAAP.
No Employee Benefit Plan is a "multi-employer plan" (as
defined in section 3(37) or 4001(a)(3) of ERISA) or a "multiple employer plan"
(within the meaning of section 413(c) of the Code) and no Acquired Entity has
been required to make contributions to a multi-employer plan or multiple
employer plan within the last six years nor does any Affected Person have any
rights in any such multi-employer plan or multiple employer plan arising out of
his or her employment with any Acquired Entity or their respective predecessors.
No event has occurred with respect to the Company or any Subsidiary in
connection with which the Company or any Subsidiary could be subject to any
liability (other than any liability for benefits accrued in the ordinary course)
or Lien with respect to any Employee Benefit Plan under ERISA or the Code.
(ii) True and complete copies of each of the
following documents have been delivered or been made available to the Purchaser:
(A) all Employee Benefit Plans and all amendments thereto, all material written
interpretations and descriptions thereof that have been distributed to the
Company's employees and all annuity contracts or other funding instruments with
respect to such plans, (B) the most recent determination letter issued by the
Internal Revenue Service (the "IRS") to the Seller, (C) for the most recent plan
year, Annual Reports on Form 5500 Series required to be filed with any
governmental agency for each "Employee Pension Benefit Plan" (as defined in
section 3(2) of ERISA) that covers or has covered employees of the Company or a
Subsidiary (with respect to their relationship with such entities), and (D) all
actuarial reports, if any, prepared for the latest plan year of each Employee
Pension Benefit Plan.
(iii) Except as set forth in Schedule 3.1(n):
(1) No Employee Benefit Plan is subject to the
minimum funding requirements of ERISA or the Code. Each Employee Benefit Plan
and each related trust agreement, annuity contract or other funding instrument
that is intended to be qualified and tax-exempt under the provisions of Code
sections 401(a) (or 403(a), as appropriate) and 501(a), has been determined to
be so qualified by the IRS and since the date of such letter no event has
occurred that would jeopardize such qualified status.
(2) There are no foreign Subsidiaries and
none of the Employee Benefit Plans that cover any employee or former employee
of the Company or a Subsidiary covers any person who is employed in any country
other than the United States.
(3) None of the Acquired Entities is a party
to any litigation relating to or seeking benefits under any Employee Benefit
Plan.
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(4) Neither the Company nor any Subsidiary
has incurred any liability with respect to or under any employee benefit
plan, program, policy or arrangement, including any "pension plan" or "welfare
plan" as defined in sections 3(2) and 3(3), respectively, of ERISA, or any plan,
program, policy or arrangement that provides deferred compensation, profit
sharing bonuses, stock options, stock appreciation rights, stock purchases or
other forms of incentive compensation, other than the Employee Benefit Plans
listed on Schedule 3.1(n).
(5) To the knowledge of the Company, no
Employee Benefit Plan holds as an asset any interest in any annuity
contract, guaranteed investment contract or any other investment or insurance
contract issued by an insurance company that is the subject of bankruptcy,
conservatorship or rehabilitation proceedings.
(6) Neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby
will result in the acceleration or creation of any rights of any person to
benefits under any Employee Benefit Plan (including, without limitation, the
acceleration of the vesting or exercisability of any stock options, the
acceleration of the vesting of any restricted stock, the acceleration or
creation of any rights under any severance, parachute or change in control
agreement) other than any rights or benefits that are payable by the Seller.
(7) Neither the Company nor any Employee
Benefit Plan has any present or future obligation to make any payment to or
with respect to any present or former employee of the Company or any Subsidiary
for post retirement medical, health, death or other welfare benefits except to
the extent required by applicable law.
(o) Labor Matters. Set forth on Schedule 3.1(o) are all
agreements with labor unions or associations representing employees of the
Acquired Entities (collectively, "Employees") in effect as of the date hereof.
To the knowledge of the Seller, there are no union organization efforts in
progress. As of the date hereof, no material work stoppage against the Acquired
Entities is actually pending or, to the knowledge of the Seller, threatened.
Except as set forth on Schedule 3.1(o), as of the date hereof, there are no
pending, or, to the knowledge of the Seller, threatened, labor disputes,
arbitrations, lawsuits or administrative proceedings relating to labor matters
involving the Employees (excluding routine workers' compensation claims) that
would have a Material Adverse Effect.
(p) Intellectual Property. Set forth on Schedule 3.1(p) are
(i) all material trademarks, copyrights, trade names, service marks and other
intellectual property rights used or held for use primarily in the Business
("Intellectual Property"), owned, or licensed for use, by the Acquired Entities
as of the date hereof and (ii) trademarks and tradenames held by the Acquired
Entities that are unrelated to the Business, which shall be transferred to
FRI-Admin or an affiliate thereof. At the Closing Date, the Acquired Entities
will have valid and subsisting rights to all trademarks, trade names, service
marks and other intellectual property rights used in the Business. Set forth on
Schedule 3.1(p) are all licenses of Intellectual Property to which any Acquired
Entity is a party as of the date hereof. Except as set forth on Schedule 3.1(p),
(i) there are no existing, or, to the knowledge of the Seller, threatened,
claims based on the use by, or challenging the ownership of, the Acquired
Entities of any Intellectual Property that would have a Material Adverse Effect
and (ii) the Seller does not have any knowledge of any infringing use of any
Intellectual Property by any other person.
(q) Insurance. Copies of all material insurance policies held
by the Seller have been made available to the Purchaser. Such policies (together
with self-insurance programs in effect) provide coverage for the Company's
business in amounts and against risks consistent with past practice. No
representation or warranty is made by the Seller hereunder that any such policy
will not lapse or terminate by reason of consummation of the transactions
contemplated hereby.
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(r) Environmental Matters. Except as set forth on
Schedule 3.1(r), to the Seller's knowledge, the Acquired Entities are in
compliance with all Federal, state and local laws governing pollution or the
protection of the environment (the "Environmental Laws"), except where the
failure to comply with the Environmental Laws would not have a Material Adverse
Effect. Except as set forth on Schedule 3.1(r), to the Seller's knowledge, (i)
no written notice or claim has been received by the Company from any
governmental authority or third party alleging that any Acquired Entity is not
in compliance with any Environmental Law, and (ii) there has been no release of
a Hazardous Substance, as that term is defined in the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. ss.ss. 9601 et
seq., in excess of a reportable quantity on any of the real properties now or
previously owned or leased by the Company or any of the Subsidiaries for which
any of the Acquired Entities could reasonably be expected to have a liability
that would have a Material Adverse Effect.
(s) Government Regulations. None of the Acquired Entities is
subject to regulation under the Investment Company Act of 1940, as amended, the
Public Utility Holding Act of 1935, as amended, the Federal Power Act, the
Interstate Commerce Act, the Commodity Exchange Act or any Federal or State
statute or regulation limiting its ability to incur or assume indebtedness for
borrowed money.
(t) Brokers, Finders, etc. Except for Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ"), neither the Seller nor any Acquired
Entity is subject to any valid claim of any broker, investment banker, finder or
other intermediary in connection with the transactions contemplated by this
Agreement. The Seller is solely responsible for any payment, fee or commission
that may be due to DLJ in connection with the transactions contemplated hereby.
(u) Books and Records. The Seller has furnished or made
available to the Purchaser true and complete copies of all minute books, all
accounting books and records and other similar records of the Company and the
Acquired Entities. The books and records of the Acquired Entities have been
maintained in all material respects in accordance with law.
(v) Disclosure. No representation or warranty of the Seller
contained in this Agreement (including the Schedules furnished or to be
furnished by or on behalf of the Seller pursuant hereto) contains any untrue
statement of a material fact, or omits to state any material fact necessary, in
light of the circumstance under which it was made, in order to make the
statements herein not misleading.
(w) Purchase For Investment. The Seller is acquiring the Notes
being acquired by it hereunder for investment (for its own account or for
accounts over which it exercises investment control), and not with a view to, or
for offer or sale in connection with, any distribution thereof that would be in
violation of the Securities Act of 1933, as amended (the "Securities Act"), or
any applicable state securities law, without prejudice, however, to the Seller's
right at all times to sell or otherwise dispose of all or any part of the Notes
pursuant to an effective registration statement under the Securities Act and
applicable state securities laws, or under an exemption from such registration
available under the Securities Act and other applicable state securities laws.
The Seller (i) is knowledgeable, sophisticated and experienced in business and
financial matters and fully understands the limitations on transfer described
above; and (ii) is an "accredited investor" as such term is defined in Rule
501(a) of Regulation D under the Securities Act.
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SECTION 3.2 Representations and Warranties of the Acquiring Companies..
The Acquiring Companies hereby represent and warrant to the Seller as follows:
(a) Organization and Standing. Each Acquiring Company (i) is a
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation, (ii) has all requisite power and authority to
own, lease or operate the assets it now owns, leases or operates and (iii) is
duly qualified or licensed to do business in each jurisdiction in which the
ownership or use of its assets or conduct of its business requires it to be so
qualified, in each case except for such failures that would not have an adverse
effect on the financial condition or annual results of operations of the
Acquiring Companies, taken as a whole, of $500,000 or more for any single item,
event or condition or $1.5 million or more combining all such items, events or
conditions.
(b) Authority. The execution and delivery of this Agreement,
and the performance by the Acquiring Companies of their obligations hereunder,
have been duly authorized by all necessary action on the part of each Acquiring
Company. This Agreement has been duly executed and delivered by each Acquiring
Company and, assuming the due execution and delivery hereof by the Seller, this
Agreement constitutes a valid and binding obligation of each Acquiring Company,
enforceable against each Acquiring Company in accordance with its terms, except
as such enforcement may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect relating
to creditors' rights generally and (ii) general principles of equity (regardless
of whether such enforcement is sought in a proceeding in equity or at law). On
the Closing Date, each of the Indenture, the Notes and the Registration Rights
Agreement will have been duly authorized, executed and delivered by the
Purchaser, and each of the Indenture, the Notes and the Registration Rights
Agreement will constitute a valid and binding obligation of the Purchaser,
enforceable against the Purchaser in accordance with its terms, except as such
enforcement may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium or similar laws now or hereafter in effect relating to creditors'
rights generally and (ii) general principles of equity (regardless of whether
such enforcement is sought in a proceeding in equity or at law).
