<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to section 13 or 15(d) of the Securities
- - --- Exchange Act of 1934
For the quarterly period ended March 31, 1996 or
Transition report pursuant to section 13 or 15(d) of the Securities
- - --- Exchange Act of 1934
For the transition period from __________ to __________
Commission file number 33-14051
Family Restaurants, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 33-0197361
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
18831 Von Karman Avenue, Irvine, California 92715
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 757-7900
---------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
--- ---
Number of shares of outstanding common stock as of May 13, 1996 is 988,285.
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
FAMILY RESTAURANTS, INC.
------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
($ in thousands, except per share)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
- - ------
Current assets:
Cash and cash equivalents $ 7,547 $ 8,370
Receivables 7,304 8,172
Inventories 5,067 5,645
Other current assets 4,826 4,813
Property held for sale 226,853 240,077
--------- ---------
Total current assets 251,597 267,077
Property and equipment, net 207,857 207,223
Reorganization value in excess of amounts
allocable to identifiable assets, net 38,981 39,332
Other assets 30,062 37,638
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$ 528,497 $ 551,270
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
- - -------------------------------------
Current liabilities:
Loans payable to banks $ 91,223 $ 79,815
Current portion of long-term debt, including
capitalized lease obligations 3,369 3,046
Accounts payable 20,689 22,400
Self-insurance reserves 34,939 35,488
Other accrued liabilities 66,733 78,319
Income taxes payable 3,336 2,895
--------- ---------
Total current liabilities 220,289 221,963
Other long-term liabilities 5,187 5,680
Long-term debt, including capitalized lease
obligations, less current portion 458,112 455,203
Stockholders' deficit:
Common stock - authorized 1,500,000 shares, par
value $.01 per share, 997,277 shares issued 10 10
Additional paid-in capital 158,251 158,251
Notes receivable from stockholders (934) (869)
Accumulated deficit (311,035) (287,585)
Less treasury stock, at cost (8,950 shares) (1,383) (1,383)
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Total stockholders' deficit (155,091) (131,576)
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$ 528,497 $ 551,270
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements
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FAMILY RESTAURANTS, INC.
------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
($ in thousands, except per share)
(Unaudited)
<TABLE>
<CAPTION>
For the Quarters Ended
-------------------------
March 31, March 26,
1996 1995
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<S> <C> <C>
Sales $ 259,052 $ 281,133
--------- ---------
Product cost 72,778 79,410
Payroll and related costs 99,501 105,775
Occupancy and other operating expenses 62,293 68,508
Depreciation and amortization 12,796 13,840
General and administrative expenses 14,049 15,418
Loss on disposition of properties, net 3,078 221
Restructuring costs 1,205 0
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Total costs and expenses 265,700 283,172
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Operating loss (6,648) (2,039)
Interest expense, net 16,386 14,913
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Loss before income tax provision (23,034) (16,952)
Income tax provision 416 487
--------- ---------
Net loss $ (23,450) $ (17,439)
========= =========
Net loss per common share $ (23.73) $ (17.49)
========= =========
Weighted average common shares outstanding 988,285 997,277
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements
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FAMILY RESTAURANTS, INC.
------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Quarters Ended
-----------------------
March 31, March 26,
1996 1995
--------- ---------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Cash received from customers, franchisees
and licensees $ 261,114 $ 279,573
Cash paid to suppliers and employees (257,522) (274,869)
Interest paid, net (19,719) (17,850)
Income taxes received 25 9
Restructuring costs (1,205) 0
--------- ---------
Net cash used in operating activities (17,307) (13,137)
--------- ---------
Cash flows from investing activities:
Proceeds from disposal of property and equipment 9,936 1,636
Capital expenditures (2,274) (16,620)
Capitalized opening costs (141) (594)
Other (1,171) 552
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Net cash provided by (used in) investing
activities 6,350 (15,026)
--------- ---------
Cash flows from financing activities:
Proceeds from working capital borrowings, net 11,408 28,900
Reductions of long-term debt, including
capitalized lease obligations (1,274) (1,415)
Decrease in restricted cash 0 1,850
Payments of notes receivable from stockholders 0 29
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Net cash provided by financing activities 10,134 29,364
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Net increase (decrease) in cash and cash
equivalents (823) 1,201
Cash and cash equivalents at beginning of period 8,370 8,239
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Cash and cash equivalents at end of period $ 7,547 $ 9,440
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements
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FAMILY RESTAURANTS, INC.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
-----------------------------------------------------------
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Quarters Ended
-----------------------
March 31, March 26,
1996 1995
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<S> <C> <C>
Reconciliation of net loss to net
cash used in operating activities:
Net loss $(23,450) $(17,439)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 12,796 13,840
Amortization of debt issuance costs 1,221 824
Loss on disposition of properties 3,078 221
Accretion of interest on Discount Notes 3,611 3,210
Decrease (increase) in receivables,
inventories and other current assets 1,006 (1,974)
Decrease in accounts payable,
self-insurance reserves, other accrued
liabilities and income tax payable (15,569) (11,819)
-------- --------
Net cash used in operating activities $(17,307) $(13,137)
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
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FAMILY RESTAURANTS, INC.
------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Unaudited)
1. COMPANY. Family Restaurants, Inc. was incorporated in Delaware in
1986 and is primarily engaged in the operation of full-service restaurants
throughout the United States through its subsidiaries (Family Restaurants, Inc.
together with its subsidiaries shall hereinafter be referred to as the
"Company"). At March 31, 1996, the Company operated 664 restaurants in 32
states, with approximately 53% of its restaurants located in California. The
Company is the licensor of 259 full-service restaurants in Japan and South
Korea, the franchisor of six family restaurants and four Mexican restaurants in
the United States and the franchisor of 18 Mexican restaurants outside the
United States.
On March 1, 1996, the Company entered into a definitive agreement (the
"Sale Agreement") to sell the Family Restaurant Division (as defined below) to
an indirect wholly-owned subsidiary of Flagstar Companies, Inc. ("Flagstar") in
a transaction with an enterprise value of approximately $306.5 million.
Consummation of the sale is subject to customary terms and conditions. At
March 31, 1996, the Family Restaurant Division operated 348 restaurants in ten
states and was the licensor of 255 full-service restaurants in Japan and South
Korea and the franchisor of six restaurants in the United States. Under the
terms of the Sale Agreement, the Company will receive, subject to certain post-
closing adjustments based on a closing balance sheet, cash of $125 million and
$150 million principal amount of 12-1/2% Senior Notes due in 2004 (the
"Flagstar Notes"), and Flagstar will assume $31.5 million of long-term debt,
primarily capitalized lease obligations. The Company expects the sale to be
finalized in the second quarter of 1996 and to record a pretax gain in 1996 as
a result of this transaction. Cash proceeds from the sale will be used to
repay indebtedness outstanding under the Credit Facility (as defined below) and
for general corporate purposes, which may include future interest payments on
the Company's 9-3/4% Senior Notes due in 2002 (the "Senior Notes"). In
addition, Flagstar is required to (i) file a registration statement with the
Securities and Exchange Commission with respect to the resale of the Flagstar
Notes within 45 days after the date of original issuance of the Flagstar Notes
and (ii) use its best efforts to cause such registration statement to become
effective within 105 days after such issue date.
2. FINANCIAL STATEMENTS. The Condensed Consolidated Financial
Statements in this Form 10-Q have been prepared in accordance with Securities
and Exchange Commission Regulation S-X. Reference is made to the Notes to the
Consolidated Financial Statements for the Year Ended December 31, 1995 included
in the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1995 (the "Form 10-K") for information with respect to the Company's
significant accounting and financial reporting policies as well as other
pertinent information. The Company
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believes that all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results of the interim periods
presented have been made. The results of operations for the quarter ended
March 31, 1996 are not necessarily indicative of those for the full year.