(c) No Conflict. The consummation of the transactions
hereunder and under the Other Documents (including, without limitation, the
issuance and delivery of the Notes) will not require the consent of any party to
any material Contract to which the Acquiring Companies, or any of their
affiliates, is a party or by which any of them is bound, or the consent,
approval, order or authorization of, or the registration, declaration or filing
with, any governmental authority, except for those (i) required under the HSR
Act or (ii) that become applicable solely as a result of the specific regulatory
status of the Seller and its affiliates. Assuming the consents, approvals,
orders, authorizations, registrations, declarations and filings contemplated by
the immediately preceding sentence are obtained or made, as applicable, the
execution, delivery and performance by the Acquiring Companies of this Agreement
and under the Other Documents will not (i) violate any material law applicable
to the Acquiring Companies or any of their respective affiliates, (ii) result in
a breach or violation of any material provision of, or constitute a material
default under, any such Contract, or (iii) conflict with any provision of the
certificate of incorporation or by-laws of the Acquiring Companies.
(d) Financing. The Purchaser has sufficient funds or firm
financing commitments in place with respect to all funds necessary to consummate
the transactions contemplated by this Agreement. The Purchaser will have
available as of the Closing Date funds sufficient to pay the Purchase Price.
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(e) Purchase For Investment. The Purchaser is acquiring the
Stock being acquired by it hereunder for investment (for its own account or for
accounts over which it exercises investment control), and not with a view to, or
for offer or sale in connection with, any distribution thereof that would be in
violation of the Securities Act, or any applicable state securities law, without
prejudice, however, to the Purchaser's right at all times to sell or otherwise
dispose of all or any part of said Stock pursuant to an effective registration
statement under the Securities Act and applicable state securities laws, or
under an exemption from such registration available under the Securities Act and
other applicable state securities laws. The Purchaser (i) is knowledgeable,
sophisticated and experienced in business and financial matters and fully
understands the limitations on transfer described above; and (ii) is an
"accredited investor" as such term is defined in Rule 501(a) of Regulation D
under the Securities Act.
(f) Brokers, Finders, etc. Except for Ernst & Young LLP, the
Purchaser is not subject to any valid claim of any broker, investment banker,
finder or other intermediary in connection with the transactions contemplated by
this Agreement. The Purchaser is solely responsible for any payment, fee or
commission that may be due to Ernst & Young LLP in connection with the
transactions contemplated hereby.
(g) Disclosure. No representation or warranty of the Acquiring
Companies contained in this Agreement (including the Schedules furnished or to
be furnished by or on behalf of the Acquiring Companies pursuant hereto)
contains any untrue statement of a material fact, or omits to state any material
fact necessary, in light of the circumstance under which it was made, in order
to make the statements herein not misleading.
(h) No Prior Activities; Capitalization. Except for (i)
obligations or liabilities incurred in connection with its incorporation and
(ii) the transactions contemplated by this Agreement and the Other Documents, as
of the Closing Date, the Purchaser will not have, directly or indirectly, (A)
incurred any obligations or liabilities, (B) engaged in any business activities
of any kind or (C) entered into any Contracts. Immediately following the
Closing, the Purchaser will have a capitalization as set forth on Schedule
3.2(h).
ARTICLE IV
COVENANTS
SECTION 4.1 Conduct of Business. From the date of this Agreement
through the Closing, the Seller agrees that, except (i) as disclosed in Schedule
4.1 hereof or otherwise provided for in, or contemplated by, this Agreement or
the Other Documents or (ii) as approved by the Purchaser:
(a) The Seller shall cause the Acquired Entities to carry on
and operate the Business in the ordinary course, consistent with past practices.
(b) Except in the ordinary course of business or as required
by law or by contractual obligations or other understandings or arrangements
existing on the date hereof, the Seller shall not, and shall not permit the
Company or the Subsidiaries to, knowingly perform any act, or omit to perform
any act within its reasonable control, that will cause a breach of any
representation, warranty or obligation contained in this Agreement, which breach
will result in a material adverse effect on the business, financial condition or
results of operations of the Acquired Entities, taken as a whole.
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(c) The Seller shall cause the Acquired Entities to continue
to maintain and service the physical assets used in the conduct of the Business
consistent with past practices.
(d) The Seller shall not permit the Acquired Entities to
materially modify their current payment practices with the vendors, suppliers or
employees of the Acquired Entities.
(e) Other than in the ordinary course of business, consistent
with past practice, the Seller shall not permit the Acquired Entities to extend
any material purchasing or distribution agreement to which any of the Acquired
Entities is bound (or modify any termination rights thereunder) other than any
purchasing or distribution agreement that otherwise would expire by its terms on
or prior to the Closing.
On or prior to the Closing, the Seller shall satisfy or cause
its subsidiaries to satisfy, the $300,000 payable to Micros Systems, Inc.,
$200,000 of which is currently due and payable and $100,000 of which is due on
or prior to March 31, 1996.
SECTION 4.2 Further Actions; Cooperation.
(a) The Seller and the Acquiring Companies shall use their
reasonable best efforts, whether before, at or after the Closing, to take, or
cause to be taken, all actions, and to negotiate and execute and deliver or
cause to be executed and delivered, all documents, reasonably necessary to (a)
obtain all material licenses, permits and certificates required for the
Purchaser to conduct the Business or own the Stock at the Closing or (b)
otherwise consummate the transactions contemplated hereby. Without limiting the
foregoing each party hereto will use its reasonable best efforts to respond to
all inquiries, investigations and requests for additional information, if any,
of all Federal and state authorities relating to the transactions contemplated
hereby and to seek to resolve prior to June 30, 1996 all concerns and issues, if
any, raised by such authorities.
(b) The parties hereto shall reasonably cooperate so that, to
the extent reasonably practicable, at Closing, the Acquired Entities shall have
all material rights and obligations presently vested in the Acquired Entities,
Seller and its affiliates (if any) concerning special purpose corporations
holding liquor licenses that are part of the Business (including, without
limitation, J.T. Beverage, Inc., The L.C.S. Beverage Company, Inc., GRC Club,
Inc., and JRI Club, Inc.) As to interests in these entities that will not be
owned by the Acquired Entities, the parties shall reasonably cooperate so that,
to the extent reasonably practicable, at Closing, such interests shall be held
by third parties subject to terms and conditions reasonably acceptable to
Purchaser and consistent with the business purpose for and existing legal
requirements binding such entities.
SECTION 4.3 Access to Information; Reports
(a) Access. The Seller shall afford to representatives of the
Purchaser, at the Purchaser's expense, including its counsel, advisors,
accountants and lenders, reasonable access during normal business hours during
the period prior to the Closing Date to all the properties, books, Contracts and
records of the Company. After making any investigation of such properties,
books, Contracts or records, the Purchaser shall promptly restore such
properties, books, Contracts and records to their condition prior to such
investigation. The Seller shall provide to the Purchaser as soon as available
the reports set forth on Schedule 4.3(a) during the period prior to the Closing
Date. If, in the course of any investigation pursuant to this Section 4.3(a),
either Acquiring Company discovers any breach of any representation or warranty
contained in this Agreement or any circumstance or condition that, upon Closing,
would constitute such a breach, the Purchaser shall promptly inform the Seller.
The Seller shall promptly inform the Purchaser if, prior to Closing, the Seller
becomes aware of any breach of any of its representations or warranties
contained herein, or of any circumstance or condition that, upon Closing, would
constitute such a breach.
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(b) Confidentiality. The Acquiring Companies acknowledge that
the information being provided to the Purchaser and its representatives by, or
on behalf of, the Seller is subject to the terms of a confidentiality agreement
between the Seller and the Purchaser dated November 9, 1995, which terms are
incorporated herein by reference.
(c) Confidentiality Agreements. Concurrently with the
Closing, the Seller shall assign to the Purchaser its rights under all
confidentiality agreements between the Seller and any prospective purchasers of
the Stock, in each case to the extent such rights may be so assigned.
SECTION 4.4 Consents Subject to the terms and conditions hereof, the
Seller and the Acquiring Companies agree (without being obligated to make any
payment to any third party) to use their best efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement and to cooperate with the others in
connection with the foregoing, including using their best efforts (i) to obtain
all necessary waivers, consents and approvals from other parties to material
Contracts, (ii) to obtain all consents, approvals and authorizations that are
required to be obtained under any Federal, state, local or foreign law or
regulations, (iii) to prevent the entry, enactment or promulgation of any
threatened or pending injunction or order that would adversely affect the
ability of the parties hereto to consummate the transactions contemplated
hereby, (iv) to lift or rescind any injunction or order adversely affecting the
ability of the parties hereto to consummate the transactions contemplated hereby
and (v) to effect all necessary registrations and filings, including filings
under the HSR Act, and submissions of information requested by governmental
authorities.
SECTION 4.5 Employee Benefit Plans
(a) No provision contained in this Agreement shall confer upon
any Affected Person any right with respect to continuance of employment by the
Acquired Entities, nor shall anything herein interfere with the right of the
Acquired Entities to terminate the employment of any of the Affected Persons at
any time, with or without cause, or subject to Section 4.5(d), restrict the
Acquired Entities in the exercise of its independent business judgment in
establishing or modifying any of the terms and conditions of the employment of
the Employees.
(b) The Seller shall cause the accounts of all Affected
Persons (other than Transferred Non-Business Employees (as defined below)) in
the Family Restaurants, Inc. Retirement Savings Plan (the "Savings Plan") to be
fully vested effective as of no later than the Closing and shall cause such
accounts to be distributed to the Affected Persons pursuant to the terms of the
Savings Plan as soon as practicable after the Closing. The Acquired Companies
shall permit the Affected Persons who are not Transferred Non-Business Employees
and who elect to do so to have their accounts in the Savings Plan be
transferred, in cash only, to the trustee of one or more of the qualified profit
sharing plans that may be maintained by any of the Acquiring Companies or
Acquired Entities after the Closing in a direct rollover pursuant to the terms
of such plan.
(c) No later than the Closing, the Seller shall cause the
interests of any of the Affected Persons (other than Transferred Non-Business
Employees) in the Family Restaurants, Inc. Deferred Compensation Plan (the
"Deferred Compensation Plan") to be distributed to the Affected Persons.
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(d) The Acquiring Companies hereby agree that as of the
Closing Date, and for a period of at least 12 months thereafter, the Purchaser
shall provide to the Affected Persons who are not Transferred Non-Business
Employees wages and benefits substantially similar in the aggregate to those
currently provided to such Affected Persons under the Employee Benefit Plans
disclosed pursuant to Section 3.1(n) hereof ("Purchaser's Benefit Plans") not
taking into account any deferred compensation or benefits that are provided only
to executives or highly compensated employees or any employer contributions,
other than with respect to elective deferred compensation, made by the Company
and the Subsidiaries to any qualified profit sharing plan. As of the Closing
Date, the Seller shall cease to provide coverage or benefits for Affected
Persons under any Employee Benefit Plans, except as required by applicable law
or otherwise agreed to by the parties hereto.
(e) As of the Closing Date, each Affected Person (other than a
Transferred Non-Business Employee or a dependent or beneficiary thereof) who was
a participant (a "Participant") or who was eligible to immediately participate
(an "Eligible Person") in Employee Benefit Plans of the Seller that are welfare
benefit plans (as defined in section 3(1) of ERISA) immediately prior to the
Closing Date shall become a participant in, or shall be immediately eligible to
participate in, as the case may be, applicable welfare benefit plans of the
Acquiring Companies (including, without limitation, health, life insurance,
accidental death, short-term and long-term disability), from and after the
Closing Date, otherwise in accordance with the terms and conditions of such
Acquiring Companies' plans; provided that the Acquired Companies shall cause to
be waived any pre-existing condition exclusions under any such welfare plans
that would not have been applicable to such Affected Person as a Participant or
Eligible Person under the terms of any such applicable Employee Benefit Plan of
the Seller immediately prior to the Closing Date.
(f) As of the Closing Date, each Affected Person (other than a
Transferred Non-Business Employee or a dependent or beneficiary thereof) shall
continue as a participant in, or shall become a participant in, each other
employee benefit plan or arrangement of the Acquired Entities or the Acquiring
Companies as shall be required to fulfill that Acquiring Company's obligation to
provide benefits pursuant to Section 4.5(d) hereof. Length of service by any
such Affected Persons with the Company, the Seller or any of their respective
subsidiaries shall be recognized under each such benefit plan or arrangement for
purposes of (i) eligibility to participate and (ii) vesting, but in no event
shall such service be taken into account in determining the accrual of benefits
under any such benefit plan or arrangement (other than vacation time),
including, but not limited to, a defined benefit plan.
(g) The Seller and the Purchaser agree to cooperate in
carrying out the duties and responsibilities contained in this Section 4.5. In
addition, the Seller agrees to make available to the Purchaser such information
as the Purchaser may reasonably request to facilitate the determination of (i)
the period of service of any Affected Person with the Company, the Seller or any
of the Subsidiaries prior to the Closing Date, (ii) individual service accruals
and salary histories of Affected Persons, and (iii) such other information as
the Purchaser may reasonably request to carry out the provisions of this Section
4.5.
(h) The Company and the Purchaser shall comply with the filing
requirements of Revenue Procedure 84-77 to implement Section 3.1(n) hereof with
respect to Affected Persons other than Transferred Non-Business Employees.
(i) If the Purchaser so requests prior to the Closing, the
Seller shall request (without any obligation to cause) any insurance companies
or third party administrators that underwrite or administer any Employee Benefit
Plans that cover employees of the Seller or its subsidiaries other than the
Acquired Entities to offer to issue to the Company or the Purchaser policies or
contracts with respect to the Transferred Employees and their dependents that
provide substantially the same benefits and contain substantially the same terms
and conditions as the Seller's policies and contracts with such insurance
companies or third party administrators.
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SECTION 4.6 WARN Act. The Seller shall not, at any time 90 days before
the Closing Date, without complying fully with the notice and other requirements
of the Worker Adjustment and Retraining Notification Act (the "WARN Act"),
effectuate (1) a "plant closing" as defined in the WARN Act affecting any site
of employment or one or more facilities or operating units within any site of
employment of the Company; or (2) a "mass layoff" as defined in the WARN Act
affecting any site of employment of the Company; or any similar action under
applicable state or foreign law requiring notice to employees in the event of a
plant closing or layoff. The Purchaser shall not, at any time on or after the
Closing Date, without complying fully with the notice and other requirements of
the WARN Act, effectuate (i) a "plant closing" as defined in the WARN Act
affecting any site of employment or one or more facilities or operating units
within any site of employment of the Company; or (ii) a "mass layoff" as defined
in the WARN Act affecting any site of employment of the Company; or any similar
action under applicable state or foreign law requiring notice to employees in
the event of a plant closing or layoff. For purposes of the WARN Act and this
Agreement, the Closing Date is and shall be the same as the "effective date"
within the meaning of the WARN Act.
SECTION 4.7 Cooperation With Respect to Tax Matters
(a) The Seller and the Acquiring Companies recognize that the
Company has joined with the Seller in filing unitary, consolidated or combined
Tax Returns. After the Closing Date (i) the Seller shall include (to the extent
required by law) the taxable income or loss, and all other items, of the Company
and the Subsidiaries for periods ending before or on the Closing Date, in its
unitary, consolidated or combined Tax Returns, (ii) with respect to any other
Tax Returns for any taxable period that includes but does not end on the Closing
Date (the "Straddle Tax Returns"), the Seller shall prepare a schedule setting
forth, on a basis consistent with the preparation of the Seller's consolidated
Federal income tax return for the taxable period ending on the Closing Date and
specifically without making the election provided by Treasury Regulation section
1.1502-76(b)(2)(ii), the taxable income or loss, and all other items, of the
Company and the Subsidiaries to the period commencing with the first day of the
taxable period covered by such Straddle Tax Return up to and including the
Closing Date (the "Pre-Closing Period") and the period commencing with the first
day after the Closing Date and ending with the last day of the taxable period
covered by such Straddle Tax Return (the "Post-Closing Period") (iii) in the
case of any Tax Return referred to in clause (i) of this Section 4.7(a), the
Acquired Companies shall have a reasonable opportunity to review the portion of
such Tax Returns that relate to the Acquired Entities, and (iv) each of the
Seller, the Acquiring Companies, the Company and the Subsidiaries shall, for
Federal income tax purposes, treat all transactions that are required to be
effected at, or concurrently with, the Closing pursuant to Article II hereof as
occurring on the Closing Date.
(b) The Seller shall be responsible for, and shall have
ultimate discretion with respect to, (i) all Tax Returns required or permitted
by applicable law to be filed by the Company and the Subsidiaries (or by the
Seller on their behalf) with respect to periods that end on or before the
Closing Date, (ii) any elections related to such Tax Returns, provided that any
material election (other than those specified below in this Section 4.7(b) and
the election specified in 4.8(e) if such election is made on or after May 15,
1996) shall be subject to the consent of the Acquiring Companies, which consent
shall not be unreasonably withheld, provided, however, that the Seller shall
have the right, in its sole discretion, to make any elections on a basis
consistent with prior year returns; and (iii) any Audit (as defined below),
including the execution of any waiver of limitation with respect to any Audit,
relating to any such Tax Returns.
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The Acquiring Companies, the Company and the Subsidiaries shall cooperate
with the Seller for the purpose of making (x) an election to permit the Company
to file any short period Tax Return for the taxable period ending on the Closing
Date, an election under Treasury Regulation section 1.1502-20(g), and an
election under Proposed Treasury Regulation section 1.1502-95(c) and, (y) any
other election permitted under clause (ii) of this Section 4.7(b). In the event
that any Audit for which the Seller is responsible pursuant to this Section
4.7(b) could reasonably be expected to result in a material increase in Tax
liability for which the Purchaser or the Company would be liable in the
Post-Closing Period or subsequent tax year, the Seller shall consult in good
faith with the Purchaser and the Company in respect of the specific issues that
could give rise to such increased Tax liability.
(c) The Purchaser and the Company shall be responsible for,
and shall have ultimate discretion with respect to, (i) all Tax Returns required
to be filed by the Company and the Subsidiaries with respect to periods that
begin after the Closing Date and (ii) the Straddle Tax Returns, if any, and
(iii) any Audit (including the execution of any waiver of limitation with
respect to any Audit) relating to any such Tax Returns; provided, however, that
(x) in the case of any Straddle Tax Return, the preparation and filing of such
Return shall be subject to review and approval of the Seller, which approval
shall not be unreasonably withheld, and (y) in the event that any Audit for
which the Purchaser is responsible pursuant to this Section 4.7(c) could
reasonably be expected to result in a material increase in Tax liability for
which the Seller would be liable, the Purchaser shall consult in good faith with
the Seller in respect of the specific issues that could give rise to such
increased Tax liability.