3. IMPAIRMENT OF LONG-LIVED ASSETS. Effective January 1, 1996, the
Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," which generally requires
the assessment of certain long-lived assets for possible impairment when events
or circumstances indicate the carrying value of these assets may not be
recoverable.
The Company evaluates property and equipment for impairment by
comparison of the carrying value of the assets to estimated undiscounted cash
flows (before interest charges) expected to be generated by the asset over its
estimated useful life. In addition, the Company's evaluation considers data
such as continuity of personnel, changes in the operating environment, name
identification, competitive information and market trends. Finally, the
evaluation considers changes in management's strategic direction or market
emphasis. When the foregoing considerations suggest that a deterioration of
the financial condition of the Company or any of its assets has occurred, the
Company measures the amount of an impairment, if any, based on the estimated
fair value of each of its assets over the remaining amortization period.
The Company believes that there has been no impairment of its
long-lived assets based on re-engineering and re-positioning plans currently
under development, other than impairment already recognized in connection with
various properties held for sale.
4. LOSS PER COMMON SHARE. Loss per common share is computed based on
the weighted average number of shares actually outstanding. The impact of a
warrant to acquire an additional 111,111 shares of common stock of the Company
and options has not been included since the impact would be antidilutive.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain information included in Management's Discussion and Analysis of
Financial Condition and Results of Operations is forward-looking and involves
risks and uncertainties that could result in actual results differing materially
from expected results. It is not reasonably possible to itemize all of the
factors and specific events that could affect the outlook of a restaurant
company operating in an increasingly competitive environment. Some factors that
could significantly impact expected revenues, expenses and cash flows of the
Company include (i) the successful consummation of the sale of the Family
Restaurant Division and the use of the proceeds therefrom, (ii) the
implementation of a successful cost restructuring program and the development of
a successful marketing strategy for Chi-Chi's, (iii) the effect of
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national and regional economic conditions, (iv) the availability of adequate
working capital, (v) competitive products and pricing and (vi) changes in
legislation.
The following should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
presented in the Form 10-K.
As used herein, "comparable restaurants" means restaurants operated by
the Company on January 1, 1995, which continued in operation through the end of
the first quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES.
A. LIQUIDITY
The Company currently relies primarily on internally generated funds,
supplemented by working capital advances under the Credit Facility, for its
liquidity. The Company's viability is therefore dependent upon its ability to
generate sufficient cash flow to meet its obligations on a timely basis, and to
obtain and comply with the terms of its financing agreements.
Operating Cash Flow. During the first quarter of 1996, the Company
reported EBITDA (defined as earnings (loss) before gain (loss) on disposition
of properties, interest, taxes, depreciation and amortization) of $10.4
million. The Company has included information concerning EBITDA herein because
it understands that such information is used by certain investors as one
measure of a company's historical ability to service debt. EBITDA should not
be considered as an alternative to, or more meaningful than, operating income
(loss) as an indicator of operating performance or to cash flows from operating
activities as a measure of liquidity.
Working Capital Deficiency. The Company operates with a substantial
working capital deficiency because (i) restaurant operations are conducted
primarily on a cash (and cash equivalent) basis with a low level of accounts
receivable, (ii) rapid turnover allows a limited investment in inventories and
(iii) cash from sales is usually received before related accounts payable for
food, beverages and supplies become due. The Company had a working capital
deficiency of $104.3 million on March 31, 1996 (excluding the impact of $226.9
million in property held for sale and the impact of $91.2 million in loans
payable to banks classified as a current liability as discussed below).
Credit Facility. On January 27, 1994, the Company, FRI-M Corporation
("FRI-M") and certain subsidiaries of FRI-M entered into a credit facility (the
"Credit Facility"). Borrowings in the amount of $79.8 million (including $14.6
million outstanding from a loan made on February 1, 1996 to fund an interest
payment made on the Senior Notes) were outstanding under the Credit Facility as
of May 13, 1996. Standby letters of credit are issued under the Credit
Facility primarily to provide security for future amounts payable by the
Company under its workers' compensation insurance
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program ($42.2 million of such letters of credit were outstanding as of May 13,
1996). The outstanding total commitment available under the Credit Facility,
as amended, as of May 13, 1996, was $130.1 million, leaving $8.1 million of
additional borrowings available thereunder.
The Credit Facility contains various covenants including the
maintenance of certain financial ratios. Although the Company has failed to
comply with certain of such financial covenants and anticipates that it may not
comply with such covenants for the fiscal quarter ending June 1996, the banks
under the Credit Facility (the "Banks") have agreed to waive such noncompliance
for periods ending on or prior to July 31, 1996. In accordance with generally
accepted accounting principles, and because the waivers only extend through
July 31, 1996, the Company has classified the outstanding balance of $91.2
million at March 31, 1996 as a current liability in the accompanying condensed
consolidated balance sheet. There can be no assurances that further waivers or
amendments will be obtained after July 31, 1996. Given this uncertainty, the
amortization of the related debt issuance costs was accelerated assuming the
debt will be retired or replaced earlier.
Other. In the third quarter of 1995, the Company retained Donaldson,
Lufkin & Jenrette Securities Corporation as a financial advisor to assist the
Company in the process of divesting certain divisions and operations. This
process culminated in the execution of the Sale Agreement on March 1, 1996 to
sell the Family Restaurant Division to Flagstar in a transaction with an
enterprise value of $306.5 million, subject to certain adjustments based on a
closing balance sheet. Cash proceeds from the sale will be used to repay
indebtedness outstanding under the Credit Facility and for general corporate
purposes, which may include future interest payments on the Senior Notes. See
Note 1 to the condensed consolidated financial statements. Consummation of the
sale is subject to customary terms and conditions, and there can be no
assurances that this transaction will be consummated.
Upon consummation of the sale, the Company will continue to be highly
leveraged and have significant debt service requirements. Although management
believes that the proceeds available to the Company as a result of the sale of
the Family Restaurant Division (including funds available from the potential
sale of the Flagstar Notes), its cost restructuring and revised marketing plans
for Chi-Chi's and other available options (including sale of other divisions
and sale/leaseback of owned properties) should be sufficient to meet its
operating and debt service requirements for the foreseeable future, there can
be no assurance that the Company will be able to repay or refinance the Senior
Notes and the 10-7/8% Senior Subordinated Discount Notes (the "Discount Notes"
and together with the Senior Notes, the "Notes") at their respective
maturities. The Company is currently exploring various alternatives to further
reduce its debt (including indebtedness outstanding under the Notes). Among
other things, the Company may use the Flagstar Notes to reduce such debt.
However, there can be
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no assurances that the Company will be able to reduce such debt on satisfactory
terms.
B. CAPITAL EXPENDITURES
As noted in the Condensed Consolidated Statements of Cash Flows, net
cash provided by investing activities was $6.4 million for the quarter ended
March 31, 1996 versus net cash used in investing activities of $15.0 million
for the quarter ended March 26, 1995.
Due to the ongoing deterioration in operating cash flow, the Company
has suspended its remodel and new restaurant construction programs for all
restaurants indefinitely. All other capital projects are being tightly
controlled until an improvement in operating cash flow is realized.
RESULTS OF OPERATIONS.
The Company's total sales decreased by $22,081,000 or 7.9% for the first
quarter of 1996 as compared to the same period in 1995. This decrease was due
to (i) decreased sales of comparable restaurants and (ii) restaurants divested
or closed. These sales decreases were offset, in part, by additional sales from
new restaurants opened during 1995.
<TABLE>
<CAPTION>
First Quarter Sales
Decrease
-------------------
($ in thousands)
<S> <C>
Decrease in Sales of Comparable
Restaurants $(13,980)
Decrease in Sales of Restaurants Sold
or Closed (11,032)
Increase in Sales of New Restaurants (1) 2,931
--------
Total $(22,081)
========
</TABLE>
- - -----------
(1) Reflects the Company's opening of eight new restaurants in 1995.