(d) After the Closing Date, each of the Acquiring Companies,
the Company and the Subsidiaries, on the one hand, and the Seller, on the other,
shall (i) provide, or cause to be provided, to each other's respective
subsidiaries, officers, employees, representatives and affiliates, such
assistance as may reasonably be requested, including making available employees
and the books and records of the Company, by any of them in connection with the
preparation of any Tax Return or any Audit of the Company in respect of which
the Purchaser, the Company or the Seller, as the case may be, is responsible
pursuant to Section 4.7(b) or (c) hereof and (ii) retain, or cause to be
retained, for so long as any such Taxable Years or Audits shall remain open for
adjustments, any records or information which may be relevant to any such Tax
Returns or Audits.
(e) Each of the Purchaser, the Company and the Seller shall
promptly inform, keep regularly apprised of the progress with respect to, and
notify the other party in writing not later than (i) ten business days after the
receipt of any notice of any Audit or (ii) fifteen business days prior to the
settlement or final determination of any Audit for which it was responsible
pursuant to Section 4.7(b) or (c) hereof which could affect the Tax liability of
such other party for any taxable year.
(f) As used in this Agreement:
(i) the term "Social Security Taxes" shall include
any Taxes imposed pursuant to the Federal Insurance Contributions Act under
section 3101 et seq. of the Code.
(ii) the term "Tax" or "Taxes" shall include all
Federal, state, local and foreign taxes, escheat claims, assessments, and
governmental charges (whether imposed directly or through withholdings),
including any interest, penalties and additions to Tax applicable thereto;
(iii) the term "Tax Returns" shall include any
Federal, state, local and foreign tax returns, declarations, elections,
statements, reports, schedules and information returns or the refiling of any
such Tax Returns previously filed; and
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(iv) the term "Audit" shall include any audit,
assessment of Taxes, reassessment of Taxes, or other examination by any
taxing authority or any judicial or administrative proceedings or appeal of such
proceedings.
SECTION 4.8 Tax Indemnity
(a) The Seller and FRI-MRD shall be jointly and severally
liable for, shall pay to the appropriate Tax authorities, and shall hold the
Purchaser, the Company and the Subsidiaries harmless against, (A) all Taxes,
other than Social Security Taxes related to tip income, of the Acquired Entities
that relate to (i) the taxable periods ending before or on the Closing Date and
(ii) the Pre-Closing Period, including any liability arising because of Treasury
Regulation section 1.1502-6 or similar provision of state, local or foreign law,
(B) Social Security Taxes related to tip income and imposed on an Acquired
Entity (x) as a result of an Audit by the IRS of a particular employee of an
Acquired Entity (and not as a result of a Company or Subsidiary level Audit)
that relate to the taxable periods ending before or on the Closing Date and the
Pre-Closing Period or (y) in connection with (1) restaurant properties
previously operated by an Acquired Entity and (2) restaurant properties
currently operated by an Acquired Entity and regarding which a Social Security
Tax Audit has commenced as of the date hereof, in each such case that are not
currently eligible to elect to participate in the "tip reporting alternative
commitment" ("TRAC") program and (C) all Taxes related to the transfer and
operation of the Dinnerhouse Properties and the Closed Properties.
The Seller shall be entitled to all Tax refunds (including
interest) attributable to the taxable periods in respect of which the Seller and
FRI-MRD are so obligated to indemnify the Purchaser, the Company and the
Subsidiaries.
(b) The Acquiring Companies, the Company and the Subsidiaries
shall be jointly and severally liable for, shall pay to the appropriate Tax
authorities, and shall hold the members of the Selling Group (as defined below)
harmless against (A) all Taxes of the Acquired Entities that relate to (i) the
taxable periods that begin after the Closing Date and (ii) the Post-Closing
Period and (B) all Social Security Taxes related to tip income of the Acquired
Entities for the taxable periods ending before or on the Closing Date and the
Pre-Closing Period other than Social Security Taxes related to tip income for
which the Seller and FRI-MRD are obligated to indemnify the Purchaser, the
Company and the Subsidiaries pursuant to Section 4.8(a)(B) hereof. The Acquiring
Companies, the Company, and the Subsidiaries shall be entitled to any Tax refund
(including interest) attributable to the taxable periods in respect of which the
Acquiring Companies and the Company are so obligated to indemnify the members of
the Selling Group.
(c) In the event that (i) the Acquiring Companies or the
Acquired Entities shall derive a reduction in "Income Tax" for which the
Acquiring Companies and Acquired Entities are responsible pursuant to Section
4.7(c) hereof, that is attributable to a "Carryforward Tax Credit," as such
underscored terms are defined in the Grace Restaurant Group Tax Procedures
Agreement, dated December 23, 1986, by and among W. R. Grace & Co. ("Grace"),
The Restaurant Enterprises Group, Inc. (subsequently renamed Family Restaurants,
Inc.), and others (the "Grace Tax Procedures Agreement"), and (ii) such
reduction in Income Tax results in an amount (the "Tax Benefit Amount") owing to
Grace pursuant to the Grace Tax Procedures Agreement for which the Seller would
be liable, the Acquiring Companies or the Acquired Entities shall (A) provide
prompt written notice to the Seller setting forth in reasonable detail the
computation of the Tax Benefit Amount and (B) be jointly and severally liable
for, pay to Grace, and shall hold Seller, FRI-MRD, and their subsidiaries
harmless against any such Tax Benefit Amount.
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(d) Seller and FRI-MRD shall be jointly and severally liable
for, shall pay to Grace, and shall hold the Purchaser, the Company, and the
Subsidiaries harmless against, any Tax Benefit Amount owing to Grace for which
the Purchaser, the Company, or the Subsidiaries would be liable pursuant to the
Grace Tax Procedures Agreement in respect of (i) any taxable period ending on or
before the Closing Date and the Pre-Closing Period, and (ii) to the extent that
such Tax Benefit Amount results from a reduction of Income Tax of FRI, FRI-MRD,
or their subsidiaries, any taxable period ending after the Closing Date, and the
Post-Closing Period.
(e) If the Closing Date does not occur prior to May 15, 1996,
the Purchaser may, at its option, direct the Seller to, or the Seller may, at
its option, properly prepare and timely submit prior to June 1, 1996, to the IRS
an application to enter into a TRAC agreement in respect of Social Security
Taxes related to tip income of the Acquired Entities.
(f) Any indemnity payment made pursuant to this Section 4.8
shall be treated by all parties as an adjustment to the Purchase Price.
(g) The obligations of the parties to indemnify each other
pursuant to this Section 4.8 shall continue until the statutory period of
limitations (taking into account any extensions or waivers thereof) for the
assessment of Taxes, covered by this Section 4.8, has expired. Any payment due
to an indemnified party pursuant to this Section 4.8 shall be paid promptly by
the indemnifying party upon receipt of written notice.
SECTION 4.9 Financial Information
(a) After the Closing, upon reasonable written notice, the
Purchaser and the Seller shall furnish or cause to be furnished to each other
and their respective accountants, counsel and other representatives access,
during normal business hours, to such information (including records pertinent
to the Company) as is reasonably necessary for financial reporting and
accounting matters.
(b) The Purchaser shall retain all of the books and records of
the Acquired Entities for a period of four years after the Closing Date or such
longer time as may be required by law. After the end of such period, before
disposing of such books or records, the Purchaser shall give notice to such
effect to the Seller and give the Seller an opportunity to remove and retain all
or any part of such books or records as the Seller may select.
SECTION 4.10 Expenses. Whether or not the Closing takes place, except
as otherwise provided herein, all costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such costs or expenses. Without limiting the foregoing, none of
the Acquired Entities shall be liable for any out-of-pocket costs and expenses
incurred in connection with the transactions contemplated hereby. All sales
taxes, if any, payable with respect to the transfer of the Commissary Assets
shall be paid by the Purchaser and all sales taxes, if any, payable with respect
to the transfer of the Corporate Personal Property shall be paid by the Seller.
SECTION 4.11 Insurance. The Purchaser shall secure insurance with
respect to the Business from the Closing Date covering general liability
(including, without limitation, premises liability), property, and workers'
compensation in amounts customary for the industries in which the Acquired
Entities operate.
SECTION 4.12 Publicity. The Seller and the Acquiring Companies agree
that, prior to the Closing, no public release or announcement concerning the
transactions contemplated hereby shall be issued by any party without the prior
written consent (which consent shall not be unreasonably withheld) of the other
party, except as such release or announcement may be required by law. The Seller
and the Acquiring Companies agree that, prior to the Closing, no disclosure of
the terms or provisions of this Agreement shall be made except to
representatives, advisors, counsel, and lenders to the parties hereto who
acknowledge the confidentiality hereof, and except as required by law.
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SECTION 4.13 Certain Understandings.
(a) The Acquiring Companies have received from the Seller
certain projections and forecasts relating to the Company. The Acquiring
Companies acknowledge that (i) there are uncertainties inherent in attempting to
make such projections and forecasts, (ii) the Acquiring Companies are familiar
with such uncertainties and are taking full responsibility for making their own
evaluation of the adequacy and accuracy of all projections and forecasts so
furnished to them and (iii) the Acquiring Companies shall not have any claim
against the Seller or its agents with respect thereto. Accordingly, the Seller
makes no representation or warranty with respect to such projections or
forecasts.
(b) The Acquiring Companies acknowledge that, except as
expressly set forth herein, neither the Seller, nor any other person, have made
any representation or warranty, express or implied, as to the accuracy or
completeness of any information regarding the Company, and neither the Seller
nor any other person will be subject to any liability to the Acquiring Companies
or any other person resulting from the distribution to the Acquiring Companies,
or the use of, any such information. The Acquiring Companies acknowledge that,
should the Closing occur, the Acquiring Companies will acquire the Company's
business in an "as is" condition and on a "where is" basis, without any
representation or warranty of any kind, express or implied, except such
representations and warranties expressly set forth herein.
(c) The Acquiring Companies acknowledge that, except as
expressly set forth herein, neither the Seller, nor any other person, has made
any representation or warranty, express or implied, as to (i) the physical
condition or state of repair of the Company's real property, the improvements
constituting a part thereof or the equipment and fixtures appurtenant thereto,
(ii) the gross or net income derived therefrom, (iii) the cost, book value or
market value thereof, (iv) the use or potential use thereof, or (v) any other
matter affecting, or relating to, such property or the operation or management
thereof.