Sales for comparable restaurants decreased by $13,980,000 or 5.6% for
the first quarter of 1996 as compared to the same period in 1995. This
comparable sales decrease reflects decreases in both the El Torito and Chi-Chi's
restaurants, offset by a small increase in the Family Restaurant Division. The
comparable sales decrease is due to an increasingly competitive operating
environment for restaurants and severe winter weather in several markets. The
Company is working with certain industry consultants to develop an appropriate
marketing plan for Chi-Chi's. An interim media campaign was recently introduced,
and a new menu emphasizing fewer entrees is being tested.
Product cost decreased by $6,632,000 or 8.4% in the first quarter of
1996 as compared to the same period in 1995. This decrease reflects the impact
of 24 restaurants sold or closed since
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the end of the first quarter of 1995. As a percentage of sales, product cost
declined slightly to 28.1% in the first quarter of 1996 as compared to 28.2% in
the same period in 1995.
Payroll and related costs decreased by $6,274,000 or 5.9% in the first
quarter of 1996 as compared to the same period in 1995. This decrease reflects
the impact of 24 restaurants sold or closed since the end of the first quarter
of 1995. As a percentage of sales, payroll and related costs increased from
37.6% in the first quarter of 1995 as compared to 38.4% in the same period in
1996. This increase is primarily the result of higher management costs at the
restaurant level due to salary increases and higher bonuses earned in 1996 in
the Family Restaurant Division. Increases in the minimum wage or decreases in
the allowable tip credit (which reduces the minimum wage that must be paid to
tipped employees) increase the Company's payroll cost. The Company's actual
response to, and the impact of, any future legislation covering minimum wages
will depend on the specific terms of any such legislation. However, management
generally anticipates that it would attempt to cover increases in labor costs
due to a minimum wage increase by raising menu prices.
Occupancy and other expenses decreased by $6,215,000 or 9.1% in the
first quarter of 1996 as compared to the same period in 1995. This decrease
reflects the impact of 24 restaurants sold or closed since the end of the first
quarter of 1995. As a percentage of sales, occupancy and other operating
expenses decreased from 24.4% in the first quarter of 1995 to 24.0% in the same
period in 1996. This decrease primarily reflects lower advertising costs at El
Torito and Chi-Chi's due to changes in marketing strategy.
Depreciation and amortization decreased by $1,044,000 or 7.5% in the
first quarter of 1996 as compared to the same period in 1995. The decrease
reflects the reduced depreciable asset base resulting from (i) the third
quarter 1995 adjustment for Chi-Chi's restaurants either held for sale or
having impaired values and (ii) the sale of certain owned properties. The
decrease is offset, in part, by additional depreciation related to capital
expenditures made from the second quarter of 1995 through the first quarter of
1996. Depreciation and amortization of $6.9 million related to the Family
Restaurant Division was recorded in the first quarter of 1996, as the Company
still treats the related restaurants as operating assets.
General and administrative expenses decreased by $1,369,000 or 8.9% in
the first quarter of 1996 as compared to the same period of 1995. As a
percentage of sales, general and administrative expenses decreased from 5.5% in
the first quarter of 1995 to 5.4% in the same period of 1996.
Chi-Chi's management is currently working with industry consultants to
significantly restructure Chi-Chi's costs during 1996 in an attempt to bring
operating margins in line with the current sales levels. This restructuring is
intended to reduce restaurant operating costs and includes strong inventory and
meal preparation controls as well as closely monitored restaurant labor
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scheduling and management staffing levels. El Torito operations staff is also
analyzing several cost categories in an effort to improve margins during 1996.
Finally, management is closely evaluating the Company's general and
administrative cost structure in light of the planned sale of the Family
Restaurant Division.
The Company reported a loss on disposition of properties of $3.1
million in the first quarter of 1996 as compared to a loss of $0.2 million for
the same period in 1995. The loss in 1996 is primarily due to losses related
to the sale of certain owned properties.
Restructuring costs of $1,205,000 were incurred in the first quarter
of 1996. These costs are primarily related to amounts paid to consultants,
professional fees, severance and related costs and other restructuring related
expenses. In April 1996, the Company announced that it would eliminate
approximately 130 positions in its Louisville corporate office and
approximately 50 positions in its Irvine corporate offices over the next six to
nine months as it reorganizes after the sale of the Family Restaurant Division.
Severance and other costs related to these staff reductions will amount to
approximately $1.3 million and will be provided for in the second quarter of
1996.
Interest expense, net increased by $1,473,000 or 9.9% in the first
quarter of 1996 as compared to the same period in 1995. This increase
primarily resulted from (i) interest on working capital borrowings which were
outstanding throughout the first quarter of 1996 as compared to lower working
capital borrowings during the first quarter of 1995 and (ii) fees paid to the
Banks in connection with an amendment to the Credit Facility. Also
contributing to the increase was higher accretion of interest related to the
Discount Notes and the accelerated amortization of bank debt issuance costs as
compared to the same period of 1995.
SELECTED DIVISION OPERATING DATA.
The Company operates restaurant chains serving two principal market
segments: full-service family restaurants (the "Family Restaurant Division")
and full-service Mexican restaurants through its El Torito and Chi-Chi's
restaurant divisions. At March 31, 1996, the Company's Family Restaurant
Division included 348 restaurants operated primarily under the Carrows and
Coco's names, the Company's El Torito Restaurant Division operated 98
full-service restaurants primarily under the El Torito and Casa Gallardo names
and the Company's Chi-Chi's Restaurant Division operated 199 full-service
restaurants. The Company also operated 19 additional restaurants under other
formats.
The following table sets forth certain information regarding the
Company, the Family Restaurant Division, the El Torito Restaurant Division and
the Chi-Chi's Restaurant Division. Because the fiscal year ended December 31,
1995 had 53 weeks of operations, comparable restaurant sales as reported in
this table have been adjusted to include consistent weeks for each period
presented.
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<TABLE>
<CAPTION>
Quarters Ended
------------------------
March 31, March 26,
1996 1995
--------- ---------
($ in thousands, except
average check amount)
<S> <C> <C>
Family Restaurant Division
- - --------------------------
Restaurants Open at End of Period:
Owned/operated 348 347
Franchised and Licensed 261 233
Sales $118,996 $117,596
Divisional EBITDA (a) 11,938 10,942
Percentage increase (decrease) in comparable
restaurant sales 0.4 % (4.7)%
Average Check $ 6.49 $ 6.25
Chi-Chi's Restaurant Division
- - -----------------------------
Restaurants Open at End of Period:
Owned/operated 199 210
Franchised and Licensed 21 24
Sales $ 74,753 $ 90,524
Divisional EBITDA (a) (4,512) (1,364)
Percentage increase (decrease) in comparable
restaurant sales (10.9)% (10.1)%
Average Check $ 7.44 $ 7.89
El Torito Restaurant Division
- - -----------------------------
Restaurants Open at End of Period:
Owned/operated 98 105
Franchised and Licensed 5 5
Sales $ 54,434 $ 59,156
Divisional EBITDA (a) 2,874 3,496
Percentage increase (decrease) in comparable
restaurant sales (3.1)% 0.6 %
Average Check $ 9.43 $ 9.15
Total Company
- - -------------
Restaurants Open at End of Period:
Owned/operated 664 688
Franchised and Licensed 287 262
Sales $259,052 $281,133
EBITDA (b) 10,431 12,022
Percentage increase (decrease) in comparable
restaurant sales (4.5)% (5.2)%
</TABLE>
- - ----------
(a) Divisional EBITDA with respect to any operating division is defined as
earnings (loss) before gain (loss) on disposition of properties,
unallocated corporate overhead in 1995, interest, taxes, depreciation and
amortization. Beginning in 1996, all corporate overhead is allocated to
the operating divisions.
(b) EBITDA is defined as earnings (loss) before gain (loss) on disposition
of properties, interest, taxes, depreciation and amortization. The
Company has included information concerning EBITDA herein because it
understands that such information is used by certain investors as one
measure of an issuer's historical ability to service debt. EBITDA
should not be considered as an alternative to, or more meaningful than,
operating income (loss) as an indicator of operating performance or to
cash flows from operating activities as a measure of liquidity.
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PART II. OTHER INFORMATION
---------------------------
Item 1. LEGAL PROCEEDINGS
The Company is involved in various litigation matters incidental to its
business. The Company does not believe that any of the existing claims or
actions will have a material adverse effect upon the consolidated financial
position and results of operations of the Company.
Item 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
On March 1, 1996, Roger K. Chamness was appointed to the position of
President of Chi-Chi's. Effective April 22, 1996, William D. Burt joined the
Company as President of El Torito.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 Stock Purchase Agreement dated as of March 1, 1996
by and among Family Restaurants, Inc., Flagstar
Companies, Inc., Flagstar Corporation and FRD
Acquisition Co.
10.1 Sixth Amendment to the Revolving Credit Agreement
dated as of January 31, 1996 by and among the
parties thereto.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
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SIGNATURE
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 thereunto duly authorized.
Family Restaurants, Inc.
(Registrant)
By: /S/ Robert T. Trebing, Jr.
-------------------------------
Robert T. Trebing, Jr.
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: May 15, 1996
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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
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
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 . . . . . . . . . . . . . . . . . 3
--------------------------------------
ARTICLE II THE CLOSING
SECTION 2.1 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
------------
SECTION 2.2 Transactions To Be Effected at the Closing . . . . . . . . . . . . . . . 5
------------------------------------------
SECTION 2.3 Transactions to be Effected Concurrently with Closing . . . . . . . . . . 5
-----------------------------------------------------
ARTICLE III REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of the Seller . . . . . . . . . . . . . . 6
--------------------------------------------
SECTION 3.2 Representations and Warranties of the Acquiring Companies . . . . . . . . 17
---------------------------------------------------------
ARTICLE IV COVENANTS
SECTION 4.1 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
-------------------
SECTION 4.2 Further Actions; Cooperation . . . . . . . . . . . . . . . . . . . . . . 19
----------------------------
SECTION 4.3 Access to Information; Reports . . . . . . . . . . . . . . . . . . . . . 20
------------------------------
SECTION 4.4 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
--------
SECTION 4.5 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . 21
----------------------
SECTION 4.6 WARN Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
--------
SECTION 4.7 Cooperation With Respect to Tax Matters . . . . . . . . . . . . . . . . . 23
---------------------------------------
SECTION 4.8 Tax Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
-------------
SECTION 4.9 Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . 27
---------------------
SECTION 4.10 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
--------
SECTION 4.11 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
---------
SECTION 4.12 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
---------
SECTION 4.13 Certain Understandings . . . . . . . . . . . . . . . . . . . . . . . . . . 28
----------------------
SECTION 4.14 Transfer of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . 29
----------------------
SECTION 4.15 Transfer of Employees . . . . . . . . . . . . . . . . . . . . . . . . . . 29
---------------------
SECTION 4.16 Termination of Agreements . . . . . . . . . . . . . . . . . . . . . . . . 30
-------------------------
SECTION 4.17 Environmental Investigation and Indemnification . . . . . . . . . . . . . 30
-----------------------------------------------
ARTICLE V CONDITIONS PRECEDENT
SECTION 5.1 Conditions Precedent to Obligations of the Purchaser . . . . . . . . . . . 33
----------------------------------------------------
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SECTION 5.2 Conditions Precedent to the Obligations of the Seller . . . . . . . . . . 34
-----------------------------------------------------
ARTICLE VI INDEMNIFICATION
SECTION 6.1 Indemnification by the Seller . . . . . . . . . . . . . . . . . . . . . . 36
-----------------------------
SECTION 6.2 Indemnification by Parent, Flagstar and the Purchaser . . . . . . . . . . 37
-----------------------------------------------------
SECTION 6.3 Claims for Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . 38
--------------------
SECTION 6.4 Third Person Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
-------------------
SECTION 6.5 Exclusive Remedy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
----------------
SECTION 6.6 Restricted Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
----------------
ARTICLE VII TERMINATION AND AMENDMENT
SECTION 7.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
-----------
SECTION 7.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . 41
---------------------
SECTION 7.3 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
---------
ARTICLE VIII MISCELLANEOUS
SECTION 8.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
-------
SECTION 8.2 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
--------------
SECTION 8.3 Supplements to Disclosure Schedules . . . . . . . . . . . . . . . . . . . 43
-----------------------------------
SECTION 8.4 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
------------
SECTION 8.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
------------
SECTION 8.6 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
----------------
SECTION 8.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
-------------
SECTION 8.8 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
----------
SECTION 8.9 No Third-Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . 44
----------------------------
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
</TABLE>
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<TABLE>
<S> <C>
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
</TABLE>
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TABLE OF DEFINITIONS
<TABLE>
<CAPTION>
Defined Term Initial Section Reference
- - ------------ -------------------------
<S> <C>
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)
</TABLE>
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<PAGE> 6
<TABLE>
<S> <C>
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)
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)
</TABLE>
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<TABLE>
<S> <C>
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
</TABLE>
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<PAGE> 8
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:
(i) $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
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(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").
(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
2
<PAGE> 10
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.
(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.
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<PAGE> 11
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.
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").
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<PAGE> 12
SECTION 2.2 Transactions To Be Effected at the Closing. 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.
(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
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<PAGE> 13
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.
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<PAGE> 14
(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).
(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
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<PAGE> 15
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.
(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
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<PAGE> 16
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);
(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
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<PAGE> 17
(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.
"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.
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<PAGE> 18
"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:
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<PAGE> 19
(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;
(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
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<PAGE> 20
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.
(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.
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<PAGE> 21
(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.
(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
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<PAGE> 22
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.
(r) Environmental Matters. Except as set forth on
Schedule
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<PAGE> 23
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. Sections 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 pursu-
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<PAGE> 24
ant 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.
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
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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.
(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
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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.
(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.
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(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.
(b) Confidentiality. The Acquiring Companies acknowledge
that the information being provided to the Purchaser and its representatives
by, or on behalf of, the
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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
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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.
(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
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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.
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.
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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. 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.
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(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;
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(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
(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.
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(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.
(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
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(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.
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.
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(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.
(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
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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; provided, 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
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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.
(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
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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.
(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
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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.
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.
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(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").
(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
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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.
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(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.
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
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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;
(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.
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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, provided 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. 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).
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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.
39
<PAGE> 47
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:
40
<PAGE> 48
(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;
(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.
41
<PAGE> 49
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.
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
42
<PAGE> 50
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.
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.
43
<PAGE> 51
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.
44
<PAGE> 52
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: /s/ Kevin S. Relyea
-----------------------------------
Name: Kevin S. Relyea
Title: Chief Executive Officer and
President
FLAGSTAR COMPANIES, INC.
By: /s/ C. Robert Campbell
-----------------------------------
Name: C. Robert Campbell
Title: Vice President and Chief
Financial Officer
FLAGSTAR CORPORATION
By: /s/ C. Robert Campbell
-----------------------------------
Name: C. Robert Campbell
Title: Executive Vice President and
Chief Financial Officer
FRD ACQUISITION CO.