SECTION 4.14 Transfer of Properties.
(a) The Seller shall use its reasonable best efforts to
transfer the fee or assign or sublease the lease relating to each of the
restaurant properties identified on Schedule 4.14(a) hereof, in each case
together with all fixtures thereon and all other tangible assets related thereto
(the "Dinnerhouse Properties"), from the Acquired Entities to the Seller or its
designee on or prior to the 90th day following the Closing Date. From and after
the Closing, upon the Seller's request (and without any obligation upon the
Purchaser to directly negotiate with third parties), the Purchaser shall use its
reasonable best efforts to transfer, assign or sublease to the Seller or its
designee each Dinnerhouse Property not yet so transferred, assigned or
subleased, and in each case until so transferred, assigned or subleased, each
remaining Dinnerhouse Property shall be subject to the terms and conditions of a
Restaurant Services Agreement, in the form to be mutually agreed upon (the
"Restaurant Services Agreement"). The Restaurant Services Agreement shall
generally provide that the Seller or its designee shall assume all costs,
liabilities and obligations, and be entitled to all income and benefits, arising
out of or related to the occupancy and operation of the Dinnerhouse Properties.
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(b) The Seller shall use its reasonable best efforts to assign
the leases and subleases relating to each of the restaurant properties
identified on Schedule 4.14(b) hereof (the "Closed Properties") from the
Acquired Entities to Seller or its designee on or prior to the 90th day
following the Closing Date. From and after the Closing, in each case until
transferred, assigned or subleased, each remaining Closed Property shall be
subject to the terms and conditions of a Closed Restaurant Agreement, in the
form to be mutually agreed upon (the "Closed Restaurant Agreement"). The Closed
Restaurant Agreement shall generally provide that the Seller or its designee
shall assume all costs, liabilities and obligations, and be entitled to all
income and benefits, arising out of or related to the occupancy and operation of
the Closed Properties.
SECTION 4.15 Transfer of Employees. As soon as reasonably practicable
(but in any event within 28 days) after the date hereof, the parties shall, by
mutual agreement, identify (a) those employees of the Business that are not
employed by an Acquired Entity (the "Transferred Business Employees") and (b)
those employees of the Acquired Entities that are not employees of the Business
(the "Transferred Non-Business Employees"). Prior to the Closing, the Seller,
the Company and the Subsidiaries shall (i) cause the employment of each
Transferred Business Employee to be transferred to the Company or a Subsidiary
and (ii) cause the employment of each Transferred Non-Business Employee to be
transferred to the Seller or one if its subsidiaries other than an Acquired
Entity. The Seller shall assume all obligations and liabilities of the Acquired
Entities with respect to the Transferred Non-Business Employees and their
beneficiaries and dependents under or in connection with any of the Employee
Benefit Plans or the employment of the Transferred Non-Business Employees;
ovided, that no provision hereof shall confer upon any Transferred Non-Business
Employee any right with respect to continuance of employment by the Seller or
any of its subsidiaries, nor shall anything herein interfere with the right of
the Seller or any of its subsidiaries to terminate the employment of any such
person at any time, with or without cause, or restrict the Seller or any of its
subsidiaries in the exercise of their independent business judgment in
establishing or modifying any of the terms and conditions of the employment of
such persons..
SECTION 4.16 Termination of Agreements.
(a) Effective as of the Closing, other than rights or
obligations specified in, or arising out of, (i) those Contracts identified on
Schedule 4.16(a), (ii) this Agreement and the Other Documents, and (iii) any
other Contract entered into pursuant hereto or thereto or in connection herewith
or therewith, all rights and obligations between the Acquired Entities, on the
one hand, and the Seller or any of its post-closing subsidiaries, on the other,
shall be terminated and of no force or effect, including (without limitation)
rights to payment accruing on or prior to the Closing Date.
(b) The parties shall negotiate in good faith with respect to
a mutually acceptable agreement pursuant to which the Acquired Entities would
continue to purchase under the distribution, supply and purchase agreements set
forth on Schedule 4.16(b) for a mutually acceptable period of time following the
Closing.
SECTION 4.17 Environmental Investigation and Indemnification.
(a) The Purchaser may, at its own expense, conduct Phase I
Environmental Site Assessments (the "Phase I's") of any or all of the properties
owned or leased by any of the Acquired Entities for use in connection with the
Business (the "Properties"). The Phase I's shall conform to, but may not exceed
in scope, the standards established by the American Society for Testing and
Materials (ASTM) Standard E 1527-93 for Phase I Environmental Site Assessments;
provided, however, that the Phase I's may, but need not, include (at the
Purchaser's discretion and expense) bulk sampling of suspected asbestos
containing materials. The Purchaser will use its best efforts to have
preliminary drafts of all Phase I's prepared, with copies provided to the
Seller, no later than 45 days after the date hereof. Copies of all final Phase
I's and any proposals for remediation or abatement (as provided below) must be
provided to the Seller no later than 60 days after the date hereof. If the
Purchaser does not conduct or has not completed Phase I's for any of the
Properties at the end of the 60 day period, the Seller shall have no liability
or obligation to the Purchaser with respect to environmental conditions,
including any remedial or abatement activities, at the Properties for which
Phase I's were not conducted or completed.
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(b) If this Agreement terminates prior to the Closing, the
Purchaser shall deliver to the Seller all originals and copies of the Phase I's
and Additional Investigations, together with all related materials, including
but not limited to reports, data, analyses, notes and findings concerning the
Properties or the Existing Conditions. The Purchaser agrees that at all times
prior to the Closing, it shall, and shall cause each of its representatives and
consultants to, keep confidential all information and documents generated in
connection with or as a result of the Phase I's or Additional Investigations,
except as otherwise required by law or court order.
(c) If the Purchaser determines that it is more likely than
not that remedial or abatement activity will be required based on existing
environmental conditions at any of the Properties, as identified in the Phase
I's (the "Existing Conditions"), the Purchaser shall provide to the Seller a
cost analysis (the "Cost Analysis") for all such remedial or abatement activity.
The Cost Analysis shall be based on an objective 51% confidence factor that the
costs of the remedial or abatement activity will not be exceeded. The Cost
Analysis shall not include any costs associated with (i) additional
environmental investigations ("Additional Investigations"), whether performed by
the Purchaser or any other person or (ii) plans to undertake any renovations at
any Property that are not directly the result of environmental conditions at
such Property that require remediation or abatement in its current, pre-Closing
state. The Seller, at its option, shall have up to 30 days to verify the
conclusions set forth in the Phase I's and the Cost Analysis. If the Seller's
conclusions differ from the Purchaser's conclusions in the Phase I's or the Cost
Analysis, the Seller, at its option, may require that any of the disputed
conclusions be independently verified by a third-party consultant (the
"Consultant"), who shall be mutually and reasonably agreeable to both the Seller
and the Purchaser. The Consultant will review only such disputed conclusions,
and shall resolve such dispute solely by choosing between the conclusion
specified by the Seller or the Purchaser in accordance with the provisions of
this Section. In its determination, the Consultant shall be entitled to rely on
all work generated by the Purchaser, the Seller and their respective
consultants. The costs of the Consultant shall be paid by the Seller. The
decision of the Consultant shall be conclusive between, and final and binding
on, the parties hereto for the purposes of resolving the disputed conclusion.
(d) The Acquiring Companies shall pay the first $1.5 million
for any remediation or abatement costs actually incurred by the Purchaser with
respect to the Existing Conditions. The Acquiring Companies, on the one hand,
and the Seller and FRI-MRD, on the other, shall share equally the next $10
million in actual out-of-pocket remediation or abatement costs incurred with
respect to the Existing Conditions. Except as provided in clause (e) below, the
Acquiring Companies shall pay all other remediation or abatement costs with
respect to the Properties, including, without limitation, (i) costs with respect
to the Existing Conditions in excess of $11.5 million and (ii) costs with
respect to conditions at the Properties, which conditions were not identified in
the Phase I's.
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(e) If the aggregate estimated remediation and abatement costs
set forth in the Cost Analysis exceed $11.5 million, the Seller and FRI-MRD may,
at their sole discretion, (i) agree to reimburse the Purchaser for such excess
to the extent the Purchaser actually incurs remediation or abatement costs with
respect to the Existing Conditions, or (ii) terminate this Agreement. If such
estimated costs exceed $15 million and the Seller and FRI-MRD agree to so
reimburse the Purchaser for such excess, the Purchaser may elect, in its sole
discretion, to terminate this Agreement if (x) based on the Cost Analysis, the
estimated cost of remedial or abatement activities relating to the Existing
Conditions at more than 10 of the Properties exceeds $500,000 at each such
Property, or (y) the total estimated costs for remediating or abating the
Existing Conditions exceed $20 million.
(f) The Seller and FRI-MRD shall be responsible only for
out-of-pocket costs to remediate or abate the Existing Conditions that are
actually incurred by the Purchaser and invoiced to the Seller; provided, that
such costs shall be deemed to include the actual out-of-pocket cost of any
Additional Investigations but only to the extent such investigations are the
subject of a written demand, directive or order of any court or governmental
agency. Such costs, as invoiced by the Purchaser, shall include only actual
out-of-pocket costs, and shall not include any premium or additional charges for
payment. Notwithstanding any other provisions hereof, neither the Seller nor
FRI-MRD shall have any liability for any costs that are not either (i) actually
paid by the Purchaser and invoiced to the Seller no later than the fourth
anniversary of the Closing or (ii) actually committed to be paid by the
Purchaser (with written evidence of such commitment delivered to the Seller) no
later than the fourth anniversary of the Closing and invoiced to the Seller
promptly following payment. Amounts invoiced, unless disputed by the Seller,
shall be paid within 30 days after receipt of such invoice and any documentation
requested by the Seller.