By: /s/ C. Robert Campbell
-----------------------------------
Name: C. Robert Campbell
Title: Vice President
Accepted and Agreed,
solely for purposes of
Sections 4.8, 4.17 and
Article VI hereof:
FRI-MRD Corporation
By: /s/ Kevin S. Relyea
---------------------------
Name: Kevin S. Relyea
Title: Chief Executive Officer
45
<PAGE> 1
EXHIBIT 10.1
SIXTH AMENDMENT TO
REVOLVING CREDIT AGREEMENT
THIS SIXTH AMENDMENT TO THE REVOLVING CREDIT AGREEMENT (the "Sixth
Amendment") is made as of January 31, 1996, among FRI-M Corporation, a Delaware
corporation (the "Borrower"), Family Restaurants, Inc., a Delaware corporation
("FRI"), each of the Subsidiary Guarantors, each of the banks and institutions
identified on the signature pages hereof (each a "Bank" and, collectively, the
"Banks") and Credit Lyonnais New York Branch, as Agent, Collateral Agent,
Issuing Bank and Swing Line Bank.
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Borrower, FRI, the Subsidiary Guarantors, the Banks, the
Agent, the Collateral Agent, the Issuing Bank and the Swing Line Bank have
entered into the Revolving Credit Agreement, dated as of January 27, 1994, as
amended by the First Amendment to the Revolving Credit Agreement, dated as of
April 15, 1994, by the Second Amendment to the Revolving Credit Agreement,
dated as of August 15, 1994, by the Third Amendment to the Revolving Credit
Agreement, dated as of March 24, 1995, by the Fourth Amendment to the Revolving
Credit Agreement, dated as of August 1, 1995, and by the Fifth Amendment to the
Revolving Credit Agreement, dated as of October 31, 1995 (the "Credit
Agreement");
WHEREAS, Schedule A to this Sixth Amendment sets forth the aggregate
amount of all outstanding Loans (including the Dividend Loan and the Overline
Facility), Swing Line Advances and Syndicated Letters of Credit under the
Credit Agreement as of January 31, 1996;
WHEREAS, as of January 31, 1996, the Borrower is in default under the
Credit Agreement as a result of its failure to comply with certain of the
financial covenants contained therein and anticipates that it may continue to
be in default for the fiscal quarters ending March 1996 and June 1996 under
Section 9.01 of the Credit Agreement, and as a result thereof, the Banks have
no further obligations to make Loans or participate in Swing Line Advances or
Syndicated Letters of Credit;
WHEREAS, the Borrower has requested that the Banks waive all such
existing and anticipated financial covenant Defaults and Events of Default
under the Credit Agreement through July 31, 1996 in order that it may continue
to make
<PAGE> 2
additional borrowings under the Credit Agreement up to specified amounts
through July 31, 1996;
WHEREAS, Section 2.07(g) of the Credit Agreement currently provides
that no Bank will be obligated to extend any Loans or participate in any Swing
Line Advances or Syndicated Letters of Credit so long as the total outstandings
under the Credit Agreement (exclusive of the Dividend Loan and the Overline
Facility) exceed $125,082,007, as such amount may be reduced from time to time
in accordance with the terms of the Credit Agreement, on any day after October
31, 1995;
WHEREAS, the Borrower has requested an additional advance in an
aggregate amount of $14,625,000 to enable the Borrower to make an advance to
FRI so as to permit FRI to pay interest on its $300,000,000 Senior Notes on
February 1, 1996, and certain of the Banks are willing to provide such advance
and the remaining Banks are willing to permit such additional advance to be
made by such Banks, subject to the terms and conditions set forth herein; and
WHEREAS, the parties hereto desire to amend the Credit Agreement as set
forth herein.
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements contained herein and in the Credit Agreement, the parties hereto
agree that the Credit Agreement is hereby amended as set forth herein:
1. Capitalized terms used herein which are not otherwise defined
herein but are defined in the Credit Agreement shall have the meanings given to
them in the Credit Agreement.
2. The parties hereto agree that failure by the Borrower to meet
certain of the financial covenants in subsections 8.03(a), (c), (d), (e), (f)
and (g) for any periods ending on or prior to July 31, 1996 shall not
constitute Defaults or Events of Default on or prior to July 31, 1996.
Notwithstanding such waiver, after February 1, 1996, such Events of Default
shall continue to exist for purposes of Section 8.02(f)(B)(III) of the Credit
Agreement.
3. Section 1.01 of the Credit Agreement is hereby amended to add
the following definitions:
"Determination Date" shall mean the first date on which all of
the Loans under the Credit Agreement become due and payable (upon
maturity or
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<PAGE> 3
otherwise) or there occurs an event of the type described in Section
9.01 (g) or (h) hereof with respect to the Borrower or any Significant
Subsidiary."
"New Loan" shall mean a $14,625,000 advance made available to
the Borrower on February 1, 1996 by certain Banks identified in
Schedule B of the Sixth Amendment pursuant to which such Banks shall
make an additional advance in an aggregate amount of $14,625,000,
which shall constitute a Loan under the Credit Agreement for all
purposes hereof; provided, that such additional Loan made under the
New Loan shall not be included in determining whether the Borrower has
exceeded the Total Commitment; andfurther provided, that repayment of
the New Loan shall be subject to the provisions of Section 2.07 (f).
"Sixth Amendment" shall mean the Sixth Amendment to Revolving
Credit Agreement made as of January 31, 1996, among FRI- M
Corporation, a Delaware corporation, Family Restaurants, Inc., a
Delaware corporation, each of the Subsidiary Guarantors, each of the
banks and institutions identified on the signature pages thereof and
Credit Lyonnais New York Branch, as Agent, Collateral Agent, Issuing
Bank and Swing Line Bank.
4. The following definitions of Section 1.01 of the Credit
Agreement are hereby amended and restated as follows:
"Net Cash Proceeds" shall mean (i) when used in respect of any
sale of assets in a liquidation or otherwise of FRI, the Borrower or
any Subsidiary, the gross cash proceeds received by FRI, the Borrower,
the relevant Subsidiary or the Collateral Agent from such sale or
disposition less the costs of sale, including payment of the
outstanding principal amount of, premium or penalty, if any, and
interest on any Indebtedness which is paid or required to be paid as a
result of such sale, all legal, accounting, title and recording tax
expenses, commissions and other fees and expenses paid or to be paid
in cash solely as a result of such sale, and all other federal, state,
local and foreign taxes paid or payable, in connection therewith, and
(ii) when used with respect to any loss, casualty, fire damage, theft,
destruction or condemnation of any capital asset of FRI, the Borrower
or any Subsidiary, the gross cash proceeds received by FRI, the
Borrower or the relevant Subsidiary under any insurance policy or any
award or compensation received, as the case may
-3-
<PAGE> 4
be, in each case as a result of any such loss, casualty, fire damage,
theft, destruction or condemnation, net of all legal, accounting and
other fees and expenses paid or to be paid in cash as a result of such
loss, casualty, fire damage, theft, destruction or condemnation, and
all other federal, state, local and foreign taxes paid or payable in
connection therewith. Promptly upon receipt of any Net Cash Proceeds,
other than pursuant to any Excluded Asset Sale, FRI or the Borrower
shall deliver to the Agent a certificate signed by the chief financial
officer of FRI or the Borrower, as the case may be, setting forth the
amount of the gross cash proceeds received and the items deducted
therefrom in reasonable detail in order to confirm the amount of such
Net Cash Proceeds.
"Pro Rata Share" shall mean, with respect to any Bank, (a) the
proportion of such Bank's Commitment to the Total Commitment or, (b)
if the Total Commitment shall have been cancelled or expired or there
has been an acceleration under the Credit Agreement, the proportion of
such Bank's then outstanding Loans (including Loans outstanding under
the Overline Facility and the New Loan), Swing Line Advances and
Syndicated Letters of Credit (including Syndicated Letters of Credit
outstanding under the Overline Facility) to the aggregate amount of
Loans (including Loans outstanding under the Overline Facility and the
New Loan), Swing Line Advances and Syndicated Letters of Credit
(including Syndicated Letters of Credit outstanding under the Overline
Facility) then outstanding.