(g) Any payment made by the Seller or FRI-MRD for the Existing
Conditions shall not obligate the Seller or FRI-MRD to conduct any other testing
or remediation; nor shall any provision herein obligate the Seller or FRI-MRD
with respect to any third party or prevent the Seller, FRI-MRD or the Purchaser
from seeking reimbursement or contribution from any other party liable therefor.
(h) Except as provided in this Section 4.17, the Acquiring
Companies agree to waive and release, to the fullest extent permitted under
applicable law, each member of the Selling Group from any and all rights, claims
and causes of action that the Acquiring Companies may have against any such
person with respect to all obligations for or pertaining to environmental
contamination or conditions at or from the Properties arising under or based
upon any federal, state, local or foreign laws or regulations, or based upon
common law or otherwise, whether now or hereafter in effect. Except as provided
in this Section 4.17, the Acquiring Companies jointly and severally agree to
indemnify, reimburse, defend and hold harmless each member of the Selling Group
for, from and against all demands, claims, actions or causes of action,
assessments, losses, damages, liabilities, costs and expenses (including,
without limitation, interest, penalties, attorneys' fees and consultants' fees,
disbursements and expenses) asserted against, resulting to, imposed on, or
incurred by any such person (whether absolute, accrued, contingent or otherwise)
arising under any Federal, state, local or foreign laws or regulations, whether
now or hereafter in effect, relating to environmental contamination or
conditions at or from the Properties.
(i) Notwithstanding Article VI of this Agreement, the
provisions in this Section 4.17 shall be the exclusive remedy of the Purchaser
against the Seller or FRI-MRD with respect to any environmental matters in
connection with, relating to, resulting from, or arising out of the Properties
whether as a result of the Existing Conditions, or pertaining to or arising
under any Environmental Laws, whether now or hereafter in effect. Any indemnity
payment made pursuant to this Section 4.17 shall be treated by all parties as an
adjustment to the Purchase Price.
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ARTICLE V
CONDITIONS PRECEDENT
SECTION 5.1 Conditions Precedent to Obligations of the Purchaser. The
obligation of the Purchaser to purchase the Stock shall be subject to the
satisfaction or waiver on the Closing Date of the following conditions precedent
(which shall not be construed as covenants):
(a) HSR Act. The waiting period under the HSR Act, if
applicable to the purchase and sale of the Stock, shall have expired or been
terminated and there shall have been no conditions to approval of the
Acquisition set by the Federal Trade Commission (the "FTC") that are not
reasonably acceptable to the Purchaser.
(b) No Injunctions or Restraints. No temporary
restraining order or preliminary or permanent injunction of any court or
administrative agency of competent jurisdiction prohibiting the purchase and
sale of the Stock shall be in effect.
(c) Consents. All consents, approvals and waivers from third
parties and governmental authorities and other parties set forth on Schedule
3.1(e) shall have been obtained, except where the failure to obtain any such
consent, approval or waiver would not have a material adverse effect on the
business, financial condition or results of operations of the Acquired Entities,
taken as a whole.
(d) Representations and Warranties. The representations and
warranties of the Seller set forth in this Agreement shall be true and correct
in all respects on and as of the Closing Date, as though made on and as of the
Closing Date, except (i) for any item that does not have a material adverse
effect on the business, financial condition or results of operations of the
Acquired Entities, taken as a whole, or (ii) as otherwise contemplated by this
Agreement or any of the Other Documents; and the Purchaser shall have received a
certificate signed by an authorized officer of the Seller to such effect.
(e) Performance of Obligations of the Seller. The Seller shall
have performed all obligations required to be performed by it under this
Agreement on or prior to the Closing Date, and the Purchaser shall have received
a certificate signed by an authorized officer of the Seller to such effect.
(f) Legal Opinion. The Purchaser shall have received an
opinion of Skadden, Arps, Slate, Meagher & Flom, special counsel to the Seller,
dated the Closing Date, substantially in the form of Exhibit A.
(g) Certified Resolutions; Good Standing Certificates. The
Seller shall have delivered to the Purchaser (i) certified copies of resolutions
of its Board of Directors authorizing the execution, delivery and performance of
this Agreement and each Other Document to which it or the Acquired Entities is a
party and (ii) a certified charter and a certificate of good standing of the
Secretary of State of the state in which each of the Seller and the Acquired
Entities is organized.
(h) Release of Credit Agreement. The Purchaser shall have
received evidence, in form and substance reasonably satisfactory to the
Purchaser, that each of the Acquired Entities shall have been discharged from
all liabilities and obligations under the Credit Agreement dated as of January
27, 1994, among FRI-M, as borrower, the Guarantors named therein, the Banks
named therein, and Credit Lyonnais New York Branch, as Agent, Collateral Agent
(the "Credit Agreement").
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(i) The Seller shall have executed and delivered, and/or shall
have caused to be executed and delivered, to the Purchaser, as licensee,
non-exclusive licenses (in form and substance reasonably satisfactory to the
Purchaser and the Seller) to all non-mainframe software used to manage the
Business on the Closing Date, that is either (1) owned by the Seller or any of
its subsidiaries or (2) licensed by the Seller or any of its subsidiaries,
provided, that (i) in each case, such license to the Purchaser does not violate
the terms of any Contract pursuant to which such software was purchased or
licensed and (ii) in the case of clause (2) above, such licenses to the
Purchaser will terminate upon expiration of the Seller's obligation to provide
services under the Transition Services Agreement.
SECTION 5.2 Conditions Precedent to the Obligations of the Seller. The
obligation of the Seller to sell, assign, transfer, convey and deliver the Stock
is subject to the satisfaction or waiver on the Closing Date of each of the
following conditions precedent (which shall not be construed as covenants):
(a) HSR Act. The waiting period under the HSR Act, if
applicable to the purchase and sale of the Stock, shall have expired or been
terminated and there shall have been no conditions to approval of the
Acquisition set by the FTC that are not reasonably acceptable to the Seller.
(b) No Injunctions or Restraints. No temporary
restraining order or preliminary or permanent injunction of any court or
administrative agency of competent jurisdiction prohibiting the purchase and
sale of the Stock or the issuance of the Notes shall be in effect.
(c) Consents. All consents, approvals and waivers from third
parties and governmental authorities and other parties set forth on Schedule
3.1(e) shall have been obtained, except where the failure to obtain any such
consent, approval or waiver would not have a material adverse effect on the
business, financial condition or results of operations of the Purchaser or of
the Acquired Entities, taken as a whole.
(d) Representations and Warranties. The representations and
warranties of the Acquiring Companies set forth in this Agreement shall be true
and correct in all respects on and as of the Closing Date, as though made on and
as of the Closing Date, except (i) for any item that does not have a material
adverse effect on the business, financial condition or results of operations of
the Acquired Entities, taken as a whole, or (ii) as otherwise contemplated by
this Agreement or any of the Other Documents; and the Seller shall have received
a certificate signed by an authorized officer of each of the Acquiring Companies
to such effect.
(e) Performance of Obligations of the Purchaser. The Purchaser
shall have performed all obligations required to be performed by it under this
Agreement on or prior to the Closing Date, and the Seller shall have received a
certificate signed by an authorized officer of each of the Acquiring Companies
to such effect.
(f) Legal Opinion. The Seller shall have received an
opinion of Latham & Watkins, special counsel to the Purchaser, dated the
Closing Date, substantially in the form of Exhibit B.
(g) Financing Documents. The Seller shall be
satisfied with the form and substance of each document to be executed by
any of the Acquiring Companies in connection with its financing of the
transactions contemplated hereby.
(h) Certified Resolutions; Good Standing Certificates. The
Acquiring Companies shall have delivered to the Seller (i) certified copies of
resolutions of each of its Board of Directors authorizing the execution,
delivery and performance of this Agreement and each Other Document to which any
of the Acquiring Companies is a party and (ii) a certified charter and
certificate of good standing of the Secretary of State of the state in which
each of the Acquiring Companies is organized.
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ARTICLE VI
INDEMNIFICATION
SECTION 6.1 Indemnification by the Seller. Subject to the terms and
conditions of this Article VI, the Seller and FRI-MRD shall jointly and
severally indemnify and hold harmless the Purchaser and its affiliates
(collectively, the "Purchaser Group") from and against any and all losses,
claims, costs, damages, liabilities, interest, penalties and expenses
(including, except as provided in Section 6.4 below, reasonable attorneys' fees)
(collectively, "Losses") incurred by any of them, to the extent such Losses are
related to, or arise from:
(a) any breach by the Seller of any of its covenants to
be performed prior to the Closing, representations or warranties contained
herein or in any of the Other Documents;
(b) any breach by the Seller of any of its covenants
to be performed from and after the Closing contained herein or in any of
the Other Documents;
(c) the Dinnerhouse Properties (including in connection
with the operation thereof prior to the Closing Date) or the Closed
Properties; or
(d) liabilities of the Seller, FRI-MRD or FRI-Admin that are
not being acquired by the Acquiring Companies hereunder and liabilities of Far
West Concepts, Inc. and its predecessors (other than liabilities relating to or
arising out of the Business or the ownership of or obligations to any Acquired
Entity).
Notwithstanding the foregoing, (i) neither the Seller nor
FRI-MRD shall be required to indemnify members of the Purchaser Group under
clause (a) above unless and until the aggregate amount of such Losses exceeds
$1,000,000, at which point the Seller and FRI-MRD shall be obligated to
indemnify members of the Purchaser Group with respect to Losses incurred or
suffered by them thereafter and (ii) the maximum aggregate amount required to be
paid by the Seller and FRI-MRD under such clause shall not exceed $17.5 million;
provided, that to the extent (but only to the extent) such indemnification
obligation relates to Losses that arise from a breach of the representations and
warranties contained in Sections 3.1(a), (b) or (d), the maximum aggregate
amount required to be paid by the Seller and FRI-MRD under such clause shall not
exceed the Purchase Price.
The indemnification provided for in Section 6.1(a) shall
terminate 12 months after the Closing Date (and no claims shall be made by any
member of the Purchaser Group thereafter), except that:
(1) the indemnification obligation with respect to the
representations and warranties set forth in Section 3.1(n) shall survive for a
period of five years following the Closing Date;
(2) the indemnification obligation with respect to the
representations and warranties set forth in Sections 3.1(a), (b) and (d) shall
survive for a period of three years following the Closing Date;
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(3) the indemnification obligation with respect to the
representations and warranties set forth in Section 3.1(g) shall survive for a
period of 18 months following the Closing Date; and
(4) the indemnification obligation with respect to the
representations and warranties set forth in Sections 3.1(m) and (r) shall not
survive the Closing Date.
SECTION 6.2 Indemnification by Parent, Flagstar and the Purchaser.
Subject to the terms and conditions of this Article VI, Parent, Flagstar and the
Purchaser shall, jointly and severally, indemnify and hold harmless the Seller
and each of its affiliates (collectively, the "Selling Group") from and against
any and all Losses incurred by any of them, to the extent such Losses are
related to, or arise from:
(a) any breach by any Acquiring Company of any of its
covenants to be performed prior to the Closing, representatives or
warranties contained in this Agreement or any of the Other Documents;
(b) any breach by any Acquiring Company of any of its
covenants to be performed from and after the Closing contained herein or in
any of the Other Documents; or
(c) any Assumed Liability, any liability accrued on the
Closing Balance Sheet, or the ownership or operation of the Business from and
after the Closing.
The indemnification provided for in Section 6.2(a) shall
terminate 12 months after the Closing Date (and no claims shall be made by any
member of the Selling Group thereafter), except that:
(1) the indemnification obligation with respect to the
representations and warranties set forth in Sections 3.2(a) and (b) shall
survive for a period of three years following the Closing Date; and
(2) the indemnification obligation of the Acquiring Companies
with respect to the representations and warranties set forth in Section 3.2(h )
shall survive for a period of 18 months following the Closing Date.
SECTION 6.3 Claims for Indemnity. Whenever a claim shall arise for
which any person (an "Indemnitee") shall be entitled to indemnification pursuant
to Sections 4.8 or 4.17 or this Article VI, the Indemnitee shall notify the
Purchaser or the Seller, as the case may be, in writing, within 30 days of the
first receipt of notice of, or to the best of Indemnitee's knowledge of, such
claim, and in any event within such shorter period as may be necessary for the
party obligated to provide indemnification hereunder (an "Indemnitor") to take
appropriate action to resist such claim, ovided that the failure of an
Indemnitee to give timely notice shall not affect its right to indemnification
hereunder except to the extent that the Indemnitor demonstrates actual prejudice
caused by such failure (it being understood that this proviso does not modify or
otherwise affect the time periods specified in Section 6.1). Such notice shall
specify all facts known to the Indemnitee giving rise to such indemnity rights,
estimate the amount of the liability arising therefrom, include the method of
computation of such amount and a reference to the provision of this Agreement
upon which such claim is based.
After the giving of any notice pursuant hereto, the amount of
indemnification to which an Indemnitee shall be entitled shall be determined:
(a) by written agreement between such Indemnitee and the Indemnitor or (b) by a
final judgment or decree of any court of competent jurisdiction. The judgment or
decree of a court shall be deemed final when the time for appeal, if any, shall
have expired and no appeal shall have been taken or when all appeals taken shall
have been finally determined.
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The Indemnitee shall have the burden of proof in establishing the amount of
Losses suffered by it. In calculating the amount of any Loss, there shall be
taken into account (i) the amount of any Tax benefit realized by the Indemnitee
(or any of its affiliates) with respect to such Loss, regardless of whether any
such person is actually a taxpayer, determined on the basis of an assumed rate
of Tax of 40%, which Tax benefit amount shall be subject to subsequent
adjustment resulting from any Audit and (ii) all amounts recovered or
recoverable by the Indemnitee and its affiliates under insurance policies with
respect to such Loss. In addition, in calculating any Loss incurred by the
Purchaser or any of its affiliates, there shall be deducted any Loss to the
extent it has been accrued on the Closing Balance Sheet (or otherwise reduced
the Adjusted Closing Tangible NAV).
SECTION 6.4 Third Person Claims. The Indemnitor shall have the right to
conduct and control, through counsel of its choosing, the defense, compromise or
settlement of any third person claim, action, suit or proceeding as to which
indemnification may be sought by any Indemnitee hereunder and each Indemnitee
shall cooperate in connection therewith and shall furnish such records,
information and testimony and attend such conferences, discovery proceedings,
hearings, trials and appeals as may be reasonably requested by the Indemnitor in
connection therewith; provided, however, that the Indemnitee may participate,
through counsel chosen by it and at its own expense, in the defense of any such
claim, action, suit or proceeding as to which the Indemnitor has so elected to
conduct and control the defense thereof. If the Indemnitor does not so conduct
the defense, compromise or settlement of such claim, action, suit or proceeding,
the Indemnitee may assume the defense thereof at the expense of such Indemnitor;
provided, that the Indemnitor shall be responsible for the reasonable fees and
expenses of only one counsel (together with appropriate local counsel) for all
Indemnitees. Notwithstanding the foregoing, (i) the Indemnitee shall have the
right to pay, settle or compromise any such claim, action or suit without the
consent of Indemnitor if Indemnitee shall waive any right to indemnity therefor
and (ii) the Indemnitor shall not enter into any settlement or compromise of any
claim, action, suit or proceeding, or the consent to the entry of any judgment
that does not include as an unconditional term thereof the delivery by the
claimant or plaintiff to Indemnitee of a written release from all liability in
respect of such claim, action, suit or proceeding.
Any amounts paid by the Seller or FRI-MRD as Indemnitor in
respect of such defense, compromise or settlement shall be deemed to be amounts
paid pursuant to Section 6.1 (whether or not any breach of a covenant or
representation, failure to perform an obligation or inaccuracy of a
representation, as the case may be, has occurred or exists), it being understood
that nothing in this Section 6.4 shall affect, or otherwise deny Indemnitor of
the benefit of, the terms of the limitation on the total amount of
indemnification required to be paid in respect of certain Losses.
SECTION 6.5 Exclusive Remedy. Except for (a) remedies that cannot be
waived as a matter of law, (b) injunctive and provisional relief, (c)
obligations with respect to the Indenture, the Notes and the Registration Rights
Agreement, (d) indemnification for Taxes pursuant to Section 4.8 and (e)
indemnification for environmental matters at or relating to the Properties
pursuant to Section 4.17, if the Closing occurs, this Article VI shall be the
exclusive remedy for breach of this Agreement (including any covenant,
obligation, representation or warranty contained in this Agreement) or any
certificate delivered pursuant to this Agreement or otherwise in respect of the
Acquisition. Notwithstanding any other provision hereof, Section 4.8 shall be
the exclusive remedy of the Purchaser and its affiliates for Losses arising out
of or relating to Taxes and Section 4.17 shall be the exclusive remedy of the
Purchaser and its affiliates for Losses arising out of or relating to
environmental matters at or relating to the Properties.
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SECTION 6.6 Restricted Notes.
(a) Immediately following the Closing, $6.5 million aggregate
principal amount of Notes shall be designated as restricted Notes (the
"Restricted Notes"), and so long as the restrictions on transfer contained in
Section 6.6(b) apply with respect thereto, the Restricted Notes shall bear the
following legend:
This Note is issued pursuant to the terms of a Stock
Purchase Agreement dated as of March 1, 1996 by and among the Payee,
Flagstar Companies, Inc., Flagstar Corporation and the Payor, and is
subject to reduction of the principal amount under certain
circumstances and restrictions on transfer set forth therein.
(b) The Seller shall not sell or otherwise dispose of the
Restricted Notes prior to the 48 month anniversary of the Closing Date.;
provided, however, that on and after the 18 month anniversary of the Closing
Date, such restriction on transfer shall only apply to the lesser of (A) $3.25
million aggregate principal amount of Restricted Notes and (B) the principal
amount of Restricted Notes still outstanding after giving effect to the
provisions of Section 6.6(c). The foregoing restriction on transfer shall not
apply to any pledge, hypothecation or encumbrance of Restricted Notes to secure
a bona fide loan so long as the lender acknowledges the restriction on transfer
and potential reduction of principal amount and agrees not to effect any
transfer of the Restricted Notes including following foreclosure. Any interest
paid on the Notes, whether in cash or additional Notes, will not be subject to
the restrictions contained in this Section 6.6.
(c) If any member of the Purchaser Group is entitled to
indemnification with respect to any Loss pursuant to Sections 4.8 or 4.17 hereof
or this Article VI, such indemnification obligation shall be satisfied (i)
initially by delivery by the Seller of an aggregate principal amount of the
Restricted Notes, which together with accrued but unpaid interest thereon, is
equal to the amount of such indemnification obligation (determined in accordance
with the provisions of this Agreement and rounded to the nearest $1,000) and
(ii) thereafter, at the Seller's option, either in cash or by delivery by the
Seller of an aggregate principal amount of the Notes, which together with
accrued but unpaid interest thereon, is equal to the amount of such
indemnification obligation (determined in accordance with the provisions of this
Agreement and rounded to the nearest $1,000).