5. The definition of "Applicable Margin" in Section 1.01 of the
Credit Agreement is hereby amended by adding the following sentences
immediately after the pricing grid:
"If the Borrower has not sold the Family Restaurant Division by
March 1, 1996, the Applicable Margin for ABR Loans shall automatically
increase by 50 basis points effective as of March 1, 1996.
If the Borrower has not entered into a definitive agreement to
sell the Family Restaurant Division on or prior to April 30, 1996, the
Applicable Margin for ABR Loans shall increase by 25 basis points as
of May 1, 1996."
-4-
<PAGE> 5
6. Section 2.01 of the Credit Agreement is hereby amended to read
in its entirety as follows:
"The Loans. Prior to the Termination Date, and subject to the
terms and conditions of this Agreement, and except as otherwise
provided in Section 2.07(f), upon the request of the Borrower, and
upon the satisfaction by the Borrower or the waiver by each of the
Banks of each of the conditions precedent contained inArticle VII
applicable thereto, each of the Banks, severally and not jointly with
the other Banks, agrees to make one or more Loans to the Borrower from
time to time in an aggregate principal amount at any one time
outstanding not to exceed its Commitment; provided, however, that the
sum of (i) the aggregate outstanding Loans, plus (ii) the aggregate
outstanding Swing Line Advances, plus (iii) the aggregate Face Amount
of Syndicated Letters of Credit outstanding at any time may not exceed
the Total Commitment andfurther provided that although the Loans
include Loans and Syndicated Letters of Credit under the Overline
Facility and the Loan under the New Loan, for purposes of this
Agreement, the term Total Commitment and calculations to determine
whether amounts have exceeded the Total Commitment shall be exclusive
of the Loans and Syndicated Letters of Credit under the Overline
Facility and the Loan under the New Loan. Certain Banks, as listed on
Schedule B to the Sixth Amendment, agree to continue to provide the
Overline Facility from the date of execution of the Sixth Amendment
through July 31, 1996 and certain Banks, as listed on Schedule B to
the Sixth Amendment, agree to provide the New Loan. Except as
otherwise expressly provided herein and except that references to each
Bank applicable to Loans under the Overline Facility and the New Loan
shall refer only to the Banks identified in Schedule B to the Sixth
Amendment, Loans under the Overline Facility and the New Loan shall be
subject to the same terms and provisions as all other Loans."
7. Section 2.06 of the Credit Agreement is hereby amended to read
in its entirety as follows:
"Optional Prepayment. The Borrower shall have the right, on
not less than one Business Day's written notice to the Agent, to
prepay the Overline Facility (and all optional prepayments shall be
applied first to prepay the Overline Facility, except if any Loans
have been made or Syndicated Letters of Credit issued in connection
with the Remaining Available Commitment (as defined in Section
2.07(f)), in which case all optional
-5-
<PAGE> 6
prepayments shall be applied first to prepay such Loans or to reduce
such Syndicated Letters of Credit in the manner provided in Section
2.07(d)(iii)(B) or (C)); after the Overline Facility (or Loans and
Syndicated Letters of Credit with respect to the Remaining Available
Commitment, if applicable) has been repaid, to prepay Loans (exclusive
of the New Loan) bearing interest on the same basis and having the
same Interest Periods, if any, in whole or in part, without premium or
penalty, in the aggregate principal amount of $100,000 or in integral
multiples of $100,000 in excess thereof (or, if the outstanding
aggregate amount of such Loan is less than $100,000, then all of such
lesser amount), together with accrued interest on the principal being
prepaid to the date of prepayment; and after the Loans (exclusive of
the New Loan) have been repaid, to prepay the New Loan in the
aggregate principal amount of $100,000 or in integral multiples of
$100,000 in excess thereof (or, if the outstanding aggregate amount of
the New Loan is less than $100,000, then all of such lesser amount),
together with accrued interest on the principal being prepaid to the
date of prepayment. Subject to the terms and conditions hereof,
prepaid Loans may be reborrowed.
8. The last sentence of Section 2.07(d) of the Credit Agreement is
hereby amended and restated to read in its entirety as follows:
"The calculations under this Section 2.07(d) shall exclude Loans and
Syndicated Letters of Credit outstanding under the Overline Facility
and the Loan outstanding under the New Loan."
9. Sections 2.07(f) and (g) of the Credit Agreement are hereby
restated to read in their entirety as follows:
"(f) Notwithstanding any contrary provision in this Section
2.07, from and after January 26, 1996, any Net Cash Proceeds received
from the disposition of any individual asset or group of related
assets (other than sales of inventory in the ordinary course of
business and other than as provided in the following sentence)
resulting in net proceeds to the Borrower of more than $100,000 shall
be applied promptly following receipt thereof (i) first, with respect
to Net Cash Proceeds received from January 26, 1996 through February
29, 1996, one-half of such Net Cash Proceeds to permanently reduce the
Total
-6-
<PAGE> 7
Commitment and the Overline Facility on a pro rata basis and the
remaining one-half of such Net Cash Proceeds, (x) first, to reduce
Loans outstanding under the Total Commitment and the Overline Facility
on a pro rata basis, (y) second, to reduce outstanding Syndicated
Letters of Credit in the manner provided in Section 2.07(d)(iii)(B) or
(C) and (z) third, to reduce the New Loan; provided, however, that the
amount of such Net Cash Proceeds applied to reduce outstanding Loans
and Syndicated Letters of Credit (the "Remaining Available
Commitment") may only be reborrowed if the Overline Facility has been
fully utilized; (ii) second, with respect to Net Cash Proceeds
received on or after March 1, 1996, all of such Net Cash Proceeds to
permanently reduce the Total Commitment and the Overline Facility on a
pro rata basis, and (iii) third, once the Total Commitment and
Overline Facility have been fully repaid, to permanently reduce the
New Loan. Any Net Cash Proceeds received on or after February 1, 1996
from (i) the sale of subsidiaries of the Borrower or from the sale of
assets representing more than ten percent of the revenues of any
subsidiary of the Borrower or (ii) upon a liquidation which occurs
subsequent to the Determination Date, shall be applied promptly
following receipt thereof (x) first to permanently reduce the Total
Commitment, the Overline Facility and, to the extent provided below,
the New Loan on a pro rata basis and (y) second to permanently reduce
the then outstanding New Loan;provided, however, that the amount of
the New Loan which shall share in such Net Cash Proceeds pursuant to
(x) above shall equal the amount by which the Total Commitment
(exclusive of the Overline Facility) has been permanently reduced from
February 1, 1996 to the earlier of (i) the date immediately prior to
such sale and (ii) the Determination Date. Notwithstanding any
contrary provision in this Section 2.07 (f) (i), the Borrower shall
not be required to apply the Net Cash Proceeds received during the
period from January 26, 1996 to February 29, 1996 to the permanent
reduction of the Total Commitment and the Overline Facility until
March 1, 1996. Any notes or other securities received in connection
with any such disposition shall be pledged to the Banks until such
notes and securities are liquidated, at which time the Net Cash
Proceeds therefrom shall be applied as set forth in the two preceding
sentences. Promptly upon receipt of any
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<PAGE> 8
such Net Cash Proceeds, notes or marketable securities, FRI or the
Borrower shall deliver to the Agent a certificate signed by the chief
financial officer of FRI or the Borrower, as the case may be, setting
forth the amount of the gross cash proceeds received and the items
deducted therefrom in reasonable detail in order to confirm the amount
of such Net Cash Proceeds and the amount of any notes or marketable
securities received.
(g) Notwithstanding any contrary provision in this Agreement,
the Total Commitment of the Banks, as listed in Schedule B of the
Sixth Amendment, is $119,614,067.59 (exclusive of the remaining
balance on the Overline Facility and the New Loan), and no Bank will
be obligated to extend any Loans (other than Loans under the Overline
Facility and the New Loan) or participate in any Swing Line Advances
or Syndicated Letters of Credit (other than Syndicated Letters of
Credit under the Overline Facility) if the same would cause the total
outstandings under this Agreement (exclusive of the Overline Facility
and the New Loan) to exceed $119,614,067.59, as such amount may be
reduced from time to time in accordance with the terms hereof, on any
day after February 1, 1996."
10. Section 7.03(c) of the Credit Agreement is hereby amended and
restated to read in its entirety as follows:
"(c) The Agent shall have received from the Borrower a
certificate signed by an authorized officer of the Borrower specifying
that the proceeds of such Loan, Swing Line Advance, Syndicated Letter
of Credit or Overline Facility shall be used as working capital and to
fund the operations of the Borrower and its subsidiaries and detailing
the use of such proceeds; provided, that with respect to the Loan
under the New Loan, such certificate shall specify that the proceeds
of the New Loan shall be used on February 1, 1996 to make an advance
to FRI so as to permit FRI to pay interest on the $300,000,000 Senior
Notes."
11. The text of Section 9.01 following Section 9.01(n) is hereby
amended and restated to read as follows:
"then (i) upon the happening and during the continuance of any of the
foregoing Events of Default, the obligation of the Banks to make any
further Loans, the obligation of the Swing Line Bank and the other
Banks
-8-
<PAGE> 9
to make any further Swing Line Advances, the obligation of the Issuing
Bank to issue any further Syndicated Letters of Credit, the obligation
of the Banks to make any further Loans or to issue any further
Syndicated Letters of Credit under the Overline Facility and the
obligation of the Banks to make the Loan under the New Loan shall
terminate upon declaration to that effect delivered by the Agent or
the Required Banks to the Borrower and (ii) upon the happening of any
of the foregoing Events of Default which shall be continuing, all
Notes (including Notes for Loans made under the Overline Facility or
the New Loan), Swing Line Advances and all Reimbursement Obligations
(including Reimbursement Obligations for Syndicated Letters of Credit
issued under the Overline Facility) shall become and be immediately
due and payable upon declaration to that effect delivered by the Agent
or the Required Banks to the Borrower;provided, that upon the
happening of any event specified inSection 9.01(g) or (h) which
involves the Borrower or any Significant Subsidiary, the Notes
(including Notes for Loans made under the Overline Facility or the New
Loan), Swing Line Advances and the Reimbursement Obligations
(including Reimbursement Obligations for Syndicated Letters of Credit
issued under the Overline Facility) shall become immediately due and
payable and the obligations of the Banks to make any further Loans,
the obligation of the Swing Line Bank and the other Banks to make any
further Swing Line Advances, the obligation of the Issuing Bank to
issue any further Syndicated Letters of Credit hereunder, the
obligation of the Banks to make any further Loans or to issue any
further Syndicated Letters of Credit under the Overline Facility and
the obligation of the Banks to make the Loan under the New Loan shall
terminate without declaration or other notice to the Borrower. Except
as otherwise provided herein, the Borrower expressly waives any
presentment, demand, protest or other notice of any kind."
12. Section 11.03 of the Credit Agreement is hereby amended and
restated to read as follows:
"All funds for the account of the Banks received by the Agent in
respect of payments made by the Borrower pursuant to, or from any
Person on account of, this Agreement or any other Credit Document
shall be distributed forthwith by the Agent among the Banks entitled
thereto, in like currency and funds as received, ratably in proportion
to their respective interests therein. Other than as provided for in
-9-
<PAGE> 10
Sections 2.06 and 2.07(f) of the Credit Agreement, and other than
payments relative to the Loans outstanding under the Overline
Facility, which shall be applied to the Banks identified in Schedule B
of the Sixth Amendment on a pro rata basis, payments relative to the
Loan outstanding under the New Loan, which shall be applied to the
Banks identified in Schedule B of the Sixth Amendment on a pro rata
basis, and Letter of Credit Fees with respect to Syndicated Letters of
Credit issued under the Overline Facility, which shall be applied to
the Banks identified in Schedule B of the Sixth Amendment on a pro
rata basis, in the event that any Bank shall receive from the Borrower
or any other source any payment of, on account of, or for or under
this Agreement or any other Credit Document (whether received pursuant
to the exercise of any right of set-off, banker's lien, realization
upon any security held for or appropriated to such obligation or
otherwise as permitted by law) other than in proportion to its Pro
Rata Share, then such Bank shall purchase from each other Bank so much
of its interest in obligations of the Borrower as shall be necessary
in order that each Bank shall share such payment with each of the
other Banks in proportion to each Bank's Pro Rata Share;provided, that
no Bank shall purchase any interest of any Bank that does not, to the
extent that it may lawfully do so, set-off against the balance of any
deposit accounts maintained with it the obligations due to it under
this Agreement; andprovided, further, that nothing herein contained
shall obligate any Bank to apply any set-off or banker's lien or
collateral security permitted hereby first to the obligations of the
Borrower hereunder if the Borrower is obligated to such Bank pursuant
to other loans or notes, but any such application of proceeds shall be
in proportion to the total obligations of the Borrower to such Bank.
In the event that any purchasing Bank shall be required to return any
excess payment received by it, the purchase shall be rescinded and the
purchase price restored to the extent of such return, but without
interest."
13. Each Bank shall receive a fee of 25 basis points on such
Bank's Commitment as of the date hereof. Such fee shall be paid to the Agent
for the account of the Banks on March 1, 1996.
14. Notwithstanding any provision herein or in any Credit
Document to the contrary, the Banks which are not participating in the Overline
Facility, as indicated on Schedule B to the Sixth Amendment, or the New Loan,
as indicated on Schedule B to the Sixth Amendment, (i) shall
-10-
<PAGE> 11
not be responsible for any liabilities, obligations, losses, claims, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature arising solely out of the Overline Facility or the New Loan, or
any action taken or omitted to be taken by any Bank in connection therewith and
(ii) shall not receive or have any interest in any reimbursements relating to
clause (i) above.
15. The Borrower and FRI represent and warrant that the
execution and delivery of this Sixth Amendment by each of the Borrower, FRI and
the Subsidiary Guarantors has been duly authorized by all necessary corporate
action and this Sixth Amendment is enforceable without any further approval,
authorization or consent.
16. THIS SIXTH AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, UNITED STATES OF
AMERICA.
17. This Sixth Amendment may be executed in any number of
counterparts and by the different parties hereto in separate counterparts and
each such counterpart shall together constitute but one and the same
instrument. This Sixth Amendment shall become effective as of the date hereof
upon the delivery to the Agent of executed counterparts of this Sixth Amendment
from the Company and the Banks and the Agent shall so inform all of the parties
hereto.
18. The Credit Agreement, as amended hereby, shall be binding
upon the Borrower, FRI, the Subsidiary Guarantors, the Banks, the Agent, the
Collateral Agent, the Issuing Bank and the Swing Line Bank and their respective
successors and assigns, and shall inure to the benefit of the Company, FRI, the
Subsidiary Guarantors, the Banks, the Agent, the Collateral Agent, the Issuing
Bank and the Swing Line Bank and their respective successors and assigns.
19. Except as expressly provided in this Sixth Amendment, all
of the terms, covenants, conditions, restrictions and other provisions
contained in the Credit Agreement shall remain in full force and effect. The
Credit Agreement as amended by this Sixth Amendment, the materials delivered
pursuant hereto and the other Credit Documents constitute the entire agreement
and understanding among the parties hereto and supersede all prior agreements
and understandings among them relating to the subject matter hereof and
thereof.