ARTICLE VII
TERMINATION AND AMENDMENT
SECTION 7.1 Termination. This Agreement may be terminated and the
Acquisition may be abandoned at any time prior to the Closing:
(a) by mutual written consent of the Seller and the
Acquiring Companies;
(b) by either the Seller or by the Acquiring Companies, by
written notice to the other party or parties, if there has been a breach of any
of such other party's or parties' covenants, representations or warranties or if
there has been a failure on a scheduled Closing Date of satisfaction of any of
the conditions to the obligations of the terminating party or parties that, in
any such case has not been cured within 20 days after written notice thereof by
the terminating party to the other party; provided, that the Acquiring Companies
may not so terminate this Agreement unless such breach would result in a
material adverse effect on the business, financial condition or results of
operations of the Acquired Entities, taken as a whole;
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(c) by either the Seller or by the Acquiring Companies, by
written notice to the other party or parties, if the Acquisition has not been
consummated by June 30, 1996 (or such later date as is agreed to by the Seller
and the Acquiring Companies), and such failure to consummate is not caused by a
breach of this Agreement (or any covenant representation, or warranty included
herein) by the party or parties electing to terminate pursuant to this clause
(c);
(d) by either the Seller or by the Acquiring Companies, by
written notice to the other party or parties, if, there shall be any law or
regulation that makes consummation of the Acquisition illegal or otherwise
prohibited or if any judgment, injunction, order or decree enjoining Seller or
the Acquiring Companies from consummating the Acquisition is entered and such
judgment, injunction, order or decree shall become final and nonappealable;
(e) by either the Seller or the Acquiring Companies, by
written notice to the other party or parties, if the identification of the
Transferred Business Employees and the Transferred Non-Business Employees or the
form of any of the Other Documents is not agreed upon prior to 28 days following
the date hereof; or
(f) by the Seller, by written notice to the Acquiring
Companies, if any of the Acquiring Companies shall fail to approve any proposed
supplement or amendment to the Schedules made by the Seller pursuant to Section
8.3.
SECTION 7.2 Effect of Termination. In the event of termination of this
Agreement in accordance with Section 7.1, this Agreement shall forthwith become
void and have no effect, except (a) to the extent that such termination results
from the breach by a party hereto of its obligations hereunder (in which case
such breaching party shall be liable for all damages allowable at law and any
relief available at equity), (b) as otherwise set forth in any written
termination agreement, and (c) that Sections 4.3(b), 4.10, 4.12, 4.17(b) and 7.2
shall survive termination of this Agreement.
SECTION 7.3 Amendment. This Agreement may not be amended except by an
instrument in writing signed by the party against whom enforcement of any such
amendment is sought. Any party hereto may, only by an instrument in writing,
waive compliance by any other party hereto with any term or provision of this
Agreement on the part of such other party hereto to be performed or complied
with. The waiver by any party hereto of a breach of any term or provision of
this Agreement shall not be construed as a waiver of any subsequent breach.
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ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given (i) when delivered personally or
by documented overnight courier or (ii) upon return of the receipt after being
mailed by registered or certified mail (return receipt requested) to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice):
(a) if to the Acquiring Companies, to
Mr. C. R. Campbell, Executive Vice President
Flagstar Corporation, Mail Station P-16-5
203 East Main Street
Spartanburg, South Carolina 29319
with a copy to:
Mr. Timothy E. Flemming
Flagstar Corporation, Mail Station P-12-3
203 East Main Street
Spartanburg, South Carolina 29319
and to:
Randall C. Bassett, Esq.
Latham & Watkins
633 West Fifth Street
Suite 4000
Los Angeles, California 90071
(b) if to Seller, to
Family Restaurants, Inc.
18831 Von Karman Avenue
Irvine, California 92715
Attention: Todd E. Doyle, Esq.
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
Attention: Michael A. Woronoff, Esq.
SECTION 8.2 Interpretation.When a reference is made in this Agreement
to a Section, Schedule or Exhibit, such reference shall be to a Section,
Schedule or Exhibit of this Agreement unless otherwise indicated. The table of
contents, table of definitions and headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. When the words "includes" or "including" are
used in this Agreement, they shall be deemed to be followed by the words
"without limitation." When any representation or warranty in Section 3.1 is made
to the knowledge of the Seller, such term shall mean only the actual knowledge
of the Seller's executive officers and the executive officers of the Acquired
Entities, and the knowledge of no other person shall be imputed to any such
executive officer or to the Seller. All accounting terms not defined in this
Agreement shall have the meanings determined by GAAP as of the date hereof. All
capitalized terms defined herein are equally applicable to both the singular and
plural forms of such terms.
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SECTION 8.3 Supplements to Disclosure Schedules. From time to time
prior to five days before the Closing Date, the Seller may provide to the
Acquiring Companies proposed supplements or amendments to the Schedules with
respect to any material matter that is required to be set forth or described
thereon. Unless objected to in writing within 10 days after the date when the
Acquiring Companies receive the proposed supplement or amendment (or, if such
supplement or amendment is received by the Acquiring Companies less than ten
days prior to the Closing Date, then at least one day prior to the Closing
Date), the Acquiring Companies shall be deemed to have approved the proposed
change.
SECTION 8.4 Severability. If any provision of this Agreement or the
application of any such provision shall be held invalid, illegal or
unenforceable in any respect by a court of competent jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision
hereof. In lieu of any such invalid, illegal or unenforceable provision, the
parties hereto intend that there shall be added as part of this Agreement a
provision as similar in terms to such invalid, illegal or unenforceable
provision as may be possible and be valid, legal and enforceable.
SECTION 8.5 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 8.6 Entire Agreement. This Agreement (including agreements
incorporated herein) and the Schedules and Exhibits hereto constitute the entire
agreement, and supersede all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter hereof.
SECTION 8.7 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, regardless of
the laws that might be applied under applicable principles of conflicts of laws.
SECTION 8.8 Assignment. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns. Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned or delegated by any of the parties hereto without
the prior written consent of the other parties.
SECTION 8.9 No Third-Party Beneficiaries. Nothing herein expressed or
implied shall be construed to give any person other than the parties hereto (and
entities which are their successors and assigns permitted by Section 8.8) and
the Indemnitees any legal or equitable rights hereunder.
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IN WITNESS WHEREOF, this Agreement has been signed by or on behalf of
the Seller and the Acquiring Companies, all as of the date first written above.
FAMILY RESTAURANTS, INC.
By: ______________________________________
Name:
Title:
FLAGSTAR COMPANIES, INC.
By: ______________________________________
Name:
Title:
FLAGSTAR CORPORATION
By: ______________________________________
Name:
Title:
FRD ACQUISITION CO.
By: _____________________________________
Name:
Title:
Accepted and Agreed,
solely for purposes of
Sections 4.8, 4.17 and
Article VI hereof:
FRI-MRD Corporation
By: ______________________
Name:
Title:
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Exhibit 99.1
Media Contacts: Karen Randall
(864)597-8440
Debbie Atkins
(864)597-8361
Investor Contact: Larry Gosnell
(864)597-8658
FOR IMMEDIATE RELEASE
FLAGSTAR COMPLETES PURCHASE OF COCO'S AND CARROWS, NAMES SHIPMAN PRESIDENT
SPARTANBURG, S.C., May 23 -- Flagstar Companies, Inc. (NASDAQ:FLST) announced
today it has completed the acquisition of the Coco's and Carrows restaurant
chains with nearly 350 restaurants and named Mark L. Shipman president of the
newly-acquired subsidiaries.
The $306.5 million acquisition from Family Restaurants, Inc. of Irvine, Calif.
increases Flagstar's company and franchise restaurants nationwide to over 2,900
locations with annual revenues of nearly $3 billion and approximately 100,000
employees. In addition to Coco's and Carrows, Flagstar also operates restaurants
under the Denny's, Hardee's, Quincy's Family Steakhouse, and El Pollo Loco
brands. More than 800 Flagstar units are in California.
"The acquisition of Coco's and Carrows gives us a significant increase in market
presence, especially in California, and provides Flagstar with additional
consolidated revenue as part of our strategy to deleverage our balance sheet,"
said James B. Adamson, chairman and chief executive officer of Flagstar.
"Mark has consistently demonstrated his passion for the business and outstanding
leadership ability during his 23-year career at Denny's and Flagstar. In
addition, his strong restaurant experience and knowledge of the market make him
the ideal president to lead our two newest brands," Adamson said.
Shipman, 46, a native of Southern California, will return to the state to
operate Coco's and Carrows, which will continue to be based in Irvine. Most
recently, Shipman was vice president of acquisitions and development for
Flagstar and played a major role in identifying the Coco's and Carrows
acquisition and leading the transition team through closing.
Shipman began his career with the company in 1973 as a late-night cook at a
Denny's in Southern California. He has experience in all phases of Denny's
operations in several parts of the United States, as well as key staff positions
at Denny's and Flagstar. In 1991, he was promoted to vice president of Denny's
operations, responsible for 750 restaurants. In 1995, Shipman served on a
re-engineering project team to improve Flagstar's technology and work processes.
He attended the University of Arkansas.
"Coco's and Carrows are currently strong regional brands, and we have ambitious
plans to grow them while maintaining their individual identities," Shipman said.
"Our initial growth will be through franchising and licensing in the United
States as well as international markets. Coco's and Carrows have talented
employees who are committed to the customer and to strengthening the brands."
Coco's is a bakery restaurant chain with 170 units, primarily in California,
with additional locations in Arizona, Texas, Washington, Colorado, and Missouri.
Carrows specializes in traditional American food offering generous portions at
moderate prices. Carrows operates 157 restaurants, primarily in California, with
additional locations in Arizona, Texas, Oregon, Nevada, Washington and New
Mexico.
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The agreement also includes licensing rights for over 260 Coco's restaurants
that operate in Tokyo and Korea. In addition, Flagstar has purchased jojos
restaurants, a chain of 17 family restaurants in Texas and Indiana.
Flagstar, one of the nation's largest restaurant companies, owns and operates
over 2,900 moderately priced restaurants. Flagstar owns and operates Coco's,
Carrows, Denny's, Quincy's Family Steakhouse and El Pollo Loco restaurants and
is the largest franchisee of Hardee's restaurants.