-11-
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed as of the date first above written.
FRI-M CORPORATION
By: /S/ R.T. TREBING, JR.
---------------------------
Name: R.T. Trebing, Jr.
Title: President
FAMILY RESTAURANTS, INC.
By: /S/ R.T. TREBING, JR.
---------------------------
Name: R.T. Trebing, Jr.
Title: Senior Vice President,
Chief Financial Officer
FRI-FRD CORPORATION
By: /S/ R.T. TREBING, JR.
---------------------------
Name: R.T. Trebing, Jr.
Title: President
FRI-DHD CORPORATION
By: /S/ R.T. TREBING, JR.
---------------------------
Name: R.T. Trebing, Jr.
Title: President
FRI-NA CORPORATION
By: /S/ R.T. TREBING, JR.
---------------------------
Name: R.T. Trebing, Jr.
Title: President
-12-
<PAGE> 13
FRI-J CORPORATION
By: /S/ R.T. TREBING, JR.
---------------------------
Name: R.T. Trebing, Jr.
Title: President
FRI-MRD CORPORATION
By: /S/ R.T. TREBING, JR.
---------------------------
Name: R.T. Trebing, Jr.
Title: President
FRI-C CORPORATION
By: /S/ R.T. TREBING, JR.
---------------------------
Name: R.T. Trebing, Jr.
Title: President
CHI-CHI'S, INC.
By: /S/ R.T. TREBING, JR.
---------------------------
Name: R.T. Trebing, Jr.
Title: Vice President
CCMR OF CUMBERLAND, INC.
By: /S/ R.T. TREBING, JR.
---------------------------
Name: R.T. Trebing, Jr.
Title: Authorized Signatory
CCMR OF GREENBELT, INC.
By: /S/ R.T. TREBING, JR.
---------------------------
Name: R.T. Trebing, Jr.
Title: President
-13-
<PAGE> 14
CCMR OF MARYLAND, INC.
By: /S/ R.T. TREBING, JR.
---------------------------
Name: R.T. Trebing, Jr.
Title: President
CCMR OF TIMONIUM, INC.
By: /S/ R.T. TREBING, JR.
---------------------------
Name: R.T. Trebing, Jr.
Title: President
CHI-CHI'S OF SOUTH CAROLINA, INC.
By: /S/ R.T. TREBING, JR.
---------------------------
Name: R.T. Trebing, Jr.
Title: President
CHI-CHI'S OF WEST VIRGINIA, INC.
By: /S/ R.T. TREBING, JR.
---------------------------
Name: R.T. Trebing, Jr.
Title: President
COCO'S RESTAURANTS, INC.
By: /S/ R.T. TREBING, JR.
---------------------------
Name: R.T. Trebing, Jr.
Title: Vice President
FAR WEST CONCEPTS, INC.
By: /S/ R.T. TREBING, JR.
---------------------------
Name: R.T. Trebing, Jr.
Title: Vice President
-14-
<PAGE> 15
jojos RESTAURANTS, INC.
By: /S/ R.T. TREBING, JR.
---------------------------
Name: R.T. Trebing, Jr.
Title: Vice President
jojos CALIFORNIA FAMILY
RESTAURANTS INC.
By: /S/ R.T. TREBING, JR.
---------------------------
Name: R.T. Trebing, Jr.
Title: Vice President
EL TORITO RESTAURANTS, INC.
By: /S/ R.T. TREBING, JR.
---------------------------
Name: R.T. Trebing, Jr.
Title: Vice President
CARROWS RESTAURANTS, INC.
By: /S/ R.T. TREBING, JR.
---------------------------
Name: R.T. Trebing, Jr.
Title: Vice President
CARROWS CALIFORNIA FAMILY
RESTAURANTS, INC.
By: /S/ R.T. TREBING, JR.
---------------------------
Name: R.T. Trebing, Jr.
Title: Vice President
-15-
<PAGE> 16
CREDIT LYONNAIS NEW YORK BRANCH
as Agent for the Banks
By: /s/ FREDERICK HADDAD
----------------------------
Name: Frederick Haddad
Title: Senior Vice President
CREDIT LYONNAIS NEW YORK BRANCH
as Collateral Agent for the Banks
By: /s/ FREDERICK HADDAD
----------------------------
Name: Frederick Haddad
Title: Senior Vice President
CREDIT LYONNAIS NEW YORK BRANCH
Signing as a Bank, as the Issuing
Bank and as the Swing Line Bank
By: /s/ FREDERICK HADDAD
----------------------------
Name: Frederick Haddad
Title: Senior Vice President
UNITED STATES NATIONAL BANK OF
OREGON
By: /s/ ROGER LUNDEEN
------------------------------
Name: Roger Lundeen
Title: Vice President, Special
Assets Group
THE MITSUBISHI TRUST AND BANKING
CORPORATION, Los Angeles Agency
By: /s/ HIROAKI KOSEKI
------------------------------
Name: Hiroaki Koseki
Title: Chief Manager and
Senior Vice President
-16-
<PAGE> 17
PEARL STREET L.P.
By: /s/ JOHN URBAN
-----------------------------
Name: John Urban
Title: Authorized Signatory
-17-
<PAGE> 18
Schedule A
----------
Outstandings as of January 31, 1996
under Revolving Credit Agreement
--------------------------------
<TABLE>
<S> <C>
Letters of Credit* $ 40,240,273.00
LIBOR Loans ---
Base Rate Loans** 78,245,888.06
Swing-Line Loans ---
Dividend Loan*** ---
Total**** $118,486,161.06
===============
Outstanding as of January 31, 1996
under the Overline Facility
----------------------------------
Base Rate Loans $ 7,599,651.15
</TABLE>
____________________
* Excluding Letters of Credit under the Overline Facility.
** Excluding Loans under the Overline Facility.
*** The Dividend Loan has been fully repaid.
**** Excluding Loans and Letters of Credit under the Overline Facility.
<PAGE> 19
Schedule B
----------
<TABLE>
<CAPTION>
Commitment Overline Facility New Loan
--------------- ----------------- --------------
<S> <C> <C> <C>
Availability Amount $119,614,067.59 $7,650,281.28 $14,625,000.00
$ Amounts:
- - ----------
Credit Lyonnais $ 87,729,600.96 $7,650,281.28 $14,625,000.00
Mitsubishi Trust $ 11,945,921.06 0.00 0.00
US Bank of Oregon $ 11,963,127.40 0.00 0.00
Pearl Street L.P. $ 7,975,418.27 0.00 0.00
Percentage Shares
- - -----------------
Credit Lyonnais 73.343882% 100.00% 100.00%
Mitsubishi Trust 9.987054% 0.00% 0.00%
US Bank of Oregon 10.001439% 0.00% 0.00%
Pearl Street L.P. 6.667626% 0.00% 0.00%
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE QUARTER ENDED
MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 7,547
<SECURITIES> 0
<RECEIVABLES> 7,304
<ALLOWANCES> 0
<INVENTORY> 5,067
<CURRENT-ASSETS> 251,597
<PP&E> 249,397
<DEPRECIATION> 41,540
<TOTAL-ASSETS> 528,497
<CURRENT-LIABILITIES> 220,289
<BONDS> 458,112
0
0
<COMMON> 10
<OTHER-SE> (155,101)
<TOTAL-LIABILITY-AND-EQUITY> 528,497
<SALES> 259,052
<TOTAL-REVENUES> 259,052
<CGS> 72,778
<TOTAL-COSTS> 265,700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,386
<INCOME-PRETAX> (23,034)
<INCOME-TAX> 416
<INCOME-CONTINUING> (23,450)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,450)
<EPS-PRIMARY> (23.73)
<EPS-DILUTED> 0
</TABLE>
